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

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

• our ability to secure facility management contracts on suitable terms for the operation of two facilities that we are currently constructing or expanding with an aggregate total of $124.9 million of our own capital, of which we have already spent $97.0 million as of September 27, 2009;

• an increase in unreimbursed labor rates;

• our ability to expand, diversify and grow our correctional and mental health and residential treatment services business;

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

• our ability to raise new project development capital given, among other things, the current adverse conditions in the capital markets, our current amount of indebtedness and the often short-term nature of the customers' commitment to use newly developed facilities;

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

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

• our ability to develop long-term earnings visibility;

• our ability to obtain future financing at competitive rates and on satisfactory terms, or at all;

• our exposure to rising general insurance costs;

• our exposure to state and federal income tax law changes internationally and domestically;

• our exposure to claims for which we are uninsured;

• our exposure to rising employee and 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 acquisitions on satisfactory terms;

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

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

We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q. Introduction
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of numerous factors including, but not limited to, those described under "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 28, 2008, filed with the Securities and Exchange Commission on February 18, 2009. The discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. For the purposes of this discussion and analysis, we refer to the thirteen weeks ended September 27, 2009 as "Third Quarter 2009," and we refer to the thirteen weeks ended September 28, 2008 as "Third Quarter 2008."
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, 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 care 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.
As of September 27, 2009, we managed 58 facilities totaling approximately 53,400 beds worldwide. As of the end of Third Quarter 2009, we had an additional 4,870 beds under development at four facilities, including an expansion and renovation of one vacant facility which we own, the expansion of two facilities we currently own and operate and a new 2,000-bed facility which we will manage upon completion. We maintained an average companywide facility occupancy rate of 94.8% for the thirty-nine weeks ended September 27, 2009.
Reference is made to Part II, Item 7 of our Annual Report on Form 10-K filed with the SEC on February 18, 2009, for further discussion and analysis of information pertaining to our financial condition and results of operations for the fiscal year ended December 28, 2008. Recent Developments
Just Care Inc. Acquisition
On August 31, 2009, we announced that our mental health subsidiary, GEO Care, Inc. ("GEO Care"), signed a definitive agreement to acquire Just Care, Inc. ("Just Care"), a provider of detention healthcare focusing on the delivery of medical and mental health services. Just Care manages the 354-bed Columbia Regional Care Center (the "Facility") located in Columbia, South Carolina. The Facility houses medical and mental health residents for the State of South Carolina and the State of Georgia as well as special needs detainees under custody of the U.S. Marshals Service and U.S. Immigration and Customs Enforcement. The Facility is operated by Just Care

under a long-term lease with the State of South Carolina. We paid $40.0 million, consistent with the terms of the merger agreement, at closing on September 30, 2009.
Liquidity and capital resources
On October 20, 2009, we completed a private offering of $250.0 million in aggregate principal amount of our 7 3/4% senior unsecured notes due 2017. These senior unsecured notes pay interest semi-annually in cash in arrears on April 15 and October 15 of each year, beginning on April 15, 2010. In connection with the issuance of the 7 3/4% senior unsecured notes, we also executed three interest swap agreements effective November 3, 2009 for an aggregate notional amount of $75.0 million. We realized proceeds of $240.1 million at the close of the private offering, net of the discount on the notes of $3.6 million and fees paid to the lenders directly related to the execution of the transaction. A portion of these proceeds was used to redeem our $150.0 million aggregate principal amount of 8 1/4% Senior Notes due 2013 (referred to as the "Notes") for which we commenced a cash tender offer announced on October 5, 2009. As of October 20, 2009, valid tenders received by us represented $130.2 million aggregate principal amount of the Notes which was 86.8% of the outstanding principal balance. We settled these notes on October 20, 2009 by paying $136.9 million to the trustee of the 8 1/4% Senior Notes.
Also in October 2009, we completed Amendment Nos. 5 and 6 our Senior Credit Facility which allowed us to issue up to $300.0 million of unsecured debt without having to repay outstanding borrowings on our Senior Credit Facility, modified the aggregate size of the credit facility from $240.0 million to $330.0 million (of which $325.0 million will remain through September 2012), extended the maturity of the Revolver to 2012, modified the permitted maximum total leverage and maximum senior secured leverage financial ratios and eliminated the annual capital expenditures limitation. As of October 20, 2009, we had the ability to borrow approximately $202 million from the excess capacity on the Revolver after considering our debt covenants. Upon the execution of Amendment No. 6, we also had the ability to increase our borrowing capacity under the Senior Credit facility by another $200.0 million subject to lender demand, market conditions and existing borrowings.
Refer below to the discussion included in "Financial Condition" for further details related to these transactions.
Facility construction and management
The following table sets forth current expansion and development projects at September 27, 2009:

                                                                                 Capacity
                                                                                Following              Estimated
                                                         Additional             Expansion/            Completion
Facilities Under Construction                               Beds               Construction              Date                       Customer                    Financing
North Lake Correctional Facility, Michigan(1)                1,225                  1,755               Q1 2010             Federal or Various States              GEO
Northwest Detention Center, Washington                         545                  1,575               Q1 2010                      Federal                       GEO
Aurora ICE Processing Center, Colorado(2)                    1,100                  1,532               Q1 2010                      Federal                       GEO
Broward Transition Center, Florida(3)                          n/a                    n/a               Q2 2010                      Federal                       GEO
Blackwater River Correctional Facility, Florida              2,000                  2,000               Q2 2010                        DMS                     Third party

                                                             4,870

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

(2) We do not yet have customers for these expansion beds.

(3) We are currently operating this facility and have a management contract for 700 beds. The ongoing construction at this facility is for a new administration building and other renovations to the existing structure.

On March 29, 2009, we completed the intake of 192 detainees in the expansion of the 576-bed Robert A. Deyton Detention Facility (the "Facility") in Lovejoy, Georgia. We manage the Facility under a 20-year contract, inclusive of three five-year option periods, with the Office of the Federal Detention Trustee. We lease the Facility from Clayton County under a 20-year agreement, with two five-year renewal options. The Facility houses detainees under custody of the United States Marshals Service. We expect this expansion to generate approximately $4 million in additional annual operating revenues.
In April 2009, The GEO Group Australia Pty. Ltd. ("GEO Australia"), our wholly owned subsidiary, was awarded a new contract by the New South Wales, Department of Corrective Services (the "Department") for the continued management and operation of the 790-bed

Junee Correctional Centre. GEO Australia has managed the minimum-to-medium security Centre since its opening in 1993. The new contract has a term of 15 years, inclusive of renewal options, and is expected to generate annual revenues of approximately $21 million.
On April 23, 2009, we announced a contract award by U.S. Immigration and Customs Enforcement (ICE) for the continued management of the Broward Transition Center (referred to as the "Center"), which we own, located in Deerfield Beach, Florida. The new contract will have an initial term of one year, effective April 1, 2009, with four one-year renewal option periods. Under the terms of the new agreement, the contract capacity at the Center was increased from 600 to 700 beds, and the transportation responsibilities will be expanded. The new contract is expected to generate approximately $21 million in annualized revenues at full occupancy, including the new transportation responsibilities.
Also in April 2009, we opened the new $62.0 million Florida Civil Commitment Center ("FCCC") replacement facility in Arcadia, Florida. The new facility has a capacity of 720 residents, and it was specifically designed to provide treatment services to sexually violent predators in a highly secure facility. FCCC is operated by GEO Care, our wholly-owned subsidiary, under a management contract with the Florida Department of Children and Families.
On May 4, 2009, we announced that we executed a contract with Bexar County, Texas Commissioners' Court for the continued operation of the 685-bed Central Texas Detention Facility (the "Facility") located in San Antonio, Texas. The Facility, which is owned by Bexar County, houses detainees predominately for the U.S. Marshals Service. We have managed the Facility since 1988. The new contract will have a term of ten years, effective April 29, 2009, and will generate approximately $11.0 million in annualized operating revenues for us at full occupancy.
On June 29, 2009, we announced that our wholly owned U.K. subsidiary, GEO UK Ltd., assumed management functions at the 260-bed Harmondsworth Immigration Removal Centre (the "Centre") located in London, England. Our subsidiary will manage and operate the Centre under a three-year contract with the United Kingdom Border Agency. This contract is expected to generate approximately $14.0 million in annual revenues for us. Additionally, the Centre will be expanded by 360 beds bringing its capacity to 620 beds when the expansion is completed in June 2010. Upon completion of the expansion, this management contract is expected to generate approximately $19.5 million in annual revenues. On July 1, 2009, we announced the opening of a 384-bed expansion of the 1,500-bed Graceville Correctional Facility in Graceville, Florida. We operate this correctional facility under a managed-only contract with the State of Florida Department of Management Services and completed intake of inmates during the third quarter of 2009. At full occupancy, the 384-bed expansion is expected to generate approximately $5.0 million in additional annualized operating revenues.
On October 1, 2009, our wholly-owned Australian subsidiary announced that it had been selected by Corrective Services New South Wales to operate and manage the 823-bed Parklea Correctional Center in Australia. The contract is expected to have a term of five years with one three-year extension option and is expected to generate approximately $26.0 million in annual revenues. We expect to begin operating the center on October 31, 2009.
On October 20, 2009, we announced a contract award by U.S. Immigration and Customs Enforcement ("ICE") for the continued management of our Northwest Detention Center (the "Center") located in Tacoma, Washington. The Center houses immigration detainees for ICE. The new contract will have an initial term of one year effective October 24, 2009, with four one-year renewal option periods. Under the terms of the new agreement, the contract capacity at the Center will be increased from 1,030 to 1,575 beds, and the transportation responsibilities will be expanded. The new contract is expected to generate approximately $60.0 million in annualized revenues at full occupancy, including the new transportation responsibilities.
Contract terminations
Effective June 15, 2009, our management contract with Fort Worth Community Corrections Facility located in Fort Worth, Texas was assigned to another party. Prior to this termination, we leased this facility (lease was due to expire August 2009) and the customer was the Texas Department of Criminal Justice ("TDCJ"). The termination of this contract did not have a material adverse impact on our financial condition, results of operations or cash flows. On September 8, 2009, we exercised our contractual right to terminate our contracts for the operation and management of the Newton County Correctional Center, referred to as Newton County, located in Newton, Texas and the Jefferson County Downtown Jail, referred to as Jefferson County, located in Beaumont, Texas. We will manage Newton County and Jefferson County until the contracts terminate

effective on November 2, 2009 and November 9, 2009, respectively. We do not expect the termination of these contracts to have a material adverse impact on our financial condition, result of operations or cash flows.
In October 2009, we received a 60-day notice from the California Department of Corrections and Rehabilitation ("CDCR") of its intent to terminate the management contract between us and the CDCR for the management of our company-owned McFarland Community Correctional Facility. We do not expect that the termination of this management contract will have a significant impact on our financial condition, results of operations or cash flows. Critical Accounting Policies
The accompanying unaudited consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We routinely evaluate our estimates based on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. A summary of our significant accounting policies is contained in Note 1 to our financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2008.
Revenue Recognition
We recognize revenue in accordance with FASB ASC Revenue Recognition and also 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. Certain of our contracts have provisions upon which a portion of the revenue is based on our performance of certain targets, as defined in the specific contract. In these cases, we recognize revenue when the amounts are fixed and determinable and the time period over which the conditions have been satisfied has lapsed. In many instances, we are a party to more than one contract with a single entity. In these instances, each contract is accounted for separately.
We earn construction revenue from our contracts with certain customers to perform construction and design services ("project development services") for various facilities. In these instances, we act as the primary developer and sub contracts with bonded National and/or Regional Design Build Contractors. These construction revenues are recognized as earned on a percentage of completion basis measured by the percentage of costs incurred to date as compared to the estimated total cost for each contract. 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 costs incurred. Revenue in excess of the costs attributable to unapproved change orders is not recognized until the change order is approved. Construction 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. As the primary contractor, we are exposed to the various risks associated with construction, including the risk of cost overruns. Accordingly, we record our construction revenue on a gross basis in accordance with FASB ASC Revenue Recognition. The related cost of construction activities is included in Operating Expenses.
When evaluating multiple element arrangements for certain contracts where we provide project development services to our clients in addition to standard management services, we follow the provisions of FASB ASC Revenue Recognition. This guidance related to multiple deliverables in an arrangement provides guidance on determining if separate contracts should be evaluated as a single arrangement and if an arrangement involves a single unit of accounting or separate units of accounting and if the arrangement is determined to have separate units, how to allocate amounts received in the arrangement for revenue recognition purposes. In instances where we provide these project development services and subsequent management services, generally, the arrangement results in no delivered elements at the onset of the agreement. The elements are delivered over the contract period as the project development and

management services are performed. Project development services are not provided separately to a customer without a management contract and therefore, the value of the project development deliverable, is determined using the residual method. 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
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 general types of claims, except for claims relating to employment matters, for which we carry no insurance.
We currently maintain a general liability policy and excess liability coverage policy for all U.S. corrections operations with limits of $62.0 million per occurrence and in the aggregate, including a specific loss limit for medical professional liability of $35.0 million. Our wholly owned subsidiary, GEO Care, Inc., is separately insured for general liability and medical professional liability with a specific loss limit of $35.0 million per occurrence and in the aggregate. We are liable for any claims that may arise in excess of these . . .