Item 2.02.
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Results of Operations and Financial Condition.
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On August 7, 2017, The GEO Group,
Inc. (GEO or the Company) issued a press release (the Earnings Press Release) announcing its financial results for the quarter ended June 30, 2017, updating its financial guidance for full year 2017 and
issuing its financial guidance for the third and fourth quarters of 2017. A copy of the Earnings Press Release is furnished hereto as Exhibit 99.1. GEO also held a conference call on August 7, 2017 to discuss these matters, a transcript of
which is furnished hereto as Exhibit 99.2.
In the Earnings Press Release, GEO provided Net Operating Income, EBITDA, Adjusted EBITDA,
Funds From Operations, Normalized Funds From Operations, Adjusted Funds From Operations and Adjusted Net Income for the quarter and six months ended June 30, 2017 and the comparable prior-year periods that were not calculated in accordance with
Generally Accepted Accounting Principles (the Non-GAAP Information) and are presented as supplemental disclosures. Generally, for purposes of Regulation G under the Securities Exchange Act of 1934, Non-GAAP Information is any numerical
measure of a companys performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.
The Earnings Press Release presents the financial measure calculated and presented in accordance with GAAP, which is the most directly comparable to the Non-GAAP Information, with a prominence equal to or greater than its presentation of the
Non-GAAP Information. The Earnings Press Release also contains a reconciliation of the Non-GAAP Information to the financial measure calculated and presented in accordance with GAAP which is the most directly comparable to the Non-GAAP Information.
Net Operating Income is defined as revenues less operating expenses, excluding depreciation and amortization expense, general and
administrative expenses, real estate related operating lease expense, and start-up expenses, pre-tax. Net Operating Income is calculated as net income adjusted by subtracting equity in earnings of affiliates, net of income tax provision, and by
adding income tax (benefit) provision, interest expense, net of interest income, loss on extinguishment of debt, depreciation and amortization expense, general and administrative expenses, real estate related operating lease expense, and start-up
expenses, pre-tax.
EBITDA is defined as net income adjusted by adding taxes, interest, depreciation and amortization. Adjusted EBITDA is
defined as EBITDA adjusted for net loss/income attributable to non-controlling interests, stock-based compensation expenses, pre-tax, and certain other adjustments as defined from time to time, including for the periods presented M&A related
expenses, pre-tax, start-up expenses, pre-tax, and gain on sale of real estate assets, pre-tax. Given the nature of GEOs business as a real estate owner and operator, GEO believes that EBITDA and Adjusted EBITDA are helpful to investors as
measures of its operational performance because they provide an indication of its ability to incur and service debt, to satisfy general operating expenses, to make capital expenditures and to fund other cash needs or reinvest cash into its business.
GEO believes that by removing the impact of its asset base (primarily depreciation and amortization) and excluding certain non-cash
charges, amounts spent on interest and taxes, and certain other charges that are highly variable from year to year, EBITDA and Adjusted EBITDA provide its investors with performance measures that reflect the impact to operations from trends in
occupancy rates, per diem rates and operating costs, providing a perspective not immediately apparent from income from continuing operations.
The adjustments GEO makes to derive the non-GAAP measures of EBITDA and Adjusted EBITDA exclude items which may cause short-term fluctuations
in income from continuing operations and which GEO does not consider to be the fundamental attributes or primary drivers of its business plan and they do not affect GEOs overall long-term operating performance. EBITDA and Adjusted EBITDA
provide disclosure on the same basis as that used by GEOs management and provide consistency in its financial reporting, facilitate internal and external comparisons of its historical operating performance and its business units and provide
continuity to investors for comparability purposes.
2
Funds From Operations, or FFO, is defined in accordance with standards established by the
National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income/loss attributable to common shareholders (computed in accordance with United States Generally Accepted Accounting Principles), excluding real estate
related depreciation and amortization, excluding gains and losses from the cumulative effects of accounting changes, extraordinary items and sales of properties, and including adjustments for unconsolidated partnerships and joint ventures.
Normalized Funds from Operations, or Normalized FFO, is defined as FFO adjusted for certain items which by their nature are not comparable from period to period or that tend to obscure GEOs actual operating performance, including for the
periods presented loss on extinguishment of debt, M&A related expenses, start-up expenses, and tax adjustments related to M&A related expenses and start-up expenses.
Adjusted Funds From Operations, or AFFO, is defined as Normalized FFO adjusted by adding non-cash expenses such as non-real estate related
depreciation and amortization, stock based compensation expense, the amortization of debt issuance costs, discount and/or premium and other non-cash interest, and by subtracting recurring consolidated maintenance capital expenditures.
Adjusted Net Income is defined as Net Income Attributable to GEO adjusted for certain items which by their nature are not comparable from
period to period or that tend to obscure GEOs actual operating performance, including for the periods presented loss on extinguishment of debt, M&A related expenses, net of tax, start-up expenses, net of tax, and gain on sale of real
estate assets, net of tax.
Because of the unique design, structure and use of GEOs correctional facilities, the Company believes
that assessing the performance of its correctional facilities without the impact of depreciation or amortization is useful and meaningful to investors. Although NAREIT has published its definition of FFO, companies often modify this definition as
they seek to provide financial measures that meaningfully reflect their distinctive operations. GEO has modified FFO to derive Normalized FFO and AFFO that meaningfully reflect its operations.
GEOs assessment of its operations is focused on long-term sustainability. The adjustments GEO makes to derive the non-GAAP measures of
Normalized FFO and AFFO exclude items which may cause short-term fluctuations in income from continuing operations but have no impact on GEOs cash flows, or the Company does not consider them to be fundamental attributes or the primary drivers
of GEOs business plan and they do not affect GEOs overall long-term operating performance. GEO may make adjustments to FFO from time to time for certain other income and expenses that do not reflect a necessary component of GEOs
operational performance on the basis discussed above, even though such items may require cash settlement. Because FFO, Normalized FFO and AFFO exclude depreciation and amortization unique to real estate as well as non-operational items and certain
other charges that are highly variable from year to year, they provide GEOs investors with performance measures that reflect the impact to operations from trends in occupancy rates, per diem rates, operating costs and interest costs, providing
a perspective not immediately apparent from income from continuing operations.
GEO believes the presentation of FFO, Normalized FFO and
AFFO provide useful information to investors as they provide an indication of GEOs ability to fund capital expenditures and expand its business. FFO, Normalized FFO and AFFO provide disclosure on the same basis as that used by GEOs
management and provide consistency in its financial reporting, facilitate internal and external comparisons of its historical operating performance and its business units and provide continuity to investors for comparability purposes. Additionally,
FFO, Normalized FFO and AFFO are widely recognized measures in GEOs industry as a real estate investment trust.
3
The Earnings Press Release contains reconciliation tables for Net Operating Income, EBITDA and
Adjusted EBITDA, Funds from Operations, Normalized Funds from Operations, Adjusted Funds from Operations and Adjusted Net Income.
GEO has
presented in the Earnings Press Release certain forward-looking statements about GEOs future financial performance that include non-GAAP financial measures, including, Net Operating Income, Adjusted EBITDA, Funds from Operations, Normalized
Funds from Operations, and Adjusted Funds from Operations. The determination of the amounts that are excluded from these non-GAAP financial measures is a matter of management judgment and depends upon, among other factors, the nature of the
underlying expense or income amounts recognized in a given period. While GEO has provided a high level reconciliation for the guidance ranges for full year 2017, it is unable to present a more detailed quantitative reconciliation of the
forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures because management cannot reliably predict all of the necessary components of such GAAP measures. The quantitative reconciliation
of the forward-looking GAAP financial measures will be provided for completed annual and quarterly periods, as applicable, calculated in a consistent manner with the quantitative reconciliation of non-GAAP financial measures previously reported for
completed annual and quarterly periods.
The Non-GAAP Information should be considered in addition to results that are prepared under
current accounting standards but should not be considered a consolidated substitute for, or superior to, financial information prepared in accordance with GAAP. The Non-GAAP Information may differ from similarly titled measures presented by other
companies. The Non-GAAP Information, as well as other information in the Earnings Press Release, should be read in conjunction with GEOs financial statements filed with the Securities and Exchange Commission. The information set forth in
Item 2.02 in this Form 8-K is being furnished and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information
set forth in Item 2.02 in this Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.