FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

For the quarterly period ended September 26, 2004

OR

For the transition period from _______ to _________

Commission file number 1-14260

The GEO Group, Inc.

(561) 893-0101

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 twelve (12) months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

At November 1, 2004, 9,469,149 shares of the registrant’s Common Stock were issued and outstanding.

TABLE OF CONTENTS

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THE GEO GROUP, INC.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

THE GEO GROUP, INC.

The accompanying notes are an integral part of these consolidated financial statements.

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THE GEO GROUP, INC.

The accompanying notes are an integral part of these consolidated financial statements.

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THE GEO GROUP, INC.

The accompanying notes are an integral part of these consolidated financial statements.

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THE GEO GROUP, INC.

1. BASIS OF PRESENTATION

The unaudited consolidated financial statements of The GEO Group, Inc., a Florida corporation (the “Company”), have been prepared in accordance with 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 Form 10-K for the year ended December 28, 2003. 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 have been made. Results of operations for the thirty-nine weeks ended September 26, 2004 are not necessarily indicative of the results for the entire fiscal year ending January 2, 2005.

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 Form 10-K filed with the Securities and Exchange Commission on March 10, 2004 for the fiscal year ended December 28, 2003, except as disclosed below. Certain amounts in the prior period have been reclassified to conform to the current presentation.

Debt Issuance Costs

Debt issuance costs totaling $5.9 million are included in other non current assets in the consolidated balance sheets as of September 26, 2004. Debt issuance costs related to the term loan under the Senior Credit Facility are amortized into expense using the effective interest method. All other debt issuance costs are amortized into expense on a straight line basis, which is not materially different than the interest method, over the term of the related debt.

Reserves for Insurance Losses

Claims for which the Company is insured arising from its U.S. operations that have an occurrence date on or before October 1, 2002 are insured by The Wackenhut Corporation, our former parent company, 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 the Company is insured arising from its U.S. operations that have an occurrence date of October 2, 2002 through September 26, 2004, the Company’s coverage varies depending on the nature of the claim. For claims relating to general liability and automobile liability, the Company has 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 the Company’s correctional facilities, the Company has 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 its mental health facilities, the Company has 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 the Company’s mental health facilities does not include tail coverage for prior periods during which the Company was uninsured for claims relating to medical malpractice at its mental health facilities.

On October 2, 2004, the Company increased its deductible to $3.0 million per claim for claims relating to general liability and automobile liability, and increased its deductible for workers compensation to $2.0 million per claim. The Company’s excess/umbrella coverage remains at $50.0 million per claim and for all claims in the aggregate. For claims relating to medical malpractice at its correctional facilities, the Company purchased coverage with a $3.0 million deductible per claim subject to a policy limit of $5.0 million per occurrence and in the aggregate. For claims relating to medical malpractice at its mental health facilities, the Company purchased coverage with a $3.0 self-insurance retention for each and every medical incident with no aggregate, subject to a policy limit of $7.0 million per occurrence and in the aggregate.

For claims relating to workers’ compensation, the Company maintains statutory coverage as determined by state and/or local law. The Company carries no insurance for claims relating to employment matters. The Company also carry various types of insurance with respect to its operations in South Africa, Australia and New Zealand.

Because the Company’s insurance policies have high deductible amounts, losses are recorded as reported and a provision is made to cover losses incurred but not reported. Loss reserves are undiscounted and are computed based on independent actuarial studies. The Company’s management use judgments in assessing loss estimates that are based on actual claim amounts and loss development

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

experience considering historical and industry experience. If actual losses related to insurance claims significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted.

Costs of Acquisition Opportunities

Internal costs associated with a business combination are expensed as incurred. Direct and incremental costs related to successful negotiations where we are the acquiring company are capitalized as part of the cost of the acquisition. As of September 26, 2004 the Company had approximately $1.2 million dollars of capitalized costs. Costs associated with unsuccessful negotiations are expensed when it is probable that the acquisition will not occur.

Correction of Income Tax Provision

During the period ended September 26, 2004, the Company adjusted its tax provision to reflect an adjustment to its treatment of certain executive compensation. During the fiscal years ended 2002, and 2003 along with the period ending June 27, 2004, the Company calculated its tax provision as if it met the Internal Revenue Service code section 162(m) requirements for its executive bonus plan. During the quarter, the Company discovered that the plan did not meet certain specific requirements of section 162(m). As a result the Company’s tax provision was understated and an adjustment to increase the tax provision by $0.8 million was recorded in the period ended September 26, 2004. The Company’s management does not believe the adjustment is material to its trend of earnings for the periods affected, or that it will be material to its 2004 income.

2. EQUITY INCENTIVE PLANS

The Company accounts for stock option plans under the intrinsic value method of Accounting Principles Board (“APB”) Opinion No. 25, under which no compensation has been recognized. The Company provides pro forma disclosures of the compensation expense determined under the fair value provisions of Statement of Financial Accounting Standards (“FAS”) No. 123, “Accounting for Stock-Based Compensation” as amended by FAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”.

Had compensation cost for these plans been determined based on the fair value at date of grant in accordance with FAS No. 123, the Company’s net income and earnings per share would have been reduced to the pro forma amounts as follows (in thousands, except per share data):

For purposes of the pro forma calculations, the fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model, assuming no expected dividends and the following assumptions:

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

The Company, through its Australian subsidiary, had a contract with the Department of Immigration, Multicultural and Indigenous Affairs (“DIMIA”) for the management and operation of Australia’s immigration centers. The contract was not renewed, and effective February 29, 2004, the Company completed the transition of the contract and exited the management and operation of the DIMIA centers. In accordance with the provisions related to discontinued operations specified within FAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the accompanying unaudited consolidated financial statements and notes reflect the operations of DIMIA as a discontinued operation in all periods presented. The following are the revenues related to DIMIA for the periods presented (in thousands):

4. COMPREHENSIVE INCOME

The components of the Company’s comprehensive income, net of tax are as follows (in thousands):

Basic and diluted earnings per share (“EPS”) were calculated for the thirteen and thirty-nine weeks ended September 26, 2004 and September 28, 2003 as follows (in thousands except per share data):

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)

Thirteen Weeks

Options to purchase 379,847 shares of the Company’s common stock, with exercise prices ranging from $20.25 to $26.88 per share and expiration dates between 2006 and 2014, were outstanding at the thirteen weeks ended September 26, 2004, but were not included in the computation of diluted EPS because their effect would be anti-dilutive. At the thirteen weeks ended September 28, 2003, outstanding options to purchase 430,600 shares of the Company’s common stock, with exercise prices ranging from $18.38 to $26.88 and expiration dates between 2006 and 2009 were outstanding and also excluded from the computation of diluted EPS because their effec