Financial Review - Second Quarter 2009

 --  Revenues increased 5.7% with increases in inmate populations of 3.4%     and average per diem rates of 2.3% --  Earnings per diluted share (EPS) of $0.28 --  EPS excluding expenses associated with debt refinancing transactions,     net of taxes, (Adjusted EPS) of $0.30 --  State of California populations increased from 6,647 to 7,884 during     the second quarter of 2009 --  Awarded an amendment to an existing contract to expand two of our     facilities in Georgia to house up to 1,500 additional inmates --  Completed offering of $465.0 million aggregate principal amount of new     7.75% senior notes, maturing in June 2017 --  Purchased or redeemed our outstanding $450.0 million 7.5% senior notes     due in May 2011      

For the second quarter of 2009, CCA generated net income of $32.6 million, or $0.28 per diluted share, compared with net income of $37.5 million, or $0.30 per diluted share, for the second quarter of 2008. Results for the second quarter of 2009 included a charge of $3.8 million, or $0.02 per diluted share after taxes, associated with the debt refinancing transactions further described below. Excluding the expenses associated with debt refinancing transactions, we generated net income of $35.0 million, or $0.30 per diluted share, for the second quarter of 2009.

Total revenues for the second quarter of 2009 increased 5.7%, primarily driven by a 2.3% increase in revenue per compensated man-day combined with a 3.4% increase in average daily inmate populations. Management revenue from state customers increased 8.2% to $216.8 million during the second quarter of 2009 from $200.3 million for the same period in 2008. The growth in state revenue from the second quarter of 2008 was primarily attributable to a combination of increased inmate populations and increases in average per diems. Our results reflect increases in inmate populations from California and Arizona that were partially offset by a reduction in inmate populations from the states of Minnesota, Washington and New Mexico. Management revenue from federal customers increased 3.6% to $162.2 million generated during the second quarter of 2009, compared with $156.5 million generated during the second quarter of 2008, driven by a combination of higher per diem rates and inmate populations.

Operating income during the second quarter of 2009 increased to $74.9 million compared with $74.0 million for the prior year period. Adjusted EBITDA for the second quarter of 2009 increased to $100.2 million from $95.9 million during the same period in the prior year. Adjusted free cash flow decreased for the second quarter of 2009 to $34.6 million compared with $56.4 million during the prior year period, primarily due to an $18.2 million increase in income taxes paid. Income taxes paid in 2008 were much lower than 2009 reflecting accelerated tax depreciation provisions available in 2008 but not in 2009.

Operating results for the second quarter of 2009 also reflect an increase of $3.7 million in general and administrative expense primarily resulting from $4.1 million of consulting fees associated with a company-wide initiative to improve operational efficiency.

Our total average daily compensated population increased 3.4% to 77,408 in the second quarter of 2009 from 74,831 in the second quarter of 2008. However, since the end of the first quarter 2008, approximately 8,600 new beds were placed into service. As a result of the additional capacity, total portfolio occupancy decreased to 90.5% during the second quarter of 2009 from 97.0% during the second quarter of 2008. The average number of available beds increased 11.0% to 85,575 during the second quarter of 2009 from 77,107 during the second quarter of 2008.

As of August 1, 2009, we had approximately 9,400 unoccupied beds available for use at facilities that had availability of 100 or more beds, including 502 beds at the North Georgia Detention Center, where renovations to prepare the facility for detainees from the Immigration and Customs Enforcement ("ICE") were completed during July 2009. However, this inventory of beds available is reduced to approximately 6,600 beds after taking into consideration the beds committed pursuant to new management contracts with the Federal Bureau of Prisons ("BOP") at our newly constructed Adams County Correctional Center and ICE at the North Georgia facility.

Commenting on the financial results, Chief Executive Officer John Ferguson stated, "We are pleased with our second quarter financial results. Despite a challenging environment, we were able to generate earnings ahead of our forecast. Inmate populations at several facilities came in ahead of expectations as California ramped more quickly and U.S. Marshals populations grew. During the third quarter we look forward to the commencement of our new contracts with the Bureau of Prisons at our Adams County Correctional Center and the Immigration and Customs Enforcement at our North Georgia Detention Center."

Adjusted EPS, EBITDA, Adjusted EBITDA and Adjusted Free Cash Flow are non-GAAP financial measures. Please refer to the Supplemental Financial Information and related note following the financial statements herein for further discussion and reconciliations of these measures to GAAP financial measures.

First Six Months of 2009 Compared with First Six Months of 2008

 --  Total revenues increased 6.1% to $816.8 million from $769.8 million --  EPS of $0.57 for each period --  Adjusted EPS increased 3.5% to $0.59 from $0.57 --  Adjusted EBITDA increased 6.9% to $199.7 million from $186.8 million      

For the six months ended June 30, 2009, the Company generated net income of $67.2 million, or $0.57 per diluted share, compared with net income of $72.5 million, or $0.57 per diluted share, for the six months ended June 30, 2008. Excluding the expenses associated with debt refinancing transactions, net of taxes, during the first six months of 2009, the Company generated net income of $69.6 million, or $0.59 per diluted share.

Operating income increased $6.2 million to $149.9 million during the first six months of 2009 from $143.7 million during the same period in the prior year. The improvement in our financial results for the six months ended June 30, 2009 resulted from a 3.8% increase in our average daily inmate populations, to 76,951 for the six months ended June 30, 2009 from 74,131 during the six months ended June 30, 2008. Our financial results were net of an increase in depreciation and amortization expense of $6.5 million as a result of placing into service approximately 9,300 beds over the past eighteen months, as well as the aforementioned consulting fees of $4.1 million incurred during the second quarter of 2009. Also contributing to the improvement in earnings per share for the first six months of 2009 was a share repurchase program, approved by our Board of Directors in November of 2008. Through the end of the second quarter of 2009 we purchased 10.7 million shares at a total cost of $125.0 million.

Refinancing Transactions

On June 3, 2009, we completed the sale and issuance of $465.0 million aggregate principal amount of 7.75% senior notes due 2017. The 7.75% senior notes were issued at a price of 97.116%, resulting in a yield to maturity of 8.25%. We used the net proceeds from the sale of the 7.75% senior notes to purchase (through a cash tender offer), redeem, or otherwise acquire our outstanding $450.0 million 7.5% senior notes due 2011, to pay fees and expenses, and for general corporate purposes. In connection with the refinancing, we incurred a pre-tax charge of $3.8 million, consisting of the tender premium paid, fees and expenses associated with the tender offer, and the write-off of loan costs and debt premium associated with the 7.5% senior notes.

Operations Highlights

For the quarters ended June 30, 2009 and 2008, key operating statistics for the continuing operations of the Company were as follows:

                                           Quarter Ended June 30, Metric                                       2009       2008     % Change                                            ---------  ---------  --------- Average Available Beds                        85,575     77,107       11.0% Average Compensated Occupancy                   90.5%      97.0%      -6.7% Total Compensated Man-Days                 7,044,159  6,809,624        3.4% Average Daily Compensated Population          77,408     74,831        3.4% Revenue per Compensated Man-Day            $   58.31  $   57.01        2.3% Operating Expense per Compensated Man-Day:     Fixed                                      30.37      29.07        4.5%     Variable                                   10.05      10.26       -2.0%                                            ---------  ---------     Total                                      40.42      39.33        2.8%                                            ---------  --------- Operating Margin per Compensated Man-Day   $   17.89  $   17.68        1.2%                                            =========  ========= Operating Margin                                30.7%      31.0%      -1.0%                                            =========  =========  ========= 

Total operating expenses per compensated man-day increased 2.8% during the second quarter of 2009 compared with the same period in 2008. A significant component of the increase in operating costs per man-day was due to staffing expenses incurred in anticipation of receiving inmates at our Adams County facility from the BOP and at our La Palma and Tallahatchie facilities from the state of California. From March 31, 2009 to June 30, 2009 our state of California inmate populations increased from 6,647 to 7,884. Also impacting the increase in operating expenses were operational inefficiencies associated with our inventory of available beds.

We expect fixed costs per compensated man-day to continue to be negatively impacted by ramp-up expenses at our Adams County Correctional Center and the North Georgia Detention Center as we continue to prepare for the commencement of operations at these facilities.

Business Development Update

In July 2009, CCA was selected for the continued management of the 893-bed Lake City Correctional Facility in Lake City, Florida. The Department of Management Services for the state of Florida solicited competitive bids to manage the Lake City facility. The new contract was effective July 31, 2009 and expires June 30, 2012, with an indefinite number of two-year renewal options.

Also in July 2009, we announced that we were awarded an amendment to our existing contracts with the Georgia Department of Corrections to expand two of our existing facilities by 1,500 beds. The award satisfied a competitive Request for Proposal of 1,500 beds from the state of Georgia that was issued in October of 2008. We currently house approximately 3,400 inmates from the state of Georgia. As a result of the award, we will expand our 1,524-bed Coffee Correctional Facility by 788 beds and our 1,524-bed Wheeler Correctional Facility by 712 beds. The expansions are estimated to cost $65.0 million and are currently anticipated to be completed during the third quarter of 2010, at which point we expect to begin receiving the incremental inmates. The amended contract expires June 30, 2010 and includes twenty-four one-year remaining renewal options. In addition to the occupancy guarantee on the existing beds at both facilities, the amended contract contains a 90% guarantee on the expansion beds.