UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K/A

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

THE GEO GROUP, INC.

(Exact Name of Registrant as Specified in Charter)

(State or Other Jurisdiction of Incorporation)

1-14260		65-0043078
(Commission File Number)		(IRS Employer Identification No.)

621 NW 53rd Street, Suite 700, Boca Raton, Florida		33487
(Address of Principal Executive Offices)		(Zip Code)

(Registrant’s Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

	o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
	o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
	o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
	o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Explanatory Note

As reported in a Current Report on Form 8-K filed by The GEO Group, Inc. on August 18, 2010 (the “Initial Form 8-K”), effective August 12, 2010, The GEO Group, Inc. (“GEO”) completed its previously announced acquisition of Cornell Companies, Inc. (“Cornell”) pursuant to an Agreement and Plan of Merger, dated as of April 18, 2010 as amended on July 22, 2010 (the “Merger Agreement”), by and among GEO, GEO Acquisition III, Inc., a direct wholly-owned subsidiary of GEO (“Merger Sub”) and Cornell. Under the terms of the Merger Agreement, Merger Sub merged with and into Cornell with Cornell being the surviving corporation of the Merger. This Amendment No. 1 to the Initial Form 8-K hereby amends and restates in its entirety Item 9.01(a) and Item 9.01(b) and is being filed in order to provide the financial statements required by Item 9.01(a) and the pro forma financial information required by Item 9.01(b) that was omitted as permitted from the Initial Form 8-K.

Section 9 — Financial Statements and Exhibits

          Item 9.01. FINANCIAL STATEMENTS AND EXHIBITS

          (a) Financial Statements of Businesses Acquired

     Item 9.01(a) of the Form 8-K is hereby amended and restated in its entirety as follows:

     The financial statements of Cornell required to be filed pursuant to this Item 9.01(a) are included as Exhibit 99.1 and 99.2 to this Form 8-K and are incorporated herein by reference.

          (b) Pro Forma Financial Information

     Item 9.01(b) of the Form 8-K is hereby amended and restated in its entirety as follows:

     The unaudited pro forma financial statements of The GEO Group, Inc. required to be filed pursuant to this Item 9.01(b) are included as Exhibit 99.3 to this Form 8-K and are incorporated herein by reference.

          (d) Exhibits

Exhibit No.		Description
23.1		Consent of PricewaterhouseCoopers LLP
99.1		Audited Financial Statements of Cornell Companies, Inc. as of and for the Year Ended December 31, 2009
99.2		Unaudited Financial Statements of Cornell Companies, Inc. as of and for the Six Months Ended June 30, 2010
99.3		Unaudited Pro Forma Financial Statements of The GEO Group, Inc. after giving effect to the acquisition of Cornell Companies, Inc.

SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-169199, 333-169198, 333-142589, 333-79817, 333-17265, 333-09977, 333-09981) of The GEO Group, Inc. of our report dated February 26, 2010 relating to the financial statements of Cornell Companies, Inc., which appears in this Current Report on Form 8-K of The GEO Group, Inc. dated October 28, 2010.

/s/ PricewaterhouseCoopers LLP
Houston, Texas
October 28, 2010

Exhibit 99.1

		Page
CORNELL COMPANIES, INC.
Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets — December 31, 2009 and 2008			F-3
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2009, 2008, and 2007			F-4
Consolidated Statements of Changes in Equity and Comprehensive Income for the Years Ended December 31, 2009, 2008, and 2007			F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008, and 2007			F-6
Notes to Consolidated Financial Statements			F-7

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Cornell Companies, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and comprehensive income, of changes in equity and comprehensive income, and of cash flows present fairly, in all material respects, the financial position of Cornell Companies, Inc. and its subsidiaries at December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 5 to the consolidated financial statements, the Company changed its method of accounting for non-controlling interests beginning on January 1, 2009. Also, as discussed in Note 10 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertainty in income taxes effective January 1, 2007.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Houston, Texas
February 26, 2010

CORNELL COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

		December 31,
		2009				2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	27,724			$	14,613
Accounts receivable — trade (net of allowance for doubtful accounts of $4,345 and $4,272, respectively)			59,496				64,622
Other receivables			1,587				4,766
Bond fund payment account and other restricted assets			29,978				27,190
Deferred tax assets			9,843				9,151
Prepaid expenses and other			11,647				6,368
Total current assets			140,275				126,710
PROPERTY AND EQUIPMENT, net			455,523				450,354
OTHER ASSETS:
Debt service reserve fund and other restricted assets			27,017				27,930
Goodwill			13,308				13,308
Intangible assets, net			1,185				2,320
Deferred costs and other			13,257				16,299
Total assets		$	650,565			$	636,921
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		$	62,287			$	69,093
Current portion of long-term debt			13,413				12,412
Total current liabilities			75,700				81,505
LONG-TERM DEBT, net of current portion			289,841				308,070
DEFERRED TAX LIABILITIES			24,455				17,491
OTHER LONG-TERM LIABILITIES			1,831				1,688
Total liabilities			391,827				408,754
COMMITMENTS AND CONTINGENCIES
EQUITY:
CORNELL COMPANIES, INC. STOCKHOLDERS’ EQUITY:
Preferred stock, $.001 par value, 10,000,000 shares authorized, none issued			—				—
Common stock, $.001 par value, 30,000,000 shares authorized, 16,434,940 and 16,238,685 shares issued and 14,947,054 and 14,732,522 shares outstanding, respectively			16				16
Additional paid-in capital			168,852				164,746
Retained earnings			97,944				73,318
Treasury stock (1,487,886 and 1,506,163 shares of common stock, at cost, respectively)			(11,888	)			(12,034	)
Accumulated other comprehensive income			1,422				1,676
Total Cornell Companies, Inc. stockholders’ equity			256,346				227,722
Non-controlling interest			2,392				445
Total equity			258,738				228,167
Total liabilities and equity		$	650,565			$	636,921

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

CORNELL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)

		Year Ended December 31,
		2009				2008				2007
REVENUES		$	412,377			$	386,724			$	360,604
OPERATING EXPENSES, EXCLUDING DEPRECIATION AND AMORTIZATION			295,645				280,630				274,110
PRE-OPENING AND START-UP EXPENSES			4,086				—				—
DEPRECIATION AND AMORTIZATION			18,833				17,943				15,986
GENERAL AND ADMINISTRATIVE EXPENSES			24,112				25,954				25,499
INCOME FROM OPERATIONS			69,701				62,197				45,009
INTEREST EXPENSE			25,830				26,946				26,215
INTEREST INCOME			(657	)			(2,988	)			(1,951	)
INCOME FROM BEFORE PROVISION FOR INCOME TAXES			44,528				38,239				20,745
PROVISION FOR INCOME TAXES			17,955				15,603				8,835
NET INCOME			26,573				22,636				11,910
NON-CONTROLLING INTEREST			1,947				445				—
INCOME AVAILABLE TO CORNELL COMPANIES, INC.		$	24,626			$	22,191			$	11,910
EARNINGS PER SHARE ATTRIBUTABLE TO CORNELL COMPANIES, INC. STOCKHOLDERS:
BASIC:		$	1.65			$	1.51			$	.82
DILUTED:		$	1.64			$	1.49			$	.82
NUMBER OF SHARES USED IN PER SHARE COMPUTATION:
BASIC			14,881				14,701				14,452
DILUTED			14,986				14,847				14,611
COMPREHENSIVE INCOME:
Net income		$	26,573			$	22,636			$	11,910
Other comprehensive income, net of tax: Unrealized gain on derivative instruments, net of tax provision of $324 and $425 in 2008 and 2007, respectively			—				583				612
Total other comprehensive income, net of tax			26,573				23,219				12,522
Comprehensive income attributable to non-controlling interest			1,947				445				—
Comprehensive income attributable to Cornell Companies, Inc.		$	24,626			$	22,774			$	12,522

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

CORNELL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
AND COMPREHENSIVE INCOME
(in thousands, except share data)

																										Accumulated
		Common Stock								Additional																Other				Non-				Total
						Par				Paid-In				Retained				Treasury Stock								Comprehensive				Controlling				Stockholders’				Comprehensive
		Shares				Value				Capital				Earnings				Shares				Cost				Income				Interest				Equity				Income
BALANCES AT JANUARY 1, 2007			15,603,917				16				154,411				38,964				1,540,394				(12,308	)			481				—				181,564
NET INCOME			—				—				—				11,910				—				—				—				—				11,910				11,910
UNREALIZED GAIN ON DERIVATIVE INSTRUMENTS, NET OF TAXES OF $425			—				—				—				—				—				—				612				—				612				612
COMPREHENSIVE INCOME																																							12,522
ADOPTION OF ASC 740			—				—				—				253				—				—				—				—				253
EXERCISE OF STOCK OPTIONS, EMPLOYEE STOCK PURCHASE PLAN CONTRIBUTIONS AND WARRANTS			234,182				—				2,490				—				—				—				—				—				2,490
INCOME TAX BENEFIT FROM STOCK OPTION EXERCISES			—				—				355				—				—				—				—				—				355
DEFERRED AND OTHER STOCK COMPENSATION			221,428				—				2,644				—				—				—				—				—				2,644
ISSUANCE OF COMMON STOCK TO EMPLOYEE STOCK PURCHASE PLAN			—				—				94				—				(25,348	)			203				—				—				297
ISSUANCE OF COMMON STOCK UNDER 2000 DIRECTOR’S STOCK PLAN			9,150				—				325				—				—				—				—				—				325
BALANCES AT DECEMBER 31, 2007			16,068,677				16				160,319				51,127				1,515,046				(12,105	)			1,093				—				200,450
NET INCOME			—				—				—				22,191				—				—				—				445				22,636				22,191
UNREALIZED GAIN ON DERIVATIVE INSTRUMENTS, NET OF TAXES OF $324			—				—				—				—				—				—				583				—				583				583
COMPREHENSIVE INCOME																																							22,774
EXERCISE OF STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN CONTRIBUTIONS			36,390				—				444				—				—				—				—				—				444
INCOME TAX BENEFIT FROM STOCK OPTION EXERCISES			—				—				140				—				—				—				—				—				140
DEFERRED AND OTHER STOCK COMPENSATION			120,137				—				3,271				—				—				—				—				—				3,271
ISSUANCE OF COMMON STOCK TO EMPLOYEE STOCK PURCHASE PLAN			—				—				82				—				(8,883	)			71				—				—				153
ISSUANCE OF COMMON STOCK UNDER 2000 DIRECTOR’S STOCK PLAN			13,481				—				490				—				—				—				—				—				490
BALANCES AT DECEMBER 31, 2008			16,238,685				16				164,746				73,318				1,506,163				(12,034	)			1,676				445				228,167
NET INCOME			—				—				—				24,626				—				—				—				1,947				26,573				24,626
COMPREHENSIVE INCOME																																							24,626
INCOME TAX EXPENSE FROM STOCK OPTION EXERCISES			—				—				(62	)			—				—				—				—				—				(62	)
DEFERRED AND OTHER STOCK COMPENSATION			158,783				—				3,303				—				—				—				—				—				3,303
ISSUANCE OF COMMON STOCK TO EMPLOYEE STOCK PURCHASE PLAN			—				—				143				—				(18,277	)			146				—				—				289
ISSUANCE OF COMMON STOCK UNDER 2000 DIRECTOR’S STOCK PLAN			16,487				—				443				—				—				—				—				—				443
AMORTIZATION OF GAIN ON TERMINATION OF DERIVATIVE			—				—				—				—				—				—				(254	)			—				(254	)
EXERCISE OF STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN CONTRIBUTIONS			20,985				—				279				—				—				—				—				—				279
BALANCES AT DECEMBER 31, 2009			16,434,940			$	16			$	168,852			$	97,944				1,487,886			$	(11,888	)		$	1,422			$	2,392			$	258,738

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

CORNELL COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Year Ended December 31,
		2009				2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	26,573			$	22,636			$	11,910
Adjustments to reconcile net income to net cash provided by operating activities
Impairment of long-lived assets			—				250				—
Depreciation			17,698				15,743				13,580
Amortization of intangibles			1,135				2,200				2,406
Amortization of deferred financing costs			1,266				2,728				1,552
Amortization of Senior Notes discount			184				184				184
Amortization of gain on termination of derivative			(254	)			—				—
Stock-based compensation			3,575				3,570				2,645
Provision for bad debts			1,184				2,741				2,063
Gain on derivative instruments			—				1,160				—
Loss/(gain) on property and equipment			(1,090	)			84				(190	)
Change in assets and liabilities:
Accounts receivable			6,476				1,523				77
Other restricted assets			514				(1,058	)			(665	)
Deferred income taxes			6,201				1,458				397
Other assets			(3,395	)			873				(1,774	)
Accounts payable and accrued liabilities			(8,278	)			7,771				(4,890	)
Other liabilities			143				(2,884	)			(51	)
Net cash provided by operating activities			51,932				58,979				27,244
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(22,301	)			(79,915	)			(50,890	)
Purchases of investment securities			—				—				(241,425	)
Sales of investment securities			—				250				253,100
Facility acquisitions			—				—				(18,554	)
Site acquisition			—				—				(5,053	)
Proceeds from insurance recoveries and proceeds from sale of property and equipment			2,707				846				375
Payments to restricted debt payment account, net			(2,389	)			(2,901	)			(2,084	)
Net cash used in investing activities			(21,983	)			(81,720	)			(64,531	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit			2,000				49,000				30,000
Payments of MCF bonds			(12,400	)			(11,400	)			(10,500	)
Payments of line of credit			(7,000	)			(4,000	)			—
Payments of capital lease obligations			(14	)			(11	)			(10	)
Payments for debt issuance and other financing costs			—				—				(845	)
Tax benefit of stock option exercises			8				140				355
Proceeds from exercise of stock options, employee stock purchase plan contributions and warrants			568				597				2,786
Net cash provided by (used in) financing activities			(16,838	)			34,326				21,786
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			13,111				11,585				(15,501	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			14,613				3,028				18,529
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	27,724			$	14,613			$	3,028
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid, net of capitalized interest of $740, $2,886 and $1,172, respectively		$	26,080			$	18,596			$	30,672
Income taxes paid		$	21,118			$	12,048			$	7,613
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES:
Decrease in fair value of interest rate swap		$	—			$	—			$	(1,053	)
Purchases and additions to property and equipment included in accounts payable and accrued liabilities			2,185				3,409				4,156
Common stock issued for board of directors fees			443				490				325
Tax expense of stock option exercises			(70	)			—				—

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

CORNELL COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS

     Cornell Companies, Inc. (collectively with its subsidiaries and consolidated special purpose entities, unless the context requires otherwise, “Cornell,” the “Company,” “we,” “us,” or “our,”), a Delaware corporation, provides integrated development, design, construction and management of facilities to governmental agencies within three operating segments: (1) Adult Secure Services; (2) Abraxas Youth and Family Services and (3) Adult Community-Based Services.

2. SIGNIFICANT ACCOUNTING POLICIES

     Consolidation

     The accompanying consolidated financial statements include the accounts of the Company, our wholly-owned subsidiaries, and our activities relative to a financing of operating facilities. All significant intercompany balances and transactions have been eliminated. Non-controlling interest in consolidated special purpose entities represents equity that other investors have contributed to the special purpose entities. Non-controlling interest is adjusted for income and losses allocable to the other owners of the special purpose entities.

     Cash and Cash Equivalents

     We consider all highly liquid unrestricted investments with original maturities of three months or less to be cash equivalents. We invest our available cash balances in short term money market accounts, short term certificates of deposit and commercial paper.

     Accounts Receivable and Related Allowance for Doubtful Accounts

     We extend credit to the governmental agencies and other parties with which we contract in the normal course of business. We regularly review our outstanding receivables and historical collection experience, and provide for estimated losses through an allowance for doubtful accounts. In evaluating the adequacy of our allowance for doubtful accounts, we make judgments regarding our customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may occur. If, after reasonable collection efforts have been made, a receivable is determined to be uncollectible, it will be written off.

     The changes in allowance for doubtful accounts associated with trade accounts receivable for the years ended December 31, 2009, 2008 and 2007 are as follows (in thousands):

		Year Ended December 31,
		2009				2008				2007
Balance at beginning of period		$	4,272			$	4,372			$	3,644
Provision for bad debts			1,184				2,741				2,063
Write-offs of uncollectible accounts			(1,111	)			(2,841	)			(1,335	)
Balance at end of period		$	4,345			$	4,272			$	4,372

     Bond Fund Payment Account and other Restricted Assets

     Restricted assets at December 31, 2009 and 2008 include approximately $26.1 million and $23.8 million, respectively, of Municipal Correctional Finance, LP’s (“MCF”) restricted cash accounts. MCF’s restricted accounts primarily consist of a debt service reserve fund used to segregate rental payment funds from us to MCF for MCF’s semi-annual bond interest and annual bond principal payments. MCF’s funds are typically invested in short term certificates of deposit, money market accounts and commercial paper. They will be used to fund a portion of MCF’s debt service due in the coming year.

     At certain facilities, we maintain bank accounts for restricted cash belonging to facility residents, commissary operations and equipment replacement funds used in certain state programs. Restricted assets at December 31, 2009 and 2008 include approximately $3.8 million and $3.4 million, respectively, for these accounts. A corresponding liability for these obligations is included in accrued liabilities in the accompanying financial statements.

     Property and Equipment

     Property and equipment are recorded at cost. Ordinary maintenance and repair costs are expensed, while renewal and betterment costs are capitalized. Buildings and improvements are depreciated over their estimated useful lives of 30 to 50 years using the straight-line method. Prepaid facility use cost, which resulted from the July 1996 acquisition of the Big Spring Correctional Center and the December 1999 transfer of ownership of the Great Plains Correctional Facility to a leasehold interest, is being amortized over 50 years using the straight-line method. Furniture and equipment are depreciated over their estimated useful lives of 3 to 10 years using the straight-line method. Amortization of leasehold improvements (including those funded by landlord incentives or allowances) is recorded using the straight-line method based upon the shorter of the economic life of the asset or the term of the respective lease. Landlord incentives or allowances under operating leases are recorded as deferred rent and amortized as a reduction of rent expense over the lease term. See Note 7 to the consolidated financial statements for further details concerning our property and equipment balances at December 31, 2009 and 2008.

     We review our long-lived assets (including our facilities at a facility-by-facility level) for impairment at least annually or when changes in circumstances or a triggering event indicates that the carrying amount of the asset may not be recoverable. Authoritative guidance requires that long-lived assets to be held and used recognize an impairment loss only if the carrying amount of the long-lived asset is not recoverable from its estimated future undiscounted cash flows and to measure an impairment loss as the difference between the carrying value and the fair value of the asset. Assets to be disposed of by sale are recorded at the lower of their carrying amount or fair value less estimated selling costs. We estimate projections of undiscounted cash flows, and also fair value, based upon the best information available, which may include expected future discounted cash flows to be produced by the asset and/or available market prices. Factors that significantly influence estimated future cash flows include the periods and levels of occupancy for the facility, expected per diem or reimbursement rates, assumptions regarding the levels of staffing, services and future operating and capital expenditures necessary to generate forecasted revenues, related costs for these activities and future rate of increases or decreases associated with these factors. Information typically utilized will also include relevant terms of existing contracts (for similar services and customers), market knowledge of customer demand (both present and anticipated) and related pricing, market competitors, and our historical experience (as to areas including customer requirements, contract terms, operating requirements/costs, occupancy trends, etc.). We may also consider the results of any appraisals if a fair value is necessary. Estimates for factors such as per diem or reimbursement rates may be highly subjective, particularly in circumstances where there is no current operating contract in place and changes in the assumptions and estimates could result in the recognition of impairment charges.

     Capitalized Interest

     We capitalize interest on facilities while under construction. We capitalized interest of approximately $0.7 million in the year ended December 31, 2009 related to the 700 bed facility expansion project at the D. Ray James Prison. Interest capitalized for the year ended December 31, 2008 was approximately $2.9 million and related to the expansion projects at the D. Ray James Prison and the Great Plains Correctional Facility. Interest capitalized for the year ended December 31, 2007 was approximately $1.2 million and related to the expansion projects at the Big Spring Correctional Center, the D. Ray James Prison and the Great Plains Correctional Facility.

     Debt Service Reserve Fund

     The debt service reserve fund was established at the closing of MCF’s bond issuance and is to be used solely for MCF’s debt service to the extent that funds in MCF’s debt service accounts are insufficient. The debt service reserve fund is invested principally in short term commercial instruments. See Note 14 to the consolidated financial statements.

     Intangible Assets

     We evaluate the carrying value of our existing intangibles (which are the result of prior acquisitions — both business facilities and operating contracts) for impairment annually or when changes in circumstances or a triggering event indicates that the carrying amount of the asset may not be recoverable. We have evaluated the carrying value of our existing intangibles and concluded there has not been impairment to the carrying value of our existing intangibles as of December 31, 2009. See Note 8 to the consolidated financial statements for further details concerning our intangible assets.

     Deferred Costs

     Costs incurred related to obtaining debt financing are capitalized and amortized over the term of the related indebtedness. At December 31, 2009 and 2008, we had net deferred debt issuance costs of approximately $6.5 million and $7.6 million, respectively.

Revenue Recognition

     Substantially all of our revenues are derived from contracts with federal, state and local governmental agencies, which pay either per diem rates based upon the number of occupant days or hours served for the period, on a take-or-pay basis, management fee basis, cost-plus reimbursement or fee-for-service basis. Revenues are recognized as services are provided under our established contractual agreements to the extent collection is considered probable.

     Pre-opening and Start-up Expenses

     Pre-opening and start-up expenses are charged to operations as incurred. Pre-opening and start-up expenses include payroll, benefits, training and other operating costs during periods prior to opening a new or expanded facility and during the period of operation while occupancy is ramping up. These costs vary by contract. Newly opened facilities are staffed according to applicable regulatory or contractual requirements when we begin receiving offenders or clients. Offenders or clients are typically assigned to a newly opened facility on a phased-in basis over a one-to-six month period. Our start-up period for new juvenile operations is 12 months from the date we begin recognizing revenue unless break-even occupancy is achieved before then. Our start-up period for new adult operations is nine months from the date we begin recognizing revenue unless break-even occupancy is achieved before then.

     Proposal Costs

     We incur various expenses in conjunction with our participation in the proposal process with government agencies for their procurement of our services. These costs include such items as payroll and related employee benefits and taxes, research, consulting, legal and reproduction costs and are expensed in the periods incurred and are included in general and administrative expenses.

     Operating and General and Administrative Expenses

     We incur various expenses within the normal course of our business. Included in operating expenses are direct expense items such as personnel/employee benefits, resident/inmate care expenses and building/utility costs pertaining to the operations of our facilities and programs. Included in general and administrative expenses are expense items such as personnel/employee benefits, professional services and building/utility costs pertaining to our corporate activities.

     Business Concentration

     Contracts with federal, state and local governmental agencies account for nearly all of our revenues. The loss of, or a significant decrease in, business from one or more of these governmental agencies could have a material adverse effect on our financial condition and results of operations. For the years ended December 31, 2009, 2008 and 2007, 34.7%, 34.2% and 32.6%, respectively, of our consolidated revenues were derived from contracts with the Federal Bureau of Prisons (“BOP”), the only customer constituting more than 10.0% of our revenues during each of these periods.

     Self Insurance Reserves

     We maintain insurance coverage for various aspects of our business and operations. We retain a portion of losses that occur through the use of deductibles and retention under self-insurance programs. These programs include workers compensation and employer’s liability, general liability and professional liability, directors and officers’ liability and medical and dental insurance. We maintain deductibles under these programs in amounts ranging from $0.5 million to $1.0 million. We maintain excess loss insurance for amounts exceeding our deductibles.

     We regularly review our estimates of reported and unreported claims and provide for these losses through insurance reserves. These reserves are influenced by rising costs of health care and other costs, increases in claims, time lags in claim information and levels of insurance coverage carried. As claims develop and additional information becomes available to us, adjustments to the related loss reserves may occur. Our estimated reserves for workers compensation claims incorporate the use of a 3% discount factor. Our reserves for medical and worker’s compensation claims are subject to change based on our estimate of the number and magnitude of claims to be incurred.

     Income Taxes

     We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases based on enacted tax rates. In providing for deferred taxes, we consider tax regulations expected to be in effect when differences reverse, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax planning strategies vary, adjustments to the carrying value of tax assets and liabilities may occur. See Note 10 to the consolidated financial statements.

     Earnings Per Share

     Basic earnings per share (“EPS”) are computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing net income by the weighted average number of shares of common stock outstanding giving effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the dilutive effect of outstanding common stock options and restricted common stock granted under our various option and other incentive plans. As of January 1, 2009, in accordance with FASB Accounting Standards Codification (“ASU”) 260-10, instruments with nonforfeitable dividend rights granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing EPS under the two-class method. For our fiscal year beginning January 1, 2009, since our restricted common stock grants (including both vested and those unvested due to either time or performance requirements) convey nonforfeitable rights to dividends while outstanding, they are included in both basic and fully diluted EPS calculations. All prior-period EPS data has been adjusted retrospectively to conform to the calculation of EPS.

     For the year ended December 31, 2009, there were 101,700 shares ($22.16 average price) of stock options that were not included in the computation of diluted EPS because to do so would have been anti-dilutive. For the year ended December 31, 2008, there were 64,200 shares ($23.24 average price) of stock options that were not included in the computation of diluted EPS because to do so would have been anti-dilutive. For the year ended December 31, 2007, there were 19,200 shares ($24.56 average price) of stock options that were not included in computation of diluted EPS because to do so would have been anti-dilutive.

     The following table summarizes the calculation of income and the weighted average common shares and common equivalent shares outstanding for purposes of the computation of earnings per share (in thousands, except per share data):

		Year Ended December 31,
		2009				2008				2007
Income available to stockholders		$	24,626			$	22,191			$	11,910
Weighted average common shares outstanding			14,881				14,701				14,452
Weighted average common share equivalents outstanding			105				146				159
Weighted average common shares and common share equivalents outstanding			14,986				14,847				14,611
Basic income per share		$	1.65			$	1.51			$	.82
Diluted income per share		$	1.64			$	1.49			$	.82

     Financial Instruments

     The carrying amounts of our financial instruments, including cash and cash equivalents, investment securities, accounts receivable and accounts payable and accrued expenses, approximate fair value due to the short maturities of these financial instruments. At December 31, 2009, the carrying amount of consolidated debt was $303.3 million, and the estimated fair value was $309.1 million. At December 31, 2008, the carrying amount was $320.5 million, and the estimated fair value was $308.0 million. The estimated fair value of long-term debt is based primarily on quoted market prices or discounted cash flow analysis for the same or similar issues.

     Derivative Instruments

     Derivatives are recognized at fair value in the consolidated balance sheet. For derivatives designated as hedging the exposure to changes in fair value of an asset or liability, the gain or loss is recognized in earnings together with the offsetting gain or loss on the hedged item. For derivatives designated as hedging the exposure of variable cash flows, the effective portion is reported in other comprehensive income and subsequently reclassified to earnings when the forecasted transaction affects earnings. For derivatives not designated or de-designated as a hedging instrument, the gain or loss is recognized in earnings in the period of change.

     Use of Estimates

     Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require that we make certain estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. We evaluate our estimates on an on-going basis, based on historical experience and on various other assumptions that we believe to be reasonable based on the information available. Actual results could differ from these estimates under different assumptions or conditions. The significant estimates that we make in the accompanying consolidated financial statements include the allowance for doubtful accounts, accruals for insurance and legal claims, valuation allowance for deferred tax accounts, the realizability of long-lived tangible and intangible assets and the fair value of financial instruments.

     Reclassifications

     Certain reclassifications have been made to the prior period financial statements contained herein to conform to current year presentation.

3. STOCK-BASED COMPENSATION

     We have an employee stock purchase plan (“ESPP”) under which employees can make contributions to purchase our common stock. Participation in the plan is elected annually by employees. The plan year begins on January 1st (the “Beginning Date”) and ends on December 31st (the “Ending Date”). Purchases of common stock are made at the end of the year using the lower of the fair market value on either the Beginning Date or Ending Date, less a 15% discount. Under authoritative guidance our employee-stock purchase plan is considered to be a compensatory ESPP, and therefore, we recognize compensation expense over the requisite service period for grants made under the ESPP. Compensation expense of approximately $0.1 million and $0.09 million was recognized in each of the years ended December 31, 2009 and 2008.

     Our stock incentive plans provide for the granting of stock options (both incentive stock options and nonqualified stock options), stock appreciation rights, restricted stock shares and other stock-based awards to officers, directors and employees of the Company. Grants of stock options made to date under these plans vest over periods up to seven years after the date of grant and expire no more than 10 years after grant.

     At December 31, 2008, 184,000 shares of restricted stock outstanding were subject to performance-based vesting criteria (32,500 of these restricted shares were considered market-based restricted stock). There were also 52,700 stock options outstanding subject to performance-based vesting criteria. We recognized $1.1 million of expense associated with these shares of restricted stock and stock options during the year ended December 31, 2008.

     At December 31, 2009, 314,227 shares of restricted stock were outstanding subject to performance-based vesting criteria (32,500 of these restricted shares were considered market-based restricted stock). There were also 6,260 stock options outstanding subject to performance-based vesting criteria. We recognized $1.3 million of expense associated with these shares of restricted stock and stock options during the year ended December 31, 2009.

     The amounts above relate to the impact of recognizing compensation expense related to stock options and restricted stock. Compensation expense related to stock options (6,260 shares) and restricted stock (281,727 shares) that vest based upon performance conditions is not recorded for such performance-based awards until it has been deemed probable that the related performance targets allowing the vesting of these options and restricted stock will be met. We are required to periodically re-assess the probability that these performance-based awards will vest and begin to record expense at that point in time. During the year ended December 31, 2009 it was deemed probable that certain performance targets pertaining to certain restricted stock and stock options would be achieved by their vesting date. Accordingly, compensation expense of approximately $1.1 million was recognized in the year ended December 31, 2009 related to these performance-based awards.

     We recognize expense for our stock-based compensation over the vesting period, or in the case of performance-based awards, during the service period for which the performance target becomes probable of being met, which represents the period in which an employee is required to provide service in exchange for the award. We recognize compensation expense for stock-based awards immediately if the award has immediate vesting.

     Assumptions

     The fair values for the significant stock-based awards granted during the years ended December 31, 2009, 2008 and 2007 were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

		Year Ended December, 31
		2009				2008				2007
Risk-free rate of return			1.90	%			3.35	%			4.56	%
Expected life of award		6.0 years				5.7 years				5.6 years
Expected dividend yield of stock			0	%			0	%			0	%
Expected volatility of stock			50.49	%			38.74	%			42.19	%
Weighted-average fair value		$	8.89			$	9.46			$	9.86

     The expected volatility of stock assumption was derived by referring to changes in the Company’s historical common stock prices over a timeframe similar to that of the expected life of the award. We do not believe that future stock volatility will significantly differ from historical stock volatility. Estimated forfeiture rates are derived from historical forfeiture patterns. We believe the historical experience method is the best estimate of forfeitures currently available.

     Generally we utilized the “simplified” method for “plain vanilla” options to estimate the expected term of options granted during the periods noted (where appropriate). For those grants during these periods wherein we had sufficient historical or impartial data to better estimate the expected term, we have done so.

     Stock-based award activity during the year ended December 31, 2009 was as follows (aggregate intrinsic value in millions):

										Weighted
						Weighted				Average
		Number				Average				Remaining				Aggregate
		of				Exercise				Contractual				Intrinsic
		Shares				Price				Term				Value
Outstanding at December 31, 2006			653,747			$	12.87				6.1			$	8.4
Granted			72,950
Exercised			(161,590	)
Forfeited or canceled			(74,265	)
Outstanding at December 31, 2007			490,842				14.19				7.3			$	7.0
Granted			45,000
Exercised			(36,390	)
Forfeited or canceled			(13,753	)
Outstanding at December 31, 2008			485,699				15.03				6.5			$	7.3
Granted			40,000				17.98
Exercised			(20,985	)			13.31
Forfeited or canceled			(8,467	)			14.11
Outstanding at December 31, 2009			496,247			$	15.36				5.9			$	7.6
Vested and expected to vest at December 31, 2009			495,010			$	15.34				5.9			$	7.4
Exercisable at December 31, 2009			475,737			$	15.14				5.8			$	7.2

     The total intrinsic value of stock options exercised during the years ended December 31, 2009, 2008 and 2007 was $0.2 million, $0.5 million and $1.5 million, respectively. Net cash proceeds from the exercise of stock options were approximately $0.3 million, $0.4 million and $2.5 million for the years ended December 31, 2009, 2008 and 2007, respectively.

     We recognized $0.5 million of expense associated with time-based stock options during the year ended December 31, 2009. As of December 31, 2009, approximately $0.04 million of estimated expense with respect to nonvested stock-based awards had yet to be recognized and will be amortized into expense over the employee’s estimated remaining weighted average service period of approximately 4 months.

     The following table summarizes information with respect to stock options outstanding and exercisable at December 31, 2009.

						Weighted				Weighted								Weighted
						Average				Average								Average
Range of Exercise		Number				Remaining				Exercise				Number				Exercise
Prices		Outstanding				Life (Years)				Price				Exercisable				Price
$3.75 to $10.00			18,365				1.8			$	5.76				18,365			$	5.76
$10.01 to $13.50			150,482				4.6				12.83				148,482				12.82
$13.51 to $14.50			175,700				5.7				13.98				172,000				13.97
$14.51 to $25.00			151,700				7.8				20.62				136,890				20.39
			496,247				5.9			$	15.36				475,737			$	15.14

     Stock-based award activity for nonvested awards during the year ended December 31, 2009 was as follows:

						Weighted
		Number				Average
		of				Grant Date
		Shares				Fair Value
Nonvested at December 31, 2006			320,657			$	13.40
Granted			72,950				21.40
Vested			(101,683	)			15.68
Canceled			(74,265	)			13.48
Nonvested at December 31, 2007			217,659				14.99
Granted			45,000				22.68
Vested			(153,788	)			16.32
Canceled			(13,753	)			17.73
Nonvested at December 31, 2008			95,118				16.09
Granted			40,000				17.98
Vested			(114,608	)			16.00
Canceled			—				—
Nonvested at December 31, 2009			20,510			$	20.32

     Restricted Stock

     We have previously issued restricted stock under certain employment agreements and stock incentive plans which vests either over a specific period of time, generally three to five years, or which will vest subject to certain market or performance conditions. During the year ended December 31, 2009, we issued restricted stock as part of our normal equity awards under our 2006 Incentive Plan. These shares of restricted common stock are subject to restrictions on transfer and certain conditions to vesting.

     Restricted stock activity for the year ended December 31, 2009 was as follows:

						Weighted
		Number				Average
		of				Grant Date
		Shares				Fair Value
Nonvested at December 31, 2006			85,000			$	10.87
Granted			287,000				22.30
Vested			(5,000	)			21.33
Canceled			(64,000	)			9.80
Nonvested at December 31, 2007			303,000				21.75
Granted			161,000				22.38
Vested			(33,876	)			16.77
Canceled			(27,000	)			21.47
Nonvested at December 31, 2008			403,124				22.44
Granted			176,800				16.81
Vested			(55,693	)			21.95
Canceled			(3,657	)			17.68
Nonvested at December 31, 2009			520,574			$	20.61

     We recognized $1.6 million of expense associated with nonvested time-based restricted stock awards during the year ended December 31, 2009. As of December 31, 2009, approximately $1.6 million of estimated expense with respect to nonvested time-based restricted stock awards had yet to be recognized and will be amortized over a weighted average period of 1.9 years. Approximately $4.5 million of estimated expense with respect to nonvested performance-based restricted stock option awards had yet to be recognized as of December 31, 2009.

4. FAIR VALUE MEASUREMENTS

     On January 1, 2008, we adopted a newly issued accounting standard for fair value measurements of financial assets and liabilities which did not have a material financial impact on our consolidated results of operations or financial condition. On January 1, 2009, we adopted the provisions of this new accounting pronouncement for applying fair value to non-financial assets, liabilities and transactions on a non-recurring basis. Adoption of the provisions for the fair value measurements on a non-recurring basis did not have a material effect on our financial position, results of operations or cash flows.

     As defined in this accounting standard, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (“exit price”). Additionally, this pronouncement requires disclosure that establishes a framework for measuring fair value and expands disclosures about fair value measurements. Additionally, it requires that fair value measurements be classified and disclosed in one of the following categories:

	Level 1		Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
	Level 2		Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
	Level 3		Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

     As required, financial assets and liabilities are classified based on the lowest level of input that is significant for the fair value measurement. The following table summarizes the valuation of our financial assets and liabilities by pricing levels as of December 31, 2009:

		Fair Value as of
		December 31, 2009 (in thousands)
		Level 1				Level 2				Level 3				Total
Assets:
Corporate Bonds		$	—			$	9,813			$	—			$	9,813
Money Market Funds			—				43,351				—				43,351

     The corporate bonds and money market funds are carried in debt service fund and other restricted assets and the debt service reserve fund in the accompanying balance sheet. The fair value measurements for corporate bonds and money-market funds are based upon the quoted price for similar assets in markets that are not active, multiplied by the number of shares owned, exclusive of any transaction costs and without any adjustments to reflect discounts that may be applied to selling a large block of securities at one time. We do not believe that the changes in fair value of these assets will materially differ from the amounts that could be realized upon settlement or that the changes in fair value will have a material effect on our results of operations, liquidity and capital resources.

     This accounting standard requires a reconciliation of the beginning and ending balances for fair value measurements using Level 3 inputs. We had no such assets or liabilities which were measured at fair value on a recurring basis using significant unobservable inputs (level 3) during the year ended December 31, 2009. We evaluated our long-lived assets for impairment using internally developed, unobservable inputs (Level 3 inputs in the fair value hierarchy of fair value accounting) based on the projected cash flows of our idle facilities. Refer to Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Accounting for Long-Lived Assets for a discussion concerning the facilities we evaluated for impairment in the year ended December 31, 2009.

5. RECENT ACCOUNTING STANDARDS

     In December 2007, the Financial Accounting Standards Board (“FASB”) revised the authoritative guidance for business combinations which establishes principles and requirements for how the acquirer in a business combination (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree, (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This guidance applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Our adoption of this revised guidance on January 1, 2009 did not have any impact on our consolidated results of operations or financial condition as we did not have any business combination activity in the year ended December 31, 2009.

     Additionally, the FASB amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset under the current guidance concerning business combinations and other U.S. generally accepted accounting principles. This new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Our adoption of the new guidance on January 1, 2009 did not have a significant impact on our consolidated financial position, results of operations or cash flows.

     In December 2007, the FASB issued authoritative guidance which established new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The new guidance requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. This guidance clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, it requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Additionally, there are expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We adopted the new guidance on January 1, 2009 and applied the provisions to our 2009 financial statements and retroactively to all prior periods presented.

     In March 2008, the FASB issued new authoritative guidance to improve financial reporting about derivatives and hedging activities by requiring enhanced qualitative and quantitative disclosures regarding derivative instruments, gains and losses on such instruments and their effects on an entity’s financial position, financial performance and cash flows. Our adoption of this new guidance on January 1, 2009 did not have a significant impact on our consolidated financial position, results of operations or cash flows.

     In May 2008, the FASB issued new authoritative guidance which establishes general standards of accounting and disclosure of events that occur after the balance sheet date but before the financial statements are issued. This guidance sets forth (1) the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date and (3) the disclosures an entity should make about such events or transactions. Management has performed a review of our subsequent events and transactions through February 26, 2010, which is the date the financial statements are issued.

     In June 2009, the FASB issued the FASB Accounting Standards Codification (“Codification”). The Codification became the single source for all authoritative generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and did not have an affect on our financial position, results of operations or cash flows.

6. FUTURE ACCOUNTING REQUIREMENTS

     In January 2010, the FASB issued an amendment to the disclosure requirement related to Fair Value Measurements. The amendment requires new disclosures related to transfers in and out of Levels 1 and 2 and activity in Level 3 fair value measurements. A reporting entity is required to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. Additionally, in the reconciliation for fair value measurements in Level 3, a reporting entity must present separately information about purchases, sales, issuances and settlements (on a gross basis rather than a net number). The new disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. We do not anticipate that our adoption of this amendment will have a material affect on our financial position, results of operations or cash flows.

     In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for transfers of financial assets. This amendment applies to the financial reporting of a transfer of financial assets; the effects of a transfer on an entity’s financial position, financial performance and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. It eliminates (1) the exceptions for qualifying special-purpose entities from the consolidation guidance and (2) the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. The provisions of this amendment must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The requirements in the amendment must be applied to transfers occurring on or after the effective date. We are currently evaluating the impact, if any, that such requirements may have on our financial statements once adopted.

     In June 2009, the FASB also issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities (“VIEs”). This amendment requires an enterprise to perform a qualitative analysis when determining whether or not it must consolidate a VIE. The amendment also requires an enterprise to continuously reassess whether it must consolidate a VIE. Additionally, the amendment requires enhanced disclosures about an enterprise’s involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the enterprise’s financial statements. Finally, an enterprise will be required to disclose significant judgments and assumptions used to determine whether or not to consolidate a VIE. This amendment is effective for financial statements issued for fiscal years beginning after November 15, 2009. Earlier application is prohibited. We are currently evaluating the impact, if any, that this amendment may have on our financial statements once adopted.

7. PROPERTY AND EQUIPMENT

     Property and equipment were as follows (in thousands):

		December 31,
		2009				2008
Land		$	43,000			$	43,005
Prepaid facility use			70,982				71,323
Buildings and improvements			404,251				353,093
Furniture and equipment			45,253				39,514
Construction in progress			5,426				41,154
Sub-total			568,912				548,089
Accumulated depreciation and amortization			(113,389	)			(97,735	)
Total property and equipment		$	455,523			$	450,354

     The most subjective estimates made in our impairment analysis for 2009 related to Baker Correctional (“Baker”) and the Hector Garza Residential Treatment Center (“Hector Garza”) which are components of building and improvements, particularly with respect to estimated timing of occupancy (at Baker) and resident mix (at Hector Garza). The approximate carrying values at December 31, 2009 for Baker and Hector Garza were $2.8 million and $3.9 million, respectively. The estimated undiscounted future cash flow values exceeded the carrying values noted for the facilities, and Hector Garza had operating contracts in place. If the underlying assumptions for the deemed subjective estimates in the 2009 analyses were adjusted to reflect reasonable likely changes the undiscounted cash flows would still exceed the carrying value of the assets assessed for impairment.

     The most subjective estimates made in our impairment analysis for 2008 related to Cornell Abraxas 1 and Hector Garza, particularly with respect to estimated occupancy. The approximate carrying values at December 31, 2008 for Cornell Abraxas 1 and Hector Garza were $10.4 million and $4.0 million, respectively. The estimated undiscounted future cash flow values exceeded the carrying values noted for the facilities, and all facilities had operating contracts in place. During 2009, there were no significant events that caused us to believe that an impairment of these facilities had occurred. As a result of strengthened operating performance primarily due to increases in and stabilization of its occupancy in 2009, the assumptions included in the impairment analysis for Cornell Abraxas 1 became less subjective for the 2009 analysis.

     In conjunction with our review of certain of our long-lived assets based on estimated market values associated with these assets, we determined that our carrying value for a currently vacant site of land was not fully recoverable and exceeded its fair value and, as a result, we recorded an impairment charge of $0.3 million in the year ended December 31, 2008 (none in the years ended December 31, 2009 and 2007). This charge is reflected in operating expenses, excluding depreciation and amortization, in the accompanying Consolidated Statements of Income and Comprehensive Income.

8. INTANGIBLE ASSETS

Intangible assets at December 31, 2009 and 2008 consisted of the following (in thousands):

		December 31,
		2009				2008
Non-compete agreements		$	8,200			$	8,200
Accumulated amortization — non-compete agreements			(8,200	)			(7,595	)
Acquired contract value			6,240				6,240
Accumulated amortization — acquired contract value			(5,055	)			(4,525	)
Identified intangibles, net			1,185				2,320
Goodwill			13,308				13,308
Total intangibles, net		$	14,493			$	15,628

     The changes in the carrying amount of goodwill for the years ended December 31, 2009 and 2008 are as follows (in thousands):

						Abraxas				Adult
		Adult				Youth and				Community
		Secure				Family				–Based				Total
Balance as of December 31, 2007		$	2,902			$	1,060			$	9,393			$	13,355
Reduction to goodwill			—				—				(47	)			(47	)
Balance as of December 31, 2008			2,902				1,060				9,346				13,308
Reduction to goodwill			—				—				—				—
Balance as of December 31, 2009		$	2,902			$	1,060			$	9,346			$	13,308

     In 2008, we recorded a reduction to goodwill as a result of the final release of amounts previously placed in escrow related to the acquisition of Correctional Systems, Inc. (“CSI”) in April 2005. At December 31, 2009, we performed our annual impairment test and concluded that there was no impairment to our existing goodwill.

     Amortization expense for our acquired contract value was approximately $0.5 million for the year ended December 31, 2009, $1.3 million for the year ended December 31, 2008 and $1.1 million for the year ended December 31, 2007. Amortization expense for our acquired contract value is expected to be approximately $0.5 million for each of the years ended December 31, 2010 and 2011 and approximately $0.1 million for the year ended December 31, 2012.

     Amortization expense for our non-compete agreements was approximately $0.6 million, $0.8 million and $1.3 million for the years ended December 31, 2009, 2008 and 2007, respectively. At December 31, 2009, our non-compete agreements were fully amortized.

9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

     Accounts payable and accrued liabilities consisted of the following (in thousands):

		December 31,
		2009				2008
Accounts payable		$	17,657			$	21,754
Accrued compensation			9,775				10,242
Accrued interest payable			10,553				11,329
Accrued taxes payable			4,687				6,680
Accrued insurance			8,886				8,003
Accrued legal			3,545				5,197
Resident funds			3,831				3,538
Other			3,353				2,350
Total accounts payable and accrued liabilities		$	62,287			$	69,093

10. INCOME TAXES

     Effective January 1, 2007, the Company adopted a new accounting standard related to uncertainty in income taxes. As a result of adoption, we recorded a cumulative effect adjustment of approximately $0.3 million which increased retained earnings at January 1, 2007.

     As of December 31, 2009 and December 31, 2008, we had unrecognized tax benefits in the amount of $2.6 million and $2.5 million, respectively. If these unrecognized tax benefits were recognized in future periods, approximately $1.1 million and $0.9 million would reduce our income tax expense and our effective tax rate for the years ended December 31, 2009 and 2008, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at January 1, 2007		$	2,948
Additions based on tax positions related to current year			569
Additions for tax positions in prior year			4
Reductions for tax positions in prior year			—
Lapse in Statutes of Limitations			(503	)
Balance at January 1, 2008		$	3,018
Additions based on tax positions related to current year			521
Additions for tax positions in prior year			23
Reductions for tax positions in prior year			—
Lapse in Statutes of Limitations			(1,094	)
Balance at December 31, 2008		$	2,468
Additions based on tax positions related to current year			663
Additions for tax positions in prior year			—
Reductions for tax positions in prior year			(25	)
Lapse in Statutes of Limitations			(510	)
Balance at December 31, 2009		$	2,596

     Estimated interest and penalties related to the underpayment of income taxes are classified as a component of income tax expense in the accompanying Consolidated Statements of Income and Comprehensive Income and totaled approximately $0.1 million in the year ended December 31, 2009 and ($0.1) million in the year ended December 31, 2008. Accrued interest and penalties were approximately $0.2 million at December 31, 2009 and 2008.

     We are subject to income tax in the United States and many of the individual states we operate in. We currently have significant operations in Texas, California, Colorado, Oklahoma, Georgia, Illinois and Pennsylvania. State income tax returns are generally subject to examination for a period of three to five years after filing. The state impact of any changes made to the federal return remains subject to examination by various states for a period up to one year after formal notification to the state. We are open to United States Federal Income Tax examinations for the tax years December 31, 2005 through December 2008. The audit of our 2006 federal income tax return by the Internal Revenue Service was recently concluded without material findings.

     We do not anticipate a significant change in the balance of our unrecognized tax benefits within the next 12 months.

     The following is an analysis of our deferred tax assets and liabilities (in thousands):

		December 31,
		2009				2008
Deferred tax assets:
Accrued liabilities and allowances		$	11,013			$	10,582
State operating loss carryforwards			3,863				3,005
Deferred compensation			3,484				2,276
Other			240				157
Total deferred tax assets			18,600				16,020
Deferred tax liabilities:
Property and equipment			26,520				18,769
Prepaid expenses			807				917
Amortization			440				—
Other			979				1,155
Total deferred tax liabilities			28,746				20,841
Valuation allowance			(3,863	)			(3,005	)
Net deferred tax liability		$	14,009			$	7,826

     As of December 31, 2009 we have net operating losses for state income taxes of approximately $38.6 million on which we have provided a valuation allowance of $3.9 million. Our tax returns are subject to periodic audit by the various jurisdictions in which we operate. These audits can result in adjustments of taxes due or adjustments of the NOLs which are available to offset future taxable income.

     Valuation allowances of $3.9 million have been established for uncertainties in realizing the benefit of certain state income tax loss carryforwards. For the years ended December 31, 2009, 2008 and 2007, changes in our state operating loss carryforwards (decreased)/increased our valuation allowance by $0.9 million, $0.9 million and ($0.4) million, respectively. In assessing the realizability of carryforwards, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The valuation allowance will be adjusted in the periods that we determine it is more likely than not that deferred tax assets will or will not be realized.

     We have federal and state income tax net operating loss carryforwards of $0.0 million and $38.6 million which will expire at various dates from 2011 through 2034. Such net operating loss carryforwards expire between 2011 and 2034 as follows:

2011 - 2016		$	443
2017 - 2022			4,760
2023 - 2034			33,406
		$	38,609

     The components of our income tax provision were as follows (in thousands):

		Year Ended December 31,
		2009				2008				2007
Federal current provision		$	9,400			$	11,200			$	6,213
State current provision			2,186				2,947				1,276
Total current provision			11,586				14,147				7,489
Federal deferred provision			5,111				1,250				1,034
State deferred provision			1,258				206				312
Total deferred provision			6,369				1,456				1,346
Total provision from continuing operations		$	17,955			$	15,603			$	8,835