UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2008
OR

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		(I.R.S. Employer
incorporation or organization)		Identification No.)

10 BURTON HILLS BLVD., NASHVILLE, TENNESSEE 37215
(Address and zip code of principal executive office)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 263-3000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class		Name of each exchange on which registered
Common Stock, $.01 par value per share		New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes o No x

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 x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

The aggregate market value of the shares of the registrant’s Common Stock held by non-affiliates was approximately $3,330,002,705 as of June 30, 2008, based on the closing price of such shares on the New York Stock Exchange on that day. The number of shares of the Registrant’s Common Stock outstanding on February 23, 2009 was 119,967,827.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s definitive Proxy Statement for the 2009 Annual Meeting of Stockholders, currently scheduled to be held on May 14, 2009, are incorporated by reference into Part III of this Annual Report on Form 10-K.

CORRECTIONS CORPORATION OF AMERICA
FORM 10-K
For the fiscal year ended December 31, 2008

TABLE OF CONTENTS

Item No.		Page
PART I
1. Business
Overview			5
Operations			5
Facility Portfolio			7
Business Development			13
Competitive Strengths			14
Business Strategy			15
Capital Strategy			16
The Corrections and Detention Industry			17
Government Regulation			18
Insurance			19
Employees			20
Competition			20
1A. Risk Factors			21
1B. Unresolved Staff Comments			30
2. Properties			30
3. Legal Proceedings			30
4. Submission of Matters to a Vote of Security Holders			31
PART II
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			31
Market Price of and Distributions on Capital Stock			31
Dividend Policy			31
Issuer Purchases of Equity Securities			32
6. Selected Financial Data			32
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Overview			35
Critical Accounting Policies			37
Results of Operations			38
Liquidity and Capital Resources			53
Inflation			58
Seasonality and Quarterly Results			58
7A. Quantitative and Qualitative Disclosures about Market Risk			59
8. Financial Statements and Supplementary Data			59
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			59
9A. Controls and Procedures			59
9B. Other Information			63
PART III
10. Directors, Executive Officers and Corporate Governance			63
11. Executive Compensation			63
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			63
13. Certain Relationships and Related Transactions and Director Independence			64
14. Principal Accounting Fees and Services			64
PART IV
15. Exhibits and Financial Statement Schedules			65
SIGNATURES
EX-10.38
EX-21
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION

This annual report on Form 10-K contains statements that are forward-looking statements as defined within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations of forecasts of future events. All statements other than statements of current or historical fact contained in this annual report, 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 statements are based on our current plans and actual future activities, and our results of operations may be materially different from those set forth in the forward-looking statements. In particular these include, among other things, statements relating to:

	•		general economic and market conditions, including the impact governmental budgets can have on our diem rates and occupancy;
	•		fluctuations in our operating results because of, among other things, changes in occupancy levels, competition, increases in costs 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 government 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 annual 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.”

In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this annual report may not occur and actual results could differ materially from those

anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this annual report, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”

Our forward-looking statements speak only as of the date made. We undertake no obligation to publicly update or revise 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 contained in this annual report.

PART I.

ITEM 1. BUSINESS.

Overview

We are the nation’s largest owner and operator of privatized correctional and detention facilities and one of the largest prison operators in the United States behind only the federal government and three states. We currently operate 64 correctional and detention facilities, including 44 facilities that we own, with a total design capacity of approximately 85,000 beds in 19 states and the District of Columbia. Further, during the second quarter of 2008 we were awarded a contract by the Office of Federal Detention Trustee to design, build, and operate a new 1,072-bed correctional facility in Pahrump, Nevada, which is currently expected to be completed during the second quarter of 2010. We also own two additional correctional facilities that we lease to third-party operators.

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 help reduce recidivism and to prepare inmates for their successful reentry 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 Securities and Exchange Commission (the “SEC”). Information contained on our website is not part of this report.

Operations

Management and Operation of Correctional and Detention Facilities

Our customers consist of federal, state, and local correctional and detention authorities. For the years ended December 31, 2008, 2007, and 2006, federal correctional and detention authorities represented 39%, 41%, and 40%, respectively, of our total revenue. Federal correctional and detention authorities primarily consist of the Federal Bureau of Prisons, or the BOP, the United States Marshals Service, or the USMS, and the U.S. Immigration and Customs Enforcement, or ICE.

Our management services contracts typically have terms of three to five years and contain multiple renewal options. Most of our facility contracts also contain clauses that allow the government agency to terminate the contract at any time without cause, and our contracts are generally subject to annual or bi-annual legislative appropriations of funds.

We are compensated for operating and managing facilities at an inmate per diem rate based upon actual or minimum guaranteed occupancy levels. Occupancy rates for a particular facility are typically low when first opened or immediately following an expansion. However, beyond the start-up period, which typically ranges from 90 to 180 days, the occupancy rate tends to stabilize. For the years 2008, 2007, and 2006, the average compensated occupancy of our facilities, based on rated capacity, was 95.5%, 98.2%, and 95.0%, respectively, for all of the facilities we owned or managed, exclusive of facilities where operations have been discontinued. As a result of recently completed bed

development, we had seven facilities that provided us with approximately 6,200 available beds as of December 31, 2008, including primarily 2,232 beds at our new Adams County Correctional Center in Mississippi, as well as expansion beds at three of our Oklahoma facilities, two of our Colorado facilities, and our Tallahatchie County Correctional Facility located in Mississippi.

Focus on Delivering New Bed Capacity

As a result of demand for prison beds from both our federal and state customers and the utilization of a significant portion of our existing available beds, we intensified our efforts to deliver new capacity to address the lack of available beds that our existing and potential customers are experiencing. During 2008, we completed construction of our new 2,232-bed Adams County Correctional Center and began development of a 1,072-bed correctional facility located in Nevada. During 2008, we also completed 2,040 beds at our new La Palma Correctional Center, with the final 1,020 beds completed during the first quarter of 2009. This 3,060-bed facility is expected to be fully utilized by the State of California Department of Corrections and Rehabilitation (“CDCR”). Further, we expanded seven of the facilities we own by an aggregate of 4,000 beds.

Although the demand for prison beds in the short term could be affected by the severe budget challenges many of our customers currently face, these challenges put further pressure on our customers’ ability to construct new prison beds of their own, which we believe could result in further reliance on the private sector for providing the capacity we believe our customers will need in the long term. Accordingly, we are actively pursuing a number of additional sites for new prison development and are evaluating potential opportunities for further expansions.

Operating Procedures

Pursuant to the terms of our management contracts, we are responsible for the overall operations of our facilities, including staff recruitment, general administration of the facilities, facility maintenance, security, and supervision of the offenders. We are required by our contracts to maintain certain levels of insurance coverage for general liability, workers’ compensation, vehicle liability, and property loss or damage. We are also required to indemnify the contracting agencies for claims and costs arising out of our operations and, in certain cases, to maintain performance bonds and other collateral requirements. Approximately 92% of the facilities we operated at December 31, 2008 were accredited by the American Correctional Association Commission on Accreditation. The American Correctional Association, or the ACA, is an independent organization comprised of corrections professionals that establish accreditation standards for correctional and detention institutions.

We provide a variety of rehabilitative and educational programs at our facilities. Inmates at most facilities we manage may receive basic education through academic programs designed to improve literacy levels and the opportunity to acquire GED certificates. We also offer vocational training to inmates who lack marketable job skills. Our craft vocational training programs are accredited by the National Center for Construction Education and Research. This organization provides training curriculum and establishes industry standards for over 4,000 construction and trade organizations in the United States and several foreign countries. In addition, we offer life skills transition planning programs that provide inmates with job search skills, health education, financial responsibility training, parenting training, and other skills associated with becoming productive citizens. At many of our facilities, we also offer counseling, education and/or treatment to inmates with alcohol and drug abuse problems through our “Strategies for Change” and Residential Drug Addictions Treatment Program, or RDAP. Equally significant, we offer cognitive behavioral programs aimed at changing the anti-social attitudes and behaviors of offenders, and faith-based and religious programs that offer all offenders the opportunity to practice their spiritual beliefs. These programs incorporate the use of thousands of volunteers, along with our staff, that assist in providing guidance, direction, and post-incarceration services to offenders. We believe these programs help reduce recidivism.

We operate our facilities in accordance with both company and facility-specific policies and procedures. The policies and procedures reflect the high standards generated by a number of sources, including the ACA, the Joint Commission on Accreditation of Healthcare Organizations, the National Commission on Correctional Healthcare, the Occupational Safety and Health Administration, federal, state, and local government guidelines, established correctional procedures, and company-wide policies and procedures that may exceed these guidelines. Outside agency standards, such as those established by the ACA, provide us with the industry’s most widely accepted operational guidelines. Our facilities not only operate under these established standards (we have sought and received accreditation for 60 of the facilities we operated as of December 31, 2008) but are consistently challenged by management to exceed these standards. This challenge is presented, in large part, through an extensive, comprehensive Quality Assurance Program. We intend to apply for ACA accreditation for all of our eligible facilities that are not currently accredited where it is economically feasible to complete the 18-24 month accreditation process.

Our Quality Assurance Department independently operates under the auspices of, and reports directly to, the Company’s Office of General Counsel. The Quality Assurance Department consists of two major sections. The first is the Research and Data Analysis Section which collects and analyzes performance metrics across multiple databases. Through rigorous reporting and analyses of comprehensive, comparative statistics across disciplines, divisions, business units and the Company as a whole, the Research and Data Analysis Section provides timely, independently generated performance and trend data to senior management. The second major section within the Quality Assurance Department is the Operational Audit Section. This section consists of two full time audit teams comprised of subject matter experts from all the major discipline areas within institutional operations. These two audit teams conduct rigorous, on site annual evaluations of each facility within the Company with only minimal or no advance notice.  Highly specialized, discipline specific audit tools, containing over 800 audited items, are employed in this detailed, comprehensive process.  The results of these on site evaluations are used to discern areas of strength and areas in need of management attention. The audit findings also comprise a major part of our continuous operational risk assessment and management process.  The Company has devoted significant resources to the Quality Assurance Department, enabling us to monitor compliance with contractual requirements, outside agency and accrediting organization standards. Quality Assurance closely monitors all efforts by our facilities to deliver the exceptional quality of services and operations expected.

Prisoner Transportation Services

We currently provide transportation services to governmental agencies through our wholly-owned subsidiary, TransCor America, LLC, or TransCor. During the years ended December 31, 2008, 2007, and 2006, TransCor generated total consolidated revenue of $6.9 million, $14.2 million, and $15.1 million, respectively, comprising 0.4%, 1.0%, and 1.2% of our total consolidated revenue in each respective year. We believe TransCor provides a complementary service to our core business that enables us to quickly respond to our customers’ transportation needs.

Facility Portfolio

General

Our facilities can generally be classified according to the level(s) of security at such facility. Minimum security facilities have open housing within an appropriately designed and patrolled institutional perimeter. Medium security facilities have either cells, rooms or dormitories, a secure perimeter, and some form of external patrol. Maximum security facilities have cells, a secure perimeter, and external patrol. Multi-security facilities have various areas encompassing minimum, medium or maximum security. Non-secure facilities are facilities having open housing that inhibit movement by their

design. Secure facilities are facilities having cells, rooms, or dormitories, a secure perimeter, and some form of external patrol.

Our facilities can also be classified according to their primary function. The primary functional categories are:

	•		Correctional Facilities. Correctional facilities house and provide contractually agreed upon programs and services to sentenced adult prisoners, typically prisoners on whom a sentence in excess of one year has been imposed.
	•		Detention Facilities. Detention facilities house and provide contractually agreed upon programs and services to (i) prisoners being detained by ICE, (ii) prisoners who are awaiting trial who have been charged with violations of federal criminal law (and are therefore in the custody of the USMS) or state criminal law, and (iii) prisoners who have been convicted of crimes and on whom a sentence of one year or less has been imposed.
	•		Leased Facilities. Leased facilities are facilities that are within one of the above categories and that we own but do not manage. These facilities are leased to third-party operators.

Facilities and Facility Management Contracts

We own 46 correctional and detention facilities in 14 states and the District of Columbia, three of which we lease to third-party operators. We also own two corporate office buildings. Additionally, we currently manage 20 correctional and detention facilities owned by government agencies. The segment disclosures are included in Note 17 of the Notes to the Financial Statements. The following table sets forth all of the facilities which we currently (i) own and manage, (ii) own, but are leased to another operator, and (iii) manage but are owned by a government authority. The table includes certain information regarding each facility, including the term of the primary management contract related to such facility, or, in the case of facilities we own but lease to a third-party operator, the term of such lease. We have a number of management contracts and leases that expire in 2009 (or have expired) with no remaining renewal options. We continue to operate, and, unless otherwise noted, expect to continue to manage or lease these facilities, although we can provide no assurance that we will maintain our contracts to manage or lease these facilities or when new contracts will be renewed.

Primary

Design

Facility

Remaining Renewal

Facility Name

Customer

Capacity (A)

Security Level

Type (B)

Term

Options (C)

Owned and Managed Facilities:

Central Arizona Detention Center

USMS

2,304

Multi

Detention

September 2013

(3) 5 year

Florence, Arizona

Eloy Detention Center

ICE

1,500

Medium

Detention

Indefinite

—

Eloy, Arizona

Florence Correctional Center

USMS

1,824

Multi

Correctional

September 2013

(3) 5 year

Florence, Arizona

La Palma Correctional Center

State of California

2,040

Medium

Correctional

June 2011

Indefinite

Eloy, Arizona

Red Rock Correctional Center

State of Alaska

1,596

Medium

Correctional

June 2009

(5) 1 year

Eloy, Arizona

Saguaro Correctional Facility

State of Hawaii

1,896

Medium

Correctional

June 2009

(1) 2 year

Eloy, Arizona

Primary

Design

Facility

Remaining Renewal

Facility Name

Customer

Capacity (A)

Security Level

Type (B)

Term

Options (C)

California City Correctional Center

BOP

2,304

Medium

Correctional

September 2009

(1) 1 year

California City, California

San Diego Correctional Facility (D)

ICE

1,154

Minimum/

Detention

June 2011

(4) 3 year

San Diego, California

Medium

Bent County Correctional Facility

State of Colorado

1,420

Medium

Correctional

June 2009

(1) 1 year

Las Animas, Colorado

Crowley County Correctional Facility

State of Colorado

1,794

Medium

Correctional

June 2009

(1) 1 year

Olney Springs, Colorado

Huerfano County Correctional Center (E)

State of Colorado

752

Medium

Correctional

June 2009

(1) 1 year

Walsenburg, Colorado

Kit Carson Correctional Center

State of Colorado

1,488

Medium

Correctional

June 2009

(1) 1 year

Burlington, Colorado

Coffee Correctional Facility (F)

State of

1,524

Medium

Correctional

June 2009

(20) 1 year

Nicholls, Georgia

Georgia

McRae Correctional Facility

BOP

1,524

Medium

Correctional

November 2009

(3) 1 year

McRae, Georgia

Stewart Detention Center

ICE

1,752

Medium

Detention

Indefinite

—

Lumpkin, Georgia

Wheeler Correctional Facility (F)

State of

1,524

Medium

Correctional

June 2009

(20) 1 year

Alamo, Georgia

Georgia

Leavenworth Detention Center

USMS

1,033

Maximum

Detention

December 2011

(3) 5 year

Leavenworth, Kansas

Lee Adjustment Center

State of Vermont

816

Minimum/

Correctional

June 2009

(2) 2 year

Beattyville, Kentucky

Medium

Marion Adjustment Center

Commonwealth of

826

Minimum

Correctional

June 2009

(2) 2 year

St. Mary, Kentucky

Kentucky

Otter Creek Correctional Center (G)

Commonwealth of

656

Minimum/

Correctional

July 2009

(3) 2 year

Wheelwright, Kentucky

Kentucky

Medium

Prairie Correctional Facility

State of Washington

1,600

Medium

Correctional

August 2009

Indefinite

Appleton, Minnesota

Adams County Correctional Center

Various State or

2,232

Medium

Correctional

—

—

Adams County, Mississippi

Federal Customers

Tallahatchie County Correctional

State of

2,672

Medium

Correctional

June 2011

Indefinite

Facility (H)

California

Tutwiler, Mississippi

Crossroads Correctional Center (I)

State of Montana

664

Multi

Correctional

August 2009

(5) 2 year

Shelby, Montana

Cibola County Corrections Center

BOP

1,129

Medium

Correctional

September 2009

(1) 1 year

Milan, New Mexico

New Mexico Women’s Correctional

State of

596

Multi

Correctional

June 2009

—

Facility

New Mexico

Grants, New Mexico

Torrance County Detention Facility

USMS

910

Multi

Detention

Indefinite

—

Estancia, New Mexico

Primary

Design

Facility

Remaining Renewal

Facility Name

Customer

Capacity (A)

Security Level

Type (B)

Term

Options (C)

Northeast Ohio Correctional Center

BOP

2,016

Medium

Correctional

May 2009

(3) 2 year

Youngstown, Ohio

Cimarron Correctional Facility (J)

State of Oklahoma

1,692

Medium

Correctional

June 2009

—

Cushing, Oklahoma

Davis Correctional Facility (J)

State of Oklahoma

1,670

Medium

Correctional

June 2009

—

Holdenville, Oklahoma

Diamondback Correctional Facility

State of

2,160

Medium

Correctional

May 2009

(3) 1 year

Watonga, Oklahoma

Arizona

North Fork Correctional Facility

State of California

2,400

Medium

Correctional

June 2011

Indefinite

Sayre, Oklahoma

West Tennessee Detention Facility

USMS

600

Multi

Detention

February 2010

—

Mason, Tennessee

Shelby Training Center

—

200

Secure

Juvenile

—

—

Memphis, Tennessee

Whiteville Correctional Facility (K)

State of Tennessee

1,536

Medium

Correctional

September 2008

(2) 1 year

Whiteville, Tennessee

Bridgeport Pre-Parole Transfer Facility

State of

200

Medium

Correctional

February 2010

(1) 1 year

Bridgeport, Texas

Texas

Eden Detention Center

BOP

1,422

Medium

Correctional

April 2011

(3) 2 year

Eden, Texas

Houston Processing Center

ICE

905

Medium

Detention

March 2009

—

Houston, Texas

Laredo Processing Center

ICE

258

Minimum/

Detention

Indefinite

—

Laredo, Texas

Medium

Webb County Detention Center

USMS

480

Medium

Detention

November 2012

(1) 5 year

Laredo, Texas

Mineral Wells Pre-Parole Transfer Facility

State of

2,103

Minimum

Correctional

February 2010

(1) 1 year

Mineral Wells, Texas

Texas

T. Don Hutto Residential Center

ICE

512

Non-secure

Detention

Indefinite

—

Taylor, Texas

D.C. Correctional Treatment Facility (L)

District of Columbia

1,500

Medium

Detention

March 2017

—

Washington, D.C.

Managed Only Facilities:

Bay Correctional Facility

State of

985

Medium

Correctional

June 2010

Indefinite

Panama City, Florida

Florida

Citrus County Detention Facility

Citrus County,

760

Multi

Detention

September 2015

Indefinite

Lecanto, Florida

Florida

Gadsden Correctional Institution

State of

1,520

Minimum/

Correctional

June 2010

Indefinite

Quincy, Florida

Florida

Medium

Hernando County Jail

Hernando County,

876

Multi

Detention

October 2010

—

Brooksville, Florida

Florida

Primary

Design

Facility

Remaining Renewal

Facility Name

Customer

Capacity (A)

Security Level

Type (B)

Term

Options (C)

Lake City Correctional Facility

State of

893

Secure

Correctional

June 2009

Indefinite

Lake City, Florida

Florida

Idaho Correctional Center

State of

1,270

Minimum/

Correctional

June 2009

—

Boise, Idaho

Idaho

Medium

Marion County Jail

Marion County,

1,030

Multi

Detention

December 2017

(1) 10 year

Indianapolis, Indiana

Indiana

Winn Correctional Center

State of Louisiana

1,538

Medium/

Correctional

March 2009

—

Winnfield, Louisiana

Maximum

Delta Correctional Facility

State of Mississippi

1,172

Minimum/Medium

Correctional

July 2009

—

Greenwood, Mississippi

Wilkinson County Correctional Facility

State of Mississippi

1,000

Medium

Correctional

July 2009

—

Woodville, Mississippi

Elizabeth Detention Center

ICE

300

Minimum

Detention

September 2011

(4) 3 year

Elizabeth, New Jersey

Silverdale Facilities

Hamilton County,

1,046

Multi

Detention

December 2008

Indefinite

Chattanooga, Tennessee

Tennessee

South Central Correctional Center

State of Tennessee

1,676

Medium

Correctional

June 2010

(1) 2 year

Clifton, Tennessee

Metro-Davidson County Detention Facility

Davidson County,

1,092

Multi

Detention

July 2009

—

Nashville, Tennessee

Tennessee

Hardeman County Correctional Facility

State of Tennessee

2,016

Medium

Correctional

May 2009

(3) 3 year

Whiteville, Tennessee

B. M. Moore Correctional Center (M)

State of

500

Minimum/

Correctional

January 2009

—

Overton, Texas

Texas

Medium

Bartlett State Jail

State of

1,049

Minimum/

Correctional

January 2010

(1) 1 year

Bartlett, Texas

Texas

Medium

Bradshaw State Jail

State of

1,980

Minimum/

Correctional

January 2010

(1) 1 year

Henderson, Texas

Texas

Medium

Dawson State Jail

State of

2,216

Minimum/

Correctional

January 2010

(1) 1 year

Dallas, Texas

Texas

Medium

Diboll Correctional Center (M)

State of

518

Minimum/

Correctional

January 2009

—

Diboll, Texas

Texas

Medium

Lindsey State Jail

State of

1,031

Minimum/

Correctional

January 2010

(1) 1 year

Jacksboro, Texas

Texas

Medium

Willacy State Jail

State of

1,069

Minimum/

Correctional

January 2010

(1) 1 year

Raymondville, Texas

Texas

Medium

Leased Facilities:

Leo Chesney Correctional Center

Cornell

240

Minimum

Owned/Leased

September 2010

—

Live Oak, California

Corrections

Queensgate Correctional Facility (N)

—

850

Medium

Owned/Leased

—

—

Cincinnati, Ohio

Community Education Partners (O)

Community Education

—

Non-secure

Owned/Leased

June 2009

(4) 1 year

Houston, Texas

Partners

Facilities Under Construction or Development

In October 2007, we announced the commencement of construction of our new 3,060-bed La Palma Correctional Center located in Eloy, Arizona, which we expect to be fully utilized by the CDCR. We completed construction of the new La Palma Correctional Center during the first quarter of 2009 at a total cost of approximately $200.00 million. We opened a portion of the new facility and began receiving inmates from the state of California at this facility during the third quarter of 2008.

In May 2008, we announced that we were awarded a contract by the Office of the Federal Detention Trustee (“OFDT”), the federal agency responsible for managing and regulating federal detention programs, to design, build, and operate a new correctional facility located in Pahrump, Nevada,

approximately 65 miles outside of Las Vegas, Nevada. Our new 1,072-bed Nevada Southern Detention Center is expected to house approximately 1,000 federal prisoners. The contract provides for a guarantee of up to 750 inmates or detainees and includes an initial term of five years with three five-year renewal options. We will commence construction of our new Nevada Southern Detention Center upon receipt of a Notice to Proceed from the OFDT. We currently expect construction to be completed during the second quarter of 2010, at an estimated total cost of $83.5 million. 

In early 2008, we also announced our intention to construct a new 2,040-bed correctional facility in Trousdale County, Tennessee.  However, we have temporarily suspended the construction of this facility until we have greater clarity around the timing of future bed absorption by our customers.  We will continue to monitor our customers’ needs, and could promptly resume construction of the facility.  Currently, resumption could occur at little or no incremental cost from our original estimate.

Business Development

We are currently the nation’s largest provider of outsourced correctional management services. We believe we manage nearly 50% of all beds under contract with private operators of correctional and detention facilities in the United States.

Under the direction of our business development department and our senior management and with the aid, where appropriate, of certain independent consultants, we market our services to government agencies responsible for federal, state, and local correctional facilities in the United States. Business from our federal customers, including primarily the BOP, USMS, and ICE, continues to be a significant component of our business accounting for 39%, 41%, and 40% of total revenue in 2008, 2007, and 2006, respectively. The BOP, USMS, and ICE were our only customers that accounted for 10% or more of our total revenue during these years. The BOP accounted for 12%, 13%, and 15% of total revenue for 2008, 2007, and 2006, respectively. The USMS accounted for 14%, 14%, and 15% of total revenue for 2008, 2007, and 2006, respectively. ICE accounted for 13%, 13%, and 11% of total revenue for 2008, 2007, and 2006, respectively. Certain federal contracts contain “take-or-pay” clauses that guarantee us a certain amount of management revenue, regardless of occupancy levels.

In addition, business from our state customers, which constituted 52% of total revenue during 2008 and 49% of total revenue during each of the years 2007 and 2006, increased 15.6% from $719.6 million during 2007 to $831.9 million during 2008, as we experienced an increase in demand from the state of California. While we believe we have been successful in expanding our relationships with existing customers, we have also begun to provide correctional services to states that have not previously utilized the private sector for their correctional needs, demonstrated by the increase in revenue generated by the state of California, a new customer in 2006.

We believe that we can further develop our business by, among other things:

	•		Maintaining and expanding our existing customer relationships and continuing to fill existing beds within our facilities, while maintaining an adequate inventory of available beds through new facility construction and expansion opportunities that we believe provides us with flexibility and a competitive advantage when bidding for new management contracts;
	•		Enhancing the terms of our existing contracts; and
	•		Establishing relationships with new customers who have either previously not outsourced their correctional management needs or have utilized other private enterprises.

We generally receive inquiries from or on behalf of government agencies that are considering outsourcing the management of certain facilities or that have already decided to contract with a private enterprise. When we receive such an inquiry, we determine whether there is an existing need for our services and whether the legal and political climate in which the inquiring party operates is conducive to serious consideration of outsourcing. Based on the findings, an initial cost analysis is conducted to further determine project feasibility.

Frequently, government agencies responsible for correctional and detention services procure goods and services through solicitations or competitive procurements. As part of our process of responding to such requests, members of our management team meet with the appropriate personnel from the agency making the request to best determine the agency’s needs. If the project fits within our strategy, we submit a written response. A typical solicitation or competitive procurement requires bidders to provide detailed information, including, but not limited to, the service to be provided by the bidder, its experience and qualifications, and the price at which the bidder is willing to provide the services (which services may include the renovation, improvement or expansion of an existing facility or the planning, design and construction of a new facility). The requesting agency selects a firm believed to be most qualified to provide the requested services and then negotiates the terms of the contract with that firm, which terms include the price at which its services are to be provided.

Competitive Strengths

We believe that we benefit from the following competitive strengths:

The Largest and Most Recognized Private Prison Operator. Our recognition as the industry’s leading private prison operator provides us with significant credibility with our current and prospective clients. We believe we manage nearly 50% of all privately managed prison beds in the United States. We pioneered modern-day private prisons with a list of notable accomplishments, such as being the first company to design, build, and operate a private prison and the first company to manage a private maximum-security facility under a direct contract with the federal government. In addition to providing us with extensive experience and institutional knowledge, our size also helps us deliver value to our customers by providing purchasing power and allowing us to achieve certain economies of scale.

Available Beds within Our Existing Facilities. As of December 31, 2008, as a result of recently completed bed expansions and new facility development projects we had seven facilities which had vacancies and provided us with approximately 6,200 available beds. Further, there were approximately 2,400 additional available beds at nine of our other facilities as of December 31, 2008.

Development and Expansion Opportunities. As a result of persistent demand from both our federal and state customers, the utilization of a significant portion of our available beds, and the expectation of an environment that continues to be constrained by a lack of available supply of prison beds, we intensified our efforts to deliver new bed capacity through development of new prison facilities and the expansion of certain of our existing facilities.

During 2008 we completed construction of a new 2,232-bed correctional facility, continued construction and placed into service 2,040 beds at our new La Palma Correctional Center, and commenced construction of two additional new facilities to address the demand for prison beds. The Adams County Correctional Center is a 2,232-bed correctional facility in Adams County, Mississippi that was completed during the fourth quarter of 2008 that we will market to various existing and potential customers. The La Palma Correctional Center is a 3,060-bed correctional facility that we expect to be fully utilized by the state of California. During 2008, we opened 2,040 beds at the La Palma facility and completed the remaining 1,020 beds in the first quarter of 2009. Further, during the second quarter of 2008 we were awarded a contract by the OFDT to design, build, and operate a new

1,072-bed correctional facility in Pahrump, Nevada, which is currently expected to be completed during the second quarter of 2010.

During 2008, we also completed expansions at seven of the facilities we own, increasing the capacity of such facilities by an aggregate of 4,000 beds. Although the demand for prison beds could be affected by the severe budget challenges many of our customers currently face, these challenges put further pressure on our customers’ ability to construct new prison beds of their own, which we believe could result in further reliance on the private sector for providing the capacity we believe our customers will need in the long term. Accordingly, we are actively pursuing a number of additional sites for new prison development and are evaluating the potential opportunities of further expansions.

Diverse, High Quality Customer Base. We provide services under management contracts with federal, state, and local agencies that generally have credit ratings of single-A or better. In addition, a majority of our contracts have terms between one and five years which contribute to our relatively predictable and stable revenue base.

Proven Senior Management Team. Our senior management team has applied their prior experience and diverse industry expertise to significantly improve our operations, related financial results, and capital structure. Under our senior management team’s leadership, we have created new business opportunities with customers that have not previously utilized the private corrections sector, expanded relationships with existing customers, including all three federal correctional and detention agencies, and successfully completed numerous recapitalization and refinancing transactions, resulting in increases in revenues, operating income, facility operating margins, and profitability.

Financial Flexibility. As of December 31, 2008, we had cash on hand of $34.1 million and $191.3 million available (net of $9.3 million of unfunded borrowings and $1.1 million of letters of credit issued by Lehman Brothers Commercial Bank, which committed $15.0 million under our revolving credit facility, declared bankruptcy in 2008, and is no longer funding borrowing requests) under our $450.0 million revolving credit facility, and no debt maturities until May 2011. During the year ended December 31, 2008, we generated $273.6 million in cash through operating activities, and as of December 31, 2008, we had net working capital of $146.5 million. As a “well-known seasoned issuer”, as currently defined by the SEC, we have the ability to file a “shelf” registration statement that automatically becomes effective enabling us to issue debt and equity securities from time to time when we determine that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable.

At December 31, 2008, the interest rates on all our outstanding indebtedness were fixed, with the exception of the interest rate applicable to $217.2 million outstanding under our revolving credit facility, with a total weighted average effective interest rate of 6.5%, while our total weighted average debt maturity was 3.6 years. Standard & Poor’s Ratings Services currently rates our unsecured debt and corporate credit as “BB”, while Moody’s Investors Service currently rates our unsecured debt as “Ba2”.

Business Strategy

Our primary business strategy is to provide quality corrections services, offer a compelling value, and increase bed capacity occupancy and revenue, while maintaining our position as the leading owner, operator, and manager of privatized correctional and detention facilities. We will also consider opportunities for growth, including potential acquisitions of businesses within our line of business and those that provide complementary services, provided we believe such opportunities will broaden our market and/or increase the services we can provide to our customers.

Own and Operate High Quality Correctional and Detention Facilities. We believe that our customers choose an outsourced correctional service provider based primarily on availability of beds, price, and the quality services provided. Approximately 92% of the facilities we operated as of December 31, 2008 are accredited by the ACA, an independent organization of corrections industry professionals that establishes standards by which a correctional facility may gain accreditation. We believe that this percentage compares favorably to the percentage of government-operated adult prisons that are accredited by the ACA. We have experienced wardens managing our facilities, with an average of over 24 years of corrections experience and an average tenure of approximately 12 years with us.

Offer Compelling Value. We believe that our customers also seek a compelling value and service offering when selecting an outsourced correctional services provider. We believe that we offer a cost-effective alternative to our customers by reducing their correctional services costs and allowing them to avoid making large capital investments in new prison beds. We attempt to improve operating performance and efficiency through the following key operating initiatives: (1) standardizing supply and service purchasing practices and usage; (2) implementing a standard approach to staffing and business practices in an effort to reduce our fixed expenses; (3) improving inmate management, resource consumption, and reporting procedures through the utilization of numerous technological initiatives; and (4) improving productivity and reducing employee turnover. We also intend to continue to implement a wide variety of specialized services that address the unique needs of various segments of the inmate population. Because the facilities we operate differ with respect to security levels, ages, genders, and cultures of inmates, we focus on the particular needs of an inmate population and tailor our services based on local conditions and our ability to provide services on a cost-effective basis.

Increase Occupancy and Revenue. Our industry benefits from significant economies of scale, resulting in lower operating costs per inmate as occupancy rates increase. We believe we have been successful in increasing occupancy and continue to pursue a number of initiatives intended to further increase our revenue. We are focused on renewing and enhancing the terms of our existing contracts, and have intensified our efforts to create new bed capacity and take advantage of additional expansion opportunities that we believe have favorable investment returns and increase value to our stockholders.

Capital Strategy

We believe the success of our business strategy and recent financing transactions have provided us with the financial flexibility to take advantage of various opportunities as they arise. During 2008, 2007, and 2006, we generated cash flow from operating activities of $273.6 million, $250.9 million, and $172.0 million, respectively. During December 2007, we entered into a $450.0 million senior secured revolving credit facility which, based on our current leverage ratio, currently bears interest at a base rate or LIBOR plus a margin of 0.75%, and matures in December 2012. As of December 31, 2008, we had cash on hand of $34.1 million and $191.3 million available under our revolving credit facility. None of our outstanding debt requires scheduled principal payments, and we have no debt maturities until May 2011.

During 2008 and the first quarter of 2009, we placed into service 9,295 new beds at facilities we own through new development and expansion projects at an aggregate cost of approximately $587.0 million. During 2008, we also commenced development and purchased land for a new 1,072-bed detention facility in Nevada. We will commence construction of this facility upon receipt of a Notice to Proceed from the OFDT and currently expect construction to be completed during the second quarter of 2010 at an aggregate cost of approximately $83.5 million.

In November 2008, our Board of Directors approved a program to repurchase up to $150.0 million of our common stock through purchases from time to time in the open market or through privately negotiated transactions, in accordance with SEC requirements. Given current market conditions, we

believe that it is appropriate to use a portion of our capital resources to repurchase common stock at prices which would equal or exceed the rates of return we require when we invest in new beds. Funds for the repurchase of shares are expected to come primarily from cash on hand, borrowings under our credit facility and cash from operating activities. We believe we have the ability to fund the stock repurchase program as well as our capital expenditure requirements, including the construction projects under development, maintenance and information technology capital expenditures, working capital and debt service requirements with cash on hand, cash from operating activities and borrowings available under our revolving credit facility, while maintaining liquidity. During 2008, we purchased 1.1 million shares of common stock under the repurchase program for $16.6 million at an average price of $15.55 per share. The Board’s authorization expires December 31, 2009.

As a result of current economic conditions and uncertainty in the capital markets, credit markets have tightened over the past year and the ability to obtain new capital has become more challenging and more expensive. We will continue to monitor the overall economy and state of the capital markets very closely, to help ensure that we maintain liquidity to fund our business and take advantage of new opportunities as they arise. We have the ability to promptly reduce or suspend our stock repurchase program and delay certain of our existing construction projects. If needed, we believe we would also be able to access the public capital markets, although new financing in the current market would likely be on terms less favorable than our existing terms.

The Corrections and Detention Industry

We believe we are well-positioned to capitalize on government outsourcing of correctional management services because of our competitive strengths, business strategy, and financial flexibility. Notwithstanding the effects the current economy could have on our customers’ demand for prison beds in the short term, we believe the long-term trends favor an increase in the outsourcing of correctional management services. The key reasons for this outsourcing trend include (unless otherwise noted, statistical references were obtained from the “Bureau of Justice Statistics Bulletin” issued by the U.S. Department of Justice in December 2008):

Growing United States Prison Population. The annual growth rate of the federal and state prison population increased 1.8% for the year ended December 31, 2007, which was slightly less than the average annual growth rate of 2.0% from 2000 to 2006. During 2007, the total number of prisoners under federal jurisdiction increased 3.4%, while state prison populations increased 1.5%. Federal agencies are collectively our largest customer and accounted for 39% of our total revenues (when aggregating all of our federal contracts) for the year ended December 31, 2008. During 2007, total prison populations increased more rapidly than the U.S. resident population. The imprisonment rate—the number of sentenced prisoners per 100,000 residents—increased from 501 prisoners per 100,000 U.S. residents in 2006 to 506 prisoners per 100,000 U.S. residents in 2007. From 2000 through 2007, the imprisonment rate increased from 475 per 100,000 U.S. residents to 506 per 100,000 U.S. residents. During these seven years, the number of sentenced prisoners increased by 15% while the general population increased by 6.4%.

Prison Overcrowding. The significant growth of the prison population in the United States has led to overcrowding in the state and federal prison systems. In 2007, at least 19 states and the federal prison system reported operating at or above their highest capacity measure. The federal prison system was operating at 36% above capacity at December 31, 2007.

According to the “Public Safety, Public Spending” report issued by Pew Charitable Trusts on February 14, 2007, prison populations are expected to grow by more than 153,000 inmates by the end of 2011. The “Public Safety, Public Spending” report also forecasts that inmate populations of the 20 states with which we currently do business will grow by nearly 80,000 by 2011, or about two-thirds of the projected total state inmate population growth. Based on this report, other publicly available data, and

our own proprietary research, we do not currently believe that our customers will be able to develop the capacity needed to accommodate their demand for prison beds.

Acceptance of Privatization. The prisoner population housed in privately managed facilities in the United States as of December 31, 2007 was approximately 126,000. At December 31, 2007, 15.7% of federal inmates and 6.8% of state inmates were held in private facilities. Since December 31, 2000, the number of federal inmates held in private facilities has increased approximately 102%, while the number of state inmates held in private facilities has increased approximately 32%. Twenty-one states had at least 5% of their prison population held in private facilities at December 31, 2007. Six states, all of which are our customers, housed at least 25% of their prison population in private facilities as of December 31, 2007 — New Mexico (42%), Montana (38%), Hawaii (36%), Wyoming (30%), Alaska (30%), and Idaho (27%).

Governmental Budgeting Constraints. We believe the outsourcing of prison management services to private operators allows governments to manage increasing inmate populations while simultaneously controlling correctional costs and improving correctional services. The use of facilities owned and managed by private operators allows governments to expand prison capacity without incurring large capital commitments required to increase correctional capacity. In addition, contracting with a private operator allows governmental agencies to add beds without making significant capital investment or incurring new debt. We believe these advantages translate into significant cost savings for government agencies.

Government Regulation

Business Regulations

The industry in which we operate is subject to extensive federal, state, and local regulations, including educational, health care, and safety regulations, which are administered by many governmental and regulatory authorities. Some of the regulations are unique to the corrections industry. Facility management contracts typically include reporting requirements, supervision, and on-site monitoring by representatives of the contracting governmental agencies. Corrections officers are customarily required to meet certain training standards and, in some instances, facility personnel are required to be licensed and subject to background investigation. Certain jurisdictions also require us to award subcontracts on a competitive basis or to subcontract with businesses owned by members of minority groups. Our facilities are also subject to operational and financial audits by the governmental agencies with which we have contracts. Failure to comply with these regulations can result in material penalties or non-renewal or termination of facility management contracts.

In addition, private prison managers are increasingly subject to government legislation and regulation attempting to restrict the ability of private prison managers to house certain types of inmates. Legislation has been enacted in several states, and has previously been proposed in the United States Congress, containing such restrictions. Although we do not believe that existing legislation will have a material adverse effect on us, there can be no assurance that future legislation would not have such an effect.

Environmental Matters

Under various federal, state, and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under, or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. As an owner of correctional and detention facilities, we have been subject to these laws, ordinances, and regulations as the result of our operation and management of correctional and

detention facilities. Phase I environmental assessments have been obtained on substantially all of the properties we currently own. We are not aware of any environmental matters that are expected to materially affect our financial condition or results of operations; however, if such matters are detected in the future, the costs of complying with environmental laws may adversely affect our financial condition and results of operations.

Health Insurance Portability and Accountability Act of 1996 and Privacy and Security Requirements

In 1996, Congress enacted the Health Insurance Portability and Accountability Act of 1996, or HIPAA. HIPAA was designed to improve the portability and continuity of health insurance coverage, simplify the administration of health insurance, and protect the privacy and security of health-related information.

Privacy regulations promulgated under HIPAA regulate the use and disclosure of individually identifiable health-related information, whether communicated electronically, on paper, or orally. The regulations also provide patients with significant rights related to understanding and controlling how their health information is used or disclosed. Security regulations promulgated under HIPAA require that health care providers implement administrative, physical, and technical practices to protect the security of individually identifiable health information that is maintained or transmitted electronically. These privacy and security regulations require the implementation of compliance training and awareness programs for our health care service providers associated with healthcare we provide to inmates and selected other employees primarily associated with our employee medical plans. Further, the recently enacted American Recovery and Reinvestment Act of 2009 (“ARRA”) requires the Department of Health and Human Services (“DHHS”) to issue regulations requiring health care providers and other covered entities to report certain security breaches to individuals affected by the breach and, in some cases, to DHHS or to the public via a website posting. This reporting obligation will apply broadly to breaches involving unsecured individually identifiable health-related information and will become effective 30 days from the date DHHS issues these regulations.

Violations of the HIPAA regulations could result in significant civil and criminal penalties. Further, the ARRA provides for minimum penalties as well as increased maximum penalties and authorizes state attorneys general to bring civil actions for injunctions or damages in response to violations that threaten the privacy of state residents.

In addition, there are numerous legislative and regulatory initiatives at the federal and state levels addressing the privacy and security of patient health information and other identifying information. For example, various state laws and regulations require providers and other entities to notify affected individuals in the event of a data breach involving certain types of individually identifiable health or financial information. Further, health care providers are subject to many state laws that relate to privacy or the reporting of security breaches that are more restrictive than the regulations issued under HIPAA and the requirements of the ARRA. These statutes vary and could impose additional penalties.

Insurance

We maintain general liability insurance for all the facilities we operate, as well as insurance in amounts we deem adequate to cover property and casualty risks, workers’ compensation, and directors and officers liability. In addition, each of our leases with third parties provides that the lessee will maintain insurance on each leased property under the lessee’s insurance policies providing for the following coverages: (i) fire, vandalism, and malicious mischief, extended coverage perils, and all physical loss perils; (ii) comprehensive general public liability (including personal injury and property damage); and (iii) workers’ compensation. Under each of these leases, we have the right to periodically review our lessees’ insurance coverage and provide input with respect thereto.

Each of our management contracts and the statutes of certain states require the maintenance of insurance. We maintain various insurance policies including employee health, workers’ compensation, automobile liability, and general liability insurance. Because we are significantly self-insured for employee health, workers’ compensation, and automobile liability insurance, the amount of our insurance expense is dependent on claims experience, and our ability to control our claims experience. Our insurance policies contain various deductibles and stop-loss amounts intended to limit our exposure for individually significant occurrences. However, the nature of our self-insurance policies provides little protection for deterioration in overall claims experience. Although we have experienced improvements in claims experience in both employee medical and workers’ compensation, we are continually developing strategies to improve the management of our future loss claims but can provide no assurance that these strategies will be successful. However, unanticipated additional insurance expenses resulting from adverse claims experience or an increasing cost environment for general liability and other types of insurance could adversely impact our results of operations and cash flows.

Employees

As of December 31, 2008, we employed approximately 17,400 employees. Of such employees, approximately 360 were employed at our corporate offices and approximately 17,040 were employed at our facilities and in our inmate transportation business. We employ personnel in the following areas: clerical and administrative, facility administrators/wardens, security, medical, quality assurance, transportation and scheduling, maintenance, teachers, counselors, and other support services.

Each of the correctional and detention facilities we currently operate is managed as a separate operational unit by the facility administrator or warden. All of these facilities follow a standardized code of policies and procedures.

We have not experienced a strike or work stoppage at any of our facilities. Approximately 775 employees at three of our facilities are represented by labor unions. In the opinion of management, overall employee relations are good.

Competition

The correctional and detention facilities we operate and manage, as well as those facilities we own but are managed by other operators, are subject to competition for inmates from other private prison managers. We compete primarily on the basis of bed availability, cost, the quality and range of services offered, our experience in the operation and management of correctional and detention facilities, and our reputation. We compete with government agencies that are responsible for correctional facilities and a number of privatized correctional service companies, including, but not limited to, the GEO Group, Inc., Cornell Companies, Inc, and Management and Training Corporation. We also compete in some markets with small local companies that may have a better knowledge of the local conditions and may be better able to gain political and public acceptance. Other potential competitors may in the future enter into businesses competitive with us without a substantial capital investment or prior experience. We may also compete in the future for new development projects with companies that have more financial resources than we have. Competition by other companies may adversely affect the number of inmates at our facilities, which could have a material adverse effect on the operating revenue of our facilities. In addition, revenue derived from our facilities will be affected by a number of factors, including the demand for inmate beds, general economic conditions, and the age of the general population.

ITEM 1A. RISK FACTORS.

As the owner and operator of correctional and detention facilities, we are subject to certain risks and uncertainties associated with, among other things, the corrections and detention industry and pending or threatened litigation in which we are involved. In addition, we are also currently subject to risks associated with our indebtedness. The risks and uncertainties set forth below could cause our actual results to differ materially from those indicated in the forward-looking statements contained herein and elsewhere. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our business operations. Any of the following risks could materially adversely affect our business, financial condition, or results of operations.

Risks Related to Our Business and Industry

Our results of operations are dependent on revenues generated by our jails, prisons, and detention facilities, which are subject to the following risks associated with the corrections and detention industry.

We are subject to fluctuations in occupancy levels. While a substantial portion of our cost structure is fixed, a substantial portion of our revenues are generated under facility management contracts that specify per diem payments based upon occupancy. Under a per diem rate structure, a decrease in our occupancy rates could cause a decrease in revenue and profitability. Average compensated occupancy for our facilities in operation for 2008, 2007, and 2006 was 95.5%, 98.2%, and 95.0%, respectively. Occupancy rates may, however, decrease below these levels in the future.

We are dependent on government appropriations and our results of operations may be negatively affected by governmental budgetary challenges. Our cash flow is subject to the receipt of sufficient funding of and timely payment by contracting governmental entities. If the appropriate governmental agency does not receive sufficient appropriations to cover its contractual obligations, it may terminate our contract or delay or reduce payment to us. Any delays in payment, or the termination of a contract, could have an adverse effect on our cash flow and financial condition. In addition, federal, state and local governments are constantly under pressure to control additional spending or reduce current levels of spending. These pressures have been compounded by the current economic downturn. Accordingly, we have been requested and may be requested in the future to reduce our existing per diem contract rates or forego prospective increases to those rates. Further, our customers could reduce inmate population levels in facilities we manage to contain their correctional costs. In addition, it may become more difficult to renew our existing contracts on favorable terms or otherwise.

Competition for inmates may adversely affect the profitability of our business. We compete with government entities and other private operators on the basis of bed availability, cost, quality, and range of services offered, experience in managing facilities and reputation of management and personnel. While there are barriers to entering the market for the management of correctional and detention facilities, these barriers may not be sufficient to limit additional competition. In addition, our government customers may assume the management of a facility that they own and we currently manage for them upon the termination of the corresponding management contract or, if such customers have capacity at their facilities, may take inmates currently housed in our facilities and transfer them to government-run facilities. Since we are paid on a per diem basis with no minimum guaranteed occupancy under most of our contracts, the loss of such inmates and resulting decrease in occupancy would cause a decrease in our revenues and profitability.

Escapes, inmate disturbances, and public resistance to privatization of correctional and detention facilities could result in our inability to obtain new contracts or the loss of existing contracts. The operation of correctional and detention facilities by private entities has not achieved complete

acceptance by either governments or the public. The movement toward privatization of correctional and detention facilities has also encountered resistance from certain groups, such as labor unions and others that believe that correctional and detention facilities should only be operated by governmental agencies.

Moreover, negative publicity about an escape, riot or other disturbance or perceived poor conditions at a privately managed facility may result in adverse publicity to us and the private corrections industry in general. Any of these occurrences or continued trends may make it more difficult for us to renew or maintain existing contracts or to obtain new contracts, which could have a material adverse effect on our business.

We are subject to termination or non-renewal of our government contracts. We typically enter into facility management contracts with governmental entities for terms of up to five years, with additional renewal periods at the option of the contracting governmental agency. Notwithstanding any contractual renewal option of a contracting governmental agency, 33 of our facility management contracts with the customers listed under “Business — Facility Portfolio — Facilities and Facility Management Contracts” have expired (2) or are currently scheduled to expire (31) on or before December 31, 2009. See “Business — Facility Portfolio — Facilities and Facility Management contracts.” Although we currently expect these customers to exercise renewal options or negotiate new contracts with us, one or more of these contracts may not be renewed by the corresponding governmental agency. In addition, these and any other contracting agencies may determine not to exercise renewal options with respect to any of our contracts in the future. Governmental agencies typically may also terminate a facility contract at any time without cause or use the possibility of termination to negotiate a lower fee for per diem rates. In the event any of our management contracts are terminated or are not renewed on favorable terms or otherwise, we may not be able to obtain additional replacement contracts. The non-renewal or termination of any of our contracts with governmental agencies could materially adversely affect our financial condition, results of operations and liquidity, including our ability to secure new facility management contracts from others.

Our ability to secure new contracts to develop and manage correctional and detention facilities depends on many factors outside our control. Our growth is generally dependent upon our ability to obtain new contracts to develop and manage new correctional and detention facilities. This possible growth depends on a number of factors we cannot control, including crime rates and sentencing patterns in various jurisdictions and acceptance of privatization. The demand for our facilities and services could be adversely affected by the relaxation of enforcement efforts, leniency in conviction or parole standards and sentencing practices or through the decriminalization of certain activities that are currently proscribed by our criminal laws. For instance, any changes with respect to drugs and controlled substances or illegal immigration could affect the number of persons arrested, convicted, and sentenced, thereby potentially reducing demand for correctional facilities to house them. Legislation has been proposed in numerous jurisdictions that could lower minimum sentences for some non-violent crimes and make more inmates eligible for early release based on good behavior. Also, sentencing alternatives under consideration could put some offenders on probation with electronic monitoring who would otherwise be incarcerated. Similarly, reductions in crime rates could lead to reductions in arrests, convictions and sentences requiring incarceration at correctional facilities.

Moreover, certain jurisdictions recently have required successful bidders to make a significant capital investment in connection with the financing of a particular project, a trend that will require us to have sufficient capital resources to compete effectively. We may compete for such projects with companies that have more financial resources than we have. Further, we may not be able to obtain the capital resources when needed. A prolonged downturn in the financial credit markets could make it more difficult to obtain capital resources at favorable rates of return or obtain capital resources at all.

We may face community opposition to facility location, which may adversely affect our ability to obtain new contracts. Our success in obtaining new awards and contracts sometimes depends, in part, upon our ability to locate land that can be leased or acquired, on economically favorable terms, by us or other entities working with us in conjunction with our proposal to construct and/or manage a facility. Some locations may be in or near populous areas and, therefore, may generate legal action or other forms of opposition from residents in areas surrounding a proposed site. When we select the intended project site, we attempt to conduct business in communities where local leaders and residents generally support the establishment of a privatized correctional or detention facility. Future efforts to find suitable host communities may not be successful. We may incur substantial costs in evaluating the feasibility of the development of a correctional or detention facility. As a result, we may report significant charges if we decide to abandon efforts to develop a correctional or detention facility on a particular site. In many cases, the site selection is made by the contracting governmental entity. In such cases, site selection may be made for reasons related to political and/or economic development interests and may lead to the selection of sites that have less favorable environments.

We may incur significant start-up and operating costs on new contracts before receiving related revenues, which may impact our cash flows and not be recouped. When we are awarded a contract to manage a facility, we may incur significant start-up and operating expenses, including the cost of constructing the facility, purchasing equipment and staffing the facility, before we receive any payments under the contract. These expenditures could result in a significant reduction in our cash reserves and may make it more difficult for us to meet other cash obligations. In addition, a contract may be terminated prior to its scheduled expiration and as a result we may not recover these expenditures or realize any return on our investment.

Failure to comply with unique and increased governmental regulation could result in material penalties or non-renewal or termination of our contracts to manage correctional and detention facilities. The industry in which we operate is subject to extensive federal, state, and local regulations, including educational, health care, and safety regulations, which are administered by many regulatory authorities. Some of the regulations are unique to the corrections industry, some are unique to government contractors and the combination of regulations we face is unique. Facility management contracts typically include reporting requirements, supervision, and on-site monitoring by representatives of the contracting governmental agencies. Corrections officers are customarily required to meet certain training standards and, in some instances, facility personnel are required to be licensed and subject to background investigation. Certain jurisdictions also require us to award subcontracts on a competitive basis or to subcontract with certain specific types of businesses, such as small businesses and businesses owned by members of minority groups. Our facilities are also subject to operational and financial audits by the governmental agencies with whom we have contracts. New federal regulations also require federal government contractors like us to self-report evidence of certain forms of misconduct. We may not always successfully comply with these regulations, and failure to comply can result in material penalties, including financial penalties, non-renewal or termination of facility management contracts, and suspension or debarment from contracting with certain governmental entities.

In addition, private prison managers are increasingly subject to government legislation and regulation attempting to restrict the ability of private prison managers to house certain types of inmates, such as inmates from other jurisdictions or inmates at medium or higher security levels. Legislation has been enacted in several states, and has previously been proposed in the United States Congress, containing such restrictions. Such legislation may have an adverse effect on us.

Our inmate transportation subsidiary, TransCor, is subject to regulations promulgated by the Departments of Transportation and Justice. TransCor must also comply with the Interstate Transportation of Dangerous Criminals Act of 2000, which covers operational aspects of transporting prisoners, including, but not limited to, background checks and drug testing of employees; employee training; employee hours; staff-to-inmate ratios; prisoner restraints; communication with local law enforcement; and standards to help ensure the safety of prisoners during transport. We are subject to changes in such regulations, which could result in an increase in the cost of our transportation operations.

Moreover, the Federal Communications Commission, or the FCC, has published for comment a petition for rulemaking, filed on behalf of an inmate family, which would prevent private prison managers from collecting commissions from the operations of inmate telephone systems. We believe that there are sound reasons for the collection of such commissions by all operators of prisons, whether public or private. The FCC has traditionally deferred from rulemaking in this area; however, there is the risk that the FCC could act to prohibit private prison managers, like us, from collecting such revenues. Such an outcome could have a material adverse effect on our results of operations.

Government agencies may investigate and audit our contracts and, if any improprieties are found, we may be required to refund revenues we have received, to forego anticipated revenues, and we may be subject to penalties and sanctions, including prohibitions on our bidding in response to RFPs. Certain of the governmental agencies with which we contract have the authority to audit and investigate our contracts with them. As part of that process, government agencies may review our performance of the contract, our pricing practices, our cost structure and our compliance with applicable laws, regulations and standards. For contracts that actually or effectively provide for certain reimbursement of expenses, if an agency determines that we have improperly allocated costs to a specific contract, we may not be reimbursed for those costs, and we could be required to refund the amount of any such costs that have been reimbursed. If a government audit asserts improper or illegal activities by us, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeitures of profits, suspension of payments, fines and suspension or disqualification from doing business with certain government entities. Any adverse determination could adversely impact our ability to bid in response to RFPs in one or more jurisdictions.

We depend on a limited number of governmental customers for a significant portion of our revenues. We currently derive, and expect to continue to derive, a significant portion of our revenues from a limited number of governmental agencies. The loss of, or a significant decrease in, business from the BOP, ICE, USMS, or various state agencies could seriously harm our financial condition and results of operations. The three primary federal governmental agencies with correctional and detention responsibilities, the BOP, ICE, and USMS, accounted for 39% of our total revenues for the fiscal year ended December 31, 2008 ($629.3 million). The USMS accounted for 14% of our total revenues for the fiscal year ended December 31, 2008 ($221.7 million), ICE accounted for 13% of our total revenues for the fiscal year ended December 31, 2008 ($209.5 million), and the BOP accounted for 12% of our total revenues for the fiscal year ended December 31, 2008 ($198.2 million). Although the revenue generated from each of these agencies is derived from numerous management contracts, the loss of one or more of such contracts could have a material adverse impact in our financial condition and results of operations. We expect to continue to depend upon the federal agencies and a relatively small group of other governmental customers for a significant percentage of our revenues.

A decrease in occupancy levels could cause a decrease in revenues and profitability.  While a substantial portion of our cost structure is generally fixed, a significant portion of our revenues are generated under facility management contracts which provide for per diem payments based upon daily occupancy. We are dependent upon the governmental agencies with which we have contracts to provide inmates for our managed facilities. We cannot control occupancy levels at our managed facilities. Under a per diem rate structure, a decrease in our occupancy rates could cause a decrease in revenues and profitability. When combined with relatively fixed costs for operating each facility, regardless of the occupancy level, a decrease in occupancy levels could have a material adverse effect on our profitability.

We are dependent upon our senior management and our ability to attract and retain sufficient qualified personnel.

The success of our business depends in large part on the ability and experience of our senior management. The unexpected loss of any of these persons could materially adversely affect our business and operations.

In addition, the services we provide are labor-intensive. When we are awarded a facility management contract or open a new facility, we must hire operating management, correctional officers, and other personnel. The success of our business requires that we attract, develop, and retain these personnel. Our inability to hire sufficient qualified personnel on a timely basis or the loss of significant numbers of personnel at existing facilities could adversely affect our business and operations.

Adverse developments in our relationship with our employees could adversely affect our business, financial condition or results of operations.

As of December 31, 2008, we employed 17,400 employees. Approximately 775 of our employees at three of our facilities, or less than 5% of our workforce, are represented by labor unions. We have not experienced a strike or work stoppage at any of our facilities and in the opinion of management overall employee relations are good. The anticipated proposed Employee Free Choice Act (“EFCA”), if enacted, could increase organizational activity at locations where employees are currently not represented by a labor organization. Increases in organizational activity or any future work stoppages could have a material adverse effect on our business, financial condition, or results of operations.

We are subject to necessary insurance costs.

Workers’ compensation, employee health, and general liability insurance represent significant costs to us. Because we are significantly self-insured for workers’ compensation, employee health, and general liability risks, the amount of our insurance expense is dependent on claims experience, our ability to control our claims experience, and in the case of workers’ compensation and employee health, rising health care costs in general. Unanticipated additional insurance costs could adversely impact our results of operations and cash flows, and the failure to obtain or maintain any necessary insurance coverage could have a material adverse effect on us.

We may be adversely affected by inflation.

Many of our facility management contracts provide for fixed management fees or fees that increase by only small amounts during their terms. If, due to inflation or other causes, our operating expenses, such as wages and salaries of our employees, insurance, medical, and food costs, increase at rates faster than increases, if any, in our management fees, then our profitability would be adversely affected. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Inflation.”

We are subject to legal proceedings associated with owning and managing correctional and detention facilities.

Our ownership and management of correctional and detention facilities, and the provision of inmate transportation services by a subsidiary, expose us to potential third-party claims or litigation by prisoners or other persons relating to personal injury or other damages resulting from contact with a facility, its managers, personnel or other prisoners, including damages arising from a prisoner’s escape from, or a disturbance or riot at, a facility we own or manage, or from the misconduct of our employees. To the extent the events serving as a basis for any potential claims are alleged or determined to constitute illegal or criminal activity, we could also be subject to criminal liability. Such liability could result in significant monetary fines and could affect our ability to bid on future contracts and retain our existing contracts. In addition, as an owner of real property, we may be subject to a variety of proceedings relating to personal injuries of persons at such facilities. The claims against our facilities may be significant and may not be covered by insurance. Even in cases covered by insurance, our deductible (or self-insured retention) may be significant.

We are subject to risks associated with ownership of real estate.

Our ownership of correctional and detention facilities subjects us to risks typically associated with investments in real estate. Investments in real estate and, in particular, correctional and detention facilities have limited or no alternative use and thus, are relatively illiquid, and therefore, our ability to

divest ourselves of one or more of our facilities promptly in response to changed conditions is limited. Investments in correctional and detention facilities, in particular, subject us to risks involving potential exposure to environmental liability and uninsured loss. Our operating costs may be affected by the obligation to pay for the cost of complying with existing environmental laws, ordinances and regulations, as well as the cost of complying with future legislation. In addition, although we maintain insurance for many types of losses, there are certain types of losses, such as losses from earthquakes and acts of terrorism, which may be either uninsurable or for which it may not be economically feasible to obtain insurance coverage, in light of the substantial costs associated with such insurance. As a result, we could lose both our capital invested in, and anticipated profits from, one or more of the facilities we own. Further, it is possible to experience losses that may exceed the limits of insurance coverage.

In addition, our focus on facility development and expansions poses an increased risk, including cost overruns caused by various factors, many of which are beyond our control, such as weather, labor conditions, and material shortages, resulting in increased construction costs. Further, if we are unable to utilize this new bed capacity, our financial results could deteriorate.

Certain of our facilities are subject to options to purchase and reversions. Ten of our facilities are or will be subject to an option to purchase by certain governmental agencies. Such options are exercisable by the corresponding contracting governmental entity generally at any time during the term of the respective facility management contract. Certain of these purchase options are based on the depreciated book value of the facility, which essentially results in the transfer of ownership of the facility to the governmental agency at the end of the life used for accounting purposes. See “Business — Facility Portfolio — Facilities and Facility Management Contracts.” If any of these options are exercised, there exists the risk that we will be unable to invest the proceeds from the sale of the facility in one or more properties that yield as much cash flow as the property acquired by the government entity. In addition, in the event any of these options are exercised, there exists the risk that the contracting governmental agency will terminate the management contract associated with such facility. For the year ended December 31, 2008, the facilities subject to these options generated $263.1 million in revenue (16.5% of total revenue) and incurred $187.0 million in operating expenses. Certain of the options to purchase are exercisable at prices below fair market value. See “Business — Facility Portfolio — Facilities and Facility Management Contracts.”

In addition, ownership of two of our facilities (that are also subject to options to purchase) will, upon the expiration of certain ground leases with remaining terms generally ranging from 8 to 10 years, revert to the respective governmental agency contracting with us. See “Business — Facility Portfolio — Facilities and Facility Management Contracts.” At the time of such reversion, there exists the risk that the contracting governmental agency will terminate the management contract associated with such facility. For the year ended December 31, 2008, the facilities subject to reversion generated $72.5 million in revenue (4.5% of total revenue) and incurred $51.1 million in operating expenses.

Risks related to facility construction and development activities may increase our costs related to such activities.

When we are engaged to perform construction and design services for a facility, we typically act as the primary contractor and subcontract with other companies who act as the general contractors. As primary contractor, we are subject to the various risks associated with construction (including, without limitation, shortages of labor and materials, work stoppages, labor disputes, and weather interference) which could cause construction delays. In addition, we are subject to the risk that the general contractor will be unable to complete construction at the budgeted costs or be unable to fund any excess construction costs, even though we require general contractors to post construction bonds and insurance. Under such contracts, we are ultimately liable for all late delivery penalties and cost overruns.

We may be adversely affected by the rising cost and increasing difficulty of obtaining adequate levels of surety credit on favorable terms.

We are often required to post bid or performance bonds issued by a surety company as a condition to bidding on or being awarded a contract. Availability and pricing of these surety commitments are subject to general market and industry conditions, among other factors. Increases in surety costs could adversely affect our operating results if we are unable to effectively pass along such increases to our customers. We cannot assure you that we will have continued access to surety credit or that we will be able to secure bonds economically, without additional collateral, or at the levels required for any potential facility development or contract bids. If we are unable to obtain adequate levels of surety credit on favorable terms, we would have to rely upon letters of credit under our revolving credit facility, which could entail higher costs even if such borrowing capacity was available when desired at the time, and our ability to bid for or obtain new contracts could be impaired.

Our issuance of preferred stock could adversely affect holders of our common stock and discourage a takeover.

Our board of directors has the power to issue up to 50.0 million shares of preferred stock without any action on the part of our stockholders. Our board of directors also has the power, without stockholder approval, to set the terms of any new series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up, and other terms. In the event that we issue additional shares of preferred stock in the future that has preference over our common stock, with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of the holders of our common stock or the market price of our common stock could be adversely affected. In addition, the ability of our board of directors to issue shares of preferred stock without any action on the part of our stockholders may impede a takeover of us and prevent a transaction favorable to our stockholders.

Our charter and bylaws and Maryland law could make it difficult for a third party to acquire our company.

The Maryland General Corporation Law and our charter and bylaws contain provisions that could delay, deter, or prevent a change in control of our company or our management. These provisions could also discourage proxy contests and make it more difficult for our stockholders to elect directors and take other corporate actions. These provisions:

	•		authorize us to issue “blank check” preferred stock, which is preferred stock that can be created and issued by our board of directors, without stockholder approval, with rights senior to those of common stock;
	•		provide that directors may be removed with or without cause only by the affirmative vote of at least a majority of the votes of shares entitled to vote thereon; and
	•		establish advance notice requirements for submitting nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting.

We are also subject to anti-takeover provisions under Maryland law, which could also delay or prevent a change of control. Together, these provisions of our charter and bylaws and Maryland law may discourage transactions that otherwise could provide for the payment of a premium over prevailing market prices for our common stock, and also could limit the price that investors are willing to pay in the future for shares of our common stock.

Risks Related to Our Leveraged Capital Structure

Our indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our debt securities.

We have a significant amount of indebtedness. As of December 31, 2008, we had total indebtedness of $1,192.9 million. Our indebtedness could have important consequences. For example, it could:

	•		make it more difficult for us to satisfy our obligations with respect to our indebtedness;
	•		increase our vulnerability to general adverse economic and industry conditions;
	•		require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, and other general corporate purposes;
	•		limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
	•		place us at a competitive disadvantage compared to our competitors that have less debt; and
	•		limit our ability to borrow additional funds or refinance existing indebtedness on favorable terms.

Our revolving credit facility and other debt instruments have restrictive covenants that could affect our financial condition.

The indenture related to our aggregate principal amount of $450.0 million 7.5% senior notes due 2011, the indenture related to our aggregate principal amount of $375.0 million 6.25% senior notes due 2013, and the indenture related to our aggregate principal amount of $150.0 million 6.75% senior notes due 2014, collectively referred to herein as our senior notes, and our revolving credit facility contain financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our ability to borrow under our revolving credit facility is subject to compliance with certain financial covenants, including leverage and interest coverage ratios. Our revolving credit facility includes other restrictions that, among other things, limit our ability to incur indebtedness; grant liens; engage in mergers, consolidations and liquidations; make asset dispositions, restricted payments and investments; enter into transactions with affiliates; and amend, modify or prepay certain indebtedness. The indentures related to our senior notes contain limitations on our ability to effect mergers and change of control events, as well as other limitations, including:

	•		limitations on incurring additional indebtedness;
	•		limitations on the sale of assets;
	•		limitations on the declaration and payment of dividends or other restricted payments;
	•		limitations on transactions with affiliates; and
	•		limitations on liens.

Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our debts. We do not have sufficient working capital to satisfy our debt obligations in the event of an acceleration of all or a significant portion of our outstanding indebtedness.

Servicing our indebtedness will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.

The risk exists that our business will be unable to generate sufficient cash flow from operations or that future borrowings will not be available to us under our revolving credit facility in an amount sufficient to enable us to pay our indebtedness, including our existing senior notes, or new debt securities, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including our senior notes, or new debt securities, on or before maturity. We may not, however, be able to refinance any of our indebtedness, including our revolving credit facility and including our senior notes, or new debt securities on commercially reasonable terms or at all.

We are required to repurchase all or a portion of our senior notes upon a change of control.

Upon certain change of control events, as that term is defined in the indentures for our senior notes, including a change of control caused by an unsolicited third party, we are required to make an offer in cash to repurchase all or any part of each holder’s notes at a repurchase price equal to 101% of the principal thereof, plus accrued interest. The source of funds for any such repurchase would be our available cash or cash generated from operations or other sources, including borrowings, sales of equity or funds provided by a new controlling person or entity. Sufficient funds may not be available to us, however, at the time of any change of control event to repurchase all or a portion of the tendered notes pursuant to this requirement. Our failure to offer to repurchase notes, or to repurchase notes tendered, following a change of control will result in a default under the respective indentures, which could lead to a cross-default under our revolving credit facility and under the terms of our other indebtedness. In addition, our revolving credit facility prohibits us from making any such required repurchases. Prior to repurchasing the notes upon a change of control event, we must either repay outstanding indebtedness under our revolving credit facility or obtain the consent of the lenders under our revolving credit facility. If we do not obtain the required consents or repay our outstanding indebtedness under our revolving credit facility, we would remain effectively prohibited from offering to purchase the notes.

Despite current indebtedness levels, we may still incur more debt.

The terms of the indentures for our senior notes and our revolving credit facility restrict our ability to incur significant additional indebtedness in the future. However, in the future we may refinance all or a portion of our indebtedness, including our revolving credit facility, and may incur additional indebtedness as a result. As of December 31, 2008, we had $191.3 million of additional borrowing capacity available under our $450.0 million revolving credit facility. In addition, we may issue an indeterminate amount of securities from time to time when we determine that market conditions and the opportunity to utilize the proceeds from the issuance of such securities are favorable. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.

Our access to capital may be affected by general macroeconomic conditions.

As a result of current economic conditions, including turmoil and uncertainty in the capital markets, credit markets have tightened significantly such that the ability to obtain new capital has become more challenging and more expensive. In addition, several large financial institutions have either recently failed or been dependent on the assistance of the federal government to continue to operate as a going concern. Lehman Brothers Commercial Bank, which holds a $15.0 million share in our revolving credit facility, is a defaulting lender under the terms of the credit agreement. To date, Lehman has funded $4.6 million that remains outstanding as of December 31, 2008. This balance will be repaid on a pro-rata basis whenever we repay any LIBOR-based loans. To the extent that their funding is reduced, it will not be replaced. Going forward, we do not expect to have access to incremental funding from Lehman. Further, to the extent we obtain additional letters of credit under the facility, we will be required to provide cash collateral on a pro-rata basis to reflect the inability of Lehman to fulfill its commitments.

We can provide no assurance that the remaining banks that have made commitments under our revolving credit facility will continue to operate as a going concern in the future. If any of the remaining banks in the lending group were to fail, it is possible that the capacity under the revolving credit facility would be further reduced. In the event that the availability under the revolving credit facility was reduced significantly, we could be required to obtain capital from alternate sources in order to continue with our business and capital strategies. Our options for addressing such capital constraints would include, but not be limited to (i) reducing or suspending the stock repurchase program, (ii) delaying certain capital expenditure projects, (iii) obtaining commitments from the remaining banks in the lending group or from new banks to fund increased amounts under the terms of the revolving credit facility, or (iv) accessing the public capital markets. Such alternatives in the current market would likely be on terms less favorable than under existing terms, which could have a material effect on our consolidated financial position, results of operations, or cash flows.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

The properties we owned at December 31, 2008 are described under Item 1 and in Note 4 of the Notes to the Financial Statements contained in this annual report.

ITEM 3. LEGAL PROCEEDINGS.

General. The nature of our business results in claims and litigation alleging that we are liable for damages arising from the conduct of our 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 our facilities, personnel, or inmates, including damages arising from an inmate’s escape or from a disturbance or riot at a facility. We maintain insurance to cover many of these claims which may mitigate the risk that any single claim would have a material effect on our 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, we are subject to substantial self-insurance risk.

We record 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 our financial statements. In the opinion of management, there are no pending legal proceedings that would have a material effect on our 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 our 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 our assumptions, new developments, or the effectiveness of our litigation and settlement strategies.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Price of and Distributions on Capital Stock

Our common stock is traded on the New York Stock Exchange, or NYSE, under the symbol “CXW.” On February 13, 2009 the last reported sale price of our common stock was $10.80 per share and there were approximately 4,500 registered holders and approximately 59,000 beneficial holders, respectively, of our common stock.

The following table sets forth, for the fiscal quarters indicated, the range of high and low sales prices of the common stock as adjusted for the Company’s 2-for-1 stock split in July 2007.

Common Stock

		SALES PRICE
		HIGH				LOW
FISCAL YEAR 2008
First Quarter		$	29.65			$	22.92
Second Quarter		$	28.82			$	24.35
Third Quarter		$	29.40			$	23.00
Fourth Quarter		$	24.99			$	11.86
FISCAL YEAR 2007
First Quarter		$	27.11			$	21.66
Second Quarter		$	32.99			$	26.15
Third Quarter		$	33.40			$	24.08
Fourth Quarter		$	31.58			$	24.97

Dividend Policy

During the years ended December 31, 2008 and 2007, we did not pay any dividends on our common stock. Pursuant to the terms of the indentures governing our senior notes and our senior secured revolving credit agreement, we are limited in the amount of dividends we can declare or pay on our outstanding shares of common stock. Taking into consideration these limitations, management and our

board of directors regularly evaluate the merits of declaring and paying a dividend. Future dividends, if any, will depend on our future earnings, our capital requirements, our financial condition, alternative uses of capital, and on such other factors as our board of directors may consider relevant.

Issuer Purchases of Equity Securities

														Maximum
														Number (or
										Total Number of				Approximate
										Shares Purchased				Dollar Value) of
		Total								as Part of				Shares that May
		Number of								Publicly				Yet Be Purchased
		Shares				Average Price				Announced Plans				Under the Plans
Period		Purchased				Paid per Share				or Programs				or Programs (1)
October 1, 2008 – October 31, 2008			—				—				—				—
November 1, 2008 – November 30, 2008			235,496			$	15.27				235,496			$	146,403,503
December 1, 2008 – December 31, 2008			829,175			$	15.63				829,175			$	133,447,412
Total			1,064,671			$	15.55				1,064,671			$	133,447,412

ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data for the five years ended December 31, 2008, was derived from our consolidated financial statements and the related notes thereto. This data should be read in conjunction with our audited consolidated financial statements, including the related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our audited consolidated financial statements, including the related notes, as of December 31, 2008 and 2007, and for the years ended December 31, 2008, 2007, and 2006 are included in this annual report.

CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL INFORMATION
(in thousands, except per share data)

		For the Years Ended December 31,
STATEMENT OF OPERATIONS:		2008				2007				2006				2005				2004
Revenue:
Management and other		$	1,594,068			$	1,451,751			$	1,299,174			$	1,161,876			$	1,094,252
Rental			4,838				4,562				4,207				3,991				3,845
Total revenue			1,598,906				1,456,313				1,303,381				1,165,867				1,098,097
Expenses:
Operating			1,124,002				1,036,087				947,946				873,500				827,499
General and administrative			80,308				74,399				63,593				57,053				48,186
Depreciation and amortization			90,809				78,539				67,323				59,571				54,328
Goodwill impairment			—				554				—				—				—
Total expenses			1,295,119				1,189,579				1,078,862				990,124				930,013
Operating income			303,787				266,734				224,519				175,743				168,084
Other (income) expense:
Interest expense, net			59,404				53,776				58,783				63,928				69,177
Expenses associated with debt refinancing and recapitalization transactions			—				—				982				35,269				101
Other (income) expense			292				(308	)			(260	)			263				943
Income from continuing operations before income taxes			244,091				213,266				165,014				76,283				97,863
Income tax expense			(92,127	)			(80,460	)			(60,645	)			(26,479	)			(39,380	)
Income from continuing operations			151,964				132,806				104,369				49,804				58,483
Income (loss) from discontinued operations, net of taxes			(1,023	)			567				870				318				4,060
Net income			150,941				133,373				105,239				50,122				62,543
Distributions to preferred stockholders			—				—				—				—				(1,462	)
Net income available to common stockholders		$	150,941			$	133,373			$	105,239			$	50,122			$	61,081

(continued)

CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL INFORMATION
(in thousands, except per share data)
(continued)

		For the Years Ended December 31,
		2008				2007				2006				2005				2004
Basic earnings per share:
Income from continuing operations		$	1.22			$	1.08			$	0.87			$	0.43			$	0.54
Income (loss) from discontinued operations, net of taxes			(0.01	)			0.01				0.01				—				0.04
Net income available to common stockholders		$	1.21			$	1.09			$	0.88			$	0.43			$	0.58
Diluted earnings per share:
Income from continuing operations		$	1.21			$	1.06			$	0.85			$	0.42			$	0.49
Income (loss) from discontinued operations, net of taxes			(0.01	)			—				0.01				—				0.03
Net income available to common stockholders		$	1.20			$	1.06			$	0.86			$	0.42			$	0.52
Weighted average common shares outstanding:
Basic			124,464				122,553				119,714				115,426				105,178
Diluted			126,250				125,381				123,058				120,846				119,342