UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended ~~October~~April 3, ~~2010~~2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission file number 1-14260

The GEO Group, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Florida		65-0043078
(State or Other Jurisdiction of	(IRS Employer Identification No.)
Incorporation or Organization)

One Park Place, 621 NW 53rd Street, Suite 700,
Boca Raton, Florida		33487
(Address of Principal Executive Offices)	(Zip Code)

(561) 893-0101

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year if changed since last report)

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. Yesþ Noo

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). Yesþ Noo

Indicate by a 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):


Large accelerated filerþ	Accelerated filer o	~~Accelerated filer~~o		Non-accelerated filero (Do not check if a smaller reporting company)		Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

~~At November~~As of May 5, ~~2010, 64,447,534~~2011, the registrant had 64,877,769 shares of ~~the registrant’s~~ common stock ~~were issued and~~ outstanding.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN ~~AND THIRTY-NINE~~ WEEKS ENDED
~~OCTOBER~~APRIL 3, ~~2010~~2011 AND ~~SEPTEMBER 27, 2009~~APRIL 4, 2010
(In thousands, except per share data)
(UNAUDITED)


	Thirteen Weeks Ended						Thirty-nine Weeks Ended						Thirteen Weeks Ended
	October 3, 2010			September 27, 2009			October 3, 2010			September 27, 2009			April 3, 2011			April 4, 2010
Revenues	$	327,933		$	294,865		$	895,570		$	830,305		$	391,766		$	287,542
Operating expenses		251,100			234,347			694,348			655,413			299,286			226,332
Depreciation and amortization		13,384			9,616			32,096			29,062			18,802			9,238
General and administrative expenses		33,925			15,685			72,028			49,936			32,788			17,448

Operating income		29,524			35,217			97,098			95,894			40,890			34,524
Interest income		1,734			1,224			4,448			3,520			1,569			1,229
Interest expense		(11,917	)		(6,533	)		(28,178	)		(20,498	)		(16,961	)		(7,814	)
Loss on extinguishment of debt		(7,933	)		—			(7,933	)		—

Income before income taxes, equity in earnings of affiliate and discontinued operations		11,408			29,908			65,435			78,916
Income before income taxes and equity in earnings of affiliate														25,498			27,939	��
Provision for income taxes		7,547			11,510			28,560			30,374			9,780			10,821
Equity in earnings of affiliate, net of income tax provision of $449, $352, $1,672 and $936		1,149			904			2,868			2,407

Income from continuing operations		5,010			19,302			39,743			50,949
Loss from discontinued operations, net of tax benefit $216		—			—			—			(346	)
Equity in earnings of affiliate, net of income tax provision of $1,024 and $786														662			590

Net income	$	5,010		$	19,302		$	39,743		$	50,603			16,380			17,708
Net (income) loss attributable to noncontrolling interests		271			(44	)		227			(129	)		410			(36	)

Net income attributable to The GEO Group Inc.	$	5,281		$	19,258		$	39,970		$	50,474
Net income attributable to The GEO Group, Inc.													$	16,790		$	17,672

Weighted-average common shares outstanding:
Basic		57,799			50,900			52,428			50,800			64,291			50,711

Diluted		58,198			51,950			53,044			51,847			64,731			51,640

Income per common share attributable to The GEO Group Inc. (Note 3):
Basic:
Income from continuing operations	$	0.09		$	0.38		$	0.76		$	1.00
Income from discontinued operations		—			—			—			(0.01	)

Net income per share-basic	$	0.09		$	0.38		$	0.76		$	0.99
Income per Common Share Attributable to The GEO Group, Inc. — Basic													$	0.26		$	0.35

Diluted:
Income from continuing operations	$	0.09		$	0.37		$	0.75		$	0.98
Loss from discontinued operations		—			—			—			(0.01	)

Net income per share-diluted	$	0.09		$	0.37		$	0.75		$	0.97

Income per Common Share Attributable to The GEO Group, Inc. — Diluted													$	0.26		$	0.34

Comprehensive income:
Net income	$	5,010		$	19,302		$	39,743		$	50,603		$	16,380		$	17,708
Total other comprehensive income, net of tax		5,208			1,858			2,308			8,657			305			184

Total comprehensive income		10,218			21,160			42,051			59,260			16,685			17,892
Comprehensive income (loss) attributable to noncontrolling interests		(214	)		77			(185	)		129
Comprehensive (income) loss attributable to noncontrolling interests														417			(55	)

Comprehensive income attributable to The GEO Group Inc.	$	10,432		$	21,083		$	42,236		$	59,131
Comprehensive income attributable to The GEO Group, Inc.													$	17,102		$	17,837

THE GEO GROUP, INC.

CONSOLIDATED BALANCE SHEETS
~~OCTOBER~~APRIL 3, ~~2010~~2011 AND JANUARY ~~3, 2010~~2, 2011
(In thousands, except share data)


	October 3, 2010			January 3, 2010			April 3, 2011			January 2, 2011
	(Unaudited)						(Unaudited)
ASSETS
*Current Assets*
Cash and cash equivalents	$	53,766		$	33,856		$	85,894		$	39,664
Restricted cash and investments (including VIEs¹ of $33,079 and $6,212, respectively)		40,180			13,313
Accounts receivable, less allowance for doubtful accounts of $622 and $429		261,683			200,756
Deferred income tax asset, net		31,195			17,020
Other current assets		21,443			14,689
Restricted cash and investments (including VIEs¹ of $30,608 and $34,049, respectively)								37,593			41,150
Accounts receivable, less allowance for doubtful accounts of $1,605 and $1,308								278,654			275,778
Deferred income tax assets, net								47,983			32,126
Prepaid expenses and other current assets								31,897			36,377

Total current assets		408,267			279,634			482,021			425,095

*Restricted Cash and Investments*(including VIEs of $26,700 and $8,182, respectively)		39,766			20,755
*Property and Equipment, Net*(including VIEs of $170,986 and $28,282, respectively)		1,498,886			998,560
*Restricted Cash and Investments*(including VIEs of $30,540 and $33,266, respectively)								49,974			49,492
*Property and Equipment, Net*(including VIEs of $166,073 and $167,209, respectively)								1,568,517			1,511,292
*Assets Held for Sale*		4,348			4,348			10,269			9,970
*Direct Finance Lease Receivable*		36,835			37,162			36,758			37,544
*Deferred Income Tax Assets, Net*								936			936
*Goodwill*		244,568			40,090			527,118			244,009
*Intangible Assets, Net*		92,342			17,579			210,598			87,813
*Other Non-Current Assets*		64,948			49,690			69,944			56,648

	$	2,389,960		$	1,447,818
Total Assets							$	2,956,135		$	2,422,799

LIABILITIES AND SHAREHOLDERS’ EQUITY
*Current Liabilities*
Accounts payable	$	66,799		$	51,856		$	80,158		$	73,880
Accrued payroll and related taxes		43,690			25,209			48,834			33,361
Accrued expenses		119,323			80,759			117,446			120,670
Current portion of capital lease obligations, long-term debt and non-recourse debt (including VIEs of $19,365 and $4,575, respectively)		41,173			19,624
Current portion of capital lease obligations, long-term debt and non-recourse debt (including VIEs of $19,570 and $19,365, respectively)								50,047			41,574

Total current liabilities		270,985			177,448			296,485			269,485

*Deferred Income Tax Liability*		51,069			7,060
*Deferred Income Tax Liabilities*								107,370			63,546
*Other Non-Current Liabilities*		50,996			33,142			61,905			46,862
*Capital Lease Obligations*		13,888			14,419			13,888			13,686
*Long-Term Debt*		802,506			453,860			1,236,241			798,336
*Non-Recourse Debt*(including VIEs of $133,251 and $32,105, respectively)		191,603			96,791
*Non-Recourse Debt*(including VIEs of $126,320 and $132,078, respectively)								184,867			191,394
*Commitments and Contingencies*(Note 12)
*Shareholders’ Equity*
Preferred stock, $0.01 par value, 30,000,000 shares authorized, none issued or outstanding		—			—			—			—
Common stock, $0.01 par value, 90,000,000 shares authorized, 84,256,321 and 67,704,008 issued and 64,416,327 and 51,629,005 outstanding		644			516
Common stock, $0.01 par value, 90,000,000 shares authorized, 84,948,682 and 84,506,772 issued and 64,874,369 and 64,432,459 outstanding, respectively								849			845
Additional paid-in capital		713,296			351,550			721,701			718,489
Retained earnings		405,047			365,927			445,335			428,545
Accumulated other comprehensive income		7,762			5,496			10,383			10,071
Treasury stock 20,074,313 and 16,075,003 shares, at cost, at October 3, 2010 and January 3, 2010		(138,848	)		(58,888	)
Treasury stock 20,074,313 shares								(139,049	)		(139,049	)

Total shareholders’ equity attributable to The GEO Group, Inc.		987,901			664,601
Total shareholders’ equity attributable to The GEO Group, Inc.								1,039,219			1,018,901
Noncontrolling interests		21,012			497			16,160			20,589

Total shareholders’ equity		1,008,913			665,098			1,055,379			1,039,490

Total Liabilities and Shareholders’ Equity							$	2,956,135		$	2,422,799
	$	2,389,960		$	1,447,818

THE GEO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~THIRTY-NINE~~THIRTEEN WEEKS ENDED

~~OCTOBER~~
APRIL 3, ~~2010~~2011 AND ~~SEPTEMBER 27, 2009~~

APRIL 4, 2010
(In thousands)

(UNAUDITED)


	Thirty-nine Weeks Ended						Thirteen Weeks Ended
	October 3, 2010			September 27, 2009			April 3, 2011			April 4, 2010
Cash Flow from Operating Activities:
Net Income	$	39,743		$	50,603		$	16,380		$	17,708
Net (income) loss attributable to noncontrolling interests		227			(129	)		410			(36	)

Net income attributable to The Geo Group Inc.		39,970			50,474
Adjustments to reconcile net income to net cash provided by operating activities:
Net income attributable to The GEO Group, Inc.								16,790			17,672
Adjustments to reconcile net income attributable to The GEO Group, Inc. to net cash provided by operating activities:
Depreciation and amortization expense		32,096			29,062			18,802			9,238
Amortization of debt issuance costs		3,022			3,307
Amortization of debt issuance costs and discount								226			1,272
Restricted stock expense		2,529			2,652			738			816
Stock option plan expense		1,004			705			1,323			376
Provision for doubtful accounts		140			139			407			—
Equity in earnings of affiliates, net of tax		(2,868	)		(2,407	)		(662	)		(590	)
Income tax charge (benefit) of equity compensation		(786	)		19
Loss on extinguishment of debt		7,933			—
Income tax benefit of equity compensation								(172	)		(112	)
Loss on sale of property and equipment								132			—
Dividends received from unconsolidated joint venture								5,402			3,909
Changes in assets and liabilities, net of acquisition:
Changes in accounts receivable and other assets		6,620			(21,552	)
Changes in accounts receivable, prepaid expenses and other assets								29,142			21,465
Changes in accounts payable, accrued expenses and other liabilities		13,944			11,084			(3,051	)		10,688

Net cash provided by operating activities of continuing operations		103,604			73,483
Net cash provided by operating activities of discontinued operations		—			5,818

Net cash provided by operating activities		103,604			79,301			69,077			64,734

Cash Flow from Investing Activities:
Acquisition, cash consideration		(260,239	)		—
Acquisition, cash consideration, net of cash acquired								(409,607	)		—
Just Care purchase price adjustment		(41	)		—			—			(41	)
Proceeds from sale of assets		334			—
Increase in restricted cash		(2,070	)		(1,426	)
Proceeds from sale of property and equipment								250			100
Change in restricted cash								3,199			(2,257	)
Capital expenditures		(68,284	)		(113,714	)		(38,696	)		(15,737	)

Net cash used in investing activities		(330,300	)		(115,140	)		(444,854	)		(17,935	)

Cash Flow from Financing Activities:
Payments on long-term debt		(342,460	)		(18,486	)		(21,666	)		(12,799	)
Proceeds from long-term debt		673,000			41,000			461,000			15,000
Termination of interest rate swap agreement		—			1,719
Distribution to MCF partners								(4,012	)		—
Payments for purchase of treasury shares		(80,000	)		—			—			(53,845	)
Payments for retirement of common stock		(7,078	)		—
Proceeds from the exercise of stock options		5,747			383			983			1,138
Income tax (charge) benefit of equity compensation		786			(19	)
Income tax benefit of equity compensation								172			112
Debt issuance costs		(5,750	)		(358	)		(9,277	)		—

Net cash provided by financing activities		244,245			24,239
Net cash provided by (used in) financing activities								427,200			(50,394	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		2,361			4,244			(5,193	)		15

Net Increase in Cash and Cash Equivalents		19,910			(7,356	)		46,230			(3,580	)
Cash and Cash Equivalents, beginning of period		33,856			31,655			39,664			33,856

Cash and Cash Equivalents, end of period	$	53,766		$	24,299		$	85,894		$	30,276

Supplemental Disclosures:
Non-cash Investing and Financing activities:
Capital expenditures in accounts payable and accrued expenses	$	8,565		$	20,362		$	21,834		$	8,412

Fair value of assets acquired, net of cash acquired	$	677,432		$	—

Acquisition, equity consideration	$	358,076		$	—

Total liabilities assumed	$	242,799		$	—

THE GEO GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The unaudited consolidated financial statements of The GEO Group, Inc., a Florida corporation, and subsidiaries (the “Company”, or “GEO”), included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States and the instructions to Form 10-Q and consequently do not include all disclosures required by Form 10-K. Additional information may be obtained by referring to the Company’s Annual Report on Form 10-K for the year ended January ~~3, 2010.~~2, 2011. In the opinion of management, all adjustments (consisting only of normal recurring items) necessary for a fair presentation of the financial information for the interim periods reported in this Quarterly Report on Form 10-Q have been made. Results of operations for the ~~thirty-nine~~thirteen weeks ended ~~October~~April 3, ~~2010~~2011 are not necessarily indicative of the results for the entire fiscal year ending January ~~2, 2011.~~1, 2012.

The GEO Group, Inc. is a leading provider of government-outsourced services specializing in the management of correctional, detention, mental health, residential treatment 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. The Company operates a broad range of correctional and detention facilities including maximum, medium and minimum security prisons, immigration detention centers, minimum security detention centers, mental health, residential treatment and community based re-entry facilities. The Company offers counseling, education and/or treatment to inmates with alcohol and drug abuse problems at most of the domestic facilities it manages. The Company, through its acquisition of BII Holding Corporation (“BI Holding”), is 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, BI Holding has an exclusive contract with U.S. Immigration and Customs Enforcement (“ICE”) to provide supervision and reporting services designed to improve the participation of non-detained aliens in the immigration court system. The Company develops new facilities based on contract awards, using its project development expertise and experience to design, construct and finance what it believes are state-of-the-art facilities that maximize security and efficiency. The Company also provides secure transportation services for offender and detainee populations as contracted.

On ~~April 18,~~August 12, 2010, the Company ~~the Company’s wholly-owned subsidiary, GEO Acquisition III, Inc., and~~acquired Cornell Companies Inc., (“Cornell”)~~, entered into a definitive merger agreement, as amended~~ and on ~~July 22, 2010, pursuant to which~~February 10, 2011, the Company ~~acquired Cornell for stock and cash (the “Merger”). The Company~~ completed ~~the~~its acquisition of ~~Cornell, on August 12, 2010. Cornell is a Houston-based provider~~BI Holding. As of correctional, detention, educational, rehabilitation and treatment services outsourced by federal, state, county and local government agencies for adults and juveniles. As a result of the Merger with Cornell,April 3, 2011, the Company’s worldwide operations ~~include~~included the management and/or ownership of approximately ~~79,000~~80,000 beds at 116 correctional, detention and residential treatment facilities, including projects under ~~development.~~development, and also included the provision of monitoring services, tracking more than 60,000 offenders on behalf of approximately 900 federal, state and local correctional agencies located in all 50 states. Refer to Note 2.

~~Consolidation~~

Except as discussed in Note 15, the accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2011 for the fiscal year ended January 2, 2011. During the thirteen weeks ended April 3, 2011 the Company implemented ASU No. 2009-13 which provides amendments to revenue recognition criteria for separating consideration in multiple element arrangements. The ~~accompanying~~amendments, among other things, establish the selling price of a deliverable, replace the term fair value with selling price and eliminate the residual method such that consideration can be allocated to the deliverables using the relative selling price method based on GEO’s specific assumptions. As discussed in Note 2, the Company is still in the process of reviewing the accounting policies of BI to ensure conformity of such accounting policies to those of the Company. At this time, the Company is not aware of any differences in accounting policies that would have a material impact on the consolidated financial statements ~~include the accounts~~as of the Company, our wholly-owned subsidiaries, and the Company’s activities relative to the financing of operating facilities (the Company’s variable interest entities are discussed further in Note 10). All significant intercompany balances and transactions have been eliminated. Noncontrolling interests in consolidated entities represent equity that other investors have contributed to Municipal Corrections Finance L.P. (“MCF”) and the noncontrolling interest in South African Custodial Management Pty. Limited (“SACM”). Non-controlling interests are adjusted for income and losses allocable to the other shareholders in these entities.April 3, 2011.

Reclassifications

The Company’s noncontrolling interest in ~~SACM~~South Africa Custodial Custodial Management Pty. Limited (“SACM”) has been reclassified from operating expenses to noncontrolling interest in the consolidated statements of income for the thirteen weeks ended April 4, 2010, as this item has become more significant due to the noncontrolling interest in ~~MCF~~Municipal Correctional Finance, L.P. (“MCF”) acquired from ~~Cornell in the Merger.~~Cornell. Also, as a result of the acquisition of Cornell, management’s review of certain segment financial data was revised with regard to the Bronx Community Re-entry Center and the Brooklyn Community Re-entry Center. These facilities now report within the

GEO Care segment and are no longer included ~~with~~within the U.S. ~~corrections. The segment data has been revised for all periods presented.~~Detention & Corrections segment. All prior year amounts have been conformed to the current year presentation.

Discontinued operations

The termination of any of the Company’s management contracts, by expiration or otherwise, may result in the classification of the operating results of such management contract, net of taxes, as a discontinued operation. The Company reflects such events as discontinued operations so long as the financial results can be clearly identified, the operations and cash flows are completely eliminated from ongoing operations, and so long as the Company does not have any significant continuing involvement in the operations of the component after the disposal or termination transaction. The component unit for which cash flows are considered to be completely eliminated exists at the customer level. Historically, the Company has classified operations as discontinued in the period they are announced as normally all continuing cash flows cease within three to six months of that date. ~~The~~

2. BUSINESS COMBINATIONS

Acquisition of BII Holding

On February 10, 2011, the Company ~~has classified~~completed its acquisition of B.I. Incorporated (“BI”), a Colorado corporation, pursuant to an Agreement and Plan of Merger, dated as of December 21, 2010 (the “Merger Agreement”), among GEO, BII Holding, a Delaware corporation, which owns BI, GEO Acquisition IV, Inc., a Delaware corporation and wholly-owned subsidiary of GEO (“Merger Sub”), BII Investors IF LP, in its capacity as the ~~results~~stockholders’ representative, and AEA Investors 2006 Fund L.P (the “BI Acquisition”). Under the terms of ~~operations~~the Merger Agreement, Merger Sub merged with and into BII Holding, with BII Holding emerging as the surviving corporation of the merger. As a result of the BI Acquisition, the Company paid merger consideration of $409.6 million in cash, net of cash acquired of $9.7 million, excluding transaction related expenses and subject to certain adjustments, for 100% of BI’s outstanding common stock. Under the Merger Agreement, $12.5 million of the merger consideration was placed in an escrow account for a one-year period to satisfy any applicable indemnification claims pursuant to the terms of the Merger Agreement by GEO, the Merger Sub or its ~~terminated management contracts at certain domestic facilities as discontinued operations~~affiliates. At the time of the BI Acquisition, approximately $78.4 million, including accrued interest, was outstanding under BI’s senior term loan and $107.5 million, including accrued interest. was outstanding under its senior subordinated note purchase agreement, excluding the unamortized debt discount. All indebtedness of BI under its senior term loan and senior subordinated note purchase agreement were repaid by BI with a portion of the $409.6 million of merger consideration. In connection with the BI Acquisition and included in general and administrative expenses, the Company incurred $3.9 million in non-recurring transaction costs for ~~the thirty-nine weeks ended September 27, 2009. There were no continuing cash flows from these operations in~~ the thirteen weeks ended ~~October~~April 3, ~~2010 or September 27, 2009 or for the thirty-nine weeks ended October 3, 2010, and as such, there are no amounts reclassified to discontinued operations for those periods.~~

~~Changes in Estimates~~2011.

The Company ~~periodically performs assessments~~is identified as the acquiring company for US GAAP accounting purposes and believes its acquisition of BI provides it with the ability to offer turn-key solutions to its customers in managing the full lifecycle of an offender from arraignment to reintegration into the community, which the Company refers to as the corrections lifecycle. Under the acquisition method of accounting, the purchase price for BI was allocated to BI’s net tangible and intangible assets based on their estimated fair values as of February 10, 2011, the date of closing and the date that the Company obtained control over BI. In order to determine the fair values of certain tangible and intangible assets acquired, the Company has engaged a third party independent valuation specialist. For all other assets acquired and liabilities assumed, the recorded fair value was determined by the Company’s management and represents an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

The preliminary allocation of the purchase price is based on the best information available and is provisional pending, among other things: (i) final agreement of the adjustment to the purchase price based upon the level of net working capital, and the fair value of certain components thereof, transferred at closing; (ii) the valuation of the fair values and useful lives of ~~its assets. In evaluating~~property and equipment acquired; (iii) finalization of the valuations and useful lives for intangible assets for customer relationships, non-compete agreements, technology and patents; (iv) income taxes; and (v) certain contingent liabilities. During the measurement period (which is not to exceed one year from the acquisition date), additional assets or liabilities may be recognized if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date.The preliminary purchase price allocation may be adjusted after obtaining additional information regarding, among other things, asset valuations, liabilities assumed and revisions of previous estimates. The Company does not believe that any of the goodwill recorded as a result of the BI Acquisition will be deductible for federal income tax purposes. The Company is still in the process of reviewing the accounting policies of BI to ensure conformity of such accounting policies to those of the Company. At this time, the Company ~~considers how long assets will remain functionally efficient and effective, given competitive factors, economic environment, technological~~is not aware of any differences in accounting policies that would have a material impact on the consolidated financial

~~advancements~~statements as of April 3, 2011. The preliminary purchase price consideration of $409.6 million, net of cash acquired of $9.7 million, excluding transaction related expenses and ~~quality of construction. If the assessment indicates that assets can and will be used for a longer or shorter period than previously anticipated, the useful lives of~~subject to certain adjustments, was allocated to the assets ~~are revised, resulting~~acquired and liabilities assumed, based on management’s estimates at the time of this Quarterly Report, as follows (in ‘000’s):


	Preliminary
	Purchase Price
	Allocation
Accounts receivable	$	18,321
Prepaid and other current assets		3,783
Deferred income tax assets		15,970
Property and equipment		22,359
Intangible assets		126,900
Other long-term assets		8,884

Total assets acquired		196,217

Accounts payable		(3,977	)
Accrued expenses		(8,461	)
Deferred income tax liabilities		(43,824	)
Long-term debt		(2,014	)
Other long-term liabilities		(11,431	)

Total liabilities assumed		(69,707	)

Total identifiable net assets		126,510
Goodwill		283,097

Total cash consideration	$	409,607

The Company has included revenue and earnings, excluding intercompany transactions, of approximately $17.8 million and $0.5 million, respectively, in ~~a change in estimate. Changes in estimates are accounted~~its consolidated statement of income for ~~on a prospective basis by depreciating~~thirteen weeks ended April 3, 2011 for BI activity since February 10, 2011, the ~~assets’ current carrying values over their revised remaining useful lives.~~date of acquisition.

~~During the first quarter~~Acquisition of Cornell Companies, Inc.

On August 12, 2010, the Company completed its acquisition of Cornell pursuant to a ~~depreciation study~~definitive merger agreement entered into on ~~its owned correctional facilities. Based~~April 18, 2010, and amended on ~~the results of the depreciation study,~~July 22, 2010, among the Company, revised the estimated useful lives of certain buildings from its historical estimate of 40 years to a revised estimate of 50 years, effective January 4, 2010. The basis for the change in the useful life of the Company’s owned correctional facilities is due to the expectation that these facilities are capable of being used for a longer period than previously anticipated based on quality of constructionGEO Acquisition III, Inc., and effective building maintenance. The Company accounted for the change in the useful lives as a change in estimate which is accounted for prospectively beginning January 4, 2010. For the thirteen weeks ended October 3, 2010, the change resulted in a reduction in depreciation and amortization expense of $0.9 million, an increase to net income of $0.6 million and an increase in diluted earnings per share of $0.01. For the thirty-nine weeks ended October 3, 2010, the change resulted in a reduction in depreciation and amortization expense of $2.7 million, an increase to net income of $1.7 million and an increase in diluted earnings per share of $0.03.

Except as discussed above, the accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2010 for the fiscal year ended January 3, 2010.

~~2. BUSINESS COMBINATION~~

~~Purchase price allocation~~

Cornell. Under the terms of the merger agreement, the Company acquired 100% of the outstanding common stock of Cornell for aggregate consideration of $618.3 million, excluding cash acquired of $12.9 million and including: (i) cash payments for Cornell’s outstanding common stock of $84.9 million, (ii) payments made on behalf of Cornell related to Cornell’s transaction costs accrued prior to the Merger of $6.4 million, (iii) cash payments for the settlement of certain of Cornell’s debt plus accrued interest of $181.9 million using proceeds from the Company’s Credit Agreement (Refer to Note 11), (iv) common stock consideration of $357.8 million, and (v) the fair value of replacement stock option replacement awards of $0.2 million. The ~~value of the equity consideration was based on the closing price of the Company’s stock on August 12, 2010 of $22.70.~~

GEO is identified as the acquiring company for US GAAP accounting purposes. Under the purchase method of accounting, the aggregate purchase price is allocated to Cornell’s net tangible and intangible assets based on their estimated fair values as of August 12, 2010, the date of closing and the date that GEO obtained control over Cornell. In order to determine the fair values of a significant portion of the assets acquired and liabilities assumed, the Company engaged third party independent valuation specialists. The preliminary work performed by the third party independent valuation specialists has been considered in management’s estimates of certain of the fair values reflected in the purchase price allocation below. For any other assets acquired and liabilities assumed for which the Company is not considering the work of third party independent valuation specialists, the fair value determined by the Company’s management represents the price management believes would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. For long term assets, liabilities and the noncontrolling interest in MCF for which there was no active market price available for valuation, the Company used Level 3 inputs to estimate the fair market value.

~~The~~current allocation of the purchase price ~~for this transaction at August 12, 2010~~ is ~~preliminary. The Company is in~~subject to change within the ~~process of obtaining the information necessary~~measurement period (up to ~~complete its purchase price allocation. The Company has evaluated and continues to evaluate pre-acquisition contingencies related to Cornell that may have existed at~~one year from the acquisition ~~date of August 12, 2010. If these pre-acquisition contingencies become probable in nature~~date) if new information is obtained about facts and ~~estimable before the end of the purchase price allocation period, amounts will be recorded to adjust the acquisition goodwill value for such matters~~circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of ~~August 12, 2010. If these contingencies become probable in nature~~those assets or liabilities as of that date.The primary areas that are not yet finalized relate to the calculation of certain tax assets and ~~estimable after~~liabilities. Measurement period adjustments that the ~~end~~Company determines to be material will be applied retrospectively to the period of acquisition.

The Company has retrospectively adjusted provisional amounts with respect to the Cornell acquisition that were recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Such adjustments resulted in a net decrease of $0.9 million in goodwill, an increase to accounts receivable of $0.2 million, a decrease to prepaid and other current assets of $0.3 million and a decrease to accrued expenses of $1.0 million. The purchase price allocation ~~period, amounts will be recorded for such matters in the Company’s results of operations. The purchase price was allocated to the fair value of the assets and liabilities~~ as of ~~August 12, 2010~~April 3, 2011 is as follows (in ~~‘000’s):~~

Purchase price
allocation
Accounts receivable $ 57,761
Prepaid and other current assets 13,176
Deferred tax asset 10,934
Restricted assets 43,183
Property, plant and equipment 462,797
Intangible assets 77,600
Out of market lease assets 472
Other long-term assets 11,509

Total assets acquired $ 677,432

Accounts payable and accrued expenses (53,646 )
Fair value of non-recourse debt (120,943 )
Out of market lease liabilities (24,071 )
Deferred tax liability (44,009 )
Other long-term liabilities (130 )

Total liabilities assumed (242,799 )

Total identifiable net assets 434,633
Goodwill 204,382

Fair value of Cornell’s net assets 639,015
Noncontrolling interest (20,700 )

Total consideration for Cornell, net of cash acquired $ 618,315

As shown above, the Company recorded $204.4 million of goodwill related to the purchase of Cornell. The strategic benefits of the Merger include the combined Company’s increased scale and the diversification of service offerings. These factors contributed to the goodwill that was recorded upon consumation of the transaction. Of the goodwill recorded in relation to the Merger, only $1.5 million of goodwill resulting from a previous Cornell acquisition is deductible for federal income tax purposes; the remainder of goodwill is not deductible. Identifiable intangible assets purchased in the acquisition and their weighted average amortization periods in total and by major intangible asset class, as applicable, are included in the table below (in thousands):

Weighted average Fair value
amortization period as of August 12, 2010
Goodwill n/a 204,382

Identifiable intangible assets
Facility Management contracts 12.5 $ 70,100
Non compete agreements 1.7 5,700
Trade names indefinite 1,800

Total identifiable intangible assets $ 77,600

~~As of October 3, 2010 the weighted average period before the next contract renewal for acquired contracts classified as U.S. corrections was 7.33 years and for GEO Care was 1.3 years.~~

~~The following table sets forth amortization expense for each of the five succeeding years related to the acquired facility management contracts:~~

Fiscal Year U.S corrections GEO Care Total
2010 $ 738 $ 667 $ 1,405
2011 2,950 2,669 5,619
2012 2,950 2,669 5,619
2013 2,950 2,669 5,619
2014 2,950 2,669 5,619
2015 2,950 2,669 5,619
Thereafter 20,253 20,995 41,248

Net carrying value as of October 3, 2010 $ 35,003 $ 34,341 $ 69,344

~~Pro forma financial information~~

The results of operations of Cornell are included in the Company’s results of operations beginning after August 12, 2010. The following unaudited pro forma information for 2010 combines the consolidated results of operations of the Company and Cornell as if the acquisition had occurred at the beginning of fiscal year 2010 and the unaudited pro forma information for 2009 combines the consolidated results of operations of the Company and Cornell as if the acquisition had occurred at the beginning of fiscal year 2009. The pro forma amounts are included for comparative purposes and may not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the applicable period and may not be indicative of the results that will be attained in the future (in thousands, except per share data)’000’s):

Thirteen weeks ended Thirty-nine weeks ended
October 3, 2010 September 27, 2009 October 3, 2010 September 27, 2009
Revenues $ 373,001 $ 398,571 $ 1,145,511 $ 1,139,909
Net income (loss) (8,143 ) 9,361 32,464 47,099
Net income (loss) attributable to The GEO Group Inc., shareholders (8,352 ) 8,972 30,172 46,033

Net income (loss) per share — basic $ (0.14 ) $ 0.13 $ 0.58 $ 0.69
Net income (loss) per share — diluted $ (0.14 ) $ 0.13 $ 0.57 $ 0.68


	Acquisition Date						Adjusted Acquisition
	Estimated Fair Value as of			Measurement Period			Date Estimated Fair
	January 2, 2011			Adjustments			Value as of April 3, 2011
Accounts receivable	$	55,142			294		$	55,436
Prepaid and other current assets		13,314			(333	)		12,981
Deferred income tax assets		21,273			—			21,273
Restricted assets		44,096			—			44,096
Property and equipment		462,771			—			462,771
Intangible assets		75,800			—			75,800
Out of market lease assets		472			—			472
Other long-term assets		7,510			—			7,510

Total assets acquired		680,378			(39	)		680,339


Accounts payable and accrued expenses		(56,918	)		977			(55,941	)
Fair value of non-recourse debt		(120,943	)		—			(120,943	)
Out of market lease liabilities		(24,071	)		—			(24,071	)
Deferred income tax liabilities		(42,771	)		—			(42,771	)
Other long-term liabilities		(1,368	)		—			(1,368	)

Total liabilities assumed		(246,071	)		977			(245,094	)

Total identifiable net assets		434,307			938			435,245
Goodwill		204,724			(938	)		203,786

Fair value of Cornell’s net assets		639,031			—			639,031
Noncontrolling interest		(20,700	)		—			(20,700	)

Total consideration for Cornell, net of cash acquired	$	618,331		$	—		$	618,331

Pro forma financial information

The pro forma financial statement information set forth in the table below is provided for informational purposes only and presents comparative revenue and earnings for the Company ~~has included $53.6~~as if the acquisitions of BI and Cornell and the financing of these transactions had occurred on January 4, 2010, which is the beginning of the first period presented. The pro forma information provided below is compiled from the financial statements of the combined companies and includes pro forma adjustments for: (i) estimated changes in depreciation expense, interest expense, amortization expense, (ii) adjustments to eliminate intercompany transactions, (iii) adjustments to remove $5.9 million in ~~revenue~~non-recurring charges directly related to these acquisitions that were included in the combined Companies’ financial results and ~~$4.5 million in~~(iv) the income tax impact of the adjustments. For the purposes of the table and disclosure below, earnings is the same as net income ~~in its consolidated statement of income for the thirteen and thirty-nine weeks ended October 3, 2010 related~~attributable to ~~Cornell activity since August 12, 2010, the date of acquisition.~~The GEO Group, Inc. shareholders (in thousands):

During the second and third fiscal quarters of 2010, the Company incurred $2.1 million and $13.5 million, respectively in non-recurring direct transaction related expenses which are recorded as operating expenses in the Company’s consolidated statements of income. Also included in operating expenses is $0.5 million for retention bonuses paid to Cornell employees as compensation for services performed after the acquisition date.


	Thirteen Weeks Ended
	April 3 , 2011		April 4 , 2010
Pro forma revenues	$	405,357	$	412,991
Pro forma net income attributable to The GEO Group, Inc. shareholders	$	20,061	$	20,103

3. SHAREHOLDERS’ EQUITY

~~Stock repurchases~~

~~On February 22, 2010,~~The following table represents the ~~Company announced~~changes in shareholders’ equity that ~~its Board of Directors approved a stock repurchase program for up~~are attributable to ~~$80.0 million of~~ the Company’s ~~common stock effective through March 31, 2011. The stock repurchase program is implemented through purchases made from time~~shareholders and to time in the open market or in privately negotiated transactions, in accordance with applicable Securities and Exchange Commission requirements. The program may also include repurchases from time to time from executive officers or directors of vested restricted stock and/or vested stock options. During the thirteen and thirty-nine weeks ended October 3, 2010, the Company purchased 0.1 million and 4.0 million shares of its common stock, respectively, at an aggregate cost of $2.7 million and $80.0 million, respectively, using cash on hand and cash flow from operating activities. As a result, the Company has completed repurchases of shares of its common stock under the share repurchase program approved in February 2010. Included in the shares repurchased for the thirty-nine weeks ended October 3, 2010 were 1,055,180 shares repurchased from executive officers at an aggregate cost of $22.3 million.noncontrolling interests (in thousands):


									Accumulated
					Additional				Other											Total
	Common shares				Paid-In		Retained		Comprehensive			Treasury shares					Noncontrolling			Shareholder’s
	Shares		Amount		Capital		Earnings		Income (Loss)			Shares		Amount			Interests			Equity
Balance January 2, 2011		64,432	$	845	$	718,489	$	428,545	$	10,071			20,074	$	(139,049	)	$	20,589		$	1,039,490
Stock option and restricted stock award transactions		442		4		979															983
Tax benefit related to equity compensation						172															172
Stock based compensation expense						2,061															2,061
Distribution to noncontrolling interest																		(4,012	)		(4,012	)
Comprehensive income (loss):
Net income (loss):								16,790										(410	)		16,380
Change in foreign currency translation, net										480								(7	)		473
Pension liability, net										9											9
Unrealized loss on derivative instruments, net										(177	)										(177	)

Total comprehensive income (loss)								16,790		312								(417	)		16,685

Balance April 3, 2011		64,874	$	849	$	721,701	$	445,335	$	10,383			20,074	$	(139,049	)	$	16,160		$	1,055,379

Noncontrolling interests

Noncontrolling interests in consolidated entities represent equity that other investors have contributed to MCF and the noncontrolling interest in SACM. Noncontrolling interests are adjusted for income and losses allocable to the other shareholders in these entities.

Upon acquisition of Cornell in August 2010, the Company assumed MCF as a variable interest entity and allocated a portion of the purchase price to the noncontrolling interest based on the estimated fair value of MCF as of August 12, 2010. The noncontrolling interest in MCF represents 100% of the equity in MCF which was contributed by its partners at inception in 2001. The Company includes the results of operations and financial position of MCF ~~its variable interest entity,~~ in its consolidated financial statements. MCF owns eleven facilities which it leases to the Company.

The Company includes the results of operations and financial position of ~~South African Custodial Management Pty. Limited (“SACM” or the “joint venture”),~~SACM, its majority-owned subsidiary, in its consolidated financial statements. SACM was established in 2001 to operate correctional centers in South Africa. ~~The joint venture~~SACM currently provides security and other management services for the Kutama Sinthumule Correctional Centre in the Republic of South Africa under a 25-year management contract which commenced in February 2002. The Company’s and the second joint venture partner’s shares in the profits of ~~the joint venture~~SACM are 88.75% and ~~11.75%~~11.25%, respectively. There were no changes in the Company’s ownership percentage of the consolidated subsidiary during the ~~thirty-nine~~thirteen weeks ended ~~October~~April 3, ~~2010.~~2011. The noncontrolling interest as of ~~October~~April 3, ~~2010~~2011 and January ~~3, 2010~~2, 2011 is included in Total Shareholders’ Equity in the accompanying Consolidated Balance Sheets. In the thirteen weeks ended April 3, 2011, there was a cash distribution to the partners of MCF of $4.0 million. There were no contributions from owners or distributions to owners in the ~~thirty-nine~~thirteen weeks ended ~~October 3,~~April 4, 2010.

~~The following table represents the changes in shareholders’ equity that are attributable to the Company’s shareholders and to noncontrolling interests (in thousands):~~

Additional Accumulated Other Total
Common shares Treasury shares Paid-In Comprehensive Retained Noncontrolling Shareholder’s
Shares Amount Shares Amount Capital Income (Loss) Earnings Interests Equity
Balance January 3, 2010 51,629 516 (16,075 ) (58,888 ) 351,550 5,496 365,927 497 665,098
Stock option and restricted stock award transactions, net 1,336 13 10,053 10,066
Acquisition of Cornell 15,764 158 357,918 20,700 378,776
Common stock retirements (314 ) (3 ) (6,225 ) (850 ) (7,078 )
Common stock repurchases (3,999 ) (40 ) (3,999 ) (79,960 ) (80,000 )
Comprehensive income (loss): —
Net income (loss): 39,970 (227 ) 39,743
Change in foreign currency translation, net 2,571 42 2,613
Pension liability, net 34 34
Unrealized gain on derivative instruments, net (339 ) (339 )

Total comprehensive income (loss) 2,266 39,970 (185 ) 42,051

Balance October 3, 2010 64,416 644 (20,074 ) (138,848 ) 713,296 7,762 405,047 21,012 1,008,913

4. EQUITY INCENTIVE PLANS

The Company had awards outstanding under four equity compensation plans at ~~July 4, 2010:~~April 3, 2011: The Wackenhut Corrections Corporation 1994 Stock Option Plan (the “1994 Plan”); the 1995 Non-Employee Director Stock Option Plan (the “1995 Plan”); the Wackenhut Corrections Corporation 1999 Stock Option Plan (the “1999 Plan”); and The GEO Group, Inc. 2006 Stock Incentive Plan (the “2006 Plan” and, together with the 1994 Plan, the 1995 Plan and the 1999 Plan, the “Company Plans”).

On August 12, 2010, the Company’s Board of Directors adopted and its shareholders approved an amendment to the 2006 Plan to increase the number of shares of common stock subject to awards under the 2006 Plan by 2,000,000 shares from 2,400,000 to 4,400,000 shares of common stock. On February 16, 2011, the Company’s Board of Directors approved Amendment No. 1 to the 2006 Plan to provide that of the 2,000,000 additional shares of Common Stock that were authorized to be issued pursuant to awards granted under the 2006 Plan, up to 1,083,000 of such shares may be issued in connection with awards, other than stock options and stock appreciation

rights, that are settled in common stock. The 2006 Plan, as amended, specifies that up to ~~1,083,000~~2,166,000 of such total shares pursuant to awards granted under the plan may constitute awards other than stock options and stock appreciation rights, including shares of restricted stock. ~~See “Restricted Stock” below for further discussion.~~ As of ~~October~~April 3, ~~2010,~~2011, under the 2006 Plan, the Company had ~~2,527,264~~1,445,350 shares of common stock available for issuance pursuant to future awards that may be granted under the ~~plan. As a result~~plan of which up to 1,216,196 shares were available for the ~~acquisition~~issuance of ~~Cornell, the Company issued 35,750 replacement~~awards other than stock option awards with an aggregate fair value of $0.2 million which is included in the purchase price consideration. These awards are fully vested and must be exercised within 90 days of August 12, 2010.options. See “Restricted Stock” below for further discussion.

Stock Options

A summary of the activity of stock option awards issued and outstanding under Company Plans is presented below.


	October 3, 2010									April 3, 2011
				Wtd. Avg.		Wtd. Avg.		Aggregate					Wtd. Avg.		Wtd. Avg.		Aggregate
				Exercise		Remaining		Intrinsic					Exercise		Remaining		Intrinsic
Fiscal Year	Shares			Price		Contractual Term		Value		Shares			Price		Contractual Term		Value
	(in thousands)							(in thousands)		(in thousands)							(in thousands)
Options outstanding at January 3, 2010		2,807		$	10.26		4.80	$	32,592
Options outstanding at January 2, 2011											1,401		$	15.01		5.84	$	13,517
Options granted		36			16.33		—		—		503			24.61
Options exercised		(1,301	)		4.44						(72	)		13.67
Options forfeited/canceled/expired		(47	)		20.64						(11	)		22.17

Options outstanding at October 3, 2010		1,495		$	15.16		6.04	$	12,726
Options outstanding at April 3, 2011											1,821			17.67		6.76	$	15,531

Options exercisable at October 3, 2010		985		$	12.63		4.77	$	10,870
Options exercisable at April 3, 2011											1,134			14.64		5.25	$	13,107

5. EARNINGS PER SHARE

Basic earnings per share is computed by dividing the income from continuing operations attributable to The GEO Group, Inc., shareholders by the weighted average number of outstanding shares of common stock. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator includes dilutive common stock equivalents such as stock options and shares of restricted stock. Basic and diluted earnings per share (“EPS”) were calculated for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 3, ~~2010~~2011 and ~~September 27, 2009~~April 4, 2010 as follows (in thousands, except per share data):

Thirteen Weeks Ended Thirty-nine Weeks Ended
October 3, 2010 September 27, 2009 October 3, 2010 September 27, 2009
Income from continuing operations $ 5,010 $ 19,302 $ 39,743 $ 50,603
Net (income) loss attributable to noncontrolling interests 271 (44 ) 227 (129 )

Income from continuing operations attributable to The GEO Group Inc. $ 5,281 $ 19,258 $ 39,970 $ 50,474
Basic earnings per share from continuing operations attributable to The GEO Group Inc.:
Weighted average shares outstanding 57,799 50,900 52,428 50,800

Per share amount $ 0.09 $ 0.38 $ 0.76 $ 1.00

Diluted earnings per share from continuing operations attributable to The GEO Group Inc.:
Weighted average shares outstanding 57,799 50,900 52,428 50,800
Effect of dilutive securities:
Stock options and restricted stock 399 1,050 616 1,047

Weighted average shares assuming dilution 58,198 51,950 53,044 51,847

Per share amount $ 0.09 $ 0.37 $ 0.75 $ 0.98

~~Thirteen Weeks~~


	Thirteen Weeks Ended
	April 3, 2011		April 4, 2010
Net income	$	16,380	$	17,708
Net (income) loss attributable to noncontrolling interests		410		(36	)

Income attributable to The GEO Group, Inc.	$	16,790	$	17,672
Basic earnings per share attributable to The GEO Group, Inc.:
Weighted average shares outstanding		64,291		50,711

Per share amount	$	0.26	$	0.35

Diluted earnings per share attributable to The GEO Group, Inc.:
Weighted average shares outstanding		64,291		50,711
Effect of dilutive securities:
Stock options and restricted stock		440		929

Weighted average shares assuming dilution		64,731		51,640

Per share amount	$	0.26	$	0.34

For the thirteen weeks ended ~~October~~April 3, ~~2010, 23,807~~2011, 32,074 weighted average shares of stock underlying options were excluded from the computation of diluted EPS because the effect would be anti-dilutive. No shares of restricted stock were anti-dilutive.

For the thirteen weeks ended September 27, 2009, 23,684 weighted average shares of stock underlying options and 8,668 weighted average shares of restricted stock were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

~~Thirty-nine Weeks~~

~~For the thirty-nine weeks ended October 3,~~April 4, 2010, ~~21,655~~56,392 weighted average shares of stock underlying options were excluded from the computation of diluted EPS because the effect would be anti-dilutive. No shares of restricted stock were anti-dilutive.

For the thirty-nine weeks ended September 27, 2009, 82,936 weighted average shares of stock underlying options and 10,075 weighted average shares of restricted stock were excluded from the computation of diluted EPS because the effect would be anti-dilutive.

6. DERIVATIVE FINANCIAL INSTRUMENTS

The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in interest rates. The Company measures its derivative financial instruments at fair value.

~~In November 2009,~~As of April 3, 2011, the Company ~~executed three~~had four interest rate swap agreements ~~(the “Agreements”)~~ in the aggregate notional amount of ~~$75.0 million. In January 2010, the Company executed a fourth interest rate swap agreement in the notional amount of $25.0~~$100.0 million. The Company has designated these interest rate swaps as hedges against changes in the fair value of a designated portion of the 7³/₄% Senior Notes due 2017 (“7³/₄% Senior Notes”) due to changes in underlying interest rates. ~~The Agreements,~~These swap agreements, which have payment, expiration dates and call provisions that mirror the terms of the 7³/4% Senior Notes, effectively convert $100.0 million of the 7³/4% Senior Notes into variable rate obligations. Each of the swaps has a termination clause that gives the counterparty the right to terminate the interest rate swaps at fair market value, under certain circumstances. In addition to the termination clause, the Agreements also have call provisions which specify that the lender can elect to settle the swap for the call option price. Under the Agreements, the Company receives a fixed interest rate payment from the financial counterparties to the agreements equal to 7³/₄% per year calculated on the notional $100.0 million amount, while it makes a variable interest rate payment to the same counterparties equal to the three-month LIBOR plus a fixed margin of between 4.16% and 4.29%, also calculated on the notional $100.0 million amount. Changes in the fair value of the interest rate swaps are recorded in earnings along with related designated changes in the value of the 7³/4% Senior Notes. Total net gains (losses) recognized and recorded in earnings related to these fair value hedges was ~~$3.3~~$(1.0) million and ~~$9.2~~$0.4 million in the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 3, 2011 and April 4, 2010 respectively. As of ~~October~~April 3, ~~2010~~2011 and January ~~3, 2010, the fair value of~~2, 2011, the swap ~~assets (liabilities) was $7.3~~assets’ fair values were $2.3 million and ~~$(1.9)~~$3.3 million, respectively and are included as Other Non-Current Assets ~~or as Long-Term Debt, as appropriate,~~ in the accompanying balance sheets. There was no material ineffectiveness of these interest rate swaps for the fiscal periods ended ~~October~~April 3, 2011 or April 4, 2010.

The Company’s Australian subsidiary is a party to an interest rate swap agreement to fix the interest rate on its variable rate non-recourse debt to 9.7%. The Company has determined the swap, which has a notional amount of $50.9 million, payment and expiration dates, and call provisions that coincide with the terms of the non-recourse debt to be an effective cash flow hedge. Accordingly, the Company records the change in the value of the interest rate swap in accumulated other comprehensive income, net of applicable

income taxes. Total unrealized loss, net ~~unrealized gain (loss)~~of tax, recognized in the periods and recorded in accumulated other comprehensive income, net of tax, related to ~~these~~this cash flow ~~hedges~~hedge was ~~$(0.2)~~$0.2 million and ~~$0.3~~$0.0 million for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 3, ~~2010, respectively. Total net gain recognized in the periods~~2011 and ~~recorded in accumulated other comprehensive income, net of tax, related to these cash flow hedges was $0.1 million and $1.0 million for the thirteen and thirty-nine weeks ended September 27, 2009,~~April 4, 2010, respectively. The total value of the swap asset as of ~~October~~April 3, ~~2010~~2011 and January ~~3, 2010~~2, 2011 was ~~$1.5~~$1.6 million and ~~$2.0~~$1.8 million, respectively, and is recorded as a component of other assets within the accompanying consolidated balance sheets. There was no material ineffectiveness of this interest rate swap for the fiscal periods presented. The Company does not expect to enter into any transactions during the next twelve months which would result in the reclassification into earnings or losses associated with this swap currently reported in accumulated other comprehensive income (loss).

~~During the thirty-nine weeks ended September 27, 2009, both of the Company’s lenders with respect to an aggregate $50.0 million notional amount of interest rate swaps on the $150.0 million 8~~¹/₄% Senior Notes Due 2013 (the Company repaid this debt in October 2009), elected to settle the swap agreements at a price equal to the fair value of the interest rate swaps on the respective call dates. As a result, the Company realized cash proceeds of $1.7 million.

7. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

The Company has retrospectively adjusted a portion of its goodwill with respect to the Cornell acquisition to reflect changes in the provisional amounts recognized at January 2, 2011 based on new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Refer to Note 2. Such adjustments resulted in a net decrease of $0.9 million in goodwill which is reflected in the balance below as of January 2, 2011. Changes in the Company’s goodwill balances for the ~~thirty-nine~~thirteen weeks ended ~~October~~April 3, ~~2010~~2011 were as follows (in thousands):

Goodwill
Resulting from Foreign
Balance as of Business Currency Balance as of
January 3, 2010 Combinations Translation October 3, 2010
U.S. corrections $ 21,692 $ 153,882 $ — $ 175,574
International services 669 — 55 724
GEO Care 17,729 50,541 — 68,270

Total segments $ 40,090 $ 204,423 $ 55 $ 244,568


					Foreign
					currency
	January 2, 2011		Acquisitions		translation		April 3, 2011
U.S. Detention & Corrections	$	175,990	$	—	$	—	$	175,990
GEO Care		67,257		283,097		—		350,354
International Services		762		—		12		774

Total Goodwill	$	244,009	$	283,097	$	12	$	527,118

On ~~August 12, 2010,~~February 10, 2011, the Company acquired ~~Cornell~~BI and recorded goodwill representing the strategic benefits of the ~~Merger~~Acquisition including the combined Company’s increased scale and the diversification of service offerings. Goodwill resulting from business combinations includes the excess of the Company’s purchase price over net assets of ~~Cornell~~BI acquired ~~and also includes the effects~~ of ~~a purchase price adjustment related to the acquisition of Just Care.~~ $283.1 million.

Intangible assets consisted of the following (in thousands):

Useful Life International
in Years U.S. Corrections Services GEO Care Total
Facility management contracts 7-17 $ 14,450 $ 1,875 $ — $ 16,325
Facility management contracts 1-13 — 6,600 6,600
Covenants not to compete 4 1,470 — — 1,470

Gross carrying value of January 3, 2010 15,920 1,875 6,600 24,395

Facility management contracts 35,400 — 34,700 70,100
Covenants not to compete 2,879 — 2,821 5,700
Trade name — — 1,800 1,800
Foreign currency translation — 758 — 758

Gross carrying value as of October 3, 2010 54,199 2,633 45,921 102,753
Accumulated amortization expense (8,636 ) (275 ) (1,500 ) (10,411 )

Net carrying value at October 3, 2010 $ 45,563 $ 2,358 $ 44,421 $ 92,342


	Useful Life		U.S. Detention &			International
	in Years		Corrections			Services			GEO Care			Total
Finite-lived intangible assets:
Management contracts		1-17	$	49,850		$	2,754		$	41,300		$	93,904
Covenants not to compete		1-4		4,349			—			2,821			7,170

Gross carrying value of January 2, 2011				54,199			2,754			44,121			101,074

Changes to gross carrying value during the thirteen weeks ended April 3, 2011:
Finite-lived intangible assets:
Management contracts — BI Acquisition		11-14		—			—			61,600			61,600
Covenants not to compete — BI Acquisition		2		—			—			1,400			1,400
Technology — BI Acquisition		7		—			—			21,800			21,800
Foreign currency translation				—			(28	)		—			(28	)
Indefinite-lived intangible assets:
Trade names — BI Acquisition	Indefinite			—						42,100			42,100

Gross carrying value as of April 3, 2011				54,199			2,726			171,021			227,946
Accumulated amortization expense				(11,640	)		(359	)		(5,349	)		(17,348	)

Net carrying value at April 3, 2011			$	42,559		$	2,367		$	165,672		$	210,598

On ~~August 21, 2010,~~February 10, 2011, the Company acquired ~~Cornell~~BI and recorded identifiable intangible assets related to ~~acquired~~ management contracts, existing technology, non-compete agreements for certain former ~~Cornell~~BI executives and for the trade name associated with ~~Cornell’s youth services~~BI’s business which is now part of the Company’s GEO Care reportable segment. The weighted average amortization period in total for these acquired intangible assets is 10.9 years and for the acquired management contracts is 12.4 years. As of April 3, 2011, the weighted average period before the next contract renewal or extension for the intangible assets acquired from BI was approximately 1.2 years.

Accumulated amortization expense for the Company’s finite-lived intangible assets in total and by asset class is as follows (in thousands):


	U.S. Detention &		International
	Corrections		Services		GEO Care		Total
Management contracts	$	10,567	$	359	$	3,757	$	14,683
Technology		—		—		441		441
Covenants not to compete		1,073		—		1,151		2,224

Total accumulated amortization expense	$	11,640	$	359	$	5,349	$	17,348

Amortization expense was ~~$1.8~~$4.1 million and ~~$2.9~~$0.6 million for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 3, 2011 and April 4, 2010, respectively and primarily related to the amortization of intangible assets for acquired management contracts. ~~Amortization~~As of April 3, 2011, the weighted average period before the next contract renewal or extension for all of the Company’s facility management contracts was approximately 1.3 years. Although the facility management contracts acquired have renewal and extension terms in the near term, the Company has historically maintained these relationships beyond the contractual periods.

Estimated amortization expense ~~was $0.4 million and $1.3 million for the thirteen and thirty-nine weeks ended September 27, 2009, respectively and primarily~~ related to the Company’s finite-lived intangible assets for the remainder of fiscal year 2011 through fiscal year 2015 and thereafter is as follows (in thousands):


	U.S. Detention &		International
	Corrections —		Services —		GEO Care —
	Expense		Expense		Expense		Total Expense
Fiscal Year	Amortization		Amortization		Amortization		Amortization
Remainder of 2011	$	4,289	$	112	$	10,307	$	14,708
2012		4,894		149		13,025		18,068
2013		3,556		149		11,451		15,156
2014		3,556		149		11,236		14,941
2015		3,556		149		11,205		14,910
Thereafter		22,708		1,659		66,348		90,715

	$	42,559	$	2,367	$	123,572	$	168,498

The table above includes the estimated amortization of the finite-lived intangible assets acquired from BI on February 10, 2011. As discussed in Note 2, the preliminary allocation of the purchase price is based on the best information available and is provisional pending, among other things, the finalization of the valuation of intangible assets, ~~for acquired management contracts.~~including the estimated useful lives of the finite-lived intangible assets. The finalization of fair value assessments relative to the finite-lived intangible assets may have an impact on the Company’s ~~weighted average useful life related to its acquired facility management contracts is 12.48 years.~~estimated future amortization expense.

8. FAIR VALUE OF ASSETS AND LIABILITIES

The Company is required to measure certain of its financial assets and liabilities at fair value on a recurring basis. The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (“exit price”). The Company classifies and discloses its fair value measurements in one of the following categories: Level 1-unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2-quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3- prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). The Company recognizes transfers between Levels as of the actual date of the event or change in circumstances that cause the transfer.

All of the Company’s interest rate swap derivatives were in the Company’s favor as of ~~October~~April 3, ~~2010~~2011 and are presented as assets in the table below and in the accompanying balance sheet. The following tables provide a summary of the Company’s significant financial assets and liabilities carried at fair value and measured on a recurring basis as of ~~October~~April 3, ~~2010~~2011 and January ~~3, 2010~~2, 2011 (in thousands):

estimated using a discounted cash flow model based on current Australian borrowing rates for similar instruments. The fair value of the non-recourse debt related to MCF is estimated using a discounted cash flow model based on the Company’s current borrowing rates for similar instruments. The fair value of the borrowings under the Credit Agreement is based on an estimate of trading value considering the Company’s borrowing rate, the undrawn spread and similar instruments.

10. VARIABLE INTEREST ENTITIES

The Company evaluates its joint ventures and other entities in which it has a variable interest (a “VIE”), generally in the form of investments, loans, guarantees, or equity in order to determine if it has a controlling financial interest and is required to consolidate the entity as a result. The reporting entity with a variable interest that provides the entity with a controlling financial interest in the VIE will have both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company does not consolidate its 50% owned South African joint venture in South African Custodial Services Pty. Limited (“SACS”), a VIE. The Company has determined it is not the primary beneficiary of SACS since it does not have the power to direct the activities of SACS that most significantly impact its performance. As such, this entity is reported as an equity affiliate. SACS was established in 2001 and was subsequently awarded a 25-year contract to design, finance and build the Kutama Sinthumule Correctional Centre in Louis Trichardt, South Africa. To fund the construction of the prison, SACS obtained long-term financing from its equity

partners and lenders, the repayment of which is fully guaranteed by the South African government, except in the event of default, in which case the government guarantee is reduced to 80%. The Company’s maximum exposure for loss under this contract is limited to its investment in the joint venture of $11.8 million at October 3, 2010 and its guarantees related to SACS discussed in Note 11.

~~The Company~~ consolidates South Texas Local Development Corporation (“STLDC”), a VIE. STLDC was created to finance construction for the development of a 1,904-bed facility in Frio County, Texas. STLDC, the owner of the complex, issued $49.5 million in taxable revenue bonds and has an operating agreement with the Company, which provides the Company with the sole and exclusive right to operate and manage the detention center. The operating agreement and bond indenture require the revenue from the contract to be used to fund the periodic debt service requirements as they become due. The net revenues, if any, after various expenses such as trustee fees, property taxes and insurance premiums are distributed to the Company to cover operating expenses and management fees. The Company is responsible for the entire operations of the facility including the payment of all operating expenses whether or not there are sufficient revenues. The bonds have a ten-year term and are non-recourse to the Company. At the end of the ten-year term of the bonds, title and ownership of the facility transfers from STLDC to the Company. See Note 11.

As a result of the acquisition of Cornell in August 2010, the Company assumed the variable interest in ~~MCF.~~MCF of which it is the primary beneficiary and consolidates the entity as a result. MCF was created in August 2001 as a special limited partnership for the purpose of acquiring, owning, leasing and operating low to medium security adult and juvenile correction and treatment facilities. At its inception, MCF purchased assets representing eleven facilities from Cornell and leased those assets back to Cornell under a Master Lease Agreement (the “Lease”). These assets were purchased from Cornell using proceeds from the 8.47% Revenue Bonds due 2016, which are limited non-recourse obligations of MCF and collateralized by the bond reserves, assignment of subleases and substantially all assets related to the eleven facilities. Under the terms of the Lease with Cornell, assumed by the Company, the Company will lease the assets for the remainder of the 20-year base term, which ends in 2021, and has options at its sole discretion to renew the Lease for up to approximately 25 additional years. MCF’s sole source of revenue is from the Company and as such the Company has the power to direct the activities of the VIE that most significantly impact its performance. The Company’s risk is generally limited to the rental obligations under the operating leases. This entity is included in the accompanying consolidated financial statements and all intercompany transactions are eliminated in consolidation.

The Company does not consolidate its 50% owned South African joint venture in South African Custodial Services Pty. Limited (“SACS”), a VIE. SACS joint venture investors are GEO and Kensani Holdings, Pty. Ltd; each partner owns a 50% share. The Company has determined it is not the primary beneficiary of SACS since it does not have the power to direct the activities of SACS that most significantly impact its performance. As such, this entity is reported as an equity affiliate. SACS was established in 2001 and was subsequently awarded a 25-year contract to design, finance and build the Kutama Sinthumule Correctional Centre in Louis Trichardt, South Africa. To fund the construction of the prison, SACS obtained long-term financing from its equity partners and lenders, the repayment of which is fully guaranteed by the South African government, except in the event of default, in which case the government guarantee is reduced to 80%. The Company’s maximum exposure for loss under this contract is limited to its investment in the joint venture of $8.5 million at April 3, 2011 and its guarantees related to SACS discussed in Note 11.

The Company does not consolidate its 50% owned joint venture in the United Kingdom. In February 2011, The GEO Group Limited, the Company’s wholly-owned subsidiary in the United Kingdom (“GEO UK”), executed a Shareholders Agreement (the “Shareholders Agreement”) with Amey Community Limited (“Amey”), GEO Amey PECS Limited (“GEOAmey”) and Amey UK PLC (“Amey Guarantor”) to form a private company limited by shares incorporated in England and Wales. GEOAmey was formed by GEO UK and Amey for the purpose of performing prisoner escort and related custody services in the United Kingdom and Wales. In order to form this private company, GEOAmey issued share capital of £100 divided into 100 shares of £1 each and allocated 50/50 to GEO UK and Amey. GEO UK and Amey each have three directors appointed to the Board of Directors and neither party has the power to direct the

activities that most significantly impact the performance of GEOAmey. Both parties guarantee the availability of working capital in equal proportion to ensure that GEOAmey can comply with future contractual commitments related to the performance of its operations. As of April 3, 2011, GEOAmey had not incurred any operating costs and as such, there was no impact to the Company’s consolidated financial statements as of and for the thirteen weeks ended April 3, 2011. The Company expects that GEOAmey will commence operations in August 2011.

11. DEBT

Senior Credit ~~Agreement~~Facility

On August 4, 2010, the Company terminated its Third Amended and Restated Credit Agreement (“Prior Senior Credit Agreement”) and entered into a new ~~$750.0 million senior credit facility, through the execution of a~~ Credit Agreement (the ~~“Credit Agreement”~~“Senior Credit Facility”), by and among GEO, as Borrower, BNP Paribas, as Administrative Agent, and the lenders who are, or may from time to time become, a party thereto. ~~The~~On February 8, 2011, the Company entered into Amendment No. 1 (“Amendment No. 1”), to the Senior Credit ~~Agreement is~~Facility. Amendment No. 1, among other things amended certain definitions and covenants relating to the total leverage ratios and the senior secured leverage ratios set forth in the Senior Credit Facility. This amendment increased the Company’s borrowing capacity by $250.0 million. As of April 3, 2011, the Senior Credit Facility, as amended, was comprised ofof: (i) a $150.0 million Term Loan A due August 2015 (“Term Loan A”), ~~initially~~ bearing interest at LIBOR plus ~~2.5% and maturing~~2.25%, (ii) a $150.0 million Term Loan A-2 due August 4, 2015 ~~(ii)~~(“Term Loan A-2”), bearing interest at LIBOR plus 2.75%, (iii) a $200.0 million Term Loan B due August 2016 (“Term Loan B”) ~~initially~~ bearing interest at LIBOR plus 3.25% with a LIBOR floor of 1.50%, and ~~maturing August 4, 2016 and (iii)~~(iv) a $500.0 million Revolving Credit Facility due August 2015 (“Revolver”) ~~of $400.0 million initially~~ bearing interest at LIBOR plus ~~2.5%~~2.25%.

Incremental borrowings of $150.0 million under the Company’s amended Senior Credit Facility along with proceeds from the Company’s $300.0 million offering of the 6.625% Senior Notes were used to finance the acquisition of BI. As of April 3, 2011, the Company had $493.5 million in aggregate borrowings outstanding, net of discount, under the Term Loan A, Term Loan A-2 and ~~maturing August 4, 2015.~~Term Loan B, $210.0 million in borrowings under the Revolver, approximately $70.4 million in letters of credit and $219.6 million in additional borrowing capacity under the Revolver. In connection with these borrowings, the Company recorded $9.3 million of deferred financing fees included in Other Non-Current Assets in the accompanying consolidated balance sheet as of April 3, 2011. The weighted average interest rate on outstanding borrowings under the Senior Credit Facility, as amended, as of April 3, 2011 was 3.3%.

Indebtedness under the Revolver, the Term Loan A and the Term Loan AA-2 bears interest based on the Total Leverage Ratio as of the most recent determination date, as defined, in each of the instances below at the stated rate:


		Interest Rate under the Revolver, ~~and~~
		Term Loan A and Term Loan A-2
LIBOR borrowings		LIBOR plus 2.00% to 3.00%.
Base rate borrowings		Prime Rate plus 1.00% to 2.00%.
Letters of credit		2.00% to 3.00%.
Unused ~~Term Loan A and~~ Revolver		0.375% to 0.50%.

The Senior Credit ~~Agreement~~Facility contains certain customary representations and warranties, and certain customary covenants that restrict the Company’s ability to, among other things as permitted (i) create, incur or assume indebtedness, (ii) create, incur, assume or permit liens, (iii) make loans and investments, (iv) engage in mergers, acquisitions and asset sales, (v) make restricted payments, (vi) issue, sell or otherwise dispose of capital stock, (vii) engage in transactions with affiliates, (viii) allow the total leverage ratio or senior secured leverage ratio to exceed certain maximum ratios or allow the interest coverage ratio to be less than ~~3.00 to 1.00,~~a certain ratio, (ix) cancel, forgive, make any voluntary or optional payment or prepayment on, or redeem or acquire for value any senior notes, (x) alter the business the Company conducts, and (xi) materially impair the Company’s lenders’ security interests in the collateral for its loans.

The Company must not exceed the following Total Leverage Ratios, as computed at the end of each fiscal quarter for the immediately preceding four quarter-period:


	Total Leverage Ratio -—
Period	Maximum Ratio
~~August 4, 2010 through~~Through and including the last day of the fiscal year 2011	~~4.50~~	5.25 to 1.00
First day of fiscal year 2012 through and including ~~that~~the last day of fiscal year 2012	~~4.25~~	5.00 to 1.00
First day of fiscal year 2013 through and including the last day of fiscal year 2013		4.75 to 1.00
Thereafter	~~4.00~~	4.25 to 1.00


	Senior Secured Leverage Ratio -—
Period	Maximum Ratio
~~August 4, 2010~~Through and including the last day of the second quarter of the fiscal year 2012		3.25 to 1.00
First day of the third quarter of fiscal year 2012 through and including the last day of the second quarter of the fiscal year ~~2011~~2013	~~3.25 to 1.00~~
~~First day of fiscal year 2012 through and including that last day of fiscal year 2012~~	3.00 to 1.00
Thereafter		2.75 to 1.00

Additionally, there is an Interest Coverage Ratio under which the lender will not permit a ratio of less than 3.00 to 1.00 relative to (a) Adjusted EBITDA for any period of four consecutive fiscal quarters to (b) Interest Expense, less that attributable to non-recourse debt of unrestricted subsidiaries.

Events of default under the Senior Credit ~~Agreement~~Facility include, but are not limited to, (i) the Company’s failure to pay principal or interest when due, (ii) the Company’s material breach of any representations or warranty, (iii) covenant defaults, (iv) liquidation, reorganization or other relief relating to bankruptcy or insolvency, (v) cross default under certain other material indebtedness, (vi) unsatisfied final judgments over a specified threshold, (vii) material environmental liability claims which have been asserted against the Company, and (viii) a change in control. All of the obligations under the Senior Credit ~~Agreement~~Facility are unconditionally guaranteed by certain of the Company’s subsidiaries and secured by substantially all of the Company’s present and future tangible and intangible assets and all present and future tangible and intangible assets of each guarantor, including but not limited to (i) a first-priority pledge of substantially all of the outstanding capital stock owned by the Company and each guarantor, and (ii) perfected first-priority security interests in substantially all of the Company’s, and each guarantors, present and future tangible and intangible assets and the present and future tangible and intangible assets of each guarantor. The Company’s failure to comply with any of the covenants under its Senior Credit Facility could cause an event of default under such documents and result in an acceleration of all outstanding senior secured indebtedness. The Company believes it was in compliance with all of the covenants of the Senior Credit ~~Agreement~~Facility as of ~~October~~April 3, ~~2010.~~2011.

6.625% Senior Notes

On ~~August 4, 2010, GEO used approximately $280~~February 10, 2011, the Company completed a private offering of $300.0 million in aggregate principal amount of 6.625% senior unsecured notes due 2021. These senior unsecured notes pay interest semi-annually in cash in arrears on February 15 and August 15, beginning on August 15, 2011. The Company realized net proceeds of $293.3 million at the close of the transaction and used the net proceeds of the offering, together with borrowings of $150.0 million under the Senior Credit Facility, to finance the BI Acquisition. The remaining net proceeds from the ~~Term Loan B and the Revolver primarily to repay existing borrowings and accrued interest under its prior credit facility of approximately $267.7 million and also~~offering were used approximately $6.7 million for financing fees related to the Credit Agreement. The Company received, as cash, the remaining proceeds of $3.2 million. On August 12, 2010, the Company borrowed $290.0 million under its Credit Agreement and used the aggregate cash proceeds primarily for $84.9 million in cash consideration payments to Cornell’s stockholders in connection with the Merger, transaction costs of approximately $14.0 million, the repayment of $181.9 million for Cornell’s 10.75% Senior Notes due July 2012 plus accrued interest and Cornell’s Revolving Line of Credit due December 2011 plus accrued interest. As of October 3, 2010, the Company had $150.0 million outstanding under the Term Loan A, $200.0 million outstanding under the Term Loan B, and its $400.0 million Revolver had $210.0 million outstanding in loans, $56.4 million outstanding in letters of credit and $133.6 million available for borrowings. The Company intends to use future borrowings for the purposes permitted under the Credit Agreement, including for general corporate purposes.

The ~~Company has accounted for the termination~~6.625% Senior Notes are guaranteed by certain subsidiaries and are unsecured, senior obligations of the ~~Third Amended~~Company and ~~Restated~~these obligations rank as follows: pari passu with any unsecured, senior indebtedness of the Company and the guarantors, including the 7³/4% Senior Notes; senior to any future indebtedness of the Company and the guarantors that is expressly subordinated to the 6.625% Senior Notes and the guarantees; effectively junior to any secured indebtedness of the Company and the guarantors, including indebtedness under its Senior Credit ~~Agreement~~Facility, to the extent of the value of the assets securing such indebtedness; and structurally junior to all obligations of the Company’s subsidiaries that are not guarantors.

On or after February 15, 2016, the Company may, at its option, redeem all or part of the 6.625% Senior Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as ~~an extinguishment~~percentages of ~~debt.~~principal amount) set forth below, plus accrued and unpaid interest and liquidated damages, if any, on the 6.625% Senior Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on February 15 of the years indicated below:


Year	Percentage
2016		103.3125	%
2017		102.2083	%
2018		101.1042	%
2019 and thereafter		100.0000	%

Before February 15, 2016, the Company may redeem some or all of the 6.625% Senior Notes at a redemption price equal to 100% of the principal amount of each note to be redeemed plus a “make whole” premium, together with accrued and unpaid interest and liquidated damages, if any, to the date of redemption. In ~~connection~~addition, at any time before February 15, 2014, the Company may redeem up to 35% of the aggregate principal amount of the 6.625% Senior Notes with ~~repayment~~the net cash proceeds from specified equity offerings at a redemption price equal to 106.625% of the principal amount of each note to be redeemed, plus accrued and unpaid interest and liquidated damages, if any, to the date of redemption.

The indenture governing the notes contains certain covenants, including limitations and restrictions on the Company and its restricted subsidiaries’ ability to: incur additional indebtedness or issue preferred stock; make dividend payments or other restricted payments; create liens; sell assets; enter into transactions with affiliates; and enter into mergers, consolidations or sales of all ~~outstanding borrowings and termination~~or substantially all of the ~~Third Amended~~Company’s assets. As of the date of the indenture, all of the Company’s subsidiaries, other than certain dormant domestic and ~~Restated Credit Agreement,~~other subsidiaries and all foreign subsidiaries in existence on the ~~Company wrote-off $7.9 million~~date of ~~associated deferred financing fees~~the indenture, were restricted subsidiaries. The Company’s failure to comply with certain of the covenants under the indenture governing the 6.625% Notes could cause an event of default of any indebtedness and result in an acceleration of such indebtedness. In addition, there is a cross-default provision which becomes enforceable upon failure of payment of indebtedness at final maturity. The Company’s unrestricted subsidiaries will not be subject to any of the restrictive covenants in the ~~thirteen weeks ended October~~indenture. The Company believes it was in compliance with all of the covenants of the Indenture governing the 6.625% Senior Notes as of April 3, ~~2010.~~2011.

7³/₄% Senior Notes

InOn October 20, 2009, the Company completed a private offering of $250.0 million in aggregate principal amount of its 7³/₄% Senior Notes due ~~2017.~~2017 (“7³/4% Senior Notes”). These senior unsecured notes pay interest semi-annually in cash in arrears on April 15 and October 15 of each year, beginning on April 15, 2010. The Company realized net proceeds of $246.4 million at the close of the transaction, net of the discount on the notes of $3.6 million. The Company used the net proceeds of the offering to fund the repurchase of all of its 8¹/4% Senior Notes due 2013 and pay down part of the ~~Revolver.~~Revolving Credit Facility under our Prior Senior Credit Agreement.

The 7³/₄% Senior Notes are guaranteed by certain subsidiaries and are unsecured, senior obligations of GEO and these obligations rank as follows: pari passu with any unsecured, senior indebtedness of GEO and the ~~guarantors;~~guarantors, including the 6.625% Senior Notes; senior to any future indebtedness of GEO and the guarantors that is expressly subordinated to the notes and the guarantees; effectively junior to any secured indebtedness of GEO and the guarantors, including indebtedness under the Company’s Senior Credit ~~Agreement,~~Facility, to the extent of the value of the assets securing such indebtedness; and effectively junior to all obligations of the Company’s subsidiaries that are not guarantors.

On or after October 15, 2013, the Company may, at its option, redeem all or a part of the 7³/₄% Senior Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and liquidated damages, if any, on the 7³/₄% Senior Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on October 15 of the years indicated below:

covenants under the indenture governing the 7³/4% Senior Notes could cause an event of default of any indebtedness and result in an acceleration of such indebtedness. In addition, there is a cross-default provision which becomes enforceable upon failure of payment of indebtedness at final maturity. The ~~Company’s unrestricted subsidiaries will not be subject to any of the restrictive covenants in the indenture. The~~ Company believes it was in compliance with all of the covenants of the Indenture governing the 7³/₄% Senior Notes as of ~~October~~April 3, ~~2010.~~2011.

Non-Recourse Debt

South Texas Detention Complex

The Company has a debt service requirement related to the development of the South Texas Detention Complex, a 1,904-bed detention complex in Frio County, Texas acquired in November 2005 from Correctional Services Corporation (“CSC”). CSC was awarded the contract in February 2004 by the Department of Homeland Security, U.S. Immigration and Customs Enforcement (“ICE”) for development and operation of the detention center. In order to finance the construction of the complex, STLDC was created and issued $49.5 million in taxable revenue bonds. These bonds mature in February 2016 and have fixed coupon rates between ~~4.34%~~4.63% and 5.07%. Additionally, the Company is owed $5.0 million in the form of subordinated notes by STLDC which represents the principal amount of financing provided to STLDC by CSC for initial development.

The Company has an operating agreement with STLDC, the owner of the complex, which provides it with the sole and exclusive right to operate and manage the detention center. The operating agreement and bond indenture require the revenue from the contract with ICE to be used to fund the periodic debt service requirements as they become due. The net revenues, if any, after various expenses such as trustee fees, property taxes and insurance premiums are distributed to the Company to cover operating expenses and management fees. The Company is responsible for the entire operations of the facility including the payment of all operating expenses whether or not there are sufficient revenues. STLDC has no liabilities resulting from its ownership. The bonds have a ten-year term and are non-recourse to the Company and STLDC. The bonds are fully insured and the sole source of payment for the bonds is the operating revenues of the center. At the end of the ten-year term of the bonds, title and ownership of the facility transfers from STLDC to the Company. The Company has determined that it is the primary beneficiary of STLDC and consolidates the entity as a result. The carrying value of the facility as of ~~October~~April 3, ~~2010~~2011 and January ~~3, 2010~~2, 2011 was ~~$26.7~~$26.9 million and ~~$27.2~~$27.0 million, respectively, and is included in property and equipment in the accompanying balance sheets.

On February 1, ~~2010,~~2011, STLDC made a payment from its restricted cash account of ~~$4.6~~$4.8 million for the current portion of its periodic debt service requirement in relation to the STLDC operating agreement and bond indenture. As of ~~October~~April 3, ~~2010,~~2011, the remaining balance of the debt service requirement under the STLDC financing agreement is ~~$32.1~~$27.3 million, of which ~~$4.8~~$5.0 million is due within the next twelve months. Also, as of ~~October~~April 3, ~~2010,~~2011, included in current restricted cash and non-current restricted cash is ~~$6.2~~$6.3 million and ~~$8.2~~$5.6 million, respectively, of funds held in trust with respect to the STLDC for debt service and other reserves.

Northwest Detention Center

On June 30, 2003, CSC arranged financing for the construction of the Northwest Detention Center in Tacoma, Washington, referred to as the Northwest Detention Center, which was completed and opened for operation in April 2004. The Company began to operate this facility following its acquisition in November 2005. In connection with the original financing, CSC of Tacoma LLC, a ~~wholly owned~~wholly-owned subsidiary of CSC, issued a $57.0 million note payable to the Washington Economic Development Finance Authority, referred to as WEDFA, an instrumentality of the State of Washington, which issued revenue bonds and subsequently loaned the proceeds of the bond issuance back to CSC for the purposes of constructing the Northwest Detention Center. The bonds are non-recourse to the Company and the loan from WEDFA to CSC is also non-recourse to the Company. These bonds mature in February 2014 and have fixed coupon rates between 3.80% and 4.10%.

MCF

MCF, one of the Company’s consolidated variable interest ~~entity,~~entities, is obligated for the outstanding balance of the 8.47% Revenue Bonds. The bonds bear interest at a rate of 8.47% per annum and are payable in semi-annual installments of interest and annual installments of principal. All unpaid principal and accrued interest on the bonds is due on the earlier of August 1, 2016 (maturity) or as noted under the bond documents. The bonds are limited, nonrecourse obligations of MCF and are collateralized by the property and equipment, bond reserves, assignment of subleases and substantially all assets related to the facilities owned by MCF. The bonds are not guaranteed by the Company or its subsidiaries. As of both April 3, 2011 and January 2, 2011, the aggregate principal amount of these bonds was $108.3 million and is included in Non-recourse debt on the accompanying consolidated balance sheet, net of the current portion of $14.6 million.

The 8.47% Revenue Bond indenture provides for the establishment and maintenance by MCF for the benefit of the trustee under the indenture of a debt service reserve fund. As of April 3, 2011, the debt service reserve fund has a balance of $23.8 million. The debt service reserve fund is available to the trustee to pay debt service on the 8.47% Revenue Bonds when needed, and to pay final debt service on the 8.47% Revenue Bonds. If MCF is in default in its obligation under the 8.47% Revenue Bonds indenture, the trustee may declare the principal outstanding and accrued interest immediately due and payable. MCF has the right to cure a default of non-payment obligations. The 8.47% Revenue Bonds are subject to extraordinary mandatory redemption in certain instances upon casualty or condemnation. The 8.47% Revenue Bonds may be redeemed at the option of MCF prior to their final scheduled ~~maturities of MCF’s non-recourse debt are as follows:~~

Fiscal Year MCF
2011 $ 14,600
2012 15,800
2013 17,200
2014 18,600
2015 20,200
Thereafter 21,900

Total $ 108,300

payment dates at par plus accrued interest plus a make-whole premium.

Australia

The Company’s wholly-owned Australian subsidiary financed the development of a facility and subsequent expansion in 2003 with long-term debt obligations. These obligations are non-recourse to the Company and total ~~$45.4~~$45.6 million and $46.3 million at ~~October~~April 3, ~~2010~~2011 and January ~~3, 2010.~~2, 2011, respectively. The term of the non-recourse debt is through 2017 and it bears interest at a variable rate quoted by certain Australian banks plus 140 basis points. Any obligations or liabilities of the subsidiary are matched by a similar or corresponding commitment from the government of the State of Victoria. As a condition of the loan, the Company is required to maintain a restricted cash balance of AUD 5.0 million, which, at ~~October~~April 3, ~~2010,~~2011, was ~~$4.9~~$5.2 million. This amount is included in restricted cash and the annual maturities of the future debt obligation are included in non-recourse debt.

Guarantees

In connection with the creation of SACS, the Company entered into certain guarantees related to the financing, construction and operation of the prison. The Company guaranteed certain obligations of SACS under its debt agreements up to a maximum amount of 60.0 million South African Rand, or ~~$8.7~~$9.0 million, to SACS’ senior lenders through the issuance of letters of credit. Additionally, SACS is required to fund a restricted account for the payment of certain costs in the event of contract termination. The Company has guaranteed the payment of 60% of amounts which may be payable by SACS into the restricted account and provided a standby letter of credit of 8.4 million South African Rand, or ~~$1.2~~$1.3 million, as security for its guarantee. The Company’s obligations under this guarantee expire upon SACS’ release from its obligations in respect to the restricted account under its debt agreements. No amounts have been drawn against these letters of credit, which are included as part of the value of Company’s outstanding letters of credit under its Revolver.

The Company has agreed to provide a loan, of up to 20.0 million South African Rand, or ~~$2.9~~$3.0 million, referred to as the Standby Facility, to SACS for the purpose of financing SACS’ obligations under its contract with the South African government. No amounts have been funded under the Standby Facility, and the Company does not currently anticipate that such funding will be required by SACS in the future. The Company’s obligations under the Standby Facility expire upon the earlier of full funding or SACS’s release from its obligations under its debt agreements. The lenders’ ability to draw on the Standby Facility is limited to certain circumstances, including termination of the contract.

The Company has also guaranteed certain obligations of SACS to the security trustee for SACS’ lenders. The Company secured its guarantee to the security trustee by ceding its rights to claims against SACS in respect of any loans or other finance agreements, and by pledging the Company’s shares in SACS. The Company’s liability under the guarantee is limited to the cession and pledge of shares. The guarantee expires upon expiration of the cession and pledge agreements.

current fair market value of those securities on its consolidated balance sheet. The Company does not currently operate or manage this facility.

At ~~October~~April 3, ~~2010,~~2011, the Company also had ~~nine~~eight letters of guarantee outstanding under separate international facilities relating to performance guarantees of its Australian subsidiary totaling ~~$9.6~~$10.0 million. Except as discussed above, the Company does not have any off balance sheet arrangements.

12. COMMITMENTS AND CONTINGENCIES

Litigation, Claims and Assessments

In June 2004, the Company received notice of a third-party claim for property damage incurred during 2001 and 2002 at several detention facilities formerly operated by its Australian subsidiary. The claim relates to property damage caused by detainees at the detention facilities. The notice was given by the Australian government’s insurance provider and did not specify the amount of damages being sought. In August 2007, a lawsuit (Commonwealth of Australia v. Australasian ~~Connectional~~Correctional Services PTY, Limited No. SC 656) was filed against the Company in the Supreme Court of the Australian Capital Territory seeking damages of up to approximately AUD 18 million, as of April 3, 2011, or ~~$17.5~~$18.7 million, plus interest. The Company believes that it has several defenses to the allegations underlying the litigation and the amounts sought and intends to vigorously defend its rights with respect to this matter. The Company has established a reserve based on its estimate of the most probable loss based on the facts and circumstances known to date and the advice of legal counsel in connection with this matter. Although the outcome of this matter cannot be predicted with certainty, based on information known to date and the Company’s preliminary review of the claim and related reserve for loss, the Company believes that, if settled unfavorably, this matter could have a material adverse effect on its financial condition, results of operations or cash flows. The Company is uninsured for any damages or costs that it may incur as a result of this claim, including the expenses of defending the claim.

During the fourth fiscal quarter of 2009, the Internal Revenue Service (“IRS”) completed its examination of the Company’s U.S. federal income tax returns for the years 2002 through 2005. Following the examination, the IRS notified the ~~Company~~Company’s management that it ~~proposes~~proposed to disallow a deduction that the Company realized during the 2005 tax year. ~~Due~~In December of 2010, the Company reached an agreement with the office of the IRS Appeals on the amount of the deduction, subject to the Company’s receipt of the proposed IRS audit adjustment for the disallowed deduction, the Company reassessed the probability of potential settlement outcomes with respect to the proposed adjustment, which is now under review by the ~~IRS’s appeals division. Based~~Joint Committee on ~~this reassessment, the Company has provided an additional accrual of $4.9 million during the fourth quarter of 2009.~~Taxation. The ~~Company has appealed this proposed disallowed deduction with the IRS’s appeals division and believes it has valid defenses~~review was completed without change on April 18, 2011, subsequent to the IRS’s position. However, if the disallowed deduction were to be sustained in full on appeal, it could result in a potential tax exposure to the Company of $15.4 million. The Company believes in the merits of its position and intends to defend its rights vigorously, including its rights to litigate the matter if it cannot be resolved favorably at the IRS’s appeals level. If this matter is resolved unfavorably, it may have a material adverse effect on the Company’s financial position, results of operations and cash flows.

The Company is currently under examination by the Internal Revenue Service for its U.S. income tax returns for fiscal years 2006 through 2008 and expects this examination to be concluded in 2010. Based on the statusend of the ~~audit to date, the Company does not expect the outcome~~First Quarter. As a result of the ~~audit~~review, there was no change to ~~have a material adverse impact on its financial condition, results of operation or cash flows. Refer~~our tax accrual related to ~~Note 16.~~this matter.

The Company’s South Africa joint venture had been in discussions with the South African Revenue Service (“SARS”) with respect to the deductibility of certain expenses for the tax periods 2002 through 2004. The joint venture operates the Kutama Sinthumule Correctional Centre and accepted inmates from the South African Department of Correctional Services in 2002. During 2009, SARS notified the Company that it proposed to disallow these deductions. The Company appealed these proposed disallowed deductions with SARS and in October 2010 received a ~~notice of~~ favorable Tax Court ruling relative to these ~~proceedings. If~~deductions. On March 9, 2011, SARS ~~should~~filed a notice that it would appeal the lower court’s ruling. The Company ~~believes it has defenses~~continues to believe in ~~these matters~~the merits of its position and ~~intends to~~will defend its rights ~~vigorously.~~vigorously as the case proceeds to the Court of Appeals. If resolved unfavorably, the Company’s maximum exposure would be $2.6 million. ~~Refer to Subsequent Events — Note 16.~~

~~On April 27, 2010,~~The Company is a ~~putative stockholder class action was filed~~participant in the ~~District Court~~IRS Compliance Assurance Process (“CAP”) for ~~Harris County, Texas by Todd Shelby against Cornell, members~~the 2011 fiscal year. Under the IRS CAP principally transactions that meet certain materiality thresholds are reviewed on a real-time basis shortly after their completion. Additionally, all transactions that are part of ~~the Cornell board of directors, individually,~~certain IRS tier and GEO. The plaintiff filed an amended complaint on May 28, 2010. The amended complaint alleges, among other things, that the Cornell directors, aided and abetted by Cornell and GEO, breached their fiduciary duties in connection with the Merger. Among other things, the amended complaint seeks to enjoin Cornell, its directors and GEO from completing the Merger and seeks a constructive trust over any benefits improperly received by the defendants as a resultsimilar initiatives are audited regardless of their ~~alleged wrongful conduct.~~materiality. The ~~parties~~program also provides for the audit of transition years that have ~~reached a settlement in principle, which has~~not previously been ~~preliminarily approved by the court and remains subject to confirmatory final court approval of the settlement and dismissal of the action with prejudice.~~audited. The ~~settlement of this matter~~IRS will ~~not have a material adverse impact on~~be reviewing the Company’s ~~financial condition, results of operations or cash flows.~~2009 and 2010 years as transition years.

During the First Quarter following its acquisition, BI received notice from the IRS that it will audit its 2008 tax year. The audit is currently in progress.

1922

The nature of the Company’s business exposes it to various types of claims or litigation against the Company, 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 its customers and other third parties, contractual claims and claims for personal injury or other damages resulting from contact with the Company’s 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, the Company does not expect the outcome of any pending claims or legal proceedings to have a material adverse effect on its financial condition, results of operations or cash flows.

~~Income Taxes~~

During the fourth fiscal quarter of 2009, the Internal Revenue Service (“IRS”) completed its examination of the Company’s U.S. federal income tax returns for the years 2002 through 2005. Following the examination, the IRS notified the Company that it proposes to disallow a deduction that the Company realized during the 2005 tax year. Due to the Company’s receipt of the proposed IRS audit adjustment for the disallowed deduction, the Company reassessed the probability of potential settlement outcomes with respect to the proposed adjustment, which is now under review by the IRS’s appeals division. Based on this reassessment, the Company has provided an additional accrual of $4.9 million during the fourth quarter of 2009. The Company has appealed this proposed disallowed deduction with the IRS’s appeals division and believes it has valid defenses to the IRS’s position. However, if the disallowed deduction were to be sustained in full on appeal, it could result in a potential tax exposure to the Company of $15.4 million. The Company believes in the merits of its position and intends to defend its rights vigorously, including its rights to litigate the matter if it cannot be resolved favorably at the IRS’s appeals level. If this matter is resolved unfavorably, it may have a material adverse effect on the Company’s financial position, results of operations and cash flows.

As of October 3, 2010, the Company was under examination by the Internal Revenue Service for its U.S. income tax returns for fiscal years 2006 through 2008. Based on the status of the audit to date, the Company does not expect the outcome of the audit to have a material adverse impact on its financial condition, results of operation or cash flows. Refer to Note 16.

The Company’s South Africa joint venture had been in discussions with the South African Revenue Service (“SARS”) with respect to the deductibility of certain expenses for the tax periods 2002 through 2004. The joint venture operates the Kutama Sinthumule Correctional Centre and accepted inmates from the South African Department of Correctional Services in 2002. During 2009, SARS notified the Company that it proposed to disallow these deductions. The Company appealed these proposed disallowed deductions with SARS and in October 2010, received a favorable court ruling relative to these deductions. If SARS should appeal, the Company believes it has defenses in these matters and intends to defend its rights vigorously. If resolved unfavorably, the Company’s maximum exposure would be $2.6 million. Refer to Subsequent Events — Note 16.

During the thirteen and thirty-nine weeks ended October 3, 2010, the Company experienced significantly higher effective income tax rates due to non-deductible expenses incurred in connection with the Merger. The Company’s effective income tax rate for thirteen-weeks ended October 3, 2010 was 66.2% including the impact of these expenses and would have been 42% excluding the impact of the non-deductible expenses. The Company’s effective income tax rate for the thirty-nine weeks ended October 3, 2010 was 43.6% including the impact of these expenses and would have been 39.4% excluding the impact of the non-deductible expenses. The Company expects that the effective income tax rate for the fiscal year ended January 2, 2011 will be approximately 42.6% including the impact of these expenses and 39.5% excluding the impact of these non deductible expenses. Furthermore, the Company expects that its effective income tax rate will increase slightly in the near future due to higher effective income tax rates on Cornell income which is currently subject to higher state taxes.

Construction Commitments

The Company is currently developing a number of projects using company financing. The Company’s management estimates that these existing capital projects will cost approximately ~~$228.7~~$281.0 million, of which ~~$95.5~~$87.6 million was spent through the ~~third~~first quarter of ~~2010.~~2011. The Company estimates the remaining capital requirements related to these capital projects to be approximately ~~$133.2~~$193.4 million, which will be spent through fiscal years ~~2010~~2011 and ~~2011.~~2012. Capital expenditures related to facility maintenance costs are expected to range between ~~$10.0~~$20.0 million and ~~$15.0~~$25.0 million for fiscal year ~~2010.~~2011. In addition to these current estimated capital requirements for ~~2010~~2011 and ~~2011,~~2012, the Company is currently in the process of bidding on, or evaluating potential bids for the design, construction and management of a number of new projects. In the event that the Company wins bids for these projects and decides to self-finance their construction, its capital requirements in ~~2010 and/or~~ 2011 could materially increase.

Contract Terminations

~~The Company does not expect~~Effective February 28, 2011, the ~~following contract terminations to have a material adverse impact, individually or in the aggregate, on its financial condition, results of operations or cash flows.~~

~~Effective September 1, 2010, the~~ Company’s ~~management~~ contract for the ~~operation~~management of the ~~450-bed South~~424-bed North Texas ~~Intermediate Sanction Facility~~ISF, located in Fort Worth, Texas, terminated. ~~This facility is not owned by GEO.~~

~~On June 22, 2010,~~Effective April 30, 2011, the ~~Company announced the discontinuation of its managed-only~~Company’s contract for the ~~520-bed Bridgeport~~management of the 970-bed Regional Correctional Center, ~~in Bridgeport, Texas following a competitive rebid process conducted by the State of Texas. The contract terminated effective August 31, 2010.~~

~~On April 14, 2010, the State of Florida issued a Notice of Intent to Award contracts for the 1,884-bed Graceville Correctional Facility~~ located in ~~Graceville, Florida and~~Albuquerque, New Mexico, terminated.

Effective May 29, 2011, the ~~985-bed Moore Haven Correctional Facility located~~Company’s subsidiary in ~~Moore Haven, Florida to another operator. These contracts terminated effective September 26, 2010 and August 1, 2010, respectively.~~the United Kingdom will no longer manage the 215-bed Campsfield House Immigration Removal Centre in Kidlington, England.

13. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION

Operating and Reporting Segments

The Company conducts its business through four reportable business segments: the U.S. ~~corrections~~Detention & Corrections segment; the International ~~services~~Services segment; the GEO Care segment; and the Facility ~~construction and design~~Construction & Design segment. The Company has identified these four reportable segments to reflect the current view that the Company operates four distinct business lines, each of which constitutes a material part of its overall business. The U.S. ~~corrections~~Detention & Corrections segment primarily encompasses U.S.-based privatized corrections and detention business. The International ~~services~~Services segment primarily consists of privatized corrections and detention operations in South Africa, Australia and the United Kingdom. The GEO Care segment, which is operated by the Company’s wholly-owned subsidiary GEO Care, Inc. and conducts its services in the U.S., represents services provided ~~to adult offenders and juveniles~~ for mental health, residential and non-residential treatment, educational and community based programs, ~~and~~ pre-release and halfway house programs, ~~all of which is currently conducted in the U.S.~~compliance technologies, monitoring services, and evidence-based supervision and treatment programs for community-based parolees, probationers and pretrial defendants. The Facility ~~construction and design~~Construction & Design segment consists of contracts with various state, local and federal agencies for the design and construction of facilities for which the Company has management contracts. As a result of the acquisition of Cornell, management’s review of certain segment financial data was revised with regards to the Bronx Community Re-entry Center and the Brooklyn Community Re-entry Center. These facilities now report within the GEO Care segment and are no longer included with U.S. ~~corrections.~~Detention & Corrections. Disclosures for business segments reflect reclassifications for all periods presented and are as follows (in thousands):

Thirteen Weeks Ended Thirty-nine Weeks Ended
October 3, 2010 September 27, 2009 October 3, 2010 September 27, 2009
Revenues:
U.S. corrections $ 217,808 $ 189,692 $ 599,598 $ 568,202
International services 47,553 36,668 138,142 92,217
GEO Care 60,934 30,636 135,409 92,623
Facility construction and design 1,638 37,869 22,421 77,263

Total revenues $ 327,933 $ 294,865 $ 895,570 $ 830,305

Depreciation and amortization:
U.S. corrections $ 11,048 $ 8,881 $ 27,131 $ 26,891
International services 431 376 1,286 1,039
GEO Care 1,905 359 3,679 1,132
Facility construction and design — — — —

Total depreciation and amortization $ 13,384 $ 9,616 $ 32,096 $ 29,062

Operating income:
U.S. corrections $ 52,074 $ 45,111 $ 142,545 $ 127,530
International services 2,599 1,876 7,848 5,818
GEO Care 8,272 3,945 17,085 12,307
Facility construction and design 504 (30 ) 1,648 175

Operating income from segments 63,449 50,902 169,126 145,830
General and administrative expenses (33,925 ) (15,685 ) (72,028 ) (49,936 )

Total operating income $ 29,524 $ 35,217 $ 97,098 $ 95,894

October 3, 2010 January 3, 2010
Segment assets:
U.S. corrections $ 1,757,226 $ 1,145,571
International services 104,170 95,659
GEO Care 363,431 107,908
Facility construction and design 226 13,736

Total segment assets $ 2,225,053 $ 1,362,874

2123


	Thirteen Weeks Ended
	April 3, 2011			April 4, 2010
Revenues:
U.S. Detention & Corrections	$	241,630		$	189,709
International Services		53,128			45,880
GEO Care		96,889			37,502
Facility Construction & Design		119			14,451

Total revenues	$	391,766		$	287,542

Depreciation and amortization:
U.S. Detention & Corrections	$	12,930		$	7,905
International Services		527			435
GEO Care		5,345			898
Facility Construction & Design		—			—

Total depreciation and amortization	$	18,802		$	9,238

Operating income:
U.S. Detention & Corrections	$	55,773		$	44,944
International Services		3,952			1,841
GEO Care		13,850			4,239
Facility Construction & Design		103			948

Operating income from segments		73,678			51,972
General and administrative expenses		(32,788	)		(17,448	)

Total operating income	$	40,890		$	34,524


	April 3, 2011		January 2, 2011
Segment assets:
U.S. Detention & Corrections	$	1,869,843	$	1,855,067
International Services		97,210		103,004
GEO Care		766,676		301,334
Facility Construction & Design		26		26

Total segment assets	$	2,733,755	$	2,259,431

Pre-Tax Income Reconciliation of Segments

The following is a reconciliation of the Company’s total operating income from its reportable segments to the Company’s income before income taxes, equity in earnings of affiliates and discontinued operations, in each case, during the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 3, 2011 and April 4, 2010, ~~and September 27, 2009, respectively.~~respectively (in thousands).


	Thirteen Weeks Ended						Thirty-nine Weeks Ended						Thirteen Weeks Ended
	October 3, 2010			September 27, 2009			October 3, 2010			September 27, 2009			April 3, 2011			April 4, 2010
Total operating income from segments	$	63,449		$	50,902		$	169,126		$	145,830		$	73,678		$	51,972
Unallocated amounts:
General and Administrative Expenses		(33,925	)		(15,685	)		(72,028	)		(49,936	)		(32,788	)		(17,448	)
Net interest expense		(10,183	)		(5,309	)		(23,730	)		(16,978	)		(15,392	)		(6,585	)
Loss on extinguishment of debt		(7,933	)		—			(7,933	)		—

Income before income taxes, equity in earnings of affiliates and discontinued operations	$	11,408		$	29,908		$	65,435		$	78,916
Income before income taxes and equity in earnings of affiliates													$	25,498		$	27,939

age 55 and ~~are~~was eligible to receive the ~~payments~~payment upon retirement. ~~On August 26, 2010,~~During the fiscal year ended January 2, 2011, the Company ~~announced that one of these key executives, Wayne H. Calabrese, Vice Chairman, President and Chief Operating Officer, will retire effective December 31, 2010. As~~paid a ~~result of his retirement, the Company will pay $4.5~~former executive $4.4 million in discounted retirement benefits, ~~under his non-qualified deferred compensation agreement,~~ including a gross up of ~~$1.7~~$1.6 million for certain taxes, ~~as specified in~~under the executive’s non-qualified deferred compensation agreement. AsThe Company’s liability relative to its pension plans and retirement agreements was $14.1 million and $13.8 million as of ~~October~~April 3, ~~2010, approximately $4.4~~2011 and January 2, 2011, respectively. The long-term portion of the pension liability as of April 3, 2011 and January 2, 2011 was $13.9 million ~~of this had been accrued~~and $13.6 million, respectively, and is ~~reflected~~included in ~~accrued expenses~~Other Non-Current liabilities in the accompanying balance ~~sheet. During the thirteen weeks ended October 3, 2010, the Company repurchased 381,460 shares from Mr. Calabrese for $8.6 million.~~sheets.

The following table summarizes key information related to the Company’s pension plans and retirement agreements. The table illustrates the reconciliation of the beginning and ending balances of the benefit obligation showing the effects during the ~~period~~periods presented attributable to each of the following: service cost, interest cost, plan amendments, termination benefits, actuarial gains and losses. The Company’s liability relative to its pension plans and retirement agreements was $17.0 million and $16.2 million as of October 3, 2010 and January 3, 2010, respectively. The long-term portion of the pension liability as of October 3, 2010 and January 3, 2010 was $12.4 million and $16.0 million, respectively, and is included in Other Non-Current liabilities in the accompanying balance sheets. The assumptions used in the Company’s calculation of accrued pension costs are based on market information and the Company’s historical rates for employment compensation and discount rates, respectively.


	October 3, 2010			January 3, 2010			April 3 , 2011			January 2, 2011
	(in thousands)						(in thousands)
Change in Projected Benefit Obligation
Projected benefit obligation, beginning of period	$	16,206		$	19,320		$	13,830		$	16,206
Service cost		393			563			161			525
Interest cost		560			717			167			746
Actuarial gain		—			(1,047	)		—			986
Benefits paid		(153	)		(3,347	)		(59	)		(4,633	)

Projected benefit obligation, end of period	$	17,006		$	16,206		$	14,099		$	13,830

Change in Plan Assets
Plan assets at fair value, beginning of period	$	—		$	—		$	—		$	—
Company contributions		153			3,347			59			4,633
Benefits paid		(153	)		(3,347	)		(59	)		(4,633	)

Plan assets at fair value, end of period	$	—		$	—		$	—		$	—

Unfunded Status of the Plan	$	(17,006	)	$	(16,206	)	$	(14,099	)	$	(13,830	)

Amounts Recognized in Accumulated Other Comprehensive Income
Prior service cost		31			41			—			—
Net loss		969			1,014			1,655			1,671

Accrued pension cost	$	1,000		$	1,055		$	1,655		$	1,671

15. RECENT ACCOUNTING STANDARDS

The Company implemented the following accounting standards in the ~~thirty-nine~~thirteen weeks ended ~~October~~April 3, ~~2010:~~

In December 2009, the FASB issued ASU No. 2009-17, previously known as FAS No. 167, “Amendments to FASB Interpretation No. FIN 46(R)” (SFAS No. 167). ASU No. 2009-17 amends the manner in which entities evaluate whether consolidation is required for VIEs. The consolidation requirements under the revised guidance require a company to consolidate a VIE if the entity has all three of the following characteristics (i) the power, through voting rights or similar rights, to direct the activities of a legal entity that most significantly impact the entity’s economic performance, (ii) the obligation to absorb the expected losses of the legal entity, and (iii) the right to receive the expected residual returns of the legal entity. Further, this guidance requires that companies continually evaluate VIEs for consolidation, rather than assessing based upon the occurrence of triggering events. As a result of adoption, which was effective for the Company’s interim and annual periods beginning after November 15, 2009, companies are required to enhance disclosures about how their involvement with a VIE affects the financial statements and exposure to risks. The implementation of this standard in the thirty-nine weeks ended October 3, 2010 did not have a material impact on the Company’s financial position, results of operations and cash flows.

In January 2010, the FASB issued ASU No. 2010-2 which addresses implementation issues related to changes in ownership provisions of consolidated subsidiaries, investees and joint ventures. The amendment clarifies that the scope of the decrease in ownership provisions outlined in the current consolidation guidance apply to (i) a subsidiary or group of assets that is a business or nonprofit activity, (ii) a subsidiary that is a business or nonprofit activity and is transferred to an equity method investee or joint venture and (iii) to an exchange of a group of assets that constitute a business or nonprofit activity for a noncontrolling interest in an entity. The amendment also makes certain other clarifications and expands disclosures about the deconsolidation of a subsidiary or derecognition of a group of assets within the scope of the current consolidation guidance. These amendments became effective for the Company’s interim and annual reporting periods beginning after December 15, 2009. The implementation of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.

In January 2010, the FASB issued ASU No. 2010-6 which requires additional disclosures relative to transfers of assets and liabilities between Levels 1 and 2 of the fair value hierarchy. Additionally, the amendment requires companies to present activity in the reconciliation for Level 3 fair value measurements on a gross basis rather than on a net basis. This update also provides clarification to existing disclosures relative to the level of disaggregation and disclosure of inputs and valuation techniques for fair value measurements that fall into either Level 2 or Level 3. This amendment became effective for the Company’s interim and annual reporting period after December 15, 2009, except for disclosures related to activity in Level 3 fair value measurements which are effective for the Company’s first reporting period beginning after December 15, 2010. The implementation of this standard, relative to Levels 1 and 2 of the fair value hierarchy, did not have a material impact on the Company’s financial position, results of operations and cash flows. The Company does not expect the adoption of the standard relative to Level 3 investments to have a material impact on the Company’s financial position, results of operations and cash flows.

~~The following accounting standards will be adopted in future periods:~~2011:

the term fair value with selling price and eliminate the residual method sosuch that consideration ~~would~~can be allocated to the deliverables using the relative selling price ~~method.~~method based on GEO’s specific assumptions. This amendment also significantly expands the disclosure requirements for multiple element arrangements. This guidance ~~will become~~became effective for the Company prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The ~~Company does not believe that the~~ implementation of this standard ~~will~~in the thirteen weeks ended April 3, 2011 did not have a material ~~adverse~~ impact on ~~its~~the Company’s financial position, results of ~~operation~~operations and cash flows.

As a result of the BI acquisition, the Company also periodically sells its monitoring equipment and other services together in multiple-element arrangements. In ~~July~~such cases, the Company allocates revenue on the basis of the relative selling price of the delivered and undelivered elements. The selling price for each of the elements is estimated based on the price charged by the Company when the elements are sold on a standalone basis.

In December 2010, the FASB issued ASU No. ~~2010-20 which affects all entities with financing receivables, excluding short-term trade accounts receivable or receivables measured at~~2010-28 related to goodwill and intangible assets. Under current guidance, testing for goodwill impairment is a two-step test. When a goodwill impairment test is performed, an entity must assess whether the carrying amount of a reporting unit exceeds its fair value ~~or lower~~(Step 1). If it does, an entity must perform an additional test to determine whether goodwill has been impaired and to calculate the amount of ~~cost or fair value.~~that impairment (Step 2). The objective of ASU No 2010-28 is to address circumstances in which entities have reporting units with zero or negative carrying amounts. The amendments in this guidance modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts to require an entity to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists after considering certain qualitative characteristics, as described in this guidance. This guidance became effective for the Company in fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company currently does not have any reporting units with a zero or negative carrying value. The implementation of this accounting standard did not have a material impact on the Company’s financial position, results of operations and/or cash flows.

Also, in December 2010, the FASB issued ASU No. 2010-29 related to financial statement disclosures for business combinations entered into after the beginning of the first annual reporting period beginning on or after December 15, 2010. The amendments in this guidance specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. These amendments also expand the supplemental pro forma disclosures under current guidance for business combinations to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is ~~for an entity to provide disclosures that facilitate financial statement users’ evaluation~~on or after the beginning of the following: (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses, (iii) the changes and reasons for those changes in the allowance for credit losses. These disclosures will be effective for the Company for interim andfirst annual reporting ~~periods ending~~period beginning on or after December 15, 2010. The Company ~~does not believe that~~acquired BI during the ~~implementation of~~thirteen weeks ended April 3, 2011 and has implemented this standard, ~~will have a material adverse impact on its financial position, results of operation and cash flows.~~as applicable, to the related business combination disclosures.

16. SUBSEQUENT EVENTS

On October 4, 2010, the Company announced the beginning of the intake of inmates from the Federal Bureau of Prisons (“BOP”) at the D. Ray James Correctional Facility in Georgia. The inmate intake process began on October 4, 2010 and is expected to be completed in the Spring of 2011. Under the Company’s new ten-year contract with the BOP, this facility will house up to 2,507 low security inmates.

Also, on October 4, 2010, the Company announced the opening of the 2,000-bed Blackwater River Correctional Facility located in Milton, Florida. The Company began the intake of medium and close-custody security inmates on October 5, 2010 and to complete the intake and ramp-up process in the first quarter of 2011.

In October 2010, the Company’s South Africa joint venture, SACS, received a Court ruling in its favor relative to the deductibility of certain expenses for tax periods 2002 through 2004. The South African Revenue Service has until December 2, 2010 to appeal this ruling. Should SARS appeal the case and if it is resolved unfavorably, the Company’s maximum exposure will be $2.6 million.

~~In October 2010, the IRS audit for the Company’s tax returns for its fiscal years 2006 through 2008 was concluded and resulted in no changes to the Company’s income tax positions.~~

On October 25, 2010, the Company signed a contract for the sale of land acquired in connection the acquisition of CSC in November 2005. The carrying value of the land is included in Assets Held for Sale and was $1.3 million as of October 3, 2010. The sales price, including sales costs, is $2.2 million and as such, the Company expects to recognize a gain on the sale inDuring the fourth fiscal quarter of ~~2010.~~

~~On November 4, 2010, we announced our signing~~2009, the Internal Revenue Service (“IRS”) completed its examination of ~~a contract with~~ the ~~State of California, Department of Corrections and Rehabilitation~~Company’s U.S. federal income tax returns for the ~~out-of-state housing~~years 2002 through 2005. Following the examination, the IRS notified the Company’s management that it proposed to disallow a deduction that the Company realized during the 2005 tax year. In December of up to 2,580 California inmates at our North Lake Correctional Facility (the “Facility”) located in Baldwin, Michigan. GEO will undertake a $60.0 million renovation and expansion project to convert the Facility’s existing dormitory housing units to cells and to increase the capacity of the 1,748-bed Facility to 2,580 beds.

~~On November 5,~~ 2010, the Company ~~announced it was selected~~reached an agreement with the office of the IRS Appeals on the amount of the deduction, subject to the review by the ~~California Department~~Joint Committee on Taxation. The review was completed without change on April 18, 2011, subsequent to the end of ~~Corrections and Rehabilitation (“CDCR”) for contract awards for~~ the ~~housing~~First Quarter. As a result of ~~650 female inmates at~~the review, there was no change to our tax accrual related to this matter.

On May 2, 2011, the Company executed Amendment No. 2 to its ~~company-owned 250-bed McFarland Community Correctional Facility and 400-bed Mesa Verde Community Correctional Facility located in California. The contract, which is subject~~Senior Credit Facility. As a result of this amendment, relative to ~~final review and approval by~~ the ~~California Department of General Services, will have a term of five years with one additional five-year renewal option period. The Company expects~~Company’s Term Loan B, the Applicable Rate was reduced to ~~begin the intake of female inmates at these two facilities~~2.75% per annum from 3.25% per annum in the ~~first quarter~~case of ~~2011.~~Eurodollar loans and to 1.75% per annum from 2.25% per annum in the case of ABR loans and the LIBOR floor was reduced to 1.00% from 1.50%.

17. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

~~On October 20, 2009,~~As discussed in Note 11, the Company completed ana private offering of ~~$250.0~~$300.0 million aggregate principal amount of ~~its 7~~³/₄%6.625% senior unsecured notes due ~~2017 (the “Original~~ 2021 (such 6.625% Senior Notes collectively with the 7³/4% Senior Notes issued October 20, 2009, the

“Notes”). The ~~Original~~Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by the Company and certain of its wholly-owned domestic subsidiaries (the “Subsidiary Guarantors”). The Company’s newly acquired BI subsidiary has been classified in the Condensed Consolidating Financial Information as a guarantor to the Company’s Notes. On February 10, 2011, the 6.625% Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States only to non-U.S. persons in accordance with Regulation S promulgated under the Securities Act. In connection with the sale of the ~~Original~~6.625% Senior Notes, the Company entered into a Registration Rights Agreement with the initial purchasers of the ~~Original~~6.625% Senior Notes party thereto, pursuant to which the Company and its Subsidiary Guarantors (as defined below) agreed to file a registration statement with respect to an offer to exchange the ~~Original~~6.625% Senior Notes for a new issue of substantially identical notes registered under the Securities ~~Act (the “Exchange Notes”, and together~~Act. As of the date these financial statements were issued, the Company had filed a registration statement with respect to this offer to exchange the ~~Original Notes, the “7~~³/₄~~% Senior Notes”). The 7~~³/₄%6.625% Senior Notes, ~~are fully and unconditionally guaranteed on a joint and several senior unsecured basis by~~however the Company and certain of its wholly-owned domestic subsidiaries (the “Subsidiary Guarantors”). The Company’s newly acquired Cornell subsidiary has been classified in the Condensed Consolidating Financial Information as a guarantor with the exception of MCF, which is a non-guarantor to the Company’s 7³/₄~~% Senior Notes.~~registration statement was not yet effective.

The following condensed consolidating financial information, which has been prepared in accordance with the requirements for presentation of Rule 3-10(d) of Regulation S-X promulgated under the Securities Act, presents the condensed consolidating financial information separately for:


		(i)		The GEO Group, Inc., as the issuer of the 7³/₄~~% Senior~~ Notes;

		(ii)		The Subsidiary Guarantors, on a combined basis, which are 100% owned by The GEO Group, Inc., and which are guarantors of the 7³/₄~~% Senior~~ Notes;

		(iii)		The Company’s other subsidiaries, on a combined basis, which are not guarantors of the 7³/₄~~% Senior~~ Notes (the “Subsidiary Non-Guarantors”);

		(iv)		Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among the Company, the Subsidiary Guarantors and the Subsidiary Non-Guarantors and (b) eliminate the investments in the Company’s subsidiaries; and

		(v)		The Company and its subsidiaries on a consolidated basis.

2528

CONDENSED CONSOLIDATING BALANCE SHEET
(dollars in thousands)
(unaudited)


	As of April 3, 2011
					Combined
			Combined		Non-
			Subsidiary		Guarantor
	The GEO Group, Inc.		Guarantors		Subsidiaries		Eliminations			Consolidated
			(Dollars in thousands)
ASSETS
Cash and cash equivalents	$	38,601	$	3,441	$	43,852	$	—		$	85,894
Restricted cash and investments		—		—		37,593		—			37,593
Accounts receivable, less allowance for doubtful accounts		102,510		153,087		23,057		—			278,654
Deferred income tax assets, net		15,191		28,665		4,127		—			47,983
Prepaid expenses and other current assets		5,733		18,527		8,791		(1,154	)		31,897

Total current assets		162,035		203,720		117,420		(1,154	)		482,021

Restricted Cash and Investments		7,253		—		42,721		—			49,974
Property and Equipment, Net		474,807		883,741		209,969		—			1,568,517
Assets Held for Sale		3,083		7,186		—		—			10,269
Direct Finance Lease Receivable		—		—		36,758		—			36,758
Intercompany Receivable		395,287		14,212		1,871		(411,370	)		—
Deferred Income Tax Assets, Net		—		—		936					936
Goodwill		34		526,311		773		—			527,118
Intangible Assets, Net		—		208,231		2,367		—			210,598
Investment in Subsidiaries		1,395,641		—		—		(1,395,641	)		—
Other Non-Current Assets		32,000		68,170		22,812		(53,038	)		69,944

	$	2,470,140	$	1,911,571	$	435,627	$	(1,861,203	)	$	2,956,135


LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	47,736	$	30,199	$	3,377	$	(1,154	)	$	80,158
Accrued payroll and related taxes		20,059		12,836		15,939		—			48,834
Accrued expenses		52,717		41,712		23,017		—			117,446
Current portion of capital lease obligations, long-term debt and non-recourse debt		17,000		1,360		31,687		—			50,047

Total current liabilities		137,512		86,107		74,020		(1,154	)		296,485

Deferred Income Tax Liabilities		15,874		91,476		20		—			107,370
Intercompany Payable		1,871		391,550		17,949		(411,370	)		—
Other Non-Current Liabilities		23,891		39,074		51,978		(53,038	)		61,905
Capital Lease Obligations		—		13,888		—		—			13,888
Long-Term Debt		1,235,613		628		—		—			1,236,241
Non-Recourse Debt		—		—		184,867		—			184,867
Commitments & Contingencies
Total Shareholders’ Equity		1,055,379		1,288,848		106,793		(1,395,641	)		1,055,379

	$	2,470,140	$	1,911,571	$	435,627	$	(1,861,203	)	$	2,956,135

CONDENSED CONSOLIDATING BALANCE SHEET

(dollars in thousands)

~~(unaudited)~~


													As of January 2, 2011
	As of October 3, 2010																Combined
			Combined		Combined										Combined		Non-
			Subsidiary		Non-Guarantor										Subsidiary		Guarantor
	The GEO Group Inc.		Guarantors		Subsidiaries		Eliminations			Consolidated			The GEO Group, Inc.		Guarantors		Subsidiaries		Eliminations			Consolidated
															(Dollars in thousands)
ASSETS
Cash and cash equivalents	$	21,493	$	710	$	31,563		—		$	53,766		$	2,614	$	221	$	36,829	$	—		$	39,664
Restricted cash and investments		—		—		40,180		—			40,180			—		—		41,150		—			41,150
Accounts receivable, net		110,844		123,712		27,127		—			261,683
Deferred income tax asset, net		12,197		15,529		3,469		—			31,195
Other current assets, net		6,785		4,344		10,314		—			21,443
Accounts receivable, less allowance for doubtful accounts														121,749		130,197		23,832		—			275,778
Deferred income tax assets, net														15,191		12,808		4,127		—			32,126
Prepaid expenses and other current assets														12,325		23,222		9,256		(8,426	)		36,377

Total current assets		151,319		144,295		112,653		—			408,267			151,879		166,448		115,194		(8,426	)		425,095

Restricted Cash and Investments		4,261		—		35,505		—			39,766			6,168		—		43,324		—			49,492
Property and Equipment, Net		411,949		872,091		214,846		—			1,498,886			433,219		867,046		211,027		—			1,511,292
Assets Held for Sale		3,083		1,265		—		—			4,348			3,083		6,887		—		—			9,970
Direct Finance Lease Receivable		—		—		36,835		—			36,835			—		—		37,544		—			37,544
Intercompany Receivable		18,274		14,212		1,769		(34,255	)		—			203,703		14,380		1,805		(219,888	)		—
Deferred Income Tax Assets, Net														—				936					936
Goodwill		34		243,810		724		—			244,568			34		243,213		762		—			244,009
Intangible Assets, Net		—		89,984		2,358		—			92,342			—		85,384		2,429		—			87,813
Investment in Subsidiaries		1,365,865		—		—		(1,365,865	)		—			1,184,297		—		—		(1,184,297	)		—
Other Non-Current Assets		26,084		62,818		24,320		(48,274	)		64,948			24,020		45,820		28,558		(41,750	)		56,648

	$	1,980,869	$	1,428,475	$	429,010	$	(1,448,394	)	$	2,389,960		$	2,006,403	$	1,429,178	$	441,579	$	(1,454,361	)	$	2,422,799


Current Liabilities
LIABILITIES AND SHAREHOLDERS’ EQUITY												LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	$	31,223	$	32,223	$	3,353		—		$	66,799		$	57,015	$	13,254	$	3,611	$	—		$	73,880
Accrued payroll and related taxes		22,804		6,917		13,969		—			43,690			6,535		10,965		15,861		—			33,361
Accrued expenses		69,108		28,138		22,077		—			119,323			55,081		40,391		33,624		(8,426	)		120,670
Current portion of debt		9,500		775		30,898		—			41,173
Current portion of capital lease obligations, long-term debt and non-recourse debt														9,500		782		31,292		—			41,574

Total current liabilities		132,635		68,053		70,297		—			270,985			128,131		65,392		84,388		(8,426	)		269,485

Deferred Income Tax Liability		6,652		44,009		408		—			51,069
Deferred Income Tax Liabilities														15,874		47,652		20		—			63,546
Intercompany Payable		1,769		14,500		17,986		(34,255	)		—			1,805		199,994		18,089		(219,888	)		—
Other Non-Current Liabilities		28,394		24,337		46,539		(48,274	)		50,996			22,767		25,839		40,006		(41,750	)		46,862
Capital Lease Obligations		—		13,888		—		—			13,888			—		13,686		—		—			13,686
Long-Term Debt		802,506		—		—		—			802,506			798,336		—		—		—			798,336
Non-Recourse Debt		—		—		191,603		—			191,603			—		—		191,394		—			191,394
Commitments & Contingencies (Note 12)
Commitments & Contingencies
Total Shareholders’ Equity		1,008,913		1,263,688		102,177		(1,365,865	)		1,008,913			1,039,490		1,076,615		107,682		(1,184,297	)		1,039,490

	$	1,980,869	$	1,428,475	$	429,010	$	(1,448,394	)	$	2,389,960		$	2,006,403	$	1,429,178	$	441,579	$	(1,454,361	)	$	2,422,799

~~CONDENSED CONSOLIDATING BALANCE SHEET~~

~~(dollars in thousands)~~

As of January 3, 2010
Combined Combined
Subsidiary Non-Guarantor
The GEO Group Inc. Guarantors Subsidiaries Eliminations Consolidated
ASSETS

Cash and cash equivalents $ 12,376 $ 5,333 $ 16,147 $ — $ 33,856
Restricted cash — — 13,313 — 13,313
Accounts receivable, net 110,643 53,457 36,656 — 200,756
Deferred income tax asset, net 12,197 1,354 3,469 — 17,020
Other current assets, net 4,428 2,311 7,950 — 14,689

Total current assets 139,644 62,455 77,535 — 279,634

Restricted Cash 2,900 — 17,855 — 20,755
Property and Equipment, Net 438,504 489,586 70,470 — 998,560
Assets Held for Sale 3,083 1,265 — — 4,348
Direct Finance Lease Receivable — — 37,162 — 37,162
Intercompany Receivable 3,324 13,000 1,712 (18,036 ) —
Goodwill 34 39,387 669 — 40,090
Intangible Assets, Net — 15,268 2,311 — 17,579
Investment in Subsidiaries 650,605 — — (650,605 ) —
Other Non-Current Assets 23,431 — 26,259 — 49,690

$ 1,261,525 $ 620,961 $ 233,973 $ (668,641 ) $ 1,447,818

Current Liabilities

Accounts payable $ 35,949 $ 6,622 $ 9,285 $ — $ 51,856
Accrued payroll and related taxes 6,729 5,414 13,066 — 25,209
Accrued expenses 55,720 2,890 22,149 — 80,759
Current portion of debt 3,678 705 15,241 — 19,624

Total current liabilities 102,076 15,631 59,741 — 177,448

Deferred Income Tax Liability 6,652 — 408 — 7,060
Intercompany Payable 1,712 — 16,324 (18,036 ) —
Other Non-Current Liabilities 32,127 1,015 — — 33,142
Capital Lease Obligations — 14,419 — — 14,419
Long-Term Debt 453,860 — — — 453,860
Non-Recourse Debt — — 96,791 — 96,791
Commitments & Contingencies (Note 14)
Total Shareholders’ Equity 665,098 589,896 60,709 (650,605 ) 665,098

$ 1,261,525 $ 620,961 $ 233,973 $ (668,641 ) $ 1,447,818

2730

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(dollars in thousands)

(unaudited)

For the Thirteen Weeks Ended October 3, 2010
Combined Combined
Subsidiary Non-Guarantor
The GEO Group Inc. Guarantors Subsidiaries Eliminations Consolidated

Revenues $ 151,656 $ 142,293 $ 53,209 $ (19,225 ) $ 327,933
Operating expenses 137,612 92,057 40,656 (19,225 ) 251,100
Depreciation and amortization 4,503 7,370 1,511 — 13,384
General and administrative expenses 14,820 13,905 5,200 — 33,925

Operating income (5,279 ) 28,961 5,842 — 29,524
Interest income 302 343 1,608 (519 ) 1,734
Interest expense (8,793 ) (512 ) (3,131 ) 519 (11,917 )
Loss on extinguishment of debt (7,933 ) — — — (7,933 )

Income (loss) before income taxes, equity in earnings of affiliates, and discontinued operations (21,703 ) 28,792 4,319 — 11,408
Provision for income taxes (4,663 ) 10,486 1,724 — 7,547
Equity in earnings of affiliates, net of income tax — — 1,149 — 1,149

Income from continuing operations before equity in income of consolidated subsidiaries (17,040 ) 18,306 3,744 — 5,010
Equity in income of consolidated subsidiaries 22,050 — — (22,050 ) —

Income from continuing operations 5,010 18,306 3,744 (22,050 ) 5,010
Net loss attributable to noncontrolling interest — — — 271 271

Net income attributable to The GEO Group, Inc. $ 5,010 $ 18,306 $ 3,744 $ (21,779 ) $ 5,281

~~CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS~~

~~(dollars in thousands)~~

~~(unaudited)~~

For the Thirteen Weeks Ended September 27, 2009
Combined Combined
Subsidiary Non-Guarantor
The GEO Group Inc. Guarantors Subsidiaries Eliminations Consolidated

Revenues $ 153,287 $ 79,534 $ 74,682 $ (12,638 ) $ 294,865
Operating expenses 127,790 52,316 66,761 (12,638 ) 234,229
Depreciation and amortization 4,596 4,009 1,011 — 9,616
General and administrative expenses 7,740 3,989 3,956 — 15,685

Operating income 13,161 19,220 2,954 — 35,335
Interest income 114 319 1,191 (400 ) 1,224
Interest expense (4,363 ) (323 ) (2,247 ) 400 (6,533 )

Income before income taxes, equity in earnings of affiliates, and discontinued operations 8,912 19,216 1,898 — 30,026
Provision for income taxes 3,377 7,059 1,107 — 11,543
Equity in earnings of affiliates, net of income tax — — 904 — 904

Income from continuing operations before equity in income of consolidated subsidiaries 5,535 12,157 1,695 — 19,387
Equity in income of consolidated subsidiaries 13,852 — — (13,852 ) —

Income from continuing operations 19,387 12,157 1,695 (13,852 ) 19,387
Loss from discontinued operations, net of income tax — — — —

Net income 19,387 12,157 1,695 (13,852 ) 19,387

Net income attributable to noncontrolling interest — — — (129 ) (129 )

Net income attributable to The GEO Group, Inc. $ 19,387 $ 12,157 $ 1,695 $ (13,981 ) $ 19,258


	For the Thirteen Weeks Ended April 3, 2011
				Combined			Combined
				Subsidiary			Non-Guarantor
	The GEO Group, Inc.			Guarantors			Subsidiaries			Eliminations			Consolidated

Revenues	$	143,391		$	211,226		$	55,501		$	(18,352	)	$	391,766
Operating expenses		131,874			143,703			42,061			(18,352	)		299,286
Depreciation and amortization		4,256			12,690			1,856			—			18,802
General and administrative expenses		11,465			16,886			4,437			—			32,788

Operating income (loss)		(4,204	)		37,947			7,147			—			40,890
Interest income		5,736			325			1,463			(5,955	)		1,569
Interest expense		(13,353	)		(5,939	)		(3,624	)		5,955			(16,961	)

Income (loss) before income taxes and equity in earnings of affiliates		(11,821	)		32,333			4,986			—			25,498
Provision for income taxes		(4,568	)		12,493			1,855			—			9,780
Equity in earnings of affiliates, net of income tax provision		—			—			662			—			662

Income (loss) before equity income of consolidated subsidiaries		(7,253	)		19,840			3,793			—			16,380
Income from consolidated subsidiaries, net of income tax provision		23,633			—			—			(23,633	)		—

Net income		16,380			19,840			3,793			(23,633	)		16,380
Net loss attributable to noncontrolling interests		—			—			—			410			410

Net income attributable to the GEO Group, Inc.	$	16,380		$	19,840		$	3,793		$	(23,223	)	$	16,790

2831

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(dollars in thousands)

(unaudited)

For the Thirty-nine Weeks Ended October 3, 2010
Combined Combined
Subsidiary Non-Guarantor
The GEO Group Inc. Guarantors Subsidiaries Eliminations Consolidated

Revenues $ 459,271 $ 316,251 $ 168,186 $ (48,138 ) $ 895,570
Operating expenses 402,167 202,799 137,520 (48,138 ) 694,348
Depreciation and amortization 12,953 15,698 3,445 — 32,096
General and administrative expenses 35,053 24,138 12,837 — 72,028

Operating income 9,098 73,616 14,384 — 97,098
Interest income 912 1,008 4,226 (1,698 ) 4,448
Interest expense (20,728 ) (1,536 ) (7,612 ) 1,698 (28,178 )
Loss on extinguishment of debt (7,933 ) — — (7,933 )

Income before income taxes, equity in earnings of affliates, and discontinued operations (18,651 ) 73,088 10,998 — 65,435
Provision for income taxes (3,445 ) 27,864 4,141 — 28,560
Equity in earnings of affiliates, net of income tax — — 2,868 — 2,868

Income from continuing operations before equity in income of consolidated subsidiaries (15,206 ) 45,224 9,725 — 39,743
Equity in income of consolidated subsidiaries 54,949 — — (54,949 ) —

Income from continuing operations 39,743 45,224 9,725 (54,949 ) 39,743
Net loss attributable to noncontrolling interest — — — 227 227

Net income attributable to The GEO Group, Inc. $ 39,743 $ 45,224 $ 9,725 $ (54,722 ) $ 39,970

~~CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS~~

~~(dollars in thousands)~~

~~(unaudited)~~


	For the Thirty-nine Weeks Ended September 27, 2009															For the Thirteen Weeks Ended April 4, 2010
				Combined			Combined												Combined			Combined
				Subsidiary			Non-Guarantor												Subsidiary			Non-Guarantor
	The GEO Group Inc.			Guarantors			Subsidiaries			Eliminations			Consolidated			The GEO Group, Inc.			Guarantors			Subsidiaries			Eliminations			Consolidated

Revenues	$	454,684		$	243,642		$	169,856		$	(37,877	)	$	830,305		$	152,860		$	86,996		$	60,490		$	(12,804	)	$	287,542
Operating expenses		387,486			158,180			147,624			(37,877	)		655,413			131,019			55,975			52,142			(12,804	)		226,332
Depreciation and amortization		13,343			12,474			3,245			—			29,062			4,212			4,047			979			—			9,238
General and administrative expenses		26,152			14,014			9,770			—			49,936			8,880			5,055			3,513			—			17,448

Operating income		27,703			58,974			9,217			—			95,894			8,749			21,919			3,856			—			34,524
Interest income		163			3			3,354			—			3,520			301			346			1,169			(587	)		1,229
Interest expense		(13,976	)		(5	)		(6,517	)		—			(20,498	)		(5,759	)		(508	)		(2,134	)		587			(7,814	)

Income before income taxes, equity in earnings of affiliates, and discontinued operations		13,890			58,972			6,054			—			78,916
Income before income taxes and equity in earnings of affiliates																	3,291			21,757			2,891			—			27,939
Provision for income taxes		5,298			22,494			2,582			—			30,374			1,323			8,750			748			—			10,821
Equity in earnings of affiliates, net of income tax		—			—			2,407			—			2,407
Equity in earnings of affiliates, net of income tax provision																	—			—			590			—			590

Income from continuing operations before equity in income of consolidated subsidiaries		8,592			36,478			5,879			—			50,949
Income in consolidated subsidiaries, net of income tax		42,357			—			—			(42,357	)		—

Income from continuing operations		50,949			36,478			5,879			(42,357	)		50,949
Loss from discontinued operations, net of income tax		(346	)		(193	)		—			193			(346	)
Income before equity income of consolidated subsidiaries																	1,968			13,007			2,733			—			17,708
Income from consolidated subsidiaries, net of income tax provision																	15,740			—			—			(15,740	)		—

Net income		50,603			36,285			5,879			(42,164	)		50,603			17,708			13,007			2,733			(15,740	)		17,708

Net income attributable to noncontrolling interests		—			—			—			(129	)		(129	)		—			—			—			(36	)		(36	)

Net income attributable to The GEO Group, Inc.	$	50,603		$	36,285		$	5,879		$	(42,293	)	$	50,474		$	17,708		$	13,007		$	2,733		$	(15,776	)	$	17,672

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)


	For the Thirty-nine Weeks Ended October 3, 2010												For the Thirteen Weeks Ended April 3, 2011
				Combined			Combined									Combined			Combined
				Subsidiary			Non-Guarantor									Subsidiary			Non-Guarantor
	The GEO Group Inc.			Guarantors			Subsidiaries			Consolidated			The GEO Group, Inc.			Guarantors			Subsidiaries			Consolidated

Operating activities:
Cash Flow from Operating Activities:
Net cash provided by operating activities	$	71,482		$	2,980		$	29,142		$	103,604		$	41,403		$	8,025		$	19,649		$	69,077


Cash Flow from Investing Activities:
Acquisition, net of cash acquired		(260,239	)		—			—			(260,239	)
Just Care purchase price adjustment		—			(41	)		—			(41	)
Proceeds from sale of assets		—			334			—			334
Acquisition, cash consideration, net of cash acquired														(409,607	)		—			—			(409,607	)
Proceeds from sale of property and equipment														—			250			—			250
Change in restricted cash		—			—			(2,070	)		(2,070	)		—			—			3,199			3,199
Capital expenditures		(57,340	)		(7,366	)		(3,578	)		(68,284	)		(33,312	)		(4,848	)		(536	)		(38,696	)

Net cash used in investing activities		(317,579	)		(7,073	)		(5,648	)		(330,300	)		(442,919	)		(4,598	)		2,663			(444,854	)


Cash Flow from Financing Activities:
Payments on long-term debt		(331,490	)		(530	)		(10,440	)		(342,460	)		(15,375	)		(207	)		(6,084	)		(21,666	)
Proceeds from long-term debt		673,000			—			—			673,000			461,000			—			—			461,000
Payments for purchase of treasury shares		(80,000	)		—			—			(80,000	)
Payments on retirement of common stock		(7,079	)		—			—			(7,078	)
Distribution to MCF partners														—			—			(4,012	)		(4,012	)
Proceeds from the exercise of stock options		5,747			—			—			5,747			983			—			—			983
Income tax benefit of equity compensation		786			—			—			786			172			—			—			172
Debt issuance costs		(5,750	)		—			—			(5,750	)		(9,277	)		—			—			(9,277	)

Net cash provided by (used in) financing activities		255,214			(530	)		(10,440	)		244,245			437,503			(207	)		(10,096	)		427,200

Effect of Exchange Rate Changes on Cash and Cash Equivalents		—			—			2,362			2,361			—			—			(5,193	)		(5,193	)

Net Increase (Decrease) in Cash and Cash Equivalents		9,117			(4,623	)		15,416			19,910
Net Increase in Cash and Cash Equivalents														35,987			3,220			7,023			46,230
Cash and Cash Equivalents, beginning of period		12,376			5,333			16,147			33,856			2,614			221			36,829			39,664

Cash and Cash Equivalents, end of period	$	21,493		$	710		$	31,563		$	53,766		$	38,601		$	3,441		$	43,852		$	85,894

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)


	For the Thirty-nine Weeks Ended September 27, 2009												For the Thirteen Weeks Ended April 4 , 2010
				Combined			Combined									Combined			Combined
				Subsidiary			Non-Guarantor									Subsidiary			Non-Guarantor
	The GEO Group Inc.			Guarantors			Subsidiaries			Consolidated			The GEO Group, Inc.			Guarantors			Subsidiaries			Consolidated

Operating activities:
Net cash provided by operating activities	$	541		$	36,599		$	42,161		$	79,301

Cash Flow from Operating Activities:
Net cash (used in) provided by operating activities													$	54,412		$	(2,588	)	$	12,910		$	64,734

Cash Flow from Investing Activities:
Dividend from subsidiary		6,277			—			(6,277	)		—
Just Care purchase price adjustment														—			(41	)		—			(41	)
Proceeds from sale of property and equipment														—			100			—			100
Change in restricted cash		—			—			(1,426	)		(1,426	)		—			—			(2,257	)		(2,257	)
Capital expenditures		(50,451	)		(36,093	)		(27,170	)		(113,714	)		(13,610	)		(1,918	)		(209	)		(15,737	)

Net cash used in investing activities		(44,174	)		(36,093	)		(34,873	)		(115,140	)		(13,610	)		(1,859	)		(2,466	)		(17,935	)


Cash Flow from Financing Activities:
Payments on long-term debt														(6,940	)		(171	)		(5,688	)		(12,799	)
Proceeds from long-term debt		41,000			—			—			41,000			15,000			—			—			15,000
Payments for purchase of treasury shares														(53,845	)		—			—			(53,845	)
Income tax benefit of equity compensation		(19	)		—			—			(19	)		112			—			—			112
Debt issuance costs		(358	)		—			—			(358	)
Termination of interest rate swap agreement		1,719			—			—			1,719
Payments on long-term debt		(10,765	)		(509	)		(7,212	)		(18,486	)
Proceeds from the exercise of stock options		383			—			—			383			1,138			—			—			1,138

Net cash provided by (used in) financing activities		31,960			(509	)		(7,212	)		24,239
Net cash used in financing activities														(44,535	)		(171	)		(5,688	)		(50,394	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		—			—			4,244			4,244			—			—			15			15



Net Increase (Decrease) in Cash and Cash Equivalents		(11,673	)		(3	)		4,320			(7,356	)		(3,733	)		(4,618	)		4,771			(3,580	)
Cash and Cash Equivalents, beginning of period		15,807			130			15,718			31,655			12,376			5,333			16,147			33,856

Cash and Cash Equivalents, end of period	$	4,134		$	127		$	20,038		$	24,299		$	8,643		$	715		$	20,918		$	30,276

THE GEO GROUP, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Information

This Quarterly Report on Form 10-Q and the documents incorporated by reference herein contain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. “Forward-looking” statements are any statements that are not based on historical information. Statements other than statements of historical facts included in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are “forward-looking” statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” or “continue” or the negative of such words or variations of such words and similar expressions. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements and we can give no assurance that such forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements, or “cautionary statements,” include, but are not limited to:

•		our ability to timely build and/or open facilities as planned, profitably manage such facilities and successfully integrate such facilities into our operations without substantial additional costs;

•		the instability of foreign exchange rates, exposing us to currency risks in Australia, the United Kingdom, and South Africa, or other countries in which we may choose to conduct our business;

•		our ability to activate the ~~Great Plains Correctional Facility in Hinton, Oklahoma, which we acquired from Cornell Companies, which we refer to as “Cornell”;~~inactive beds at our idle facilities;

•		an increase in unreimbursed labor rates;

•		our ability to expand, diversify and grow our correctional, mental health, ~~and~~ residential treatment, re-entry, supervision and monitoring and secure transportation services business;

•		our ability to win management contracts for which we have submitted proposals and to retain existing management contracts;

•		our ability to raise new project development capital given the often short-term nature of the customers’ commitment to use newly developed facilities;

•		our ability to estimate the government’s level of dependency on privatized correctional services;

•		our ability to accurately project the size and growth of the U.S. and international privatized corrections industry;

•		our ability to develop long-term earnings visibility;

•		our ability to identify suitable acquisitions, and to successfully complete and integrate such acquisitions on satisfactory terms;

•		our ability to successfully integrate Cornell Companies Inc., which we refer to as Cornell, and BII Holding Corporation, which we refer to as BI Holding into our business within our expected time-frame and estimates regarding integration costs;

•		our ability to accurately estimate the growth to our aggregate annual revenues and the amount of annual synergies we can achieve as a result of ~~consummation~~our acquisitions of ~~the merger with Cornell;~~Cornell and BI Holding;

•		our ability to successfully address any difficulties encountered in maintaining relationships with customers, employees or suppliers as a result of ~~the merger with Cornell;~~our acquisitions of Cornell and BI Holding;


•		our ability to maintain occupancy rates at our facilities;

•		our ability to manage costs and expenses relating to ongoing litigation arising from our operations;

•		our ability to accurately estimate on an annual basis, loss reserves related to general liability, workers compensation and automobile liability claims;

•		~~our ability to identify suitable acquisitions, and to successfully complete and integrate such acquisitions on satisfactory terms;~~

•		the ability of our government customers to secure budgetary appropriations to fund their payment obligations to us; and

•		other factors contained in our filings with the Securities and Exchange Commission, or the SEC, including, but not limited to, those detailed in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K and our Current Reports on Form 8-K filed with the SEC.

We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q.

Introduction

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of numerous factors including, but not limited to, those described above under “Forward Looking Information” and under “Part I — Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January ~~3, 2010 and “Part II — Item 1A. Risk Factors” in our Quarterly Reports on Form 10-Q for the quarterly periods ended April 4, 2010, July 4, 2010 and October 3, 2010.~~2, 2011. The discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. For the purposes of this discussion and analysis, we refer to the thirteen weeks ended ~~October~~April 3, ~~2010~~2011 as ~~“Third~~“First Quarter ~~2010,~~2011,” and we refer to the thirteen weeks ended ~~September 27, 2009~~April 4, 2010 as ~~“Third~~“First Quarter ~~2009.~~2010.”

We are a leading provider of government-outsourced services specializing in the management of correctional, detention, ~~and~~ mental health, ~~and~~ residential treatment 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. On August 12, 2010, we acquired Cornell Companies Inc., and as of October 3, 2010, our worldwide operations include the management and/ or ownership of approximately 79,000 beds at 116 correctional, detention and residential treatment facilities including projects under development. We operate a broad range of correctional and detention facilities including maximum, medium and minimum security prisons, immigration detention centers, minimum security detention centers, ~~community based services, youth services and~~ mental health, ~~and~~ residential treatment 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 Residential Treatment Services are operated through our wholly-owned subsidiary GEO Care Inc. and involve partnering with governments to deliver quality care, innovative programming and active patient treatment primarily in privately operated state mental health care facilities. Our newly acquired Community Based Services, also operated through GEO Care, involve supervision of adult parolees and probationers and provide temporary housing, programming, employment assistance and other services with the intention of the successful reintegration of residents into society. Youth Services, also newly acquired and operating under GEO Care, include residential, detention and shelter care and community based re-entry facilities. We offer counseling, education and/or treatment to inmates with alcohol and drug abuse problems at most of the domestic facilities we manage. Through our acquisition of BI Holding, we are also a provider of innovative compliance technologies, industry-leading monitoring services, ~~along with rehabilitative, educational~~and evidence-based supervision and treatment ~~programs.~~programs for community-based parolees, probationers and pretrial defendants. Additionally, BI Holding has an exclusive contract with 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 ~~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. We also provide secure transportation services for offender and detainee populations as contracted.

Our acquisition of Cornell Companies, Inc., which we refer to this transaction as the Cornell Acquisition, in August 2010 added scale to our presence in the U.S. correctional and detention market, and combined Cornell’s adult community based and youth treatment services into GEO Care’s behavioral healthcare services platform to create a leadership position in this growing market. On December 21, 2010, we entered into a merger agreement to acquire BII Holding Corporation, which we refer to this transaction as the BI Acquisition. On February 10, 2011, we completed our acquisition of BII Holding, the indirect owner of 100% of the equity interests of B.I. Incorporated, which we refer to as BI. We believe the addition of BI will provide us with the 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 April 3, 2011, our worldwide operations included the management and/or ownership of approximately 80,000 beds at 116 correctional, detention and residential treatment facilities, including idle facilities and projects under development and also included the provision of monitoring services, tracking more than 60,000 offenders on behalf of approximately 900 federal, state and local correctional agencies located in all 50 states.

We provide a diversified scope of services on behalf of our government clients:

	•		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 and residential treatment services involve working with governments to deliver quality care, innovative programming and active patient treatment, primarily in state-owned mental healthcare facilities;

	•		our community-based services involve supervision of adult parolees and probationers and the provision of temporary housing, programming, employment assistance and other services with the intention of the successful reintegration of residents into the community;

	•		our youth services include residential, detention and shelter care and community-based services along with rehabilitative, educational and treatment programs;

	•		our monitoring services provide our governmental clients with innovative compliance technologies, industry-leading monitoring services, and evidence-based supervision and treatment programs for community-based parolees, probationers and pretrial defendants; including services to ICE for the provision of services designed to improve the participation of non-detained aliens in the immigration court system;

	•		we develop new facilities, using our project development experience to design, construct and finance what we believe are state-of-the-art facilities that maximize security and efficiency; and

	•		we provide secure transportation services for offender and detainee populations as contracted.

We maintained an average company-wide facility occupancy rate of ~~94.9%~~93.4% for the ~~thirty-nine~~thirteen weeks ended ~~October~~April 3, ~~2010.~~2011. As a result of the ~~merger with~~acquisitions of Cornell and BI, we will benefit from the combined Company’s increased scale and the diversification of service offerings.

Reference is made to Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on ~~February 22, 2010,~~March 2, 2011, for further discussion and analysis of information pertaining to our financial condition and results of operations for the fiscal year ended January ~~3, 2010.~~2, 2011.

Fiscal 2011 Developments

Acquisition of BII Holding

On February 10, 2011, we completed our previously announced acquisition of BI, a Colorado corporation, pursuant to an Agreement and Plan of Merger, dated as of December 21, 2010 (the “Merger Agreement”), with BII Holding, a Delaware corporation, which owns BI, GEO Acquisition IV, Inc., a Delaware corporation and our wholly-owned subsidiary (“Merger Sub”), BII Investors IF LP, in its

3337

~~Fiscal 2010 Developments~~

~~Acquisition of Cornell~~

~~On August 12, 2010, we completed~~capacity as the ~~acquisition of Cornell, a Houston-based provider of correctional, detention, educational, rehabilitation~~stockholders’ representative, and treatment services outsourced by federal, state, county and local government agencies for adults and juveniles. The strategic benefits of the Merger include the combined Company’s increased scale and the diversification of service offerings. The acquisition was completed pursuant to a definitive merger agreement entered into on April 18, 2010, and amended on July 22, 2010, between us, GEO Acquisition III, Inc., and Cornell.AEA Investors 2006 Fund L.P. Under the terms of the ~~merger agreement, we acquired 100%~~Merger Agreement, Merger Sub merged with and into BII Holding (the “Merger”), with BII Holding emerging as the surviving corporation of the ~~outstanding common stock~~merger. As a result of ~~Cornell for aggregate~~the Merger, we paid merger consideration of ~~$618.3~~$409.6 million in cash excluding cash acquired, transaction related expenses and subject to certain adjustments. Under the Merger Agreement, $12.5 million of ~~$12.9 million and including: (i) cash payments~~the merger consideration was placed in an escrow account for ~~Cornell’s outstanding common stock of $84.9 million, (ii) payments made on behalf of Cornell related~~a one-year period to ~~Cornell’s transaction costs accrued prior~~satisfy any applicable indemnification claims pursuant to the terms of the Merger Agreement by us, the Merger Sub or its affiliates. At the time of ~~$6.4~~the BI Acquisition, approximately $78.4 million, ~~(iii) cash payments for the settlement of certain of Cornell’s debt plus~~including accrued interest was outstanding under BI’s senior term loan and $107.5 million, including accrued interest was outstanding under its senior subordinated note purchase agreement, excluding the unamortized debt discount. All indebtedness of ~~$181.9 million using proceeds from the Company’s Credit Agreement, (iv) common stock consideration of $357.8 million,~~BI under its senior term loan and ~~(v) the fair value of stock option replacement awards of $0.2 million. The value~~senior subordinated note purchase agreement was repaid by BI with a portion of the ~~equity consideration was based on~~$409.6 million merger consideration. We are in the ~~closing price~~process of integrating BI into our ~~stock on August 12, 2010 of $22.70.~~wholly-owned subsidiary, GEO Care.

~~New Credit Agreement~~Senior Notes due 2021

On ~~August 4, 2010,~~February 10, 2011, we ~~entered into a Credit Agreement between us, as Borrower, certain~~completed the issuance of ~~our subsidiaries, as Guarantors, and BNP Paribas, as Lender and as Administrative Agent (together with the Term Loan A, Term Loan B and the Revolving Credit Facility (which~~$300.0 million in aggregate principal amount of 6.625% senior unsecured notes due 2021, which we refer to as the ~~Revolver),~~6.625% Senior Notes, in a private offering under an Indenture dated as of February 10, 2011 among us, certain of our domestic subsidiaries, as guarantors, and Wells Fargo Bank, National Association, as trustee. The 6.625% Senior Notes were offered and sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended, and outside the United States in accordance with Regulation S under the Securities Act. The 6.625% Senior Notes were issued at a coupon rate and yield to maturity of 6.625%. Interest on the 6.625% Senior Notes will accrue at the rate of 6.625% per annum and will be payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2011. The 6.625% Senior Notes mature on February 15, 2021. We used the net proceeds from this offering along with $150.0 million of borrowings under our senior credit facility to finance the acquisition of BI and to pay related fees, costs, and expenses. We used the remaining net proceeds for general corporate purposes.

Amendments to Senior Credit Facility

On February 8, 2011, we entered into Amendment No. 1, which we refer to ~~this~~as Amendment No. 1, to our Credit Agreement, which we refer to as the ~~‘Credit Agreement”. The~~Senior Credit ~~Agreement~~Facility, dated as of August 4, 2010, by and among us, the Guarantors party thereto, the lenders party thereto and BNP Paribas, as administrative agent. Amendment No. 1, among other things amended certain definitions and covenants relating to the total leverage ratios and the senior secured leverage ratios set forth in the Credit Agreement. This amendment increased our borrowing capacity by $250.0 million and is comprised of ~~(i)~~$150.0 million in borrowings under a new Term Loan A-2 due August 2015, bearing interest at LIBOR plus 2.75%, and an incremental $100.0 million in borrowing capacity under the existing Revolver. Following the amendment, the Senior Credit Facility is comprised of: a $150.0 million Term Loan A ~~initially bearing interest at LIBOR plus 2.5% and maturing~~due August ~~4, 2015, (ii)~~2015; a $150.0 million Term Loan A-2 due August 2015; a $200.0 million Term Loan B ~~initially bearing interest at LIBOR plus 3.25% with~~due August 2016; and a ~~LIBOR floor of 1.50% and maturing August 4, 2016 and (iii) a~~$500.0 million Revolving Credit Facility due August 2015. Incremental borrowings of ~~$400.0~~$150.0 million ~~initially bearing interest at LIBOR plus 2.5%~~under our amended Senior Credit Facility along with proceeds from our $300.0 million offering of the 6.625% Senior Notes were used to finance the acquisition of BI. As of April 3, 2011, the Company had $493.5 million in aggregate borrowings outstanding, net of discount, under the Term Loans, $210.0 million in borrowings under the Revolving Credit Facility due August 2015, which we refer to as the Revolver, approximately $70.4 million in letters of credit and ~~maturing August 4, 2015.~~

~~Executive retirement~~$219.6 million in additional borrowing capacity under the Revolver.

On ~~August 26, 2010,~~May 2, 2011, we ~~announced the retirement of Wayne H. Calabrese,~~executed Amendment No. 2 to our Vice Chairman, President and Chief Operating Officer. He will retire effective December 31, 2010. Mr. Calabrese’s business development and oversight responsibilities will be reassigned throughout GEO’s senior management team and existing corporate structure, and Mr. Calabrese will continue to provide assistance to GEO pursuant to the terms of a consulting agreement beginning January 3, 2011.

~~Stock Repurchase Program~~

On February 22, 2010, we announced that our Board of Directors approved a stock repurchase program for up to $80.0 million of our common stock effective through March 31, 2011. The stock repurchase program is intended to be implemented through purchases made from time to time in the open market or in privately negotiated transactions, in accordance with applicable Securities and Exchange Commission requirements. The program may also include repurchases from time to time from executive officers or directors of vested restricted stock and/or vested stock options. During the thirty-nine weeks ended October 3, 2010, the Company purchased 4.0 million shares of its common stock at a cost of $80.0 million using cash on hand and cash flow from operating activities.Senior Credit Facility. As a result ~~we have completed repurchases~~ of ~~shares of~~this amendment, relative to our ~~common stock under~~Term Loan B, the ~~share repurchase program approved in February 2010.~~

~~Contract Terminations~~

~~We do not expect the following contract terminations~~Applicable Rate was reduced to ~~have a material adverse impact, individually or~~2.75% per annum from 3.25% per annum in the ~~aggregate on our financial condition, results~~case of ~~operations or cash flows.~~

~~Effective September 1, 2010, our management contract for~~Eurodollar loans and to 1.75% per annum from 2.25% per annum in the ~~operation~~case of ~~the 450-bed South Texas Intermediate Sanction Facility terminated. This facility was not owned by us.~~

On June 22, 2010, we announced the termination of our managed-only contract for the 520-bed Bridgeport Correctional Center in Bridgeport, Texas following a competitive rebid process conducted by the State of Texas. The contract terminated effective August 31, 2010.

~~On April 14, 2010, the State of Florida issued a Notice of Intent to Award contracts for the 1,884-bed Graceville Correctional Facility (“Graceville”) located in Graceville, Florida~~ABR loans and the ~~985-bed Moore Haven Correctional Facility (“Moore Haven”) located in Moore Haven, Florida~~LIBOR floor was reduced to ~~another operator. Our management of Graceville terminated effective September 26, 2010 and our contract with Moore Haven terminated effective August 1, 2010.~~


(1)		We currently do not have a customer for this facility but are marketing these beds to various local, state and federal agencies.

(2)		On November 4, 2010, we announced our signing of a contract with the State of California, Department of Corrections and ~~Rehabilitation. Under~~Rehabilitation for the ~~terms~~out-of-state housing of California inmates at the North Lake Correctional Facility. As a result of this new contract, we will ~~undertake~~complete a ~~renovation and expansion to increase~~cell conversion on the existing 1,748-bed facility in Q3 2011 and expect to complete the expansion of this facility by 832 ~~beds.~~beds as required to meet the scheduled ramp-up of CDCR inmates.

(3)		We ~~are currently operating this facility and have a management contract with the Federal Government for 700 beds. The ongoing construction~~will provide services at this facility ~~is for a new administration building and other renovations to the existing structure.~~through an Inter-Governmental Agreement, or IGA, with Karnes County.

~~Asset Acquisition~~Contract Terminations

The following contract terminations impact fiscal year 2011. We do not expect that the termination of these contracts will have a material adverse impact, individually or in the aggregate, on our financial condition, results of operations or cash flows.

Effective February 28, 2011, our contract for the management of the 424-bed North Texas ISF, located in Fort Worth, Texas, terminated.

Effective April 30, 2011, our contract for the management of the 970-bed Regional Correctional Center, located in Albuquerque, New Mexico, terminated.

Effective May 29, 2011, our subsidiary in the United Kingdom will no longer manage the 215-bed Campsfield House Immigration Removal Centre in Kidlington, England.

Contract Awards and ~~Contract Awards~~Facility Activations

On ~~July 21, 2010,~~March 1, 2011, we ~~announced~~opened the ~~execution of~~100-bed Montgomery County Mental Health Treatment Facility located in Conroe, Texas. GEO Care will manage this county-owned facility under a ~~new~~management contract with Montgomery County, Texas with an initial term effective through August 31, 2011 and unlimited two-year renewal option periods. Montgomery County in turn has an Intergovernmental Agreement with the State of Georgia, Department of Corrections for the development and operation of a new 1,500-bed correctional facility to be located in Milledgeville, Georgia. Under the terms of the contract, we will finance, develop, and operate the new $80.0 million, 1,500-bed Facility on state-owned land pursuant to a 40-year ground lease. This facility is expected to open in the first quarter of 2012.

On July 26, 2010, we announced our signing of a contract amendment with the East Mississippi Correctional Facility Authority (“the Authority”) for the continued management of the 1,500-bed East Mississippi Correctional Facility located in Meridian, Mississippi. The amendment extends our management contract with the Authority through March 15, 2015. The Authority in turn has a concurrent contract with the Mississippi Department of CorrectionsTexas for the housing of ~~Mississippi inmates~~a mental health forensic population at this facility.

On ~~November 4, 2010,~~March 15, 2011, we announced that our ~~signing of a contract with~~wholly-owned U.K. subsidiary, GEO UK Ltd., was selected as the ~~State of California, Department of Corrections and Rehabilitation~~preferred bidder by the United Kingdom Border Agency for the ~~out-of-state housing of up to 2,580 California inmates at our North Lake Correctional Facility (the “Facility”) located in Baldwin, Michigan. GEO will undertake a $60.0 million renovation~~management and ~~expansion project to convert the Facility’s existing dormitory housing units to cells and to increase the capacity~~operation of the ~~1,748-bed Facility to 2,580 beds.~~

~~On November 5, 2010, we announced we were selected by the California Department of Corrections and Rehabilitation (“CDCR”) for~~217-bed Dungavel House Immigration Removal Centre located near Glasgow, Scotland. The contract ~~awards~~ for the ~~housing~~management and operation of 650 female inmates at our owned 250-bed McFarland Community Correctional Facility and our 400-bed Mesa Verde Community Correctional Facility located in California. The contract, which is subject to final review and approval by the California Department of General Services,this existing centre will have a term of five years ~~with one additional five-year renewal option period. We expect to begin the intake of female inmates at these two facilities in the first quarter of 2011.~~

~~New Facility Activations~~

On October 4, 2010, we announced the beginning of the intake of inmates from the Federal Bureau of Prisons (“BOP”) at the D. Ray James Correctional Facility in Georgia. The inmate intake process began on October 4, 2010 and is expected to be completed in the Spring of 2011. Under our new ten-year contract with the BOP, this facility will house up to 2,507 low security inmates.

Also, on October 4, 2010, we announced the opening of the 2,000-bed Blackwater River Correctional Facility located in Milton, Florida. We began the intake of medium and close-custody security inmates on October 5, 2010 and expect to complete the intake and ramp-up process in the first quarter ofeffective September 25, 2011.

On ~~July 23, 2010,~~March 16, 2011, we announced that our ~~wholly-owned subsidiary~~newly formed joint venture, GEO Amey PECS Ltd. (“GEOAmey”), has been awarded three contracts by the Ministry of Justice in the United Kingdom ~~activated~~for the ~~360-bed expansion~~provision of prison escort and custody services in Lots 1, 3, and 4 which encompass all of Wales and all of England except London and the ~~Harmondsworth Immigration Removal Centre~~East of England. The contract for the provision of prison escort and custody services in ~~London, England increasing~~ the ~~total capacity of this facility from 260 beds to 620 beds. We began the intake of the additional detainees on July 18, 2010.~~

~~Future Adoption of Accounting Standards~~

In October 2009, the FASB issued ASU No. 2009-13 which provides amendments to revenue recognition criteria for separating consideration in multiple element arrangements. As a result of these amendments, multiple deliverable arrangements will be separated more frequently than under existing GAAP. The amendments, among other things, establish the selling price of a deliverable, replace the term fair value with selling price and eliminate the residual method so that consideration would be allocated to the deliverables using the relative selling price method. This amendment also significantly expands the disclosure requirements for multiple element arrangements. This guidance will become effective for us prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We do not believe that the implementation of this standardthree Lots will have a ~~material impact on our financial position, results~~base term of ~~operation and cash flows.~~

~~In July 2010, the FASB issued ASU No. 2010-20 which affects all entities~~seven years with ~~financing receivables, excluding short-term trade accounts receivable or receivables measured at fair value or lower~~a renewal option period of ~~cost or fair value. The objective of the amendments~~no more than three years. We expect that GEOAmey will commence operations in this update is for an entity to provide disclosures that facilitate financial statement users’ evaluation of the following: (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses, (iii) the changes and reasons for those changes in the allowance for credit losses. These disclosures will be effective for us for interim and annual reporting periods ending on or after December 15, 2010. We do not believe that the implementation of this standard will have a material adverse impact on our financial position, results of operation and cash flows.August 2011.

Critical Accounting Policies

The accompanying unaudited consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We routinely evaluate our estimates based on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. A summary of our significant accounting policies is contained in Note 1 to our financial statements included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2011. Effective January 3, ~~2010.~~2011, our policy relative to revenue recognition, as further discussed below, incorporates

amendments in accounting guidance relating to revenue recognition issued by the Financial Accounting Standards Board, which we refer to as FASB. The amendments did not have a significant impact on our financial position, results of operations or cash flows. We are still in the process of reviewing the accounting policies of BI to ensure conformity of such accounting policies to ours. At this time, we are not aware of any differences in accounting policies that would have a material impact on the consolidated financial statements as of April 3, 2011.

Reserves for Insurance Losses

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, product liability claims, intellectual property infringement 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, electronic monitoring products, 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 a broad program of insurance coverage for these general types of claims, except for claims relating to employment matters, for which we carry no insurance. There can be no assurance that our insurance coverage will be adequate to cover all claims to which we may be exposed. It is our general practice to bring merged or acquired companies into our corporate master policies in order to take advantage of certain economies of scale.

We currently maintain a general liability policy and excess liability policy for U.S. Detention & Corrections, GEO Care’s community based services, GEO Care’s youth services and BI with limits of $62.0 million per occurrence and in the aggregate. A separate $35.0 million limit applies to medical professional liability claims arising out of correctional healthcare services. Our wholly-owned subsidiary, GEO Care Inc., has a separate insurance program for their residential services division with a specific loss limit of $35.0 million per occurrence and in the aggregate. We are uninsured for any claims in excess of these limits. We also maintain insurance to cover property and other casualty risks including, workers’ compensation, environmental liability and automobile liability.

For most casualty insurance policies, we carry substantial deductibles or self-insured retentions — $3.0 million per occurrence for general liability and hospital professional liability, $2.0 million per occurrence for workers’ compensation and $1.0 million per occurrence for automobile liability. In addition, certain of our facilities located in Florida and other high-risk hurricane areas carry substantial windstorm deductibles. Since hurricanes are considered unpredictable future events, no reserves have been established to pre-fund for potential windstorm damage. Limited commercial availability of certain types of insurance relating to windstorm exposure in coastal areas and earthquake exposure mainly in California may prevent us from insuring some of our facilities to full replacement value.

With respect to our operations in South Africa, the United Kingdom and Australia, we utilize a combination of locally-procured insurance and global policies to meet contractual insurance requirements and protect the Company. Our Australian subsidiary is required to carry tail insurance on a general liability policy providing an extended reporting period through 2011 related to a discontinued contract.

Of the reserves discussed above, our most significant insurance reserves relate to workers’ compensation and general liability claims. These reserves are undiscounted and were $40.6 million and $40.2 million as of April 3, 2011 and January 2, 2011, respectively. We use statistical and actuarial methods to estimate amounts for claims that have been reported but not paid and claims incurred but not reported. In applying these methods and assessing their results, we consider such factors as historical frequency and severity of claims at each of our facilities, claim development, payment patterns and changes in the nature of our business, among other factors. Such factors are analyzed for each of our business segments. Our estimates may be impacted by such factors as increases in the market price for medical services and unpredictability of the size of jury awards. We also may experience variability between our estimates and the actual settlement due to limitations inherent in the estimation process, including our ability to estimate costs of processing and settling claims in a timely manner as well as our ability to accurately estimate our exposure at the onset of a claim. Because we have high deductible insurance policies, the amount of our insurance expense is dependent on our ability to control our claims experience. If actual losses related to insurance claims significantly differ from our estimates, our financial condition, results of operations and cash flows could be materially adversely impacted.

Income Taxes

Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Significant judgments are required to determine the consolidated provision for income taxes. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. Realization of our deferred tax assets is dependent upon many factors such as tax regulations applicable to the jurisdictions in which we operate, estimates of future taxable income and the character of such taxable income. Additionally, we must use significant judgment in addressing uncertainties in the application of complex tax laws and regulations. If actual circumstances differ from our assumptions, adjustments to the carrying value of deferred tax assets or liabilities may be required, which may result in an adverse impact on the results of our operations and our effective tax rate. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. Management has not made any significant changes to the way we account for our deferred tax assets and liabilities in any year presented in the consolidated financial statements. Based on our estimate of future earnings and our favorable earnings history, management currently expects full realization of the deferred tax assets net of any recorded valuation allowances. Furthermore, tax positions taken by us may not be fully sustained upon examination by the taxing authorities. In determining the adequacy of our provision (benefit) for income taxes, potential settlement outcomes resulting from income tax examinations are regularly assessed. As such, the final outcome of tax examinations, including the total amount payable or the timing of any such payments upon resolution of these issues, cannot be estimated with certainty. To the extent that the provision for income taxes increases/decreases by 1% of income before income taxes, equity in earnings of affiliates, discontinued operations, and consolidated income from continuing operations would have decreased/increased by $0.3 million for the thirteen weeks ended April 3, 2011.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Buildings and improvements are depreciated over 2 to 50 years. Equipment and furniture and fixtures are depreciated over 3 to 10 years. Accelerated methods of depreciation are generally used for income tax purposes. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. We perform ongoing assessments of the estimated useful lives of the property and equipment for depreciation purposes. The estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset. If the assessment indicates that assets will be used for a longer or shorter period than previously anticipated, the useful lives of the assets are revised, resulting in a change in estimate. Effective January 4, 2010, we completed a depreciation study on our owned correctional facilities and revised the estimated useful lives of certain of our buildings. We have not made any changes in estimate during the thirteen-weeks ended April 3, 2011. Maintenance and repairs are expensed as incurred. Interest is capitalized in connection with facility construction. Capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life.

We review long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. If a long-lived asset is part of a group that includes other assets, the unit of accounting for the long-lived asset is its group. Generally, we group our assets by facility for the purposes of considering whether any impairment exists. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset or asset group and its eventual disposition. When considering the future cash flows of a facility, we make assumptions based on historical experience with our customers, terminal growth rates and weighted average cost of capital. While these estimates do not generally have a material impact on the impairment charges associated with managed-only facilities, the sensitivity increases significantly when considering the impairment on facilities that are either owned or leased by us. Events that would trigger an impairment assessment include deterioration of profits for a business segment that has long-lived assets, or when other changes occur that might impair recovery of long-lived assets such as the termination of a management contract. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset.

Revenue Recognition

Facility management revenues are recognized as services are provided under facility management contracts with approved government appropriations based on a net rate per day per inmate or on a fixed monthly rate. A limited number of our contracts have provisions upon which a small portion of the revenue for the contract is based on the performance of certain targets. Revenue based on the performance of certain targets is less than 2% of our consolidated annual revenues. These performance targets are based on specific criteria to be met

Construction revenues are recognized from our contracts with certain customers to perform construction and design services (“project development services”) for various facilities. In these instances, we act as the primary developer and subcontract with bonded National and/or Regional Design Build Contractors. These construction revenues are recognized as earned on a percentage of completion basis measured by the percentage of costs incurred to date as compared to the estimated total cost for each contract. Provisions for estimated losses on uncompleted contracts and changes to cost estimates are made in the period in which we determine that such losses and changes are probable. Typically, we enter into fixed price contracts and do not perform additional work unless approved change orders are in place. Costs attributable to unapproved change orders are expensed in the period in which the costs are incurred if we believe that it is not probable that the costs will be recovered through a change in the contract price. If we believe that it is probable that the costs will be recovered through a change in the contract price, costs related to unapproved change orders are expensed in the period in which they are incurred, and contract revenue is recognized to the extent of the costs incurred. Revenue in excess of the costs attributable to unapproved change orders is not recognized until the change order is approved. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements, may result in revisions to estimated costs and income, and are recognized in the period in which the revisions are determined. As the primary contractor, we are exposed to the various risks associated with construction, including the risk of cost overruns. Accordingly, we record our construction revenue on a gross basis and include the related cost of construction activities in Operating Expenses.

When evaluating multiple element arrangements for certain contracts where we provide project development services to our clients in addition to standard management services, we follow revenue recognition guidance for multiple element arrangements. This revenue recognition guidance related to multiple deliverables in an arrangement provides guidance on determining if separate contracts should be evaluated as a single arrangement and if an arrangement involves a single unit of accounting or separate units of accounting and if the arrangement is determined to have separate units, how to allocate amounts received in the arrangement for revenue recognition purposes. In instances where we provide these project development services and subsequent management services, ~~we evaluate these arrangements to determine if there are multiple elements that require separate accounting treatment and could result in a deferral of revenues. Generally, our arrangements result~~generally, the arrangement results in no delivered elements at the onset of the ~~agreement but rather these~~agreement. The elements are delivered over the contract period as the project development and management services are performed. Project development services are not provided separately to a customer without a management ~~contract~~contract. During the thirteen weeks ended April 3, 2011 we implemented ASU No. 2009-13 which provides amendments to revenue recognition criteria for separating consideration in multiple element arrangements. The amendments, among other things, establish the selling price of a deliverable, replace the term fair value with selling price and ~~therefore,~~eliminate the ~~value~~residual method such that consideration can be allocated to the deliverables using the relative selling price method based on GEO’s specific assumptions. As a result of the ~~project development deliverable, is determined using the residual method.~~

~~Reserves for Insurance Losses~~

~~The nature of~~BI acquisition, we also periodically sell 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 a broad program of insurance coverage for these general types of claims, except for claims relating to employment matters, for which we carry no insurance. There can be no assurance that our insurance coverage will be adequate to cover all claims to which we may be exposed.

We currently maintain a general liability policy and various excess liability policies for all U.S. Corrections operations with limits of $62.0 million per occurrence and in the aggregate. The Community Based Services Division and the Youth Services Division of GEO Care, Inc. are also covered under these policies. A separate $35.0 million limit applies to medical professional liability claims arising out of correctional healthcare services. Residential Treatment Service Facilities operated by GEO Care, Inc, are insured under their own program for general liability and medical professional liability with a specific loss limit of $35.0 million per occurrence and in the aggregate. We are uninsured for any claims in excess of these limits. We also maintain insurance to cover propertymonitoring equipment and other ~~casualty risks including, workers’ compensation, environmental liability~~services together in multiple-element arrangements. In such cases, we allocate revenue on the basis of the relative selling price of the delivered and ~~automobile liability.~~

In addition, certain of our facilities located in Florida and determined by insurers to be in high-risk hurricane areas carry substantial windstorm deductibles. Since hurricanes are considered unpredictable future events, no reserves have been established to pre-fund for potential windstorm damage. Limited commercial availability of certain types of insurance relating to windstorm exposure in coastal areas and earthquake exposure mainly in California may prevent us from insuring some of our facilities to full replacement value.

Of the reserves discussed above, our most significant insurance reserves relate to workers’ compensation and general liability claims. These reserves are undiscounted and were $39.7 million and $27.2 million as of October 3, 2010 and January 3, 2010, respectively. We use statistical and actuarial methods to estimate amounts for claims that have been reported but not paid and claims incurred but not reported. In applying these methods and assessing their results, we consider such factors as historical frequency and severity of claims at each of our facilities, claim development, payment patterns and changes in the nature of our business, among other factors. Such factors are analyzedundelivered elements. The selling price for each of ~~our business segments. Our estimates may be impacted by such factors as increases in~~ the market price for medical services and unpredictability of the size of jury awards. We also may experience variability between our estimates and the actual settlement due to limitations inherent in the estimation process, including our ability to estimate costs of processing and settling claims in a timely manner as well as our ability to accurately estimate our exposure at the onset of a claim. Because we have high deductible insurance policies, the amount of our insurance expenseelements is dependent on our ability to control our claims experience. If actual losses related to insurance claims significantly differ from our estimates, our financial condition, results of operations and cash flows could be materially impacted.

~~Income Taxes~~

~~Deferred income taxes are determined~~estimated based on the ~~estimated future tax effects of differences between~~price we charge when the ~~financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Significant judgments~~elements are required to determine the consolidated provision for income taxes. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. Realization of our deferred tax assets is dependent upon many factors such as tax regulations applicable to the jurisdictions in which we operate, estimates of future taxable income and the character of such taxable income. Additionally, we must use significant judgment in addressing uncertainties in the application of complex tax laws and regulations. If actual circumstances differ from our assumptions, adjustments to the carrying value of deferred tax assets or liabilities may be required, which may result in an adverse impact on the results of our operations and our effective tax rate. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria. Management has not made any significant changes to the way we account for our deferred tax assets and liabilities in any year presented in the consolidated financial statements. Based on our estimate of future earnings and our favorable earnings history, management currently expects full realization of the deferred tax assets net of any recorded valuation allowances. Furthermore, in determining the adequacy of our provision (benefit) for income taxes, potential settlement outcomes resulting from income tax examinations are regularly assessed. As such, the final outcome of tax examinations, including the total amount payable or the timing of any such payments upon resolution of these issues, cannot be estimated with certainty. To the extent that the provision for income taxes increases/decreases by 1% of income before income taxes, equity in earnings of affiliate, discontinued operations, and consolidated income from continuing operations would have decreased/increased by $1.0 million, $0.9 million and $0.6 million, respectively, for the years ended January 3, 2010, December 28, 2008 and December 30, 2007.

~~Property and Equipment~~

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Buildings and improvements are depreciated over 2 to 50 years. Equipment and furniture and fixtures are depreciated over 3 to 10 years. Accelerated methods of depreciation are generally used for income tax purposes. Leasehold improvements are amortizedsold on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. We perform ongoing assessments of the estimated useful lives of the property and equipment for depreciation purposes. The estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset. If the assessment indicates that assets will continue to be used for a longer or shorter period than previously anticipated, the useful lives of the assets are revised, resulting in a change in estimate. In its first fiscal quarter ended April 4, 2010, the Company completed a depreciation study on its owned correctional facilities. Based on the results of the depreciation study, the Company revised the estimated useful lives of certain of its buildings from its historical estimate of 40 years to a revised estimate of 50 years, effective January 4, 2010. Refer to Results of Operations and to Item 1. Notes to Consolidated Financial Statements — Note 1 Summary of Significant Accounting Policies for a discussion of the impact of this change in estimate relative to depreciation and amortization for the thirty-nine weeks ended October 3, 2010.

Maintenance and repairs are expensed as incurred. Interest is capitalized in connection with the construction of correctional and detention facilities. Capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life.

on historical experience with our customers, terminal growth rates and weighted average cost of capital. While these estimates do not generally have a material impact on the impairment charges associated with managed-only facilities, the sensitivity increases significantly when considering the impairment on facilities that are either owned or leased by us. Events that would trigger an impairment assessment include deterioration of profits for a business segment that has long-lived assets, or when other changes occur that might impair recovery of long-lived assets such as the termination of a management contract. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset.standalone basis.

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the notes to our unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Comparison of Thirteen Weeks Ended ~~October~~April 3, ~~2010~~2011 and Thirteen Weeks Ended ~~September 27, 2009~~April 4, 2010

For the purposes of the discussion below, ~~“Third~~“First Quarter 2011” refers to the thirteen week period ended April 3, 2011 and “First Quarter 2010” refers to the thirteen week period ended ~~October 3, 2010 and “Third Quarter 2009” refers~~April 4, 2010. As a result of the acquisition of Cornell, management’s review of certain segment financial data was revised with regards to the ~~thirteen week period ended September 27, 2009.~~Bronx Community Re-entry Center and the Brooklyn Community Re-entry Center. These facilities now report within the GEO Care segment and are no longer included with U.S. Detention & Corrections. Disclosures for business segments reflect reclassifications for all periods presented.

Revenues

2010 % of Revenue 2009 % of Revenue $ Change % Change
(Dollars in thousands)
U.S. corrections
$ 217,808 66.4 % $ 189,692 64.3 % $ 28,116 14.8 %
International services
47,553 14.5 % 36,668 12.4 % 10,885 29.7 %
GEO Care
60,934 18.6 % 30,636 10.4 % 30,298 98.9 %
Facility construction and design
1,638 0.5 % 37,869 12.9 % (36,231 ) (95.7 )%

Total
$ 327,933 100.0 % $ 294,865 100.0 % $ 33,068 11.2 %


	2011		% of Revenue			2010		% of Revenue			$ Change			% Change
						(Dollars in thousands)
U.S. Detention & Corrections	$	241,630		61.7	%	$	189,709		66.0	%	$	51,921			27.4	%
International Services		53,128		13.6	%		45,880		16.0	%		7,248			15.8	%
GEO Care		96,889		24.7	%		37,502		13.0	%		59,387			158.4	%
Facility Construction & Design		119		0.0	%		14,451		5.0	%		(14,332	)		(99.2	)%

Total	$	391,766		100.0	%	$	287,542		100.0	%	$	104,224			36.2	%

U.S. ~~corrections~~Detention & Corrections

Revenues increased in ~~Third~~First Quarter ~~2010~~2011 compared to ~~Third~~First Quarter ~~2009~~2010 primarily due to the acquisition of Cornell which contributed additional revenues of ~~$29.8~~$57.3 million. ~~Increases~~We also experienced increases at other facilities ~~for Third~~in First Quarter ~~included~~2011 due to: (i) ~~an increase~~the opening of ~~$3.1 million due to an increase in population at~~ the ~~Northwest Detention Center~~Blackwater River Correctional Facility (“Blackwater River”) located in ~~Tacoma, Washington;~~Milton, Florida in October 2010 which contributed revenues of $7.3 million and (ii) an increase of ~~$1.4~~$1.7 million at LaSalle Detention Facility (“LaSalle”) located in Jena, Louisiana due to an increase in the population. ~~We experienced~~These increases were offset by aggregate decreases of ~~$1.2 million related to a decrease in per diem rates effective March 1, 2010 at Lawton Correctional Facility (“Lawton”) located in Lawton, Oklahoma. We also experienced decreases of $5.5~~$14.2 million due to the termination of our contracts at the ~~McFarland Community Correctional Facility (“McFarland”) located in McFarland, California,~~ Moore Haven Correctional Facility (“Moore Haven”) located in Moore Haven, Florida, ~~the Jefferson County Downtown Jail~~Graceville Correctional Facility (“~~Jefferson County”~~Graceville”) located in Graceville, Florida, South Texas Intermediate Sanction Facility (“South Texas ISF”) in ~~Beaumont,~~Houston, Texas, North Texas Intermediate Sanction Facility (“North Texas ISF”) located in Fort Worth, Texas, and ~~the Newton County~~Bridgeport Correctional Center (“~~Newton County”~~Bridgeport”) in ~~Newton,~~Bridgeport, Texas.

The number of compensated mandays in U.S. ~~corrections~~Detention & Corrections facilities was ~~4.0~~4.3 million in ~~Third~~First Quarter ~~2010 which~~2011 compared to 3.5 million in First Quarter 2010. The increase in First Quarter 2011 is ~~higher than Third Quarter 2009~~ due to ~~the 0.5~~approximately one million additional mandays from ~~Cornell.~~Cornell and is offset by net decreases in mandays at our other facilities primarily due to the terminated contracts discussed above. We look at the average occupancy in our facilities to determine how we are managing our available beds. The average occupancy is calculated by taking compensated mandays as a percentage of capacity. The average occupancy in our U.S. ~~correction~~corrections and detention facilities was ~~93.9%~~93.3% of capacity in ~~Third~~First Quarter ~~2010, excluding the terminated contracts for McFarland, Jefferson County and Newton County.~~2011. The average occupancy in our U.S. correction and detention facilities was ~~93.6%~~93.4% in ~~Third~~First Quarter ~~2009.~~2010 taking into account the reclassification of our Bronx Community Re-entry Center and our Brooklyn Community Re-entry Center to GEO Care.

International ~~services~~Services

Revenues for our International ~~services~~Services segment during ~~Third~~First Quarter ~~2010~~2011 increased ~~significantly~~by $7.2 million over First Quarter 2010 due to several factors. Our new management contract for the operation of the Parklea Correctional Centre in Sydney, Australia (“Parklea”) which started in the fourth fiscal quarter of 2009 contributed an increase in revenues for the thirteen-weeks ended October 3, 2010 of $6.8 million. Our contract for the management of the Harmondsworth Immigration Removal Centre in London, England (“Harmondsworth”) experienced an increase in revenues of $1.5 million primarily due to the activation of the 360-bed expansion in July 2010. In addition, we experienced aggregate increases of $2.4 million at other international facilities ~~due to~~as a result of several factors including the full operation of Parklea Correctional Centre (“Parklea”) located in Sydney, Australia, increases in services provided under the other management contracts at our Australian subsidiary and contractual increases linked to the inflationary ~~index. In aggregate, these increases contributed revenues of $1.0 million~~index in ~~Third Quarter 2010.~~South Africa. We ~~also~~ experienced an increase in revenues of ~~$3.0~~$4.6 million over ~~Third~~First Quarter ~~2009~~2010 due to ~~the strengthening of~~ foreign ~~currencies in Third Quarter 2010.~~currency translation. These increases were partially offset by a decrease in revenues of $1.3 million related to our terminated contract for the operation of the Melbourne Custody Centre in Melbourne, Australia.

Revenues from the Facility ~~construction and design~~Construction & Design segment decreased significantly in ~~Third~~First Quarter ~~2010~~2011 compared to ~~Third~~First Quarter ~~2009~~2010 due to a decrease in construction activities at Blackwater River Correctional Facility in Milton, Florida. The Blackwater River Correctional Facility construction was completed in October 2010 and we began intake of inmates on October 5, 2010.

Operating Expenses

% of Segment % of Segment
2010 Revenue 2009 Revenue $ Change % Change
(Dollars in thousands)
U.S. corrections
$ 154,686 71.0 % $ 135,700 71.5 % $ 18,986 14.0 %
International services
44,523 93.6 % 34,416 93.9 % 10,107 29.4 %
GEO Care
50,757 83.3 % 26,332 86.0 % 24,425 92.8 %
Facility construction and design
1,134 69.2 % 37,899 100.1 % (36,765 ) (97.0 )%

Total
$ 251,100 76.6 % $ 234,347 79.5 % $ 16,753 7.1 %


			% of Segment					% of Segment
	2011		Revenues			2010		Revenues			$ Change			% Change
						(Dollars in thousands)
U.S. Detention & Corrections	$	172,927		71.6	%	$	136,860		72.1	%	$	36,067			26.4	%
International Services		48,649		91.6	%		43,604		95.0	%		5,045			11.6	%
GEO Care		77,694		80.2	%		32,365		86.3	%		45,329			140.1	%
Facility Construction & Design		16		13.4	%		13,503		93.4	%		(13,487	)		(99.9	)%

Total	$	299,286		76.4	%	$	226,332		78.7	%	$	72,954			32.2	%

Operating expenses consist of those expenses incurred in the operation and management of our correctional, detention and mental health and GEO Care facilities and expenses incurred in our Facility Construction & Design segment. Overall, operating expense as a percentage of revenues were lower in First Quarter 2011 compared to First Quarter 2010 primarily due to the significant decrease in construction ~~and design segment.~~activity which has much lower margins.

U.S. ~~corrections~~Detention & Corrections

The increase in operating expenses for U.S. ~~corrections~~Detention & Corrections reflects the impact of our acquisition of Cornell which resulted in an increase in operating expenses of ~~$23.7~~$39.5 million. ~~This significant increase was partially offset by our terminated contracts at McFarland, Jefferson County and Newton County.~~ We also experienced ~~an increase~~aggregate increases in ~~start up~~operating expenses of $8.8 million due to: (i) the opening of Blackwater River in ~~Third Quarter 2010~~October 2010; (ii) increases in population at LaSalle; and (iii) increases in carrying costs for our newly expanded Aurora ICE Processing Center. These increases were offset by aggregate decreases in operating expenses of ~~$3.8~~$12.2 million ~~including $1.2 million related~~due to the ~~2,870-bed D. Ray James Prison in Folkston, Georgia (“D. Ray James”) which was activated on October 4, 2010. Start up expenses include costs such as training costs, miscellaneous supplies~~termination of contracts at Moore Haven, Graceville, South Texas ISF, North Texas ISF and ~~labor.~~Bridgeport.

International ~~services~~Services

Operating expenses for our International ~~services~~Services segment during ~~Third~~First Quarter ~~2010~~2011 increased ~~significantly~~$5.0 million over the prior year ~~primarily~~ due to several factors including our new management ~~contracts~~contract for the operation of ~~Parklea and~~ the Harmondsworth expansion and an increase in labor costs at the Kutama-Sinthumule Correctional Centre in South Africa which accounted for an aggregate increase in operating ~~expense~~expenses of ~~$6.1~~$1.7 million. In addition, we experienced an increase in operating expenses at our Australian subsidiary of $1.2 million primarily associated with the costs to provide additional services under some of our management contracts. We also experienced overall increases in operating expenses of ~~$2.6~~$4.2 million in ~~Third~~First Quarter ~~2010~~2011 compared to ~~Third~~First Quarter ~~2009~~2010 due to the ~~strengthening~~effects of foreign ~~currencies.~~currency translation. These increases were partially offset by aggregate decreases in operating expenses of $2.0 million due to the termination of our Melbourne Custody Centre contract in Melbourne, Australia effective April 2010 and a decrease in costs in First Quarter 2011 primarily associated with the start-up of Parklea which we incurred in First Quarter 2010.

GEO Care

Operating expenses for residential treatment increased ~~$19.0~~$46.5 million during ~~Third~~First Quarter ~~2010~~2011 from ~~Third~~First Quarter ~~2009~~2010 primarily due to the operation of the Cornell facilities ~~as a result of~~and our recent acquisition of ~~Cornell. The remaining increase was primarily attributable to the operation~~BI which contributed increases of the Columbia Regional Care Center in Columbia, South Carolina as a result of our acquisition of Just Care, as discussed above. Operating expenses decreased as a percentage of revenue primarily due to the acquisition of Cornell contracts.$33.3 million and $13.3 million, respectively.

Facility ~~construction and design~~Construction & Design

Operating expenses for ~~facility construction and design~~Facility Construction & Design decreased ~~by $36.8 million~~ during ~~Third~~First Quarter ~~2010~~2011 compared to ~~Third~~First Quarter ~~2009~~2010 primarily due to the decrease in construction activities at Blackwater River Correctional Facility.

~~Depreciation and amortization~~

% of Segment % of Segment
2010 Revenue 2009 Revenue $ Change % Change
(Dollars in thousands)
U.S. corrections
$ 11,048 5.1 % $ 8,881 4.7 % $ 2,167 24.4 %
International services
431 0.9 % 376 1.0 % 55 14.6 %
GEO Care
1,905 3.1 % 359 1.2 % 1,546 430.6 %
Facility construction and design
— — — — — —

Total
$ 13,384 4.1 % $ 9,616 3.3 % $ 3,768 39.2 %

4044

Depreciation and Amortization


			% of Segment					% of Segment
	2011		Revenue			2010		Revenue			$ Change		% Change
						(Dollars in thousands)
U.S. Detention & Corrections	$	12,930		5.4	%	$	7,905		4.2	%	$	5,025		63.6	%
International Services		527		1.0	%		435		0.9	%		92		21.1	%
GEO Care		5,345		5.5	%		898		2.4	%		4,447		495.2	%
Facility Construction & Design		—		—			—		—			—		—

Total	$	18,802		4.8	%	$	9,238		3.2	%	$	9,564		103.5	%

U.S. ~~corrections~~Detention & Corrections

U.S. ~~corrections~~Detention & Corrections depreciation and amortization expense increased by ~~$2.2~~$5.0 million in First Quarter 2011 compared to First Quarter 2010 primarily as a result of our acquisition of Cornell which contributed $4.4 million of the ~~depreciation for~~increase. We also experienced aggregate increases of $0.6 million related to the ~~period from August 12, 2010 to October 3, 2010 for~~completion of construction projects at the ~~acquired Cornell facilities.~~Broward Transition Center located in Deerfield Beach, Florida, the Central Texas Detention Facility in San Antonio, Texas and the completion of the Aurora ICE Processing Center in Aurora, Colorado. These increases were partially offset by ~~lower~~decreases in depreciation ~~on existing facilities related~~expense due to the ~~depreciation study on our owned correctional facilities conducted in the first fiscal quarter of 2010. Based on the results~~termination of the depreciation study, we revised the estimated useful lives of certain of our buildings from our historical estimate of 40 years to a revised estimate of 50 years, effective January 4, 2010. For Third Quarter 2010, the change resulted in a reduction in depreciationmanagement contracts at Moore Haven and ~~amortization expense of approximately $0.9 million. Other increases in expense relate to the completion of construction projects during Third Quarter 2010.~~Graceville.

International Services

Depreciation and amortization expense increased slightly in ~~Third~~First Quarter ~~2010~~2011 over ~~Third~~First Quarter ~~2009~~2010 primarily due to our new management ~~contracts~~contract for the operation of ~~Parklea and~~ the Harmondsworth expansion, as discussed above, and also from changes in the foreign exchange rates.

GEO Care

The increase in depreciation and amortization expense for GEO Care in ~~Third~~First Quarter 2011 compared to First Quarter 2010 ~~compared to Third Quarter 2009~~ is primarily due to our ~~acquisition~~acquisitions of ~~Just Care~~Cornell and BI. Depreciation expense and amortization expense increased by $1.9 million and $2.6 million, respectively, as a result of ~~Cornell. The Cornell owned facilities contributed additional depreciation of $1.0 million of the increase.~~these acquisitions.

Other Unallocated Operating Expenses

2010 % of Revenue 2009 % of Revenue $ Change % Change
(Dollars in thousands)
General and Administrative Expenses
$ 33,925 10.3 % $ 15,685 5.3 % $ 18,240 116.3 %


	2011		% of Revenue			2010		% of Revenue			$ Change		% Change
						(Dollars in thousands)
General and Administrative Expenses	$	32,788		8.4	%	$	17,448		6.1	%	$	15,340		87.9	%

General and administrative expenses comprise substantially all of our other unallocated operating expenses. General and administrative expenses consist primarily of corporate management salaries and benefits, professional fees and other administrative expenses. During ~~Third~~First Quarter ~~2010,~~2011, general and administrative expenses increased ~~$13.5~~$13.7 million as a result of our acquisitions of Cornell and BI. In addition to the increase of the general and administrative expenses which we believe to be recurring, such as rent expense and employee salaries and benefits, we also experienced an increase in non-recurring acquisition related expenses of ~~Cornell.~~$5.7 million. These ~~transaction~~acquisition related expenses consist primarily of professional fees, travel costs and other direct administrative costs related to the ~~merger with Cornell.~~acquisitions of Cornell and BI. Excluding the impact of ~~transaction costs,~~the non-recurring acquisition related expenses, general and administrative expenses increased slightly as a percentage of revenues in ~~Third~~First Quarter 2011 compared to First Quarter 2010 ~~compared~~primarily due to ~~Third Quarter 2009.~~increases in labor.

Non Operating Expenses

Interest Income and Interest Expense


	2010		% of Revenue			2009		% of Revenue			$ Change		% Change			2011		% of Revenue			2010		% of Revenue			$ Change		% Change
	(Dollars in thousands)																				(Dollars in thousands)
Interest Income	$	1,734		0.5	%	$	1,224		0.4	%	$	510		41.7	%	$	1,569		0.4	%	$	1,229		0.4	%	$	340		27.7	%
Interest Expense	$	11,917		3.6	%	$	6,533		2.2	%	$	5,384		82.4	%	$	16,961		4.3	%	$	7,814		2.7	%	$	9,147		117.1	%

Provision for Income Taxes

2010 Effective Rate 2009 Effective Rate $ Change % Change
(Dollars in thousands)
Income Taxes
$ 7,547 66.2 % $ 11,510 38.5 % $ (3,963 ) (34.4 )%


	2011		Effective Rate			2010		Effective Rate			$ Change			% Change
						(Dollars in thousands)
Income Taxes	$	9,780		38.4	%	$	10,821		38.7	%	$	(1,041	)		(9.6	)%

The effective tax rate for ~~Third~~the First Quarter ~~2010~~2011 was ~~negatively~~approximately 38.4% and includes certain one-time items that favorably impacted the tax rate which were in-part offset by a ~~significant~~ portion of transaction expenses related to the BI acquisition that ~~may not be deductible for federal income tax purposes. If the non-deductible~~are non-deductible. Without these one-time items ~~were excluded from taxable income, the Company’s tax~~our effective rate would ~~have been approximately 42% which is higher than Third Quarter 2009 due to Cornell income which is subject to a higher effective income tax rate.~~be 39.4%. We estimate our annual effective tax rate for fiscal year ~~2010~~2011 to be ~~approximately 39.5%, excluding the impact of partially non-deductible transaction costs associated with the merger with Cornell.~~

~~Comparison of Thirty-nine Weeks Ended October 3, 2010 and Thirty-nine Weeks Ended September 27, 2009~~

For the purposes of the discussion below, “Nine Months 2010” refers to the thirty-nine week period ended October 3, 2010 and “Nine Months 2009” refers to the thirty-nine week period ended September 27, 2009.

~~Revenues~~

2010 % of Revenue 2009 % of Revenue $ Change % Change
(Dollars in thousands)
U.S. corrections
$ 599,598 67.0 % $ 568,202 68.4 % $ 31,396 5.5 %
International services
138,142 15.4 % 92,217 11.1 % 45,925 49.8 %
GEO Care
135,409 15.1 % 92,623 11.2 % 42,786 46.2 %
Facility construction and design
22,421 2.5 % 77,263 9.3 % (54,842 ) (71.0 )%

Total
$ 895,570 100.0 % $ 830,305 100.0 % $ 65,265 7.9 %

~~U.S. corrections~~

Revenues increased in Nine Months 2010 compared to Nine Months 2009. The primary reason for the increase is due to the acquisition of Cornell which contributed additional revenues of $29.8 million. Additionally, we experienced net increases in revenue due to: (i) an aggregate increase of $12.8 million from the activations of bed expansions and higher per diem rates at the Broward Transition Center located in Deerfield Beach, Florida and at the Northwest Detention Center; (ii) an increase of $2.7 million at the South Bay Correctional Facility, located in South Bay, Florida due to per diem rate increases; (iii) an increase of $1.3 million due to higher per diem rates at Rivers Correctional Institution in Winton, North Carolina and (iv) increased revenues of $2.5 million due to higher populations at the Maverick County Detention Facility in Maverick, Texas. We also experienced decreases in revenues of (i) $3.1 million at Lawton Correctional Facility in Lawton, Oklahoma related to lower per diem rates effective in the ~~first fiscal quarter~~range of ~~2010 and (ii) decreases of $14.1 million due~~39% to ~~terminated contracts at Moore Haven, Fort Worth, Jefferson and Newton.~~

The number of compensated mandays in U.S. corrections facilities increased by approximately 300,000 to 11.0 million mandays in Nine Months 2010 from 10.7 million mandays in Nine Months 2009. The net increase in mandays was due to the Cornell acquisition and the related 0.5 million additional mandays which was more than offset by a decrease in mandays due to terminated contracts and lower population at certain of the GEO facilities. We look at the average occupancy in our facilities to determine how we are managing our available beds. The average occupancy is calculated by taking compensated mandays as a percentage of capacity. The average occupancy in our U.S. correction and detention facilities was 94.3% of capacity in Nine Months 2010, excluding the terminated contracts for McFarland, Jefferson County, Newton County and Fort Worth. The average occupancy in our U.S. correction and detention facilities was 94.0% in Nine Months 2009.

~~International services~~

Revenues for our international services segment during Nine Months 2010 increased significantly over the prior year primarily due to our new management contracts for the operations of Parklea and the Harmondsworth expansion which contributed an aggregate of $27.2 million in the Nine Months 2010. We opened Harmondsworth in Second Quarter 2009 and Parklea in Fourth Quarter 2009. We also experienced fluctuations in foreign exchange currency rates for the Australian Dollar, South African Rand and the British Pound which had the effect of increasing revenues over Nine Months 2009 by $18.6 million.

~~GEO Care~~

The increase in revenues for GEO Care in Nine Months 2010 compared to Nine Months 2009 is primarily attributable to the acquisition of Cornell which contributed $23.8 million to revenue. In addition, the operation of the Columbia Regional Care Center in Columbia, South Carolina generated $19.2 million in revenues in Nine Months 2010.

~~Facility construction and design~~

The decrease in revenues from the facility construction and design segment in Nine Months 2010 compared to Nine Months 2009 is mainly due to a decrease in revenues of $48.5 million related to a decrease in construction activities at Blackwater River Correctional Facility. This facility began the intake of inmates in October 2010. There were also several other projects completed in 2009 which resulted in higher revenues in the prior fiscal year including: (i) a decrease of $4.8 million related to the completion of the Florida Civil Commitment Center in Second Quarter 2009; (ii) aggregate decreases in construction revenue of $1.3 million were related to the completion of the expansion of the Graceville Correctional Facility and completion of other construction projects at the Northeast New Mexico Detention Facility.

~~Operating Expenses~~

% of Segment % of Segment
2010 Revenue 2009 Revenue $ Change % Change
(Dollars in thousands)
U.S. corrections
$ 429,922 71.7 % $ 413,781 72.8 % $ 16,141 3.9 %
International services
129,008 93.4 % 85,360 92.6 % 43,648 51.1 %
GEO Care
114,645 84.7 % 79,184 85.5 % 35,461 44.8 %
Facility construction and design
20,773 92.6 % 77,088 99.8 % (56,315 ) (73.1 )%

Total
$ 694,348 77.5 % $ 655,413 78.9 % $ 38,935 5.9 %

~~U.S. corrections~~

As a result of our acquisition of Cornell in August 2010, we experienced increases in operating expenses in Third Quarter 2010 over the same period in 2009 of $23.7 million. We also experienced an increase in Third Quarter 2010 due to start up costs of $3.8 million including $1.2 million for D. Ray James and $2.6 million for Blackwater River. These increases were partially offset by decreases in operating expenses for U.S. corrections due to our terminated contracts at McFarland, Jefferson County, Newton County and Fort Worth.

~~International services~~

Operating expenses for international services facilities increased in Nine Months 2010 compared to Nine Months 2009 primarily due to our new contracts in Australia and in the United Kingdom which contributed additional operating expenses of $24.6 million. We also experienced overall increases in operating expenses associated with the weakening of the US dollar compared to the foreign currencies in Australia, South Africa and the United Kingdom which had an impact of $17.2 million.

~~GEO Care~~

Operating expenses for GEO Care increased by $19.0 million due to the operation of the Cornell facilities as a result of the acquisition of Cornell. The remaining increase is primarily related to our operation of the Columbia Regional Care Center in Columbia, South Carolina as a result of our acquisition of Just Care.

~~Facility construction and design~~

Operating expenses for facility construction and design decreased $56.3 million during Nine Months 2010 compared to Nine Months 2009 primarily due to a decrease in construction activities at Blackwater River Correctional Facility. In addition, several other projects were completed in 2009 including Florida Civil Commitment Center, Graceville Correctional Facility, and Northeast New Mexico Detention Facility.

~~Depreciation and amortization~~

% of Segment % of Segment
2010 Revenue 2009 Revenue $ Change % Change
(Dollars in thousands)
U.S. corrections
$ 27,131 4.5 % $ 26,891 4.7 % $ 240 0.9 %
International services
1,286 0.9 % 1,039 1.1 % 247 23.8 %
GEO Care
3,679 2.7 % 1,132 1.2 % 2,547 225.0 %
Facility construction and design
— — — — — —

Total
$ 32,096 3.6 % $ 29,062 3.5 % $ 3,034 10.4 %

~~U.S. corrections~~

U.S. corrections depreciation increased by $2.2 million as a result of the depreciation for the period from August 12, 2010 to October 3, 2010 for the acquired Cornell facilities. This increase was almost completely offset by a reduction in depreciation for U.S. corrections of $2.7 million due to a change in economic useful lives of certain of our owned correctional facilities. During our first fiscal quarter of 2010, we completed a depreciation study on our owned correctional facilities. Based on the results of the depreciation study, we revised the estimated useful lives of certain of our buildings from our historical estimate of 40 years to a revised estimate of 50 years, effective January 4, 2010.

~~International Services~~

Depreciation and amortization increased slightly in Nine Months 2010 over Nine Months 2009 primarily due to our new management contracts for the operation of Parklea and the Harmondsworth expansion, as discussed above, and also from the impact of changes in the foreign exchange rates.

~~GEO Care~~

The increase in depreciation and amortization for GEO Care in Nine Months 2010 compared to Nine Months 2009 is primarily due to our acquisition of Cornell which contributed $1.0 million of additional depreciation and our acquisition of Just Care in September 2010.

~~Other Unallocated Operating Expenses~~

2010 % of Revenue 2009 % of Revenue $ Change % Change
(Dollars in thousands)
General and Administrative Expenses
$ 72,028 8.0 % $ 49,936 6.0 % $ 22,092 44.2 %

~~Non Operating Expenses~~

~~Interest Income and Interest Expense~~

2010 % of Revenue 2009 % of Revenue $ Change % Change
(Dollars in thousands)
Interest Income
$ 4,448 0.5 % $ 3,520 0.4 % $ 928 26.4 %
Interest Expense
$ 28,178 3.1 % $ 20,498 2.5 % $ 7,680 37.5 %

The majority of our interest income generated in Nine Months 2010 and Nine Months 2009 is from the cash balances at our Australian subsidiary. The increase in the current period over the same period last year is attributable to currency exchange rates.

~~The increase in interest expense of $7.7 million is primarily attributable to more indebtedness outstanding in Nine Months 2010. We experienced an increase in interest expense related to our 7~~³/₄% Senior Notes of $5.2 million and also an increase of $3.2 million related to additional borrowings under our Credit Agreement. These increases were offset by decreases resulting from less interest capitalized in Nine Months 2010 compared to Nine Months 2009 due to more construction expenditures during the Nine Months 2009.

~~Provision for Income Taxes~~

2010 Effective Rate 2009 Effective Rate $ Change % Change
(Dollars in thousands)
Income Taxes
$ 28,560 43.6 % $ 30,374 38.5 % $ (1,814 ) (6.0 )%

The effective tax rate for Nine Months 2010 was negatively impacted by a significant portion of transaction expenses that may not be deductible for federal income tax purposes. If the non-deductible items were excluded from taxable income, the Company’s tax rate

would have been approximately 39.4% which is higher than Nine Months 2009 due to Cornell income which is subject to a higher effective income tax rate. We estimate our annual effective tax rate for fiscal year 2010 to be approximately 39.5%, excluding the impact of partially non-deductible transaction costs associated with the merger with Cornell.40%.

Financial Condition

~~Business Combination~~BI Acquisition

On ~~August 12, 2010,~~February 10, 2011, we completed ~~the~~our previously announced acquisition of ~~Cornell aggregate~~BI, a Colorado corporation, pursuant to the Merger Agreement, entered into among GEO, BII Holding, a Delaware corporation, which owns BI, GEO Acquisition IV, Inc., a Delaware corporation and wholly-owned subsidiary of GEO (“Merger Sub”), BII Investors IF LP, in its capacity as the stockholders’ representative, and AEA Investors 2006 Fund L.P. Under the terms of the Merger Agreement, Merger Sub merged with and into BII Holding, with BII Holding emerging as the surviving corporation of the merger. As a result of the Merger, GEO paid merger consideration of $409.6 million in cash excluding cash acquired, transaction related expenses and ~~stock of $618.3~~subject to certain adjustments. Under the Merger Agreement, $12.5 million ~~net of cash and equivalents acquired of $12.9 million. The fair value~~ of the merger consideration was placed in an escrow account for a one-year period to satisfy any applicable indemnification claims pursuant to the terms of the Merger Agreement by GEO, ~~common stock consideration,~~the Merger Sub or its affiliates. At the time of the BI Acquisition, approximately $78.4 million, including accrued interest was outstanding under BI’s senior term loan and $107.5 million, including accrued interest was outstanding under its senior subordinated note purchase agreement, excluding the ~~replacement awards~~unamortized debt discount. All indebtedness of ~~$0.2 million, was $357.8 million, based on the closing price~~BI under its senior term loan and senior subordinated note purchase agreement were repaid by BI with a portion of the ~~Company’s stock on August 12, 2010~~$409.6 million of ~~$22.70.~~merger consideration.

Capital Requirements

Our current cash requirements consist of amounts needed for working capital, debt service, supply purchases, investments in joint ventures, and capital expenditures related to either the development of new correctional, detention, ~~and/or~~ mental health, residential treatment and re-entry facilities, or the maintenance of existing facilities. In addition, some of our management contracts require us to make substantial initial expenditures of cash in connection with opening or renovating a facility. Generally, these initial expenditures are subsequently fully or partially recoverable as pass-through costs or are billable as a component of the per diem rates or monthly fixed fees to the contracting agency over the original term of the contract. Additional capital needs may also arise in the future with respect to possible acquisitions, other corporate transactions or other corporate purposes.

We are currently developing a number of projects using company financing. We estimate that these existing capital projects will cost approximately ~~$228.7~~$281.0 million, of which ~~$95.5~~$87.6 million was spent through ~~Nine Months 2010.~~First Quarter 2011. We have future committed capital projects for which we estimate our remaining capital requirements to be approximately ~~$133.2~~$193.4 million, which will be spent ~~through our~~in fiscal years ~~2010~~2011 and ~~2011.~~2012. Capital expenditures related to facility maintenance costs are expected to range between ~~$10.0~~$20.0 million and ~~$15.0~~$25.0 million for fiscal year ~~2010.~~2011. In addition to these current estimated capital requirements for ~~2010~~2011 and ~~2011,~~2012, we are currently in the process of bidding on, or evaluating potential bids for the design, construction and management of a number of new projects. In the event that we win bids for these projects and decide to self-finance their construction, our capital requirements in ~~2010~~2011 and/or ~~2011~~2012 could materially increase.

Liquidity and Capital Resources

On August 4, 2010, we entered into a new Credit Agreement, which we refer to as our “Senior Credit Facility”. On February 8, 2011, we entered into Amendment No. 1 to the Credit Agreement, which we refer to as Amendment No. 1. Amendment No. 1, among other things, amended certain definitions and covenants relating to the total leverage ratios and the senior secured leverage ratios set forth in the Credit Agreement. As of April 3, 2011, the Senior Credit Facility is comprised of (i) a $150.0 million Term Loan A, ~~initially~~referred to as “Term Loan A”, bearing interest at LIBOR plus ~~2.5%~~2.25% and maturing August 4, 2015, (ii) a $150.0 million Term Loan A-2, referred to as “Term Loan A-2”, bearing interest at LIBOR plus 2.75% and maturing August 4, 2015, (iii) a $200.0 million Term Loan B, ~~initially~~referred to as “Term Loan B”, bearing interest at LIBOR plus 3.25% with a LIBOR floor of 1.50% and maturing August 4, 2016 and ~~(iii)~~(iv) a Revolving Credit Facility (“Revolver”) of ~~$400.0~~$500.0 million ~~initially~~ bearing interest at LIBOR plus ~~2.5%~~2.25% and maturing August 4, 2015. ~~Also, on August 4, 2010,~~

On February 10, 2011, we used the funds from the new $150.0 million incremental Term Loan A-2 along with the net cash proceeds from ~~borrowings~~the offering of the 6.625% Senior Notes to finance the acquisition of BI. As of April 3, 2011, we had $146.3 million outstanding under the Credit Agreement primarily to repay existing borrowings and accrued interest under the Third Amended and Restated Credit Agreement of $267.7 million and to pay $6.7 million for financing fees related to the newly executed Credit Agreement. The Third Amended and Restated Credit Agreement was terminated on August 4, 2010. In connection with the merger with Cornell, we used aggregate proceeds of $290.0 million from the Term Loan A, ~~and the Revolver primarily to repay Cornell’s obligations plus accrued interest under its Revolving Line of Credit due December 2011 of $67.5~~$150.0 million ~~to repay its obligations plus accrued interest~~outstanding under the ~~existing 10.75%~~Term Loan A-2, $199.0 million outstanding under the Term Loan B, and our $500.0 million Revolving Credit Facility had $210.0 million outstanding in loans, $70.4 million outstanding in letters of credit and $219.6 million available for borrowings. We also had the ability to borrow $250.0 million under the accordion feature of our Senior ~~Notes due July 2012~~Credit Facility subject to lender demand and market conditions. Our significant debt obligations could have material consequences. See “Risk Factors — Risks Related to Our High Level of ~~$114.4 million, to pay $14.0 million~~Indebtedness” in ~~transaction costs and to pay~~our Annual Report on Form 10-K for the ~~cash component of the merger consideration of $84.9 million.~~fiscal year ended January 2, 2011.

We plan to fund all of our capital needs, including our capital expenditures, from cash on hand, cash from operations, borrowings under our Senior Credit ~~Agreement~~Facility and any other financings which our management and Board of Directors, in their discretion, may consummate. Currently, our primary source of liquidity to meet these requirements is cash flow from operations and borrowings from the ~~$400.0~~$500.0 million Revolver. As of November 5, 2010, we had $148.1 million outstanding under the Term Loan A, $199.5 million outstanding under the Term Loan B, and our $400.0 million Revolving Credit Facility had $219.0 million outstanding in loans, $56.2 million outstanding in letters of credit and $124.8 million available for borrowings.

Our management believes that cash on hand, cash flows from operations and availability under our Senior Credit ~~Agreement~~Facility will be adequate to support our capital requirements ~~for~~through 2012 disclosed in Capital Requirements above. In addition to additional capital requirements which will be required relative to the ~~remainder~~acquisitions of ~~2010~~Cornell and ~~2011 disclosed above. We~~BI, we are also in the process of bidding on, or evaluating potential bids for, the design, construction and management of a number of new projects. In the event that we win bids for some or all of these projects and decide to self-finance their construction, our capital requirements in ~~2010~~2011 and/or ~~2011~~2012 could materially increase. In that event, our cash on hand, cash flows from operations and borrowings under the existing Senior Credit ~~Agreement~~Facility may not provide sufficient liquidity to meet our capital

needs through ~~2010 and~~ 2011 and we could be forced to seek additional financing or refinance our existing indebtedness. There can be no assurance that any such financing or refinancing would be available to us on terms equal to or more favorable than our current financing terms, or at all.

In February 2010, our Board of Directors approved a stock repurchase program for up to $80.0 million of our common stock effective through March 31, 2011. The stock repurchase program is intended to be implemented through purchases made from time to time in the open market or in privately negotiated transactions, in accordance with applicable Securities and Exchange Commission requirements. The program may also include repurchases from time to time from executive officers or directors of vested restricted stock and/or vested stock options. The stock repurchase program does not obligate us to purchase any specific amount of our common stock and may be suspended or extended at any time at our discretion. During the thirty-nine weeks ended October 3, 2010, we purchased approximately 4.0 million shares of our common stock at a cost of $80.0 million using cash on hand and cash flow from operating activities. As a result, we have completed repurchases of shares of our common stock under the share repurchase program approved in February 2010.

In the future, our access to capital and ability to compete for future capital-intensive projects will also be dependent upon, among other things, our ability to meet certain financial covenants in the indenture governing the 7³/₄% Senior Notes, the indenture governing the 6.625% Senior Notes and in our Senior Credit ~~Agreement.~~Facility. A substantial decline in our financial performance could limit our access to capital pursuant to these covenants and have a material adverse affect on our liquidity and capital resources and, as a result, on our financial condition and results of operations. In addition to these foregoing potential constraints on our capital, a number of state government agencies have been suffering from budget deficits and liquidity issues. While we expect to be in compliance with our debt covenants, if these constraints were to intensify, our liquidity could be materially adversely impacted as could our compliance with these debt covenants.

Executive Retirement ~~Agreements~~Agreement

~~We have entered into individual executive retirement agreements~~As of April 3, 2011, we had a non-qualified deferred compensation agreement with our ~~two top executives. These agreements provide each executive with~~Chief Executive Officer (“CEO”). The current agreement provides for a lump sum payment upon retirement, no sooner than age 55. As of April 3, 2011, the CEO had reached age 55 and was eligible to receive the payment upon retirement. ~~Under~~If our CEO had retired as of April 3, 2011, we would have had to pay him $5.8 million including a tax gross-up relating to the ~~agreements, the executives may retire at any time after reaching the age of 55 at the executive’s discretion. Both of the executives reached the eligible~~ retirement ~~age of 55 in 2005.~~payment equal to $2.1 million. Based on our current capitalization, we do not believe that making ~~these payments, whether in separate installments or in the aggregate,~~this payment would materially adversely impact our liquidity.

We are also exposed to various commitments and contingencies which may have a material adverse effect on our liquidity. See “Part II — Item 1. Legal Proceedings”.

Senior Credit Facility

On August ~~26,~~4, 2010, we ~~announced that one~~terminated our Third Amended and Restated Credit Agreement, which we refer to as the “Prior Senior Credit Agreement”, and entered into a new Credit Agreement by and among GEO, as Borrower, BNP Paribas, as Administrative Agent, and the lenders who are, or may from time to time become, a party thereto. On February 8, 2011, we entered into Amendment No. 1 to the Senior Credit Facility. Amendment No. 1, among other things amended certain definitions and covenants relating to the total leverage ratios and the senior secured leverage ratios set forth in the Senior Credit Facility. This amendment increased our borrowing capacity by $250.0 million. As of ~~these key executives, Wayne H. Calabrese, Vice Chairman, President~~April 3, 2011, the Senior Credit Facility was comprised of: (i) a $150.0 million Term Loan A due August 2015, bearing interest at LIBOR plus 2.25%, (ii) a $150.0 million Term Loan A-2 due August 2015, bearing interest at LIBOR plus 2.75%, (iii) a $200.0 million Term Loan B due August 2016, bearing interest at LIBOR plus 3.25% with a LIBOR floor of 1.50%, and ~~Chief Operating Officer, will retire effective December 31, 2010.~~(iv) a $500.0 million Revolving Credit Facility due August 2015 bearing interest at LIBOR plus 2.25%. On May 2, 2011, we executed Amendment No. 2 to our Senior Credit Facility. As a result of ~~his retirement,~~this amendment, relative to our Term Loan B, the Applicable Rate was reduced to 2.75% per annum from 3.25% per annum in the case of Eurodollar loans and to 1.75% per annum from 2.25% per annum in the case of ABR loans and the LIBOR floor was reduced to 1.00% from 1.50%.

Incremental borrowings of $150.0 million under our amended Senior Credit Facility along with proceeds from our $300.0 million offering of the 6.625% Senior Notes were used to finance the acquisition of BI. As of April 3, 2011, we ~~will pay $4.5~~had $493.5 million in ~~discounted retirement benefits~~aggregate borrowings outstanding, net of discount, under ~~his non-qualified deferred compensation agreement, including~~the Term Loan A, Term Loan A-2 and Term Loan B, $210.0 million in borrowings under the Revolver, approximately $70.4 million in letters of credit and $219.6 million in additional borrowing capacity under the Revolver. The weighed average interest rate on outstanding borrowings under the Senior Credit Facility, as amended, as of April 3, 2011 was 3.3%.

Indebtedness under the Revolver, the Term Loan A and the Term Loan A-2 bears interest based on the Total Leverage Ratio as of the most recent determination date, as defined, in each of the instances below at the stated rate:


		Interest Rate under the Revolver,
		Term Loan A and Term Loan A-2
LIBOR borrowings		LIBOR plus 2.00% to 3.00%.
Base rate borrowings		Prime Rate plus 1.00% to 2.00%.
Letters of credit		2.00% to 3.00%.
Unused Revolver		0.375% to 0.50%.

The Senior Credit Facility contains certain customary representations and warranties, and certain customary covenants that restrict our ability to, among other things as permitted (i) create, incur or assume indebtedness, (ii) create, incur, assume or permit liens, (iii) make loans and investments, (iv) engage in mergers, acquisitions and asset sales, (v) make restricted payments, (vi) issue, sell or otherwise dispose of capital stock, (vii) engage in transactions with affiliates, (viii) allow the total leverage ratio or senior secured leverage ratio to exceed certain maximum ratios or allow the interest coverage ratio to be less than a ~~gross up of $1.7 million~~certain ratio, (ix) cancel, forgive, make any voluntary or optional payment or prepayment on, or redeem or acquire for ~~certain taxes as specified~~value any senior notes, (x) alter the business we conduct, and (xi) materially impair our lenders’ security interests in the ~~deferred compensation agreement.~~ collateral for our loans.

We ~~plan~~must not exceed the following Total Leverage Ratios, as computed at the end of each fiscal quarter for the immediately preceding four quarter-period:


		Total Leverage Ratio —
Period		Maximum Ratio
Through and including the last day of the fiscal year 2011		5.25 to 1.00
First day of fiscal year 2012 through and including the last day of fiscal year 2012		5.00 to 1.00
First day of fiscal year 2013 through and including the last day of fiscal year 2013		4.75 to 1.00
Thereafter		4.25 to 1.00

The Senior Credit Facility also does not permit us to ~~use cash on hand~~exceed the following Senior Secured Leverage Ratios, as computed at the end of each fiscal quarter for the immediately preceding four quarter-period:


		Senior Secured Leverage Ratio —
Period		Maximum Ratio
Through and including the last day of the second quarter of the fiscal year 2012		3.25 to 1.00
First day of the third quarter of fiscal year 2012 through and including the last day of the second quarter of the fiscal year 2013		3.00 to 1.00
Thereafter		2.75 to 1.00

Additionally, there is an Interest Coverage Ratio under which the lender will not permit a ratio of less than 3.00 to ~~make this payment.~~1.00 relative to (a) Adjusted EBITDA for any period of four consecutive fiscal quarters to (b) Interest Expense, less that attributable to non-recourse debt of unrestricted subsidiaries.

Events of default under the Senior Credit Facility include, but are not limited to, (i) our failure to pay principal or interest when due, (ii) our material breach of any representations or warranty, (iii) covenant defaults, (iv) liquidation, reorganization or other relief relating to bankruptcy or insolvency, (v) cross default under certain other material indebtedness, (vi) unsatisfied final judgments over a specified threshold, (vii) material environmental liability claims which have been asserted against us, and (viii) a change in control. All of the obligations under the Senior Credit Facility are unconditionally guaranteed by certain of our subsidiaries and secured by substantially all of our present and future tangible and intangible assets and all present and future tangible and intangible assets of each guarantor, including but not limited to (i) a first-priority pledge of substantially all of the outstanding capital stock owned by us and each guarantor, and (ii) perfected first-priority security interests in substantially all of ours, and each guarantors, present and future tangible and intangible assets and the present and future tangible and intangible assets of each guarantor. Our failure to comply with any of the covenants under our Senior Credit Facility could cause an event of default under such documents and result in an acceleration of all outstanding senior secured indebtedness. We believe we were in compliance with all of the covenants of the Senior Credit Facility as of April 3, 2011.

6.625% Senior Notes

On February 10, 2011, we completed a private offering of $300.0 million in aggregate principal amount of 6.625% senior unsecured notes due 2021. These senior unsecured notes pay interest semi-annually in cash in arrears on February 15 and August 15, beginning on August 15, 2011. We realized net proceeds of $293.3 million at the close of the transaction. We used the net proceeds of the offering together with borrowings of $150.0 million under the Senior Credit Facility to finance the acquisition of BI. The remaining net proceeds from the offering were used for general corporate purposes.

The 6.625% Senior Notes are guaranteed by certain subsidiaries and are unsecured, senior obligations of GEO and these obligations rank as follows: pari passu with any unsecured, senior indebtedness of GEO and the guarantors, including the 7³/₄% Senior Notes; senior to any future indebtedness of GEO and the guarantors that is expressly subordinated to the 6.625% Senior Notes and the guarantees; effectively junior to any secured indebtedness of GEO and the guarantors, including indebtedness under our Senior Credit Facility, to the extent of the value of the assets securing such indebtedness; and structurally junior to all obligations of our subsidiaries that are not guarantors.

On or after February 15, 2016, we may, at our option, redeem all or part of the 6.625% Senior Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and liquidated damages, if any, on the 6.625% Senior Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on February 15 of the years indicated below:


Year	Percentage
2016		103.3125	%
2017		102.2083	%
2018		101.1042	%
2019 and thereafter		100.0000	%

Before February 15, 2016, we may redeem some or all of the 6.625% Senior Notes at a redemption price equal to 100% of the principal amount of each note to be redeemed plus a “make whole” premium, together with accrued and unpaid interest and liquidated damages, if any, to the date of redemption. In addition, at any time before February 15, 2014, we may redeem up to 35% of the aggregate principal amount of the 6.625% Senior Notes with the net cash proceeds from specified equity offerings at a redemption price equal to 106.625%

of the principal amount of each note to be redeemed, plus accrued and unpaid interest and liquidated damages, if any, to the date of redemption.

The indenture governing the notes contains certain covenants, including limitations and restrictions on us and our restricted subsidiaries’ ability to: incur additional indebtedness or issue preferred stock; make dividend payments or other restricted payments; create liens; sell assets; enter into transactions with affiliates; and enter into mergers, consolidations or sales of all or substantially all of our assets. As of the date of the indenture, all of our subsidiaries, other than certain dormant domestic and other subsidiaries and all foreign subsidiaries in existence on the date of the indenture, were restricted subsidiaries. Our failure to comply with certain of the covenants under the indenture governing the 6.625% Notes could cause an event of default of any indebtedness and result in an acceleration of such indebtedness. In addition, there is a cross-default provision which becomes enforceable upon failure of payment of indebtedness at final maturity. Our unrestricted subsidiaries will not be subject to any of the restrictive covenants in the indenture. We believe we were in compliance with all of the covenants of the Indenture governing the 6.625% Senior Notes as of April 3, 2011.

7³/4% Senior Notes

On October 20, 2009, we completed a private offering of $250.0 million in aggregate principal amount of our 7³/₄% Senior Notes due 2017. These senior unsecured notes pay interest semi-annually in cash in arrears on April 15 and October 15 of each year, beginning on April 15, 2010. We realized net proceeds of $246.4 million at the close of the transaction, net of the discount on the notes of $3.6 million. We used the net proceeds of the offering to fund the repurchase of all of our ~~81/4%~~8¹/4% Senior Notes due 2013 and pay down part of the Revolver under the ~~Third Amended and Restated~~Prior Senior Credit Agreement.

The 7³/₄% Senior Notes are guaranteed by certain subsidiaries and are unsecured, senior obligations of GEO and these obligations rank as follows: pari passu with any unsecured, senior indebtedness of GEO and the ~~guarantors;~~guarantors, including the 6.625% Senior Notes; senior to any future indebtedness of GEO and the guarantors that is expressly subordinated to the notes and the guarantees; effectively junior to any secured indebtedness of GEO and the guarantors, including indebtedness under our Credit Agreement, to the extent of the value of the assets securing such indebtedness; and effectively junior to all obligations of our subsidiaries that are not guarantors.

On or after October 15, 2013, we may, at our option, redeem all or a part of the 7³/₄% Senior Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and liquidated damages, if any, on the 7³/₄% Senior Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on October 15 of the years indicated below:


Year	Percentage
2013		103.875	%
2014		101.938	%
2015 and thereafter		100.000	%

Before October 15, 2013, we may redeem some or all of the 7³/₄% Senior Notes at a redemption price equal to 100% of the principal amount of each note to be redeemed plus a make-whole premium together with accrued and unpaid interest and liquidated damages, if

Non-Recourse Debt

South Texas Detention Complex

We have a debt service requirement related to the development of the South Texas Detention Complex, a 1,904-bed detention complex in Frio County, Texas acquired in November 2005 from Correctional Services Corporation, which we refer to as CSC. CSC was awarded the contract in February 2004 by the Department of Homeland Security, ICE, for development and operation of the detention center. In order to finance the construction of the complex, South Texas Local Development Corporation, which we refer to as STLDC, was created and issued $49.5 million in taxable revenue bonds. These bonds mature in February 2016 and have fixed coupon rates between ~~4.34%~~4.63% and 5.07%. Additionally, ~~the Company is~~we are owed $5.0 million in the form of subordinated notes by STLDC which represents the principal amount of financing provided to STLDC by CSC for initial development.

We have an operating agreement with STLDC, the owner of the complex, which provides us with the sole and exclusive right to operate and manage the detention center. The operating agreement and bond indenture require the revenue from our contract with ICE to be used to fund the periodic debt service requirements as they become due. The net revenues, if any, after various expenses such as trustee fees, property taxes and insurance premiums are distributed to us to cover operating expenses and management fees. We are responsible for the entire operations of the facility including the payment of all operating expenses whether or not there are sufficient revenues. STLDC has no liabilities resulting from its ownership. The bonds have a ten-year term and are non-recourse to us and STLDC. The bonds are fully insured and the sole source of payment for the bonds is the operating revenues of the center. At the end of the ten-year term of the bonds, title and ownership of the facility transfers from STLDC to us. We have determined that we are the primary beneficiary of STLDC and consolidate the entity as a result. The carrying value of the facility as of April 3, 2011 and January 2, 2011 was $26.9 million and $27.0 million, respectively.

Northwest Detention Center

On June 30, 2003, CSC arranged financing for the construction of the Northwest Detention Center in Tacoma, Washington, referred to as the Northwest Detention Center, which was completed and opened for operation in April 2004 and acquired by us in November 2005. In connection with the original financing, CSC of Tacoma LLC, a ~~wholly owned~~wholly-owned subsidiary of CSC, issued a $57.0 million note payable to the Washington Economic Development Finance Authority, referred to as WEDFA, an instrumentality of the State of Washington, which issued revenue bonds and subsequently loaned the proceeds of the bond issuance back to CSC for the purposes of constructing the Northwest Detention Center. The bonds are non-recourse to us and the loan from WEDFA to CSC is also non-recourse to us. These bonds mature in February 2014 and have fixed coupon rates between 3.80% and 4.10%.

The proceeds of the loan were disbursed into escrow accounts held in trust to be used to pay the issuance costs for the revenue bonds, to construct the Northwest Detention Center and to establish debt service and other reserves. ~~On October 1, 2010, CSC of Tacoma LLC~~No payments were made ~~a payment from its restricted cash account of $5.9 million for~~during the ~~current portion of its periodic debt service requirement in relation to the WEDFA bond indenture.~~thirteen weeks ended April 3, 2011. As of ~~October~~April 3, ~~2010,~~2011, the remaining balance of the debt service requirement is $25.7 million, of which $6.1 million is due within the next 12 months.

collateralized by the property and equipment, bond reserves, assignment of subleases and substantially all assets related to the facilities owned by MCF. The bonds are not guaranteed by us or our subsidiaries.

The 8.47% Revenue Bond indenture provides for the establishment and maintenance by MCF for the benefit of the trustee under the indenture of a debt service reserve fund. As of April 13, 2011, the debt service reserve fund has a balance of $23.8 million. The debt service reserve fund is available to the trustee to pay debt service on the 8.47% Revenue Bonds when needed, and to pay final debt service on the 8.47% Revenue Bonds. If MCF is in default in its obligation under the 8.47% Revenue Bonds indenture, the trustee may declare the principal outstanding and accrued interest immediately due and payable. MCF has the right to cure a default of non-payment obligations. The 8.47% Revenue Bonds are subject to extraordinary mandatory redemption in certain instances upon casualty or condemnation. The 8.47% Revenue Bonds may be redeemed at the option of MCF prior to their final scheduled payment dates at par plus accrued interest plus a make-whole premium.

Australia

In connection with the financing and management of one Australian facility, our ~~wholly owned~~wholly-owned Australian subsidiary financed the facility’s development and subsequent expansion in 2003 with long-term debt obligations. These obligations are non-recourse to us and total ~~$45.4~~$45.6 million and $46.3 million at ~~October~~April 3, ~~2010.~~2011 and January 2, 2011, respectively. As a condition of the loan, we are required to maintain a restricted cash balance of AUD 5.0 million, which, at ~~October~~April 3, ~~2010,~~2011, was ~~$4.9~~$5.2 million. The restricted cash balance is included in the non-current portion of restricted cash and the annual maturities of the long-term portion of the future debt obligation are included in non-recourse debt. The term of the non-recourse debt is through 2017 and it bears interest at a variable rate quoted by certain Australian banks plus 140 basis points. Any obligations or liabilities of the subsidiary are matched by a similar or corresponding commitment from the government of the State of Victoria.

Guarantees

In connection with the creation of South African Custodial Services Ltd., referred to as SACS, we entered into certain guarantees related to the financing, construction and operation of the prison. We guaranteed certain obligations of SACS under its debt agreements up to a maximum amount of 60.0 million South African Rand, or ~~$8.7~~$9.0 million, to SACS’ senior lenders through the issuance of letters of credit. Additionally, SACS is required to fund a restricted account for the payment of certain costs in the event of contract termination. We have guaranteed the payment of 60% of amounts which may be payable by SACS into the restricted account and provided a standby letter of credit of 8.4 million South African Rand, or ~~$1.2~~$1.3 million, as security for our guarantee. Our obligations under this guarantee expire upon the release from SACS of its obligations in respect to the restricted account under its debt agreements. No amounts have been drawn against these letters of credit, which are included as part of the value of outstanding letters of credit under our ~~Revolving Credit Commitment.~~Revolver.

We have agreed to provide a loan, if necessary, of up to 20.0 million South African Rand, or ~~$2.9~~$3.0 million, referred to as the Standby Facility, to SACS for the purpose of financing ~~the~~SACS’ obligations under ~~the~~its contract ~~between SACS and~~with the South African government. No amounts have been funded under the Standby Facility, and we do not currently anticipate that such funding will be required by SACS in the future. Our obligations under the Standby Facility expire upon the earlier of full funding or release from SACS of its obligations under its debt agreements. The lenders’ ability to draw on the Standby Facility is limited to certain circumstances, including termination of the contract.

We have also guaranteed certain obligations of SACS to the security trustee for SACS’ lenders. We have secured our guarantee to the security trustee by ceding our rights to claims against SACS in respect of any loans or other finance agreements, and by pledging our shares in SACS. Our liability under the guarantee is limited to the cession and pledge of shares. The guarantee expires upon expiration of the cession and pledge agreements.

In connection with a design, build, finance and maintenance contract for a facility in Canada, we guaranteed certain potential tax obligations of a not-for-profit entity. The potential estimated exposure of these obligations is CAD 2.5 million, or ~~$2.5~~$2.6 million commencing in 2017. We have a liability of $1.8 million and $1.8 million related to this exposure as of ~~October~~April 3, ~~2010.~~2011 and January 2, 2011, respectively. To secure this guarantee, we purchased Canadian dollar denominated securities with maturities matched to the estimated tax obligations in 2017 to 2021. We have recorded an asset and a liability equal to the current fair market value of those securities on our consolidated balance sheet. We do not currently operate or manage this facility.

Derivatives

~~In November 2009,~~As of April 3, 2011, we ~~executed three~~have four interest rate swap agreements in the aggregate notional amount of ~~$75.0 million. In January 2010, we executed a fourth interest rate swap agreement in the notional amount of $25.0~~$100.0 million. We have designated these interest rate swaps as hedges against changes in the fair value of a designated portion of the 7³/₄% Senior Notes ~~due 2017 (“7~~³/₄~~% Senior Notes”)~~ due to changes in underlying interest rates. These interest rate swaps, which have payment, expiration dates and call provisions that mirror the terms of the 7³/₄% Senior Notes, effectively convert $100.0 million of the 7³/₄% Senior Notes into variable rate obligations. Each of the swaps has a termination clause that gives the counterparty the right to terminate the interest rate swaps at fair market value, under certain circumstances. In addition to the termination clause, these interest rate swaps also have call provisions which specify that the lender can elect to settle the swap for the call option price. Under these interest rates swaps, we receive a fixed interest rate payment from the financial counterparties to the agreements equal to 7³/₄% per year calculated on the notional $100.0 million amount, while we make a variable interest rate payment to the same counterparties equal to the three-month LIBOR plus a fixed margin of between 4.16% and 4.29%, also calculated on the notional $100.0 million amount. Changes in the fair value of the interest rate swaps are recorded in earnings along with related designated changes in the value of the 7³/4% Senior Notes.

Total net gains (losses) recognized and recorded in earnings related to these fair value hedges was ~~$3.3~~$(1.0) million and ~~$9.2~~$0.4 million in the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 3, 2011 and April 4, 2010, respectively. As of ~~October~~April 3, ~~2010~~2011 and January ~~3, 2010, the fair value of~~2, 2011, the swap ~~assets (liabilities) was $7.3~~assets’ fair values were $2.3 million and ~~$(1.9)~~$3.3 million, respectively. There was no material ineffectiveness of these interest rate swaps during the fiscal periods ended ~~October~~April 3, 2011 or April 4, 2010.

Our Australian subsidiary is a party to an interest rate swap agreement to fix the interest rate on its variable rate non-recourse debt to 9.7%. We have determined the swap, which has a notional amount of $50.9 million, payment and expiration dates, and call provisions that coincide with the terms of the non-recourse debt to be an effective cash flow hedge. Accordingly, we record the change in the value of the interest rate swap in accumulated other comprehensive income, net of applicable income taxes. Total unrealized ~~gains~~loss recognized ~~in the periods~~ and recorded in accumulated other comprehensive income, net of tax, related to these cash flow hedges was ~~$(0.2)~~$0.2 million and ~~$0.3~~$0.0 million for the thirteen ~~and thirty-nine~~ weeks ended ~~October~~April 3, ~~2010, respectively. Total net gains recognized in the periods~~2011 and ~~recorded in accumulated other comprehensive income, net of tax, related to these cash flow hedges was $0.1 million and $1.0 million for the thirteen and thirty-nine weeks ended September 27, 2009~~April 4, 2010, respectively. The total value of the swap asset as of ~~October~~April 3, ~~2010~~2011 and January ~~3, 2010~~2, 2011 was ~~$1.5~~$1.6 million and ~~$2.0~~$1.8 million, respectively, and is recorded as a component of other assets within the accompanying consolidated balance sheets. There was no material ineffectiveness of this interest rate swap for the fiscal periods presented. We do not expect to enter into any transactions during the next twelve months which would result in the reclassification into earnings or losses associated with this swap currently reported in accumulated other comprehensive income (loss).

Cash Flow

Cash and cash equivalents as of ~~October~~April 3, ~~2010~~2011 was ~~$53.8~~$85.9 million, an increase of ~~$19.9~~$46.2 million from January ~~3, 2010.~~2, 2011.

Cash provided by operating activities of continuing operations amounted to ~~$103.6~~$69.1 million in ~~Nine Months 2010~~First Quarter 2011 versus cash provided by operating activities of continuing operations of ~~$79.3~~$64.7 million in ~~Nine Months 2009.~~First Quarter 2010. Cash provided by operating activities of continuing operations in ~~Nine Months 2010~~First Quarter 2011 was positively impacted by the ~~$7.9~~increase of depreciation, which is a non-cash expense and increased by $9.6 million ~~loss on extinguishment~~primarily due to our acquisitions of ~~debt associated with the termination of our Third Amended~~Cornell and ~~Restated Credit Agreement, a decrease of $6.6 million in accounts receivable and other assets and~~BI. This increase was more than offset by an increase in cash payments made toward accounts payable, accrued expenses and other ~~liabilities of $13.9 million.~~liabilities. Cash provided by operating activities of continuing operations in ~~Nine Months 2009~~First Quarter 2010 was positively impacted by an increase in accounts payable, accrued expenses and ~~accrued payroll~~other liabilities of ~~$11.1~~$10.7 million due to the timing of cash payments to our customers and ~~negatively impacted by an increase~~our employees, and a decrease in accounts receivable and other assets of ~~$21.6 million.~~$21.5 million primarily due to the timing of cash collections from our customers.

Cash used in investing activities amounted to ~~$330.3~~$444.9 million in ~~Nine Months 2010~~First Quarter 2011 compared to cash used in investing activities of ~~$115.1~~$17.9 million in ~~Nine Months 2009.~~First Quarter 2010. Cash used in investing activities in ~~Nine Months 2010~~First Quarter 2011 primarily reflects our cash consideration for the purchase of ~~Cornell~~BI for ~~$260.2 million which includes $273.1 million for cash paid to acquire shares and cash paid to settle certain of Cornell’s debt, net of cash acquired of $12.9~~$409.6 million. In addition, we used ~~$68.3~~$38.7 million for capital expenditures. Cash used in investing activities in the ~~Nine Months 2009~~First Quarter 2010 primarily reflects capital expenditures of ~~$113.7~~$15.7 million.

Outlook

The following discussion contains statements that are not historical statements and, therefore, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those stated or implied in the forward-looking statement. Please refer to “Part I — Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January ~~3, 2010 and “Part II — Item 1A. Risk Factors” in our Quarterly Reports on Form 10-Q for the quarters ended April 4, 2010, July 4, 2010 and October 3, 2010,~~2, 2011, the “Forward-Looking Statements — Safe Harbor” section in our Annual Report on Form 10-K, as well as the other disclosures contained in our Annual Report on Form 10-K, for further discussion on forward-looking statements and the risks and other factors that could prevent us from achieving our goals and cause the assumptions underlying the forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements.

Revenue

Domestically, we continue to be encouraged by the number of opportunities that have recently developed in the privatized corrections and detention industry. Overcrowding at corrections facilities in various states and increased demand for bed space at federal prisons and detention facilities are two of the factors that have contributed to the opportunities for privatization. However, these positive trends may in the future be impacted by government budgetary constraints. Recently, we have experienced a delay in cash receipts from California and other states may follow suit. ~~During this~~While the mid-year budget shortages faced by states in fiscal year 2011 have been less severe than in prior years, several states still face ongoing budget shortfalls. According to date, we have not received any payment deferrals or IOU’s from California and expect to fully collect our outstanding receivables. While state budgetary pressures are expected to persist in fiscal years 2011 and 2012, we are encouraged by recent signs that the ~~rate~~National Conference of ~~decline in state revenue collections is slowing. While forty-one~~State Legislatures, 31 states ~~reported~~currently project budget gaps ~~during the enactment of their~~in fiscal year ~~2011 budgets, these budgets~~2012 while 19 states currently anticipate budget gaps ~~have by and large been closed with only a few exceptions according to a July 2010 report issued by the National Conference on State Legislatures.~~in fiscal year 2013. As a result of budgetary pressures, state correctional agencies may pursue a number of cost savings initiatives which may include the early release of inmates, changes to parole laws and sentencing guidelines, and reductions in per diem rates and/or the scope of services provided by private operators. These potential cost savings initiatives could have a material adverse impact on our current operations and/or our ability to pursue new business opportunities. Additionally, if state budgetary constraints, as discussed above, persist or intensify, our state customers’ ability to pay us may be impaired and/or we may be forced to renegotiate our management contracts on less favorable terms and our financial condition results of operations or cash flows could be materially adversely impacted. We plan to actively bid on any new projects that fit our target profile for profitability and operational risk. Although we are pleased with the overall industry outlook, positive trends in the industry may be offset by several factors, including budgetary constraints, unanticipated contract terminations, contract non-renewals, and/or contract re-bids. Although we have historically had a relative high contract renewal rate, there can be no assurance that we will be able to renew our expiring management contracts on favorable terms, or at all. Also, while we are pleased with our track record in re-bid situations, we cannot assure that we will prevail in any such future situations.

Internationally, during the second half of fiscal year 2009 our subsidiaries in the United Kingdom and Australia began the operation and management under two new contracts with an aggregate of 1,083 beds. In July 2010, our subsidiary in the United Kingdom (referred to as the “UK”) began operating the 360-bed expansion at Harmondsworth increasing the capacity of that facility to 620 beds from 260 beds. In March 2011, we executed a contract with the United Kingdom Border Agency for the management and operation of the 217-bed Dungavel House Immigration Removal Centre located near Glasgow, Scotland. GEO will commence operation of this Center on September 25, 2011. Also in March 2011, our newly formed joint venture in the United Kingdom, GEO Amey PECS, Ltd., which we refer to as GEOAmey, was awarded three contracts by the Ministry of Justice in the United Kingdom for the provision of prison escort and custody services. We believe there are additional opportunities in the UK such as ~~the UK government’s solicitation~~additional market testing of ~~proposals for the management~~prisons, electronic monitoring of five existing managed-only prisons totaling approximately 5,700 beds for which our wholly-owned subsidiary in the UK has been short-listed for participation in these procurements. Additionally, we expect to compete on large-scale transportation contracts in the UK where we have been short-listed to submit proposals as part of a new venture we have formed with a large UK-based fleet services company.offenders and community corrections. Finally, the UK government had announced plans to develop five new 1,500-bed prisons to be financed, built and managed by the private sector. GEO ~~had~~has gone through the prequalification process for this procurement and ~~had~~has been invited to compete on these opportunities. We are currently awaiting a revised timeline from the governmental agency in the UK so we may continue to pursue this project. We are continuing to monitor this opportunity and, at this time, we believe the government in the UK is reviewing this plan to determine the best way to proceed. In South Africa, we have bid on projects for the

design, construction and operation of four 3,000-bed prison projects totaling 12,000 beds. Requests for proposal were issued in December 2008 and we submitted our bids on the projects at the end of May 2009. The South African government has ~~decided~~announced that it intends to ~~move forward with the bidding process with a revised timeline that would results in a decision in late~~complete its evaluation of four existing bids (including ours) by November 2011. ~~Once preferred bidders have been announced, we anticipate the closing to occur within six months thereafter.~~ No more than two prison projects can be awarded to any one bidder. ~~In New Zealand, the government has an active procurement for the management of an existing prison facility.~~ The New Zealand government has also solicited expressions of interest for a new design, build, finance and management contract for a new correctional center for 960 ~~beds.~~beds and our GEO Australia subsidiary has been short-listed for participation in this procurement. We believe that additional opportunities will become available in international markets and we plan to actively bid on any opportunities that fit our target profile for profitability and operational risk.

With respect to our mental ~~health/~~health, residential treatment, youth services and re-entry services business conducted through our wholly-owned subsidiary, GEO Care, we are currently pursuing a number of business development opportunities. In connection with our merger with Cornell in August 2010 ~~through~~and our acquisition of BI in February 2011, we have significantly expanded our operations by adding 44 facilities and also the service offerings of GEO Care ~~segment,~~by adding electronic monitoring services and community re-entry and immigration related supervision services. Through both organic growth and acquisitions, and subsequent to our acquisition of BI in February 2011, we ~~manage and/or own 43 facilities with a total design capacity~~have been able to grow GEO Care’s business to approximately 6,500 beds and 60,000 offenders under community supervision.

GEO Care assumed management and operation of ~~approximately 6,300 beds. In addition, we~~the new 100-bed Montgomery County Mental Health Treatment Facility in Texas in March 2011. We continue to expend resources on informing state and local governments about the benefits of privatization and we

anticipate that there will be new opportunities in the future as those efforts begin to yield results. We believe we are well positioned to capitalize on any suitable opportunities that become available in this area.

As a result of the consummation of our merger with Cornell, we expect to increase our aggregate annual revenues by approximately $400 million to approximately $1.5 billion. We anticipate this increase in revenues will occur in our U.S. corrections and GEO Care segments.

Operating Expenses

Operating expenses consist of those expenses incurred in the operation and management of our ~~correctional, detention and mental health facilities.~~contracts to provide services to our governmental clients. Labor and related cost represented ~~55.5%~~59.1% of our operating expenses in ~~Nine Months 2010.~~First Quarter 2011. Additional significant operating expenses include food, utilities and inmate medical costs. In ~~2010,~~First Quarter 2011, operating expenses totaled ~~77.5%~~76.4% of our consolidated revenues. Our operating expenses as a percentage of revenue in ~~2010~~2011 will be impacted by the opening of any new facilities. We expect our results in 2010 to reflect increases to interest expense due to higher rates related to incremental borrowings under our Credit Agreement, higher average amounts of indebtedness and less capitalized interest due to a decrease in construction activity. We also expect increases to depreciation expense as a percentage of revenue due to carrying costs we will incur for a newly constructed and expanded facility for which we have no corresponding management contract for the expansion beds and potential carrying costs of certain facilities we acquired from Cornell with no corresponding management ~~contract. A portion of these~~contracts. Additionally, we will experience increases ~~will be offset by a savings to depreciation expense. During our first fiscal quarter ended April 4, 2010, we completed a depreciation study on our owned correctional facilities and,~~ as a result ~~revised~~of the ~~estimated useful lives~~amortization of ~~certain~~intangible assets acquired in connection with our acquisitions of our buildings from our historical estimate of 40 years to a revised estimate of 50 years, effective January 4, 2010. The impact for the year ended January 2, 2011 is expected to be $2.2 million, net of tax.Cornell and BI. In addition to the factors discussed relative to our current operations, we expect to experience overall increases in operating expenses as a result of the ~~merger with Cornell.~~acquisitions of Cornell and BI. As of ~~October~~April 3, ~~2010,~~2011, our worldwide operations include the management and/or ownership of approximately ~~79,000~~80,000 beds at 116 correctional, detention and residential treatment, youth services and community-based facilities including idle facilities and projects under development. See the discussion below ~~relative to~~regarding Synergies and Cost Savings.

General and Administrative Expenses

General and administrative expenses consist primarily of corporate management salaries and benefits, professional fees ~~business development costs~~ and other administrative expenses. In First Quarter 2011, general and administrative expenses totaled 8.4% of our consolidated revenues including the impact of non recurring acquisition related expenses. We expect general and administrative expenses as a percentage of revenue in 2011 to increase slightly over historical results. In connection with our merger with Cornell, we incurred approximately $25 million in acquisition related costs, including $7.9 million in debt extinguishment costs, during fiscal year ended 2010 and $1.8 million in the thirteen weeks ended April 3, 2011. In connection with our acquisition of BI, we incurred $7.7 million of acquisition related costs during fiscal year 2010, $3.9 million in First Quarter 2011 and expect to incur between $1 million and $2 million during the remainder of 2011. We expect business development costs to remain consistent as we pursue additional business development opportunities in all of our business lines and build the corporate infrastructure necessary to support our mental health residential treatment services business. ~~In Third Quarter 2010, general and administrative expenses totaled 10.3%~~We also plan to continue expending resources from time to time on the evaluation of our consolidated revenues. Excluding the impact of the merger with Cornell, we expect general and administrative expenses as a percentage of revenue in 2010 to be generally consistent with our general and administrative expenses for 2009. In connection with our merger with Cornell, we incurred $23.6 million in transaction costs, including $7.9 million in debt extinguishment costs, during the thirty-nine weeks ended October 3, 2010 and expect to incur between $3 million and $4 million in the fourth fiscal quarter of 2010 for aggregate transaction costs of between $27 million and $28 million. Transaction costs, which we believe will be, in part, non-deductible for Federal Income Tax purposes, include legal, financial advisory, due diligence, filing fees and other costs necessary to close the transaction.potential acquisition targets.

Synergies and Cost Savings

Our management anticipates annual synergies of ~~$12-15~~approximately $12-$15 million during the year following the completion of the merger with Cornell and ~~believes there~~approximately $3-$5 million during the year following our acquisition of BI. There may be potential to achieve additional synergies thereafter. We believe ~~the Merger should result in a number of important~~any such additional synergies would be achieved primarily from greater operating

~~In November 2009,~~As of April 3, 2011, we ~~executed three~~had four interest rate swap agreements in the aggregate notional amount of ~~$75.0~~$100.0 million. ~~Effective January 6, 2010, we executed a fourth swap agreement relative to a notional amount of $25.0 million of our 7~~³/₄~~% Senior Notes.~~ These interest rate swaps, which have payment, expiration dates and call provisions that mirror the terms of the 7³/₄% Senior Notes, effectively convert $100.0 million of the Notes into variable rate obligations. Under these interest rate swaps, we receive a fixed interest rate payment from the financial counterparties to the agreements equal to 7³/₄% per year calculated on the notional $100.0 million amount, while we make a variable interest rate payment to the same counterparties equal to the three-month LIBOR plus a fixed margin of between 4.16% and 4.29% also calculated on the notional $100.0 million amount. For every one percent increase in the interest rate applicable to our aggregate notional $100.0 million of swap agreements relative to the 7³/₄% Senior Notes, our annual interest expense would increase by $1.0 million.

We have entered into certain interest rate swap arrangements for hedging purposes, fixing the interest rate on our Australian non-recourse debt to 9.7%. The difference between the floating rate and the swap rate on these instruments is recognized in interest expense within the respective entity. Because the interest rates with respect to these instruments are fixed, a hypothetical 100 basis point change in the current interest rate would not have a material impact on our financial condition or results of operations.

Additionally, we invest our cash in a variety of short-term financial instruments to provide a return. These instruments generally consist of highly liquid investments with original maturities at the date of purchase of three months or less. While these instruments are subject to interest rate risk, a hypothetical 100 basis point increase or decrease in market interest rates would not have a material impact on our financial condition or results of operations.

Foreign Currency Exchange Rate Risk

We are also exposed to market risks related to fluctuations in foreign currency exchange rates between the U.S. dollar, the Australian dollar, the Canadian dollar, the South African Rand and the British Pound currency exchange rates. Based upon our foreign currency exchange rate exposure at ~~October~~April 3, ~~2010,~~2011, every 10 percent change in historical currency rates would have approximately a ~~$6.2~~$6.5 million effect on our financial position and approximately a ~~$0.9~~$0.4 million impact on our results of operations during ~~2010.~~2011.

controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. Accordingly, there can be no assurance that our disclosure controls and procedures will detect all errors or fraud. As a result, by its nature, our system of disclosure controls and procedures can provide only reasonable assurance regarding management’s control objectives.

On August 12, 2010, we acquired Cornell, at which time Cornell became our subsidiary. See Note 2 to the condensed consolidated financial statements contained in this Quarterly Report for further details of the transaction. We are currently in the process of assessing and integrating Cornell’s internal controls over financial reporting into our financial reporting systems. Management’s assessment of internal control over financial reporting at ~~October~~April 3, ~~2010,~~2011, excludes the operations of Cornell as allowed by SEC guidance related to internal controls of recently acquired entities. Management will include the operations of Cornell in its assessment of internal control over financial reporting within one year from the date of acquisition.

~~It should be noted that~~On February 10, 2011, we acquired BI Holding, at which time BI Holding and its subsidiaries became our subsidiaries. See Note 2 to the ~~effectiveness~~consolidated financial statements contained in this Quarterly Report for further details of the transaction. We are currently in the process of assessing and integrating BI Holding’s internal controls over financial reporting into our ~~system~~financial reporting systems. Management’s assessment of ~~disclosure~~internal control over financial reporting at April 3, 2011, excludes the operations of BI Holding as allowed by SEC guidance related to internal controls ~~and procedures is subject to certain limitations inherent~~of recently acquired entities. Management will include the operations of BI Holding in ~~any system~~its assessment of ~~disclosure controls and procedures, including~~internal control over financial reporting within one year from the ~~exercise~~date of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. Accordingly, there can be no assurance that our disclosure controls and procedures will detect all errors or fraud. As a result, by its nature, our system of disclosure controls and procedures can provide only reasonable assurance regarding management’s control objectives.acquisition.

~~(b)~~

(b)

Changes in Internal Control Over Financial Reporting.

Our management is responsible to report any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management believes that there have not been any changes, other than those related to our assessment and integration of Cornell and BI Holding as discussed above, in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

~~ITEM 1. LEGAL PROCEEDINGS.~~


ITEM 1.		LEGAL PROCEEDINGS.

In June 2004, we received notice of a third-party claim for property damage incurred during 2001 and 2002 at several detention facilities formerly operated by our Australian subsidiary. The claim relates to property damage caused by detainees at the detention facilities. The notice was given by the Australian government’s insurance provider and did not specify the amount of damages being sought. In August 2007, a lawsuit (Commonwealth of Australia v. Australasian Correctional Services PTY, Limited No. SC 656) was filed against ~~the Company~~us in the Supreme Court of the Australian Capital Territory seeking damages of up to approximately AUD 18 million or ~~$17.5~~$18.7 million based on exchange rates as of April 3, 2011, plus interest. We believe that we have several defenses to the allegations underlying the litigation and the amounts sought and intend to vigorously defend our rights with respect to this matter. We have established a reserve based on our estimate of the most probable loss based on the facts and circumstances known to date and the advice of ~~our~~ legal counsel in connection with this matter. Although the outcome of this matter cannot be predicted with certainty, based on information known to date and our preliminary review of the claim and related reserve for loss, we believe that, if settled unfavorably, this matter could have a material adverse effect on our financial condition, results of operations ~~and~~or cash flows. We are uninsured for any damages or costs that we may incur as a result of this claim, including the expenses of defending the claim.

During the fourth fiscal quarter of 2009, the Internal Revenue Service ~~(IRS)~~(“IRS”) completed its examination of our U.S. federal income tax returns for the years 2002 through 2005. Following the examination, the IRS notified us that it ~~proposes~~proposed to disallow a deduction that we realized during the 2005 tax year. ~~Due to our receipt~~In December of 2010, we reached an agreement with the office of the ~~proposed~~ IRS ~~audit adjustment for~~Appeals on the ~~disallowed~~amount of the deduction, ~~we have reassessed the probability of potential settlement outcomes with respect~~subject to the ~~proposed adjustment, which is now under~~ review by the ~~IRS’s appeals division. Based~~Joint Committee on this reassessment, we have provided an additional accrual of $4.9 million during the fourth quarter of 2009. We have appealed this proposed disallowed deduction with the IRS’s appeals division and believe we have valid defensesTaxation. The review was completed without change on April 18, 2011, subsequent to the ~~IRS’s position. However, if~~end of the ~~disallowed deduction were to be sustained in full on appeal, it could~~First Quarter. As a result ~~in a potential tax exposure to~~

it proposed to disallow these deductions. We appealed these proposed disallowed deductions with SARS and in October 2010 received a favorable ~~court~~Tax Court ruling relative to these deductions. ~~The South African Revenue Service has until December 2, 2010 to appeal this ruling. Should~~On March 9, 2011 SARS filed a notice that it would appeal the lower court’s ruling. We continue to believe in the merits of our position and will defend our rights vigorously as the case ~~and if it is~~proceeds to the Court of Appeals. If resolved unfavorably, our maximum exposure ~~will~~would be $2.6 million.

~~On April 27, 2010,~~GEO is a ~~putative stockholder class action was filed~~participant in the ~~District Court~~IRS Compliance Assurance Process (“CAP”) for ~~Harris County, Texas by Todd Shelby against Cornell, members~~the 2011 fiscal year. Under the IRS CAP principally transactions that meet certain materiality thresholds are reviewed on a real-time basis shortly after their completion. Additionally, all transactions that are part of ~~the Cornell board of directors, individually,~~certain IRS tier and GEO. The plaintiff filed an amended complaint on May 28, 2010. The amended complaint alleges, among other things, that the Cornell directors, aided and abetted by Cornell and GEO, breached their fiduciary duties in connection with the Merger. Among other things, the amended complaint seeks to enjoin Cornell, its directors and GEO from completing the Merger and seeks a constructive trust over any benefits improperly received by the defendants as a resultsimilar initiatives are audited regardless of their ~~alleged wrongful conduct.~~materiality. The ~~parties~~program also provides for the audit of transition years that have ~~reached a settlement~~not previously been audited. The IRS will be reviewing our 2009 and 2010 years as transition years.

During the First Quarter following its acquisition, BI received notice from the IRS that it will audit its 2008 tax year. The audit is currently in principle, which has been preliminarily approved by the court and remains subject to final court approval of the settlement and dismissal of the action with prejudice. The settlement of this matter will not have a material adverse impact on our financial condition, results of operations or cash flows.progress.

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, product liability claims, intellectual property infringement 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, electronic monitoring products, 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 1A. RISK FACTORS.~~

Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended January 3, 2010 filed on February 22, 2010 (the “2009 Form 10-K”), Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter ended April 4, 2010 filed on May 14, 2010 (the “1Q 2010 Form 10-Q”) and Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter ended July 4, 2010 filed on August 13, 2010 (the “2Q 2010 Form 10-Q”) include a detailed discussion of the risk factors that could materially affect our business, financial condition or future prospects. The information below updates, and should be read in conjunction with, the risk factors in our 2009 Form 10-K, our 1Q 2010 Form 10-Q and our 2Q 2010 Form 10-Q. We encourage you to read these risk factors in their entirety.

~~GEO may experience difficulties integrating Cornell’s business.~~

Achieving the anticipated benefits of the merger will depend in significant part upon whether GEO integrates Cornell’s business in an efficient and effective manner. The integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. GEO may not be able to accomplish the integration process smoothly, successfully or on a timely basis. The necessity of coordinating geographically separated organizations, systems of controls, and facilities and addressing possible differences in business backgrounds, corporate cultures and management philosophies may increase the difficulties of integration. Prior to the merger, GEO and Cornell operated numerous systems and controls, including those involving management information, purchasing, accounting and finance, sales, billing, employee benefits, payroll and regulatory compliance. The integration of Cornell’s operations requires the dedication of significant management and external resources, which may temporarily distract GEO’s attention from the day-to-day business and be costly. Employee uncertainty and lack of focus during the integration process may also disrupt the business of the combined company. Any inability of GEO’s management to successfully and timely integrate Cornell’s operations could have a material adverse effect on the business and results of operations of GEO.

~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.~~

~~Issuer Purchase of Equity Securities:~~

~~The following table presents information related to repurchases of our common stock made during the quarter ended October 3, 2010:~~

Maximum Number (or
Total Number of Approximate Dollar
Shares Purchased as Value) of Shares that
Part of Publicly May Yet Be Purchased
Total Number of Average Price Paid per Announced Plans or Under the Plans or
Period Shares Purchased (1) Share Programs (2)(3) Programs
July 5, 2010 — August 4, 2010 — — — $ 2,721,756
August 5, 2010 — September 4, 2010 433,818 $ 22.58 120,485 —
September 5, 2010 - October 3, 2010 — — — —


~~(1)~~ITEM 1A.		Included in the total number of shares purchased are 313,333 shares purchased from executive officers at an aggregate cost of $7.1 million. These shares were purchased outside of the stock repurchase program.

~~(2)~~		On February 22, 2010, the Company announced that its Board of Directors approved a stock repurchase program of up to $80.0 million of its common stock effective through March 31, 2011. The stock repurchase program was implemented through purchases made from time to time in the open market or in privately negotiated transactions, in accordance with applicable rules and requirements of the Securities and Exchange Commission. The program included repurchases from time to time from executive officers or directors of vested restricted stock and/or vested stock options. The Company completed repurchases of shares of its common stock under the repurchase program in its third fiscal quarter of 2010.

~~(3)~~		~~All shares purchased to date pursuant to the Company’s share repurchase program have been deposited, into treasury and retained for future uses.~~RISK FACTORS.

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES.~~

Not applicable.

~~ITEM 4. REMOVED AND RESERVED.~~

~~ITEM 5. OTHER INFORMATION.~~


ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Not applicable.

~~ITEM 6. EXHIBITS.~~


ITEM 3.		DEFAULTS UPON SENIOR SECURITIES.

~~(A)~~ Not applicable.


ITEM 4.		REMOVED AND RESERVED.


ITEM 5.		OTHER INFORMATION.

Not applicable.


ITEM 6.		EXHIBITS.

(A)

Exhibits


4.3		Indenture, dated as of February 10, 2011, by and among GEO, the Guarantors party thereto, and Wells Fargo Bank, National Association as Trustee relating to the 6 5/8% Senior Notes due 2021 (incorporated by reference to Exhibit 4.1 to the Company’s report on Form 8-K, filed on February 16, 2011).

10.31		Amended and Restated Senior Officer Employment Agreement, effective December 17, 2008, by and between the GEO Group, Inc. and Jorge A. Dominicis (filed herewith).

10.32		First Amendment to Amended and Restated Senior Officer Employment Agreement, effective March 1, 2011, by and between the GEO Group, Inc. and Jorge A. Dominicis (filed herewith).

10.33		First Amendment, dated as of February 8, 2011, to the Credit Agreement between the Company, as Borrower, certain of GEO’s subsidiaries, as Guarantors, the lenders signatory thereto and BNP Paribas, as Administrative Agent.

10.34		Series A-2 Incremental Loan Agreement, dated as of February 8, 2011, between the Company, as Borrower, certain of GEO’s subsidiaries, as Guarantors, the lenders signatory thereto and BNP Paribas, as Administrative Agent.

10.35		Registration Rights Agreement, dated as of February 10, 2011, by and among GEO, the Guarantors party thereto, and Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital Inc., J.P. Morgan Securities LLC and SunTrust Robinson Humphrey, Inc. as representatives of the Initial Purchasers (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K, filed on February 16, 2011).

31.1		SECTION 302 CEO Certification.


				Wtd. Avg.				Wtd. Avg.
				Grant Date				Grant Date
	Shares			Fair Value		Shares		Fair Value
Restricted stock outstanding at January 3, 2010		383,100		$	19.66
Restricted stock outstanding at January 2, 2011							160,530	$	21.12
Granted		40,280			22.70		370,010		24.59
Vested		(194,850	)		18.31		—
Forfeited/canceled		(3,250	)		20.77		—

Restricted stock outstanding at October 3, 2010		225,280		$	21.36

Restricted stock outstanding at April 3, 2011							530,540	$	23.54


			Fair Value Measurements at October 3, 2010								Fair Value Measurements at April 3, 2011
	Total Carrying		Quoted Prices in		Significant Other		Significant		Total Carrying		Quoted Prices in		Significant Other		Significant
	Value at		Active Markets		Observable Inputs		Unobservable		Value at		Active Markets		Observable Inputs		Unobservable
	October 3, 2010		(Level 1)		(Level 2)		Inputs (Level 3)		April 3, 2011		(Level 1)		(Level 2)		Inputs (Level 3)
Assets:
Interest rate swap derivative assets	$	8,761	$	—	$	8,761	$	—	$	3,837	$	—	$	3,837	$	—
Investments — Canadian governmental issued securities		1,773		—		1,773		—
Investments other than derivatives										7,573		—		7,573		—


			Fair Value Measurements at January 3, 2010
	Total Carrying		Quoted Prices in		Significant Other		Significant
	Value at		Active Markets		Observable Inputs		Unobservable
	January 3, 2010		(Level 1)		(Level 2)		Inputs (Level 3)
Assets:
Interest rate swap derivative assets	$	2,020	$	—	$	2,020	$	—
Investments — Canadian governmental issued securities		1,527		—		1,527		—
Liabilities:
Interest rate swap derivative liabilities	$	1,887	$	—	$	1,887	$	—


			Fair Value Measurements at January 2, 2011
	Total Carrying		Quoted Prices in		Significant Other		Significant
	Value at		Active Markets		Observable Inputs		Unobservable
	January 2, 2011		(Level 1)		(Level 2)		Inputs (Level 3)
Assets:
Interest rate swap derivative assets	$	5,131	$	—	$	5,131	$	—
Investments other than derivatives		7,533		—		7,533		—


	October 3, 2010				April 3, 2011
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Assets:
Cash and cash equivalents	$	53,766	$	53,766	$	85,894	$	85,894
Cash, Restricted, including current portion		79,946		79,946
Restricted cash and investments, including current portion						87,567		87,567
Liabilities:
Borrowings under the Credit Agreement	$	558,053	$	560,438
Borrowings under the Senior Credit Facility					$	703,465	$	710,203
7³/₄% Senior Notes		253,953		260,313		249,148		267,813
Non-recourse debt, including current portion		222,512		224,740
6.625% Senior Notes						300,000		298,689
Non-recourse debt, Australian subsidiary						45,638		45,013
Other non-recourse debt, including current portion						170,915		172,664


	~~Page~~
PART I — FINANCIAL INFORMATION		3
ITEM 1. FINANCIAL STATEMENTS		3
CONSOLIDATED STATEMENTS OF INCOME FOR THE THIRTEEN ~~AND THIRTY-NINE~~ WEEKS ENDED ~~OCTOBER~~APRIL 3, ~~2010~~2011 AND ~~SEPTEMBER 27, 2009~~APRIL 4, 2010 (UNAUDITED)		3
CONSOLIDATED BALANCE SHEETS AS OF ~~OCTOBER~~APRIL 3, ~~2010~~2011 (UNAUDITED) AND JANUARY ~~3, 2010~~2, 2011		4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE ~~THIRTY-NINE~~THIRTEEN WEEKS ENDED ~~OCTOBER~~APRIL 3, ~~2010~~2011 AND ~~SEPTEMBER 27, 2009~~APRIL 4, 2010 (UNAUDITED)		5
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ~~(UNAUDITED)~~		6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	32	35
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	51	56
ITEM 4. CONTROLS AND PROCEDURES	53	56
PART II — OTHER INFORMATION	53	57
ITEM 1. LEGAL PROCEEDINGS	53	57
ITEM 1A. RISK FACTORS	54	58
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	55	58
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	55	58
ITEM 4. REMOVED AND RESERVED	55	58
ITEM 5. OTHER INFORMATION	55	58
ITEM 6. EXHIBITS	55	58
SIGNATURES	56	60
EX-10.31
EX-10.32
EX-10.33
EX-10.34
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT


	Weighted average		Fair value
	amortization period		as of August 12, 2010
Goodwill		n/a		204,382

Identifiable intangible assets
Facility Management contracts		12.5	$	70,100
Non compete agreements		1.7		5,700
Trade names	indefinite			1,800

Total identifiable intangible assets			$	77,600


Fiscal Year	U.S corrections		GEO Care		Total
2010	$	738	$	667	$	1,405
2011		2,950		2,669		5,619
2012		2,950		2,669		5,619
2013		2,950		2,669		5,619
2014		2,950		2,669		5,619
2015		2,950		2,669		5,619
Thereafter		20,253		20,995		41,248

Net carrying value as of October 3, 2010	$	35,003	$	34,341	$	69,344


													Additional			Accumulated Other									Total
	Common shares						Treasury shares						Paid-In			Comprehensive			Retained			Noncontrolling			Shareholder’s
	Shares			Amount			Shares			Amount			Capital			Income (Loss)			Earnings			Interests			Equity
Balance January 3, 2010		51,629			516			(16,075	)		(58,888	)		351,550			5,496			365,927			497			665,098
Stock option and restricted stock award transactions, net		1,336			13									10,053												10,066
Acquisition of Cornell		15,764			158									357,918									20,700			378,776
Common stock retirements		(314	)		(3	)								(6,225	)					(850	)					(7,078	)
Common stock repurchases		(3,999	)		(40	)		(3,999	)		(79,960	)														(80,000	)
Comprehensive income (loss):																										—
Net income (loss):																				39,970			(227	)		39,743
Change in foreign currency translation, net																	2,571						42			2,613
Pension liability, net																	34									34
Unrealized gain on derivative instruments, net																	(339	)								(339	)


Total comprehensive income (loss)																	2,266			39,970			(185	)		42,051

Balance October 3, 2010		64,416			644			(20,074	)		(138,848	)		713,296			7,762			405,047			21,012			1,008,913


			Goodwill
			Resulting from		Foreign
	Balance as of		Business		Currency		Balance as of
	January 3, 2010		Combinations		Translation		October 3, 2010
U.S. corrections	$	21,692	$	153,882	$	—	$	175,574
International services		669		—		55		724
GEO Care		17,729		50,541		—		68,270

Total segments	$	40,090	$	204,423	$	55	$	244,568


Fiscal Year	MCF
2011	$	14,600
2012		15,800
2013		17,200
2014		18,600
2015		20,200
Thereafter		21,900

Total	$	108,300


	As of January 3, 2010
			Combined		Combined
			Subsidiary		Non-Guarantor
	The GEO Group Inc.		Guarantors		Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	12,376	$	5,333	$	16,147	$	—		$	33,856
Restricted cash		—		—		13,313		—			13,313
Accounts receivable, net		110,643		53,457		36,656		—			200,756
Deferred income tax asset, net		12,197		1,354		3,469		—			17,020
Other current assets, net		4,428		2,311		7,950		—			14,689

Total current assets		139,644		62,455		77,535		—			279,634

Restricted Cash		2,900		—		17,855		—			20,755
Property and Equipment, Net		438,504		489,586		70,470		—			998,560
Assets Held for Sale		3,083		1,265		—		—			4,348
Direct Finance Lease Receivable		—		—		37,162		—			37,162
Intercompany Receivable		3,324		13,000		1,712		(18,036	)		—
Goodwill		34		39,387		669		—			40,090
Intangible Assets, Net		—		15,268		2,311		—			17,579
Investment in Subsidiaries		650,605		—		—		(650,605	)		—
Other Non-Current Assets		23,431		—		26,259		—			49,690

	$	1,261,525	$	620,961	$	233,973	$	(668,641	)	$	1,447,818


Current Liabilities
Accounts payable	$	35,949	$	6,622	$	9,285	$	—		$	51,856
Accrued payroll and related taxes		6,729		5,414		13,066		—			25,209
Accrued expenses		55,720		2,890		22,149		—			80,759
Current portion of debt		3,678		705		15,241		—			19,624

Total current liabilities		102,076		15,631		59,741		—			177,448

Deferred Income Tax Liability		6,652		—		408		—			7,060
Intercompany Payable		1,712		—		16,324		(18,036	)		—
Other Non-Current Liabilities		32,127		1,015		—		—			33,142
Capital Lease Obligations		—		14,419		—		—			14,419
Long-Term Debt		453,860		—		—		—			453,860
Non-Recourse Debt		—		—		96,791		—			96,791
Commitments & Contingencies (Note 14)
Total Shareholders’ Equity		665,098		589,896		60,709		(650,605	)		665,098

	$	1,261,525	$	620,961	$	233,973	$	(668,641	)	$	1,447,818

•		our ability to obtain future financing on satisfactory terms or at all, including our ability to ~~finance~~secure the ~~$133.2 million in~~ funding we need to complete ongoing capital projects;

•		our exposure to rising general insurance costs;

•		our exposure to state and federal income tax law changes internationally and domestically and our exposure as a result of federal and international examinations of our tax returns or tax positions;

•		our exposure to claims for which we are uninsured;

•		our exposure to rising employee and inmate medical costs;


ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


							Maximum Number (or
					Total Number of		Approximate Dollar
					Shares Purchased as		Value) of Shares that
					Part of Publicly		May Yet Be Purchased
	Total Number of		Average Price Paid per		Announced Plans or		Under the Plans or
Period	Shares Purchased (1)		Share		Programs (2)(3)		Programs
July 5, 2010 — August 4, 2010		—		—		—	$	2,721,756
August 5, 2010 — September 4, 2010		433,818	$	22.58		120,485		—
September 5, 2010 - October 3, 2010		—		—		—		—


¹		Variable interest entities or “VIEs”


31.2		SECTION 302 CFO Certification.

32.1		SECTION 906 CEO Certification.

32.2		SECTION 906 CFO Certification.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase


	THE GEO GROUP, INC.
Date: ~~November~~May 10, ~~2010~~2011	/s/ Brian R. Evans
	Brian R. Evans
	Senior Vice President & Chief Financial Officer (duly authorized officer and principal financial officer)