424B5 1 g01601b5e424b5.htm THE GEO GROUP, INC. The GEO Group, Inc.
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The information in this preliminary prospectus supplement and the accompanying prospectus is not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell these securities and are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Filed Pursuant to Rule 424(b)(5)
Registration No. 333-111003
Subject to Completion, dated May 25, 2006
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 28, 2004)
3,000,000 Shares
(The GEO Group, Inc. Logo)
Common Stock
 
The GEO Group, Inc. is offering 3,000,000 of its shares of common stock. The GEO Group, Inc. will receive all of the net proceeds from the sale of its common stock.
Our common stock is quoted on the New York Stock Exchange under the symbol “GGI.” On May 24, 2006, the last sale price of our common stock as reported on the New York Stock Exchange was $39.11 per share.
Investing in our common stock involves risks. See “Risk Factors” beginning on page S-13 of this prospectus supplement.
         
    Per Share   Total
         
Public offering price
  $   $
Underwriting discounts and commissions
  $   $
Proceeds, before expenses, to us
  $   $
We have granted the underwriters a 30-day option to purchase up to an additional 450,000 shares from us on the same terms and conditions as set forth above if the underwriters sell more than 3,000,000 shares of common stock in this offering.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares to purchasers on or about                     , 2006.
 
Lehman Brothers
 
Banc of America Securities LLC
  First Analysis Securities Corporation
  Jefferies & Company
  Avondale Partners
  BNP PARIBAS
                        , 2006


 

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      This document is in two parts. The first part is this prospectus supplement, which describes the terms of the offering of our common stock and also adds to and updates information contained in the accompanying prospectus and the documents incorporated by reference into this prospectus supplement or the accompanying prospectus. The second part is the accompanying prospectus, which gives more general information, some of which may not apply to our common stock. To the extent there is a conflict between the information contained in this prospectus supplement, on the one hand, and the information contained in the accompanying prospectus or any document incorporated by reference as of the date of this prospectus supplement, on the other hand, the information in this prospectus supplement shall control. Unless otherwise expressly stated, all information in this prospectus supplement assumes that the underwriters’ option to purchase additional shares is not exercised.

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      You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. Neither we nor any underwriter or agent has authorized any other person to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. Neither we nor any underwriter or agent is making an offer to sell our common stock in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus is accurate only as of the date of the applicable document, regardless of the time of delivery of this prospectus supplement or of any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
      Statements contained in this prospectus supplement as to the contents of any contract or other document are not complete, and in each instance we refer you to the copy of the contract or document filed or incorporated by reference as an exhibit to the registration statement of which the accompanying prospectus constitutes a part or to a document incorporated or deemed to be incorporated by reference in the registration statement, each of those statements being qualified in all respects by this reference.
      GEO is incorporated under the laws of the state of Florida. Our principal executive offices are located at One Park Place, Suite 700, 621 Northwest 53rd Street Boca Raton, Florida 33487, and our telephone number at that address is (561) 893-0101.

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SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS AND MARKET AND STATISTICAL DATA
      This prospectus supplement, the accompanying prospectus and the documents incorporated or deemed to be incorporated by reference in this prospectus supplement and the accompanying prospectus contain forward-looking statements that involve risks and uncertainties, including those discussed under the caption “Risk Factors.” We develop forward-looking statements by combining currently available information with our beliefs and assumptions. These statements relate to future events, including our future performance, and some of these statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “anticipate,” “intend,” “contemplate,” “seek,” “plan,” “estimate,” “will,” “may,” “should” and the negative or other variations of those terms or comparable terminology or by discussion of strategy, plans or intentions. Forward-looking statements do not guarantee future performance, which may be materially different from that expressed in, or implied by, any such statements. You should not rely upon these statements as facts.
      We make these statements under the protection afforded by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Because we cannot predict all of the risks and uncertainties that may affect us, or control the ones we do predict, these risks and uncertainties can cause our results to differ materially from the results we express in our forward-looking statements. We undertake no obligation to, and expressly disclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, changes to future results over time or otherwise.
      The information in this prospectus supplement, the accompanying prospectus and the documents incorporated or deemed to be incorporated by reference in this prospectus supplement and the accompanying prospectus concerning our industry, our market position and similar matters, is derived principally from publicly available information, industry publications, data compiled by market research firms and similar sources. Although we believe that this information is reliable, we have not independently verified any of this information and, accordingly, we cannot assure you that it is accurate.
      Data presented herein regarding facilities in operation and average occupancy levels excludes facilities which we own or lease but which are currently inactive. See “Risk Factors — Risks Related to Our Business and Industry.”
      Data presented herein regarding the percentage of federal and state inmates held in private facilities has been obtained from publications by the U.S. Department of Justice, whose calculations regarding such data do not include federal and state prisoners held in local jails.

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PROSPECTUS SUPPLEMENT SUMMARY
      This summary highlights selected information contained elsewhere in this prospectus supplement or the accompanying prospectus or the documents incorporated or deemed to be incorporated by reference in this prospectus supplement and the accompanying prospectus. This summary is not complete and does not contain all of the information that you should consider before deciding whether to invest in our shares of common stock. You should read this entire prospectus supplement and the accompanying prospectus and the documents incorporated and deemed to be incorporated by reference in this prospectus supplement and the accompanying prospectus, including the “Risk Factors” section included in this prospectus supplement and the financial statements and related notes incorporated by reference herein, carefully before making an investment decision. Unless this prospectus supplement expressly indicates otherwise or the context otherwise requires the terms “we,” “our,” “us,” “GEO” and “the Company” refer to The GEO Group, Inc., its consolidated subsidiaries and its unconsolidated affiliates.
Our Company
Overview
      We are a leading provider of government-outsourced services specializing in the management of correctional, detention, mental health and residential treatment facilities in the United States, Canada, Australia, South Africa and the United Kingdom. We operate a broad range of correctional and detention facilities including maximum, medium and minimum security prisons, immigration detention centers and minimum security detention centers. Our correctional and detention management services involve the provision of security, administrative, rehabilitation, education, health and food services, primarily at adult male correctional and detention facilities. Our mental health and residential treatment services, which are operated through our wholly-owned subsidiary, GEO Care, Inc., involve the delivery of quality care, innovative programming and active patient treatment, primarily at privatized state mental health 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.
      We currently manage over 44,000 total beds with an average facility occupancy rate of 97.0% for the quarter ended April 2, 2006, and have an additional 4,583 beds currently under development or pending commencement of operations. On November 4, 2005 we completed the acquisition of Correctional Services Corporation, or CSC. As a result of the acquisition, we assumed the management of CSC’s sixteen adult correctional and detention facilities, totaling 8,037 beds. For the twelve months ended January 1, 2006, on a pro forma basis assuming the CSC acquisition occurred on January 3, 2005, we generated consolidated revenues of $692.5 million. For the three months ended April 2, 2006, we generated consolidated revenues of $185.9 million. The following depicts our revenue mix by business unit for the year ended January 1, 2006 on a pro forma basis assuming the CSC acquisition occurred on January 3, 2005:
(PIE CHART)

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      The private corrections industry has played an increasingly important role in addressing U.S. detention and correctional needs over the past five years. Since year-end 2000, the number of federal inmates held at private correctional and detention facilities has increased over 50 percent. At midyear 2005, the private sector housed approximately 14.4% of federal inmates. Approximately 57% of the estimated 2.2 million individuals incarcerated in the United States at year-end 2004 were held in state prisons. At midyear 2005, the private sector housed approximately 5.6% of all state inmates.
      In addition to our strong position in the U.S. market, we are the only publicly traded U.S. correctional company with international operations. We believe that our existing international presence positions us to capitalize on growth opportunities within the private corrections and detention industry in new and established international markets.
      We intend to pursue a diversified growth strategy by winning new clients and contracts, expanding our government services portfolio and pursuing selective acquisition opportunities. We achieve organic growth through competitive bidding that begins with the issuance by a government agency of a request for proposal, or RFP. We primarily rely on the RFP process for organic growth in our U.S. and international corrections operations as well as in our mental health and residential treatment services. 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 when renewing existing contracts. Our success in the RFP process has resulted in a pipeline of new projects with significant revenue potential. Since March 2005, we have announced seven new projects representing 4,583 beds. In addition to pursuing organic growth through the RFP process, we will from time to time selectively consider the financing and construction of new facilities or expansions to existing facilities on a speculative basis without having a signed contract with a known client. We also plan to leverage our experience to expand the range of government-outsourced services that we provide. We will continue to pursue selected acquisition opportunities in our core services and other government services areas that meet our criteria for growth and profitability.
      Our business was founded in 1984 as a division of The Wackenhut Corporation, or TWC, a multinational provider of global security services. We were incorporated in 1988 as a wholly-owned subsidiary of TWC. In July 1994, we became a publicly-traded company. In 2002, TWC was acquired by Group 4 Falck A/ S, which became our new parent company. In July 2003, we purchased all of our common stock owned by Group 4 Falck A/ S and became an independent company. In November 2003, we changed our corporate name to “The GEO Group, Inc.” We currently trade on the New York Stock Exchange under the ticker symbol “GGI.”
Competitive Advantages
      We believe we enjoy the following competitive advantages:
      Established Long Term Relationships with High-Quality Government Customers. We have developed long term relationships with our government customers and have generally been successful at retaining our facility management contracts. We have provided correctional and detention management services to the U.S. Federal Government for 19 years, the State of California for 18 years, the State of Texas for 18 years, various Australian state government entities for 14 years and the State of Florida for 12 years. These customers accounted for approximately 61% of our consolidated revenues for the fiscal year ended January 1, 2006. Our strong operating track record has enabled us to achieve a high renewal rate for contracts, thereby providing us with a stable source of revenue. During the past three years, we renewed approximately 90% of the contracts that were scheduled for renewal or expiration during that period. In addition, over the same three-year period, we won approximately 59% of the total number of beds for which we submitted RFPs.
      Diverse, Full-Service Facility Developer and Operator. We have developed comprehensive expertise in the design, construction and financing of high quality correctional, detention and mental health facilities. In addition, we have extensive experience in overall facility operations, including staff recruitment, administration, facility maintenance, food service, healthcare, security, supervision, treatment and education of inmates. We believe that the breadth of our service offerings gives us the flexibility and resources to respond to

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customers’ needs as they develop. We believe that the relationships we foster when offering these additional services also help us win new contracts and renew existing contracts.
      Regional U.S. Operating Structure and Presence in Key International Markets. We operate three regional U.S. offices and three international offices that provide administrative oversight and support to our correctional and detention facilities and allow us to maintain close relationships with our customers and suppliers. Each of our three regional U.S. offices is responsible for the facilities located within a defined geographic area. We believe that our regional operating structure is unique within the U.S. private corrections industry and provides us with the competitive advantage of close proximity and direct access to our customers and our facilities. We believe that this regional structure has facilitated the rapid integration of CSC’s facilities into our operations. We also believe that our regional structure and international offices will help with the integration of any future acquisitions.
      Experienced, Proven Senior Management Team. Our top three senior executives have over 56 years of combined industry experience, have worked together at our company for more than 15 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 $612.9 million in 2005. Our Chief Executive Officer, George C. Zoley, is one of the pioneers of the industry, having developed and opened what we believe was one of the first privatized detention facilities in the United States in 1986. In addition to senior management, our operational and facility level management has significant operational experience and expertise.
Strategies
      In order to strengthen our market position, enhance growth and maximize our profitability and cash flow, we intend to:
      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 have developed considerable expertise in the management of facility security, administration, rehabilitation, education, health and food services. Our quality is recognized through many accreditations including that of the American Correctional Association, which has certified facilities representing approximately 72% of our U.S. corrections revenue as of year-end 2005.
      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. In addition, we generally do not engage in facility development without having a corresponding management contract award in place, although we may opt to do so in select situations when we believe attractive business development opportunities may become available at a given location. We have also elected not to enter certain international markets with a history of economic and political instability. We believe that our strategy of emphasizing lower risk, higher profit opportunities helps us to consistently deliver strong operational performance, lower our costs and increase our overall profitability.
      Expand Into Complementary Government-Outsourced Services. We intend to capitalize on our long term relationships with governmental agencies to become a more diversified provider of government-outsourced services. These opportunities may include services which leverage our existing competencies and expertise, including the design, construction and management of large facilities, the training and management of a large workforce and our ability to service the needs and meet the requirements of government clients. 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. We believe that our successful expansion into the mental health and residential treatment services sector is an example of our ability to deliver higher quality services at lower costs in new areas of privatization.
      Pursue International Growth Opportunities. As a global provider of privatized correctional services, we are able to capitalize on opportunities to operate existing or new facilities on behalf of foreign governments. We currently have international operations in Australia, Canada, South Africa and the United Kingdom. We

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intend to further penetrate the current markets we operate in and to expand into new international markets which we deem attractive. For example, during the fourth quarter of 2004, we opened an office in the United Kingdom to vigorously pursue new business opportunities in England, Wales and Scotland. In March 2006, we entered into a contract to manage the operations of the 198-bed Campsfield House in Kidlington, United Kingdom. We expect to begin operations under this contract in the second quarter of 2006.
      Selectively Pursue Acquisition Opportunities. We consider acquisitions that are strategic in nature and enhance our geographic platform on an ongoing basis. On November 4, 2005, we acquired CSC, bringing over 8,000 additional adult correctional and detention beds under our management. We will continue to review acquisition opportunities that may become available in the future, both in the privatized corrections, detention, mental health and residential treatment services sectors, and in complementary government-outsourced services areas.
Industry Trends
      We are encouraged by the number of opportunities that have recently developed in the privatized corrections and detention industry. We believe growth in the market for our services will benefit from the following factors:
      Continued Growth of the U.S. Prison Inmate Population. The number of inmates in the prison and jail system in the United States has grown at an annual average growth rate of 3.4% percent since 1995. The total number of U.S. inmates in custody in federal and state prisons and local jails is currently estimated at approximately 2.2 million. This sustained period of growth has been driven by a number of factors including higher incarceration rates and growth in the 14 to 24-year old population that is typically at the highest risk with regard to potential incarceration.
      Illegal Immigration and Homeland Security Reform. Since the events of 9/11, ongoing efforts by the United States Department of Homeland Security to secure the nation’s borders and capture and detain illegal aliens have increased demand for cost efficient detention beds. President Bush’s proposed 2007 budget requests funding for 6,700 new immigration detention beds for the Bureau of Immigration and Customs Enforcement, and 9,500 new detainee beds for the United States Marshals Service.
      Greater Federal Government Acceptance of Privatized Correctional Facilities. The number of federal prisoners being held in private facilities has increased from 15,524 at year-end 2000 to 26,544 at midyear 2005, representing a compound annual growth rate of over 12%. Of the 39,068 new federal prison beds that were added over that same period, we estimate that 28% were awarded to the private sector.
      Capacity Constraints of Public Correctional Systems. State and federal correctional systems are experiencing overcrowding conditions and tight budget constraints. At the end of 2004, 24 state prison systems and the federal prison system were operating at or above designed detention capacity. The federal prison system, which includes the Bureau of Prisons, the United States Marshals Service, the Department of Homeland Security and the Bureau of Immigration and Customs Enforcement, operated at 140% of design capacity at year-end 2004. As a result, federal and state jurisdictions throughout the United States are increasingly exploring partnerships with private service providers as a cost effective alternative to the growth of their public payrolls.
      Aging State and Federal Correctional Facilities. Approximately 50% of adult prisons currently in operation in the United States are more than 30 years old and 25% to 30% of the facilities are more than 60 years old. It is likely that significant capital expenditures will be required in order to refurbish or replace outdated facilities. We believe that budget constraints will encourage prison agencies to explore outsourcing to private operations as an alternative to capital intensive projects such as prison construction.
      Cost and Quality Advantages of Private Prisons. According to several government and university studies, private prison facilities operate at a lower cost than public sector facilities. More than 50% of private facilities are accredited by the American Corrections Association, referred to as ACA, versus a lower percentage of public prisons. The ACA’s standards impose strict requirements with regard to accountability, response time, level of quality, safety records and general programs and services.

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      Growth of Privatization in International Markets. We estimate that the capacity of privately managed adult secure institutional facilities in operation worldwide increased from approximately 60,000 beds at year end 1995 to approximately 179,000 beds at year-end 2005. The United Kingdom, Australia and South Africa have growing prison markets. The United Kingdom is the largest non-U.S. market for private prisons and through its Private Finance Initiative indicated its intentions to increase its reliance on private correctional facilities to accommodate future inmate growth.
Corporate Information
      Our principal executive offices are located at One Park Place, Suite 700, 621 Northwest 53rd Street Boca Raton, Florida 33487, and our telephone number at that address is (561) 893-0101. Our website is located at www.thegeogroupinc.com. The information on our website is not part of this prospectus supplement unless such information is specifically incorporated herein.
Forward-Looking Statements
      In addition to historical information, this prospectus supplement and the accompanying prospectus and the documents incorporated or deemed to be incorporated by reference herein or therein contain certain statements that constitute “forward-looking statements” within this meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. See “Special Note Regarding Forward-Looking Statements and Market Data” beginning on page S-ii of this prospectus supplement.

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The Offering
      Unless otherwise indicated, all of the information in this prospectus supplement assumes no exercise of the underwriters’ option to purchase additional shares of common stock as described below.
Common stock offered 3,000,000 shares
 
Common stock to be outstanding after the offering(1) 12,814,853 shares
 
Underwriters’ option We have granted the underwriters a 30-day option to purchase from us up to an aggregate of 450,000 additional shares of our common stock if they sell more than 3,000,000 shares in the offering.
 
Use of proceeds(2)(3) We estimate that we will receive net proceeds from this offering of approximately $110 million. We will retain broad discretion over the use of the net proceeds from this offering. We intend to use the net proceeds from this offering to repay $74.6 million of existing indebtedness outstanding under the term loan portion of our Senior Credit Facility and the balance for general corporate purposes.
 
General corporate purposes may include working capital and capital expenditures, as well as acquisitions of companies or businesses in the government services sector that meet our criteria for growth and profitability. We may also use proceeds from this offering to invest in proprietary assets relating to our business, including the development of new facilities, the expansion of current facilities and/or the acquisition of facilities or facility management contracts. In addition, we may use up to $5.0 million of the proceeds from this offering to purchase from certain of our executive officers and employees stock options that are currently outstanding and exercisable. Such purchases would be made at prices not exceeding the in-the-money value of the options, which is equal to the amount by which the market price per share of our common stock at the time of the purchases exceeds the exercise price per share of the options, multiplied by the number of options being purchased. Pending application of the net proceeds for these purposes, we intend to invest the net proceeds in interest-bearing short-term investment grade securities.
 
New York Stock Exchange symbol GGI
 
Risk factors An investment in our common stock involves a high degree of risk. You should carefully consider the risk factors set forth under “Risk Factors” beginning on page S-13 and the other information contained in this prospectus supplement prior to making an investment decision regarding our common stock.
 
(1)  The number of shares of common stock to be outstanding after this offering is based on the number of shares of common stock outstanding as of May 22, 2006 and does not include:
  •  1,265,947 shares of common stock reserved and available for issuance pursuant to stock options outstanding under our stock plans as of May 22, 2006 at a weighted average exercise price of $15.02 per share;

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  •  150,000 shares of common stock issued under restricted stock awards granted pursuant to our stock plans on May 4, 2006, which are scheduled to vest in equal annual increments over the four-year period following the date of grant; and
 
  •  150,000 shares of common stock reserved and available for issuance as of May 22, 2006 under our stock plans.
(2)  We estimate that we will receive approximately $126 million in net proceeds from this offering if the underwriters exercise their option to purchase additional shares in full, in each case assuming a public offering price of $39.11 per share (the last reported sale price of our common stock on the New York Stock Exchange on May 24, 2006) and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
 
(3)  We plan to write-off approximately $1.3 million in deferred financing fees associated with the origination of the term loan in connection with the repayment of indebtedness under the Senior Credit Facility.

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Summary Selected Consolidated Financial Information and Other Data
      The following table sets forth our summary historical consolidated financial information and other data. The historical statement of operations and cash flow data for the thirteen weeks ended April 2, 2006 and April 3, 2005 and for the fiscal years ended January 1, 2006, January 2, 2005 and December 28, 2003 are derived from, and should be read in conjunction with, our audited consolidated financial statements and related notes appearing elsewhere in this prospectus supplement. The results of operations for the interim period are not necessarily indicative of the operating results for the entire year or any future period.
      The information contained in this table should also be read in conjunction with “Use of Proceeds,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes thereto, all included elsewhere in this prospectus supplement.
                                             
    Thirteen Weeks Ended   Fiscal Years
         
    Apr. 2, 2006   Apr. 3, 2005   2005   2004   2003
                     
    (Unaudited)            
    (Dollars in thousands)
Revenues(1)
                                       
 
Correction and detention facilities
  $ 169,876     $ 136,339     $ 572,109     $ 546,952     $ 519,246  
 
Other
    16,005       11,916       40,791       47,042       29,992  
                               
   
Total revenues
    185,881       148,255       612,900       593,994       549,238  
                               
Expenses
                                       
Operating expenses
    153,746       125,813       540,128       495,226       467,018  
Depreciation and amortization
    5,664       3,668       15,876       13,898       13,341  
General and administrative expenses(2)
    14,009       11,401       48,958       45,879       39,379  
                               
Total expenses
    173,419       140,882       604,962       555,003       519,738  
                               
Operating income
    12,462       7,373       7,938       38,991       29,500  
                               
Interest income
    2,216       2,330       9,154       9,568       6,853  
Interest expense
    (7,579 )     (5,454 )     (23,016 )     (22,138 )     (17,896 )
Write-off of deferred financing fees from extinguishment of debt
                (1,360 )     (317 )     (1,989 )
Gain on sale of U.K. joint venture
                            56,094  
                               
Total other income (expenses)
    (5,363 )     (3,124 )     (15,222 )     (12,887 )     43,062  
                               
Income (loss) before taxes, minority interest, earnings in affiliates and discontinued operations
    7,099       4,249       (7,284 )     26,104       72,562  
Income tax expense (benefit)
    2,693       1,723       (11,826 )     8,231       36,852  
Minority interest
    (9 )     (184 )     (742 )     (710 )     (645 )
Earnings in affiliates (net of income tax expense)
    277       49       2,079       0       1,310  
                               
Earnings from continuing operations
    4,674       2,391       5,879       17,163       36,375  
Income (loss) from discontinued operations, net of income tax
    (118 )     505       1,127       (348 )     3,644  
                               
Net income
  $ 4,556     $ 2,896     $ 7,006     $ 16,815     $ 40,019  
                               
Basic earnings (loss) per common share:
                                       
Weighted average basic common shares outstanding
    9,700       9,525       9,580       9,384       15,618  
Income from continuing operations
  $ 0.48     $ 0.25     $ 0.61     $ 1.83     $ 2.33  
Income (loss) from discontinued operations
    (0.01 )     0.05       0.12       (0.04 )     0.23  
                               
Net income per basic share
  $ 0.47     $ 0.30     $ 0.73     $ 1.79     $ 2.56  
                               
Diluted earnings (loss) per common share:
                                       
Weighted average diluted common shares outstanding
    10,034       10,002       10,010       9,738       15,829  
Diluted income per share -continued operations
  $ 0.46     $ 0.24     $ 0.59     $ 1.77     $ 2.30  
Diluted income (loss) per share
    (0.01 )     0.05       0.11       (0.04 )     0.23  
                               
Net income per diluted share
  $ 0.45     $ 0.29     $ 0.70     $ 1.73     $ 2.53  
                               

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    Thirteen Weeks Ended   Fiscal Years
         
    Apr. 2, 2006   Apr. 3, 2005   2005   2004   2003
                     
    (Unaudited)            
    (Dollars in thousands)
Segment information:
                                       
Operating income
                                       
 
Correction and detention facilities
  $ 11,353     $ 7,276     $ 7,646     $ 38,092     $ 27,952  
 
Other
    1,109       97       292       899       1,548  
                               
   
Total operating income
  $ 12,462     $ 7,373     $ 7,938     $ 38,991     $ 29,500  
                               
Depreciation and amortization
                                       
 
Correction and detention facilities
  $ 5,564     $ 3,600     $ 15,617     $ 13,672     $ 13,237  
 
Other
    100       68       259       226       104  
                               
   
Total depreciation and amortization
  $ 5,664     $ 3,668     $ 15,876     $ 13,898     $ 13,341  
                               
Other financial information:
                                       
EBITDA(3)(4)
    18,294       11,395       22,902       51,514       101,889  
Capital expenditures
    7,432       1,841       31,465       10,235       6,791  
Lease rental expense(5)
    6,048       5,832       23,658       23,024       22,540  
Balance sheet data:
                                       
Cash and cash equivalents
    56,169       102,135       57,094       92,005       49,959  
Current assets
    236,398       215,948       229,292       222,766       191,811  
Total assets
    653,979       469,673       639,511       480,326       505,341  
Current liabilities
    149,418       106,571       136,519       117,478       118,854  
Total debt
    373,898       240,218       376,046       242,887       288,951  
Total liabilities
    538,530       366,929       530,917       380,587       428,016  
Shareholders’ equity
    115,449       102,744       108,594       99,739       77,325  
Operational data:
                                       
Facilities in operation(6)
    55       39       55       39       40  
Design capacity of facilities(7)
    48,661       36,581       48,370       35,981       36,014  
Compensated resident mandays(8)
    3,793,590       3,125,505       12,607,525       12,458,102       11,389,821  
 
(1)  On November 4, 2005, we completed the acquisition of Correctional Services Corporation, a Florida-based provider of privatized jail, community corrections and alternative sentencing services for approximately $62.1 million in cash. Immediately following the purchase of CSC, we sold Youth Services International, Inc., or YSI, the former juvenile services division of CSC, for $3.75 million, $1.75 million in cash and $2.0 million in promissory note with an annual interest rate of 6%. The financial information included in the tables for fiscal year 2005 reflects the operations of CSC from November 4, 2005 through January 1, 2006. The following unaudited pro forma financial information combines our results of operations with the results of operations of CSC as if the acquisition of CSC had occurred on December 29, 2003, excluding the operations of YSI for the same period:
                 
    Fiscal Years
     
    2005   2004
         
Revenues
  $ 692,545     $ 670,563  
Income from continuing operations
  $ 5,719     $ 21,662  
Net income
  $ 4,402     $ 9,571  
Net income per share — basic
  $ 0.46     $ 1.02  
Net income per share — diluted
  $ 0.44     $ 0.98  
(2)  Includes non-cash stock compensation expense of $0.2 million for the thirteen weeks ended April 2, 2006 related to the implementation of Financial Accounting Standards (“FAS”) No. 123(R). See Note 3 — “Equity Incentive Plans” in the Unaudited Financial Statements for the thirteen weeks ended April 12, 2006 and April 3, 2005, and Note 1 — “Summary of Business Operations and Significant Accounting Policies — Accounting for Stock Based Compensation” in the Audited Financial Statements for the fiscal years ended January 1, 2006, January 2, 2005 and December 28, 2003 for further discussion.
 
(3)  We define EBITDA as earnings before deducting interest, income taxes, depreciation and amortization. We believe that EBITDA provides useful and relevant information to our investors because it is used by our management to evaluate the operating performance of our business and compare our operating performance with that of our competitors. Management also uses EBITDA for planning purposes,

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including the preparation of annual operating budgets, and to determine appropriate levels of operating and capital investments. We utilize EBITDA as a useful alternative to net income as an indicator of our operating performance. However, EBITDA is not a measure of financial performance under GAAP and should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP, such as net income. While we believe that some of the items excluded from EBITDA are not indicative of our core operating results, these items do impact our income statement, and management therefore utilizes EBITDA as an operating performance measure in conjunction with GAAP measures such as net income. Because EBITDA excludes some, but not all, items that affect net income, such as loss on extinguishment of debt, and may vary among companies, EBITDA mentioned above may not be comparable to similarly titled measures of other companies. The following table reconciles EBITDA to net income (loss), the most directly comparable GAAP measure.
                                           
    Thirteen Weeks Ended   Fiscal Years
         
    Apr. 2, 2006(2)   Apr. 3, 2005   2005   2004   2003
                     
    (Unaudited)            
    (Dollars in thousands)
Net income
  $ 4,556     $ 2,896     $ 7,006     $ 16,815     $ 40,019  
 
Interest expense, net
    5,363       3,124       13,862       12,570       11,043  
 
Income tax expense (benefit)(9)
    2,711       1,707       (13,842 )     8,231       37,486  
 
Depreciation and amortization
    5,664       3,668       15,876       13,898       13,341  
                               
EBITDA(3)(4)
  $ 18,294     $ 11,395     $ 22,902     $ 51,514     $ 101,889  
                               
  (4)  EBITDA includes the following items that, in management’s opinion, are not indicative of our core operating performance:
                                           
    Thirteen Weeks Ended   Fiscal Years
         
    Apr. 2, 2006   Apr. 3, 2005   2005   2004   2003
                     
    (Unaudited)            
    (Dollars in thousands)
Discontinued operations(10)
  $ 118     $ 505     $ (1,127 )   $ 348     $ (3,644 )
Australian insurance reserves(11)
                            3,600  
Gain on sale of UK joint venture(12)
                            (56,094 )
Insurance reduction(13)
                (1,300 )     (4,150 )      
Jena, Louisiana write-offs(14)
                4,255       3,000       5,000  
Job reclassification expenses(15)
                400              
Michigan correctional facility write-off(16)
                20,859              
Queens, New York contract transitioning(17)
                786              
Start-up expenses at certain domestic facilities(18)
    340             977              
Write-off of acquisition costs(19)
                      1,306        
Write-off of deferred financing fees(20)
                1,360       317       1,989  
                               
 
Total
  $ 458     $ 505     $ 26,210     $ 821     $ (49,149 )
                               
  (5)  Lease rental expense consists of rental expense under our facility leases that are non-cancellable in the event of the termination of the corresponding facility management contract.
 
  (6)  Facilities in operation consists of facilities that we currently operate pursuant to a facility management contract which currently have an inmate/resident population.
 
  (7)  Design capacity of facilities consists of the total maximum number of beds for each facility as determined by the architectural design of the facility, and includes facilities under management and facilities for which we have received contract awards but which have not yet opened.

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  (8)  Compensated resident mandays are calculated as follows: for per diem rate facilities, the number of beds occupied by residents on a daily basis during the period; and for fixed rate facilities, the design capacity of the facility multiplied by the number of days the facility was in operation during the period.
 
  (9)  Income tax expense (benefit) includes a one-time tax benefit of $2.1 million taken in 2005 as a result of a change in South African tax law, which is reflected on our income statement in equity in earnings of affiliates, net of income tax provision (benefit).
(10)  Discontinued operations consist, for all periods presented, of the result of operations of (i) our former contract to manage Australia’s immigration centers, which was terminated in 2003, (ii) our former contract to manage the Auckland Central Remand Prison in New Zealand, which was terminated in 2005, and (iii) our former 72-bed private mental health hospital, Atlantic Shores Hospital, which we sold in January 2006.
 
(11)  This reserve was taken as a provision for operating losses resulting from liability insurance expenses associated with the transitioning of our former contract to manage Australia’s immigration centers in 2003.
 
(12)  This gain was recorded when we sold our 50% interest in our former joint venture in the United Kingdom in 2003.
 
(13)  This reduction in insurance reserves is attributable to improved claims experience under our general liability and workers’ compensation insurance program, which resulted in revised actuarial loss projections in 2004 and 2005.
 
(14)  These write-offs were taken to cover operating losses relating to lease expense associated with our inactive facility in Jena, Louisiana in 2003, 2004 and 2005.
 
(15)  These costs were incurred in connection with the reclassification of certain employees from salaried status into hourly status in 2005.
 
(16)  This write-off is an impairment charge taken as a result of the closure of our Michigan Youth Correctional Facility in October 2005.
 
(17)  These costs were incurred in 2005 in connection with the transitioning of our facility in Queens, New York for use by the United States Marshals Service.
 
(18)  These costs relate to start-up activity at several U.S. facilities in 2005.
 
(19)  This write-off was taken in 2004 when we determined that the potential acquisitions with respect to which we had incurred the deferred acquisition costs were no longer probable.
 
(20)  These write-offs were attributable to the refinancing of our Senior Credit Facility in 2003 and 2005, and the early repayment of $43.0 million of the term loan portion of our credit facility in 2004.

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RISK FACTORS
      Investing in our common stock involves risks. You should carefully consider the risks described below, as well as the other information included in this prospectus supplement, the accompanying prospectus and the documents incorporated and deemed to be incorporated by reference in this prospectus supplement and the accompanying prospectus, before you decide to invest in our common stock. The risks described below replace and supersede the risks described in the accompanying prospectus under the heading “Risk Factors” in their entirety. The risks and uncertainties described below are not the only ones we face.
Risks Related to Our Business and Industry
We are subject to the termination or non-renewal of our government contracts, which could adversely affect our results of operations and liquidity, and 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. Excluding the impact of customer renewal options, as of May 19, 2006, five of our facility management contracts are scheduled to expire on or before December 31, 2006. These contracts represented 12.5% of our consolidated revenues for the year ended January 1, 2006. Some or all of these contracts may not be renewed by the corresponding governmental agency. See “Business — Facilities.” 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, and our ability to secure new facility management contracts from other government customers.
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 CentraCore 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 an average remaining initial term of 4.0 years. Our 2006 expected obligation for lease payments under the eleven CPV leases is approximately $25.8 million and our expected aggregate obligations after 2006 are approximately $114.4 million. The facility management contracts underlying these leases generally have a term ranging from one to five years, but 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. 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.
      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 with CPV through January 2010. During the third quarter 2005, we determined that the alternative uses being pursued were no longer probable and as a result we revised our estimated sublease income and recorded an operating charge of $4.3 million, representing our remaining obligation on the lease through the contractual term of January 2010. However, we plan to continue our efforts to reactivate the facility. The Jena facility is the only lease with CPV for which we had no corresponding management contract to operate as of January 1, 2006.

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      The restructuring of our relationship with CPV may have material adverse consequences.
      We recently announced our intention to restructure our relationship with CPV, from whom we lease eleven of our correctional and detention facilities, in an effort to reduce our cost of capital for those facilities. At the same time, we announced several key decisions that we have made with respect to our relationship with CPV. For a detailed discussion of those decisions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Outlook — Relationship with CPV.”
      The restructuring of our relationship poses several risks. First, with respect to seven of our leases with CPV which are scheduled to expire in April 2008, referred to as the Expiring Leases, we are in the process of conducting a comprehensive review of the possibility of developing replacement facilities in close proximity to the facilities covered by the Expiring Leases as a potential alternative to exercising our exclusive option to renew the Expiring Leases. We may not be able to successfully develop replacement facilities acceptable to our government customers in sites proximate to those covered by the Expiring Leases. If we do not develop replacement facilities, we may be forced to renew some or all of the Expiring Leases, potentially on terms less favorable to us than currently apply, which could have a dilutive impact on our earnings. Even if we are able to successfully develop replacement facilities, we cannot assure that such development will be completed prior to the expiration of the Expiring Leases, or at a cost of capital that is lower than that which CPV currently provides us. Further, if we opt not to renew some or all of the Expiring Leases, CPV may lease the facilities we vacate to our competitors or directly to some of our government customers, which may cause us to either lose some of our facility management contracts or to reduce our margins in order to retain contracts.
      With respect to the Right to Purchase Agreement between us and CPV, CPV has claimed that the agreement gives it the right to acquire certain of the facilities now under our management as a result of the CSC acquisition. We do not believe that the Right to Purchase Agreement gives CPV the right to acquire any of the facilities involved in the CSC acquisition and intend to vigorously defend our rights with respect to those facilities. Nevertheless, in the event that CPV were to successfully establish a claim to those facilities, or to any other facilities that we may operate in the future, we may be forced to sell and lease back such facilities from CPV. Any such leasebacks could be completed at rates that are higher than those which we currently pay to use the same facilities. Any future sale/leaseback transactions with CPV at higher than then prevailing market rates or our then current costs could have a material adverse impact on financial condition and our results of operations. The restructuring of our relationship with CPV could also have unintended consequences, including causing litigation between us and CPV, which could be costly and have a negative impact on our stock price.
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.

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We may not be able to secure financing and land 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 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. Of our 32 governmental customers, six customers accounted for over 50% of our consolidated revenues for the fiscal year ended January 1, 2006. In addition, the three federal governmental agencies with correctional and detention responsibilities, the Bureau of Prisons, the Bureau of Immigration and Customs Enforcement, which we refer to as ICE, and the Marshals Service, accounted for approximately 26.8% of our total consolidated revenues for the fiscal year ended January 1, 2006, with the Bureau of Prisons accounting for approximately 11.5% of our total consolidated revenues for such period, the Marshals Service accounting for approximately 9.8% of our total consolidated revenues for such period, and ICE accounting for approximately 5.5% of our total consolidated revenues for such period. The loss of, or a significant decrease in, business from the Bureau of Prisons, ICE or the U.S. Marshals Service or any other significant customers could materially adversely affect our financial condition and results of operations. 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 is 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

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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 our 81/4 % senior unsecured notes due 2013, which we refer to as the Notes, and our senior credit facility, which we refer to as the Senior Credit Facility, in a timely manner. The Governor of the State of Michigan’s veto in October 2005 of appropriations for our Michigan Correctional Facility in October 2005 is an example of this risk. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Commitments and Contingencies”. 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 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

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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 applicable 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 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.

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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 after October 1, 2002, we maintain a general liability policy for all U.S. operations with $52.0 million per occurrence and in the aggregate. On October 1, 2004, we increased our deductible on this general liability policy from $1.0 million to $3.0 million for each claim which occurs after October 1, 2004. We also maintain insurance to cover property and casualty risks, workers’ compensation, medical malpractice and automobile liability. Our Australian subsidiary is required to carry tail insurance through 2011 related to a discontinued contract. We also carry various types of insurance with respect to our operations in South Africa and Australia. There can be no assurance that our insurance coverage will be adequate to cover claims to which we may be exposed.
      Since our insurance policies generally have high deductible amounts (including a $3.0 million per claim deductible under our general liability policy), 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. Our management uses judgments in assessing loss estimates that are based on actual claim amounts and loss development experience considering historical and industry experience. If actual losses related to insurance claims significantly differ from our estimates, our financial condition and results of operations could be materially adversely affected.
We may not be able to obtain or maintain the insurance levels required by our government contracts.
      Our government contracts require us to obtain and maintain specified insurance levels. The occurrence of any events specific to our company or to our industry, or a general rise in insurance rates, could substantially increase our costs of obtaining or maintaining the levels of insurance required under our government contracts, or prevent us from obtaining or maintaining such insurance altogether. If we are unable to obtain or maintain the required insurance levels, our ability to win new government contracts, renew government contracts that have expired and retain existing government contracts could be significantly impaired, which could have a material adverse affect on our business, financial condition and results of operations.
Our international operations expose us to risks which could materially adversely affect our financial condition and results of operations.
      For the fiscal year ended January 1, 2006 and the quarter ended April 2, 2006, our international operations accounted for approximately 16.1% and 12.4%, respectively, of our consolidated revenues. We face risks associated with our operations outside the U.S. These risks include, among others, political and economic instability, exchange rate fluctuations, taxes, duties and the laws or regulations in those foreign

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jurisdictions in which we operate. In the event that we experience any difficulties arising from our operations in foreign markets, our business, financial condition and results of operations may be materially adversely affected.
We conduct certain of our operations through joint ventures, which may lead to disagreements with our joint venture partners and adversely affect our interest in the joint ventures.
      We conduct substantially all of our operations in South Africa through joint ventures with third parties and may enter into additional joint ventures in the future. Our joint venture agreements generally provide that the joint venture partners will equally share voting control on all significant matters to come before the joint venture. Our joint venture partners may have interests that are different from ours which may result in conflicting views as to the conduct of the business of the joint venture. In the event that we have a disagreement with a joint venture partner as to the resolution of a particular issue to come before the joint venture, or as to the management or conduct of the business of the joint venture in general, we may not be able to resolve such disagreement in our favor and such disagreement could have a material adverse effect on our interest in the joint venture or the business of the joint venture in general.
We are dependent upon our senior management and our ability to attract and retain sufficient qualified personnel.
      We are dependent upon the continued service of each member of our senior management team, including George C. Zoley, our Chairman and Chief Executive Officer, Wayne H. Calabrese, our Vice Chairman and President, and John G. O’Rourke, our Chief Financial Officer. Under the terms of their retirement agreements, each of these executives is currently eligible to retire at any time from GEO and receive significant lump sum retirement payments. The unexpected loss of any of these individuals could materially adversely affect our business, financial condition or results of operations. We do not maintain key-man life insurance to protect against the loss of any of these individuals.
      In addition, the services we provide are labor-intensive. When we are awarded a facility management contract or open a new facility, we must hire operating management, correctional officers and other personnel. The success of our business requires that we attract, develop and retain these personnel. Our inability to hire sufficient qualified personnel on a timely basis or the loss of significant numbers of personnel at existing facilities could have a material effect on our business, financial condition or results of operations.
Our profitability may be materially adversely affected by inflation.
      Many of our facility management contracts provide for fixed management fees or fees that increase by only small amounts during their terms. While a substantial portion of our cost structure is generally fixed, if, due to inflation or other causes, our operating expenses, such as costs relating to personnel, utilities, insurance, medical and food, increase at rates faster than increases, if any, in our facility management fees, then our profitability could be materially adversely affected.
Various risks associated with the ownership of real estate may increase costs, expose us to uninsured losses and adversely affect our financial condition and results of operations.
      Our ownership of correctional and detention facilities subjects us to risks typically associated with investments in real estate. Investments in real estate, and in particular, correctional and detention facilities, are relatively illiquid and, therefore, our ability to divest ourselves of one or more of our facilities promptly in response to changed conditions is limited. Investments in correctional and detention facilities, in particular, subject us to risks involving potential exposure to environmental liability and uninsured loss. Our operating costs may be affected by the obligation to pay for the cost of complying with existing environmental laws, ordinances and regulations, as well as the cost of complying with future legislation. In addition, although we maintain insurance for many types of losses, there are certain types of losses, such as losses from earthquakes, riots and acts of terrorism, which may be either uninsurable or for which it may not be

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economically feasible to obtain insurance coverage, in light of the substantial costs associated with such insurance. As a result, we could lose both our capital invested in, and anticipated profits from, one or more of the facilities we own. Further, even if we have insurance for a particular loss, we may experience losses that may exceed the limits of our coverage.
Risks related to facility construction and development activities may increase our costs related to such activities.
      When we are engaged to perform construction and design services for a facility, we typically act as the primary contractor and subcontract with other companies who act as the general contractors. As primary contractor, we are subject to the various risks associated with construction (including, without limitation, shortages of labor and materials, work stoppages, labor disputes and weather interference) which could cause construction delays. In addition, we are subject to the risk that the general contractor will be unable to complete construction at the budgeted costs or be unable to fund any excess construction costs, even though we typically require general contractors to post construction bonds and insurance. Under such contracts, we are ultimately liable for all late delivery penalties and cost overruns.
The rising cost and increasing difficulty of obtaining adequate levels of surety credit on favorable terms could adversely affect our operating results.
      We are often required to post performance bonds issued by a surety company as a condition to bidding on or being awarded a facility development contract. Availability and pricing of these surety commitments is subject to general market and industry conditions, among other factors. Recent events in the economy have caused the surety market to become unsettled, causing many reinsurers and sureties to reevaluate their commitment levels and required returns. As a result, surety bond premiums generally are increasing. If we are unable to effectively pass along the higher surety costs to our customers, any increase in surety costs could adversely affect our operating results. In addition, we may not continue to have access to surety credit or be able to secure bonds economically, without additional collateral, or at the levels required for any potential facility development or contract bids. If we are unable to obtain adequate levels of surety credit on favorable terms, we would have to rely upon letters of credit under our Senior Credit Facility, which would entail higher costs even if such borrowing capacity was available when desired, and our ability to bid for or obtain new contracts could be impaired.
We may not be able to successfully identify, consummate or integrate acquisitions.
      We have an active acquisition program, the objective of which is to identify suitable acquisition targets that will enhance our growth. The pursuit of acquisitions may pose certain risks to us. We may not be able to identify acquisition candidates that fit our criteria for growth and profitability. Even if we are able to identify such candidates, we may not be able to acquire them on terms satisfactory to us. We will incur expenses and dedicate attention and resources associated with the review of acquisition opportunities, whether or not we consummate such acquisitions. Additionally, even if we are able to acquire suitable targets on agreeable terms, we may not be able to successfully integrate their operations with ours. We may also assume liabilities in connection with acquisitions that we would otherwise not be exposed to.
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. Assuming the repayment of $74.6 million of existing indebtedness outstanding under the term loan portion of our Senior Credit Facility with the proceeds from this offering, our total consolidated long-term indebtedness immediately following this offering will be $144.4 million, excluding non recourse debt of $136.9 million. In addition, as of April 2, 2006, we had $46.5 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

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$53.5 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 April 2, 2006, we had the ability to borrow an additional $53.5 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. We are conducting this offering pursuant to our universal shelf registration statement. As a result, assuming gross proceeds from this offering of approximately $117 million, based on an assumed public offering price of $39.11 per share (which was the last reported sale price of our common stock on the New York Stock Exchange on May 24, 2006), we will have the ability to issue up to approximately $83 million in additional securities under the shelf registration statement, including debt securities. Any debt securities issued pursuant to the universal shelf registration statement 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, repurchase, redeem or retire our capital stock, prepay subordinated indebtedness, 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

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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.
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. Assuming the repayment of $74.6 million of existing indebtedness outstanding under the term loan portion of our Senior Credit Facility with the proceeds from this offering, our estimated total annual interest expense based on borrowings outstanding immediately following this offering will be approximately $23.7 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

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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 January 1, 2006 and the quarter ended April 2, 2006, our subsidiaries accounted for 24.4% and 35.4%, respectively, of our consolidated revenues, and, as of January 1, 2006 and the quarter ended April 2, 2006, our subsidiaries accounted for 56.4% and 55.5%, respectively, of our consolidated total assets.
Risks Related to our Common Stock
      Fluctuations in the stock market as well as general economic, market and industry conditions may harm the market price of our common stock.
      The market price of our common stock has been subject to significant fluctuation. The market price of our common stock may continue to be subject to significant fluctuations in response to operating results and other factors, including:
  •  actual or anticipated quarterly fluctuations in our financial results, particularly if they differ from investors’ expectations;
 
  •  changes in financial estimates and recommendations by securities analysts;
 
  •  general economic, market and political conditions, including war or acts of terrorism, not related to our business;
 
  •  actions of our competitors and changes in the market valuations, strategy and capability of our competitors;
 
  •  our ability to successfully integrate acquisitions and consolidations; and
 
  •  changes in the prospects of the privatized corrections and detention industry.
      In addition, the stock market in recent years has experienced price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These fluctuations, may harm the market price of our common stock, regardless of our operating results.
      Future sales of our common stock in the public market could adversely affect the trading price of our common stock that we may issue and our ability to raise funds in new securities offerings.
      Future sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities. As of May 22, 2006, we had:
  •  9,814,853 shares of common stock outstanding;
 
  •  1,265,947 shares of common stock reserved and available for issuance pursuant to stock options outstanding under our stock plans as of May 22, 2006 at a weighted average exercise price of $15.02 per share;
 
  •  150,000 shares of common stock issued under restricted stock awards granted pursuant to our stock plans on May 4, 2006, which are scheduled to vest in equal annual increments over the four-year period following the date of grant; and
 
  •  150,000 additional shares of common stock reserved and available for issuance as of May 22, 2006, under our stock plans.

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      Assuming the issuance of 3,000,000 shares in this offering, we will have 12,814,853 shares of common stock outstanding. All shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended. In addition, in connection with our acquisition strategy, we may issue shares of our common stock as consideration in other acquisition transactions. We cannot predict the effect, if any, that future sales of shares of common stock or the availability of shares of common stock for future sale will have on the trading price of our common stock.
Various anti-takeover protections applicable to us may make an acquisition of us more difficult and reduce the market value of our common stock.
      We are a Florida corporation and the anti-takeover provisions of Florida law impose various impediments to the ability of a third party to acquire control of our company, even if a change of control would be beneficial to our shareholders. In addition, provisions of our articles of incorporation may make an acquisition of us more difficult. Our articles of incorporation authorize the issuance by our board of directors of “blank check” preferred stock without shareholder approval. Such shares of preferred stock could be given voting rights, dividend rights, liquidation rights or other similar rights superior to those of our common stock, making a takeover of us more difficult and expensive. We also have adopted a shareholder rights plan, commonly known as a “poison pill,” which could result in the significant dilution of the proportionate ownership of any person that engages in an unsolicited attempt to take over our company and, accordingly, could discourage potential acquirors. In addition to discouraging takeovers, the anti-takeover provisions of Florida law and our articles of incorporation, as well as our shareholder rights plan, may have the impact of reducing the market value of our common stock.
      Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on our business and the trading price of our common stock.
      If we fail to maintain the adequacy of our internal controls, in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Failure to achieve and maintain effective internal controls could have an adverse effect on the price of our common stock.
      We may issue additional debt securities that could limit our operating flexibility and negatively affect the value of our common stock.
      In the future, we may issue additional debt securities which may be governed by an indenture or other instrument containing covenants that could place restrictions on the operation of our business and the execution of our business strategy in addition to the restrictions on our business already contained in the agreements governing our existing debt. In addition, we may choose to issue debt that is convertible or exchangeable for other securities, including our common stock, or that has rights, preferences and privileges senior to our common stock. Because any decision to issue debt securities will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future debt financings and we may be required to accept unfavorable terms for any such financings. Accordingly, any future issuance of debt could dilute the interest of holders of our common stock and reduce the value of our common stock.
      Management will have broad discretion as to the use of the proceeds from this offering.
      Our management will have broad discretion as to the application of the net proceeds and could use them for purposes other than those contemplated at the time of this offering. Currently, we intend to use the net proceeds from this offering to repay existing indebtedness outstanding under our Senior Credit Facility and for general corporate purposes. However, our management will have the ability to change the application of the proceeds of this offering at any time without shareholder approval. Our shareholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds. Moreover, our

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management may use the net proceeds for corporate purposes that may not increase our profitability or market value.
      Because we do not intend to pay dividends, shareholders will benefit from an investment in our common stock only if it appreciates in value.
      We currently intend to retain our future earnings, if any, to finance the further expansion and continued growth of our business and do not expect to pay any cash dividends in the foreseeable future. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which shareholders have purchased their shares.
      New investors in our common stock will experience immediate and substantial dilution.
      The offering price to the public is substantially higher than the net tangible book value per share of our common stock. Investors purchasing common stock in this offering will, therefore, incur immediate dilution of $26.47 in net tangible book value per share of common stock, at a public offering price of $39.11 per share.

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USE OF PROCEEDS
      We estimate that we will receive net proceeds from this offering of approximately $110 million, or approximately $126 million if the underwriters exercise their option to purchase additional shares in full, in each case assuming a public offering price of $39.11 per share (the last reported sale price of our common stock on the New York Stock Exchange on May 24, 2006) and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. For each $0.05 change in the price at which our shares are actually purchased by the underwriters, the net proceeds to us will increase (or decrease) by $150,000. We will retain broad discretion over the use of the net proceeds from this offering. We intend to use the net proceeds from this offering to repay $74.6 million of existing indebtedness outstanding under the term loan portion of our Senior Credit Facility and the balance for general corporate purposes.
      General corporate purposes may include working capital and capital expenditures, as well as acquisitions of companies or businesses in the government-outsourced services sector that meet our criteria for growth and profitability. We may also use proceeds from this offering to invest in proprietary assets relating to our business, including the development of new facilities, the expansion of current facilities and/or the acquisition of facilities or facility management contracts. In addition, we may use up to $5.0 million of the proceeds from this offering to purchase from certain of our executive officers and employees stock options that are currently outstanding and exercisable. Such purchases would be made at prices not exceeding the in-the-money value of the options, which is equal to the amount by which the market price per share of our common stock at the time of the purchases exceeds the exercise price per share of the options, multiplied by the number of options being purchased. Pending application of the net proceeds for these purposes, we intend to invest the net proceeds in interest-bearing short-term investment grade securities.

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CAPITALIZATION
      The following table sets forth our capitalization as of April 2, 2006:
  •  on an actual basis, and
 
  •  on a pro forma basis to give effect to (i) the sale of 3,000,000 shares of our common stock in this offering and our receipt of approximately $110 million of net proceeds, based on an assumed public offering price of $39.11 per share (which was the last reported sale price of our common stock on the New York Stock Exchange on May 24, 2006) and after deducting underwriting discounts and commissions and estimated expenses of this offering payable by us (ii) the assumed application of $74.6 million of the proceeds of this offering to repay $74.6 million of existing indebtedness outstanding under the term loan portion of our Senior Credit Facility, and (iii) the use of $5.0 million of the proceeds from this offering to purchase from certain of our executive officers and employees stock options that are currently outstanding and exercisable.
                   
    April 2, 2006(1)
     
        As adjusted for
    Actual   this offering
         
    (unaudited)   (unaudited)
    (in thousands, except per share
    data)
Cash and cash equivalents
  $ 56,169     $ 86,214  
             
Long-term debt
               
 
Senior Term Loan(2)
    74,625        
 
Senior Unsecured 81/4 % Notes
    150,000       150,000  
 
Discount on Senior Unsecured 81/4 % Notes
    (3,649 )     (3,649 )
 
Interest Rate Swap on Senior Unsecured 81/4 % Notes
    (2,234 )     (2,234 )
 
Other
    301       301  
             
      219,043       144,418  
Capital Lease Obligations
    17,951       17,951  
Non Recourse Debt
    136,904       136,904  
             
Total Long-term obligations
  $ 373,898     $ 299,273  
             
Stockholders’ equity:
               
 
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued or outstanding
           
 
Common stock, $0.01 par value, 30,000,000 shares authorized, 21,723,653 shares issued and 9,723,653 outstanding, and 21,723,653 shares issued and 12,723,653 outstanding as adjusted
    97       127  
 
Additional paid-in capital
    71,635       143,305  
 
Retained earnings
    176,221       176,221  
 
Accumulated other comprehensive loss
    (624 )     (624 )
 
Treasury stock, 12,000,000 shares and 9,000,000 shares(3)
    (131,880 )     (98,910 )
             
Total stockholders’ equity
    115,449       220,119  
             
Total capitalization
  $ 489,347     $ 519,392  
             
 
(1)  You should read this table in conjunction with the financial statements incorporated by reference in this prospectus supplement and the related notes thereto, the pro forma financial data included in this prospectus supplement and the related notes thereto and the section of this prospectus supplement entitled “Use of Proceeds.”
 
(2)  We plan to write-off approximately $1.3 million in deferred financing fees associated with the origination of the term loan in connection with the repayment of indebtedness under the Senior Credit Facility.
 
(3)  We intend to issue the shares in this offering from treasury stock.

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COMMON STOCK PRICE RANGE AND DIVIDEND POLICY
      Our common stock is quoted on the New York Stock Exchange under the ticker symbol “GGI.” The following table sets forth, for the periods indicated, the high and low closing sale prices per share of our common stock as reported on the New York Stock Exchange.
                 
    High   Low
         
2006
               
First Quarter ended April 2, 2006
  $ 33.34     $ 22.11  
2005
               
First Quarter
    32.20       25.60  
Second Quarter
    28.73       23.03  
Third Quarter
    28.95       25.15  
Fourth Quarter
    25.60       20.72  
2004
               
First Quarter
    24.23       19.80  
Second Quarter
    24.62       18.70  
Third Quarter
    21.00       17.33  
Fourth Quarter
    26.58       19.56  
      On May 24, 2006, the last sale price of our common stock as reported on the New York Stock Exchange was $39.11 per share.
      We currently intend to retain all available cash to finance our operations and do not intend to declare or pay cash dividends on our shares of common stock in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our results of operations, financial condition, current and anticipated cash needs, contractual restrictions, restrictions imposed by applicable law and other factors that our board of directors deems relevant. In addition, the indenture governing our Notes and our Senior Credit Facility also place material restrictions on our ability to pay dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Cash Flow” for further description of these restrictions.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
      The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of numerous factors including, but not limited to, those described in “Risk Factors,” and “Special Note Regarding Forward-Looking Statements and Market and Statistical Data.” The discussion should be read in conjunction with the consolidated financial statements and notes thereto.
CSC Acquisition
      On November 4, 2005, we completed the acquisition of Correctional Services Corporation, or CSC, a Florida-based provider of privatized jail, community corrections and alternative sentencing services. The acquisition was completed through the merger of CSC into GEO Acquisition, Inc., a wholly owned subsidiary of GEO, referred to as the Merger. Under the terms of the Merger, we acquired 100% of the 10.2 million outstanding shares of CSC common stock for $6.00 per share, or approximately $62.1 million in cash. As a result of the Merger, we became responsible for supervising the operation of the 16 adult correctional and detention facilities, totaling 8,037 beds, formerly run by CSC. Immediately following the purchase of CSC, we sold Youth Services International, Inc., the former juvenile services division of CSC, for $3.75 million, $1.75 million of which was paid in cash and the remaining $2.0 million of which will be paid in the form of a promissory note accruing interest at a rate of 6% per annum. The financial information included in the discussion below for fiscal year 2005 reflects the operations of CSC from November 4, 2005 through January 1, 2006.
Discontinued Operations
      Through our Australian subsidiary, we previously had a contract with the Department of Immigration, Multicultural and Indigenous Affairs, or DIMIA, for the management and operation of Australia’s immigration centers. In 2003, the contract was not renewed, and effective February 29, 2004, we completed the transition of the contract and exited the management and operation of the DIMIA centers. The accompanying consolidated financial statements and notes reflect the operations of DIMIA as a discontinued operation in all periods presented.
      In early 2005, the New Zealand Parliament repealed the law that permitted private prison operation resulting in the termination of our contract for the management and operation of the Auckland Central Remand Prison or Auckland. We have operated this facility since July 2000. We ceased operating the facility upon the expiration of the contract on July 13, 2005. The accompanying consolidated financial statements and notes reflect the operations of Auckland as a discontinued operation.
      On January 1, 2006, the last day of our 2005 fiscal year, we completed the sale of a 72-bed private mental health hospital which we owned and operated since 1997 for approximately $11.5 million. We recognized a gain on the sale of this transaction of approximately $1.6 million. The accompanying consolidated financial statements and notes reflect the operations of the hospital and the related sale as a discontinued operation.
Share Purchase
      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, The Wackenhut Corporation, or TWC, and Tuhnekcaw, Inc., an indirect wholly-owned subsidiary of Group 4

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Falck. In connection with the share purchase, we internalized several functions previously outsourced to TWC, including payroll processing, human resources management, tax and information systems.
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 former United Kingdom joint venture which we refer to as PCG, to Serco for approximately $80.7 million, on a pretax basis.
Variable Interest Entities
      In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities,” which addressed consolidation by a business of variable interest entities in which it is the primary beneficiary. In December 2003, the FASB issued FIN No. 46R which replaced FIN No. 46. Our 50% owned South African joint venture in South African Custodial Services Pty. Limited, which we refer to as SACS, is a variable interest entity. We determined that we are not the primary beneficiary of SACS and as a result are not required to consolidate SACS under FIN 46R. We account for SACS as an equity affiliate. SACS was established in 2001, to design, finance and build the Kutama Sinthumule Correctional Center. Subsequently, SACS was awarded a 25 year contract to design, construct, manage and finance a facility in Louis Trichardt, South Africa. SACS, based on the terms of the contract with government, was able to obtain long term financing to build the prison. The financing is fully guaranteed by the government, except in the event of default, for which it provides an 80% guarantee. Separately, SACS entered into a long term operating contract with South African Custodial Management (Pty) Limited, which we refer to as SACM, to provide security and other management services and with SACS’s joint venture partner to provide purchasing, programs and maintenance services upon completion of the construction phase, which concluded in February 2002. Our maximum exposure for loss under this contract is $24.1 million, which represents our initial investment and the guarantees discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
      In February 2004, CSC was awarded a contract by the Department of Homeland Security, Immigration and Customs Enforcement, or ICE, to develop and operate a 1,020-bed detention complex in Frio County, Texas. South Texas Local Development Corporation, referred to as STLDC, a non profit corporation, was created and issued $49.5 million in taxable revenue bonds to finance the construction of the detention complex. Additionally, CSC provided a $5 million subordinated note to STLDC for initial development costs. We determined that we are the primary beneficiary of STLDC and consolidate the entity as a result. STLDC is the owner of the complex and entered into a development agreement with CSC to oversee the development of the complex. In addition, STLDC entered into an operating agreement providing CSC the sole and exclusive right to operate and manage the complex. The operating agreement and bond indenture require that the revenue from CSC’s contract with ICE be used to fund the periodic debt service requirements as they become due. The net revenues, if any, after various expenses such as trustee fees, property taxes and insurance premiums, are distributed to CSC to cover CSC’s operating expenses and management fee. CSC is responsible for the entire operations of the facility including all operating expenses and is required to pay all operating expenses whether or not there are sufficient revenues. STLDC has no liabilities resulting from its ownership. The bonds have a ten year term and are non-recourse to CSC and STLDC. The bonds are fully insured and the sole source of payment for the bonds is the operating revenues of the center.
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. Assuming gross proceeds from this offering of approximately $117 million (based on an assumed public offering price of $39.11 per share (which was the last reported sale price of our common stock on the New York Stock Exchange on May 24, 2006), we will have the ability to issue up to approximately $83 million in

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additional securities under the shelf registration statement. 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.
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 acquire our company. The rights are designed to protect the interests of our company and our shareholders against coercive acquisition tactics and encourage potential acquirers to negotiate with our board of directors before attempting an acquisition. The rights may, but are not intended to, deter acquisition proposals that may be in the interests of our shareholders.
Critical Accounting Policies
      We believe that the accounting policies described below are critical to understanding our business, results of operations and financial condition because they involve the more significant judgments and estimates used in the preparation of our consolidated financial statements. We have discussed the development, selection and application of our critical accounting policies with the audit committee of our board of directors, and our audit committee has reviewed our disclosure relating to our critical accounting policies in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
      Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We routinely evaluate our estimates based on historical experience and on various other assumptions that our management believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. If actual results significantly differ from our estimates, our financial condition and results of operations could be materially impacted.
      Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed below, are also critical to understanding our consolidated financial statements. The notes to our consolidated financial statements contain additional information related to our accounting policies and should be read in conjunction with this discussion.
Revenue Recognition
      We recognize revenue in accordance with Staff Accounting Bulletin, or SAB, No. 101, “Revenue Recognition in Financial Statements”, as amended by SAB No. 104, “Revenue Recognition”, and related interpretations. Facility management revenues are recognized as services are provided under facility management contracts with approved government appropriations based on a net rate per day per inmate or on a fixed monthly rate.
      Project development and design revenues are recognized as earned on a percentage of completion basis measured by the percentage of costs incurred to date as compared to estimated total cost for each contract.

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This method is used because we consider costs incurred to date to be the best available measure of progress on these contracts. Provisions for estimated losses on uncompleted contracts and changes to cost estimates are made in the period in which we determine that such losses and changes are probable. Typically, we enter into fixed price contracts and do not perform additional work unless approved change orders are in place. Costs attributable to unapproved change orders are expensed in the period in which the costs are incurred if we believe that it is not probable that the costs will be recovered through a change in the contract price. If we believe that it is probable that the costs will be recovered through a change in the contract price, costs related to unapproved change orders are expensed in the period in which they are incurred, and contract revenue is recognized to the extent of the cost incurred. Revenue in excess of the costs attributable to unapproved change orders is not recognized until the change order is approved. Contract costs include all direct material and labor costs and those indirect costs related to contract performance. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements, may result in revisions to estimated costs and income, and are recognized in the period in which the revisions are determined.
      We extend credit to the governmental agencies we contract with and other parties in the normal course of business as a result of billing and receiving payment for services thirty to sixty days in arrears. Further, we regularly review outstanding receivables, and provide estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, we make judgments regarding our customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. We also perform ongoing credit evaluations of our customers’ financial condition and generally do not require collateral. We maintain reserves for potential credit losses, and such losses traditionally have been within our expectations.
Reserves for Insurance Losses
      Claims for which we are insured arising from our U.S. operations that have an occurrence date of October 1, 2002 or earlier are handled by TWC and are fully insured up to an aggregate limit of between $25.0 million and $50.0 million, depending on the nature of the claim. With respect to claims for which we are insured arising after October 1, 2002, we maintain a general liability policy for all U.S. operations with $52.0 million per occurrence and in the aggregate. On October 1, 2004, we increased our deductible on this general liability policy from $1.0 million to $3.0 million for each claim which occurs after October 1, 2004. We also maintain insurance to cover property and casualty risks, workers’ compensation, medical malpractice and automobile liability. Our Australian subsidiary is required to carry tail insurance through 2011 related to a discontinued contract. We also carry various types of insurance with respect to our operations in South Africa and Australia. There can be no assurance that our insurance coverage will be adequate to cover claims to which we may be exposed.
      Since our insurance policies generally have high deductible amounts (including a $3.0 million per claim deductible under our general liability policy), 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. Our management uses judgments in assessing loss estimates based on actuarial studies, which include actual claim amounts and loss development considering historical and industry experience. If actual losses related to insurance claims significantly differ from our estimates, our financial condition and results of operations could be materially impacted.
Income Taxes
      We account for income taxes in accordance with Financial Accounting Standards, or FAS, No. 109, “Accounting for Income Taxes.” Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of FAS No. 109.

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      In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, and estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required.
      The provision for income taxes for the fiscal year 2005 reflects a benefit of $1.7 million in the second quarter of 2005 related to the American Jobs Creation Act of 2004, or the AJCA. A key provision of the AJCA creates a temporary incentive for U.S. corporations to repatriate undistributed income earned abroad by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations. Additionally, 2005 reflects a benefit of $6.5 million in the fourth quarter related to a step up in basis for an asset in Australia.
Property and Equipment
      As of April 2, 2006, we had approximately $287.1 million in long-lived property and equipment. Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Buildings and improvements are depreciated over 2 to 40 years. Equipment and furniture and fixtures are depreciated over 3 to 7 years. Accelerated methods of depreciation are generally used for income tax purposes. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. We perform ongoing evaluations of the estimated useful lives of our property and equipment for depreciation purposes. The estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset. Maintenance and repairs are expensed as incurred.
      We review long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable in accordance with FAS No. 144 “Accounting for the Impairment of Disposal of Long-Lived Assets”. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Management has reviewed our long-lived assets and determined that there are no events requiring impairment loss recognition for the period ended April 2, 2006, other than the Michigan Facility charge. See this “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Commitments and Contingencies.” Events that would trigger an impairment assessment include deterioration of profits for a business segment that has long-lived assets, or when other changes occur which might impair recovery of long-lived assets.
Idle Leased Facilities
      We have entered into ten year non cancelable operating leases with CentraCore Properties Trust, or CPV, for eleven facilities with initial terms that expire at various times beginning in April 2008 and extending through 2016. In the event that our facility management contract for any of these leased facilities is terminated, we would remain responsible for payments to CPV on the underlying lease. We will account for idle periods under any such lease in accordance with FAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities.” Specifically, we will review our estimate for sublease income and record a charge for the difference between the net present value of the sublease income and the lease expense over the remaining term of the lease.
Results of Operations
     Comparison of Thirteen Weeks Ended April 2, 2006 and Thirteen Weeks Ended April 3, 2005
      The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the notes to our unaudited consolidated financial statements included in this prospectus supplement.

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      As further discussed above, the discussion of our results of operations below excludes the results of our discontinued operations resulting from the termination of our management contract with DIMIA, Auckland, and Atlantic Shores Hospital for all periods presented.
                                                   
    2006   % of Revenue   2005   % of Revenue   $ Change   % Change
                         
    (Dollars in thousands)
Revenue
                                               
 
Correctional and Detention Facilities
  $ 169,876       91.4 %   $ 136,339       92.0 %   $ 33,537       24.6 %
 
Other
    16,005       8.6 %     11,916       8.0 %     4,089       34.3 %
                                     
Total
  $ 185,881       100.0 %   $ 148,255       100.0 %   $ 37,626       25.4 %
                                     
      The increase in revenues in the thirteen weeks ended April 2, 2006 (“First Quarter 2006”) compared to the thirteen weeks ended April 3, 2005 (“First Quarter 2005”) is primarily attributable to four items: (i) the acquisition in November 2005 of Correctional Services Corporation, referred to as CSC, increased revenues by $27.7 million; (ii) revenues increased approximately $2.7 million in First Quarter 2006 as a result of the New Castle Correctional Facility in New Castle, Indiana, which we began managing in January 2006; (iii) Australian and South African revenues decreased approximately $0.2 million each. The weakening of the Australian dollar and South African Rand resulted in a decrease of $1.1 million, while higher occupancy rates and contractual adjustments for inflation accounted for an increase of $0.7 million; and (iv) domestic revenues also increased due to contractual adjustments for inflation, and improved terms negotiated into a number of contracts.
      The number of compensated resident days in domestic facilities increased to 3.3 million in First Quarter 2006 from 2.6 million in First Quarter 2005. Compensated resident days in Australian and South African facilities during First Quarter 2006 remained consistent at 0.5 million for the comparable periods. We look at the average occupancy in our facilities to determine how we are managing our available beds. The average occupancy is calculated by taking compensated mandays as a percentage of capacity. The average occupancy in our domestic, Australian and South African facilities combined was 97.0% of capacity in First Quarter 2006 compared to 99.0% in First Quarter 2005, excluding our vacant Michigan and Jena facilities.
                                                   
    2006   % of Revenue   2005   % of Revenue   $ Change   % Change
                         
    (Dollars in thousands)
Operating Expenses
                                               
 
Correctional and Detention Facilities
  $ 138,925       74.7 %   $ 114,062       76.9 %   $ 24,863       21.8 %
 
Other
    14,821       8.0 %     11,751       7.9 %     3,070       26.1 %
                                     
Total
  $ 153,746       82.7 %   $ 125,813       84.9 %   $ 27,933       22.2 %
                                     
      Operating expenses consist of those expenses incurred in the operation and management of our correctional, detention, mental health and residential treatment facilities. The increase in operating expenses primarily reflects the acquisition of CSC in November 2005. There was also an increase in utilities expense, which was offset by a decrease in health insurance. Operating expenses remained at a consistent percentage of revenues in First Quarter 2006 compared to First Quarter 2005.
Other
      Other primarily consists of revenues and related operating expenses associated with our mental health, residential treatment and construction businesses. There was an increase of $7.0 million related to revenue from two new mental health facilities, the South Florida Evaluation & Treatment Center in Miami, Florida and the Fort Bayard Medical Center in Fort Bayard, New Mexico. The increase in 2006 is offset by approximately $2.9 million less construction revenue as compared to 2005. The construction revenue is

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related to our expansion of the South Bay Facility and the South Florida Evaluation & Treatment Center, two facilities that we manage. The expansion of South Bay was completed at the end of the second quarter of 2005, while the South Florida Evaluation & Treatment Center began in the fourth quarter of 2005.
Other Unallocated Operating Expenses
General and Administrative Expenses
                                                 
    2006   % of Revenue   2005   % of Revenue   $ Change   % Change
                         
    (Dollars in thousands)
General & Administrative Expenses
  $ 14,009       7.5 %   $ 11,401       7.7 %   $ 2,608       22.9 %
      General and administrative expenses consist primarily of corporate management salaries and benefits, professional fees and other administrative expenses. General and administrative expenses remained at a consistent percentage of revenues in First Quarter 2006 compared to First Quarter 2005. The increase in general and administrative costs relates to increases in direct labor costs due to increased headcount, travel, an increase in the bonus accrual due to an increase in earnings and an increase in professional fees.
Non Operating Expenses
Interest Income and Interest Expense
                                                 
    2006   % of Revenue   2005   % of Revenue   $ Change   % Change
                         
    (Dollars in thousands)
Interest Income
  $ 2,216       1.2 %   $ 2,330       1.6 %   $ (114 )     -5.0 %
Interest Expense
  $ 7,579       4.1 %   $ 5,454       3.7 %   $ 2,125       39.0 %
      The decrease in interest income is primarily due to lower average invested cash balances. Interest income for 2006 and 2005 reflects income from interest rate swap agreements entered into September 2003 for our domestic operations, which increased interest income. The interest rate swap agreements in the aggregate notional amounts of $50.0 million are hedges against the change in the fair value of a designated portion of our Notes, due to changes in the underlying interest rates. The interest rate swap agreements have payment and expiration dates and call provisions that coincide with the terms of the Notes.
      The increase in interest expense is primarily attributable to the refinancing of the term loan portion of our senior credit facility, referred to as the Senior Credit Facility, in connection with the completion of the CSC acquisition.
Provision for Income Taxes
                                                 
    2006   % of Revenue   2005   % of Revenue   $ Change   % Change
                         
    (Dollars in thousands)
Income Taxes
  $ 2,693       1.4 %   $ 1,723       1.2 %   $ 970       56.3 %
      The effective tax rate for First Quarter 2006 was 38% comparable to 41% in First Quarter 2005.
Comparison of Fiscal Year Ended January 1, 2006 and Fiscal Year Ended January 2, 2005
      The following discussion should be read in conjunction with our consolidated financial statements and the notes to the consolidated financial statements accompanying this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those described under “Risk Factors” and those included in other portions of this report.
      As further discussed above, the discussion of our results of operations below excludes the results of our discontinued operations resulting from the termination of our management contract with DIMIA, Auckland, and Atlantic Shores Hospital for all periods presented.

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      For the purposes of the discussion below, “2005” means the 52 week fiscal year ended January 1, 2006, “2004” means the 53 week fiscal year ended January 2, 2005, and “2003” means the 52 week fiscal year ended December 28, 2003.
Overview
      GEO had diluted earnings per share of $0.70, $1.73 and $2.53 in 2005, 2004, and 2003 respectively. For fiscal year 2005, the $0.70 amount included ($1.54) per diluted share for certain items, as detailed below, compared to the fiscal year 2004 $1.73 amount, which included ($0.03) per diluted share for certain items detailed below. The fiscal year 2003 $2.53 amount included $1.58 per diluted share for certain items detailed below. Weighted average common shares outstanding for fiscal year 2004 reflects a full year of the effect of our purchase of 12 million shares of our common stock in the third quarter 2003.
      The following table sets forth certain items before tax which we consider relevant to the discussion below of our operating results for 2005, 2004 and 2003:
                         
    Fiscal Year
     
    2005   2004   2003
             
    (Dollars in thousands,
    except per share data)
Certain Items (before income taxes)
                       
Michigan correctional facility write-off
  $ (20,859 )   $     $  
Insurance reduction
    1,300       4,150        
Jena, Louisiana write-off
    (4,255 )     (3,000 )     (5,000 )
DIMIA insurance reserves
                (3,600 )
Write-off of acquisition costs
          (1,306 )      
Gain on sale of UK joint venture
                56,094  
Write-off of deferred financing fees
    (1,360 )     (317 )     (1,989 )
                   
Certain Items
  $ (25,174 )   $ (473 )   $ 45,505  
Amounts per diluted common share after-tax
  $ (1.54 )   $ (0.03 )   $ 1.58  
                   
      The following table delineates where the total of certain items above are classified in our Consolidated Statements of Income.
                         
    Fiscal Year
     
    2005   2004   2003
             
    (Dollars in thousands)
Certain Items represented in the various lines of the Consolidated Statements of Income
                       
Operating Expenses
  $ (23,814 )   $ 1,150     $ (8,600 )
General and Administrative Expenses
          (1,306 )      
Write-off of deferred financing fees
    (1,360 )     (317 )     (1,989 )
Gain on Sale of UK joint venture
                56,094  
                   
Certain Items
  $ (25,174 )   $ (473 )   $ 45,505  
                   

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Revenues and Operating Expenses
                                                 
    2005   % of Revenue   2004   % of Revenue   $ Change   % Change
                         
    (Dollars in thousands)
Revenue
                                               
Correctional and Detention Facilities
  $ 572,109       93.3 %   $ 546,952       92.1 %   $ 25,157       4.6 %
Other
  $ 40,791       6.7 %   $ 47,042       7.9 %   $ (6,251 )     (13.3 )%
                                     
Total
  $ 612,900       100.0 %   $ 593,994       100.0 %   $ 18,906       3.2 %
                                     
      The increase in revenues in 2005 compared to 2004 is primarily attributable to five items: (i) Australian and South African revenues increased approximately $7.8 million, $2.6 million and $0.2 million of which was due to the strengthening of the Australian dollar and South African Rand, respectively, and $5.0 million of which was due to higher occupancy rates and contractual adjustments for inflation; (ii) the acquisition of CSC increased revenues $17.3 million; (iii) the McFarland facility was idle for all of 2004 and was re-opened in January 2005 resulting in an increase in revenues of approximately $3.1 million; (iv) domestic revenues also increased due to contractual adjustments for inflation, slightly higher occupancy rates and improved terms negotiated into a number of contracts. These increases offset a decrease in revenues due to the transition of the Queens contract from ICE to USMS, the closure of the Michigan Correctional Facility on October 14, 2005, the expiration of our operating contract for the Kyle Facility on August 31, 2005, and lower populations in our Val Verde, and San Diego Facilities; and (v) revenues decreased in 2005 because it contained 52 weeks compared to 2004, which contained 53 weeks.
      The number of compensated resident days in domestic facilities increased to 10.7 million in 2005 from 10.5 million in 2004. Compensated resident days in Australian and South African facilities remained constant at 2.0 million during 2005 and 2004. We look at the average occupancy in our facilities to determine how we are managing our available beds. The average occupancy is calculated by taking compensated mandays as a percentage of capacity. The average occupancy in our domestic, Australian and South African facilities combined was 97.5% of capacity in 2005 compared to 99.3% in 2004. The decrease in the average occupancy is due to an increase in the number of beds made available to us under our contracts and lower populations in our Val Verde and San Diego facilities.
                                                 
    2005   % of Revenue   2004   % of Revenue   $ Change   % Change
                         
    (Dollars in thousands)
Operating Expenses
                                               
Correctional and Detention Facilities
  $ 499,924       81.6 %   $ 449,310       75.7 %   $ 50,614       11.3 %
Other
  $ 40,204       6.5 %   $ 45,916       7.7 %   $ (5,712 )     (12.4 )%
                                     
Total
  $ 540,128       88.1 %   $ 495,226       83.4 %   $ 44,902       9.1 %
                                     
      Operating expenses consist of those expenses incurred in the operation and management of our correctional, detention, mental health and residential treatment facilities. Operating expenses for fiscal year 2005 reflect an impairment charge of $20.9 million for the Michigan Correctional Facility. We own the 480-bed Michigan Correctional Facility and operated the facility from 1999 until October 2005 pursuant to a management contract with the Michigan Department of Corrections, or the MDOC. Separately, we leased the facility, as lessor, to the State, as lessee, under a lease with an initial term of 20 years followed by two 5-year options. On September 30, 2005, the Governor of the State of Michigan announced her decision to close the facility. As a result of the closure, our management contract with the MDOC was terminated. On October 3, 2005, the Michigan Department of Management & Budget provided a 60 day lease cancellation notice to us. See this “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Commitments and Contingencies” for further discussion relating to our Michigan Correctional Facility.

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Additionally, 2005 operating expenses reflect an operating charge on the Jena lease of $4.3 million, representing the remaining obligation on the lease through the contractual term of January 2010.
      Operating expenses in 2005 were favorably impacted by a $3.4 million reduction in our reserves for general liability, auto liability, and workers compensation insurance. This favorable reduction was largely offset by higher than anticipated U.S. employee health insurance costs of approximately $1.7 million, transition expenses of approximately $0.8 million associated with our Queens New York Facility, start-up expenses at certain domestic facilities of approximately $0.6 million and adjustments of approximately $0.4 million to insurance reserves in our Australian operations.
      The $3.4 million reduction in insurance reserves was the result of revised actuarial projections related to loss estimates for the initial three years of our insurance program which was established on October 2, 2002. Prior to October 2, 2002, our insurance coverage was provided through an insurance program established by TWC, our former parent company. We experienced significant adverse claims development in general liability and workers’ compensation in the late 1990’s. Beginning in approximately 1999, we made significant operational changes and began to aggressively manage our risk in a proactive manner. These changes have resulted in improved claims experience and loss development, which we are realizing in our actuarial projections. As a result of improving loss trends, our independent actuary reduced its expected losses for claims arising since October 2, 2002. We adjusted our reserves in the third quarter of 2005 to reflect the actuary’s improved expected loss projections. There can be no assurance that our improved claims experience and loss developments will continue. Similarly, 2004 operating expenses reflect a $4.2 million reduction in insurance reserves also attributable to improved actuarial loss projections.
      During 2005, we experienced adverse development in our employee health program. Since we are self-insured for employee healthcare, this adverse development resulted in additional claims expense and increased reserve requirements. During the third quarter of 2005, we completed a review of our employee health program and made adjustments to the plan to reduce future costs. The revised plan was effective November 1, 2005. There can be no assurance that these modifications will improve our claims experience.
      Operating expenses in 2004 reflect an additional provision for operating losses of approximately $3.0 million related to our inactive facility in Jena, Louisiana.
      The remaining increase in operating expenses is consistent with and proportional to the increase in revenues discussed above as a result of the CSC acquisition, the start-up of new facilities and the expansion of existing facilities.
Other
      Other primarily consists of revenues and related operating expenses associated with our mental health, residential treatment and construction businesses. The decrease in 2005 primarily relates to approximately $7.2 million less construction revenue as compared to 2004. The construction revenue is related to our expansion of the South Bay Facility, one of the facilities that we manage. The expansion was completed at the end of the second quarter of 2005.
Other Unallocated Operating Expenses
General and Administrative Expenses
                                                 
    2005   % of Revenue   2004   % of Revenue   $ Change   % Change
                         
    (Dollars in thousands)
General and Administrative Expenses
  $ 48,958       8.0 %   $ 45,879       7.7 %   $ 3,079       6.7 %
      General and administrative expenses consist primarily of corporate management salaries and benefits, professional fees and other administrative expenses. The increase in expense reflects increased personnel and business development costs associated with the expansion of our mental health and residential treatment business. The increase also reflects costs associated with compliance with Sarbanes-Oxley requirements for

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management’s assessment over internal controls, which resulted in an increase in professional fees in 2005 of $0.9 million. The remaining increase in general and administrative costs relates to other increases in professional fees, travel, expenses associated with our acquisition program and rent expense for our corporate offices.
Non Operating Expenses
Interest Income and Interest Expense
                                                 
    2005   % of Revenue   2004   % of Revenue   $ Change   % Change
                         
    (Dollars in thousands)
Interest Income
  $ 9,154       1.5 %   $ 9,568       1.6 %   $ (414 )     (4.3 )%
Interest Expense
  $ 23,016       3.8 %   $ 22,138       3.7 %   $ 878       4.0 %
      The decrease in interest income is primarily due to lower average invested cash balances. Interest income for 2005 and 2004 reflects income from interest rate swap agreements entered into September 2003 for our domestic operations, which increased interest income. The interest rate swap agreements in the aggregate notional amounts of $50.0 million are hedges against the change in the fair value of a designated portion of the Notes due to changes in the underlying interest rates. The interest rate swap agreements have payment and expiration dates and call provisions that coincide with the terms of the Notes.
      The increase in interest expense is primarily attributable to the refinancing of the term loan portion of our Senior Credit Facility.
Costs Associated with Debt Refinancing
      Deferred financing fees of $1.4 million were written off in 2005 in connection with the refinancing of the term loan portion of the Senior Credit Facility. In 2004, $0.3 million was written off in 2004 in connection with the $43.0 million payment related to the term loan portion of the Senior Credit Facility.
Provision for Income Taxes
                                                 
    2005   % of Revenue   2004   % of Revenue   $ Change   % Change
                         
    (Dollars in thousands)
Income Taxes
  $ (11,826 )     (1.9 )%   $ 8,231       1.4 %   $ (20,057 )     (243.7 )%
      Income taxes for 2005 reflect a benefit as a result of the loss before income taxes which primarily resulted from the $20.9 million impairment charge for the Michigan Facility and the $4.3 million charge to record the remaining lease obligation for the Jena lease with CPV.
      The income tax benefit for 2005 reflects a benefit of $6.5 million in the fourth quarter 2005 related to a step-up in tax basis for an asset in Australia which resulted in a decreased deferred tax liability.
      The income tax benefit for 2005 also reflects a benefit of $1.7 million in the second quarter 2005 related to the American Jobs Creation Act of 2004, or the AJCA. A key provision of the AJCA creates a temporary incentive for U.S. corporations to repatriate undistributed income earned abroad by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations.
Equity in Earnings of Affiliate
                                                 
    2005   % of Revenue   2004   % of Revenue   $ Change   % Change
                         
    (Dollars in thousands)
Equity in Earnings of Affiliate
  $ 2,079       0.3 %   $       0.0 %   $ 2,079       100.0 %
      Equity in earnings of affiliate in 2005 reflects a one time tax benefit of $2.1 million related to a change in South African tax law.

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Financial Condition
Liquidity and Capital Resources
      Current cash requirements consist of amounts needed for working capital, debt service, capital expenditures, supply purchases and investments in joint ventures. Our primary source of liquidity to meet these requirements is cash flow from operations and borrowings under the $100.0 million revolving portion of our Senior Credit Facility. As of April 2, 2006, we had $53.5 million available for borrowing under the revolving portion of the Senior Credit Facility.
      We incurred substantial indebtedness in connection with the acquisition of CSC on November 4, 2005 and the share purchase in 2003. Assuming the repayment of $74.6 million of existing indebtedness outstanding under the term loan portion of our Senior Credit Facility with the proceeds from this offering, our total consolidated long-term indebtedness immediately following this offering will be $144.4 million, excluding non recourse debt of $136.9 million and capital lease obligations of $17.9 million. In addition, as of April 2, 2006, we also had outstanding seven letters of guarantee totaling approximately $5.4 million under separate international credit facilities. Our significant debt service obligations could, under certain circumstances, have material consequences. See “Risk Factors — Risks Related to Our High Level of Indebtedness.” However, our management believes that cash on hand, cash flows from operations and our Senior Credit Facility will be adequate to support currently planned business expansion and various obligations incurred in the operation of our business, both on a near and long-term basis.
      In the future, our access to capital and ability to compete for future capital-intensive projects will be dependent upon, among other things, our ability to meet certain financial covenants in the indenture governing the Notes and in our Senior Credit Facility. A substantial decline in our financial performance could limit our access to capital and have a material adverse affect on our liquidity and capital resources and, as a result, on our financial condition and results of operations.
      Our business requires us to make various capital expenditures from time to time, including expenditures related to the development of new correctional, detention and/or mental health and residential treatment facilities. In addition, some of our management contracts require us to make substantial initial expenditures of cash in connection with opening or renovating a facility. Generally, these initial expenditures are subsequently fully or partially recoverable as pass-through costs or are billable as a component of the per diem rates or monthly fixed fees to the contracting agency over the original term of the contract. However, we cannot assure you that any of these expenditures will, if made, be recovered. Based on current estimates of our capital needs, we anticipate that our capital expenditures will not exceed $10.0 million during the next 12 months. We plan to fund these capital expenditures from cash from operations or borrowings under the Senior Credit Facility.
      We have entered into individual executive retirement agreements with our CEO and Chairman, President and Vice Chairman, and Chief Financial Officer. These agreements provide each executive with a lump sum payment upon retirement. Under the agreements, each executive may retire at any time after reaching the age of 55. Each of the executives reached the eligible retirement age of 55 in 2005. None of the executives has indicated their intent to retire as of this time. However, under the retirement agreements, retirement may be taken at any time at the individual executive’s discretion. In the event that all three executives were to retire in the same year, we believe we will have funds available to pay the retirement obligations from various sources, including cash on hand, operating cash flows or borrowings under our revolving credit facility. Based on our current capitalization, we do not believe that making these payments in any one period, whether in separate installments or in the aggregate, would materially adversely impact our liquidity.
The Senior Credit Facility
      On September 14, 2005, we amended and restated our Senior Credit Facility, to consist of a $75 million, six-year term-loan initially bearing interest at LIBOR plus 2.00%, and a $100 million, five-year revolving credit facility initially bearing interest at LIBOR plus 2.00%. We used the borrowings under the Senior Credit Facility to fund general corporate purposes and to finance the acquisition of CSC, which closed on

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November 4, 2005 for approximately $62 million in cash plus deal-related costs. As of April 2, 2006, we had borrowings of $74.6 million outstanding under the term loan portion of the Senior Credit Facility, no amounts outstanding under the revolving portion of the Senior Credit Facility, and $46.5 million outstanding in letters of credit under the revolving portion of the Senior Credit Facility.
      All of the obligations under the Senior Credit Facility are unconditionally guaranteed by each of our existing material domestic subsidiaries. The Senior Credit Facility and the related guarantees are secured by substantially all of our present and future tangible and intangible assets and all present and future tangible and intangible assets of each guarantor, including but not limited to (i) a first-priority pledge of all of the outstanding capital stock owned by us and each guarantor, and (ii) perfected first-priority security interests in all of our present and future tangible and intangible assets and the present and future tangible and intangible assets of each guarantor.
      Indebtedness under the revolving portion of the Senior Credit Facility bears interest at our option at the base rate plus a spread varying from 0.50% to 1.25% (depending upon a leverage-based pricing grid set forth in the Senior Credit Facility), or at LIBOR plus a spread, varying from 1.50% to 2.25% (depending upon a leverage-based pricing grid, as defined in the Senior Credit Facility). As of April 2, 2006, there were no borrowings currently outstanding under the revolving portion of the Senior Credit Facility. However, new borrowings would bear interest at LIBOR plus 2.00% or at the base rate plus 1.00%. Letters of credit outstanding under the revolving portion of the Senior Credit Facility bear interest at 1.50% to 2.25% (depending upon a leverage-based pricing grid, as defined in the Senior Credit Facility). Available capacity under the revolving portion of the Senior Credit Facility bears interest at 0.38% to 0.5%. The term loan portion of the Senior Credit Facility bears interest at our option at either the base rate plus a spread of 0.75% to 1.00%, or at LIBOR plus a spread, varying from 1.75% to 2.00% (depending upon a leverage-based pricing grid, as defined in the Senior Credit Facility). Borrowings under the term loan portion of the Senior Credit Facility currently bear interest at LIBOR plus a spread of 2.00%. If an event of default occurs under the Senior Credit Facility, (i) all LIBOR rate loans bear interest at the rate which is 2.00% in excess of the rate then applicable to LIBOR rate loans until the end of the applicable interest period and thereafter at a rate which is 2.00% in excess of the rate then applicable to base rate loans, and (ii) all base rate loans bear interest at a rate which is 2.00% in excess of the rate then applicable to base rate loans.
      The Senior Credit Facility contains financial covenants which require us to maintain the following ratios, as computed at the end of each fiscal quarter for the immediately preceding four quarter-period: a total leverage ratio equal to or less than 3.50 to 1.00 through December 30, 2006, which reduces thereafter in 0.50 increments to 3.00 to 1.00 for the period from December 31, 2006 through December 27, 2007 and thereafter; a senior secured leverage ratio equal to or less than 2.50 to 1.00; and a fixed charge coverage ratio equal to or less than 1.05 to 1.00 until December 30, 2006, and thereafter a ratio of 1.10 to 1.00. In addition, the Senior Credit Facility prohibits us from making capital expenditures greater than $19.0 million in the aggregate during any fiscal year until 2009 and $24.0 million during each of the years 2010 and 2011, provided that to the extent that our capital expenditures during any fiscal year are less than the limit, such amount will be added to the maximum amount of capital expenditures that we can make in the following year.
      The Senior Credit Facility contains certain customary representations and warranties, and certain customary covenants that restrict our ability to, among other things (i) create, incur or assume any indebtedness, (ii) incur liens, (iii) make loans and investments, (iv) engage in mergers, acquisitions and asset sales, (v) sell our assets, (vi) make certain restricted payments, including declaring any cash dividends or redeem or repurchase capital stock, except as otherwise permitted, (vii) issue, sell or otherwise dispose of our capital stock, (viii) transact with affiliates, (ix) make changes to our accounting treatment, (x) amend or modify the terms of any subordinated indebtedness (including the Notes), (xi) enter into debt agreements that contain negative pledges on our assets or covenants more restrictive than contained in the Senior Credit Facility, (xii) alter the business we conduct, and (xiii) materially impair our lenders’ security interests in the collateral for our loans. Events of default under the Senior Credit Facility include, but are not limited to, (i) our failure to pay principal or interest when due, (ii) our material breach of any representations or warranty, (iii) covenant defaults, (iv) bankruptcy, (v) cross defaults to certain other indebtedness,

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(vi) unsatisfied final judgments over a threshold to be determined, (vii) material environmental claims which are asserted against us, and (viii) a change of control.
      The covenants governing our Senior Credit Facility, including the covenants described above, impose significant operating and financial restrictions which may substantially restrict, and materially adversely affect, our ability to operate our business.
      See “Risk Factors — Risks Related to Our High Level of Indebtedness — 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.”
Senior 81/4% Notes
      To facilitate the completion of the purchase of the 12 million shares from Group 4 Falck, we issued $150.0 million aggregate principal amount, ten-year, 81/4% senior unsecured notes, which we refer to as the Notes. The Notes are general, unsecured, senior obligations of ours. Interest is payable semi-annually on January 15 and July 15 at 81/4 %. The Notes are governed by the terms of an Indenture, dated July 9, 2003, between us and the Bank of New York, as trustee, referred to as the Indenture. Under the terms of the Indenture, at any time on or prior to July 15, 2006, we may redeem up to 35% of the Notes with the proceeds from equity offerings at 108.25% of the principal amount to be redeemed plus the payment of accrued and unpaid interest, and any applicable liquidated damages. Additionally, after July 15, 2008, we may redeem, at our option, all or a portion of the Notes plus accrued and unpaid interest at various redemption prices ranging from 104.125% to 100.000% of the principal amount to be redeemed, depending on when the redemption occurs. The Indenture contains certain covenants that limit our ability to incur additional indebtedness, pay dividends or distributions on our common stock, repurchase our common stock, and prepay subordinated indebtedness. The Indenture also limits our ability to issue preferred stock, make certain types of investments, merge or consolidate with another company, guarantee other indebtedness, create liens and transfer and sell assets.
      The covenants governing the Notes impose significant operating and financial restrictions which may substantially restrict and adversely affect our ability to operate our business. See “Risk Factors — Risks Related to Our High Level of Indebtedness — 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.” We believe that we were in compliance with all of the covenants of the Indenture governing the Notes as of April 2, 2006.
Non-Recourse Debt
South Texas Detention Complex:
      In February 2004, CSC was awarded a contract by ICE to develop and operate a 1,020-bed detention complex in Frio County Texas. STLDC was created and issued $49.5 million in taxable revenue bonds to finance the construction of the detention center. Additionally, CSC provided a $5 million subordinated note to STLDC for initial development. We determined that we are the primary beneficiary of STLDC and consolidate the entity as a result. STLDC is the owner of the complex and entered into a development agreement with CSC to oversee the development of the complex. In addition, STLDC entered into an operating agreement providing CSC the sole and exclusive right to operate and manage the complex. The operating agreement and bond indenture require the revenue from CSC’s contract with ICE be used to fund the periodic debt service requirements as they become due. The net revenues, if any, after various expenses such as trustee fees, property taxes and insurance premiums are distributed to CSC to cover CSC’s operating expenses and management fee. CSC is responsible for the entire operations of the facility including all operating expenses and is required to pay all operating expenses whether or not there are sufficient revenues. STLDC has no liabilities resulting from its ownership. The bonds have a ten year term and are non-recourse to CSC and STLDC. The bonds are fully insured and the sole source of payment for the bonds is the operating revenues of the center.

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      Included in non-current restricted cash equivalents and investments is $10.9 million as of April 2, 2006 as funds held in trust with respect to the STLDC for debt service and other reserves.
Northwest Detention Center
      On June 30, 2003 CSC arranged financing for the construction of the Northwest Detention Center in Tacoma, Washington (the “Northwest Detention Center”), which CSC completed and opened for operation in April 2004. In connection with this financing, CSC of Tacoma LLC, a wholly owned subsidiary of CSC, issued a $57 million note payable to the Washington Economic Development Finance Authority (“WEDFA”), an instrumentality of the State of Washington, which issued revenue bonds and subsequently loaned the proceeds of the bond issuance to CSC of Tacoma LLC for the purposes of constructing the Northwest Detention Center. The bonds are non-recourse to CSC and the loan from WEDFA to CSC of Tacoma, LLC is non-recourse to CSC. The proceeds of the loan were disbursed into escrow accounts held in trust to be used to pay the issuance costs for the revenue bonds, to construct the Northwest Detention Center and to establish debt service and other reserves.
      Included in non-current restricted cash equivalents and investments is $5.9 million as of April 2, 2006 as funds held in trust with respect to the Northwest Detention Center for debt service and other reserves.
Australia
      In connection with the financing and management of one Australian facility, our wholly owned Australian subsidiary financed the facility’s development and subsequent expansion in 2003 with long-term debt obligations, which are non-recourse to us. We have consolidated the subsidiary’s direct finance lease receivable from the state government and related non-recourse debt each totaling approximately $40.3 million and $44.7 million as of January 1, 2006 and January 2, 2005, respectively. As a condition of the loan, we are required to maintain a restricted cash balance of AUD 5.0 million, which, at April 2, 2006, was approximately $3.6 million. The term of the non-recourse debt is through 2017 and it bears interest at a variable rate quoted by certain Australian banks plus 140 basis points. Any obligations or liabilities of the subsidiary are matched by a similar or corresponding commitment from the government of the State of Victoria.
Guarantees
      In connection with the creation of SACS, we entered into certain guarantees related to the financing, construction and operation of the prison. We guaranteed certain obligations of SACS under its debt agreements up to a maximum amount of 60.0 million South African Rand, which at April 2, 2006 was approximately $9.8 million, to SACS’ senior lenders through the issuance of letters of credit. Additionally, SACS is required to fund a restricted account for the payment of certain costs in the event of contract termination. We have guaranteed the payment of 50% of amounts which may be payable by SACS into the restricted account and provided a standby letter of credit of 6.5 million South African Rand, or approximately $1.0 million, as security for our guarantee. Our obligations under this guarantee expire upon the release from SACS of its obligations in respect of the restricted account under its debt agreements. No amounts have been drawn against these letters of credit, which are included in our outstanding letters of credit under the revolving loan portion of our Senior Credit Facility.
      We have agreed to provide a loan, if necessary, of up to 20.0 million South African Rand, or approximately $3.2 million, referred to as the Standby Facility, to SACS for the purpose of financing the obligations under the contract between SACS and the South African government. No amounts have been funded under the Standby Facility, and we do not currently anticipate that such funding will be required by SACS in the future. Our obligations under the Standby Facility expire upon the earlier of full funding or release from SACS of its obligations under its debt agreements. The lenders’ ability to draw on the Standby Facility is limited to certain circumstances, including termination of the contract.
      We have also guaranteed certain obligations of SACS to the security trustee for SACS lenders. We have secured our guarantee to the security trustee by ceding our rights to claims against SACS in respect of any

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loans or other finance agreements, and by pledging our shares in SACS. Our liability under the guarantee is limited to the cession and pledge of shares. The guarantee expires upon expiration of the cession and pledge agreements.
      In connection with a design, build, finance and maintenance contract for a facility in Canada, we guaranteed certain potential tax obligations of a not-for-profit entity. The potential estimated exposure of these obligations is CAN$2.5 million, or approximately $2.1 million commencing in 2017. We have a liability of $0.6 million related to this exposure as of January 1, 2006 and April 2, 2006, respectively. To secure this guarantee, we purchased Canadian dollar denominated securities with maturities matched to the estimated tax obligations in 2017 to 2021. We have recorded an asset and a liability equal to the current fair market value of those securities on our balance sheet. We do not currently operate or manage this facility
      At April 2, 2006, we also had outstanding seven letters of guarantee totaling approximately $5.4 million under separate international facilities. We do not have any off balance sheet arrangements.
Interest Rate Swaps
      Effective September 18, 2003, we entered into interest rate swap agreements in the aggregate notional amount of $50.0 million. We have designated the swaps as hedges against changes in the fair value of a designated portion of the Notes due to changes in underlying interest rates. Changes in the fair value of the interest rate swaps are recorded in earnings along with related designated changes in the value of the Notes. The agreements, which have payment and expiration dates and call provisions that coincide with the 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 LIBOR plus a fixed margin of 3.45%, also calculated on the notional $50.0 million amount. As of April 2, 2006 and January 1, 2006, the fair value of the swaps totaled approximately $(2.2) million and $(1.1) million, respectively, and is included in other non-current assets and other non-current liabilities in the accompanying balance sheets. There was no material ineffectiveness of our interest rate swaps for the period ended April 2, 2006.
      Our Australian subsidiary is a party to an interest rate swap agreement to fix the interest rate on the variable rate non-recourse debt to 9.7%. We have determined the swap to be an effective cash flow hedge. Accordingly, we record the value of the interest rate swap in accumulated other comprehensive income, net of applicable income taxes. The total value of the swap liability as of April 2, 2006 and January 1, 2006 was approximately $0.3 million and $0.4 million, respectively, and is recorded as a component of other liabilities in the accompanying consolidated financial statements. There was no material ineffectiveness of the interest rate swaps for the fiscal years presented. We do not expect to enter into any transactions during the next twelve months which will result in the reclassification into earnings of gains or losses associated with this swap that are currently reported in accumulated other comprehensive loss.
Cash Flow
      Cash and cash equivalents as of April 2, 2006 were $56.2 million, a decrease of $0.9 million from January 1, 2006.
      Cash provided by operating activities of continuing operations amounted to $11.5 million in the First Quarter 2006 versus cash provided by operating activities of continuing operations of $2.7 million in the First Quarter 2005. Cash provided by operating activities of continuing operations in First Quarter 2006 was positively impacted by an increase in accounts payable and accrued payroll and a decrease in other current assets. Cash provided by operating activities of continuing operations in First Quarter 2006 was negatively impacted by an increase in accounts receivable. Cash provided by operating activities of continuing operations in First Quarter 2005 was positively impacted by an increase in accrued payroll and a decrease in accounts receivable. Cash provided by operating activities of continuing operations in First Quarter 2005 was negatively impacted by an increase in other current assets and a decrease in accounts payable.

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      Cash used in investing activities amounted to $12.1 million in the First Quarter 2006 compared to cash provided by investing activities of $8.2 million in the First Quarter 2005. Cash used in investing activities in the First Quarter 2006 reflects capital expenditures of $7.4 million and an increase in restricted cash. Cash provided by investing activities in the First Quarter 2005 reflect sales of short term investments of $39.0 million and purchases of short term investments of $29.0 million. Capital expenditures amounted to $1.8 million.
      Cash provided by financing activities in the First Quarter 2006 amounted to $0.1 million compared to cash used in financing activities of $1.0 million in the First Quarter 2005. Cash provided by financing activities in the First Quarter 2006 reflects proceeds received from the exercise of stock options of $0.7 million and payments on long-term debt of $0.6 million. Cash used in financing activities in the First Quarter 2005 reflect payments on long-term debt of $1.4 million and proceeds received from the exercise of stock options of $0.4 million.
Contractual Obligations and Off Balance Sheet Arrangements
      The following is a table of certain of our contractual obligations, as of January 1, 2006, which requires us to make payments over the periods presented.
                                         
    Payments Due by Period    
         
        Less Than       More Than
Contractual Obligations   Total   1 Year   1-3 Years   3-5 Years   5 Years
                     
    (In thousands)
Long-term debt obligations
  $ 225,114     $ 1,051     $ 1,500     $ 19,125     $ 203,438  
Capital lease obligations (includes imputed interest)
    32,805       2,087       4,254       3,884       22,580  
Operating lease obligations
    206,879       37,233       69,730       33,306       66,610  
Non-recourse debt
    142,479       6,707       23,171       25,868       86,733  
Estimated interest payments on debt(a)
    176,146       24,937       48,371       46,103       56,735  
Estimated payments on interest rate swaps(a)
    (76 )     (10 )     (20 )     (20 )     (26 )
Other long-term liabilities
    12,749       11,047       112       248       1,342  
                               
Total
  $ 796,096     $ 83,052     $ 147,118     $ 128,514     $ 437,412  
                               
 
(a) Due to the uncertainties of future LIBOR rates, the variable interest payments on our credit facility and swap agreements were calculated using LIBOR rates of 4.61% and 4.73% based on our bank rates as of February 24, 2006 and January 13, 2006, respectively.
      We do not have any additional off balance sheet arrangements which would subject us to additional liabilities.
Commitments and Contingencies
      During 2000, our management contract at the 276-bed Jena Juvenile Justice Center in Jena, Louisiana, which is included in the correction and detention facilities segment, 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 with CentraCore Properties Trust through January 2010. During the Third Quarter 2005, we determined the alternative uses being pursued were no longer probable and as a result revised our estimated sublease income and recorded an operating charge of $4.3 million, representing the remaining obligation on the lease through the contractual term of January 2010 for a total reserve of $8.6 million. However, we plan to continue our efforts to reactivate the facility.
      We own the 480-bed Michigan Correctional Facility in Baldwin, Michigan, referred to as the Michigan Facility. We operated the Michigan Facility from 1999 until October 2005 pursuant to a management contract with the Michigan Department of Corrections, or the MDOC. Separately, we leased the Michigan Facility, as lessor, to the State, as lessee, under a lease with an initial term of 20 years followed by two five-year options.

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On September 30, 2005, the Governor of the State of Michigan announced her decision to close the Michigan Facility. As a result of the closure of the Michigan Facility, our management contract with the MDOC to operate the Michigan Facility was terminated. On October 3, 2005, the Michigan Department of Management & Budget sent us a 60 day cancellation notice to terminate the lease for the Michigan Facility. Based in part on the language of certain provisions in the lease, we believe that the Governor does not have the authority to unilaterally terminate the Michigan Facility lease. As a result, in November 2005, we filed a lawsuit against the State to enforce our rights under the lease. On February 24, 2006, the Ingham County Circuit Court, the trial court with jurisdiction over the case, granted summary judgment in favor of the State and against us and the other plaintiffs, The Village of Baldwin and Webber Township. The trial court ruled that the State lawfully cancelled the lease when the Governor exercised her line item veto of the legislative appropriation for the funding of the lease. We are in the process of appealing the summary judgment entered by the trial court. We have reviewed the Michigan Facility for impairment in accordance with FAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and recorded an impairment charge in the fourth quarter of 2005 for $20.9 million.
      We have entered into construction contracts with the Florida Department of Management Services, or DMS, to expand the Moorehaven Correctional Facility by 235 beds, which we operate for DMS, and build the 1,500–bed Graceville Correctional Facility, which we will operate for DMS upon final completion of the construction. Payment under these construction contracts is contingent on the receipt of proceeds from bonds being issued by the State of Florida to finance the projects. Subsequent to January 1, 2006, we may incur approximately $8.5 million in costs related to these projects prior to the financing being completed. These costs would be incurred in order to preserve construction prices and our development timeline. We expect the financing for these facilities to be completed by March 31, 2006. In the event the required financing is not completed, we will expense these costs during the first quarter of 2006 without an offsetting revenue source.
Inflation
      We believe that inflation, in general, did not have a material effect on our results of operations during 2005, 2004 and 2003. While some of our contracts include provisions for inflationary indexing, inflation could have a substantial adverse effect on our results of operations in the future to the extent that wages and salaries, which represent our largest expense, increase at a faster rate than the per diem or fixed rates received by us for our management services.
Outlook
      The following discussion of our future performance contains statements that are not historical statements and, therefore, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those stated or implied in the forward-looking statement. Please refer to “Risk Factors” in this prospectus supplement, the “Forward-Looking Statements — Safe Harbor,” as well as the other disclosures contained in this prospectus supplement for further discussion on forward-looking statements and the risks and other factors that could prevent us from achieving our goals and cause the assumptions underlying the forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements.
Revenue
      Domestically, we continue to be encouraged by the number of opportunities that have recently developed in the privatized corrections and detention industry. The need for additional bed space at the federal, state at local levels has been as strong as it has been at any time during the last decade, and we currently expect that trend to continue for the foreseeable future. Overcrowding at corrections facilities in various states and increased demand for bed space at federal prisons and detention facilities primarily resulting from government initiatives to improve immigration security are two of the factors that have contributed to the greater number of opportunities for privatization. We plan to actively bid on any new projects that fit our target profile for profitability and operational risk. Although we are pleased with the overall industry outlook, positive trends in

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the industry may be offset by several factors, including budgetary constraints, unanticipated contract terminations and contract non-renewals. In Michigan, the State recently cancelled our Baldwin Correctional Facility management contract based upon the Governor’s veto of funding for the project. Although we do not expect this termination to represent a trend, any future unexpected terminations of our existing management contracts could have a material adverse impact on our revenues. Additionally, several of our management contracts are up for renewal and/or re-bid in 2006. Although we have historically had a relative high contract renewal rate, there can be no assurance that we will be able to renew our management contracts scheduled to expire in 2006 on favorable terms, or at all.
      Internationally, in the United Kingdom, we recently won our first contract since re-establishing operations. We believe that additional opportunities will become available in that market and plan to actively bid on any opportunities that fit our target profile for profitability and operational risk. In South Africa, we anticipate that the government will seek to outsource the development and operation of one or more correctional facilities in the near future. We expect to bid on any suitable opportunities.
      With respect to our mental health and residential treatment services business conducted through our wholly-owned subsidiary, GEO Care, Inc., we are currently pursuing a number of business development opportunities. In addition, we continue to expend resources on informing state and local governments about the benefits of privatization and we anticipate that there will be new opportunities in the future as those efforts begin to yield results. We believe we are well positioned to capitalize on any suitable opportunities that become available in this area.
Operating Expenses
      Operating expenses consist of those expenses incurred in the operation and management of our correctional, detention, mental health and residential treatment facilities. In 2005, operating expenses totaled approximately 88.1% of our consolidated revenues. Our operating expenses as a percentage of revenue in 2006 will be impacted by several factors. First, we could experience continued savings under our general liability, auto liability and workers’ compensation insurance program, although the amount of these potential savings cannot be predicted. These savings, which totaled $3.4 million in fiscal year 2005 and are now reflected in our current actuarial projections are a result of improved claims experience and loss development as compared to our results under our prior insurance program. Second, we may experience a reduction in employee healthcare costs following adjustments to our employee healthcare program in November 2005 intended to reduce costs relating to additional claims expense and increased reserve requirements. These potential reductions in operating expenses may be offset by increased start-up expenses relating to a number of new projects which we are developing, including our new Graceville prison and Moore Haven expansion project in Florida, our Clayton facility in New Mexico, our Lawton, Oklahoma prison expansion and our Florence West expansion project in Arizona. Overall, excluding start-up expenses, we anticipate that operating expenses as a percentage of our revenue will remain relatively flat, consistent with our historical performance.
      With respect to our future lease expense, we intend to restructure our relationship with CPV, now known as CentraCore Properties Trust, from whom we lease eleven facilities. In 1998, the original need for our sponsorship and creation of CPV was to provide us with a means to source capital for the development of new correctional and detention facilities. This need was prompted by the fact that TWC, our former parent company at the time, would not allow us to issue stock or incur indebtedness in order to finance our growth.
      Presently, as a fully independent public company, we believe that we have a number of avenues available to us to raise capital for the development of new facilities, including the equity markets, bank debt, corporate bonds and government sponsored bonds similar to those involved in several of our new facilities under development. All of these financial avenues currently provide a lower cost of capital than our present lease rates with CPV, which are approximately 12% at this time. Accordingly, we believe that we have a duty to our shareholders to seek the most cost-effective available sources of capital in order to best manage and grow the company. That duty has led us to make a number of decisions.
      Our first decision is to not renew GEO’s 15-year Right to Purchase Agreement with CPV when it expires in 2013, thus eliminating our obligation to provide CPV with the right to acquire future company-

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owned facilities that are covered by that agreement. Second, we do not anticipate developing any new projects using CPV financing. We expect that for the foreseeable future we will be able to achieve a lower cost of capital by accessing development capital through government-supported bond financing or other third party financing. Third, with regard to the Jena, Louisiana facility, unless we find a new client in the very near future allowing us to reactivate the facility on a profitable basis, we will not renew that lease, which is scheduled to expire in January 2010, and we will no longer be required to make the annual lease payment of approximately $2.1 million dollars after that date.
      Fourth, with respect to the other ten facilities that we lease from CPV, seven of those leases expire in April 2008, referred to as the Expiring Leases. We have until late October 2007 to exercise our option, in our discretion, to renew each of the Expiring Leases for an additional five-year term. We are under no obligation to renew any or all of the Expiring Leases, and may renew some of the Expiring Leases without renewing others. If we opt to renew any of the Expiring Leases, the Expiring Leases will be renewed on identical terms, except that the rental rate will be equal to the fair market rental value of the facility being renewed, as mutually agreed to by us and CPT or, in the absence of such an agreement, as determined through binding arbitration.
      We have acquired property in close proximity to several of the properties leased from CPV and are researching available sites near the other CPV leased properties. These steps have put us in a position to conduct a comprehensive review of government-sponsored financing and third-party ownership alternatives that may be available to us with respect to the Expiring Leases. It is possible that we may elect to not exercise our exclusive option to renew certain of the Expiring Leases upon their expiration in favor of the construction and development through government-sponsored bonds or other third party financing of new replacement facilities in close proximity to the facilities covered by the Expiring Leases. In such cases, with our customers’ approval, we would transition our contracted inmate population to the new facilities prior to the expiration of the Expiring Leases in April 2008.
      We believe that these decisions with respect to our relationship with CPV will best serve our shareholders’ interests and allow us to better manage and grow our company by accessing the lowest cost of capital available to us.
General and Administrative Expenses
      General and administrative expenses consist primarily of corporate management salaries and benefits, professional fees and other administrative expenses. We have recently incurred increasing general and administrative costs including increased costs associated with increases in business development costs, professional fees and travel costs, primarily relating to our mental health and residential treatment services business. We expect this trend to continue as we pursue additional business development opportunities in all of our business lines and build the corporate infrastructure necessary to support our mental health and residential treatment services business. We also plan to continue expending resources on the evaluation of potential acquisition targets.
Forward-Looking Statements — Safe Harbor
      This report and the documents incorporated by reference herein contain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. “Forward-looking” statements are any statements that are not based on historical information. Statements other than statements of historical facts included in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are “forward-looking” statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” or “continue” or the negative of such words or variations of such words and similar expressions. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is

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expressed or forecasted in such forward-looking statements and we can give no assurance that such forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements, or “cautionary statements,” include, but are not limited to:
  •  our ability to timely build and/or open facilities as planned, profitably manage such facilities and successfully integrate such facilities into our operations without substantial additional costs;
 
  •  the instability of foreign exchange rates, exposing us to currency risks in Australia and South Africa, or other countries in which we may choose to conduct our business;
 
  •  our ability to reactivate the Michigan Correctional Facility;
 
  •  an increase in unreimbursed labor rates;
 
  •  our ability to expand and diversify our correctional and mental health and residential treatment services;
 
  •  our ability to win management contracts for which we have submitted proposals and to retain existing management contracts;
 
  •  our ability to raise new project development capital given the often short-term nature of the customers’ commitment to use newly developed facilities;
 
  •  our ability to reactivate our Jena, Louisiana facility, or to sublease or coordinate the sale of the facility with the owner of the property, CentraCore Properties Trust, or CPV;
 
  •  our ability to accurately project the size and growth of the domestic and international privatized corrections industry;
 
  •  our ability to grow our mental health and residential treatment services industry;
 
  •  our ability to estimate the government’s level of dependency on privatized correctional services;
 
  •  our ability to develop long-term earnings visibility;
 
  •  our ability to obtain future financing at competitive rates;
 
  •  our exposure to rising general insurance costs;
 
  •  our exposure to claims for which we are uninsured;
 
  •  our exposure to rising inmate medical costs;
 
  •  our ability to maintain occupancy rates at our facilities;
 
  •  our ability to manage costs and expenses relating to ongoing litigation arising from our operations;
 
  •  our ability to accurately estimate on an annual basis, loss reserves related to general liability, workers compensation and automobile liability claims;
 
  •  our ability to identify suitable acquisitions, and to successfully complete and integrate such acquisition on satisfactory terms;
 
  •  the ability of our government customers to secure budgetary appropriations to fund their payment obligations to us; and
 
  •  other factors contained in our filings with the Securities and Exchange Commission, or the SEC, including, but not limited to, those detailed in this annual report on Form 10-K, our Form 10-Qs and our Form 8-Ks filed with the SEC.
      We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements

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attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements included in this report.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
      We are exposed to market risks related to changes in interest rates with respect to our Senior Credit Facility. Monthly payments under the Senior Credit Facility are indexed to a variable interest rate. Based on borrowings outstanding under the term loan portion of our Senior Credit Facility of $74.8 million as of January 1, 2006, for every one percent increase in the interest rate applicable to the Senior Credit Facility, our total annual interest expense would increase by $0.7 million.
      Effective September 18, 2003, we entered into interest rate swap agreements in the aggregate notional amount of $50.0 million. We have designated the swaps as hedges against changes in the fair value of a designated portion of the Notes due to changes in underlying interest rates. Changes in the fair value of the interest rate swaps are recorded in earnings along with related designated changes in the value of the Notes. The agreements, which have payment and expiration dates and call provisions that coincide with the 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 LIBOR plus a fixed margin of 3.45%, also calculated on the notional $50.0 million amount. For every one percent increase in the interest rate applicable to the $50.0 million swap agreements on the Notes described above, our total annual interest expense would increase by $0.5 million.
      We have entered into certain interest rate swap arrangements for hedging purposes, fixing the interest rate on our Australian non-recourse debt to 9.7%. The difference between the floating rate and the swap rate on these instruments is recognized in interest expense within the respective entity. Because the interest rates with respect to these instruments are fixed, a hypothetical 100 basis point change in the current interest rate would not have a material impact on our financial condition or results of operations.
      Additionally, we invest our cash in a variety of short-term financial instruments to provide a return. These instruments generally consist of highly liquid investments with original maturities at the date of purchase of three months or less. While these instruments are subject to interest rate risk, a hypothetical 100 basis point increase or decrease in market interest rates would not have a material impact on our financial condition or results of operations.
Foreign Currency Exchange Rate Risk
      We are exposed to market risks related to fluctuations in foreign currency exchange rates between the U.S. dollar and the Australian dollar and the South African Rand currency exchange rates. Based upon our foreign currency exchange rate exposure as of January 1, 2006 with respect to our international operations, every 10 percent change in historical currency rates would have approximately a $2.2 million effect on our financial position and approximately a $1.8 million impact on our results of operations over the next fiscal year.

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BUSINESS
General
      We are a leading provider of government-outsourced services specializing in the management of correctional, detention and mental health and residential treatment facilities in the United States, Australia, South Africa, the United Kingdom and Canada. We operate a broad range of correctional and detention facilities including maximum, medium and minimum security prisons, immigration detention centers, minimum security detention centers, mental health facilities and residential treatment facilities. Our correctional and detention management services involve the provision of security, administrative, rehabilitation, education, health and food services, primarily at adult male correctional and detention facilities. Our mental health and residential treatment services involve the delivery of quality care, innovative programming and active patient treatment, primarily at privatized state mental health. 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.
      On November 4, 2005, we completed the acquisition of Correctional Services Corporation, or CSC, a Florida-based provider of privatized jail, community corrections and alternative sentencing services. The acquisition was completed through the merger of CSC into GEO Acquisition, Inc., a wholly owned subsidiary of GEO, referred to as the Merger. Under the terms of the Merger, we acquired 100% of the 10.2 million outstanding shares of CSC common stock for $6.00 per share, or approximately $62.1 million in cash. As a result of the Merger, we became responsible for supervising the operation of the sixteen adult correctional and detention facilities, totaling 8,037 beds, formerly run by CSC. Immediately following the purchase of CSC, we sold Youth Services International, Inc., the former juvenile services division of CSC, for $3.75 million, $1.75 million of which was paid in cash and the remaining $2.0 million of which will be paid in the form of a three-year promissory note accruing interest at a rate of 6% per annum.
      On January 1, 2006, the last day of our 2005 fiscal year, our mental health subsidiary Atlantic Shores Healthcare, Inc., or ASH, completed the sale of its 72-bed private mental health hospital which it had owned and operated since 1997, for approximately $11.5 million. We recognized a gain on the sale of this transaction of approximately $1.6 million. The accompanying consolidated financial statements and notes reflect the operations of the hospital as a discontinued operation.
      Our business was founded in 1984 as a division of The Wackenhut Corporation, or TWC, a multinational provider of global security services. We were incorporated in 1988 as a wholly-owned subsidiary of TWC. In July 1994, we became a publicly-traded company. In 2002, TWC was acquired by Group 4 Falck A/ S, which became our new parent company. In July 2003, we purchased all of our common stock owned by Group 4 Falck A/ S and became an independent company. In November 2003, we changed our corporate name to “The GEO Group, Inc.” We currently trade on the New York Stock Exchange under the ticker symbol “GGI.”
      As of April 2, 2006, we operated a total of 56 correctional, detention, mental health and residential treatment facilities and had over 48,370 beds under management or for which we had been awarded contracts. We maintained an average facility occupancy rate of 97.5% and 97.0% for the fiscal year ended January 1, 2006 and the quarter ended April 2, 2006, respectively. For the fiscal year ended January 1, 2006, we had consolidated revenues of $612.9 million and consolidated operating income of $7.9 million. For the quarter ended April 2, 2006 we had consolidated revenues of $185.9 million and consolidated operating income of $12.5 million.
Overview of Operations
      We offer services that go beyond simply housing offenders in a safe and secure manner for our correctional and detention facilities. We offer a wide array of in-facility rehabilitative and educational programs. Inmates at most of our facilities can also receive basic education through academic programs designed to improve inmates’ literacy levels and enhance the opportunity to acquire General Education Development certificates. Most of our managed facilities also offer vocational training for in-demand

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occupations to inmates who lack marketable job skills. In addition, most of our managed facilities offer life skills/transition planning programs that provide inmates job search training and employment skills, anger management skills, health education, financial responsibility training, parenting skills and other skills associated with becoming productive citizens. We also offer counseling, education and/or treatment to inmates with alcohol and drug abuse problems at most of the domestic facilities we manage.
      Our mental health and residential treatment facility services primarily involve the provision of acute mental health and related administrative services to mentally ill patients that have been placed under public sector supervision and care. At these mental health facilities, we employ psychiatrists, physicians, nurses, counselors, social workers and other trained personnel to deliver active psychiatric treatment which is designed to diagnose, treat and rehabilitate patients for community reintegration.
Quality of Operations
      We operate each facility in accordance with our company-wide policies and procedures and with the standards and guidelines required under the relevant management contract. For many facilities, the standards and guidelines include those established by the American Correctional Association, or ACA. The ACA is an independent organization of corrections professionals, which establishes correctional facility standards and guidelines that are generally acknowledged as a benchmark by governmental agencies responsible for correctional facilities. Many of our contracts in the United States require us to seek and maintain ACA accreditation of the facility. We have sought and received ACA accreditation and re-accreditation for all such facilities. We achieved a median re-accreditation score of 98.4% in fiscal year 2005. Approximately 72% of our 2005 U.S. corrections revenue was derived from ACA accredited facilities. We have also achieved and maintained certification by the Joint Commission on Accreditation for Healthcare Organizations, or JCAHO, for both of our mental health facilities and two of our correctional facilities. We have been successful in achieving and maintaining accreditation under the National Commission on Correctional Health Care, or NCCHC, in a majority of the facilities that we currently operate. The NCCHC accreditation is a voluntary process which we have used to establish comprehensive health care policies and procedures to meet and adhere to the ACA standards. The NCCHC standards, in most cases, exceed ACA Health Care Standards.
Marketing and Business Proposals
      Our primary potential customers are governmental agencies responsible for local, state and federal correctional facilities in the United States and governmental agencies responsible for correctional facilities in Australia, South Africa and the United Kingdom. Other primary customers include state agencies in the U.S. responsible for mental health facilities, and other foreign governmental agencies.
      Governmental agencies responsible for correctional and detention facilities generally procure goods and services through requests for proposals. A typical request for proposal requires bidders to provide detailed information, including, but not limited to, descriptions of the following: the services to be provided by the bidder, its experience and qualifications, and the price at which the bidder is willing to provide the services (which 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 customers.
      Our state and local experience has been that a period of approximately 60 to 90 days is generally required from the issuance of a request for proposal to the submission of our response to the request for proposal; that between one and four months elapse between the submission of our response and the agency’s award for a contract; and that between one and four months elapse between the award of a contract and the commencement of construction of the facility, in the case of a new facility, or the management of the facility in the case of an existing facility. If the facility for which an award has been made must be constructed, our

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experience is that construction usually takes between nine and 24 months, depending on the size and complexity of the project; therefore, management of a newly constructed facility typically commences between 10 and 28 months after the governmental agency’s award.
      Our federal experience has been that a period of approximately 60 to 90 days is generally required from the issuance of a request for proposal to the submission of our response to the request for proposal; that between 12 and 18 months elapse between the submission of our response and the agency’s award for a contract; and that between four and 18 weeks elapse between the award of a contract and the commencement of construction of the facility, in the case of a new facility, or the management of the facility in the case of an existing facility. If the facility for which an award has been made must be constructed, our experience is that construction usually takes between nine and 24 months, depending on the size and complexity of the project; therefore, management of a newly constructed facility typically commences between 10 and 28 months after the governmental agency’s award.
Facility Design, Construction and Finance
      We offer governmental agencies consultation and management services relating to the design and construction of new correctional and detention facilities and the redesign and renovation of older facilities. As of April 2, 2006, we had provided services for the design and construction of forty-three facilities and for the redesign and renovation of thirteen facilities.
      Contracts to design and construct or to redesign and renovate facilities may be financed in a variety of ways. Governmental agencies may finance the construction of such facilities through the following:
  •  a one time general revenue appropriation by the governmental agency for the cost of the new facility;
 
  •  general obligation bonds that are secured by either a limited or unlimited tax levy by the issuing governmental entity; or
 
  •  revenue bonds or certificates of participation secured by an annual lease payment that is subject to annual or bi-annual legislative appropriations.
      We may also act as a source of financing or as a facilitator with respect to the financing of the construction of a facility. In these cases, the construction of such facilities may be financed through various methods including, but not limited to, the following:
  •  funds from equity offerings of our stock;
 
  •  cash flows from operations;
 
  •  borrowings from banks or other institutions (which may or may not be subject to government guarantees in the event of contract termination); or
 
  •  lease arrangements with third parties.
      If the project is financed using direct governmental appropriations, with proceeds of the sale of bonds or other obligations issued prior to the award of the project or by us directly, then financing is in place when the contract relating to the construction or renovation project is executed. If the project is financed using project-specific tax-exempt bonds or other obligations, the construction contract is generally subject to the sale of such bonds or obligations. Generally, substantial expenditures for construction will not be made on such a project until the tax-exempt bonds or other obligations are sold; and, if such bonds or obligations are not sold, construction and therefore, management of the facility, may either be delayed until alternative financing is procured or the development of the project will be suspended or entirely cancelled. If the project is self-financed by us, then financing is generally in place prior to the commencement of construction.
      Under our construction and design management contracts, we generally agree to be responsible for overall project development and completion. We typically act as the primary developer on construction contracts for facilities and subcontract with national general contractors. Where possible, we subcontract with construction companies that we have worked with previously. We make use of an in-house staff of architects

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and operational experts from various correctional disciplines (e.g. security, medical service, food service, inmate programs and facility maintenance) as part of the team that participates from conceptual design through final construction of the project. This staff coordinates all aspects of the development with subcontractors and provides site-specific services.
      When designing a facility, our architects seek to utilize, with appropriate modifications, prototype designs we have used in developing prior projects. We believe that the use of these designs allows us to reduce cost overruns and construction delays and to reduce the number of correctional officers required to provide security at a facility, thus controlling costs both to construct and to manage the facility. Our facility designs also maintain security because they increase the area under direct surveillance by correctional officers and make use of additional electronic surveillance.
Competitive Advantages
      We believe we enjoy the following competitive advantages:
      Established Long Term Relationships with High-Quality Government Customers. We have developed long term relationships with our government customers and have generally been successful at retaining our facility management contracts. We have provided correctional and detention management services to the U.S. Federal Government for 19 years, the State of California for 18 years, the State of Texas for 18 years, various Australian state government entities for 14 years and the State of Florida for 12 years. These customers accounted for approximately 61% of our consolidated revenues for the fiscal year ended January 1, 2006. Our strong operating track record has enabled us to achieve a high renewal rate for contracts, thereby providing us with a stable source of revenue. During the past three years, we renewed approximately 90% of the contracts that were scheduled for renewal or expiration during that period. In addition, over the same three-year period, we won approximately 59% of the total number of beds for which we submitted RFPs.
      Diverse, Full-Service Facility Developer and Operator. We have developed comprehensive expertise in the design, construction and financing of high quality correctional, detention and mental health facilities. In addition, we have extensive experience in overall facility operations, including staff recruitment, administration, facility maintenance, food service, healthcare, security, supervision, treatment and education of inmates. We believe that the breadth of our service offerings gives us the flexibility and resources to respond to customers’ needs as they develop. We believe that the relationships we foster when offering these additional services also help us win new contracts and renew existing contracts.
      Regional U.S. Operating Structure and Presence in Key International Markets. We operate three regional U.S. offices and three international offices that provide administrative oversight and support to our correctional and detention facilities and allow us to maintain close relationships with our customers and suppliers. Each of our three regional U.S. offices is responsible for the facilities located within a defined geographic area. We believe that our regional operating structure is unique within the U.S. private corrections industry and provides us with the competitive advantage of close proximity and direct access to our customers and our facilities. We believe that this regional structure has facilitated the rapid integration of CSC’s facilities into our operations. We also believe that our regional structure and international offices will help with the integration of any future acquisitions.
      Experienced, Proven Senior Management Team. Our top three senior executives have over 56 years of combined industry experience, have worked together at our company for more than 15 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 $612.9 million in 2005. Our Chief Executive Officer, George C. Zoley, is one of the pioneers of the industry, having developed and opened what we believe was one of the first privatized detention facilities in the United States in 1986. In addition to senior management, our operational and facility level management has significant operational experience and expertise.

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Strategies
      In order to strengthen our market position, enhance growth and maximize our profitability and cash flow, we intend to:
      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 have developed considerable expertise in the management of facility security, administration, rehabilitation, education, health and food services. Our quality is recognized through many accreditations including that of the American Correctional Association, which has certified facilities representing approximately 72% of our U.S. corrections revenue as of year-end 2005.
      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. In addition, we generally do not engage in facility development without having a corresponding management contract award in place, although we may opt to do so in select situations when we believe attractive business development opportunities may become available at a given location. We have also elected not to enter certain international markets with a history of economic and political instability. We believe that our strategy of emphasizing lower risk, higher profit opportunities helps us to consistently deliver strong operational performance, lower our costs and increase our overall profitability.
      Expand Into Complementary Government-Outsourced Services. We intend to capitalize on our long term relationships with governmental agencies to become a more diversified provider of government-outsourced services. These opportunities may include services which leverage our existing competencies and expertise, including the design, construction and management of large facilities, the training and management of a large workforce and our ability to service the needs and meet the requirements of government clients. 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. We believe that our successful expansion into the mental health and residential treatment services sector is an example of our ability to deliver higher quality services at lower costs in new areas of privatization.
      Pursue International Growth Opportunities. As a global provider of privatized correctional services, we are able to capitalize on opportunities to operate existing or new facilities on behalf of foreign governments. We currently have international operations in Australia, Canada, South Africa and the United Kingdom. We intend to further penetrate the current markets we operate in and to expand into new international markets which we deem attractive. For example, during the fourth quarter of 2004, we opened an office in the United Kingdom to vigorously pursue new business opportunities in England, Wales and Scotland. In March 2006, we entered into a contract to manage the operations of the 198-bed Campsfield House in Kidlington, United Kingdom. We expect to begin operations under this contract in the second quarter of 2006.
      Selectively Pursue Acquisition Opportunities. We consider acquisitions that are strategic in nature and enhance our geographic platform on an ongoing basis. On November 4, 2005, we acquired CSC, bringing over 8,000 additional adult correctional and detention beds under our management. We will continue to review acquisition opportunities that may become available in the future, both in the privatized corrections, detention, mental health and residential treatment services sectors, and in complementary government-outsourced services areas.
Industry Trends
      We are encouraged by the number of opportunities that have recently developed in the privatized corrections and detention industry. We believe growth in the market for our services will benefit from the following factors:
      Continued Growth of the U.S. Prison Inmate Population. The number of inmates in the prison and jail system in the United States has grown at an annual average growth rate of 3.4% percent since 1995. The total number of U.S. inmates in custody in federal and state prisons and local jails is currently estimated at

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approximately 2.2 million. This sustained period of growth has been driven by a number of factors including higher incarceration rates and growth in the 14 to 24-year old population that is typically at the highest risk with regard to potential incarceration.
      Illegal Immigration and Homeland Security Reform. Since the events of 9/11, ongoing efforts by the United States Department of Homeland Security to secure the nation’s borders and capture and detain illegal aliens have increased demand for cost efficient detention beds. President Bush’s proposed 2007 budget requests funding for 6,700 new immigration detention beds for the Bureau of Immigration and Customs Enforcement, and 9,500 new detainee beds for the United States Marshals Service.
      Greater Federal Government Acceptance of Privatized Correctional Facilities. The number of federal prisoners being held in private facilities has increased from 15,524 at year-end 2000 to 26,544 at midyear 2005, representing a compound annual growth rate of over 12%. Of the 39,068 new federal prison beds that were added over that same period, we estimate that 28% were awarded to the private sector.
      Capacity Constraints of Public Correctional Systems. State and federal correctional systems are experiencing overcrowding conditions and tight budget constraints. At the end of 2004, 24 state prison systems and the federal prison system were operating at or above designed detention capacity. The federal prison system, which includes the Bureau of Prisons, the United States Marshals Service, the Department of Homeland Security and the Bureau of Immigration and Customs Enforcement, operated at 140% of design capacity at year-end 2004. As a result, federal and state jurisdictions throughout the United States are increasingly exploring partnerships with private service providers as a cost effective alternative to the growth of their public payrolls.
      Aging State and Federal Correctional Facilities. Approximately 50% of adult prisons currently in operation in the United States are more than 30 years old and 25% to 30% of the facilities are more than 60 years old. It is likely that significant capital expenditures will be required in order to refurbish or replace outdated facilities. We believe that budget constraints will encourage prison agencies to explore outsourcing to private operations as an alternative to capital intensive projects such as prison construction.
      Cost and Quality Advantages of Private Prisons. According to several government and university studies, private prison facilities operate at a lower cost than public sector facilities. More than 50% of private facilities are accredited by the American Corrections Association, referred to as ACA, versus a lower percentage of public prisons. The ACA’s standards impose strict requirements with regard to accountability, response time, level of quality, safety records and general programs and services.
      Growth of Privatization in International Markets. We estimate that the capacity of privately managed adult secure institutional facilities in operation worldwide increased from approximately 60,000 beds at year end 1995 to approximately 179,000 beds at year-end 2005. The United Kingdom, Australia and South Africa have growing prison markets. The United Kingdom is the largest non-U.S. market for private prisons and through its Private Finance Initiative has indicated its intention to increase its reliance on private correctional facilities to accommodate future inmate growth.

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Facilities
      The following table summarizes certain information with respect to facilities that GEO (or a subsidiary or joint venture of GEO’s) operated under a management contract or had an award to manage as of May 24, 2006:
                                     
Facility Name   Design               Commencement       Renewal   Type of
& Location   Capacity   Customer   Facility Type   Security Level   of Current Term   Duration   Option   Ownership
                                 
 
Domestic Contracts                                    
 
Allen
Correctional Center
Kinder, LA
    1,538     LA DPS&C   State Correctional Facility   Medium/ Maximum   October 2003   3 years   One, Two-year   Manage only
 
Arizona State Prison —
Florence West
Florence, AZ
    750     ADOC   State DUI/RTC Correctional Facility   Minimum/ Medium   October 2002   10 years   Two, Five-year   Lease
 
Arizona State Prison —
Florence Sex Offender
Florence, AZ
    1,000     ADOC   State Sex Offender Correctional Facility   Minimum/ Medium   N/A   10 years   Two, Five-year   Lease
 
Arizona State Prison —
Phoenix West
Phoenix, AZ
    450     ADOC   State DUI/RTC Correctional Facility   Minimum/ Medium   July 2002   10 years   Two, Five-year   Lease
 
Aurora ICE Processing
Center
Aurora, CO
    356     ICE   Federal Detention Facility   Minimum/ Medium   March 2003   1 year   Four, Six Month   Lease-CPV
 
Bill Clayton Detention
Center
Littlefield, TX
    310     Littlefield, TX/ WDOC   Local/ State Correctional/ Detention Facility   Minimum/ Medium   January 2004   10 years   Two Five-year   Manage Only
 
Bridgeport Correctional
Center
Bridgeport, TX
    520     TDCJ   State Correctional Facility   Minimum/ Medium   September 2005   3 year   Two, One-year   Manage only
 
Bronx
Community Corrections
Center
Bronx, NY
    130     BOP   Federal Halfway House   Minimum   April 2002   Two year   Three, One-year   Lease
 
Brooklyn
Community Corrections
Center
Brooklyn, NY
    174     BOP   Federal Halfway House   Minimum   February 2005   Two year   Three One-year   Lease
 
Broward
Transition Center
Deerfield Beach, FL
    450     ICE/ Broward County   Federal & Local Detention Facility   Minimum   October 2003/ February 2003   1 year/
1 year 
  Four, One-year/ Unlimited, One-Year   Lease-CPV
 
Central Texas Detention Facility
San Antonio, TX(2)
    664     Bexar County/ ICE & USMS   Local & Federal Detention Facility   All levels   January 2002   3 years   One, Two-year   Lease- County
 
Central Valley MCCF
McFarland, CA
    550     CDCR   State Correctional Facility   Medium   March 1997   10 years   N/A   Lease-CPV
 
Cleveland Correctional
Center
Cleveland, TX
    520     TDCJ   State Correctional Facility   Minimum/ Medium   January 2004   3 year   Two, One-year   Manage only
 
Coke County JJC
Bronte, TX
    200     TYC   State Juvenile Correctional Facility   Medium/ Maximum   September 2004   2 year   N/A   Lease
 
Colorado Pre-Parole &
Revocation Center
Pueblo, CO
    500     CDOC   State Correctional Facility   Medium   N/A   N/A   N/A   N/A
 
Desert View MCCF
Adelanto, CA
    568     CDCR   State Correctional Facility   Medium   March 1997   10 years   N/A   Lease-CPV
 
Dickens County
Correctional Center
Spur, TX
    489     Dickens County/ ICE/Other Counties   Local & Federal Correctional Facility   All levels   August 2001   15 years   N/A   Manage only
 
East Mississippi
Correctional
Facility
Meridian, MS
    1,000     MDOC   State Correctional Facility   Mental Health   April 1997   5 years   One, Two-year   Manage only

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Facility Name   Design               Commencement       Renewal   Type of
& Location   Capacity   Customer   Facility Type   Security Level   of Current Term   Duration   Option   Ownership
                                 
 
Fort Worth Community
Corrections Facility
Fort Worth, TX
    225     TDCJ   State Halfway House   Minimum   September 2003   2 years   Two, Two year   Leased
 
Frio County Detention
Center
Pearsall, TX
    391     Frio County/ Other Counties   Local Detention Facility   All levels   December 1997   12 years   One, Five year   Part Leased/ Part Owned
 
George W. Hill
Correctional Facility
Thornton, PA
    1,851     Delaware County   Local Detention Facility   All levels   June 2003   3 years   Unlimited, Three-year   Manage only
 
Golden State MCCF
McFarland, CA
    550     CDCR   State Correctional Facility   Medium   March 1997   10 years   N/A   Lease-CPV
 
Graceville Correctional Facility
Graceville, FL
    1,500     DMS   State Correctional Facility   Medium/ Close   N/A   N/A   N/A   N/A
 
Grenada County Jail
Grenada, MS
    178     Grenada County/ MDOC   Local Detention Facility   All levels   August 2004   5 year   One, Two year   Manage Only
 
Guadalupe County Correctional Facility
Santa Rosa, NM(3)
    600     Guadalupe County/ NMCD   Local/ State Correctional Facility   Medium   September 1998   5 year   Five one-year extension beginning 2004   Own
 
Jefferson County
Downtown Jail
Beaumont, TX
    500     Jefferson County/ USMS   Local & Federal Detention Facility   All levels   May 1998   Month to Month   N/A   Manage Only
 
Karnes Correctional
Center
Karnes City, TX(2)
    633     Karnes County/ ICE & USMS   Local & Federal Detention Facility   All levels   January 1998   30 years   N/A   Lease-CPV
 
Lawrenceville
Correctional Center
Lawrenceville, VA
    1,536     VDOC   State Correctional Facility   Medium   March 2003   5 year   Ten, One-year   Manage only
 
Lawton
Correctional Facility
Lawton, OK
    2,518     ODOC   State Correctional Facility   Medium   July 2003   1 year   Four, One-year   Lease-CPV
 
Lea County Correctional
Facility
Hobbs, NM(3)
    1,200     Lea County/NMCD   Local/State Correctional Facility   All levels   September 1998   5 years   Unlimited, 1-year   Lease-CPV
 
Lockhart Secure Work
Program Facilities
Lockhart, TX
    1,000     TDCJ   State Correctional Facility   Minimum   January 2004   3 years   Two, One year   Manage only
 
Marshall County
Correctional
Holly Springs, MS
    1,000     MDOC   State Correctional Facility   Medium   September 2004   2 years   Three, One-year   Manage only
 
McFarland CCF
McFarland, CA
    224     CDCR   State Correctional Facility   Minimum   January 2006   5 years   Two, 5-year   Lease-CPV
 
Migrant Operations
Center
Guantanamo Bay NAS, Cuba
    100     ICE   Federal Migrant Center   Minimum   October 2003   Four Month   Two One-month   Manage only
 
Moore Haven
Correctional Facility
Moore Haven, FL
    985     DMS   State Correctional Facility   Medium   January 2000   2 years   Unlimited, Two-year   Manage only
 
New Castle Correctional
Facility
New Castle, IN
    2,416     IDOC   State Correctional Facility   Medium   January 2006   4 years   Three Two-year   Manage only
 
Newton County
Correctional Center
Newton, TX
    872     Newton County/ TDCJ/ ICE/Idaho   State & Federal Correctional Facility   All levels   February 2002   5 years   Two Five-year   Manage Only
 
North Texas ISF
Fort Worth, TX
    400     TDCJ   State Intermediate Sanction Facility   Minimum   March 2004   3 years   Four, One-year   Lease
 
Northwest Detention Center
Tacoma, WA
    890     ICE   Federal Detention Facility   Minimum/ Medium   April 2004   1 year   Four One-year   Own
 
Queens Private
Correctional Facility
Jamaica, NY
    220     OFDT/ USMS   Federal Detention Facility   Minimum/ Medium   April 2002   1 year   Four, One-year   Lease-CPV

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Facility Name   Design               Commencement       Renewal   Type of
& Location   Capacity   Customer   Facility Type   Security Level   of Current Term   Duration   Option   Ownership
                                 
 
Reeves County
Detention Complex
Pecos, TX(2)
    3,064     Reeves County/ ADOC/BOP   Federal & State Correctional Facility   All levels   November 2003   10 years   N/A   Manage only
 
Rivers Correctional
Institution
Winton, NC
    1,200     BOP   Federal Correctional Facility   Low   March 2001   3 years   Seven, One-year   Own
 
Sanders Estes Unit
Venus, TX
    1,000     TDCJ   State Correctional Facility   Minimum/ Medium   January 2004   3 years   Two, One-year   Manage only
 
South Bay Correctional Facility
South Bay, FL
    1,862     DMS   State Correctional Facility   Medium/ Close   June 2003   1 year   Unlimited, Two-year   Manage only
 
South Texas Detention Complex
Pearsall, TX
    1,020     ICE   Federal Detention Facility   Minimum/ Medium   June 2005   1 year   Four, One-year   Lease
 
South Texas ISF
Houston, TX
    450     TDCJ   State Intermediate Sanction Facility   Minimum   March 2004   3 years   Two One-year   Manage Only
 
Taft Correctional Institution
Taft, CA
    2,048     BOP   Federal Correctional Facility   Low/ Minimum   August 1997   3 years   Seven, One-year   Manage only
 
Tri-County Justice & Detention Center
Ullin, IL
    226     Pulaski County/ USMS   Local & Federal Detention Facility   All levels   July 2004   6 years   Two, Five-year   Manage only
 
Val Verde Correctional Facility
Del Rio, TX(2)
    784     Val Verde County   Local & Federal Detention Facility   All levels   January 2001   20 years   Unlimited, Five-year   Own
 
Western Region Detention Facility at San Diego
San Diego, CA
    700     USMS   Federal Detention Facility   Maximum   January 2006   5 years   One, Five-year   Lease
 
International Contracts:                                    
 
Arthur Gorrie Correctional Centre
Wacol, Australia
    710     QLD DCS   Reception & Remand Centre   All levels   December 2002   5 years   One, Five-year   Manage only
 
Campsfield House     198     U.K.
Home Office
  Immigration Removal Centre   Medium   May 2006   5 years   N/A   Manage only
 
Fulham Correctional Centre
Victoria, Australia
    845     VIC MOC   State Prison   Minimum/ Medium   September 2003   3 years   Four, Three-year   Manage only
 
Junee Correctional Centre
Junee, Australia
    750     NSW   State Prison   Minimum/ Medium   April 2001   5 years   One, Three-year   Manage only
 
Kutama-Sinthumule Correctional Centre Northern Province, Republic of South Africa     3,024     RSA DCS   National Prison   Maximum   July 1999   25 years   None   Manage only
 
Melbourne Custody Centre
Melbourne, Australia
    67     VIC CC   State Jail   All levels   March 2003   2 years   One, One-year   Manage only
 
New Brunswick
Youth Centre
Mirimachi, Canada(4)
    N/A     PNB   Provincial Juvenile Facility   All levels   October 1997   25 years   One, Ten-year   Manage only
 
Pacific Shores Healthcare
Victoria, Australia(5)
    N/A     VIC CV   Health Care Services   N/A   December 2003   3 years   Four, Six-months   Manage only

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Facility Name   Design               Commencement       Renewal   Type of
& Location   Capacity   Customer   Facility Type   Security Level   of Current Term   Duration   Option   Ownership
                                 
 
Mental Health Facilities                                    
 
South Florida State Hospital
Pembroke Pines, FL
    325     DCF   State Psychiatric Hospital   Mental Health   July 2003   5 years   Two, Five-year   Manage only
 
Fort Bayard Medical Center
Ft. Bayard, NM
    230         State Mental Health Hospital   Mental Health               Manage only
 
South Florida Evaluation and Treatment Center Miami, FL     200     DCF   State Forensic Hospital   Mental Health   July 2005   5 years   Two, Five-year   Manage only
Customer Legend:
     
Abbreviation   Customer
     
LA DPS&C
  Louisiana Department of Public Safety & Corrections
 
ADOC   Arizona Department of Corrections
 
ICE   Bureau of Immigration & Customs Enforcement
 
WDOC   Wyoming Department of Corrections
 
TDCJ   Texas Department of Criminal Justice
 
CDCR   California Department of Corrections
 
CDOC   Colorado Department of Corrections
 
TYC   Texas Youth Commission
 
MDOC   Mississippi Department of Corrections (East Mississippi & Marshall County)
 
NMCD   New Mexico Corrections Department
 
VDOC   Virginia Department of Corrections
 
ODOC   Oklahoma Department of Corrections
 
DMS   Florida Department of Management Services
 
BOP   Federal Bureau of Prisons
 
USMS   United States Marshals Service
 
IDOC   Indiana Department of Corrections
 
QLD DCS   Department of Corrective Services of the State of Queensland
 
OFDT   Office of Federal Detention Trustees
 
VIC MOC   Minister of Corrections of the State of Victoria
 
NSW   Commissioner of Corrective Services for New South Wales
 
RSA DCS   Republic of South Africa Department of Correctional Services
 
VIC CC   The Chief Commissioner of the Victoria Police
 
PNB   Province of New Brunswick
 
VIC CV   The State of Victoria represented by Corrections Victoria
 
DCF   Florida Department of Children & Families
 
(1)  GEO also leases a facility from CPV in Jena, LA that was not in use during fiscal year 2005. The Jena facility remains inactive. See Note 12 of the Financial Statements.
 
(2)  GEO provides services at this facility through various Inter-Governmental Agreements, or IGAs, for the county, USMS, ICE, BOP, and other state jurisdictions.
 
(3)  GEO has a five-year contract with four one-year options to operate this facility on behalf of the county. The county, in turn, has a one-year contract, subject to annual renewal, with the state to house state prisoners at the facility.
 
(4)  The contract for this facility only requires GEO to provide maintenance services.
 
(5)  GEO provides comprehensive healthcare services to 11 government-operated prisons under this contract.

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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:
                                 
        Total Number of       Total Number of
        Beds up for       Beds up for
Year   Renewals(1)   Renewal   Re-bids(1)   Re-bid
                 
2006(2)
    3       1,010       6       6,406  
2007
    0       0       7       4,709  
2008
    0       0       3       3,588  
2009
    1       750       9       6,137  
2010
    1       226       3       1,714  
                         
      5       1,986       28       22,534  
                         
 
(1)  Many of our contracts with our government customers have an initial fixed term and are thereafter subject to periodic renewals at the unilateral option of the customer. This table assumes that all of our government customers will exercise their unilateral renewal options under each existing facility management contract and, accordingly, that each contract will not be up for renewal or re-bid, as the case may be, until the full stated term of the contract, including the exercise of all applicable renewal options, has run. Although our historical contract renewal rate exceeds 90%, we cannot assure you that our customers will in fact exercise all of their unilateral renewal options under existing contracts. See “Risk Factors — We are subject to the termination or non-renewal of our government contracts, which could adversely affect our results of operations and liquidity, and our ability to secure new facility management contracts from other government customers.”
 
(2)  Re-bid figures for 2006 include our Western Region Detention Facility in San Diego, California, with respect to which we secured a new contract in January 2006, and our South Bay Correctional Facility, with respect to which we received a notification of intent to award in April 2006.
      We undertake substantial efforts to renew our contracts upon their expiration but we can provide no assurance that we will in fact be able to do so. Previously, in connection with our contract renewals, either we or the contracting government agency have typically requested changes or adjustments to contractual terms. As a result, contract renewals may be made on terms that are more or less favorable to us than in prior contractual terms.
      Our contracts typically allow a contracting governmental agency to terminate a contract with or without cause by giving us written notice ranging from 30 to 180 days. If government agencies were to use these provisions to terminate, or renegotiate the terms of their agreements with us, our financial condition and results of operations could be materially adversely affected.
      In addition, in connection with our management of such facilities, we are required to comply with all applicable local, state and federal laws and related rules and regulations. Our contracts typically require us to maintain certain levels of coverage for general liability, workers’ compensation, vehicle liability, and property loss or damage. See “Insurance” below. If we do not maintain the required categories and levels of coverage, the contracting governmental agency may be permitted to terminate the contract. In addition, we are required under our contracts to indemnify the contracting governmental agency for all claims and costs arising out of our management of facilities and, in some instances, we are required to maintain performance bonds relating to the construction, development and operation of facilities.
Competition
      We compete primarily on the basis of the quality and range of services we offer; our experience domestically and internationally in the design, construction, and management of privatized correctional and detention facilities; our reputation; and our pricing. We compete directly with the public sector, where governmental agencies that are responsible for the operation of correctional, detention, mental health and residential treatment facilities are often seeking to retain projects that might otherwise be privatized. In the

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private sector, we compete with a number of companies, including, but not limited to: Corrections Corporation of America; Cornell Companies, Inc.; Management and Training Corporation; and Group 4 Falck Global Solutions Limited. Some of our competitors are larger and have more resources than we do. We also compete in some markets with small local companies that may have a better knowledge of the local conditions and may be better able to gain political and public acceptance.
Employees and Employee Training
      As of April 2, 2006, we had 8,463 full-time employees. Of such full-time employees, 171 were employed at our headquarters and regional offices and 8,292 were employed at facilities and international offices. We employ management, administrative and clerical, security, educational services, health services and general maintenance personnel at our various locations. Approximately 620 and 962 employees are covered by collective bargaining agreements in the United States and at international offices, respectively. We believe that our relations with our employees are satisfactory.
      Under the laws applicable to most of our operations, and internal company policies, our correctional officers are required to complete a minimum amount of training. We generally require at least 160 hours of pre-service training before an employee is allowed to work in a position that will bring the employee in contact with inmates in our domestic facilities, consistent with ACA standards and/or applicable state laws. In addition to a minimum of 160 hours of pre-service training, most states require 40 or 80 hours of on-the-job training. Florida law requires that correctional officers receive 520 hours of training. We believe that our training programs meet or exceed all applicable requirements.
      Our training program for domestic facilities begins with approximately 40 hours of instruction regarding our policies, operational procedures and management philosophy. Training continues with an additional 120 hours of instruction covering legal issues, rights of inmates, techniques of communication and supervision, interpersonal skills and job training relating to the particular position to be held. Each of our employees who has contact with inmates receives a minimum of 40 hours of additional training each year, and each manager receives at least 24 hours of training each year.
      At least 240 and 160 hours of training are required for our employees in Australia and South Africa, respectively, before such employees are allowed to work in positions that will bring them into contact with inmates. Our employees in Australia and South Africa receive a minimum of 40 hours of additional training each year.
Business Regulations and Legal Considerations
      Many governmental agencies are required to enter into a competitive bidding procedure before awarding contracts for products or services. The laws of certain jurisdictions may also require us to award subcontracts on a competitive basis or to subcontract or partner with businesses owned by women or members of minority groups.
      Certain states, such as Florida, deem correctional officers to be peace officers and require our personnel to be licensed and subject to background investigation. State law also typically requires correctional officers to meet certain training standards.
      The failure to comply with any applicable laws, rules or regulations or the loss of any required license could have a material adverse effect on our business, financial condition and results of operations. Furthermore, our current and future operations may be subject to additional regulations as a result of, among other factors, new statutes and regulations and changes in the manner in which existing statutes and regulations are or may be interpreted or applied. Any such additional regulations could have a material adverse effect on our business, financial condition and results of operations.
Insurance
      The nature of our business exposes us to various types of third-party legal claims, including, but not limited to, civil rights claims relating to conditions of confinement and/or mistreatment, sexual misconduct

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claims brought by prisoners or detainees, medical malpractice claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, contractual claims and claims for personal injury or other damages resulting from contact with our facilities, programs, personnel or prisoners, including damages arising from a prisoner’s escape or from a disturbance or riot at a facility. In addition, our management contracts generally require us to indemnify the governmental agency against any damages to which the governmental agency may be subject in connection with such claims or litigation. We maintain insurance coverage for these types of claims, except for claims relating to employment matters, for which we carry no insurance.
      Claims for which we are insured arising from our U.S. operations that have an occurrence date of October 1, 2002 or earlier are handled by TWC and are fully insured up to an aggregate limit of between $25.0 million and $50.0 million, depending on the nature of the claim. With respect to claims for which we are insured arising after October 1, 2002, we maintain a general liability policy for all U.S. operations with $52.0 million per occurrence and in the aggregate. On October 1, 2004, we increased our deductible on this general liability policy from $1.0 million to $3.0 million for each claim which occurs after October 1, 2004. We also maintain insurance to cover property and casualty risks, workers’ compensation, medical malpractice and automobile liability. Our Australian subsidiary is required to carry tail insurance through 2011 related to a discontinued contract. We also carry various types of insurance with respect to our operations in South Africa and Australia. There can be no assurance that our insurance coverage will be adequate to cover claims to which we may be exposed.
International Operations
      Our international operations for fiscal years 2005 and 2004 consisted of the operations of our wholly owned Australian subsidiaries, and of our consolidated joint venture in South Africa (South African Custodial Management Pty. Limited, or SACM). Through our wholly owned subsidiary, GEO Group Australia Pty. Limited, we currently manage five facilities in Australia. We operate one facility in South Africa through SACM. Our international operations for fiscal year 2003 consisted of the operations of our wholly owned Australian subsidiary only. During the fourth quarter of 2004, we opened an office in the United Kingdom to vigorously pursue new business opportunities in England, Wales and Scotland. On March 6, 2006, we were awarded a contract to manage the operations of the 198 bed Campsfield House in Kidlington, United Kingdom. We expect to begin operations under this contract in the second quarter of 2006.
Business Concentration
      Except for the major customers noted in the following table, no single customer provided more than 10% of our consolidated revenues during fiscal years 2005, 2004 and 2003:
                         
Customer   2005   2004   2003
             
Various agencies of the U.S. Federal Government
    27 %     27 %     27 %
Various agencies of the State of Texas
    8 %     9 %     12 %
Various agencies of the State of Florida
    7 %     12 %     12 %
      Concentration of credit risk related to accounts receivable is reflective of the related revenues.
Properties
      In April 2003, we relocated our corporate offices to Boca Raton, Florida, under a 10-year lease. In addition, we lease office space for our eastern regional office in Palm Beach Gardens, Florida; our central regional office in New Braunfels, Texas; and our western regional office in Carlsbad, California. We also lease office space in Sydney, Australia, through our overseas affiliates, in Sandton, South Africa, and in Theale, England to support our Australian, South African, and U.K. operations, respectively. See “Business — Facilities” for a list of the correctional, detention, mental health and residential treatment properties we own or lease in connection with our operations.

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Legal Proceedings
      In June 2004, we received notice of a third-party claim for property damage incurred during 2001 and 2002 at several detention facilities that our Australian subsidiary formerly operated. The claim relates to property damage caused by detainees at the detention facilities. The notice was given by the Australian government’s insurance provider and did not specify the amount of damages being sought. In May 2005, we received additional correspondence indicating that the insurance provider still intends to pursue the claim against our Australian subsidiary. Although the claim is in the initial stages and we are still in the process of fully evaluating its merits, we believe that we have defenses to the allegations underlying the claim and intend to vigorously defend our rights with respect to this matter. However, although the insurance provider has not quantified its damage claim and the outcome of this matter cannot be predicted with certainty, based on information known to date, and our preliminary review of the claim, we believe that, if settled unfavorably, this matter could have a material adverse effect on our financial condition, results of operations and cash flows. We are uninsured for any damages or costs that we may incur as a result of this claim, including the expenses of defending the claim. We have accrued a reserve related to the claim based on our estimate of the most probable loss based on the facts and circumstances known to date and the advice of our legal counsel.
      On May 19, 2006, we, along with Corrections Corporation of America, referred to as CCA, were sued by an individual plaintiff in the Circuit Court of the Second Judicial Circuit for Leon County, Florida (Case No. 2005CA001884). The complaint alleges that, during the period from 1995 to 2004, we and CCA overbilled the State of Florida by an amount of at least $12,700,000 by submitting to the State false claims for various items relating to (i) repairs, maintenance and improvements to certain facilities which we operate in Florida, (ii) our staffing patterns in filling vacant security positions at those facilities, and (iii) our alleged failure to meet the conditions of certain waivers granted to us by the State of Florida from the payment of liquidated damages penalties relating to our staffing patterns at those facilities. The portion of the complaint relating to us arises out of our operations at our South Bay and Moore Haven correctional facilities. The complaint appears to be based largely on the same set of issues raised by a Florida Inspector General’s Evaluation Report released in late June 2005, referred to as the IG Report, which alleged that we and CCA overbilled the State of Florida by over $12 million.
      Subsequently, the Florida Department of Management Services, referred to as the DMS, which is responsible for administering our correctional contracts with the State of Florida, conducted a detailed analysis of the allegations raised by the IG Report which included a comprehensive written response to the IG Report which we had prepared and delivered to the DMS. In September 2005, the DMS provided a letter to us stating that, although its review had not yet been fully completed, it did not find any indication of any improper conduct by GEO. Although this determination is not dispositive of the recently initiated litigation, we believe it supports our position that we have valid defenses in this matter. We will continue to investigate this matter and intend to defend our rights vigorously. However, given the amounts claimed by the plaintiff and the fact that the nature of the allegations could cause adverse publicity to us, we believe that this matter, if settled unfavorably to us, could have a material adverse effect on or financial condition and results of operations.
      The nature of our business exposes us to various types of claims or litigation against us, including, but not limited to, civil rights claims relating to conditions of confinement and/or mistreatment, sexual misconduct claims brought by prisoners or detainees, medical malpractice claims, claims relating to employment matters (including, but not limited to, employment discrimination claims, union grievances and wage and hour claims), property loss claims, environmental claims, automobile liability claims, indemnification claims by our customers and other third parties, contractual claims and claims for personal injury or other damages resulting from contact with our facilities, programs, personnel or prisoners, including damages arising from a prisoner’s escape or from a disturbance or riot at a facility. Except as otherwise disclosed above, we do not expect the outcome of any pending claims or legal proceedings to have a material adverse effect on our financial condition, results of operations or cash flows.

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Securities and Exchange Commission
      Additional information about us can be found at www.thegeogroupinc.com. We make available on our website, free of charge, access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, our annual proxy statement on Schedule 14A and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 as soon as reasonably practicable after we electronically submit such materials to the Securities and Exchange Commission, or the SEC. In addition, the SEC makes available on its website, free of charge, reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including GEO. The SEC’s website is located at http://www.sec.gov. Information provided on our website or on the SEC’s website is not part of this prospectus supplement.

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MANAGEMENT
      The following table sets forth the names, ages and a brief account of the business experience of each of our directors and certain of our executive officers.
             
Name   Age   Position
         
Wayne H. Calabrese
    55     Vice Chairman, President and COO
Norman A. Carlson
    72     Director
Anne N. Foreman
    58     Director
Richard H. Glanton
    59     Director
John M. Palms
    70     Director
John M. Perzel
    56     Director
George C. Zoley
    56     Chairman of the Board and CEO
John G. O’Rourke
    55     Senior Vice President and Chief Financial Officer
John J. Bulfin
    52     Senior Vice President, General Counsel and Secretary
Jorge A. Dominicis
    43     Senior Vice President, Residential Treatment Services
John M. Hurley
    58     Senior Vice President, North American Operations
Donald H. Keens
    62     Senior Vice President, International Services
David N.T. Watson
    40     Vice President, Finance and Treasurer
Brian R. Evans
    38     Vice President, Chief Accounting Officer
      Wayne H. Calabrese. Mr. Calabrese is our Vice Chairman of the Board, President and Chief Operating Officer. He joined us as Vice President, Business Development in 1989 and has served in a range of increasingly senior positions since then. From 1992 to 1994, Mr. Calabrese was Chief Executive Officer of Australasian Correctional Management, Pty Ltd., a Sydney-based subsidiary of ours. Mr. Calabrese has served as a director since 1998. Prior to joining us, Mr. Calabrese was a partner in the Akron, Ohio law firm of Calabrese, Dobbins and Kepple. He also served as an Assistant City Law Director in Akron; an Assistant County Prosecutor and Chief of the County Bureau of Support for Summit County, Ohio; and Legal Counsel and Director of Development for the Akron Metropolitan Housing Authority. Mr. Calabrese also serves as a Director of numerous subsidiaries and partnerships through which we conduct our global operations.
      Norman A. Carlson. Mr. Carlson has served as a director since 1994 and served previously as a Director of The Wackenhut Corporation. Mr. Carlson retired from the Department of Justice in 1987 after serving as the Director of the Federal Bureau of Prisons for 17 years. During his 30-year career, Mr. Carlson worked at the United States Penitentiary, Leavenworth, Kansas, and at the Federal Correctional Institution, Ashland, Kentucky. Mr. Carlson was President of the American Correctional Association from 1978 to 1980, and is a Fellow in the National Academy of Public Administration. From 1987 until 1998, Mr. Carlson was Adjunct Professor in the department of sociology at the University of Minnesota in Minneapolis.
      Anne N. Foreman. Ms. Foreman has served as a director since 2002. Since 1999, Ms. Foreman has been a Trustee of the National Gypsum Company Settlement Trust and Director and Treasurer of the Asbestos Claims Management Corporation. Ms. Foreman is also a member of the board of directors of Ultra Electronics Defense, Inc. and Trust Services, Inc. Ms. Foreman served as Under Secretary of the United States Air Force from September 1989 until January 1993. Prior to her appointment as Under Secretary, Ms. Foreman was General Counsel of the Department of the Air Force and a member of the Department’s Intelligence Oversight Board. She practiced law in the Washington office of Bracewell and Patterson and with the British solicitors Boodle Hatfield, Co., in London, England from 1979 to 1985. Ms. Foreman is a former member of the U.S. Foreign Service, and served in Beirut, Lebanon; Tunis, Tunisia; and the U.S. Mission to the U.N. Ms. Foreman was twice awarded the Air Force Medal for Distinguished Civilian Service. Ms. Foreman also served on the Board of The Wackenhut Corporation for nine years.
      Richard H. Glanton. Mr. Glanton has served as a director since 1998. Mr. Glanton joined Exelon Corporation, an energy company, as Senior Vice President in May 2003 with leadership responsibilities for corporate development. He has served as a member of the Exelon board of directors since its inception in October 2000 and relinquished his board position when he assumed his role as an officer of the company.

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Mr. Glanton served as a Director on the Board of PECO Energy Company, a predecessor company of Exelon, from 1990 to 2000. Prior to joining Exelon in 2003, Mr. Glanton was a Partner in the General Corporate Group of the law firm of Reed, Smith, Shaw and McClay, LLP in Philadelphia, Pennsylvania and was with the firm since 1987. Mr. Glanton is active in public affairs and civic organizations and has a distinguished record of public service. He served from 1979 to 1983 as Deputy Counsel to Richard L. Thornburgh, former Governor of Pennsylvania. Mr. Glanton is a member of the board of directors of Aqua America Corporation and Chairman of its governance committee.
      John M. Palms. John M. Palms, Ph.D., is currently a Distinguished University Professor and President Emeritus at the University of South Carolina. Dr. Palms serves on the board of directors of Exelon Corporation, an energy company, and is currently the Chair of Exelon’s Audit and Finance Committee. Dr. Palms served as President at the University of South Carolina from 1991 to 2002 and previously as President at Georgia State University from 1989 to 1991. In addition to a distinguished career in academia, Dr. Palms has served in a number of military and governmental positions and committees. He currently serves as Chairman of the Board of Trustees of the Institute for Defense Analyses. He also served in the United States Air Force with a Regular Commission and on the United States President’s Selection Committee for White House Fellows.
      John M. Perzel. The Honorable John M. Perzel was sworn in as Pennsylvania’s Speaker of the House of Representatives on April 15, 2003. Prior to being elected Speaker, Mr. Perzel served four consecutive terms as House Majority Leader, becoming the longest serving House Majority Leader in Pennsylvania history. First elected to the House of Representatives in 1978, Speaker Perzel steadily climbed the ladder of responsibility, authority, and leadership. Before being elected Majority Leader in 1994, he held the offices of Republican Whip, Policy Committee Chairman, and head of the House Republican Campaign Committee. In March 2004, he established the Speaker’s Foundation Fund of the Philadelphia Foundation, a charitable organization created to support education, culture, and economic development across Pennsylvania.
      George C. Zoley. George C. Zoley serves as our Chairman of the Board and Chief Executive Officer and Chairman of GEO Care, Inc., our wholly-owned subsidiary. He served as our Vice Chairman and Chief Executive Officer from January 1997 to May of 2002. Mr. Zoley has served as our Chief Executive Officer since the company went public in 1994. Prior to 1994, Mr. Zoley served as President and Director since our incorporation in 1988. Mr. Zoley has served as a director since 1988. Mr. Zoley founded GEO in 1984 and continues to be a major factor in development of new business opportunities in the areas of correctional and detention management, health and mental health and other diversified government services. Mr. Zoley also serves as a director of several business subsidiaries through which we conduct our operations worldwide. Mr. Zoley is a member of the Board of Trustees of Florida Atlantic University in Boca Raton, Florida. Mr. Zoley also served as Chair of the FAU Presidential Search Committee and is a member of the FAU Foundation board of directors.
      John G. O’Rourke. Mr. O’Rourke has been responsible for our business management since 1991, assuming the position of Chief Financial Officer in 1994. Prior to joining us, Mr. O’Rourke was a career officer in the United States Air Force. In addition to operational flying experience as an instructor pilot in B-52 aircraft, his assignments included senior executive positions in the Pentagon involved in managing several multi-billion dollar national security projects, including the B-2 Stealth Bomber.
      John J. Bulfin. As our General Counsel since 2000, Mr. Bulfin has oversight responsibility for all our litigation, investigations and professional responsibility. Mr. Bulfin is a member of the Florida Bar and the American Bar Associations. He has been a trial lawyer since 1978 and is a Florida Bar Board Certified Civil trial lawyer. Prior to joining us in 2000, Mr. Bulfin was a founding partner of the West Palm Beach law firm of Wiederhold, Moses, Bulfin & Rubin.
      Jorge A. Dominicis. Mr. Dominicis joined us in May 2004 as Senior Vice President of Residential Treatment Services and President of GEO Care, Inc., our wholly-owned subsidiary. Mr. Dominicis is responsible for the overall management, administrative, and business development activities of the Residential Treatment Services division of GEO and of GEO Care, Inc. Prior to joining us, Mr. Dominicis served for 14 years as Vice President of Corporate Affairs at Florida Crystals Corporation, a sugar company, where he

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was responsible for all governmental and public affairs activity at the local, state and federal level, as well as for the coordination of corporate community outreach and charitable involvement. Prior to that, Mr. Dominicis served in public and government policy positions.
      John M. Hurley. As our Senior Vice President of North American Operations since 2000, Mr. Hurley is responsible for the overall administration and management of our domestic detention and correctional facilities. From 1998 to 2000, Mr. Hurley served as Warden of our South Bay, Florida correctional facility. Prior to joining us in 1998, Mr. Hurley was employed by the Department of Justice, Federal Bureau of Prisons for 26 years. During his tenure, he served as Warden at three different Bureau facilities. He also served as Director of the Bureau’s Staff Training Center in Glynco, Georgia.
      Donald H. Keens. As our Senior Vice President of International Services since 2000, Mr. Keens is responsible for management and control of our international marketing, sales and operations. From 1994 when Mr. Keens joined us, to 2000, Mr. Keens held positions with us abroad. Mr. Keens has 40 years of experience in the management of a wide range of criminal justice and security operations, including establishment and day-to-day management of security and correctional companies in the United Kingdom, Australia, New Zealand, the United States, and South Africa. He is also experienced in the operation of multi-million dollar prison service contracts.
      David N.T. Watson. Mr. Watson has been our Vice President, Finance since July 1999 and Treasurer since May 2003. He was also Assistant Secretary from 2000 to 2002 and Chief Accounting Officer from 1994 to 2003. From 1989 until joining us, Mr. Watson was with the Miami office of Arthur Andersen, LLP where his most recent position was Manager, Audit and Business Advisory Services Group. Mr. Watson is a member of the American Institute of Certified Public Accountants and the Florida Institute of Certified Public Accountants.
      Brian R. Evans. Mr. Evans has been our Vice President of Accounting since October 2002 and Chief Accounting Officer since May 2003. Mr. Evans joined us in October 2000 as Corporate Controller. From 1994 until joining us, Mr. Evans was with the West Palm Beach office of Arthur Andersen, LLP where his most recent position was Manager in the Audit and Business Advisory Services Group. From 1990 to 1994, Mr. Evans served in the U.S. Navy as an officer in the Supply Corps. Mr. Evans is a member of the American Institute of Certified Public Accountants.

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PRINCIPAL SHAREHOLDERS
      The following table shows beneficial ownership of our common stock as of December 31, 2005 by:
  •  each of our directors;
 
  •  certain of our executive officers;
 
  •  all directors and executive officers as a group; and
 
  •  each shareholder that beneficially owns more than 5% of our common stock based solely on a review of SEC filings.
      Beneficial ownership is a technical term broadly defined by the SEC to mean more than ownership in the usual sense. In general, beneficial ownership includes any shares that the holder can vote or transfer and stock options and warrants that are exercisable currently or become exercisable within 60 days. These shares are considered to be outstanding for the purpose of calculating the percentage of outstanding GEO common stock owned by a particular shareholder, but are not considered to be outstanding for the purpose of calculating the percentage ownership of any other person. Percentage of ownership is based on      shares outstanding as of May      , 2006. Except as otherwise noted, the shareholders named in this table have sole voting and dispositive power for all shares shown as beneficially owned by them.
                 
    Common Stock
     
    Amount & Nature    
    of Beneficial   Percent of
Beneficial Owner(1)   Ownership(2)   Class(3)
         
DIRECTORS(4)
               
Wayne H. Calabrese
    268,955       2.69 %
Norman A. Carlson
    19,200       *  
Anne N. Foreman
    10,400       *  
Richard H. Glanton
    10,200       *  
John M. Palms
    0       *  
John M. Perzel
    2,700       *  
George C. Zoley
    393,170       3.88 %
 
EXECUTIVE OFFICERS(4)
               
Donald H. Keens
    60,195       *  
John G. O’Rourke
    136,195       1.38 %
John J. Bulfin
    71,195       *  
John M. Hurley
    76,195       *  
 
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP(5)
    1,083,305       10.04 %
 
OTHER
               
Wells Fargo & Company(6)
    1,482,331       15.23 %
FMR Corp.(7)
    1,445,491       14.85 %
Morgan Stanley(8)
    1,142,612       11.74 %
Barclays Global Investors(9)
    719,056       7.39 %
 
Beneficially owns less than 1% of our common stock
(1)  Unless stated otherwise, the address of the beneficial owners is One Park Place, Suite 700, 621 NW 53rd Street, Boca Raton, Florida 33487.
 
(2)  Information concerning beneficial ownership was furnished by the persons named in the table or derived from documents filed with the Securities and Exchange Commission, which we refer to as the SEC. Unless stated otherwise, each person named in the table has sole voting and investment power with respect to the shares beneficially owned.

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(3)  As of April 9, 2006, we had 9,733,653 shares of common stock outstanding.
 
(4)  The number of shares of common stock underlying stock options held by directors and the Named Executive Officers that are immediately exercisable, or exercisable within 60 days of April 9, 2006, are as follows: Mr. Calabrese — 248,955; Mr. Carlson — 18,200; Ms. Foreman — 10,200; Mr. Glanton — 10,200; Mr. Perzel — 2,700; Mr. Zoley  — 393,170; Mr. Keens — 60,195; Mr. O’Rourke — 136,195; Mr. Bulfin — 71,195; Mr. Hurley — 76,195.
 
(5)  Includes 1,060,605 shares of common stock underlying stock options held by the directors, nominees and executive officers that are immediately exercisable or exercisable within 60 days of April 9, 2006.
 
(6)  The principal business address of Wells Fargo & Company is 420 Montgomery Street, San Francisco, California 94104. On January 31, 2006, Wells Capital Management Incorporated informed us that, as of December 31, 2005, Wells Capital Management Incorporated beneficially owned 1,440,879 shares with sole voting power over 303,405 such shares and sole dispositive power over all such shares. Also on that date, Wells Fargo Funds Management, LLC informed us that, as of December 31, 2005, Wells Fargo Funds Management, LLC beneficially owned 1,133,493 shares with sole voting power over all such shares and sole dispositive power over 40,452 such shares. Altogether, Wells Fargo & Company beneficially owned 1,482,331 shares as of December 31, 2005.
 
(7)  The principal business address of FMR Corp. is 82 Devonshire Street, Boston, Massachusetts 02109. On February 14, 2006, FMR Corp. informed us that, as of December 31, 2005, FMR Corp. beneficially owned 1,445,491 shares with sole voting power over 504,010 such shares and sole dispositive power over all such shares.
 
(8)  The principal business address of Morgan Stanley is 1585 Broadway, New York, New York 10036. On February 15, 2006, Morgan Stanley Investment Management Inc. informed us that, as of December 31, 2005, Morgan Stanley Investment Management Inc. beneficially owned 488,850 shares with sole voting and dispositive power over 462,800 such shares. Also on that date, Morgan Stanley Investment Advisors Inc. informed us that, as of December 31, 2005, Morgan Stanley Investment Advisors Inc. beneficially owned 382,900 shares with sole voting and dispositive power over all such shares. Altogether, Morgan Stanley beneficially owned 1,142,612 shares as of December 31, 2005, with sole voting and dispositive power over 1,073,761 such shares, and shared voting and dispositive power over 1,251 such shares.
 
(9)  The principal business address of Barclays Global Investors Japan Trust and Banking Company Limited (Barclays) is Ebisu Prime Square Tower 8th Floor, 1-1-39 Hiroo Shibuya-Ku, Tokyo 150-0012 Japan. On January 26, 2006, Barclays Global Investors, NA informed us that, as of December 31, 2005, Barclays Global Investors, NA beneficially owned 719,056 shares with sole voting power over 632,828 such shares and sole dispositive power over all such shares. Also on that date, Barclays Global Fund Advisors informed us that, as of December 31, 2005, Barclays Global Fund Advisors beneficially owned 113,146 shares with sole voting power over 109,521 such shares and sole dispositive power over all such shares. Altogether, Barclays beneficially owned 832,202 shares as of December 31, 2005.

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UNDERWRITING
      Lehman Brothers Inc. is acting as the representative of the underwriters and the sole book-running manager of this offering. Under the terms of an underwriting agreement, which we will file as an exhibit to our current report on Form 8-K and incorporate by reference in this prospectus supplement and the accompanying prospectus, each of the underwriters named below has severally agreed to purchase from us the respective number of shares of common stock shown opposite its name below:
           
Underwriters   Number of Shares
     
Lehman Brothers Inc. 
       
Banc of America Securities LLC
       
First Analysis Securities Corporation
       
Jefferies & Company, Inc. 
       
Avondale Partners, LLC
       
BNP Paribas Securities Corp. 
       
       
 
Total
       
       
      The underwriting agreement provides that the underwriters’ obligation to purchase shares of common stock depends on the satisfaction of the conditions contained in the underwriting agreement including:
  •  the obligation to purchase all of the shares of common stock offered hereby (other than those shares of common stock covered by their option to purchase additional shares as described below), if any of the shares are purchased;
 
  •  the representations and warranties made by us to the underwriters are true;
 
  •  there is no material change in our business or in the financial markets; and
 
  •  we deliver customary closing documents to the underwriters.
Commissions and Expenses
      The following table summarizes the underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares. The underwriting fee is the difference between the initial price to the public and the amount the underwriters pay to us for the shares.
                   
    No Exercise   Full Exercise
         
Per share
               
 
Total
               
      The representative of the underwriters has advised us that the underwriters propose to offer the shares of common stock directly to the public at the public offering price on the cover of this prospectus supplement and to selected dealers, which may include the underwriters, at such offering price less a selling concession not in excess of $  per share. After the commencement of the offering, the representative may change the offering price and other selling terms.
      The expenses of the offering that are payable by us are estimated to be $  (excluding underwriting discounts and commissions).
Option to Purchase Additional Shares
      We have granted the underwriters an option exercisable for 30 days after the date of this prospectus supplement/the underwriting agreement, to purchase, from time to time, in whole or in part, up to an aggregate of 450,000 shares at the public offering price less underwriting discounts and commissions. This option may be exercised if the underwriters sell more than 3,000,000 shares in connection with this offering. To the extent that this option is exercised, each underwriter will be obligated, subject to certain conditions, to

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purchase its pro rata portion of these additional shares based on the underwriter’s percentage underwriting commitment in the offering as indicated in the table at the beginning of this Underwriting Section.
Lock-Up Agreements
      We, all of our directors and executive officers have agreed that, other than with respect to the options purchased by the Company from certain of its executive officers and employees as described in “Use of Proceeds”, without the prior written consent of Lehman Brothers Inc., we will not directly or indirectly (1) offer for sale, sell, pledge, or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any shares of common stock (including, without limitation, shares of common stock that may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the SEC and shares of common stock that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for common stock, (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, (3) make any demand for or exercise any right or file or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common stock or securities convertible, exercisable or exchangeable into common stock or any of our other securities, or (4) publicly disclose the intention to do any of the foregoing for a period of 90 days after the date of this prospectus supplement.
      The 90-day restricted period described in the preceding paragraph will be extended if:
  •  during the last 17 days of the 90-day restricted period we issue an earnings release or material news or a material event relating to us occurs; or
 
  •  prior to the expiration of the 90-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 90-day period;
in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event, unless such extension is waived in writing by Lehman Brothers Inc.
      Lehman Brothers Inc., in its sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice. When determining whether or not to release common stock and other securities from lock-up agreements, Lehman Brothers Inc. will consider, among other factors, the holder’s reasons for requesting the release, the number of shares of common stock and other securities for which the release is being requested and market conditions at the time.
Indemnification
      We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.
Stabilization, Short Positions and Penalty Bids
      The representative may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Securities Exchange Act of 1934:
  •  Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
 
  •  A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number

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  of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
 
  •  Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions.
 
  •  Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The New York Stock Exchange or otherwise and, if commenced, may be discontinued at any time.
      Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor any of the underwriters make representation that the representative will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
Electronic Distribution
      A prospectus and prospectus supplement in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representative on the same basis as other allocations.
      Other than the prospectus and prospectus supplement in electronic format, the information on any underwriter’s or selling group member’s web site and any information contained in any other web site maintained by an underwriter or selling group member is not part of the prospectus, prospectus supplement or the registration statement of which this prospectus supplement and the accompanying prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.
Stamp Taxes
      If you purchase shares of common stock offered in this prospectus supplement and the accompanying prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus supplement and the accompanying prospectus.

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Relationships
      Certain of the underwriters and their related entities have engaged and may engage in commercial and investment banking transactions with us in the ordinary course of their business. They have received customary compensation and expenses for these commercial and investment banking transactions.
United Kingdom
      This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (e) of the Order (all such persons together being referred to as “relevant persons”). The shares of common stock are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such common stock will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
      Each of the underwriters has represented and agreed that:
  (a)  it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 or FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to us, and
  (b)  it has complied with, and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.
European Economic Area
      To the extent that the offer of the common stock is made in any Member State of the European Economic Area that has implemented the Prospectus Directive before the date of publication of a prospectus in relation to the common stock which has been approved by the competent authority in the Member State in accordance with the Prospectus Directive (or, where appropriate, published in accordance with the Prospectus Directive and notified to the competent authority in the Member State in accordance with the Prospectus Directive), the offer (including any offer pursuant to this document) is only addressed to qualified investors in that Member State within the meaning of the Prospectus Directive or has been or will be made otherwise in circumstances that do not require us to publish a prospectus pursuant to the Prospectus Directive.
      In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”) it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:
  (a)  to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities,
  (b)  to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts, or
  (c)  in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive.

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      For the purposes of this provision, the expression an “offer of shares to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/ EC and includes any relevant implementing measure in each Relevant Member State.
LEGAL MATTERS
      Certain legal matters relating to the shares of common stock being offered hereby will be passed upon for us by Akerman Senterfitt, Miami, Florida. Simpson Thacher & Bartlett LLP advised the underwriters in connection with the offering of the common stock.
EXPERTS
      The consolidated financial statements of The GEO Group, Inc. appearing in our Annual Report on Form 10-K for the year ended January 1, 2006, including the schedule appearing therein, and management’s assessment of the effectiveness of our internal control over financial reporting as of January 1, 2006 included in our Annual Report on Form 10-K, have been audited by Ernst & Young LLP, an independent registered certified public accounting firm, as set forth in its reports thereon, included therein, and incorporated herein by reference. Such consolidated financial statements and management’s assessment are incorporated herein in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
      On March 27, 2006, the audit committee of our board of directors appointed Grant Thornton LLP as our independent public accountant for the 2006 fiscal year. In connection therewith, the audit committee of our board of directors dismissed Ernst & Young LLP as our independent auditor. During our two most recent fiscal years, Ernst & Young’s report on our consolidated financial statements did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. Ernst & Young LLP’s report with respect to our financial statements for the fiscal year ended January 2, 2005 contained a reference to Ernst &Young LLP’s report on the effectiveness of our internal control over financial reporting, referred to as the 2004 E&Y Report, which contained an adverse opinion on the effectiveness of our internal control over financial reporting. The 2004 E&Y Report referred to five material weaknesses identified in management’s annual report on internal control over financial reporting as of January 2, 2005, referred to as the 2004 Management Report. The 2004 E&Y Report and the 2004 Management Report were included in our annual report on Form 10-K for the fiscal year ended January 2, 2005, filed with the SEC on March 23, 2005. As a result of these material weaknesses, the 2004 Management Report concluded, and the 2004 E&Y Report stated that, in Ernst & Young LLP’s opinion, we did not maintain effective internal control over financial reporting as of January 2, 2005, based on the criteria set forth by COSO, known as the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework The material weaknesses referenced in the 2004 Management Report and the 2004 E&Y Report, together with certain items identified during efforts undertaken to remediate those material weaknesses, caused us to restate certain portions of our previously issued financial statements for the fiscal years ended December 30, 2001, December 29, 2002, December 28, 2003 and January 2, 2005, as previously disclosed in our amended annual report on Form 10-K/ A for the fiscal year ended January 2, 2005, filed with the SEC on August 17, 2005. As disclosed in Item 9A of our annual report on Form 10-K for the fiscal year ended January 1, 2006, referred to as the 2005 10-K, filed with the SEC on March 17, 2006, our management has concluded that all of the material weaknesses referred to in the 2004 Management Report and the 2004 E&Y Report were remediated as of January 1, 2006. Management’s annual report on internal control over financial reporting as of January 1, 2006, as well as Ernst & Young LLP’s report on the effectiveness of our internal control over financial reporting as of January 1, 2006, both of which were included in the 2005 10-K, concluded that we maintained, in all material respects, effective internal control over financial reporting as of January 1, 2006, based on the COSO criteria. During our two fiscal years ended January 1, 2006 and January 2, 2005, and in the interim period from January 1, 2006

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through March 21, 2006, the date of cessation of our audit relationship with Ernst & Young, there were no disagreements with Ernst & Young on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Ernst & Young, would have caused them to make reference thereto in their report on our consolidated financial statements for those years. Additionally, during this time frame, there were no “reportable events,” as defined in Item 304(a)(1)(v) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended. The audit committee of our board of directors requested Ernst & Young to furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of that letter, dated March 27, 2006, was filed as Exhibit 16.1 to our Current Report on Form 8-K, which was filed with the SEC on March 27, 2006.
INCORPORATION BY REFERENCE
      We have elected to incorporate by reference information into this prospectus supplement. By incorporating by reference, we can disclose important information to you by referring to another document we have filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus supplement, except as described in the following sentence. Any statement in this prospectus supplement or the accompanying prospectus or in any document that is incorporated or deemed to be incorporated by reference in this prospectus supplement or the accompanying prospectus will be deemed to have been modified or superseded to the extent that a statement contained in this prospectus supplement or any document that we subsequently file or have filed with the SEC that is incorporated or deemed to be incorporated by reference in this prospectus supplement, modifies or supersedes that statement. Any statement so modified or superseded will not be deemed to be a part of this prospectus supplement or the accompanying prospectus, except as so modified or superseded.
      We are incorporating by reference the following documents that we have filed with the SEC and our future filings with the SEC (other than information furnished under Item 2.02 or 7.01 in current reports on Form 8-K) under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act until this offering is completed:
  •  our Annual Report on Form 10-K for the year ended January 1, 2006;
 
  •  our Quarterly Report on Form 10-Q for the quarter ended April 2, 2006;
 
  •  our Current Reports on Form 8-K which were filed with the SEC on January 6, 2006, February 14, 2006 and March 27, 2006;
 
  •  our Current Reports on Form 8-K/A which were filed with the SEC on January 20, 2006 and March 31, 2006; and
 
  •  The description of our common stock contained in our registration statement on Form 8-A/A, filed on October 30, 2003, including any amendment or report filed for the purpose of updating such description.
      We will provide without charge to each person, including any beneficial owner, to whom this prospectus supplement is delivered a copy of any of the documents that we have incorporated by reference into this prospectus supplement, other than exhibits unless the exhibits are specifically incorporated by reference in those documents. To receive a copy of any of the documents incorporated by reference in this prospectus supplement, other than exhibits unless they are specifically incorporated by reference in those documents, call or write to The GEO Group, Inc., 621 NW 53rd Street, Suite 700, Boca Raton, Florida 33487, Attention: Investor Relations, telephone: (561) 893-0101. The information relating to us contained in this prospectus supplement and the accompanying prospectus is not complete and should be read together with the information contained in the documents incorporated and deemed to be incorporated by reference in this prospectus supplement and the accompanying prospectus.

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FINANCIAL STATEMENT OF THE GEO GROUP, INC. AND SUBSIDIARIES
           
AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 1, 2006, JANUARY 2, 2005 AND DECEMBER 28, 2003        
 
 
Management’s Responsibility for Financial Statements
    S-74  
 
Management’s Annual Report on Internal Control over Financial Reporting
    S-75  
 
Report of Independent Registered Certified Public Accountants
    S-76  
 
Consolidated Statements of Income for the fiscal years ended January 1, 2006, January 2, 2005 and December 28, 2003
    S-78  
 
Consolidated Balance Sheets as of January 1, 2006 and January 2, 2005
    S-79  
 
Consolidated Statements of Cash Flows for the fiscal years ended January 1, 2006, January 2, 2005 and December 28, 2003
    S-80  
 
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the fiscal years ended January 1, 2006, January 2, 2005 and December 28, 2003
    S-81  
 
Notes to Consolidated Financial Statements
    S-82  
 
UNAUDITED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED
APRIL 2, 2006 AND APRIL 3, 2005
       
 
 
Consolidated Statements of Income for the thirteen weeks ended April 2, 2006 and April 3, 2005 (unaudited)
    S-118  
 
Consolidated Balance Sheets as of April 2, 2006 and January 1, 2006 (audited)
    S-119  
 
Consolidated Statements of Cash Flows for the thirteen weeks ended April 2, 2006 and April 3, 2005 (unaudited)
    S-120  
 
Notes to Unaudited Consolidated Financial Statements
    S-121  

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MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS
To the Shareholders of
The GEO Group, Inc.:
      The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. They include amounts based on judgments and estimates.
      Representation in the consolidated financial statements and the fairness and integrity of such statements are the responsibility of management. In order to meet management’s responsibility, the Company maintains a system of internal controls and procedures and a program of internal audits designed to provide reasonable assurance that our assets are controlled and safeguarded, that transactions are executed in accordance with management’s authorization and properly recorded, and that accounting records may be relied upon in the preparation of financial statements.
      The consolidated financial statements have been audited by Ernst & Young LLP, independent registered certified public accountants, whose appointment was ratified by our shareholders. Their report expresses a professional opinion as to whether management’s consolidated financial statements considered in their entirety present fairly, in conformity with accounting principles generally accepted in the United States, the Company’s financial position and results of operations. Their audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board. As part of this audit, Ernst & Young LLP considered the Company’s system of internal controls to the degree they deemed necessary to determine the nature, timing, and extent of their audit tests which support their opinion on the consolidated financial statements.
      The Audit Committee of the Board of Directors meets periodically with representatives of management, the independent registered certified public accountants and our internal auditors to review matters relating to financial reporting, internal accounting controls and auditing. Both the internal auditors and the independent registered certified public accountants have unrestricted access to the Audit Committee to discuss the results of their reviews.
  George C. Zoley
  Chairman and Chief Executive Officer
 
  Wayne H. Calabrese
  Vice Chairman, President
  and Chief Operating Officer
 
  John G. O’Rourke
  Senior Vice President of Finance
  and Chief Financial Officer

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MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
      Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer that: (i) pertains to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provides reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements for external reporting in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures are being made only in accordance with authorization of the Company’s management and directors; and (iii) provides reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedure may deteriorate. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of January 1, 2006. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control — Integrated Framework.
      On November 4, 2005, the Company completed the acquisition of Correctional Services Corporation (“CSC”), as discussed elsewhere in this report. For 2005, CSC represented 2.8% of the Company’s consolidated revenue and, as of January 1, 2006, CSC represented 34.7% of the Company’s total consolidated assets. In making management’s assessment of the effectiveness of its internal control over financial reporting, management has excluded CSC from its report on internal control over financial reporting as management did not have sufficient time to make an assessment of CSC’s internal controls using the COSO criteria in accordance with Section 404 of the Sarbanes-Oxley Act.
      The Company evaluated, with the participation of its Chief Executive Officer and Chief Financial Officer, its internal control over financial reporting as of January 1, 2006, based on the COSO Internal Control — Integrated Framework. Based on this evaluation, the Company’s management concluded that as of January 1, 2006, its internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
      Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of January 1, 2006 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears on page S-76.

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REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
of The GEO Group, Inc.
      We have audited the accompanying consolidated balance sheets of The GEO Group, Inc. as of January 1, 2006 and January 2, 2005, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended January 1, 2006. Our audits also included the financial statement schedule listed in the index at item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
      In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The GEO Group, Inc. at January 1, 2006 and January 2, 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 1, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of The GEO Group, Inc.’s internal control over financial reporting as of January 1, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2006 expressed an unqualified opinion thereon.
  /s/ Ernst & Young LLP
Fort Lauderdale, Florida
March 14, 2006

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REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
of The GEO Group, Inc.
      We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, that The GEO Group, Inc. maintained effective internal control over financial reporting as of January 1, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The GEO Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
      In our opinion, management’s assessment that The GEO Group, Inc. maintained effective internal control over financial reporting as of January 1, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, The GEO Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 1, 2006, based on the COSO criteria.
      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The GEO Group, Inc. as of January 1, 2006 and January 2, 2005, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended January 1, 2006, of The GEO Group, Inc. and our report dated March 14, 2006 expressed an unqualified opinion thereon.
  /s/ Ernst & Young LLP
Fort Lauderdale, Florida
March 14, 2006

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THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years Ended January 1, 2006, January 2, 2005, and December 28, 2003
                           
    2005   2004   2003
             
    (In thousands, except per share data)
Revenues
  $ 612,900     $ 593,994     $ 549,238  
Operating Expenses
    540,128       495,226       467,018  
Depreciation and Amortization
    15,876       13,898       13,341  
General and Administrative Expenses
    48,958       45,879       39,379  
                   
Operating Income
    7,938       38,991       29,500  
Interest Income
    9,154       9,568       6,853  
Interest Expense
    (23,016 )     (22,138 )     (17,896 )
Write-off of Deferred Financing Fees from Extinguishment of Debt
    (1,360 )     (317 )     (1,989 )
Gain on Sale of UK Joint Venture
                56,094  
                   
Income (loss) Before Income Taxes, Minority Interest, Equity in Earnings of Affiliates, and Discontinued Operations
    (7,284 )     26,104       72,562  
Provision (benefit) for Income Taxes
    (11,826 )     8,231       36,852  
Minority Interest
    (742 )     (710 )     (645 )
Equity in Earnings of Affiliates, (net of income tax provision (benefit) of $(2,016), $0, and $634)
    2,079             1,310  
                   
Income from Continuing Operations
    5,879       17,163       36,375  
Income (loss) from discontinued operations, (net of tax (benefit) provision of $895, $(181), and $1,544)
    1,127       (348 )     3,644  
                   
Net Income
  $ 7,006     $ 16,815     $ 40,019  
                   
Weighted Average Common Shares Outstanding:
                       
 
Basic
    9,580       9,384       15,618  
                   
 
Diluted
    10,010       9,738       15,829  
                   
Earnings (loss) per Common Share:
                       
 
Basic:
                       
 
Income from continuing operations
  $ 0.61     $ 1.83     $ 2.33  
 
Income (loss) from discontinued operations
    0.12       (0.04 )     0.23  
                   
 
Net income per share-basic
  $ 0.73     $ 1.79     $ 2.56  
                   
 
Diluted:
                       
 
Income from continuing operations
  $ 0.59     $ 1.77     $ 2.30  
 
Income (loss) from discontinued operations
    0.11       (0.04 )     0.23  
                   
 
Net income per share-diluted
  $ 0.70     $ 1.73     $ 2.53  
                   
The accompanying notes are an integral part of these consolidated financial statements.

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THE GEO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
January 1, 2006 and January 2, 2005
                     
    2005   2004
         
    (In thousands, except per
    share data)
ASSETS
Current Assets
               
 
Cash and cash equivalents
  $ 57,094     $ 92,005  
 
Restricted cash
    8,882        
 
Short-term investments
          10,000  
 
Accounts receivable, less allowance for doubtful accounts of $224 and $907
    127,612       90,386  
 
Deferred income tax asset
    19,755       12,891  
 
Other current assets
    15,826       12,083  
 
Current assets of discontinued operations
    123       5,401  
             
   
Total current assets
    229,292       222,766  
             
Restricted Cash
    17,484       3,908  
Property and Equipment, Net
    282,236       190,865  
Assets Held for Sale
    5,000        
Direct Finance Lease Receivable
    38,492       42,953  
Goodwill and Other Intangible Assets, Net
    52,127       615  
Other Non Current Assets
    14,880       13,282  
Other Assets of Discontinued Operations
          5,937  
             
    $ 639,511     $ 480,326  
             
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
               
 
Accounts payable
  $ 27,762     $ 21,039  
 
Accrued payroll and related taxes
    26,985       24,595  
 
Accrued expenses
    70,177       53,104  
 
Current portion of deferred revenue
    1,894       1,844  
 
Current portion of capital lease obligations, long-term debt and non-recourse debt
    8,441       13,736  
 
Current liabilities of discontinued operations
    1,260       3,160  
             
   
Total current liabilities
    136,519       117,478  
             
Deferred Revenue
    3,267       4,320  
Deferred Tax Liability
    2,085       8,466  
Minority Interest
    1,840       1,194  
Other Non Current Liabilities
    19,601       19,978  
Capital Lease Obligations
    17,072        
Long-Term Debt
    219,254       186,198  
Non-Recourse Debt
    131,279       42,953  
Commitments and Contingencies
               
Shareholders’ Equity
               
 
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued or outstanding
           
 
Common stock, $0.01 par value, 30,000,000 shares authorized, 21,691,143 and 21,507,391 issued and 9,691,143 and 9,507,391 outstanding
    97       95  
 
Additional paid-in capital
    70,784       67,005  
 
Retained earnings
    171,666       164,660  
 
Accumulated other comprehensive loss
    (2,073 )     (141 )
 
Treasury stock 12,000,000 shares
    (131,880 )     (131,880 )
             
   
Total shareholders’ equity
    108,594       99,739  
             
    $ 639,511     $ 480,326  
             
The accompanying notes are an integral part of these consolidated financial statements.

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THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended January 1, 2006, January 2, 2005, and December 28, 2003
                           
    2005   2004   2003
             
    (In thousands)
Cash Flow from Operating Activities:
                       
Income from continuing operations
  $ 5,879     $ 17,163     $ 36,375  
Adjustments to reconcile income from continuing operations to net cash provided by operating activities
                       
 
Impairment charge
    20,859              
 
Idle facility charge
    4,255       3,000       5,000  
 
Depreciation and amortization
    15,876       13,898       13,341  
 
Amortization of debt issuance costs
    449       303       607  
 
Deferred tax liability (benefit)
    (10,614 )     3,433       230  
 
Provision for doubtful accounts
          229       170  
 
Major maintenance reserve
    290       465       296  
 
Equity in earnings of affiliates, net of tax
    (2,079 )           (1,310 )
 
Minority interests in earnings of consolidated entity
    742       710       645  
 
Other non-cash charges
          141        
 
Tax benefit related to employee stock options
    731       773       330  
 
Gain on sale of UK joint venture
                (56,094 )
 
Write-off of deferred financing fees from extinguishment of debt
    1,360       317       1,989  
Changes in assets and liabilities, net of acquisition
                       
 
Accounts receivable
    (7,238 )     (6,688 )     (12,517 )
 
Other current assets
    (3,235 )     (1,283 )     2,455  
 
Other assets
    (564 )     1,442       (2,365 )
 
Accounts payable and accrued expenses
    4,918       (12,558 )     24,341  
 
Accrued payroll and related taxes
    (996 )     6,699       (3,005 )
 
Deferred revenue
    (1,003 )     (1,844 )     (1,891 )
 
Other liabilities
    1,763       5,282       5,787  
                   
Net cash provided by operating activities of continuing operations
    31,393       31,482       14,384  
Net cash provided by operating activities of discontinued operations
    3,420       14,024       4,300  
                   
Net cash provided by operating activities
    34,813       45,506       18,684  
                   
Cash Flow from Investing Activities:
                       
Acquisitions, net of cash acquired
    (79,290 )            
Investments in and advances to affiliates
                193  
Proceeds from sale of assets
    707       315        
Proceeds from the sale of UK joint venture
                80,678  
Proceeds from sales of short-term investments
    39,000       56,835       2,000  
Purchases of short-term investments
    (29,000 )     (56,835 )     (12,000 )
Change in restricted cash
    (4,406 )     52,000       (55,794 )
Capital expenditures
    (31,465 )     (10,235 )     (6,791 )
                   
Net cash provided by (used in) investing activities of continuing operations
    (104,454 )     42,080       8,286  
                   
Net cash provided by investing activities of discontinued operations
    11,500              
                   
Net cash provided by (used in) investing activities
    (92,954 )     42,080       8,286  
Cash Flow from Financing Activities:
                       
Proceeds from long-term debt and non-recourse debt
    75,000       10,000       272,130  
Debt issuance costs including original issue discount
                (11,857 )
Payments on long-term debt
    (53,398 )     (58,704 )     (146,250 )
Proceeds from the exercise of stock options
    2,999       1,589       776  
Purchase of common stock
                (132,000 )
                   
Net cash provided by (used in) financing activities
    24,601       (47,115 )     (17,201 )
                   
Effect of Exchange Rate Changes on Cash and Cash Equivalents
    (1,371 )     1,575       5,734  
                   
Net Increase (Decrease) in Cash and Cash Equivalents
    (34,911 )     42,046       15,503  
Cash and Cash Equivalents, beginning of period
    92,005       49,959       34,456  
                   
Cash and Cash Equivalents, end of period
  $ 57,094     $ 92,005     $ 49,959  
                   
Supplemental Disclosures:
                       
Cash paid (received) during the year for:
                       
Income taxes
  $ (636 )   $ 8,906     $ 32,517  
                   
Interest
  $ 21,181     $ 20,158     $ 5,920  
                   
Non-cash investing and financing activities
                       
Fair value of assets acquired, net of cash acquired
  $ 223,934     $     $  
Total liabilities assumed
    144,644              
                   
    $ 79,290     $     $  
                   
Sale of assets in exchange for note receivable
  $ 2,000              
                   
The accompanying notes are an integral part of these consolidated financial statements.

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THE GEO GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
Fiscal Years Ended January 1, 2006, January 2, 2005, and December 28, 2003
                                                                   
    Common Stock           Accumulated   Treasury Stock    
        Additional       Other       Total
    Number       Paid-In   Retained   Comprehensive   Number       Shareholders’
    of Shares   Amount   Capital   Earnings   Income (Loss)   of Shares   Amount   Equity
                                 
    (In thousands)
Balance, December 29, 2002
    21,246     $ 212     $ 63,500     $ 107,826     $ (21,323 )         $     $ 150,215  
Proceeds from stock options exercised
    87       1       775                               776  
Purchase of common stock
    (12,000 )     (120 )                       (12,000 )     (131,880 )     (132,000 )
Tax benefit related to employee stock options
                330                               330  
Comprehensive income:
                                                               
 
Net income
                      40,019                          
 
Change in foreign currency translation, net of income tax expense of $3,876
                            6,062                    
 
Minimum pension liability adjustment, net of income tax benefit of $116
                            (263 )                  
 
Unrealized loss on derivative instruments, net of income tax benefit of $476
                            (1,112 )                  
 
Reclassification adjustment for losses on UK interest rate swaps included in net income related to the sale of the UK joint venture
                            13,298                    
Total comprehensive income
                                              58,004  
                                                 
Balance, December 28, 2003
    9,333       93       64,605       147,845     $ (3,338 )     (12,000 )     (131,880 )     77,325  
Proceeds from stock options exercised
    174       2       1,589                               1,591  
Tax benefit related to employee stock options
                773                               773  
Acceleration of vesting on employee stock options
                38                               38  
Comprehensive income:
                                                               
 
Net income
                      16,815                          
 
Change in foreign currency translation, net of income tax expense of $384
                            600                    
 
Minimum pension liability adjustment, net of income tax expense of $480
                            661                    
 
Unrealized gain on derivative instruments, net of income tax expense of $815
                            1,936                    
Total comprehensive income
                                              20,012  
                                                 
Balance, January 2, 2005
    9,507       95       67,005       164,660     $ (141 )     (12,000 )     (131,880 )     99,739  
Proceeds from stock options exercised
    184       2       2,997                               2,999  
Tax benefit related to employee stock options
                731                               731  
Acceleration of vesting on employee stock options
                51                               51  
Comprehensive income:
                                                               
 
Net income
                      7,006                          
 
Change in foreign currency translation, net of income tax benefit of $2,158
                            (3,375 )                  
 
Minimum pension liability adjustment, net of income tax expense of $8
                            12                    
 
Unrealized gain on derivative instruments, net of income tax expense of $625
                            1,431                    
Total comprehensive income
                                              5,074  
                                                 
Balance, January 1, 2006
    9,691     $ 97     $ 70,784     $ 171,666     $ (2,073 )     (12,000 )   $ (131,880 )   $ 108,594  
                                                 
The accompanying notes are an integral part of these consolidated financial statements.

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended January 1, 2006, January 2, 2005, and December 28, 2003
1. Summary of Business Operations and Significant Accounting Policies
      The GEO Group, Inc., a Florida corporation, and subsidiaries (the “Company”) is a leading developer and manager of privatized correctional, detention, mental health and residential treatment services facilities located in the United States, Australia and South Africa. Until July 9, 2003, the Company was a majority owned subsidiary of The Wackenhut Corporation, (“TWC”). TWC previously owned 12 million shares of the Company’s common stock.
      On November 4, 2005, the Company completed the acquisition of Correctional Services Corporation (CSC), a Florida-based provider of privatized jail, community corrections and alternative sentencing services. Management of the Company believes the acquisition is an excellent strategic fit, will have positive impact on earnings and broaden our existing client base. The acquisition was completed through the merger (the “Merger”) of CSC into GEO Acquisition, Inc., a wholly owned subsidiary of the Company. Under the terms of the Merger, the Company acquired for cash, 100% of the 10.2 million outstanding shares of CSC common stock for $6.00 per share or approximately $62.1 million. As a result of the Merger, GEO will become responsible for supervising the operation of the sixteen adult correctional and detention facilities, totaling 8,037 beds, formerly run by CSC. Immediately following the purchase of CSC, the Company sold Youth Services International, Inc., the former juvenile services division of CSC, for $3.75 million, $1.75 million of which was paid in cash and the remaining $2.0 million of which was paid in the form of a promissory note accruing interest at a rate of 6% per annum. Principal and interest are due quarterly. The annual maturities are $0.6 million in 2006, $0.7 million in 2007, and $0.7 million in 2008.
      The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. The significant accounting policies of the Company are described below.
Fiscal Year
      The Company’s fiscal year ends on the Sunday closest to the calendar year end. Fiscal year 2004 included 53 weeks. Fiscal years 2005 and 2003 each included 52 weeks. The Company reports the results of its South African equity affiliate, South African Custodial Services Pty. Limited, (“SACS”), and its consolidated South African entity, South African Custodial Management Pty. Limited (“SACM”) on a calendar year end, due to the availability of information.
Basis of Presentation
      The consolidated financial statements include the accounts of the Company and all controlled subsidiaries. Investments in 50% owned affiliates, which we do not control, are accounted for under the equity method of accounting. Intercompany transactions have been eliminated.
Use of Estimates
      The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While the Company believes that such estimates are fair when considered in conjunction with the consolidated financial statements taken as a whole, the actual amounts of such estimates, when known, will vary from

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
these estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted.
Fair Value of Financial Instruments
      The carrying value of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short maturity of these items. The carrying value of the Company’s long-term debt related to its Senior Credit Facility (See Note 10) and non-recourse debt approximates fair value based on the variable interest rates on the debt. For the Company’s 81/4 % Senior Unsecured Notes, the stated value and fair value based on quoted market rates was $150.0 million and $147.4 million, respectively, at January 1, 2006. For the Company’s non-recourse debt related to CSC, the stated value and fair value based on quoted market rates was $102.2 million and $98.4 million, respectively, at January 1, 2006.
Cash and Cash Equivalents
      Cash and cash equivalents include all interest-bearing deposits or investments with original maturities of three months or less.
Short Term Investments
      Short-term investments consist of auction rate securities classified as available-for-sale, which are stated at estimated fair value. These investments are on deposit with a major financial institution. Unrealized gains and losses, net of tax, are computed on the first-in first-out basis and are reported as a separate component of accumulated other comprehensive income (loss) in shareholders’ equity until realized. There were no unrealized gains or losses at January 1, 2006 and January 2, 2005. The Company had no short-term investments at January 1, 2006.
Accounts Receivable
      The Company extends credit to the governmental agencies it contracts with and other parties in the normal course of business as a result of billing and receiving payment for services thirty to sixty days in arrears. Further, management of the Company regularly reviews outstanding receivables, and provides estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors. The Company does not require collateral for the credit it extends to its customers. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required.
Inventories
      Food and supplies inventories are carried at the lower of cost or market, on a first-in first-out basis and are included in “other current assets” in the accompanying consolidated balance sheets. Uniform inventories are carried at amortized cost and are amortized over a period of eighteen months. The current portion of unamortized uniforms is included in “other current assets.” The long-term portion is included in “other non current assets” in the accompanying consolidated balance sheets.
Restricted Cash
      The Company had $8.9 million in current restricted cash and cash equivalents and $17.5 million in long-term restricted cash equivalents and investments. The balances in those accounts are attributable primarily to

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
amounts held in escrow or in trust in connection with the 1,020-bed South Texas Detention Complex in Frio County, Texas and the 890-bed Northwest Detention Center in Tacoma, Washington.
      Additionally, the Company’s wholly owned Australian subsidiary financed a facility’s development and subsequent expansion in 2003 with long-term debt obligations, which are non-recourse to the Company. As a condition of the loan, the Company is required to maintain a restricted cash balance of AUD 5.0 million. The term of the non-recourse debt is through 2017.
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 January 1, 2006 the Company had no capitalized costs. During 2004, the Company wrote off approximately $1.3 million of costs. Costs associated with unsuccessful negotiations are expensed when it is probable that the acquisition will not occur.
Property and Equipment
      Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Buildings and improvements are depreciated over 2 to 40 years. Equipment and furniture and fixtures are depreciated over 3 to 7 years. Accelerated methods of depreciation are generally used for income tax purposes. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. The Company performs ongoing evaluations of the estimated useful lives of the property and equipment for depreciation purposes. The estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset. Maintenance and repairs are expensed as incurred. Interest is capitalized in connection with the construction of correctional and detention facilities. Capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. No interest cost was capitalized in 2005 or 2004.
Assets Held Under Capital Leases
      Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Amortization expense is recognized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the related lease and is included in depreciation expense.
Long-Lived Assets
      The Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Management has reviewed the Company’s long-lived assets and determined that there are no events requiring impairment loss recognition, other than the Michigan Facility charge. See Note 12. Events that would trigger an impairment assessment include deterioration of profits for a business segment that has long-lived assets, or when other changes occur which might impair recovery of long-lived assets.

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Goodwill and Other Intangible Assets
      The Company’s goodwill at January 1, 2006 consisted of $35.3 million related to the November 4, 2005 acquisition of CSC (See Note 2: Acquisition) and $0.6 million related to its Australian subsidiary and at January 2, 2005 consisted of $0.6 million associated with its Australian subsidiary. Goodwill related to CSC and Australia is included in the correction and detention facility segment. With the adoption of Financial Accounting Standard (“FAS”) No. 142, the Company’s goodwill is no longer amortized, but is subject to an annual impairment test related to the goodwill associated with the Australian subsidiary. There was no impairment of goodwill as a result of adopting FAS No. 142, “Goodwill and Other Intangible Assets” or as a result of the annual impairment test completed during the fourth quarter of 2005 and 2004 related to goodwill associated with its Australian subsidiary. The annual impairment test for the goodwill related to the acquisition of CSC will be on the first day of the fourth quarter.
      Acquired intangible assets are separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the Company’s intent to do so. The Company’s intangible assets were recorded in connection with the acquisition of CSC and have finite lives ranging from 4-20 years and are amortized using a straight-line method. The Company reviews finite-lived intangible assets for impairment whenever an event occurs or circumstances change which indicate that the carrying amount of such assets may not be fully recoverable. See Note 8.
Idle Facilities
      The Company has entered into ten year non cancelable operating leases with CentraCore Properties Trust, or CPV, a Maryland real estate investment trust for eleven facilities with initial terms that expire at various times beginning in April 2008 and extending through 2016. In the event that the Company’s facility management contract for one of these leased facilities is terminated, the Company would remain responsible for payments to CPV on the underlying lease. The Company will account for idle periods under any such lease in accordance with FAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities.” Specifically, the Company reviews its estimate for sublease income and records a charge for the difference between the net present value of the sublease income and the lease expense over the remaining term of the lease.
Variable Interest Entities
      In January 2003, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation FIN No. 46, “Consolidation of Variable Interest Entities,” which addressed consolidation by a business of variable interest entities in which it is the primary beneficiary. In December 2003, the FASB issued FIN No. 46R which replaced FIN No. 46. Our 50% owned South African joint venture in South African Custodial Services Pty. Limited, which the Company refers to as SACS, is a variable interest entity. The Company determined that it is not the primary beneficiary of SACS and as a result it is not required to consolidate SACS under FIN 46R. The Company accounts for SACS as an equity affiliate. SACS was established in 2001, to design, finance and build the Kutama Sinthumule Correctional Center. Subsequently, SACS was awarded a 25 year contract to design, construct, manage and finance a facility in Louis Trichardt, South Africa. SACS, based on the terms of the contract with government, was able to obtain long term financing to build the prison. The financing is fully guaranteed by the government, except in the event of default, for which it provides an 80% guarantee. Separately, SACS entered into a long term operating contract with South African Custodial Management (Pty) Limited (“SACM”) to provide security and other management services and with SACS’ joint venture partner to provide purchasing, programs and maintenance services upon completion of the construction phase, which concluded in February 2002. The Company’s

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
maximum exposure for loss under this contract is $24.1 million, which represents the Company’s initial investment and the guarantees discussed in Note 10.
      In February 2004, CSC was awarded a contract by the Department of Homeland Security, Bureau of Immigration and Customs Enforcement (“ICE”) to develop and operate a 1,020 bed detention center in Frio County Texas. South Texas Local Development Corporation (“STLDC”) was created and issued $49.5 million in taxable revenue bonds to finance the construction of the detention complex. Additionally, CSC provided a $5 million subordinated note to STLDC for initial development. The Company determined that it is the primary beneficiary of STLDC and consolidates the entity as a result. STLDC is the owner of the complex and entered into a development agreement with CSC to oversee the development of the complex. In addition, STLDC entered into an operating agreement providing CSC the sole and exclusive right to operate and manage the complex. The operating agreement and bond indenture require the revenue from CSC’s contract with ICE be used to fund the periodic debt service requirements as they become due. The net revenues, if any, after various expenses such as trustee fees, property taxes and insurance premiums are distributed to CSC to cover CSC’s operating expenses and management fee. CSC is responsible for the entire operations of the facility including all operating expenses and is required to pay all operating expenses whether or not there are sufficient revenues. STLDC has no liabilities resulting from its ownership. The bonds have a ten year term and are non-recourse to CSC and STLDC. The bonds are fully insured and the sole source of payment for the bonds is the operating revenues of the complex.
Deferred Revenue
      Deferred revenue primarily represents the unamortized net gain on the development of properties and on the sale and leaseback of properties by the Company. The Company leases these properties back from CPV under operating leases. Deferred revenue is being amortized over the lives of the leases and is recognized in income as a reduction of rental expenses.
Revenue Recognition
      In accordance with Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements”, as amended by SAB No. 104, “Revenue Recognition”, and related interpretations, facility management revenues are recognized as services are provided under facility management contracts with approved government appropriations based on a net rate per day per inmate or on a fixed monthly rate.
      Project development and design revenues are recognized as earned on a percentage of completion basis measured by the percentage of costs incurred to date as compared to estimated total cost for each contract. This method is used because we consider costs incurred to date to be the best available measure of progress on these contracts. Provisions for estimated losses on uncompleted contracts and changes to cost estimates are made in the period in which we determine that such losses and changes are probable. Typically, the Company enters into fixed price contracts and does not perform additional work unless approved change orders are in place. Costs attributable to unapproved change orders are expensed in the period in which the costs are incurred if the Company believes that it is not probable that the costs will be recovered through a change in the contract price. If the Company believes that it is probable that the costs will be recovered through a change in contract price, costs related to unapproved change orders are expensed in the period in which they are incurred, and contract revenue is recognized to the extent of the costs incurred. Revenue in excess of the costs attributable to unapproved change orders is not recognized until the change order is approved. Contract costs include all direct material and labor costs and those indirect costs related to contract performance. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements, may result in revisions to estimated costs and income, and are recognized in the period in which the revisions are determined.

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The Company extends credit to the governmental agencies it contracts with and other parties in the normal course of business as a result of billing and receiving payment for services thirty to sixty days in arrears. Further, the Company regularly reviews outstanding receivables, and provides estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company also performs ongoing credit evaluations of customers’ financial condition and generally does not require collateral. The Company maintains reserves for potential credit losses, and such losses traditionally have been within its expectations.
Income Taxes
      The Company accounts for income taxes in accordance with FAS No. 109, “Accounting for Income Taxes.” Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of FAS No. 109.
Earnings Per Share
      Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding. In the computation of diluted earnings per share, the weighted-average number of common shares outstanding is adjusted for the dilutive effect of shares issuable upon exercise of stock options calculated using the treasury stock method.
Direct Finance Leases
      The Company accounts for the portion of its contracts with certain governmental agencies that represent capitalized lease payments on buildings and equipment as investments in direct finance leases. Accordingly, the minimum lease payments to be received over the term of the leases less unearned income are capitalized as the Company’s investments in the leases. Unearned income is recognized as income over the term of the leases using the interest method.
Reserves for Insurance Losses
      Claims for which the Company is insured arising from its 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 the Company is insured arising after October 1, 2002, the Company maintains a general liability policy for all U.S. operations with $52.0 million per occurrence and in the aggregate. On October 1, 2004 the Company increased its deductible on this general liability policy from $1.0 million to $3.0 million for each claim which occurs after October 1, 2004. The Company also maintains insurance in amounts the Company’s management deems adequate to cover property and casualty risks, workers’ compensation, medical malpractice and automobile liability. The Company’s Australian subsidiary is required to carry tail insurance through 2011 related to a discontinued contract. In addition, the Company carries various types of insurance with respect to its operations in South Africa and Australia.
      Since the Company’s insurance policies generally have high deductible amounts (including a $3.0 million per claim deductible under our general liability policy), 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

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
independent actuarial studies. The Company’s management uses judgments in assessing loss estimates based on actuarial studies, which include actual claim amounts and loss development considering historical and industry experience. If actual losses related to insurance claims significantly differ from our estimates, the Company’s financial condition and results of operations could be materially impacted.
Debt Issuance Costs
      Debt issuance costs totaling $7.0 million and $5.9 million at January 1, 2006, and January 2, 2005, respectively, are included in other non current assets in the consolidated balance sheets and are amortized into interest expense using the effective interest method, over the term of the related debt.
Comprehensive Income
      The Company’s comprehensive income is comprised of net income, foreign currency translation adjustments, unrealized gain (loss) on derivative instruments, minimum pension liability adjustment, and a reclassification adjustment for losses on UK interest rate swaps related to the sale of the UK joint venture in the Consolidated Statements of Shareholders’ Equity and Comprehensive Income.
Concentration of Credit Risk
      Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, trade accounts receivable, short-term investments, direct finance lease receivable, long-term debt and financial instruments used in hedging activities. The Company’s cash management and investment policies restrict investments to low-risk, highly liquid securities, and the Company performs periodic evaluations of the credit standing of the financial institutions with which it deals. As of January 1, 2006, and January 2, 2005, the Company had no significant concentrations of credit risk except as disclosed in Note 17.
Foreign Currency Translation
      The Company’s foreign operations use their local currencies as their functional currencies. Assets and liabilities of the operations are translated at the exchange rates in effect on the balance sheet date and shareholders’ equity is translated at historical rates. Income statement items are translated at the average exchange rates for the year. The impact of foreign currency fluctuation is included in shareholders’ equity as a component of accumulated other comprehensive (loss) income and totaled $(0.9) million at January 1, 2006 and $2.5 million as of January 2, 2005.
Financial Instruments
      In accordance with FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and its related interpretations and amendments, the Company records derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. For derivatives that are designed as and qualify as effective cash flow hedges, the portion of gain or loss on the derivative instrument effective at offsetting changes in the hedged item is reported as a component of accumulated other comprehensive income and reclassified into earnings when the hedged transaction affects earnings. Total accumulated other comprehensive loss related to these cash flow hedges was $0.3 million and $1.7 million as of January 1, 2006 and January 2, 2005, respectively. For derivative instruments that are designated as and qualify as effective fair value hedges, the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk is recognized in current earnings as interest income (expense) during the period of the change in fair values.

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The Company formally documents all relationships between hedging instruments and hedge items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes attributing all derivatives that are designated as cash flow hedges to floating rate liabilities and attributing all derivatives that are designated as fair value hedges to fixed rate liabilities. The Company also assesses whether each derivative is highly effective in offsetting changes in the cash flows of the hedged item. Fluctuations in the value of the derivative instruments are generally offset by changes in the hedged item; however, if it is determined that a derivative is not highly effective as a hedge or if a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting prospectively for the affected derivative.
Accounting for Stock-Based Compensation
      The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” in accounting for stock-based employee compensation arrangements whereby compensation cost related to stock options is generally not recognized in determining net income. Had compensation cost for the Company’s stock option plans been determined pursuant to Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation,” the Company’s net income and earnings per share would have decreased accordingly. Using the Black-Scholes option pricing model for all options granted, the Company’s pro forma net income, pro forma earnings per share and pro forma weighted average fair value of options granted, with related assumptions, are as follows for the years ended January 1, 2006, January 2, 2005 and December 28, 2003 (in thousands, except per share data):(1)
                           
Pro Forma Disclosures   2005   2004   2003
             
    (In thousands, except per share data)
Net income
  $ 7,006     $ 16,815     $ 40,019  
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
    (397 )     (765 )     (935 )
Pro forma net income
  $ 6,609     $ 16,050     $ 39,084  
                   
Basic earnings per share
                       
 
As reported
  $ 0.73     $ 1.79     $ 2.56  
                   
 
Pro forma
  $ 0.69     $ 1.71     $ 2.50  
                   
Diluted earnings per share
                       
 
As reported
  $ 0.70     $ 1.73     $ 2.53  
                   
 
Pro forma
  $ 0.66     $ 1.65     $ 2.47  
                   
Risk free interest rates
    3.96 %     3.25 %     1.73%-2.92 %
Expected lives
    3-7 years       3-7 years       3-7 years  
Expected volatility
    39 %     40 %     49 %
Expected dividend
                 
      In December 2004, the FASB issued FAS 123R, “Share-Based Payment,” a revision of FAS 123. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107) regarding its interpretation of FAS 123R. The standard requires companies to expense the grant-date fair value of stock options and other equity-based compensation issued to employees. In accordance with the revised statement and related
 
(1)  See Note 15 for more information regarding the Company’s stock option plans.

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
guidance, the Company will begin to recognize the expense attributable to stock options granted or vested subsequent to January 1, 2006 using the modified prospective method in the first quarter of 2006. The Company will continue using the Black-Scholes valuation model and straight-line amortization of compensation expense over the requisite service period of the grant. The Company expects compensation expense during 2006 related to stock based awards consistent with the pro forma disclosures under FAS 123 above for the year ended January 1, 2006.
Recent Accounting Pronouncements
      In May 2005, FASB issued FAS No. 154, “Accounting for Changes and Error Corrections”. FAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle. It also requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings for that period rather than being reported in an income statement. The statement was effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of FAS No. 154 did not have a material effect on the Company’s consolidated financial position or results of operations.
      In March 2005, the Financial Accounting Standards Board issued Interpretation No. 47 (“FIN 47”), Accounting for Conditional Asset Retirement Obligations. FIN 47 clarifies that an entity must record a liability for a “conditional” asset retirement obligation if the fair value of the obligation can be reasonably estimated. The provision was effective no later than the end of fiscal years ending after December 15, 2005. The application of FIN 47 did not have a material effect on the Company’s financial position, results of operations, and cash flows.
2. Acquisition
      Under the purchase method of accounting, the purchase price for CSC was allocated to CSC’s net tangible and intangible assets based on their estimated fair values as of the date of the completion of the acquisition. The aggregate consideration for this transaction was approximately $79.3 million, comprised of approximately $62.1 million in cash to acquire 100% of the 10.2 million shares of outstanding common stock, approximately $7.0 million in payments of CSC debt and direct transactions costs of approximately $10.2 million. Independent valuation specialists have been engaged to perform valuations to assist in the determination of the fair values of a significant portion of CSC’s net assets. Immediately following the purchase of CSC, the Company sold Youth Services International, Inc., the former juvenile services division of CSC, for $3.75 million, $1.75 million of which was paid in cash and the remaining $2.0 million of which was paid in the form of a promissory note accruing interest at a rate of 6% per annum. Principal and interest are due quarterly. The annual maturities are $0.6 million in 2006, $0.7 million in 2007, and $0.7 million in 2008. The purchase price allocations related to property and equipment, other assets, capital lease obligations and certain tax elections are still tentative as the Company has not received information from our independent valuation specialists. This information is expected to be received in the first quarter of 2006. The purchase price allocation excludes the assets of Youth Services International, Inc.

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
      The preliminary allocation of the purchase price is summarized below (in thousands):
               
    Purchase Price    
    Allocation   Asset Life
         
Current Assets
  $ 44,391      
Property and Equipment
    110,150     Various
Intangible assets
    16,520     4-20 years
Goodwill
    35,317     Indefinite
Other non-current assets
    17,566      
           
 
Total Assets acquired
    223,934      
           
Current liabilities
    23,565      
Other non-current liabilities
    6,052      
Debt and capital lease obligations
    115,027      
           
 
Total liabilities assumed
    144,644      
           
Net assets acquired, including direct transaction costs
  $ 79,290      
           
      None of the goodwill recorded in relation to this acquisition is deductible for tax purposes. Identifiable intangible assets purchased in the acquisition and their weighted average lives are as follows (in thousands):
                 
    Description   Asset Life
         
Facility management contracts
  $ 15,050       7-20 years  
Covenants not to compete
    1,470       4 years  
             
Total
  $ 16,520          
             
      The fair values used in determining the purchase price allocation for the intangible assets were based on independent appraisal.
      The $35.3 million of goodwill related to the acquisition was assigned to the Correctional and Detention Facilities segment. See Note 17 for segment information.
      The results of operations of CSC are included in the Company’s results of operations beginning after November 4, 2005. CSC is part of the Company’s Correctional and Detention Facilities reportable segment. The following unaudited pro forma information combines the consolidated results of operations of the Company and CSC as if the acquisitions had occurred at the beginning of fiscal year 2004 and excludes the operations of Youth Services International, Inc. (in thousands, except per share data):
                 
    2005   2004
         
Revenues
  $ 692,545     $ 670,563  
Income from continuing operations
    5,719       21,662  
Net income
    4,402       9,571  
Net income per share — basic
  $ 0.46     $ 1.02  
Net income per share — diluted
  $ 0.44     $ 0.98  
3. Discontinued Operations
      The Company formerly had, through its Australian subsidiary, a contract with the Department of Immigration, Multicultural and Indigenous Affairs (“DIMIA”) for the management and operation of

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THE GEO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Australia’s immigration centers. In 2003, 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 consolidated financial statements and notes reflect the operations of DIMIA as a discontinued operation in all periods presented.
      In New Zealand, the New Zealand Parliament in early 2005 repealed the law that permitted private prison operation resulting in the termination of the Company’s contract for the management and operation of the Auckland Central Remand Prison (“Auckland”). The Company has operated this facility since July 2000. The Company ceased operating the facility upon the expiration of the contract on July 13, 2005. The accompanying consolidated financial statements and notes reflect the operations of Auckland as a discontinued operation.
      On January 1, 2006, the Company completed the sale of Atlantic Shores Hospital, a 72-bed private mental health hospital which the Company owned and operated since 1997 for approximately $11.5 million. The Company recognized a gain on the sale of this transaction of approximately $1.6 million or $1.0 million net of tax. Pre-tax profit related to the 72-bed private mental health hospital was $0.1 million, $(0.2) million and $0.2 million in 2005, 2004 and 2003 respectively. The accompanying consolidated financial statements and notes reflect the operations of the hospital and the related sale as a discontinued operation.
      The following are the revenues related to DIMIA, Auckland and Atlantic Shores Hospital for the periods presented (in thousands):
                         
    2005   2004   2003