UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 001-16109

CORRECTIONS CORPORATION OF AMERICA

(Exact name of registrant as specified in its charter)

MARYLAND		62-1763875
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

(615) 263-3000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ      No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o      No þ

Indicate the number of shares outstanding of each class of Common Stock as of November 4, 2009:

Shares of Common Stock, $0.01 par value per share: 115,493,675 shares outstanding.

 

 

CORRECTIONS CORPORATION OF AMERICA

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

INDEX

				PAGE
PART 1 — FINANCIAL INFORMATION
Item 1.		Financial Statements
a)		Consolidated Balance Sheets (Unaudited) as of September 30, 2009 and December 31, 2008		1
b)		Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2009 and 2008		2
c)		Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2009 and 2008		3
d)		Consolidated Statement of Stockholders’ Equity (Unaudited) for the nine months ended September 30, 2009		4
e)		Consolidated Statement of Stockholders’ Equity (Unaudited) for the nine months ended September 30, 2008		5
f)		Notes to Consolidated Financial Statements		6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		42
Item 4.		Controls and Procedures		43
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings		43
Item 1A.		Risk Factors		43
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		43
Item 3.		Defaults Upon Senior Securities		44
Item 4.		Submission of Matters to a Vote of Security Holders		44
Item 5.		Other Information		44
Item 6.		Exhibits		44
SIGNATURES				45
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

ITEM 1. — FINANCIAL STATEMENTS.

CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

		September 30,				December 31,
		2009				2008
ASSETS
Cash and cash equivalents		$	53,626			$	34,077
Accounts receivable, net of allowance of $1,746 and $2,689, respectively			278,453				261,101
Deferred tax assets			15,167				16,108
Prepaid expenses and other current assets			26,624				23,472
Current assets of discontinued operations			66				3,541
Total current assets			373,936				338,299
Property and equipment, net			2,486,080				2,478,670
Restricted cash			6,745				6,710
Investment in direct financing lease			12,506				13,414
Goodwill			13,672				13,672
Other assets			27,709				20,455
Non-current assets of discontinued operations			—				154
Total assets		$	2,920,648			$	2,871,374
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses		$	213,316			$	189,049
Income taxes payable			482				450
Current portion of long-term debt			—				290
Current liabilities of discontinued operations			708				2,034
Total current liabilities			214,506				191,823
Long-term debt, net of current portion			1,198,792				1,192,632
Deferred tax liabilities			81,949				68,349
Other liabilities			32,050				38,211
Total liabilities			1,527,297				1,491,015
Commitments and contingencies
Common stock — $0.01 par value; 300,000 shares authorized; 115,482 and 124,673 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively			1,155				1,247
Additional paid-in capital			1,476,798				1,576,177
Retained deficit			(84,602	)			(197,065	)
Total stockholders’ equity			1,393,351				1,380,359
Total liabilities and stockholders’ equity		$	2,920,648			$	2,871,374

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

CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
REVENUE:
Management and other		$	425,563			$	403,107			$	1,241,381			$	1,171,590
Rental			455				650				1,484				1,926
			426,018				403,757				1,242,865				1,173,516
EXPENSES:
Operating			299,441				285,243				873,521				828,839
General and administrative			21,704				20,866				65,015				60,222
Depreciation and amortization			25,532				23,251				75,124				66,373
			346,677				329,360				1,013,660				955,434
OPERATING INCOME			79,341				74,397				229,205				218,082
OTHER EXPENSES (INCOME):
Interest expense, net			18,339				15,087				54,935				42,671
Expenses associated with debt refinancing transactions			—				—				3,838				—
Other (income) expense			49				(314	)			(242	)			(309	)
			18,388				14,773				58,531				42,362
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			60,953				59,624				170,674				175,720
Income tax expense			(15,701	)			(21,862	)			(57,422	)			(66,214	)
INCOME FROM CONTINUING OPERATIONS			45,252				37,762				113,252				109,506
Income (loss) from discontinued operations, net of tax			—				129				(789	)			910
NET INCOME		$	45,252			$	37,891			$	112,463			$	110,416
BASIC EARNINGS PER SHARE:
Income from continuing operations		$	0.39			$	0.30			$	0.98			$	0.88
Income (loss) from discontinued operations, net of taxes			—				—				(0.01	)			0.01
Net income		$	0.39			$	0.30			$	0.97			$	0.89
DILUTED EARNINGS PER SHARE:
Income from continuing operations		$	0.39			$	0.30			$	0.97			$	0.86
Income (loss) from discontinued operations, net of taxes			—				—				(0.01	)			0.01
Net income		$	0.39			$	0.30			$	0.96			$	0.87

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

CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND AMOUNTS IN THOUSANDS)

		For the Nine Months
		Ended September 30,
		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	112,463			$	110,416
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			75,129				67,152
Amortization of debt issuance costs and other non-cash interest			2,935				2,900
Expenses associated with debt refinancing transactions			3,838				—
Deferred income taxes			12,527				4,924
Income tax benefit of equity compensation			(2,269	)			(8,800	)
Other income			(248	)			(356	)
Non-cash equity compensation			7,224				7,205
Other non-cash items			660				674
Changes in assets and liabilities, net:
Accounts receivable, prepaid expenses and other assets			(16,905	)			(499	)
Accounts payable, accrued expenses and other liabilities			19,698				22,518
Income taxes payable			2,301				16,741
Net cash provided by operating activities			217,353				222,875
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for facility development and expansions			(52,194	)			(423,423	)
Expenditures for other capital improvements			(31,663	)			(23,118	)
Proceeds from sale of assets			241				85
(Increase) decrease in other assets			(1,910	)			83
Payments received on direct financing leases and notes receivable			805				713
Net cash used in investing activities			(84,721	)			(445,660	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt			567,478				223,500
Principal repayments of debt			(561,334	)			(43,500	)
Payment of debt issuance and other refinancing costs			(11,464	)			(89	)
Income tax benefit of equity compensation			2,269				8,800
Purchase and retirement of common stock			(116,661	)			(3,367	)
Proceeds from exercise of stock options			6,629				8,209
Net cash (used in) provided by financing activities			(113,083	)			193,553
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			19,549				(29,232	)
CASH AND CASH EQUIVALENTS, beginning of period			34,077				57,968
CASH AND CASH EQUIVALENTS, end of period		$	53,626			$	28,736
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized of $790 and $11,282 in 2009 and 2008, respectively)		$	56,556			$	42,008
Income taxes		$	49,691			$	39,474

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

CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
(UNAUDITED AND AMOUNTS IN THOUSANDS)

										Additional
		Common Stock								Paid-in				Retained
		Shares				Par Value				Capital				Deficit				Total
Balance as of December 31, 2008			124,673			$	1,247			$	1,576,177			$	(197,065	)		$	1,380,359
Comprehensive income:
Net income			—				—				—				112,463				112,463
Total comprehensive income			—				—				—				112,463				112,463
Issuance of common stock			2				—				37				—				37
Retirement of common stock			(9,956	)			(100	)			(114,594	)			—				(114,694	)
Amortization of deferred compensation, net of forfeitures			(30	)			—				4,086				—				4,086
Income tax benefit (charge) of equity compensation			—				—				1,370				—				1,370
Stock option compensation expense			—				—				3,101				—				3,101
Restricted stock grant			135				1				(1	)			—				—
Stock options exercised			658				7				6,622				—				6,629
Balance as of September 30, 2009			115,482			$	1,155			$	1,476,798			$	(84,602	)		$	1,393,351

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

CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
(UNAUDITED AND AMOUNTS IN THOUSANDS)

										Additional
		Common Stock								Paid-in				Retained
		Shares				Par Value				Capital				Deficit				Total
Balance as of December 31, 2007			124,472			$	1,245			$	1,568,736			$	(348,006	)		$	1,221,975
Comprehensive income:
Net income			—				—				—				110,416				110,416
Total comprehensive income			—				—				—				110,416				110,416
Issuance of common stock			1				—				19				—				19
Retirement of common stock			(126	)			(1	)			(3,366	)			—				(3,367	)
Amortization of deferred compensation, net of forfeitures			(29	)			—				4,397				—				4,397
Income tax benefit of equity compensation			—				—				8,800				—				8,800
Stock option compensation expense			—				—				2,789				—				2,789
Restricted stock grant			279				2				(2	)			—				—
Stock options exercised			1,000				10				8,199				—				8,209
Balance as of September 30, 2008			125,597			$	1,256			$	1,589,572			$	(237,590	)		$	1,353,238

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

CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

1. ORGANIZATION AND OPERATIONS

As of September 30, 2009, Corrections Corporation of America, a Maryland corporation (together with its subsidiaries, the “Company”), owned 46 correctional and detention facilities, two of which are leased to other operators. As of September 30, 2009, the Company operated 65 facilities, located in 19 states and the District of Columbia. The Company is also constructing an additional 1,072-bed correctional facility under a contract awarded by the Office of Federal Detention Trustee in Pahrump, Nevada that is expected to be completed in the third quarter of 2010.

The Company specializes in owning, operating and managing prisons and other correctional facilities and providing inmate residential and prisoner transportation services for governmental agencies. In addition to providing the fundamental residential services relating to inmates, the Company’s facilities offer a variety of rehabilitation and educational programs, including basic education, religious services, life skills and employment training, and substance abuse treatment. These services are intended to reduce recidivism and to prepare inmates for their successful re-entry into society upon their release. The Company also provides health care (including medical, dental and psychiatric services), food services, and work and recreational programs.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim consolidated financial statements have been prepared by the Company and, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of results for the unaudited interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. The results of operations for the interim period are not necessarily indicative of the results to be obtained for the full fiscal year. Reference is made to the audited financial statements of the Company included in its Annual Report on Form 10-K as of and for the year ended December 31, 2008 (the “2008 Form 10-K”) with respect to certain significant accounting and financial reporting policies as well as other pertinent information of the Company.

          Recent Accounting Pronouncements

In May 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Codification 855, “Subsequent Events” (“ASC 855”) effective for interim or annual periods ending after June 15, 2009. ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Although, there is new terminology, the standard is based on the same principles as those that currently

existed in practice. The new ASC does require companies to disclose the date through which the entity has evaluated subsequent events. The Company has evaluated subsequent events through the date of filing this quarterly report on November 5, 2009.

In June 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-01 Topic 105, Generally Accepted Accounting Principles, which establishes the FASB Accounting Standards Codification (“Codification”) as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The Codification supersedes all non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification is now non-authoritative. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The issuance of the Codification did not change current U.S. GAAP and did not have an impact on the Company’s financial position or results of operations.

Fair Value of Financial Instruments

On April 9, 2009, the FASB modified ASC 825, Financial Instruments, and ASC 270, Interim Reporting, to extend the disclosure requirements related to fair value of financial instruments to interim financial statements of publicly traded companies. To meet the reporting requirements of ASC 825 regarding fair value of financial instruments, the Company calculates the estimated fair value of financial instruments using quoted market prices of similar instruments or discounted cash flow techniques. At September 30, 2009 and December 31, 2008, there were no material differences between the carrying amounts and the estimated fair values of the Company’s financial instruments, other than as follows (in thousands):

		September 30, 2009								December 31, 2008
		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
Investment in direct financing lease		$	13,699			$	16,832			$	14,503			$	17,999
Note receivable from APM		$	5,023			$	8,575			$	4,567			$	7,734
Debt		$	(1,198,792	)		$	(1,219,599	)		$	(1,192,922	)		$	(1,163,744	)

3. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill was $13.7 million as of September 30, 2009 and December 31, 2008 and was associated with fourteen facilities the Company manages but does not own. This goodwill was established in connection with the acquisitions of two service companies during 2000.

The components of the Company’s amortized intangible assets and liabilities are as follows (in thousands):

		September 30, 2009								December 31, 2008
		Gross Carrying				Accumulated				Gross Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Contract acquisition costs		$	873			$	(862	)		$	873			$	(860	)
Contract values			(35,688	)			31,960				(35,688	)			29,896
Total		$	(34,815	)		$	31,098			$	(34,815	)		$	29,036

Contract acquisition costs are included in other non-current assets, and contract values are included in other non-current liabilities in the accompanying balance sheets. Contract values are amortized using the interest method. Amortization income, net of amortization expense, for intangible assets and liabilities during the three months ended September 30, 2009 and 2008 was $0.7 million and $1.2 million, respectively, while amortization income, net of amortization expense, for intangible assets and liabilities during the nine months ended September 30, 2009 and 2008 was $2.4 million and $3.5 million, respectively. Interest expense associated with the amortization of contract values for each of the three months ended September 30, 2009 and 2008 was $0.1 million and $0.2 million, respectively, while interest expense associated with the amortization of contract values for the nine months ended September 30, 2009 and 2008 was $0.3 million and $0.6 million, respectively. Estimated amortization income, net of amortization expense, for the remainder of 2009 and the five succeeding fiscal years is as follows (in thousands):

2009 (remainder)		$	678
2010			2,534
2011			134
2012			134
2013			134
2014			134

4. FACILITY ACTIVATION AND DEVELOPMENTS

In March 2009, the Company announced that it was awarded a contract with the state of Arizona to manage up to 752 Arizona inmates at its 752-bed Huerfano County Correctional Center in Colorado. The new contract includes an initial term ending March 9, 2010, which may be renewed by mutual agreement for four consecutive terms of one year each. Additionally, the new contract includes a guaranteed 90% occupancy level effective upon initially reaching 90% occupancy. During the second quarter of 2009, the Company completed the relocation of approximately 600 Colorado inmates previously housed at the Huerfano facility to the Company’s three other facilities located in Colorado and also completed the receipt of transferring Arizona inmates into the facility.

In March 2009, the Company announced a new contract to manage detainee populations for U.S. Immigration and Customs Enforcement (“ICE”) at the North Georgia Detention Center in Hall County, Georgia, which has a total design capacity of 502 beds. Under a five-year Inter-Governmental Service Agreement between Hall County, Georgia and ICE, the Company will house up to 500 ICE detainees at the

facility. The Company leases the former Hall County Jail from Hall County, Georgia. The lease has an initial term of 20 years with two five-year renewal options and provides the Company the ability to cancel the lease if it does not have a management contract. The Company placed the beds into service during the third quarter of 2009 and began receiving detainees during October 2009.

In April 2009, the Company announced that it had been awarded a contract with the Federal Bureau of Prisons (“BOP”) to house up to 2,567 federal inmates at the Company’s recently completed 2,232-bed Adams County Correctional Center in Mississippi. The four-year contract, awarded as part of the Criminal Alien Requirement 8 Solicitation (“CAR 8”), also provides for up to three two-year renewal options and includes contract provisions that are materially comparable to the Company’s other contracts with the BOP, including a 50% guarantee of occupancy during the activation period and a 90% guarantee thereafter. The Company began receiving inmates during the third quarter of 2009.

5. DISCONTINUED OPERATIONS

As a result of Shelby County’s evolving relationship with the Tennessee Department of Children’s Services (“DCS”) whereby DCS prefers to oversee the juveniles at facilities under DCS control, the Company ceased operations of the 200-bed Shelby Training Center located in Memphis, Tennessee in August 2008. The Company reclassified the results of operations, net of taxes, and the assets and liabilities of this facility, excluding property and equipment, as discontinued operations upon termination of the management contract during the third quarter of 2008. The property and equipment of this facility will continue to be reported as continuing operations, as the Company retained ownership of the building and equipment and completed the purchase of the land during the fourth quarter of 2008 from Shelby County, Tennessee for $150,000.

In May 2008, the Company notified the Bay County Commission of its intention to exercise the Company’s option to terminate the operational management contract for the 1,150-bed Bay County Jail and Annex in Panama City, Florida, effective October 9, 2008. Accordingly, the Company’s contract with the Bay County Commission expired in October 2008 and the results of operations, net of taxes, and the assets and liabilities of this facility are reported as discontinued operations for all periods presented.

Pursuant to a re-bid of the management contracts, during September 2008, the Company was notified by the Texas Department of Criminal Justice (“TDCJ”) of its intent to transfer the management of the 500-bed B.M. Moore Correctional Center in Overton, Texas and the 518-bed Diboll Correctional Center in Diboll, Texas to another operator, upon the expiration of the management contracts on January 16, 2009. Both of these facilities are owned by the TDCJ. Accordingly, the results of operations, net of taxes, and the assets and liabilities of these two facilities are reported as discontinued operations upon termination of operations in the first quarter of 2009 for all periods presented.

During December 2008, the Company was notified by Hamilton County, Ohio of its intent to terminate the lease for the 850-bed Queensgate Correctional Facility located in Cincinnati, Ohio. The County elected to terminate the lease due to funding issues being

experienced by the County. Accordingly, upon termination of the lease in the first quarter of 2009, the Company reclassified the results of operations, net of taxes, of this facility as discontinued operations for all periods presented. The property and equipment of this facility will continue to be reported as continuing operations, as the Company retained ownership of the land, building, and equipment.

The following table summarizes the results of operations for these facilities for the three and nine months ended September 30, 2009 and 2008 (amounts in thousands):

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2009				2008				2009				2008
REVENUE:
Owned and managed		$	—			$	161			$	—			$	3,269
Managed-only			—				7,557				510				21,940
Rental			—				571				—				1,691
			—				8,289				510				26,900
EXPENSES:
Owned and managed			—				476				—				3,354
Managed-only			—				7,356				1,782				21,381
Depreciation and amortization			—				313				4				779
			—				8,145				1,786				25,514
OPERATING INCOME (LOSS)			—				144				(1,276	)			1,386
Other income			—				46				6				49
INCOME (LOSS) FROM DISCONTINUED OPERATIONS BEFORE INCOME TAXES			—				190				(1,270	)			1,435
Income tax (expense) benefit			—				(61	)			481				(525	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES		$	—			$	129			$	(789	)		$	910

The assets and liabilities of the discontinued operations, presented in the accompanying consolidated balance sheets are as follows (amounts in thousands):

		September 30, 2009				December 31, 2008
ASSETS
Accounts receivable		$	23			$	3,235
Prepaid expenses and other current assets			43				306
Total current assets			66				3,541
Property and equipment, net			—				154
Total assets		$	66			$	3,695
LIABILITIES
Accounts payable and accrued expenses		$	708			$	2,034
Total current liabilities		$	708			$	2,034

6. DEBT

Debt outstanding as of September 30, 2009 and December 31, 2008 consists of the following (in thousands):

		September 30,				December 31,
		2009				2008
Revolving Credit Facility, principal due at maturity in December 2012; interest payable periodically at variable interest rates. The weighted average rate at September 30, 2009 was 1.0%.		$	221,799			$	217,245
7.5% Senior Notes, principal due at maturity in May 2011; interest payable semi-annually in May and November at 7.5%. These notes were tendered and redeemed as further described hereafter.			—				250,000
7.5% Senior Notes, principal due at maturity in May 2011; interest payable semi-annually in May and November at 7.5%. These notes were issued with a $2.3 million premium, of which $0.7 million was unamortized at December 31, 2008. These notes were tendered and redeemed as further described hereafter.			—				200,677
6.25% Senior Notes, principal due at maturity in March 2013; interest payable semi-annually in March and September at 6.25%.			375,000				375,000
6.75% Senior Notes, principal due at maturity in January 2014; interest payable semi-annually in January and July at 6.75%.			150,000				150,000
7.75% Senior Notes, principal due at maturity in June 2017; interest payable semi-annually in June and December at 7.75%. These notes were issued with a $13.4 million discount, of which $13.0 million was unamortized at September 30, 2009.			451,993				—
			1,198,792				1,192,922
Less: Current portion of long-term debt			—				(290	)
		$	1,198,792			$	1,192,632

Revolving Credit Facility. During December 2007, the Company entered into a $450.0 million senior secured revolving credit facility (the “Revolving Credit Facility”) arranged by Banc of America Securities LLC and Wachovia Capital Markets, LLC. The Revolving Credit Facility is utilized to fund expansion and development projects as well as for working capital, capital expenditures, and general corporate purposes.

The Revolving Credit Facility has an aggregate principal capacity of $450.0 million and matures in December 2012. At the Company’s option, interest on outstanding borrowings will be based on either a base rate plus a margin ranging from 0.00% to 0.50% or a London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 0.75% to 1.50%. The applicable margins are subject to adjustments based on the Company’s leverage ratio. Based on the Company’s current leverage ratio, loans under the Revolving Credit Facility currently bear interest at the base rate plus a margin of 0.00% or at LIBOR plus a margin of 0.75%. As of September 30, 2009, the Company had $221.8 million of outstanding borrowings under the Revolving Credit Facility as well as $30.4 million in letters of credit outstanding.

Lehman Brothers Commercial Bank (“Lehman”), which holds a $15.0 million share in the Company’s Revolving Credit Facility, is a defaulting lender under the terms of the credit agreement. At September 30, 2009, Lehman had funded $4.6 million that remained outstanding on the facility, which will be repaid on a pro-rata basis to the extent that LIBOR-based loans are repaid on tranches Lehman previously funded. It is the Company’s expectation that going forward it will not have access to additional incremental funding from Lehman, and to the extent Lehman’s funding is reduced, it will not be replaced. The Company does not believe that this reduction of credit has a material effect on the Company’s liquidity and capital resources. None of the other banks providing commitments under the Revolving Credit Facility have failed to fund borrowings the Company has requested. However, no assurance can be provided that all of the banks in the lending group will continue to operate as a going concern in the future. If any of the banks in the lending group were to fail, it is possible that the capacity under the Revolving Credit Facility would be reduced further.

The Revolving Credit Facility has a $20.0 million sublimit for swing line loans which enables the Company to borrow from Banc of America Securities LLC without advance notice, at the base rate. The Revolving Credit Facility also has a $100.0 million sublimit for the issuance of standby letters of credit. The Company has an option to increase the availability under the Revolving Credit Facility by up to $300.0 million (consisting of revolving credit, term loans, or a combination of the two) subject to, among other things, the receipt of commitments for the increased amount.

The Revolving Credit Facility is secured by a pledge of all of the capital stock of the Company’s domestic subsidiaries, 65% of the capital stock of the Company’s foreign subsidiaries, all of the Company’s accounts receivable, and all of the Company’s deposit accounts.

The Revolving Credit Facility requires the Company to meet certain financial covenants, including, without limitation, a maximum total leverage ratio, a maximum secured leverage ratio, and a minimum interest coverage ratio. As of September 30, 2009, the Company was in compliance with all such covenants. In addition, the Revolving Credit Facility contains certain covenants which, among other things, limit both the incurrence of additional indebtedness, investments, payment of dividends, transactions with affiliates, asset sales, acquisitions, capital expenditures, mergers and consolidations, prepayments and modifications of other indebtedness, liens and encumbrances and other matters customarily restricted in such agreements. In addition,

the Revolving Credit Facility is subject to certain cross-default provisions with terms of the Company’s other indebtedness.

$375 Million 6.25% Senior Notes. Interest on the $375.0 million aggregate principal amount of the Company’s 6.25% unsecured senior notes issued in March 2005 (the “6.25% Senior Notes”) accrues at the stated rate and is payable on March 15 and September 15 of each year. The 6.25% Senior Notes are scheduled to mature on March 15, 2013. The Company may redeem all or a portion of the notes at redemption prices set forth in the indenture governing the 6.25% Senior Notes.

$150 Million 6.75% Senior Notes. Interest on the $150.0 million aggregate principal amount of the Company’s 6.75% unsecured senior notes issued in January 2006 (the “6.75% Senior Notes”) accrues at the stated rate and is payable on January 31 and July 31 of each year. The 6.75% Senior Notes are scheduled to mature on January 31, 2014. The Company may redeem all or a portion of the notes on or after January 31, 2010. Redemption prices are set forth in the indenture, as supplemented, governing the 6.75% Senior Notes.

Refinancing Transaction. In May 2003, the Company completed the issuance of $250.0 million aggregate principal amount of 7.5% unsecured senior notes (the $250 Million 7.5% Senior Notes”). In August 2003, the Company completed the issuance of $200.0 million aggregate principal amount of 7.5% unsecured senior notes (the “$200 Million 7.5% Senior Notes”). The $200 Million 7.5% Senior Notes were issued under the existing indenture and supplemental indenture governing the $250 Million 7.5% Senior Notes. Together, the $250 Million 7.5% Senior Notes and the $200 Million 7.5% Senior Notes are referred to herein as the “7.5% Senior Notes”. Interest on the 7.5% Senior Notes accrued at the stated rate and was payable semi-annually on May 1 and November 1 of each year. However, the $200 Million 7.5% Senior Notes were issued at a price of 101.125% of the principal amount of the notes, resulting in a premium of $2.25 million, which was amortized as a reduction to interest expense over the term of the notes. The 7.5% Senior Notes were scheduled to mature on May 1, 2011.

On May 19, 2009, the Company announced a cash tender offer for any and all of its outstanding 7.5% Senior Notes. In conjunction with the tender offer, the Company solicited consents from holders of the 7.5% Senior Notes to effect certain proposed amendments to the indenture governing the 7.5% Senior Notes. Holders who validly tendered their 7.5% Senior Notes and provided their consents to the proposed amendments to the indenture governing the 7.5% Senior Notes prior to the consent payment deadline on June 2, 2009 (the “Consent Date”) were entitled to receive total consideration equal to $1,001.25 per $1,000 principal amount of the 7.5% Senior Notes, which included a consent payment of $1.25 per $1,000 principal amount of the 7.5% Senior Notes, plus any accrued and unpaid interest on the 7.5% Senior Notes up to, but not including, the payment date. Holders who validly tendered their 7.5% Senior Notes and provided their consents to the proposed amendments to the indenture governing the 7.5% Senior Notes after the Consent Date but on or prior to June 16, 2009 (the “Expiration Date”) were entitled to $1,000 per $1,000 principal amount of the 7.5% Senior Notes plus accrued and unpaid interest up to, but not including, the

payment date. However, holders of the 7.5% Senior Notes who tendered after the Consent Date did not receive the consent payment.

On June 3, 2009, the Company completed the sale and issuance of $465.0 million aggregate principal amount of its 7.75% Senior Notes (the “7.75% Senior Notes”) pursuant to a prospectus supplement under an automatically effective shelf registration statement that was filed by the Company with the SEC on May 19, 2009. The 7.75% Senior Notes were issued at a price of 97.116%, resulting in a yield to maturity of 8.25%. The Company used the net proceeds from the sale of the 7.75% Senior Notes to purchase (through the previously described tender offer), redeem, or otherwise acquire the Company’s 7.5% Senior Notes, to pay fees and expenses, and for general corporate purposes. The Company reported a charge of $3.8 million during the second quarter of 2009 in connection with the purchase and redemption of the 7.5% Senior Notes. The Company capitalized approximately $10.5 million of costs associated with the issuance of the 7.75% Senior Notes.

Interest on the 7.75% Senior Notes accrues at the stated rate and is payable on June 1 and December 1 of each year. The 7.75% Senior Notes are scheduled to mature on June 1, 2017. At any time on or before June 1, 2012, the Company may redeem up to 35% of the notes with the net proceeds of certain equity offerings, as long as 65% of the aggregate principal amount of the notes remains outstanding after the redemption. The Company may redeem all or a portion of the notes on or after June 1, 2013. Redemption prices are set forth in the indenture governing the 7.75% Senior Notes.

7. STOCKHOLDERS’ EQUITY

Stock Repurchase Program

In November 2008, the Company’s Board of Directors approved a stock repurchase program to purchase up to $150.0 million of the Company’s common stock through December 31, 2009. Through September 30, 2009, the Company completed the purchase of 10.7 million shares at a total cost of $125.0 million. The Company has utilized cash on hand, net cash provided by operations, and borrowings available under the Company’s Revolving Credit Facility to fund the repurchases.

Restricted Stock

During the first nine months of 2009, the Company issued 333,000 shares of restricted common stock and common stock units to certain of the Company’s employees, with an aggregate fair value of $3.7 million, including 242,000 restricted shares or units to employees whose compensation is charged to general and administrative expense and 91,000 restricted shares to employees whose compensation is charged to operating expense. During 2008, the Company issued 279,000 shares of restricted common stock to certain of the Company’s employees, with an aggregate fair value of $7.5 million, including 218,000 restricted shares to employees whose compensation is charged to general and administrative expense and 61,000 shares to employees whose compensation is charged to operating expense.

The Company established performance-based vesting conditions on the shares of restricted common stock and common stock units awarded to the Company’s officers and executive officers. Unless earlier vested under the terms of the agreements, shares or units issued to officers and executive officers are subject to vesting over a three-year period based upon the satisfaction of certain performance criteria. No more than one-third of such shares or units may vest in the first performance period; however, the performance criteria are cumulative for the three-year period. Unless earlier vested under the terms of the agreements, the shares of restricted stock issued to the other employees of the Company vest after three years of continuous service.

During the three months ended September 30, 2009, the Company expensed $1.3 million, net of forfeitures, relating to restricted common stock and common stock units ($0.3 million of which was recorded in operating expenses and $1.0 million of which was recorded in general and administrative expenses). During the three months ended September 30, 2008, the Company expensed $1.5 million, net of forfeitures, relating to restricted common stock ($0.3 million of which was recorded in operating expenses and $1.2 million of which was recorded in general and administrative expenses).

During the nine months ended September 30, 2009, the Company expensed $4.1 million, net of forfeitures, relating to restricted common stock and common stock units ($0.8 million of which was recorded in operating expenses and $3.3 million of which was recorded in general and administrative expenses). During the nine months ended September 30, 2008, the Company expensed $4.4 million, net of forfeitures, relating to restricted common stock ($0.9 million of which was recorded in operating expenses and $3.5 million of which was recorded in general and administrative expenses). As of September 30, 2009, 702,000 shares of restricted common stock and common stock units remained outstanding and subject to vesting.

Stock Options

During the nine months ended September 30, 2009, the Company issued to its non-employee directors, officers, and executive officers options to purchase 826,000 shares of common stock with an aggregate fair value of $3.4 million, with a weighted average exercise price of $11.93 per share. During 2008, the Company issued to its officers, executive officers, and non-employee directors options to purchase 671,000 shares of common stock with an aggregate fair value of $5.1 million, with a weighted average exercise price of $26.61 per share. The Company estimates the fair value of stock options using the Black-Scholes option pricing model. Unless earlier vested under their terms, one third of the stock options issued to the Company’s executive officers vest on the anniversary of the grant date over a three-year period while one fourth of the stock options issued to the Company’s other officers vest on the anniversary of the grant date over a four-year period. Options granted to non-employee directors vest on the one-year anniversary of the grant date.

During each of the three months ended September 30, 2009 and 2008, the Company expensed $1.0 million, net of forfeitures, relating to its outstanding stock options. During the nine months ended September 30, 2009 and 2008, the Company expensed $3.1 million and $2.8 million, net of forfeitures, relating to its outstanding stock

options. As of September 30, 2009, options to purchase 4.8 million shares of common stock were outstanding with a weighted average exercise price of $14.15.

8.

EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. For the Company, diluted earnings per share is computed by dividing net income as adjusted, by the weighted average number of common shares after considering the additional dilution related to restricted stock-based compensation and stock options and warrants.

A reconciliation of the numerator and denominator of the basic earnings per share computation to the numerator and denominator of the diluted earnings per share computation is as follows (in thousands, except per share data):

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2009				2008				2009				2008
NUMERATOR
Basic:
Income from continuing operations		$	45,252			$	37,762			$	113,252			$	109,506
Income (loss) from discontinued operations, net of taxes			—				129				(789	)			910
Net income		$	45,252			$	37,891			$	112,463			$	110,416
Diluted:
Income from continuing operations		$	45,252			$	37,762			$	113,252			$	109,506
Income (loss) from discontinued operations, net of taxes			—				129				(789	)			910
Diluted net income		$	45,252			$	37,891			$	112,463			$	110,416
DENOMINATOR
Basic:
Weighted average common shares outstanding			114,771				124,696				116,391				124,366
Diluted:
Weighted average common shares outstanding			114,771				124,696				116,391				124,366
Effect of dilutive securities:
Stock options and warrants			1,154				1,596				870				1,722
Restricted stock-based compensation			244				255				191				214
Weighted average shares and assumed conversions			116,169				126,547				117,452				126,302
BASIC EARNINGS PER SHARE:
Income from continuing operations		$	0.39			$	0.30			$	0.98			$	0.88
Income (loss) from discontinued operations, net of taxes			—				—				(0.01	)			0.01
Net income		$	0.39			$	0.30			$	0.97			$	0.89
DILUTED EARNINGS PER SHARE:
Income from continuing operations		$	0.39			$	0.30			$	0.97			$	0.86
Income (loss) from discontinued operations, net of taxes			—				—				(0.01	)			0.01
Net income		$	0.39			$	0.30			$	0.96			$	0.87

9. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The nature of the Company’s business results in claims and litigation alleging that it is liable for damages arising from the conduct of its employees, inmates or others. The nature of such claims includes, but is not limited to, claims arising from employee or inmate misconduct, medical malpractice, employment matters, property loss, contractual claims, and personal injury or other damages resulting from contact with the Company’s facilities, personnel or inmates, including damages arising from an inmate’s escape or from a disturbance or riot at a facility. The Company maintains insurance to cover many of these claims, which may mitigate the risk that any single claim would have a material effect on the Company’s consolidated financial position, results of operations, or cash flows, provided the claim is one for which coverage is available. The combination of self-insured retentions and deductible amounts means that, in the aggregate, the Company is subject to substantial self-insurance risk.

The Company records litigation reserves related to certain matters for which it is probable that a loss has been incurred and the range of such loss can be estimated. Based upon management’s review of the potential claims and outstanding litigation and based upon management’s experience and history of estimating losses, management believes a loss in excess of amounts already recognized would not be material to the Company’s financial statements. In the opinion of management, there are no pending legal proceedings that would have a material effect on the Company’s consolidated financial position, results of operations, or cash flows. Any receivable for insurance recoveries is recorded separately from the corresponding litigation reserve, and only if recovery is determined to be probable. Adversarial proceedings and litigation are, however, subject to inherent uncertainties, and unfavorable decisions and rulings could occur which could have a material adverse impact on the Company’s consolidated financial position, results of operations, or cash flows for the period in which such decisions or rulings occur, or future periods. Expenses associated with legal proceedings may also fluctuate from quarter to quarter based on changes in the Company’s assumptions, new developments, or by the effectiveness of the Company’s litigation and settlement strategies.

Guarantees

Hardeman County Correctional Facilities Corporation (“HCCFC”) is a nonprofit, mutual benefit corporation organized under the Tennessee Nonprofit Corporation Act to purchase, construct, improve, equip, finance, own and manage a detention facility located in Hardeman County, Tennessee. HCCFC was created as an instrumentality of Hardeman County to implement the County’s incarceration agreement with the state of Tennessee to house certain inmates.

During 1997, HCCFC issued $72.7 million of revenue bonds, which were primarily used for the construction of a 2,016-bed medium security correctional facility. In addition, HCCFC entered into a construction and management agreement with the Company in order to assure the timely and coordinated acquisition, construction, development, marketing and operation of the correctional facility.

HCCFC leases the correctional facility to Hardeman County in exchange for all revenue from the operation of the facility. HCCFC has, in turn, entered into a management agreement with the Company for the correctional facility.

In connection with the issuance of the revenue bonds, the Company is obligated, under a debt service deficit agreement, to pay the trustee of the bond’s trust indenture (the “Trustee”) amounts necessary to pay any debt service deficits consisting of principal and interest requirements (outstanding principal balance of $41.7 million at September 30, 2009 plus future interest payments). In the event the state of Tennessee, which is currently utilizing the facility to house certain inmates, exercises its option to purchase the correctional facility, the Company is also obligated to pay the difference between principal and interest owed on the bonds on the date set for the redemption of the bonds and amounts paid by the state of Tennessee for the facility plus all other funds on deposit with the Trustee and available for redemption of the bonds. Ownership of the facility reverts to the state of Tennessee in 2017 at no cost. Therefore, the Company does not currently believe the state of Tennessee will exercise its option to purchase the facility. At September 30, 2009, the outstanding principal balance of the bonds exceeded the purchase price option by $10.7 million.

10. INCOME TAXES

Deferred income taxes reflect the available net operating losses and the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of the future tax benefits related to deferred tax assets is dependent on many factors, including the Company’s past earnings history, expected future earnings, the character and jurisdiction of such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of its deferred tax assets, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset.

The Company’s effective tax rate was approximately 25.8% and 33.6% during the three and nine months ended September 30, 2009, respectively, compared with approximately 36.7% and 37.7% during the same periods in the prior year. The Company’s overall effective tax rate is estimated based on the Company’s current projection of taxable income and could change in the future as a result of changes in these estimates, the implementation of tax strategies, changes in federal or state tax rates, changes in tax laws, or changes in state apportionment factors, as well as changes in the valuation allowance applied to the Company’s deferred tax assets that are based primarily on the amount of state net operating losses and tax credits that could expire unused.

Income tax expense during the three and nine months ended September 30, 2009 includes an income tax benefit of $5.7 million for the reversal of a liability for uncertain tax positions, as further described hereafter. Income tax expense for the three and nine months ended September 30, 2009 also reflects the implementation of certain tax strategies, including the successful pursuit of additional federal and state tax credits pertaining to job creation totaling approximately $0.7 million, additional investment tax

credits of $0.3 million resulting from capital expenditures in the state of Colorado, and $0.2 million of other federal and state tax credits.

Income Tax Contingencies

The Company has a $0.2 million liability recorded for uncertain tax positions as of September 30, 2009, included in other non-current liabilities in the accompanying balance sheet. The Company recognizes interest and penalties related to unrecognized tax positions in income tax expense. The total amount of unrecognized tax positions that, if recognized, would affect the effective tax rate is $0.1 million. During 2008, the Company was notified that the IRS would commence an audit of the Company’s federal income tax returns for the years ended December 31, 2007 and 2006. The Company has received a closing agreement from the IRS for the audits of its federal income tax returns for such years. During the third quarter of 2009, the Company recognized $5.7 million in income tax benefits associated with uncertain tax positions effectively settled upon completion of the audit. These uncertain tax positions were primarily associated with tax positions pertaining to refinancing transaction costs that were included on federal tax returns in earlier years, but contributed to net operating losses utilized in 2006.

11. SEGMENT REPORTING

As of September 30, 2009, the Company owned and managed 44 correctional and detention facilities, and managed 21 correctional and detention facilities it did not own. Management views the Company’s operating results in two reportable segments: (1) owned and managed correctional and detention facilities and (2) managed-only correctional and detention facilities. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in the notes to consolidated financial statements included in the Company’s 2008 Form 10-K. Owned and managed facilities include the operating results of those facilities placed into service that were owned and managed by the Company. Managed-only facilities include the operating results of those facilities owned by a third party and managed by the Company. The Company measures the operating performance of each facility within the above two reportable segments, without differentiation, based on facility contribution. The Company defines facility contribution as a facility’s operating income or loss from operations before interest, taxes, depreciation and amortization. Since each of the Company’s facilities within the two reportable segments exhibit similar economic characteristics, provide similar services to governmental agencies, and operate under a similar set of operating procedures and regulatory guidelines, the facilities within the identified segments have been aggregated and reported as one reportable segment.

The revenue and facility contribution for the reportable segments and a reconciliation to the Company’s operating income is as follows for the three and nine months ended September 30, 2009 and 2008 (dollars in thousands):

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2009				2008				2009				2008
Revenue:
Owned and managed		$	335,470			$	314,351			$	977,797			$	908,543
Managed-only			89,331				87,187				260,176				257,255
Total management revenue			424,801				401,538				1,237,973				1,165,798
Operating expenses:
Owned and managed			218,557				206,210				637,009				590,433
Managed-only			77,497				74,726				225,284				221,963
Total operating expenses			296,054				280,936				862,293				812,396
Facility contribution:
Owned and managed			116,913				108,141				340,788				318,110
Managed-only			11,834				12,461				34,892				35,292
Total facility contribution			128,747				120,602				375,680				353,402
Other revenue (expense):
Rental and other revenue			1,217				2,219				4,892				7,718
Other operating expense			(3,387	)			(4,307	)			(11,228	)			(16,443	)
General and administrative			(21,704	)			(20,866	)			(65,015	)			(60,222	)
Depreciation and amortization			(25,532	)			(23,251	)			(75,124	)			(66,373	)
Operating income		$	79,341			$	74,397			$	229,205			$	218,082

The following table summarizes capital expenditures for the reportable segments for the three and nine months ended September 30, 2009 and 2008 (in thousands):

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2009				2008				2009				2008
Capital expenditures:
Owned and managed		$	29,416			$	108,136			$	64,478			$	422,694
Managed-only			2,908				824				9,645				3,413
Discontinued operations			—				69				—				231
Corporate and other			3,733				2,455				11,296				8,203
Total capital expenditures		$	36,057			$	111,484			$	85,419			$	434,541

The assets for the reportable segments are as follows (in thousands):

		September 30, 2009				December 31, 2008
Assets:
Owned and managed		$	2,609,501			$	2,582,485
Managed-only			120,519				113,092
Corporate and other			190,562				172,102
Discontinued operations			66				3,695
Total assets		$	2,920,648			$	2,871,374

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report.

This quarterly report on Form 10-Q contains statements as to our beliefs and expectations of the outcome of future events that are forward-looking statements as defined within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of current or historical fact contained herein, including statements regarding our future financial position, business strategy, budgets, projected costs and plans, and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “projects,” “will,” and similar expressions, as they relate to us, are intended to identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. These include, but are not limited to, the risks and uncertainties associated with:

	•		general economic and market conditions, including the impact governmental budgets can have on our per diem rates and occupancy;
	•		fluctuations in operating results because of, among other things, changes in occupancy levels, competition, increases in cost of operations, fluctuations in interest rates, and risks of operations;
	•		changes in the privatization of the corrections and detention industry and the public acceptance of our services;
	•		our ability to obtain and maintain correctional facility management contracts, including as the result of sufficient governmental appropriations, inmate disturbances, and the timing of the opening of new facilities and the commencement of new management contracts as well as our ability to utilize current available beds and new capacity as development and expansion projects are completed;
	•		increases in costs to develop or expand correctional facilities that exceed original estimates, or the inability to complete such projects on schedule as a result of various factors, many of which are beyond our control, such as weather, labor conditions, and material shortages, resulting in increased construction costs;
	•		changes in governmental policy and in legislation and regulation of the corrections and detention industry that adversely affect our business, including, but not limited to, judicial challenges regarding the transfer of California inmates to out-of-state private correctional facilities; and
	•		the availability of debt and equity financing on terms that are favorable to us.

Any or all of our forward-looking statements in this quarterly report may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs. They can be affected by inaccurate assumptions we might make or by known or unknown risks, uncertainties and assumptions, including the risks, uncertainties, and assumptions described in “Risk Factors” disclosed in detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2009 (File No. 001-16109) (the “2008 Form 10-K”) and in other

reports we file with the SEC from time to time. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. 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 contained in this report and in the 2008 Form 10-K.

OVERVIEW

The Company

As of September 30, 2009, we owned 46 correctional and detention facilities, two of which we leased to other operators. As of September 30, 2009, we operated 65 facilities, including 44 facilities that we owned, with a total design capacity of approximately 87,000 beds in 19 states and the District of Columbia. We are also constructing an additional 1,072-bed correctional facility under a contract awarded by the Office of Federal Detention Trustee (“OFDT”) in Pahrump, Nevada that is expected to be completed during the third quarter of 2010.

We specialize in owning, operating, and managing prisons and other correctional facilities and providing inmate residential and prisoner transportation services for governmental agencies. In addition to providing the fundamental residential services relating to inmates, our facilities offer a variety of rehabilitation and educational programs, including basic education, religious services, life skills and employment training and substance abuse treatment. These services are intended to reduce recidivism and to prepare inmates for their successful re-entry into society upon their release. We also provide health care (including medical, dental and psychiatric services), food services and work and recreational programs.

Our website address is www.correctionscorp.com. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), available on our website, free of charge, as soon as reasonably practicable after these reports are filed with or furnished to the SEC. Information on our website is not part of this report.

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements in this report are prepared in conformity with U.S. generally accepted accounting principles. 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. A summary of our significant accounting policies is described in our 2008 Form 10-K. The significant accounting policies and estimates which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Asset impairments. As of September 30, 2009, we had $2.5 billion in property and equipment. We evaluate the recoverability of the carrying values of our long-lived assets,

other than goodwill, when events suggest that an impairment may have occurred. Such events primarily include, but are not limited to, the termination of a management contract or a significant decrease in inmate populations within a correctional facility we own or manage. In these circumstances, we utilize estimates of undiscounted cash flows to determine if an impairment exists. If an impairment exists, it is measured as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

Goodwill impairments. As of September 30, 2009, we had $13.7 million of goodwill. We evaluate the carrying value of goodwill during the fourth quarter of each year, in connection with our annual budgeting process, and whenever circumstances indicate the carrying value of goodwill may not be recoverable. Such circumstances primarily include, but are not limited to, the termination of a management contract or a significant decrease in inmate populations within a reporting unit. We test for impairment by comparing the fair value of each reporting unit with its carrying value. Fair value is determined using a collaboration of various common valuation techniques, including market multiples and discounted cash flows. Each of these techniques requires considerable judgment and estimations which could change in the future.

Income taxes. Deferred income taxes reflect the available net operating losses and the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of the future tax benefits related to deferred tax assets is dependent on many factors, including our past earnings history, expected future earnings, the character and jurisdiction of such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of our deferred tax assets, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset.

We have approximately $5.1 million in net operating losses applicable to various states that we expect to carry forward in future years to offset taxable income in such states. Accordingly, we have a valuation allowance of $0.9 million for the estimated amount of the net operating losses that will expire unused, in addition to a $3.3 million valuation allowance related to state tax credits that are also expected to expire unused. Although our estimate of future taxable income is based on current assumptions that we believe to be reasonable, our assumptions may prove inaccurate and could change in the future, which could result in the expiration of additional net operating losses or credits. We would be required to establish a valuation allowance at such time that we no longer expected to utilize these net operating losses or credits, which could result in a material impact on our results of operations in the future.

Self-funded insurance reserves. As of September 30, 2009, we had $35.3 million in accrued liabilities for employee health, workers’ compensation, and automobile insurance claims. We are significantly self-insured for employee health, workers’ compensation, and automobile liability insurance claims. As such, our insurance expense is largely dependent on claims experience and our ability to control our claims. We have consistently accrued the estimated liability for employee health insurance claims based on our history of claims experience and the time lag between the incident date and the date the cost is paid by us. We have accrued the estimated liability for workers’ compensation and automobile insurance claims based on an actuarial valuation of the outstanding liabilities, discounted to the net present value of the outstanding liabilities, using a combination of actuarial methods used to

project ultimate losses. The liability for employee health, workers’ compensation, and automobile insurance includes estimates for both claims incurred and for claims incurred but not reported. These estimates could change in the future. It is possible that future cash flows and results of operations could be materially affected by changes in our assumptions, new developments, or by the effectiveness of our strategies.

Legal reserves. As of September 30, 2009, we had $14.3 million in accrued liabilities related to certain legal proceedings in which we are involved. We have accrued our estimate of the probable costs for the resolution of these claims based on a range of potential outcomes. In addition, we are subject to current and potential future legal proceedings for which little or no accrual has been reflected because our current assessment of the potential exposure is nominal. These estimates have been developed in consultation with our General Counsel’s office and, as appropriate, outside counsel handling these matters, and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible that future cash flows and results of operations could be materially affected by changes in our assumptions, new developments, or by the effectiveness of our strategies.

RESULTS OF OPERATIONS

Our results of operations are impacted by the number of facilities we owned and managed, the number of facilities we managed but did not own, the number of facilities we leased to other operators, and the facilities we owned that were not yet in operation. The following table sets forth the changes in the number of facilities operated for the periods presented.

						Owned
		Effective				and				Managed
		Date				Managed				Only				Leased				Total
Facilities as of December 31, 2007							41				24				3				68
Activation of the La Palma Correctional Center		July & October 2008					1				—				—				1
Expiration of the management contract for the Camino Nuevo Correctional Center		August 2008					—				(1	)			—				(1	)
Expiration of the management contract for the Bay County Jail and Annex		October 2008					—				(1	)			—				(1	)
Completion of construction of the Adams County Correctional Center		December 2008					1				—				—				1
Facilities as of December 31, 2008							43				22				3				68
Termination of the lease at our owned Queensgate Correctional Facility		January 2009					1				—				(1	)			—
Expiration of the management contract for the B.M. Moore Correctional Center		January 2009					—				(1	)			—				(1	)
Expiration of the management contract for the Diboll Correctional Center		January 2009					—				(1	)			—				(1	)
Activation of the North Georgia Detention Center		July 2009					—				1				—				1
Facilities as of September 30, 2009							44				21				2				67