GEO GROUP INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 28, 2003

OR

[ ] 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

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THE GEO GROUP, INC.
(Exact name of registrant as specified in its charter)
Formerly known as Wackenhut Corrections Corporation

FLORIDA 65-0043078
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

ONE PARK PLACE, SUITE 700, 621 NORTHWEST 53RD STREET 33487-8242
BOCA RATON, FLORIDA (Zip Code)
(Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER (INCLUDING AREA CODE):
(561) 893-0101

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

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

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

Indicate by a check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The aggregate market value of the 9,332,552 shares of common stock held by
non-affiliates of the registrant as of June 30, 2003 (based on the last reported
sales price of such stock on the New York Stock Exchange on such date of $13.71
per share) was approximately $127,949,287. As of March 8, 2004, the registrant
had 9,332,552 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain Portions of the registrant's definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934 for its 2004 annual
meeting of shareholders are incorporated by reference into Part III of this
report.
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TABLE OF CONTENTS

1

PART I

ITEM 1. BUSINESS

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

GENERAL

We are a leading provider of government-outsourced services specializing in
the management of correctional, detention and mental health facilities. We
believe that we are the second largest operator of privatized correctional and
detention facilities in the world, with operations located in the United States,
Australia, New Zealand, South Africa and Canada. We believe that we have a
leading share of the privatized correctional and detention facilities management
services market for the states of California, Florida and Texas, the three U.S.
states with the largest inmate populations. We are also a leading provider of
correctional services to the United States Marshals Service, the Federal Bureau
of Prisons and the Department of Homeland Security Bureau of Immigrations and
Customs Enforcement. As of December 28, 2003, we operated a total of 41
correctional, detention and mental health facilities and had over 36,000 beds
under management or for which we had been awarded contracts. We maintained an
average facility occupancy rate of 100% for the fiscal year ended December 28,
2003. For the fiscal year ended December 28, 2003, we had consolidated revenues
of $617.5 million and consolidated operating income of $31.8 million.

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. 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. Through these
management and development services, we believe that we achieve significant cost
savings in comparison to public sector costs, providing substantial
privatization benefits to our government customers.

Under our correctional facility management services contracts, most of our
government customers pay us on a per inmate per diem basis, with some of these
contracts providing for minimum guaranteed payments regardless of actual
occupancy levels. Certain of our contracts also provide for fixed fee payments.
Generally, our management services contracts have rate adjustments for increased
costs due to inflation.

Our mental health facilities management services primarily involve the
provision of acute mental health and related administrative services to mentally
ill patients that have been placed under public sector supervision and care. At
these mental health facilities, we employ psychiatrists, physicians, nurses,
counselors, social workers and other trained personnel to deliver active
psychiatric treatment which is designed to diagnose, treat and rehabilitate
patients for community reintegration. Since 1998, we have operated what we
believe is the only fully privatized state mental health facility in the U.S. at
South Florida State Hospital. In December 2000, we completed the design and
construction of a new 325-bed facility that replaced the original facility. We
are paid a fixed monthly fee for the provision of services at this facility.

COMPETITIVE STRENGTHS

EXPERIENCED INDUSTRY LEADER

We are a global provider of privatized correctional and detention services
with operations in the United States, Australia, New Zealand, South Africa and
Canada. Additionally, we maintained operations in the United Kingdom through a
joint venture for more than ten years until the sale of our interest in the
joint venture in July 2003. We operate a broad range of correctional and
detention facilities including

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maximum, medium and minimum security prisons, immigration detention centers,
minimum security detention centers and mental health facilities. Since our
founding in 1984, we believe that we have established a strong reputation among
federal, state, and local authorities as a highly effective operator of secure,
well-managed facilities. We believe that our long operating history and
reputation have earned us credibility with both existing and prospective clients
when bidding on new facility management contracts or renewing existing
contracts.

REGIONAL OPERATING STRUCTURE

We operate three regional U.S. offices and two international offices that
provide administrative oversight and support to our correctional and detention
facilities and allow us to maintain close relationships with our clients and
suppliers. Each of our three regional U.S. offices is responsible for the
facilities located within a defined geographic area. The regional offices
perform regular internal audits of the facilities in order to ensure continued
compliance with the underlying contracts, applicable accreditation standards,
governmental regulations and our internal policies and procedures. We believe
that our regional operating structure differentiates us from our competitors and
allows us to deliver highly responsive customer service. We also believe that
our regional operating structure facilitates our integration into the local
communities in which we operate and provides us with the ability to market our
services more effectively.

LONG TERM RELATIONSHIPS WITH HIGH-QUALITY GOVERNMENT CUSTOMERS

We have developed long term relationships with our government customers and
have been successful at retaining our facility management contracts. We have
provided correctional and detention management services to the United States
Federal Government for 17 years, the State of California for 15 years, the State
of Texas for 15 years, various Australian state government entities for 12 years
and the State of Florida for 9 years. This customer base accounted for
approximately 73.6% of our consolidated revenues for the fiscal year ended
December 28, 2003. Our strong operating track record has enabled us to achieve a
high renewal rate for contracts. Our government customers typically satisfy
their payment obligations to us through budgetary appropriations. We believe
this provides us with a stable and predictable source of revenues and cash flow.

FULL-SERVICE FACILITY DEVELOPER

We believe that our ability to provide comprehensive facility development
and design services enables us to retain existing customers seeking to update
their facilities and to attract new customers by demonstrating the benefits of
privatization. We have developed an expertise in the design, construction and
financing of high quality correctional, detention and mental health facilities.
Since 1986, we have designed, developed or renovated 38 correctional, detention
and mental health facilities. We have provided or facilitated the financing of
these facilities through a variety of means, including, public-private financing
initiatives, third party sale-leasebacks, self-financings and tax-exempt,
non-recourse revenue bonds. We believe that our in-house team of architects
provides us with the capability to produce secure and cost-effective design
solutions that reduce personnel needs and facility operating expenses.

EXPERIENCED, PROVEN SENIOR MANAGEMENT TEAM

Our top three senior executives have over 45 years of combined industry
experience, have worked together at our company for more than 12 years and have
established a track record of growth and profitability. Under their leadership,
our annual consolidated revenues have grown from $40.0 million in 1991 to $617.5
million in 2003. Our Chief Executive Officer, George C. Zoley, was one of the
pioneers of the industry, having developed and opened what we believe was one of
the first privatized detention facilities in the U.S. in 1986. In addition to
senior management, our operational and facility level management has significant
operational expertise. Our wardens have an average of 24 years of correctional
and detention industry experience. We believe that the long, accomplished tenure
of our management team helps to distinguish us from our competitors in the
privatized corrections industry.

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BUSINESS STRATEGIES

PROVIDE HIGH QUALITY, ESSENTIAL SERVICES AT LOWER COSTS

Our objective is to provide federal, state and local governmental agencies
with high quality, essential services at a lower cost than they themselves could
achieve. We generally provide all of the critical services associated with
operating our facilities, including security, food services, rehabilitation
programs, education and on-site health care. We believe this enables us to
ensure high quality and to control costs. Our 24 domestic correctional and
detention facilities that have been rated by the American Correctional
Association, or the ACA, have achieved a median accreditation score of 99.6%.
Accreditation by the ACA serves as a measure of our ongoing compliance with
accepted national industry standards of design and operation and we believe it
helps to provide protection against frivolous inmate litigation. We have
developed standard operating procedures for our facilities that are designed to
maximize efficiency and control our expenses.

MAINTAIN DISCIPLINED OPERATING APPROACH

We manage our business on a contract by contract basis in order to maximize
our operating margins. We typically refrain from pursuing contracts that we do
not believe will yield attractive profit margins in relation to the associated
operational risks. For example, we have avoided operating certain juvenile and
female correctional facilities which we believe may be prone to increased
operational difficulties that may result in increased litigation, higher
personnel costs and reduced profitability. Generally, we do not engage in
speculative development and do not build facilities without having a
corresponding management contract award in place. In addition, we have elected
not to enter certain international markets with a history of economic and
political instability. We believe that our strategy of emphasizing lower risk,
higher profit opportunities helps us to consistently deliver strong operational
performance, lower our costs and increase our overall profitability.

EXPAND INTO COMPLEMENTARY GOVERNMENT-OUTSOURCED SERVICES

We intend to capitalize on our long term relationships with governmental
agencies to continue to grow our correctional, detention and mental health
facilities management services and to become a preferred provider of
complementary government-outsourced services. We believe that government
outsourcing of currently internalized functions will increase largely as a
result of the public sector's desire to maintain quality service levels amid
governmental budgetary constraints. Based on our expansion into the mental
health services sector, we believe that we are well positioned to continue to
deliver higher quality services at lower costs in new areas of privatization.

PURSUE INTERNATIONAL GROWTH OPPORTUNITIES

As a global international provider of privatized correctional services, we
are able to capitalize on opportunities to operate existing or new facilities on
behalf of foreign governments. We currently have operations in Australia, New
Zealand, South Africa and Canada. We intend to further penetrate these markets
and to expand into new international markets which we deem attractive. We
believe that we are one of the few companies worldwide that has the operational
expertise, track record and resources to compete for the management of
large-scale, privatized correctional facilities.

RECENT DEVELOPMENTS

SHARE PURCHASE

On April 30, 2003, we entered into a share purchase agreement with Group 4
Falck A/S, our former majority shareholder which we refer to as Group 4 Falck,
to purchase all 12,000,000 shares of our common stock held by Group 4 Falck for
$132.0 million in cash. Group 4 Falck obtained these shares when it acquired our
former parent company, The Wackenhut Corporation, which we refer to as TWC, in
2002. We completed the share purchase on July 9, 2003.

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RECENT FINANCINGS

In connection with the share purchase, we completed two financing
transactions on July 9, 2003. First, we amended our former senior credit
facility. The amended $150.0 million senior credit facility, which we refer to
as the Senior Credit Facility, consists of a $50.0 million, five-year revolving
credit facility, with a $40.0 million sub limit for letters of credit, and a
$100.0 million, six-year term loan. Second, we offered and sold $150.0 million
aggregate principal amount of 8 1/4% senior notes due 2013, which we refer to as
the Notes.

SALE OF OUR JOINT VENTURE INTEREST IN PREMIER CUSTODIAL GROUP LIMITED

On July 2, 2003, we sold our one-half interest in Premier Custodial Group
Limited, our United Kingdom joint venture, which we refer to as PCG, to Serco
Investments Limited, our former joint venture partner, which we refer to as
Serco, for approximately $80.7 million, on a pretax basis. Under the terms of
the indenture governing the Notes, we have an obligation to use proceeds of
approximately $52 million from the sale of our interest in PCG to reinvest in
certain permitted businesses or assets, to repay indebtedness outstanding under
the Senior Credit Facility or to make an offer to repurchase the Notes.

LOSS OF CONTRACT WITH THE AUSTRALIA DEPARTMENT OF IMMIGRATION, MULTICULTURAL
AND INDIGENOUS AFFAIRS

In Australia, the Department of Immigration, Multicultural and Indigenous
Affairs, which we refer to as DIMIA, entered into a contract in 2003 with a
division of Group 4 Falck for the management and operation of Australia's
immigration centers, services which we have provided since 1997 through our
Australian subsidiary. We transitioned the management and operation of the DIMIA
centers to the division of Group 4 Falck February 29, 2004. For the year ended
December 28, 2003 DIMIA represented approximately 9.9% of our consolidated
revenues. We do not have any lease obligations related to our contract with
DIMIA. During 2003, we increased reserves approximately $3.6 million for
liability insurance obligations related to the expiration of the DIMIA contract.

NAME CHANGE

On November 25, 2003, our corporate name was changed from "Wackenhut
Corrections Corporation" to "The GEO Group, Inc." The name change was required
under the terms of the share purchase agreement between us and Group 4 Falck
referred to above. Under the terms of the share purchase agreement, GEO is
required to cease using the name, trademark and service mark "Wackenhut" by July
9, 2004. In addition to achieving compliance with the terms of the share
purchase agreement, we believe that the change in our name to "The GEO Group,
Inc." will help reinforce the fact that we are no longer affiliated with TWC or
Group 4 Falck or their related entities. Following the name change, our New York
Stock Exchange ticker symbol was changed to "GGI" and our common stock now
trades under that symbol.

RESULTS OF RE-BIDS ON MANAGEMENT CONTRACTS IN TEXAS

As a result of a re-bidding process in Texas on several state management
contracts which expired in January 2004, we were recently awarded management
contracts by the Texas Department of Criminal Justice for the continued
operation of two facilities which we currently operate -- the Cleveland
Correctional Center facility and the Lockhart Secure Work Program Facility. We
were also awarded the management contract to operate a new facility, the Sanders
Estes Correctional Center. However, our existing management contracts to operate
the Willacy State Jail and the John R. Lindsey State Jail were not renewed.
Although the net impact of the Texas re-bid process will result in the overall
loss of one management contract, we do not believe that this will have a
material impact on our future financial performance. The contract awards became
effective on January 16, 2004 and we assumed the operation of the Sanders Estes
Correctional Center on that date.

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RIGHTS AGREEMENT

On October 9, 2003, we entered into a rights agreement with EquiServe Trust
Company, N.A., as rights agent. Under the terms of the rights agreement, each
share of our common stock carries with it one preferred share purchase right. If
the rights become exercisable pursuant to the rights agreement, each right
entitles the registered holder to purchase from us one one-thousandth of a share
of Series A Junior Participating Preferred Stock at a fixed price, subject to
adjustment. Until a right is exercised, the holder of the right has no right to
vote or receive dividends or any other rights as a shareholder as a result of
holding the right. The rights trade automatically with shares of our common
stock, and may only be exercised in connection with certain attempts to take
over our company. The rights are designed to protect the interests of our
company and our shareholders against coercive takeover tactics and encourage
potential acquirors to negotiate with our board of directors before attempting a
takeover. The rights may, but are not intended to, deter takeover proposals that
may be in the interests of our shareholders.

SHELF REGISTRATION STATEMENT

On January 28, 2004, our universal shelf registration statement on Form S-3
was declared effective by the Securities and Exchange Commission, which we refer
to as the SEC. The universal shelf registration statement provides for the offer
and sale by us, from time to time, on a delayed basis, of up to $200.0 million
aggregate amount of our common stock, preferred stock, debt securities,
warrants, and/or depositary shares. These securities, which may be offered in
one or more offerings and in any combination, will in each case be offered
pursuant to a separate prospectus supplement issued at the time of the
particular offering that will describe the specific types, amounts, prices and
terms of the offered securities. Unless otherwise described in the applicable
prospectus supplement relating to the offered securities, we anticipate using
the net proceeds of each offering for general corporate purposes, including debt
repayment, capital expenditures, acquisitions, business expansion, investments
in subsidiaries or affiliates, and/or working capital.

FACILITIES

The following table summarizes certain information with respect to
facilities that GEO (or a subsidiary or joint venture of GEO's) operated under a
management contract or had an award to manage at December 28, 2003. It does not
include the DIMIA facilities.

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CUSTOMER LEGEND:

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(1) These are county contracts providing services through various
Inter-Governmental Agreements ("IGA") for the county, USMS, BICE, BOP, and
other state jurisdictions.
(2) GEO-Owned facilities.
(3) GEO operates a chemical dependency treatment program located in this
facility under a separate contract. This contract is for a three-year term
expiring August 31, 2004.
(4) Contract for maintenance services only for this facility.
(5) GEO purchased this facility and provides services on an individual patient
basis, therefore, there are no contracts with government agencies subject to
terms and/or renewals.
(6) GEO leases these facilities from CPV. In April 1998, GEO sold three owned
facilities and the rights to acquire four other facilities to CPV which CPV
subsequently exercised. In October 1998, GEO sold the completed portion of a
ninth facility to CPV. During Fiscal 1999, CPV acquired a 600-bed expansion
of the ninth facility and the right to acquire a tenth facility. During
Fiscal 2000, CPV purchased an eleventh facility that GEO had the right to
acquire. The facilities were then leased to us under operating leases. There
were no purchase and sale transactions between GEO and CPV in 2001 or 2002.
See Item 2 -- "Properties."
(7) GEO provides comprehensive healthcare services to 11 government-operated
prisons under this contract.
(8) GEO has a five-year contract with five one-year options to operate the
facility on behalf of the county. The county, in turn, has a one-year
contract, subject to annual renewal, with the state to house state prisoners
at the facility.

FACILITY OVERVIEW

We offer services that go beyond simply housing offenders in a safe and
secure manner. We offer a wide array of in-facility rehabilitative and
educational programs. Inmates at most of our facilities can also

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receive basic education through academic programs designed to improve inmates'
literacy levels and to offer the opportunity to acquire General Education
Development certificates. Most of our managed facilities also offer vocational
training for in-demand occupations to inmates who lack marketable job skills. In
addition, most of our managed facilities offer life skills/transition planning
programs that provide inmates job search training and employment skills, anger
management skills, health education, financial responsibility training,
parenting skills and other skills associated with becoming productive citizens.
For example, at the Lockhart Work Program Facility, located in Lockhart, Texas,
we, as part of our job training program, recruited firms from private industry
to employ inmates at the facility. Inmates who participate in such programs
receive job skills training and are paid at least the minimum wage. The inmates'
earnings are used to compensate victims, defray the inmates' housing costs and
support their dependents. We intend to expand this program to our correctional
facilities in South Bay and Moore Haven, Florida. We also offer counseling,
education and/or treatment to inmates with alcohol and drug abuse problems at
most of the domestic facilities we manage. We believe that our program at the
Kyle New Vision Chemical Dependency Treatment Center is the largest privately
managed in-prison program of this nature in the United States.

We operate each facility in accordance with our company-wide policies and
procedures and with the standards and guidelines required under the relevant
contract. For many facilities, the standards and guidelines include those
established by the American Correctional Association. The American Correctional
Association, an independent organization of corrections professionals,
establishes correctional facility standards and guidelines that are generally
acknowledged as a benchmark by governmental agencies responsible for
correctional facilities. Many of our contracts for facilities in the United
States require us to seek and maintain American Correctional Association
accreditation of the facility. We have sought and received American Correctional
Association accreditation for all such facilities. We have also achieved and
maintained certification by the Joint Commission on Accreditation for Health
Care Organizations, or JCAHCO, for both of our mental health facilities.

FACILITY MANAGEMENT CONTRACTS

Other than listed in the following table, no other single customer
accounted for 10% or more of our total revenues for each of the fiscal years
2003, 2002, and 2001.

Except for our contracts for the Taft Correctional Institution, George W.
Hill Correctional Facility, Rivers Correctional Institution, South Florida State
Hospital, and the facilities in Australia, New Zealand and South Africa, all of
which provide for fixed monthly rates, our facility management contracts provide
that we are compensated at an inmate or patient per diem rate based upon actual
or guaranteed occupancy levels. Such compensation is invoiced in accordance with
applicable laws and generally paid on a monthly basis. All of our contracts are
subject to either annual or bi-annual legislative appropriations. A failure by a
governmental agency to receive appropriations could result in termination of the
contract by such agency or a reduction of the management fee payable to us. No
assurance can be given that the governmental agencies with which we contract
will continue to receive appropriations in all cases.

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The following table sets forth the number of contracts that have terms
subject to renewal or re-bid in each of the next five years:

Refer to the table in "Business -- Facilities" for details on the renewal
of these contracts. We undertake substantial efforts to renew our contracts upon
their expiration but we can provide no assurance that we will in fact be able to
do so. Previously, in connection with our contract renewals, either we or the
contracting government agency have typically requested changes or adjustments to
contractual terms. As a result contract renewals may be made on terms that are
more or less favorable to us than in prior contractual terms.

Our contracts typically allow a contracting governmental agency to
terminate a contract with or without cause by giving us written notice ranging
from 30 to 180 days. To date no contracts have been terminated under these
terms.

Since 1999, two contracts have been discontinued by the mutual agreement of
the parties prior to the end of the contract term. Most recently, on June 30,
2000, the cooperative agreement for the management of the Jena Juvenile Justice
Center between us and the LaSalle Hospital District No. 1 was discontinued by
the mutual agreement of the parties.

In addition, in connection with our management of such facilities, we are
required to comply with all applicable local, state and federal laws and related
rules and regulations. Our contracts typically require us to maintain certain
levels of insurance coverage for general liability, workers' compensation,
vehicle liability, and property loss or damage. If we do not maintain the
required categories and levels of coverage, the contracting governmental agency
may be permitted to terminate the contract. Presently, we are insured under a
liability insurance program which includes comprehensive general liability,
automobile liability and workers' compensation coverage. Additionally we
maintain coverage from a third party insurer for property insurance. We carry no
insurance for claims relating to employment matters. There can be no assurance
that we will be able to obtain or maintain insurance levels as required by our
contracts or that, even if obtained, such insurance levels will be sufficient to
cover any losses we sustain. See "Business -- Insurance." In addition, we are
required under our contracts to indemnify the contracting governmental agency
for all claims and costs arising out of our management of facilities and in some
instances we are required to maintain performance bonds relating to the
construction and development of facilities.

FACILITY DESIGN, CONSTRUCTION AND FINANCE

We offer governmental agencies consultation and management services
relating to the design and construction of new correctional and detention
facilities and the redesign and renovation of older facilities. As of December
28, 2003, we had provided services for the design and construction of 32
facilities and for the redesign and renovation of six facilities. See table in
"Business -- Facilities."

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

- a one time general revenue appropriation by the governmental agency for
the cost of the new facility;

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- general obligation bonds that are secured by either a limited or
unlimited tax levy by the issuing governmental entity; or

- revenue bonds or certificates of participation secured by an annual lease
payment that is subject to annual or bi-annual legislative
appropriations.

We may also act as a source of financing or as a facilitator with respect
to any financing. In these cases, the construction of such facilities may be
financed through various methods including, but not limited to, the following:

- funds from equity offerings of our stock;

- cash flows from operations;

- borrowings from banks or other institutions (which may or may not be
subject to government guarantees in the event of contract termination);
or

- lease arrangements with third parties.

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

When we are awarded a facility management contract, appropriations for the
first annual or biannual period of the contract's term have generally already
been approved, and the contract is subject to governmental appropriations for
subsequent annual or bi-annual periods.

Under our construction and design management contracts, we generally agree
to be responsible for overall project development and completion. We typically
act as the primary developer on construction contracts for facilities and
subcontract with national general contractors. Where possible, we subcontract
with construction companies that we have worked with previously. We make use of
an in-house staff of architects and operational experts from various corrections
disciplines (e.g. security, medical service, food service, inmate programs and
facility maintenance) as part of the team that participates from conceptual
design through final construction of the project. This staff coordinates all
aspects of the development with subcontractors and provides site-specific
services. It has been our experience that it typically takes 9 to 24 months to
construct a facility after the contract is executed and financing approved.

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

MARKETING AND BUSINESS PROPOSALS

Currently, we view governmental agencies responsible for state and federal
correctional facilities in the United States and governmental agencies
responsible for correctional facilities in Australia, New Zealand and South
Africa as our primary potential customers. Our secondary customers include local
agencies in the U.S. and other foreign governmental agencies.

Governmental agencies responsible for correctional and detention facilities
generally procure goods and services through requests for proposals. A typical
request for proposal requires bidders to provide

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detailed information, including, but not limited to, descriptions of the
following: the services to be provided by the bidder, its experience and
qualifications, and the price at which the bidder is willing to provide the
services (which services may include the renovation, improvement or expansion of
an existing facility, or the planning, design and construction of a new
facility).

If the project meets our profile for new projects, we then will submit a
written response to the request for proposal. We estimate that we typically
spend between $100,000 and $200,000 when responding to a request for proposal.
We have engaged and intend in the future to engage independent consultants to
assist us in developing privatization opportunities and in responding to
requests for proposals, monitoring the legislative and business climate, and
maintaining relationships with existing clients.

There are several critical events in the marketing process for the
management of new facilities, including the issuance of a request for proposals
by a governmental agency, submission of a response to the request for proposals
by us, the award of a contract by a governmental agency and the commencement of
construction or management of a facility. Our experience has been that a period
of approximately five to ten weeks is generally required from the issuance of a
request for proposals to the submission of our response to the request for
proposals; that between one and four months elapse between the submission of our
response and the agency's award for a contract; and that between one and four
months elapse between the award of a contract and the commencement of
construction or management of the facility. If the facility for which an award
has been made must be constructed, our experience is that construction usually
takes between 9 and 24 months, depending on the size and complexity of the
project; therefore, management of a newly constructed facility typically
commences between 10 and 28 months after the governmental agency's award.

INSURANCE

The nature of our business exposes us to various types of third-party legal
claims, including, but not limited to, civil rights claims relating to
conditions of confinement and/or mistreatment, sexual misconduct claims brought
by prisoners or detainees, medical malpractice claims, claims relating to
employment matters (including, but not limited to, employment discrimination
claims, union grievances and wage and hour claims), property loss claims,
environmental claims, automobile liability claims, contractual claims and claims
for personal injury or other damages resulting from contact with our facilities,
programs, personnel or prisoners, including damages arising from a prisoner's
escape or from a disturbance or riot at a facility. In addition, our management
contracts generally require us to indemnify the governmental agency against any
damages to which the governmental agency may be subject in connection with such
claims or litigation. We maintain insurance coverage for these types of claims,
except for claims relating to employment matters, for which we carry no
insurance. However, the insurance we maintain to cover the various liabilities
to which we are exposed may not be adequate. Any losses relating to matters for
which we are either uninsured or for which we do not have adequate insurance
could have a material adverse effect on our business, financial condition or
results of operations.

Claims for which we are insured arising from our U.S. operations that have
an occurrence date of October 1, 2002 or earlier are handled by TWC and are
fully insured up to an aggregate limit of between $25.0 million and $50.0
million, depending on the nature of the claim. With respect to claims for which
we are insured arising from our U.S. operations that have an occurrence date of
October 2, 2002 or later, our coverage varies depending on the nature of the
claim. For claims relating to general liability and automobile liability, we
have a deductible of $1.0 million per claim, primary coverage of $5.0 million
per claim for general liability and $3.0 million per claim for automobile
liability (up to a limit of $20.0 million for all claims in the aggregate), and
excess/umbrella coverage of up to $50.0 million per claim and for all claims in
the aggregate. The current professional liability policy for our mental health
facilities does not include tail coverage for prior periods. For claims relating
to medical malpractice at our correctional facilities, we have a deductible of
$2.0 million per claim and primary coverage of $5.0 million per claim and for
all claims in the aggregate. For claims relating to medical malpractice at our
mental health facilities, we have a deductible of $1.0 million per claim and
primary coverage of up to $5.0 million per claim and for all claims in the
aggregate. For claims relating to workers' compensation, we maintain

13

statutory coverage as determined by state and/or local law and, as a result, our
coverage varies among the various jurisdictions in which we operate.

Claims for which our joint venture in South Africa is insured arising from
its operations, are covered by policies with varying amounts of coverage
depending on the nature of the claim. Primary insurance in the amount of ZAR50
million (approximately $7.5 million at December 28, 2003) is provided for
general liability claims. This insurance contains a ZAR5 million (approximately
$0.8 million at December 28, 2003) deductible. Excess insurance is provided
above the ZAR50 million primary policy with limits up to ZAR250 million
(approximately $37.3 million at December 28, 2003). Medical malpractice claims
are insured up to ZAR14.7 million (approximately $2.2 million at December 28,
2003) with a ZAR50,000 deductible (approximately $7,500 at December 28, 2003).

Claims for which we are insured arising from operations in Australia and
New Zealand are covered by policies with varying amounts of coverage depending
on the nature of the claim. For public liability claims, we maintain primary
insurance of AUD$5 million (approximately $3.7 million at December 28, 2003)
with an AUD$250,000 deductible (approximately $0.2 million at December 28,
2003). Medical malpractice claims are insured up to AUD$10 million
(approximately $7.4 million at December 28, 2003) with an AUD$1 million
deductible (approximately $0.7 million at December 28, 2003).

EMPLOYEES AND EMPLOYEE TRAINING

At December 28, 2003, we had 9,274 full-time employees. Of such full-time
employees, 138 were employed at our headquarters and regional offices and 9,136
were employed at facilities and international offices. We employ management,
administrative and clerical, security, educational services, health services and
general maintenance personnel. In the U.S., our correctional officer employees
at George W. Hill Correctional Facility (Pennsylvania), Queens Private
Correctional Facility (New York), Michigan Youth Correctional Facility
(Michigan) and Desert View Modified Community Correctional Facility (California)
are members of unions. We successfully renegotiated union contracts at the
Queens Private Correctional Facility (New York) and George W. Hill Correctional
Facility (Pennsylvania) during 2003. We expect to renegotiate the union contract
at Michigan Youth Correctional Facility (Michigan) during 2004. In addition, our
correctional officer employees at Auckland Central Remand Prison (New Zealand),
South Africa and the majority of our employees in our Australian operations are
covered by union agreements. Other than the contracts described above, we have
no other union contracts or collective bargaining agreements. We believe our
relationships with our employees are good.

Under the laws applicable to most of our operations, and internal company
policies, our correctional officers are required to complete a minimum amount of
training. We generally require at least 160 hours of pre-service training before
an employee is allowed to work in a position that will bring him or her in
contact with inmates, consistent with ACA standards and/or applicable state
laws. In addition to a minimum of 160 hours of pre-service training, most states
require 40 or 80 hours of on-the-job training. Florida law requires that
correction officers receive 520 hours of training and Michigan law requires that
correctional officers receive 640 hours of training. Our training programs meet
or exceed all applicable requirements.

Our training program begins with approximately 40 hours of instruction
regarding our policies, operational procedures and management philosophy.
Training continues with an additional 120 hours of instruction covering legal
issues, rights of inmates, techniques of communication and supervision,
interpersonal skills and job training relating to the particular position to be
held. Each of our employees who has contact with inmates receives a minimum of
40 hours of additional training each year, and each manager receives at least 24
hours of training each year.

At least 240 and 160 hours of training are required for our employees in
Australia and South Africa, respectively, before such employees are allowed to
work in positions that will bring them into contact with inmates. Our employees
in Australia and South Africa receive a minimum of 40 hours of additional
training each year.

14

COMPETITION

We compete primarily on the basis of the quality and range of services
offered, our experience (both domestically and internationally) in the design,
construction and management of privatized correctional and detention facilities,
our reputation and our pricing. We compete with a number of companies,
including, but not limited to: Corrections Corporation of America; Correctional
Services Corporation; Cornell Companies, Inc.; and Management and Training
Corporation and Group 4 Falck Global Solutions Limited. Some of our competitors
are larger and have more resources than we do. We also compete in some markets
with small local companies that may have a better knowledge of the local
conditions and may be better able to gain political and public acceptance. In
addition, in some markets, we may compete with governmental agencies that are
responsible for correctional facilities. Upon the completion of the share
purchase from Group 4 Falck, the non-compete agreement we had with Group 4 Falck
which prevented Group 4 Falck from competing with us in the U.S. was terminated
and Group 4 Falck and its affiliates, including Group 4 Falck Global Solutions
Limited, became free to compete with us in the U.S.

NON-U.S. OPERATIONS

Although most of our operations are within the United States, our
international operations make a significant contribution to our results of
operations. Our wholly-owned subsidiaries provide correctional and detention
facilities management in Australia and New Zealand.

A summary of U.S. and Australia operations is presented below:

15

We formerly had an affiliate (50% or less owned) that provided correctional
detention facilities management, home monitoring and court escort services in
the United Kingdom. We sold our interest in this affiliate on July 2, 2003 for
approximately $80.7 million and recognized a pre-tax gain of approximately $61.0
million. The following table summarizes certain financial information pertaining
to this joint venture as of December 29, 2002 and for the period from December
30, 2002 through the date of sale of the UK joint venture on July 2, 2003 and
for the fiscal years ended December 29, 2002 and December 30, 2001 (in
thousands):

Our affiliates (50% owned), South African Custodial Services, Pty. Ltd. and
South African Management, Pty. Ltd., provide correctional and detention
facilities management in South Africa. The following table summarizes certain
financial information pertaining to these South African unconsolidated foreign
affiliates, on a combined basis, as of December 28, 2003 and December 29, 2002
and for the fiscal years ended December 28, 2003, December 29, 2002 and December
30, 2001, respectively (in thousands).

BUSINESS REGULATIONS AND LEGAL CONSIDERATIONS

Certain states, such as Florida and Texas, deem correctional officers to be
peace officers and require our personnel to be licensed and subject to
background investigation. State law also typically requires correctional
officers to meet certain training standards.

In addition, many governmental agencies are required to enter into a
competitive bidding procedure before awarding contracts for products or
services. The laws of certain jurisdictions may also require us to award
subcontracts on a competitive basis or to subcontract with businesses owned by
women or members of minority groups.

The failure to comply with any applicable laws, rules or regulations or the
loss of any required license could have a material adverse effect on our
business, financial condition and results of operations.

16

Furthermore, our current and future operations may be subject to additional
regulations as a result of, among other factors, new statutes and regulations
and changes in the manner in which existing statutes and regulations are or may
be interpreted or applied. Any such additional regulations could have a material
adverse effect on our business, financial condition and results of operations.

SHARE PURCHASE FROM GROUP 4 FALCK A/S

On July 9, 2003 we purchased all 12 million shares of our common stock
beneficially owned by Group 4 Falck, our former 57% majority shareholder, for
$132.0 million in cash pursuant to the terms of a share purchase agreement,
dated April 30, 2003, by and among us, Group 4 Falck, our former parent company,
TWC, and Tuhnekcaw, Inc., an indirect wholly-owned subsidiary of Group 4 Falck.

The share purchase was negotiated by a special committee comprised of
independent members of our board of directors and approved by the independent
directors on our board. The special committee retained independent legal and
financial advisors to assist it in the evaluation of the share purchase. The
special committee received a fairness opinion from its independent financial
advisor, stating that the consideration being paid in connection with the share
purchase was fair from a financial point of view to our shareholders other than
Group 4 Falck and its affiliates.

Under the terms of the share purchase agreement, Group 4 Falck, TWC and
Tuhnekcaw cannot, and cannot permit any of their subsidiaries to, acquire
beneficial ownership of any of our voting securities during a one-year
standstill period following the closing of the share purchase. Immediately
following the completion of the share purchase, we had 9,289,252 million shares
of common stock issued and outstanding.

Upon closing of the share purchase, an agreement dated March 7, 2002
between us, Group 4 Falck and TWC, which governed certain aspects of the
parties' relationship, was terminated and the two Group 4 Falck representatives
serving on our board of directors resigned. Also terminated upon the closing of
the share purchase was a March 7, 2002 agreement between us and Group 4 Falck
wherein Group 4 Falck agreed to reimburse us for up to 10% of the fair market
value of our interest in our UK joint venture in the event that litigation
related to the sale of TWC to Group 4 Falck were to result in a court order
requiring us to sell our interest in the joint venture to our partner, Serco
Investments Limited, which we refer to as Serco. On July 2, 2003, we completed
the sale of our UK joint venture interest to Serco at a price of approximately
$80.7 million, as determined by a panel of valuation experts. We recognized a
pre-tax gain on the sale of approximately $61.0 million during the third quarter
of 2003.

In addition, in connection with the share purchase, the Services Agreement,
dated October 28, 2002, between us and TWC, which we refer to as the Services
Agreement, terminated effective December 31, 2003, and no further payments for
periods thereafter are due from us to Group 4 Falck under the Services
Agreement. Pursuant to the terms of the Services Agreement, Group 4 Falck had
been scheduled to provide us with information systems related services through
December 31, 2004. We began handling those services internally beginning January
1, 2004.

A sublease for our former headquarters between TWC, as sublessor, and us,
as sublessee, also terminated ten days after the closing of the share purchase.
We relocated our corporate headquarters to Boca Raton, Florida on April 14,
2003.

AVAILABILITY OF REPORTS AND OTHER INFORMATION

Our corporate website is located at http://www.thegeogroupinc.com. We have
made available on our website, free of charge, access to our Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy
Statement on Schedule 14A and amendments to those materials filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 as
soon as reasonably practicable after we electronically submit such materials to
the SEC. In addition, the SEC's website is located at http://www.sec.gov. The
SEC makes available on its website, free of charge, reports, proxy and
information statements, and other information regarding issuers that file
electronically with the

17

SEC. Information provided on our website or on the SEC's website is not part of
this Annual Report on Form 10-K.

RISK FACTORS

The following are certain of the risks to which our business operations are
subject. Any of these risks could materially adversely affect our business,
financial condition, or results of operations. These risks could also cause our
actual results to differ materially from those indicated in the forward-looking
statements contained herein and elsewhere. The risks described below are not the
only risks facing us. Additional risks not currently known to us or those we
currently deem to be immaterial may also materially and adversely affect our
business operations.

RISKS RELATED TO OUR HIGH LEVEL OF INDEBTEDNESS

OUR SIGNIFICANT LEVEL OF INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND PREVENT US FROM FULFILLING OUR DEBT SERVICE OBLIGATIONS.

We have a significant amount of indebtedness. Our total consolidated
long-term indebtedness as of December 28, 2003 was $248.8 million, excluding non
recourse debt of $43.9 million. In addition, as of December 28, 2003, we had
$24.5 million outstanding in letters of credit under the revolving loan portion
of our Senior Credit Facility. As a result, as of that date, we would have had
the ability to borrow an additional approximately $25.5 million under the
revolving loan portion of our Senior Credit Facility, subject to our satisfying
the relevant borrowing conditions under the Senior Credit Facility with respect
to the incurrence of additional indebtedness.

Our substantial indebtedness could have important consequences. For
example, it could:

require us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, thereby reducing the availability of our cash flow
to fund working capital, capital expenditures, and other general corporate
purposes;

- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;

- increase our vulnerability to adverse economic and industry conditions;

- place us at a competitive disadvantage compared to competitors that may
be less leveraged; and

- limit our ability to borrow additional funds or refinance existing
indebtedness on favorable terms.

If we are unable to meet our debt service obligations, we may need to
reduce capital expenditures, restructure or refinance our indebtedness, obtain
additional equity financing or sell assets. We may be unable to restructure or
refinance our indebtedness, obtain additional equity financing or sell assets on
satisfactory terms or at all. In addition, our ability to incur additional
indebtedness will be restricted by the terms of our Senior Credit Facility and
the indenture governing our outstanding Notes.

DESPITE CURRENT INDEBTEDNESS LEVELS, WE MAY STILL INCUR MORE INDEBTEDNESS,
WHICH COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE. FUTURE INDEBTEDNESS
ISSUED PURSUANT TO OUR UNIVERSAL SHELF REGISTRATION STATEMENT COULD HAVE
RIGHTS SUPERIOR TO THOSE OF OUR EXISTING OR FUTURE INDEBTEDNESS.

The terms of the indenture governing the Notes and our Senior Credit
Facility restrict our ability to incur but do not prohibit us from incurring
significant additional indebtedness in the future. In addition, we may refinance
all or a portion of our indebtedness, including borrowings under our Senior
Credit Facility, and incur more indebtedness as a result. If new indebtedness is
added to our and our subsidiaries' current debt levels, the related risks that
we and they now face could intensify. As of December 28, 2003, we would have had
the ability to borrow an additional approximately $25.5 million under the
revolving loan portion of our Senior Credit Facility. Additionally, on January
28, 2004, our universal shelf registration statement on Form S-3 was declared
effective by the SEC. The universal shelf registration statement provides for
the offer and sale by us, from time to time, on a delayed basis of up to $200.0
million aggregate amount of certain of our securities, including our debt
securities. Any

18

indebtedness incurred pursuant to the universal shelf registration statement
will be created through the issuance of these debt securities. Such debt
securities may be issued in more than one series and some of those series may
have characteristics that provide them with rights that are superior to those of
other series of our debt securities that have already been created or that will
be created in the future.

THE COVENANTS IN THE INDENTURE GOVERNING THE NOTES AND OUR SENIOR CREDIT
FACILITY IMPOSE SIGNIFICANT OPERATING AND FINANCIAL RESTRICTIONS WHICH MAY
ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR BUSINESS.

The indenture governing the Notes and our Senior Credit Facility impose
significant operating and financial restrictions on us and certain of our
subsidiaries, which we refer to as restricted subsidiaries. These restrictions
limit our ability to, among other things:

- incur additional indebtedness;

- pay dividends and or distributions on our capital stock or repurchase,
redeem or retire our capital stock, prepay subordinated indebtedness and
make investments;

- issue preferred stock of subsidiaries;

- make certain types of investments;

- guarantee other indebtedness;

- create liens on our assets;

- transfer and sell assets;

- create or permit restrictions on the ability of our restricted
subsidiaries to make dividends or make other distributions to us;

- enter into sale/leaseback transactions;

- enter into transactions with affiliates; and

- merge or consolidate with another company or sell all or substantially
all of our assets.

These restrictions could limit our ability to finance our future operations
or capital needs, make acquisitions or pursue available business opportunities.
In addition, our Senior Credit Facility requires us to maintain specified
financial ratios and satisfy certain financial covenants, including maintaining
maximum senior and total leverage ratios, a minimum fixed charge coverage ratio,
a minimum net worth and a limit on the amount of our annual capital
expenditures. Some of these financial ratios become more restrictive over the
life of the Senior Credit Facility. We may be required to take action to reduce
our indebtedness or to act in a manner contrary to our business objectives to
meet these ratios and satisfy these covenants. Our failure to comply with any of
the covenants under our Senior Credit Facility and the indenture governing the
Notes could cause an event of default under such documents and result in an
acceleration of all of our outstanding indebtedness. If all of our outstanding
indebtedness were to be accelerated, we likely would not be able to
simultaneously satisfy all of our obligations under such indebtedness, which
would materially adversely affect our financial condition and results of
operations.

SERVICING OUR INDEBTEDNESS WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.

Our ability to make payments on our indebtedness and to fund planned
capital expenditures will depend on our ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.

Our business may not be able to generate sufficient cash flow from
operations or future borrowings may not be available to us under our Senior
Credit Facility or otherwise in an amount sufficient to enable us to pay our
indebtedness or new debt securities, or to fund our other liquidity needs. We
may need to refinance all or a portion of our indebtedness on or before
maturity. However, we may not be able to complete such refinancing on
commercially reasonable terms or at all.

19

BECAUSE PORTIONS OF OUR INDEBTEDNESS HAVE FLOATING INTEREST RATES, A GENERAL
INCREASE IN INTEREST RATES WILL ADVERSELY AFFECT CASH FLOWS.

Our Senior Credit Facility bears interest at a variable rate. To the extent
our exposure to increases in interest rates is not eliminated through interest
rate protection agreements, such increases will adversely affect our cash flows.
We do not currently have any interest rate protection agreements in place to
protect against interest rate fluctuations related to the Senior Credit
Facility. Our estimated total annual interest expense based on borrowings
outstanding as of December 28, 2003 is approximately $19.3 million, $3.0 million
of which is interest expense attributable to estimated borrowings of $98.8
million currently outstanding under the Senior Credit Facility inclusive of
expected mandatory payments under the Senior Credit Facility. Additionally,
based on estimated borrowings under the Senior Credit Facility, inclusive of
expected mandatory payments, a one percent increase in the interest rate
applicable to the Senior Credit Facility, will increase interest expense by $0.7
million.

In addition, effective September 18, 2003, we entered into interest rate
swap agreements in the aggregate notional amount of $50.0 million. The
agreements, which have payment and expiration dates that coincide with the
payment and expiration terms of the Notes, effectively convert $50.0 million of
the Notes into variable rate obligations. Under the agreements, we receive a
fixed interest rate payment from the financial counterparties to the agreements
equal to 8.25% per year calculated on the notional $50.0 million amount, while
we make a variable interest rate payment to the same counterparties equal to the
six-month London Interbank Offered Rate plus a fixed margin of 3.45%, also
calculated on the notional $50.0 million amount. As a result, for every one
percent increase in the interest rate applicable to the swap agreements, our
total annual interest expense will increase by $0.5 million.

WE DEPEND ON DISTRIBUTIONS FROM OUR SUBSIDIARIES TO MAKE PAYMENTS ON OUR
INDEBTEDNESS. THESE DISTRIBUTIONS MAY NOT BE MADE.

We generate a substantial portion of our revenues from distributions on the
equity interests we hold in our subsidiaries. Therefore, our ability to meet our
payment obligations on our indebtedness is substantially dependent on the
earnings of our subsidiaries and the payment of funds to us by our subsidiaries
as dividends, loans, advances or other payments. Our subsidiaries are separate
and distinct legal entities and are not obligated to make funds available for
payment of our other indebtedness in the form of loans, distributions or
otherwise. Our subsidiaries' ability to make any such loans, distributions or
other payments to us will depend on their earnings, business results, the terms
of their existing and any future indebtedness, tax considerations and legal or
contractual restrictions to which they may be subject. If our subsidiaries do
not make such payments to us, our ability to repay our indebtedness will be
materially adversely affected. For the fiscal year ended December 28, 2003, our
subsidiaries accounted for 27.9% of our consolidated revenues, and, as of
December 28, 2003 our subsidiaries accounted for 22.0% of our consolidated total
assets.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

OUR RESULTS OF OPERATIONS ARE DEPENDENT ON REVENUES GENERATED BY OUR PRISONS
AND DETENTION FACILITIES, WHICH ARE SUBJECT TO THE FOLLOWING RISKS ASSOCIATED
WITH THE CORRECTIONS AND DETENTION INDUSTRY.

We are subject to the termination or non-renewal of our government
contracts, which could adversely affect our results of operations and liquidity,
including our ability to secure new facility management contracts from other
government customers. Governmental agencies may terminate a facility contract
at any time without cause or use the possibility of termination to negotiate a
lower fee for per diem rates. They also generally have the right to renew
facility contracts at their option. Notwithstanding any contractual renewal
option, as of December 28, 2003, twenty-three of our facility management
contracts are scheduled to expire on or before January 2, 2005. These contracts
represented 44.6% of our consolidated revenues for the year ended December 28,
2003. Some of these contracts may not be renewed by the corresponding
governmental agency. Additionally, four of our contracts, which represented
14.0% of our consolidated revenues for the fiscal year ended December 28, 2003
were not renewed in 2003 and

20

terminated on their scheduled expiration dates, all of which occurred prior to
March 1, 2004. We do not expect the loss of these four contracts to affect our
ability to satisfy our financial obligations. Also, some of our other contracts
scheduled to expire after January 2, 2005 may not be renewed. See "Business --
Facilities and Facility Management Contracts." In addition, governmental
agencies may determine not to exercise renewal options with respect to any of
our contracts in the future. In the event any of our management contracts are
terminated or are not renewed on favorable terms or otherwise, we may not be
able to obtain additional replacement contracts. The non-renewal or termination
of any of our contracts with governmental agencies could materially adversely
affect our financial condition, results of operations and liquidity, including
our ability to secure new facility management contracts from other government
customers.

In Australia, the Department of Immigration, Multicultural and Indigenous
Affairs, which we refer to as DIMIA, entered into a contract in 2003 with a
division of Group 4 Falck for the management and operation of Australia's
immigration centers, services which we have provided since 1997 through our
Australian subsidiary. We transitioned the management and operation of the DIMIA
centers to the division of Group 4 Falck effective February 29, 2004. For the
year ended December 28, 2003 DIMIA represented approximately 9.9% of our
consolidated revenues. We do not have any lease obligations related to our
contract with DIMIA. During 2003, we increased reserves approximately $3.6
million for liability insurance obligations related to the expiration of the
DIMIA contract.

We will continue to be responsible for certain real property payments even
if our underlying facility management contracts terminate, which could adversely
affect our profitability. Eleven of our facilities are leased from Correctional
Properties Trust, an independent, publicly-traded REIT which we refer to as CPV.
These leases have an initial ten-year term with varying renewal periods at our
option, and a total average remaining initial term of 4.6 years. The facility
management contracts underlying these leases generally have a term ranging from
one to five years, however, they are terminable by the governmental entity at
will. In the event that a facility management contract is terminated or expires
and is not renewed prior to the expiration of the corresponding lease term for
the facility, we will continue to be liable to CPV for the related lease
payments. Our average annual obligations and aggregate total remaining
obligations for lease payments under the eleven CPV leases are approximately
$24.2 million and $116.0 million, respectively. Because these lease payments
would not be offset by revenues from an active facility management contract,
they could represent a material ongoing loss. If we are unable to find a
replacement management contract or an alternative use for the facility, the loss
could continue until the expiration of the lease term then in effect, which
could adversely affect our profitability.

For example, during 2000, our management contract at the 276-bed Jena
Juvenile Justice Center in Jena, Louisiana was discontinued by the mutual
agreement of the parties. Despite the discontinuation of the management
contract, we remain responsible for payments on our underlying lease of the
inactive facility. We incurred an operating charge of $1.1 million during the
year ended December 29, 2002 related to our lease of the inactive facility that
represented the expected costs to be incurred under the lease until a sublease
or alternative use could be initiated in early 2004. During 2003 parties that we
previously believed might sublease the facility prior to early 2004 either
indicated that they did not have an immediate need for the facility or did not
enter into a binding commitment for a sublease of the facility. As a result our
management determined that it was unlikely that we would sublease the facility
or find an alternative correctional use for the facility prior to the expiration
of the provision for anticipated losses through early 2004 and we incurred an
additional operating charge of $5.0 million during 2003. This additional
operating charge both covers our anticipated losses under the lease for the
facility until a sublease is in place and provides us with an estimated discount
to sublease the facility to prospective sublessees. We are continuing our
efforts to find a sublease or alternative correctional use for the facility. If
we are unable to sublease or find an alternative correctional use for the
facility prior to January 2006, an additional operating charge will be required.
As of December 28, 2003, the remaining obligation on the Jena lease through the
contractual term of 2009, exclusive of the reserve for losses through early
2006, is approximately $7.0 million.

21

Also, our contract with the California Department of Corrections for the
management of the 224-bed McFarland Community Corrections Center expired on
December 31, 2003. During the year ended December 28, 2003, the contract for the
McFarland facility represented less than 1% of our consolidated revenues. Even
though we are no longer operating the McFarland facility, we will continue to be
responsible for payments on our underlying lease of the facility with CPV
through 2008, when the lease is scheduled to expire. We are actively pursuing
various alternatives for the facility, including finding an alternative
correctional use for the facility or subleasing the facility to agencies of the
federal and/or state governments or another private operator. If we are unable
to find an appropriate correctional use for the facility or sublease the
facility, we may be required to record an operating charge related to a portion
of the future lease costs with CPV in accordance with SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." The remaining lease
obligation related to the McFarland facility is approximately $3.3 million
through April 28, 2008.

In addition, we own four properties on which we operate correctional and
detention facilities. Our purchase of these properties during 2002 was financed
through borrowings under our former senior credit facility which have now been
incorporated into our Senior Credit Facility. In the event that an underlying
facility management contract for one or more of these properties terminates, we
would still be responsible for servicing the indebtedness incurred to purchase
those properties.

Our growth depends on our ability to secure contracts to develop and manage
new correctional and detention facilities, the demand for which is outside our
control. Our growth is generally dependent upon our ability to obtain new
contracts to develop and manage new correctional and detention facilities,
because contracts to manage existing public facilities have not to date
typically been offered to private operators. Public sector demand for new
facilities may decrease and our potential for growth will depend on a number of
factors we cannot control, including overall economic conditions, crime rates
and sentencing patterns in jurisdictions in which we operate governmental and
public acceptance of the concept of privatization and the number of facilities
available for privatization.

The demand for our facilities and services could be adversely affected by
the relaxation of criminal enforcement efforts, leniency in conviction and
sentencing practices, or through the decriminalization of certain activities
that are currently proscribed by criminal laws. For instance, any changes with
respect to the decriminalization of drugs and controlled substances or a
loosening of immigration laws could affect the number of persons arrested,
convicted, sentenced and incarcerated, thereby potentially reducing demand for
correctional facilities to house them. Similarly, reductions in crime rates
could lead to reductions in arrests, convictions and sentences requiring
incarceration at correctional facilities.

We may not be able to secure financing and desirable locations for new
facilities, which could adversely affect our results of operations and future
growth. In certain cases, the development and construction of facilities by us
is subject to obtaining construction financing. Such financing may be obtained
through a variety of means, including without limitation, the sale of tax-exempt
or taxable bonds or other obligations or direct governmental appropriations. The
sale of tax-exempt or taxable bonds or other obligations may be adversely
affected by changes in applicable tax laws or adverse changes in the market for
tax-exempt or taxable bonds or other obligations.

Moreover, certain jurisdictions, including California, where we have a
significant amount of operations, have in the past required successful bidders
to make a significant capital investment in connection with the financing of a
particular project. If this trend were to continue in the future, we may not be
able to obtain sufficient capital resources when needed to compete effectively
for facility management contacts. Additionally, our success in obtaining new
awards and contracts may depend, in part, upon our ability to locate land that
can be leased or acquired under favorable terms. Otherwise desirable locations
may be in or near populated areas and, therefore, may generate legal action or
other forms of opposition from residents in areas surrounding a proposed site.
Our inability to secure financing and desirable locations for new facilities
could adversely affect our results of operations and future growth.

We depend on a limited number of governmental customers for a significant
portion of our revenues. The loss of, or a significant decrease in business
from, these customers could seriously harm our financial

22

condition and results of operations. We currently derive, and expect to
continue to derive, a significant portion of our revenues from a limited number
of governmental agencies. The loss of, or a significant decrease in, business
from the Bureau of Prisons, the Bureau of Immigration and Customs Enforcement,
which we refer to as BICE, or the U.S. Marshals Service or various state
agencies could seriously harm our financial condition and results of operations.
The three federal governmental agencies with correctional and detention
responsibilities, the Bureau of Prisons, BICE and the Marshals Service,
accounted for approximately 24.9% of our total consolidated revenues for the
fiscal year ended December 28, 2003, with the Bureau of Prisons accounting for
approximately 10.4% of our total consolidated revenues for such period, the
Marshals Service accounting for approximately 9.0% of our total consolidated
revenues for such period and the BICE accounting for approximately 5.5% of our
total consolidated revenues for such period. We expect to continue to depend
upon these federal agencies and a relatively small group of other governmental
customers for a significant percentage of our revenues.

A decrease in occupancy levels could cause a decrease in revenues and
profitability. While a substantial portion of our cost structure is generally
fixed, a significant portion of our revenues are generated under facility
management contracts which provide for per diem payments based upon daily
occupancy. We are dependent upon the governmental agencies with which we have
contracts to provide inmates for our managed facilities. We cannot control
occupancy levels at our managed facilities. Under a per diem rate structure, a
decrease in our occupancy rates could cause a decrease in revenues and
profitability. When combined with relatively fixed costs for operating each
facility, regardless of the occupancy level, a decrease in occupancy levels
could have a material adverse effect on our profitability.

Competition for inmates may adversely affect the profitability of our
business. We compete with government entities and other private operators on
the basis of cost, quality and range of services offered, experience in managing
facilities, and reputation of management and personnel. Barriers to entering the
market for the management of correctional and detention facilities may not be
sufficient to limit additional competition in our industry. In addition, our
government customers may assume the management of a facility currently managed
by us upon the termination of the corresponding management contract or, if such
customers have capacity at the facilities which they operate, they may take
inmates currently housed in our facilities and transfer them to government
operated facilities. Since we are paid on a per diem basis with no minimum
guaranteed occupancy under most of our contracts, the loss of such inmates and
resulting decrease in occupancy would cause a decrease in both our revenues and
our profitability.

We are dependent on government appropriations, which may not be made on a
timely basis or at all. Our cash flow is subject to the receipt of sufficient
funding of and timely payment by contracting governmental entities. If the
contracting governmental agency does not receive sufficient appropriations to
cover its contractual obligations, it may terminate our contract or delay or
reduce payment to us. Any delays in payment, or the termination of a contract,
could have a material adverse effect on our cash flow and financial condition,
which may make it difficult to satisfy our payment obligations on our
indebtedness, including the Notes and the Senior Credit Facility, in a timely
manner. In addition, as a result of, among other things, recent economic
developments, federal, state and local governments have encountered, and may
continue to encounter, unusual budgetary constraints. As a result, a number of
state and local governments are under pressure to control additional spending or
reduce current levels of spending. Accordingly, we may be requested in the
future to reduce our existing per diem contract rates or forego prospective
increases to those rates. In addition, it may become more difficult to renew our
existing contracts on favorable terms or at all.

Public resistance to privatization of correctional and detention facilities
could result in our inability to obtain new contracts or the loss of existing
contracts, which could have a material adverse effect on our business, financial
condition and results of operations. The management and operation of
correctional and detention facilities by private entities has not achieved
complete acceptance by either governments or the public. Some governmental
agencies have limitations on their ability to delegate their traditional
management responsibilities for correctional and detention facilities to private
companies and additional legislative changes or prohibitions could occur that
further increase these limitations. In addition, the movement toward
privatization of correctional and detention facilities has encountered
resistance from

23

groups, such as labor unions, that believe that correctional and detention
facilities should only be operated by governmental agencies. Changes in dominant
political parties could also result in significant changes to previously
established views of privatization. Increased public resistance to the
privatization of correctional and detention facilities in any of the markets in
which we operate, as a result of these or other factors, could have a material
adverse effect on our business, financial condition and results of operations.

Adverse publicity may negatively impact our ability to retain existing
contracts and obtain new contracts. Our business is subject to public
scrutiny. Any negative publicity about an escape, riot or other disturbance or
perceived poor conditions at a privately managed facility may result in
publicity adverse to us and the private corrections industry in general. Any of
these occurrences or continued trends may make it more difficult for us to renew
existing contracts or to obtain new contracts or could result in the termination
of an existing contract or the closure of one of our facilities, which could
have a material adverse effect on our business.

We may incur significant start-up and operating costs on new contracts
before receiving related revenues, which may impact our cash flows and not be
recouped. When we are awarded a contract to manage a facility, we may incur
significant start-up and operating expenses, including the cost of constructing
the facility, purchasing equipment and staffing the facility, before we receive
any payments under the contract. These expenditures could result in a
significant reduction in our cash reserves and may make it more difficult for us
to meet other cash obligations, including our payment obligations on the Notes
and the Senior Credit Facility. In addition, a contract may be terminated prior
to its scheduled expiration and as a result we may not recover these
expenditures or realize any return on our investment.

Failure to comply with extensive government regulation and unique
contractual requirements could have a material adverse effect on our business,
financial condition or results of operations. The industry in which we operate
is subject to extensive federal, state and local regulations, including
educational, environmental, health care and safety regulations, which are
administered by many regulatory authorities. Some of the regulations are unique
to the corrections industry, and the combination of regulations affects all
areas of our operations. Facility management contracts typically include
reporting requirements, supervision and on-site monitoring by representatives of
the contracting governmental agencies. Corrections officers and juvenile care
workers are customarily required to meet certain training standards and, in some
instances, facility personnel are required to be licensed and are subject to
background investigations. Certain jurisdictions also require us to award
subcontracts on a competitive basis or to subcontract with businesses owned by
members of minority groups. We may not always successfully comply with these and
other regulations to which we are subject and failure to comply can result in
material penalties or the non-renewal or termination of facility management
contracts. In addition, changes in existing regulations could require us to
substantially modify the manner in which we conduct our business and, therefore,
could have a material adverse effect on us.

In addition, private prison managers are increasingly subject to government
legislation and regulation attempting to restrict the ability of private prison
managers to house certain types of inmates, such as inmates from other
jurisdictions or inmates at medium or higher security levels. Legislation has
been enacted in several states, and has previously been proposed in the United
States House of Representatives, containing such restrictions. Although we do
not believe that existing legislation will have a material adverse effect on us,
future legislation may have such an effect on us.

Governmental agencies may investigate and audit our contracts and, if any
improprieties are found, we may be required to refund amounts we have received,
to forego anticipated revenues and we may be subject to penalties and sanctions,
including prohibitions on our bidding in response to Requests for Proposals, or
RFPs, from governmental agencies to manage correctional facilities. Governmental
agencies we contract with have the authority to audit and investigate our
contracts with them. As part of that process, governmental agencies may review
our performance of the contract, our pricing practices, our cost structure and
our compliance with applicable laws, regulations and standards. For contracts
that actually or effectively provide for certain reimbursement of expenses, if
an agency determines that we have improperly allocated costs to a specific
contract, we may not be reimbursed for those costs, and we could be required

24

to refund the amount of any such costs that have been reimbursed. If a
government audit asserts improper or illegal activities by us, we may be subject
to civil and criminal penalties and administrative sanctions, including
termination of contracts, forfeitures of profits, suspension of payments, fines
and suspension or disqualification from doing business with certain governmental
entities. Any adverse determination could adversely impact our ability to bid in
response to RFPs in one or more jurisdictions.

We may face community opposition to facility location, which may adversely
affect our ability to obtain new contracts. Our success in obtaining new awards
and contracts sometimes depends, in part, upon our ability to locate land that
can be leased or acquired, on economically favorable terms, by us or other
entities working with us in conjunction with our proposal to construct and/or
manage a facility. Some locations may be in or near populous areas and,
therefore, may generate legal action or other forms of opposition from residents
in areas surrounding a proposed site. When we select the intended project site,
we attempt to conduct business in communities where local leaders and residents
generally support the establishment of a privatized correctional or detention
facility. Future efforts to find suitable host communities may not be
successful. In many cases, the site selection is made by the contracting
governmental entity. In such cases, site selection may be made for reasons
related to political and/or economic development interests and may lead to the
selection of sites that have less favorable environments.

Our business operations expose us to various liabilities for which we may
not have adequate insurance. The nature of our business exposes us to various
types of third-party legal claims, including, but not limited to, civil rights
claims relating to conditions of confinement and/or mistreatment, sexual
misconduct claims brought by prisoners or detainees, medical malpractice claims,
claims relating to employment matters (including, but not limited to, employment
discrimination claims, union grievances and wage and hour claims), property loss
claims, environmental claims, automobile liability claims, contractual claims
and claims for personal injury or other damages resulting from contact with our
facilities, programs, personnel or prisoners, including damages arising from a
prisoner's escape or from a disturbance or riot at a facility. In addition, our
management contracts generally require us to indemnify the governmental agency
against any damages to which the governmental agency may be subject in
connection with such claims or litigation. We maintain insurance coverage for
these types of claims, except for claims relating to employment matters.
However, the insurance we maintain to cover the various liabilities to which we
are exposed may not be adequate. Any losses relating to matters for which we are
either uninsured or for which we do not have adequate insurance could have a
material adverse effect on our business, financial condition or results of
operations. In addition, any losses relating to employment matters could have a
material adverse effect on our business, financial condition or results of
operations.

Claims for which we are insured arising from our U.S. operations that have
an occurrence date of October 1, 2002 or earlier are handled by TWC and are
fully insured up to an aggregate limit of between $25.0 million and $50.0
million, depending on the nature of the claim. With respect to claims for which
we are insured arising from our U.S. operations that have an occurrence date of
October 2, 2002 or later, our coverage varies depending on the nature of the
claim. For claims relating to general liability and automobile liability, we
have a deductible of $1.0 million per claim, primary coverage of $5.0 million
per claim for general liability and $3.0 million per claim for automobile
liability (up to a limit of $20.0 million for all claims in the aggregate), and
excess/umbrella coverage of up to $50.0 million per claim and for all claims in
the aggregate. For claims relating to medical malpractice at our correctional
facilities, we have a deductible of $1.0 million per claim and primary coverage
of $5.0 million per claim and for all claims in the aggregate. For claims
relating to medical malpractice at our mental health facilities, we have a
deductible of $2.0 million per claim and primary coverage of up to $5.0 million
per claim and for all claims in the aggregate. The current professional
liability policy for our mental health facilities does not include tail coverage
for prior periods. For claims relating to workers' compensation, we maintain
statutory coverage as determined by state and/or local law and, as a result, our
coverage varies among the various jurisdictions in which we operate.

Claims for which our joint venture in South Africa is insured arising from
its operations, are covered by policies with varying amounts of coverage
depending on the nature of the claim. Primary insurance in

25

the amount of ZAR50 million (approximately $7.5 million at December 28, 2003) is
provided for general liability claims. This insurance contains a ZAR5 million
(approximately $0.8 million at December 28, 2003) deductible. Excess insurance
is provided above the ZAR50 million primary policy with limits up to ZAR250
million (approximately $37.3 million at December 28, 2003). Medical malpractice
claims are insured up to ZAR14.7 million (approximately $2.2 million at December
28, 2003) with a ZAR50,000 deductible (approximately $7,500 at December 28,
2003).

Claims for which we are insured arising from operations in Australia and
New Zealand are covered by policies with varying amounts of coverage depending
on the nature of the claim. For public liability claims, we maintain primary
insurance of AUD$5 million (approximately $3.7 million at December 28, 2003)
with an AUD$250,000 deductible (approximately $0.2 million at December 28,
2003). Medical malpractice claims are insured up to AUD$10 million
(approximately $7.4 million at December 28, 2003) with an AUD$1 million
deductible (approximately $0.7 million at December 28, 2003).

In addition, since the events of September 11, 2001, and due to concerns
over corporate governance and recent corporate accounting scandals, liability
and other types of insurance have become more difficult a