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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

For the Fiscal Year Ended December 31, 2004

OR

For the transition period from              to             .

Commission File No.: 0-23038

CORRECTIONAL SERVICES CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (941) 953-9199

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

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 past 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  ¨

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 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.  x

Indicate by check mark whether the registrant is an accelerated filer. (as defined by Exchange Act Rule 12b-2).    Yes  ¨    No  x

At June 30, 2004, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $24,538,000.

At March 15, 2005, there were 10,166,940 outstanding shares of the Common Stock of the Registrant.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the Registrant’s Proxy Statement for its 2005 Annual Meeting of

Shareholders are incorporated by reference in Part III of this report.

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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended, which are not historical facts and involve risks and uncertainties. These include statements regarding the expectations, beliefs, intentions or strategies regarding the future. The Company intends that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company’s views as of the date they are made with respect to future events and financial performance, but are subject to many uncertainties and risks which could cause the actual results of the Company to differ materially from any future results expressed or implied by such forward-looking statements. Examples of such uncertainties and risks include, but are not limited to: fluctuations in occupancy levels and labor costs; the ability to secure both new contracts and the renewal of existing contracts; the ability to obtain financing when a contract requires that the Company construct a new facility in order to meet the needs of the contract; the ability to meet financial covenants; the ability to reduce various operating costs; and public resistance to privatization. Additional risk factors include those discussed in reports filed by the Company from time to time on Forms 10-K, 10-Q and 8-K. The Company does not undertake any obligation to update any forward-looking statements.

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PART I

Item 1. Business

General Development of Business

Correctional Services Corporation (hereinafter referred to “CSC”) was incorporated under the laws of the State of Delaware on October 28, 1993 to acquire all of the outstanding capital stock of a number of affiliated corporations engaged in the operation of correctional and detention facilities. In 1999, CSC acquired Youth Services International (hereinafter referred to as “YSI”), a leading national provider of private educational, developmental and rehabilitative programs for at risk, delinquent and adjudicated juveniles, through a merger accounted for as a pooling of interests. On September 22, 2004, the Company acquired a variable interest in a variable interest entity, South Texas Detention Complex Local Development Corporation (hereinafter referred to as the “South Texas Development Corporation”), in connection with the financing of the construction of the South Texas Detention Complex (which is described in greater detail below). Pursuant to FIN 46 (revised), the accounts of the South Texas Development Corporation have been consolidated with the accounts of CSC, YSI and their respective wholly owned subsidiaries. CSC, YSI and the South Texas Development Corporation, together with the other wholly-owned subsidiaries of CSC and YSI, are referred to hereinafter collectively as the “Company.”

The Company is a leading developer and operator of correctional and detention facilities for adult offenders and one of the largest and most comprehensive providers of educational, developmental and rehabilitative programs for at risk, delinquent and adjudicated juveniles. As of year end, the Company operated and managed 14 residential facilities for adult offenders in 6 states having a capacity to house approximately 5,500 offenders, operated and managed 17 residential facilities in 7 states for at risk, delinquent and adjudicated juveniles having a capacity to provide services for approximately 1,300 juveniles, and provided aftercare services for approximately 500 juveniles in the juvenile justice system of the State of Georgia. (As explained below, the Company’s contract for the provision of aftercare services in the State of Georgia will terminate effective as of March 31, 2005.)

The Company is also a leading provider of design and construction services for juvenile and adult correctional facilities, including project consulting, design, development and construction of new correctional and detention facilities and the redesign and renovation of existing facilities. These services usually are provided in conjunction with an agreement for the Company to operate the facility upon completion of the construction or renovation.

The following are highlights of the material developments in the Company’s business during calendar year 2004:

Northwest Regional Detention Center Opened in April:

In April 2004, the Company completed the construction of and opened a new 890-bed regional detention center located in Tacoma, Washington, known as the “Northwest Regional Detention Center,” which currently houses approximately 500 detainees in the custody of the United States Department of Homeland Security, Bureau of Immigration and Customs Enforcement, Office of Detention and Removal (which assumed the responsibilities of the former United States Immigration and Naturalization Service in connection with the formation of the Department of Homeland Security) (hereinafter referred to as “ICE”). The Company developed and constructed the Northwest Regional Detention Center in furtherance of a contract awarded by ICE to the Company in 2003 under which the Company has undertaken to house up to 500 detainees awaiting deportation in the Northwest Regional Detention Center.

The Company secured financing for the construction of the Northwest Regional Detention Center on June 30, 2003 through a financing transaction in which the Washington Economic Development Finance Authority (“WEDFA”), an instrumentality of the State of Washington, issued revenue bonds to finance the project, and subsequently loaned the proceeds of the bond issuance to a newly formed limited liability company, CSC of Tacoma LLC, for the purposes of constructing the Northwest Regional Detention Center. In connection with this financing, the Company formed a limited liability company, known as “CSC of Tacoma, LLC,” for the sole purpose of owning the real property on which this facility was constructed. This LLC owns this real property, as well as all of the improvements constructed thereon, and leases the same to the Company pursuant to long-term lease arrangement. Although the Company is the sole member of CSC of Tacoma, LLC, the LLC is managed by an independent group of managers and the Company has limited rights with respect to the business and operations of the LLC. However, in accordance with generally accepted accounting principles, the assets and liabilities and results of operations of CSC of Tacoma LLC are consolidated with the assets and liabilities and results of operations of the Company. The bonds issued by WEDFA to finance the project and the loan from WEDFA to CSC of Tacoma, LLC are non-recourse to the Company.

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South Texas Detention Complex Under Construction:

On January 26, 2004, ICE awarded the Company another contract to provide housing for up to 1,020 detainees in a facility to be located in Frio County, Texas (“Frio County”). In furtherance of that contract, the Company entered into an agreement with Frio County, whereby Frio County created the South Texas Development Corporation, a non-profit, local development corporation pursuant to Chapter 431 Texas Transportation Code. On September 22, 2004, this corporation issued $49.5 million of taxable revenue bonds, net of a $88,000 discount, to finance the construction of a new 1,020-bed regional detention center located in Pearsall, Frio County, Texas, to be known as the “South Texas Detention Complex” (the “South Texas Detention Complex”). The bonds are non-recourse to the Company. The Company is currently developing the South Texas Detention Complex for the South Texas Development Corporation. The South Texas Development Corporation, as the owner of the South Texas Detention Complex, simultaneously entered into an operating agreement with the Company, giving the Company the sole and exclusive right to use, occupy, operate and manage the South Texas Detention Complex for a period of 20 years after its completion. The South Texas Development Corporation also granted the Company an option to purchase the South Texas Detention Complex at any time for a purchase price equivalent to the amount necessary, if any, to repay the principal and interest on any outstanding bonds or for $1.00 upon the bonds being paid in full. The Company is currently in the final stages of construction of this project, and anticipates completing construction and to begin accepting detainees into this facility on or about May 1, 2005.

New Management Contracts:

During 2004, the Company also entered into contracts and began operations at the following facilities:

Expired or Terminated Management Contracts:

During 2004, the Company terminated its management contract for the Lufkin Detention Center, following a determination by management of the Company that the anticipated utilization and daily occupancy of the facility would be insufficient in the foreseeable future to make the operation of the facility viable financially.

Additionally, during 2004, the Company’s management agreements for The Charles H. Hickey, Jr. School (hereafter referred to as “CHHJS”) in Baltimore, Maryland and the Dallas Youth Academy in Dallas, Texas expired by their terms. The Company elected not to participate in the re-bid for the operation and management of CHHJS in light of a determination by management that the facility could not be operated profitably under the terms outlined in the request for proposals for that facility. The State of Maryland subsequently withdrew its request for proposals with respect to CHHJS and currently operates CHHJS directly. Dallas County, Texas closed the Dallas Youth Academy program after the Company’s contract expired.

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Discontinued Operations:

In 2004, the Company discontinued its operation and management of the Hemphill County Juvenile Facility in Canadian, Texas, following a decision by the Texas Youth Commission (hereinafter referred to as “TYC”), the primary user of that facility, to transfer substantially all of the juveniles housed by TYC in privately operated facilities to TYC-owned and operated facilities. The Company also discontinued operations at the Tarkio Academy in Tarkio, Missouri effective as of October 31, 2004 due to continuing financial losses at that facility. The results of operations from the Hemphill County Juvenile Facility and the Tarkio Academy are reflected in the accompanying financial statements as “discontinued operations,” together with the results of operations from other facilities and programs previously classified as discontinued operations.

Other Developments:

Settlement Pending in Elizabeth Class Action Lawsuit:

On February 17, 2005, the United States District Court for the District of New Jersey gave preliminary approval to the terms of a settlement negotiated by the Company’s liability insurance carrier and the counsel for the plaintiffs in the class action lawsuit that has been pending against the Company since March, 1996. The suit was filed in March 1996 in the Supreme Court of the State of New York, County of Bronx by several former detainees in the INS Detention Center that the Company formerly operated for the INS in Elizabeth, New Jersey, on behalf of themselves and others similarly situated, in which the plaintiffs in the suit claimed $500,000,000 in compensatory and punitive damages on a variety of legal theories. This suit was removed to the United States District Court, Southern District of New York, in April 1996, and subsequently transferred to the United States District Court for the District of New Jersey. The plaintiffs in this case obtained certification from the Court to try their case as a class action on behalf of themselves and all other persons who were detained in the Elizabeth INS Detention Center while the Company operated it. As noted above, on February 17, 2005, the District Court approved the terms of a settlement in this case that was negotiated by the Company’s liability insurance carrier and the plaintiffs’ case in order to resolve this case. The Company has no obligation to contribute to this settlement, which will be funded in full by the Company’s liability insurance carrier. The Company’s defense counsel and the plaintiffs’ counsel are currently preparing the settlement documentation. The Company expects that the settlement documentation will be completed and that the Court will formally approve the settlement in the near future.

Contract for Georgia Aftercare Services to Terminate on March 31, 2005:

Additionally, on or about March 3, 2005, the State of Georgia, Department of Juvenile Services notified the Company that it would be terminating the Company’s contract for the provision of aftercare services for approximately 500 juveniles in the State of Georgia effective as of March 31, 2005 due to a lack of appropriations necessary for the continuation of these services. Accordingly, the Company’s contract for these services with the State of Georgia will terminate on March 31, 2005.

Description of the Company’s Business:

The Company is a leading developer and operator of correctional and detention facilities for adult offenders and one of the largest and most comprehensive providers of educational, developmental and rehabilitative programs for at risk, delinquent and adjudicated juveniles.

Operational Divisions

The Company operates a wide range of correctional, educational, developmental and rehabilitative facilities and programs targeted toward solving the specialized needs of governmental agencies, and has organized its operations into two divisions: Adult/Community Corrections and Juvenile.

Adult/Community Corrections:

The Company’s Adult/Community Corrections Division primarily operates secure, residential correctional and detention facilities that house and service, among other populations:

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In its secure adult facilities, the Company not only provides adult inmates with housing but also with other basic services, including health care and food service. The Division also provides transportation services for governmental agencies and remote post security and supervision for inmates and detainees making court appearances or who require hospitalization or off-site medical care. In addition, the Company provides a variety of rehabilitative and educational services in its facilities, including substance abuse counseling, community service and recreational programs for adult inmates where appropriate.

The Company’s three Community Corrections facilities are non-secure residential facilities for adult male and female offenders transitioning from institutional to independent living. Qualified offenders may spend the last three to six months of their sentence in a community corrections program. These programs assist the offender in the reunification process with family and the community. Independent research has indicated that successful reunification can play a key role in recidivism reduction, which is the primary goal of any corrections operation. To that end, the Company provides life skills training, case management, home confinement supervision and family reunification programs from these facilities. The Company believes that community corrections facilities help reduce recidivism, resulting in prison beds being available for more violent offenders and, in appropriate cases, represent cost-effective alternatives to prisons for many jurisdictions.

At year-end 2004, the Adult/Community Corrections Division operated 14 correctional and detention facilities in six states, containing approximately 5,500 beds.

During the year 2004, revenues from the Adult/Community Corrections programs comprised 59.7% of the Company’s consolidated revenue, and 92.2% of the consolidated contribution margin. During the year 2004, 31.1% and 20.1% of the Company’s consolidated revenues in its Adult/Community Corrections division were earned from various agencies of the United States Government and the State of Arizona, respectively.

Juvenile Division:

The Company’s Juvenile Division operates largely under the “YSI” brand name and primarily operates secure and non-secure facilities for low, medium, and high risk youths in highly structured programs, including wilderness programs, secure education and training centers, academy programs, high impact programs servicing lower level or first time offenders, and detention facilities. In addition, the Juvenile Division also provides non-residential aftercare programs for juveniles who have completed residential programs throughout the Company’s system.

The Company’s juvenile facilities provides educational, rehabilitative and development services for juveniles using the “YSI Continuum of Care,” a proprietary rehabilitative system that strives to reduce the recidivism rate of program participants and hopefully help to prevent adult incarceration. Specific “YSI Continuum of Care” programs and services for juveniles include:

The Company’s innovative programs address the root causes and issues behind adult and juvenile anti-social behavior. The Company believes its programs, by instilling the qualities of self-respect, respect for others and their property, personal responsibility, and family values, can help change the thinking and behavior of program participants. The Company’s juvenile programs are comprised of four major components: education, vocational training, socialization, and

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recreation. Behavioral management principles intended to dramatically change the thinking and behavior of program participants are consistently applied throughout each segment of programming to teach participants basic life skills, while reinforcing the principle that success begins with appropriate, acceptable behavior.

At year-end 2004, the Juvenile Division operated 17 facilities in seven states approximating 1,300 beds, exclusive of aftercare. During the year 2004, revenues from the Juvenile Division comprised 40.3% of the Company’s consolidated revenues, and 7.8% of the consolidated contribution margin. During the year 2004, 8.5% and 7.3% of the Company’s consolidated revenues were earned from the Florida and Georgia Departments of Juvenile Justice, respectively. Included in the 7.3% of revenue attributed to Georgia Department of Juvenile Justice is 1.0% associated with the Dublin Aftercare program, which will be closing at the end of the first quarter of 2005.

In addition to providing fundamental residential services for adult and juvenile offenders, the Company has developed a broad range of programs intended to reduce recidivism, including: basic, special, and vocational education; substance abuse treatment and counseling; life skills training; behavioral modification counseling; and comprehensive aftercare programs. In all of its facilities, the Company strives to provide the highest quality services designed to reduce recidivism and continually evaluates and audits its programs and believes the reputation of its programs will lead to continued business opportunities.

Marketing and Business Development

The Company engages in extensive marketing and business development on a national basis. Marketing efforts are spearheaded by the Company’s business development team in conjunction with the Company’s executive officers and outside consultants. Additional marketing efforts are conducted locally by the Facility Administrators to fill empty beds on an as-needed basis, and in anticipation of future vacancies.

The Company receives frequent inquiries from or on behalf of governmental agencies. Upon receiving such an inquiry, the Company determines whether there is an existing or future need for the Company’s services, whether the legal and political climate is conducive to privatized correctional operations, and whether or not the project is commercially viable.

Contract Award Process

Most governmental procurement and purchasing activities are controlled by procurement regulations that take the form of a Request for Proposal (“RFP”), and to date most of the Company’s new business has resulted from responding to these requests. Interested parties submit proposals in response to an RFP within a time period of usually 15 to 120 days from the time that the RFP is issued. A typical RFP requires a bidder to provide detailed information, including the services to be provided by the bidder, the bidder’s experience and qualifications, and the price at which the bidder is willing to provide the services. From time to time, the Company engages independent consultants to assist in responding to the RFP’s. Approximately six to eighteen months is generally required from the issuance of an RFP to the contract award.

Before responding to an RFP, the Company researches and evaluates, among other factors:

Under the RFP, the bidder may be required to design and construct a new facility or to redesign and renovate an existing facility at its own cost. In such event, the Company’s ability to obtain the contract award is dependent upon its ability to obtain the necessary financing or fund such costs internally.

In addition to issuing formal RFP’s, governmental agencies may use a procedure known as Purchase of Services or Requests for Qualification (“RFQ”). In the case of an RFQ, the requesting agency selects a firm it believes is most qualified to provide the necessary services and then negotiates the terms of the contract, including the price at which the services are to be provided.

Market

The Company believes there is a growing acceptance of privatization of governmental services. Correctional and detention functions traditionally performed by federal, state and local governments have faced continuing pressure to

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control costs and reduce the number of governmental employees. Since incarceration costs generally grow faster than many other parts of budget items, in an attempt to address these budgetary pressures, governmental agencies responsible for correctional and detention facilities are privatizing facilities. As of year-end 2003 (the most recent available data), privately operated adult prison facilities held 95,522 prisoners, up 1.7% from 2002. This accounted for 6.5% of all Federal and State adult inmates as of year-end 2003 and 2002.

An estimated 2.1 million adult inmates are held in Federal and State prisons, and local jails as of December 31, 2003. On December 31, 2003, State adult prisons were operating between full capacity and 16% above capacity, while Federal adult prisons were operating at 39% above capacity.

The services in which the juvenile justice system has seen the greatest growth are residential services for children committing crimes who have serious emotional and behavioral problems. The public and private sector have had to adjust to providing services for children who are dually diagnosed, have drug and alcohol addictions and/or sex offending and fire setting histories. The Company has developed treatment programs to address these growing needs, and has focused their efforts to capture a share of this growing market. The Company’s Florida facilities began receiving Medicaid funds in 2001 for reimbursement of behavioral health services, as the provision of these additional services qualified for reimbursement under Medicaid. The Company plans to seek this certification at other applicable juvenile facilities.

Competition

The Company competes on the basis of cost, quality and range of services offered, its experience in managing facilities, the reputation of its personnel and its ability to design, finance and construct new facilities. Some of the Company’s competitors have greater resources than the Company. The Company also competes in some markets with local companies that may have a better understanding of local conditions and a better ability to gain political and public acceptance. In addition, the Company’s Community Corrections and Juvenile operations compete with governmental and not-for-profit entities. The Company’s main competitors in the adult division include but are not limited to Corrections Corporation of America, the Geo Group (formerly Wackenhut Corrections Corporation), and Cornell Corrections. The Company’s primary competitors in the Juvenile Division are Premier Behavioral Solutions (formerly Ramsay Youth Services), Securicor, and Sunshine Youth Services.

Facilities

The Company operates adult and juvenile pre-adjudication and post-adjudication secure and non-secure correctional and detention facilities, and non-secure adult community corrections facilities for federal, state, and local correctional agencies. Pre-adjudication secure detention facilities provide secure residential detention for individuals awaiting trial and/or the outcome of judicial proceedings, and for aliens awaiting deportation or the disposition of deportation hearings. Post-adjudication secure facilities provide secure incarceration for individuals who have been found guilty of a crime by a court of law. The Company operates six types of post-adjudication facilities: 1) secure prisons (adult); 2) intermediate sanction facilities (adult); 3) high impact programs (juvenile); 4) academies (juvenile); 5) secure treatment and training facilities (adult and juvenile); and 6) sexually delinquent juvenile programs (juvenile).

Secure prisons and intermediate sanction facilities provide a secure correctional environment for individuals who have been found guilty of one or more offenses. Offenders placed in intermediate sanction facilities are typically persons who have committed a technical violation of their parole conditions, but whose offense history or current offense does not warrant incarceration in a prison. Both types of facilities offer vocational training, substance abuse treatment and offense specific treatment. High impact programs provide residential placement for juveniles who are either first time offenders or who were unable to meet the terms of a non-residential placement. High impact programs are generally short term with stays of 30 to 90 days, but involve all of the rehabilitative elements of an academy program. Academies are secure facilities that range from hardware secure to staff secure. These facilities typically service juveniles who are repeat offenders and/or violent crime offenders. The academies emphasize rehabilitative programming, including individual and group treatment, education, recreation and vocational training. Secure treatment and training facilities provide numerous services designed to reduce recidivism including educational and vocational training, life skills, anger control management, and substance abuse counseling and treatment. Juvenile sex offender programs are generally locked secure and involve a length of stay from 12 to 24 months.

The Company also operates non-secure residential and non-residential community corrections programs. Non-secure residential facilities, known as halfway houses, provide a residential correctional environment for offenders in need of less supervision and monitoring than are provided in a secure environment. Offenders in community corrections facilities are typically allowed to leave the facility to work in the immediate community and/or participate in community-based educational and vocational training programs during daytime hours. Generally, persons in community correctional facilities are serving the last three to six months of their sentence. Non-residential programs permit the offender to reside at home or in some other approved setting under supervision and monitoring by the Company. Supervision may take the

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form of either requiring the offender to report to a correctional facility a specified number of times each week and/or having the Company employees monitor the offender on a case management basis at his/her work site and home. In the juvenile division, the non-residential programs take the form of aftercare programs. Unlike the adult division where a non-residential supervision program may replace the last part of an adult’s residential supervision, the juvenile division counterpart, the aftercare program, is strictly post release. The goal of these programs, like adult community corrections, is to assist the juvenile in effecting a positive return to their families and communities. Aftercare programs provide the contact, supervision and support that is needed to further instill the principles learned by the juvenile during the longer residential program.

The following information is provided with respect to the facilities that the Company operated as of March 15, 2005:

Adult Division

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Juvenile Division

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Facility Management Contracts

The Company is primarily compensated on the basis of the population in each of its facilities on a fixed rate per inmate per day; however, some contracts have a minimum revenue guarantee, or the Company may also be paid a lesser per diem paid for unoccupied beds. Additionally, some facilities are compensated on a per diem basis, in addition to the normal per diem, for treatment provided to residents with behavioral and/or mental health diagnoses, as well as resident requiring substance abuse counseling. Invoices are generally sent on a monthly basis detailing the population for the prior month. Occupancy rates for facilities tend to be low when initially opened or when expansions are initially available. However, after a facility passes the start-up period, typically three months, the occupancy rate tends to stabilize.

The Company is required by its contracts to maintain certain levels of insurance coverage for general liability, workers’ compensation, vehicle liability and property loss or damage. The Company is also required to indemnify the contracting agencies for claims and costs arising out of the Company’s operations and in certain cases, to maintain performance bonds.

As is standard in the industry, the Company’s contracts are short term in nature, generally ranging from one to three years and containing multiple renewal options. Most facility contracts also generally contain clauses that allow the governmental agency to terminate a contract with or without cause, and are subject to legislative appropriation of funds.

Operating Procedures

The Company is responsible for the overall operation of each facility under its management, including staff recruitment, general administration of the facility, security of inmates and employees, supervision of the offenders, and facility maintenance. The Company, either directly or through subcontractors, also provides health care, including medical, dental and psychiatric services, and food service.

The Company’s contracts generally require the Company to operate each facility in accordance with all applicable local, state and federal laws, and rules and regulations. In addition, all facilities are generally required to adhere to the guidelines of the American Correctional Association (“ACA”). The ACA standards, designed to safeguard the life, health and safety of offenders and personnel, describe specific objectives with respect to administration, personnel and staff training, security, medical and health care, food service, inmate supervision and physical plant requirements. The

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Company believes the benefits of operating its facilities in accordance with ACA standards include improved management, better defense against lawsuits by offenders alleging violations of civil rights, a more humane environment for personnel and offenders and measurable criteria for upgrading programs, personnel and the physical plant on a continuous basis. Several of our facilities are fully accredited by the ACA and certain other facilities currently are being reviewed for accreditation. It is the Company’s goal to obtain and maintain ACA accreditation for all of its facilities, when applicable.

Facility Design and Construction

In addition to its facility management services, the Company also consults with various governmental entities to design and construct new correctional and detention facilities and renovate older facilities to provide enhanced services to the population. Pursuant to the Company’s design, construction and management contracts, it is responsible for overall project development and completion. Typically, the Company develops the conceptual design for a project, then hires architects, engineers and construction companies to complete the development. When designing a particular facility, the Company utilizes, with appropriate modifications, prototype designs the Company has used in developing other projects. Management of the Company believes that the use of such prototype designs allows it to reduce cost overruns and construction delays. The Company designed and built the 890-bed Northwest Regional Detention Center in Tacoma, Washington facility, which opened in April 2004. This facility was built within the time frame planned and under budget. The Company also is in the construction phase of the 1,020-bed South Texas Detention Complex that is expected to open late in the second quarter of 2005.

Employees

At December 31, 2004, the Company had approximately 2,200 employees, consisting of corporate and facility employees. Each of the Company’s facilities is led by an experienced facility administrator, warden, or executive director. Other facility personnel include administrative, security, medical, food service, counseling, classification, and educational and vocational training personnel. The Company conducts background screening checks and drug testing on potential facility employees. Some of the services rendered at certain facilities, such as medical services, education or food service, are provided by third-party contractors.

Employee Training

All jurisdictions require corrections officers and youth workers to complete a specified amount of training. Generally, the Company employees are required to participate in at least 160 hours of paid training during their first year of service, with 120 hours coming prior to their direct contact with offenders or detainees, unless otherwise specified by contract. Training is requisite for all new hires, regardless of classification, is outcome based, and requires observable or measurable levels of performance competency. Training consists of approximately 40 hours relating to the Company policies, operational procedures, management philosophy, ethics and compliance training, and 120 hours relating to legal issues, rights of offenders and detainees, techniques of communication and supervision, improvement of interpersonal skills, life safety and emergency procedures, training to promote the security and health and welfare of the residents, and job training relating to the specific tasks to be held. All the Company training programs meet or exceed applicable American Correctional Association (ACA) licensing requirements.

In addition to comprehensive pre-service training, all Company personnel are required to complete 40 hours of in-service training annually, unless otherwise specified by contract. Mandatory annual training plans are interfaced between state and federal laws, policies, ACA Standards for Adult and Juvenile Facilities, and course lesson plans. Some of the topics include: use of force or behavioral management programs, security procedures, suicide precautions, interpersonal communications, cultural sensitivity, first aid and CPR, and safety procedures. The Company’s training matrix is designed to provide the flexibility needed to incorporate specialized training mandated by the contracting agency, such as an overview of the criminal justice or juvenile justice system.

Furthermore, the Company reimburses employees for specialized training programs to ensure retention of licensure or certification as required by the appropriate professional standards.

The Company places dignity, professionalism and respect for all, as its benchmark, and is committed to providing quality training programs for newly hired employees to prepare them for a challenging and rewarding career in the corrections field. The Company also provides scheduled annual refresher training to veteran employees to maintain their proficiencies and adherence to the Company’s commitment to provide quality service to its contracting agencies.

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The Company is committed to providing quality training programs for newly hired employees to prepare them for a challenging and rewarding career in the Criminal Justice or Juvenile Justice field and to reinforce adherence to the Company’s commitment to provide quality service to its contracting agencies.

Insurance

Each management contract with a governmental agency requires the Company to maintain certain levels of insurance coverage for general liability, workers’ compensation, vehicle liability and property loss or damage and to indemnify the contracting agency for claims and costs arising out of the Company’s operations.

The Company currently maintains primary general liability insurance in the amount of $3,000,000 and a primary excess liability policy in the amount of $2,000,000, and an excess umbrella policy in the amount of $25,000,000, covering itself and each of its subsidiaries, as well as automobile liability insurance, employment practices liability insurance, workers’ compensation insurance, and property and casualty insurance, in addition to other special forms of insurance. There can be no assurance that the aggregate amount and kinds of the Company’s insurance are adequate to cover all occurrences or that insurance will be available in the future. In addition, the Company is unable to secure insurance for some unique business risks, which may include, but not be limited to, some types of punitive damages in states where it is prohibited by law.

Regulation

Generally, providers of correctional services must comply with a variety of applicable federal, state and local regulations, including educational, health care and safety regulations administered by a variety of regulatory authorities. Management contracts frequently include extensive reporting requirements. In addition, many federal, state and local governments are required to follow competitive bidding procedures before awarding a contract. Certain jurisdictions may also require the successful bidder to award subcontracts on a competitive bid basis and to subcontract to varying degrees with businesses owned by women or minorities.

The failure to comply with any applicable laws, rules or regulations or the loss of any required license could have a material adverse effect on the Company’s business, financial condition and results of operations. Furthermore, the current and future operations of the Company may be subject to additional regulations as a result of, among other factors, new statutes and regulations and changes in the manner in which existing statutes and regulations are or may be interpreted or applied. Any such additional regulations could have a material adverse effect on the Company’s business, financial condition and results of operations.

Item 2. Properties

Leased Properties:

The Company leases office space for its corporate headquarters in Sarasota, Florida. The Company also leases the space for the following facilities: Reflections Treatment Agency, Frio County Jail, Brooklyn Community Correctional Center, Bronx Community Correctional Center, Thompson Academy, and Fort Worth Community Corrections Center.

In accordance with generally accepted accounting principles, the Company also reflects its management agreement for the Arizona State Prison-Florence West as a capitalized lease on its balance sheet. In 2002, the Company engaged in a transaction in which (a) The Industrial Development Authority of the County of Pinal, Arizona issued taxable revenue bonds in order to finance the purchase of this facility from the Company by an unrelated, not-for-profit entity; and (b) the Company sold and conveyed legal title to this facility to the not-for-profit entity for $10,000,000, subject to an option in favor of the State of Arizona to purchase the facility from the not-for-profit entity. In connection with this transaction, the Company simultaneously entered into a management agreement with the not-for-profit entity, under which the Company has the exclusive right to use and occupy the facility in order to provide services for the Arizona Department of Corrections. In accordance with generally accepted accounting principles, the Company recorded this transaction as a sale on its financial statements in 2002. However, although (a) this transaction was conducted at arm’s length between the Company and the not-for profit entity, (b) the Company does not own or hold legal title to the facility, and (c) the not-for-profit entity is under no obligation to convey the property back to the Company at any time under any circumstance, generally accepted accounting principles further required that the Company reflect its management agreement for the facility as a capitalized lease obligation. Accordingly, this asset and the related capitalized lease obligations are reflected as such on the Company’s financial statements.

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Owned Properties:

The Company owns its facilities located in Chamberlain, South Dakota; Springfield, South Dakota; Elmore, Minnesota; and Forest Ridge, Iowa, and an undeveloped expansion parcel adjacent to the Frio County Jail.

In addition, in connection with the financing of the construction of the Northwest Regional Detention Center in Tacoma, Washington, the Company formed a limited liability company, known as “CSC of Tacoma, LLC,” for the sole purpose of owning the real property on which this facility was constructed. This LLC owns this real property as well as all of the improvements constructed thereon, and leases the same to the Company pursuant to long-term lease arrangement. Although the Company is the sole member of CSC of Tacoma, LLC, the LLC is managed by an independent group of managers and the Company has limited rights with respect to the business and operations of the LLC. However, under the consolidation principles utilized by the Company under generally accepted accounting principles, this real property and related liabilities are recorded on the financial statements of the Company.

In addition, in connection with the financing of the construction of the South Texas Detention Center, the Company entered into an agreement with Frio County, whereby Frio County created the South Texas Development Corporation, a non-profit, local development corporation pursuant to Chapter 431 Texas Transportation Code for the sole purpose of owning the real property on which this facility was constructed. The South Texas Development Corporation owns this real property as well as all of the improvements constructed thereon. As previously indicated above, pursuant to FIN 46 (revised), the Company has a variable interest in the South Texas Development Corporation and it has been consolidated with the accounts of the Company.

The Company also owns two parcels of real property, which were acquired by the Company in anticipation of future development projects, but were never developed, and are now being marketed for sale. These properties are located in Mangonia Park, Florida and Belle Glade, Florida, and are classified on the balance sheet under assets held for sale.

The Company also owns real property and improvements located in Newport News, Virginia from which the Company formerly operated its Genesis Treatment Agency program. This program terminated operations in October 2003. The property is currently being marketed for sale, and is classified on the balance sheet under assets held for sale.

Additionally, the Company’s balance sheet reflects that the Arizona State Prison – Phoenix West as an asset of the Company, despite the fact that, in 2002, the Company sold this facility to an unrelated, not-for-profit entity. During the year ended December 31, 2002, the Company sold this facility to a not-for-profit entity, subject to an option in favor of the State of Arizona to purchase the facility from the not-for-profit entity, and received proceeds of approximately $8.5 million, which was used to reduce existing bank debt. The not-for-profit entity used proceeds from contract revenue bonds issued through the Industrial Development Authority of Maricopa County to purchase the facility from the Company. In connection with this transaction, the Company simultaneously entered into a management agreement with the not-for-profit entity, under which the Company has the exclusive right to use and occupy the facility in order to provide services for the Arizona Department of Corrections. In addition, the Company was required to post a letter of credit in this transaction in order to ensure that, if the State exercises its option to purchase the facility from the not-for-profit entity, the not-for-profit entity and the Industrial Development Authority will have sufficient funds available to them in order to pay off the outstanding balance of the revenue bonds. Accordingly, in light of the continuing financial interest of the Company in this facility, the Company was unable to record this transaction as a sale on its financial statements in accordance with generally accepted accounting principles. Legal title to the property is held by the not-for-profit entity. The ownership of the facility will eventually be passed to the State of Arizona over the passage of time, or when the State of Arizona exercises its option to purchase the facility. The Company’s non-recourse liability with respect to the debt service payments is $7.8 million as of December 31, 2003, and matures in 2022, or upon the State of Arizona’s exercise of its option to purchase the facility. On either of those occurrences a sale shall be deemed to have occurred, and the Company will recognize a $1.9 million gain.

Item 3. Legal Proceedings

Settlement Pending in Class Action Suit

As noted above in Item 1, on February 17, 2005, the United States District Court for the District of New Jersey approved preliminarily the terms of a settlement negotiated by the Company’s liability insurance carrier and the plaintiffs’ counsel with respect to the following matter:

Brown, Samson, et al., v. Esmor Correctional Services, Inc., Esmor, Inc., Esmor New York State Correctional Facilities, Inc., Esmor Management, Inc., Esmor Manhattan, Inc, Esmor Brooklyn, Inc., Esmor New Jersey, Inc., James Slattery and Aaron Speisman, Superior Court of the State of New York, No. 8654/96; removed to US District Court for the Southern District of New York; transferred to the US District Court for the District of New Jersey

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This suit was filed in March 1996 in the Supreme Court of the State of New York, County of Bronx by several former detainees in the INS Detention Center that the Company formerly operated for the INS in Elizabeth, New Jersey, on behalf of themselves and others similarly situated, in which the plaintiffs in the suit claimed $500,000,000 in compensatory and punitive damages on a variety of legal theories. This suit was removed to the United States District Court, Southern District of New York, in April 1996, and subsequently transferred to the United States District Court for the District of New Jersey. The plaintiffs in this case obtained certification from the Court to try their case as a class action on behalf of themselves and all other persons who were detained in the Elizabeth INS Detention Center while the Company operated it.

On February 17, 2005, the District Court approved a settlement negotiated by the Company’s liability insurance carrier and the plaintiffs’ counsel whereby the Company’s liability insurance carrier would deposit a lump sum of $2.5 million in escrow to be administered and distributed by the plaintiffs’ counsel to class participants in accordance with a payment formula currently being developed for presentation to the Court. The Company has no obligation to contribute to this settlement, which will be funded in full by the Company’s liability insurance carrier. The Company’s defense counsel and the plaintiffs’ counsel are currently preparing the settlement documentation. The Company expects that the settlement documentation will be completed and that the Court will formally approve the settlement in the near future.

Other Legal Proceedings:

The nature of the Company’s business results in numerous claims against the Company for damages allegedly arising from the conduct of its employees and others. The Company believes that most of these claims and suits lack legal merit and/or that the Company has meritorious defenses to the claims, and vigorously defends against these types of actions. The Company also has procured liability insurance to protect the Company against most of the types of claims that reasonably could be expected to be asserted against the Company based upon the Company’s past experience and an assessment of the risks of the Company’s business, including worker’s compensation, employment-related, negligence and other types of tort and civil rights claims and suits.

The Company believes, based upon the Company’s past experience, that, except as noted below, the insurance coverage maintained by the Company for the claims and suits currently pending against the Company or which reasonably can be expected to be asserted against the Company, should be adequate to protect the Company from any material exposure in any given matter, even if the outcome of the matter is unfavorable to the Company. However, the dollar amount of certain of the claims currently pending against the Company exceed the amount of insurance coverage available to the Company, and, therefore, if the Company is unsuccessful in defending against such claims, the insurance coverage available to the Company may not be sufficient to satisfy those claims, and such a result could have a material adverse effect on the Company’s results of operations, financial condition and liquidity. In addition, if all, or a substantial number of, the claims and suits currently pending against the Company are resolved unfavorably to the Company, the insurance coverage available to the Company may not be sufficient to satisfy all such claims, and such a result could have a material adverse effect on the Company’s results of operations, financial condition and liquidity. Notwithstanding the foregoing, however, the Company currently believes that no material adverse effect on its financial condition, liquidity or results of operations will result from the outcome of any of the claims and suits currently pending against the Company.

Notwithstanding the foregoing, the Company has determined that the following matters should be deemed material to the Company under applicable SEC rules and regulations, because either: (a) the claims asserted against the Company in the following cases depart from those asserted in the normal course of the Company’s business; or (b) the claims asserted against the Company in these matters involve amounts that exceed 10% of the Company’s current assets on a consolidated basis as of December 31, 2004 and the Company does not maintain insurance coverage for the claims asserted in the case or does not maintain insurance coverage sufficient to cover the amounts sought from the Company in the case:

In September, 2003, following a trial related to the death of a trainee in the boot camp program at the Tarrant County Community Correctional Center, which was being operated by the Company at the time of the trainee’s death, a Tarrant County, Texas trial court entered a judgment against the Company for a total of $37.5 million in compensatory damages and $750,000 in punitive damages. The Company has filed a notice of appeal in this case, notifying the trial court of its intention to appeal the judgment to the Second Court of Appeals of Texas. The Company had originally expected to file

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its initial brief in this appeal during the first half of 2004; however, due to delays attributable solely to the failure of the court reporter to file certified copies of the transcript from the trial with the appellate court, the Company was unable to prepare and file its initial brief for the appeal at that time. In addition, in November, 2004, the co-defendant in this case, Knyvette Reyes, who was employed by the Company as a nurse at the facility, filed a petition for personal bankruptcy, which placed an automatic stay on all further proceedings in this case. Accordingly, the Company has been unable to file its brief in support of its appeal. In light of this development, the Company is currently evaluating the options available to it in order to pursue its appeal notwithstanding the bankruptcy filing by the co-defendant. Accordingly, at this time, it is not possible to provide any estimate as to when this matter will be resolved and when the Second Court of Appeals will hear the Company’s appeal. Nevertheless, based upon the advice of defense counsel, the Company believes that there is substantial likelihood that, on appeal, the Company will obtain relief from the judgment entered against it by the trial court.

In the meantime, on or about December 28, 2003, the Company’s general liability insurance carrier posted with the trial court bonds in the aggregate amount of $25 million in order to secure the judgment pending the outcome of the Company’s appeal. (Although the judgment in this case exceeds $25 million, Texas law required that only $25 million in bonds be posted in this case in order to secure the judgment.) Consequently, the plaintiffs are precluded by Texas law from executing upon the judgment pending the outcome of the appeal.

The primary general and excess liability insurance policies of the Company in effect at the time of the trainee’s death provided $35 million of coverage, which, less amounts paid on other claims under the policies, should be available for these purposes. (As of the date hereof, a total of $415,000 has been paid by the Company’s insurers on other claims covered by the applicable policies.) However, as previously announced by the Company, Northland Insurance Company, the Company’s primary general liability insurance carrier at the time of the death of the trainee, filed a declaratory judgment action in federal court against the Company seeking to disclaim any obligation to defend or indemnify the Company or its former employee with respect to this case. On July 28, 2004, the federal district court in which this action had been filed denied Northland’s motion for summary judgment in its action, and entered a memorandum order in the case which contained an explicit finding by the court that the Company’s insurers were obligated to defend and indemnify the Company and its employees against the claims made in this case. In light of this ruling, the Company recently has filed a petition with the Court seeking a final judgment from the Court that Northland and the Company’s excess liability insurance carrier are obligated to indemnify the Company against the judgment entered against it in the underlying suit and to pay on behalf of the Company all pre-judgment and post-judgment interest that has or will accrue on the amounts awarded in the judgment. This petition is currently pending with the Court. The Company believes, based upon the advice of its counsel, that the Court will enter a final judgment in this case that hold that Northland and the Company’s excess liability insurance carrier are obligated to indemnify the Company to the extent of their respective policy limits against the judgment in the underlying suit and to pay on behalf of the Company, in addition to its policy limits, all pre-judgment and post-judgment interest that has or will accrue on the amounts awarded in the judgment.

Nevertheless, because the amount of the judgment in this case exceeds the total amount of insurance available to the Company by approximately $2.5 million, the Company has an uninsured exposure in this case of approximately $2.5 million. However, based upon the advice of counsel, the Company at this time does not believe that the ultimate settlement or final judgment in this case will exceed the amount of the bonds posted to secure the judgment or that it is probable that the Company will incur any material loss in this case. Accordingly, no loss has been recognized in connection with this litigation. The Company will continue to assess this matter with its legal counsel in accordance with SFAS No. 5, Accounting for Contingencies, and, if and when deemed appropriate, will reflect the potential impact of the case on its financial statements.

The Company also notes that, because it maintained the primary and excess liability policies that provide coverage for the foregoing case on an “occurrence” basis, to the extent that the Company’s insurers make any payments to the plaintiffs in the foregoing case under the policies, such payments will serve to reduce the amount of insurance coverage available to the Company for other claims made against the Company that are covered by the same policies. Likewise, to the extent that the Company’s insurers make any payments to any other plaintiffs or claimants in order to settle any other claims covered under these policies, such payments will serve to reduce the amount of insurance coverage available to the Company for the settlement of or payment of the judgment in the Alexander case described above. As noted above, as of the date hereof, a total of $415,000 has been paid by the Company’s insurers on other claims covered by the applicable policies.

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At present, there is currently only one lawsuit pending against the Company that relates to an “occurrence” that occurred during the policy period covered by these policies, which is described below:

The Plaintiff in this case is a former resident of the Summit View Youth Correctional Facility (which was formerly operated by the Company) who has brought civil rights, intentional infliction of emotional distress, assault and battery and negligence claims against the Company arising out of allegations that, between November, 2000 and January, 2001, the Plaintiff was “subjected to repeated sexual assaults” by co-Defendant Jennifer Burkley, a former employee of the Company. Plaintiff alleges that the alleged encounters with co-defendant Burkley were the cause of his current mental and psychological problems and seeks compensatory damages in the amount of $2,000,000 and unspecified punitive damages. The Company has not disputed that co-Defendant Burkley engaged in sexual activities with the Plaintiff while he was incarcerated at the Summit View Correctional Facility, but has denied the Plaintiff was “sexually assaulted” and that the Company has any liability for these activities. The Company also has asserted that none of the alleged sexual encounters with co-defendant Burkley were the proximate cause of his mental and psychological problems. The State of Nevada has been dismissed from this case on governmental immunity grounds. The Company is not providing a defense to co-defendant Burkley and Burkley has not sought coverage or a defense from the Company or its insurance carrier.

At the conclusion of discovery in this case, the Company filed a motion to exclude the purported “expert” testimony proffered by the Plaintiff to support his claims that the Company’s or Burkley’s actions were the proximate cause of the Plaintiff’s alleged damages under the above-referenced theories of liability, and also filed a motion for summary judgment on all claims asserted in this case. On January 24, 2005, the District Court entered an order that granted the Company’s motion to exclude the purported expert’s testimony and an order that granted summary judgment to the Company on the civil rights, intentional infliction of emotional distress and negligence claims that had been asserted against the Company, but that denied the Company’s motion with respect to the assault and battery claims. Accordingly, the assault and battery claim is the only claim remaining in this case and defense counsel is preparing this claim for trial.

The basis of the Court’s decision to grant summary judgment to the Company on the civil rights, intentional infliction of emotional distress and negligence claims was that, in light of the exclusion of the proffered expert’s testimony, the Plaintiff did not develop sufficient facts to support his claims that the Company’s or Burkley’s actions or inaction were the proximate cause of the Plaintiff’s alleged damages under these theories. The Court did not address any of the Company’s other arguments for summary judgment on these claims in its decision to grant summary judgment, finding that the lack of evidence to support proximate causation was fatal to each of these causes of action, which obviated the need to address these alternative grounds. In the Company’s summary judgment motion on the assault and battery claim, the Company argued that the Plaintiff consented to each of the alleged sexual encounters with Burkley and that, in any event, Burkley was acting outside the course and scope of her employment in engaging in the alleged encounters with Plaintiff. The basis of the Court’s decision to deny the Company’s motion for summary judgment on the assault and battery claims was that, in light of the testimony developed during discovery, the Plaintiff is entitled to have a jury determine whether he actually consented to the sexual encounters with co-defendant Burkley and whether Burkley was acting within the scope of her employment when she engaged in the sexual encounters with Plaintiff.

Nevertheless, in light of the facts that (a) the assault and battery claim is the only claim remaining in this case; (b) the District Court’s recent order prohibits the Plaintiff from presenting at trial any expert testimony to support his claims that his current mental and psychological problems resulted from his encounters with Burkley; and (c) Plaintiff did not suffer any physical injuries as a result of the alleged encounters, the Company does not believe that is probable that the Company will incur any material loss in connection with this case, and therefore, no loss has been recognized in connection with this litigation. However, as noted above, if, and to the extent that, the Company’s liability insurers make any payments to the plaintiff in this case for settlement or otherwise, the amount of any such payment will reduce the amount of insurance coverage available to the Company for the settlement of or payment of the judgment in the Alexander case described above.

The Jama case was initiated in July 1997 by group of former detainees in the INS Detention Center that the Company formerly operated in Elizabeth, New Jersey. The suit asserts that the Company is liable for personal injuries and property damage allegedly caused by the negligent and intentional acts of the Company, certain of the current and former officers of the Company and a number of former employees of the Company who served as guards at the detention facility. The Complaint filed in this case asserts numerous legal theories. No monetary damages have been stated. The Plaintiffs in this case are represented by the Rutgers University Law School Constitutional Law Clinic. The Company believes that it has meritorious legal and factual defenses to the claims asserted by the plaintiffs in this case, and is vigorously pursuing its defense of those claims.

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This case is currently in the latter stages of discovery. During the course of discovery, the trial court has dismissed and/or granted summary judgment to the Company on a number of the claims initially asserted by the plaintiffs in this case. Accordingly, at the present time, the Company’s defense counsel is preparing the remaining claims for trial. The Company also has filed an interlocutory appeal from the District Court asserting that the District Court erred in ruling that the nine (9) remaining plaintiffs properly opt-out of the Brown, Samson class action, discussed below. This appeal is currently pending before the Third Circuit Court of Appeals. (As discussed below, the District Court approved a settlement in the Brown, Samson class action on February 17, 2005.) In any event, the Company believes that it should have more than adequate insurance coverage available to it to cover any adverse outcome in this case. Therefore, at this time, the Company does not believe that it is probable that the Company will incur any material loss in connection with this case, and therefore, no loss has been recognized in connection with this litigation.

In June, 2001, the City of Tallulah filed suit against Trans-American Development Assoc. & Correctional Services Corporation, alleging that either or both parties are obligated to continue to pay to the City an annual “management fee” of $150,000 related to the Tallulah Correctional Center for Youth, despite the fact that neither party is currently operating the facility. The Complaint filed by the City in this matter does not specify the amount of damages that the City is seeking, but, based on the theory outlined in the City’s complaint, the Company has estimated that the City likely will seek approximately $3,250,000 in this case. The Company believes that the City’s case against the Company is wholly without merit and is vigorously defending against this claim. However, in light of the fact that this matter is not covered by any form of insurance available to the Company, and given the inherent uncertainties associated with litigation, no assurance can be given that this litigation will be resolved favorably to the Company.

This suit was served upon the Company in November, 2001 by four (4) female former residents of the LeMarquis Community Correctional Center that the Company formerly operated in New York, each of whom alleges that Miguel Corriera, who was formerly employed by the Company as a “prisoner advocate” at LeMarquis, sexually assaulted and battered them while they were housed at LeMarquis. Plaintiff Johnson further alleges that Mr. Corriera raped her while she was housed at LeMarquis. Each Plaintiff asserted causes of action for negligence against the Company. Each Plaintiff sought $50,000,000 in compensatory damages from the Company. In 2003, the Company’s general liability insurance carrier settled the claims of Plaintiffs Scianetti and Adorno for a total of $25,000, leaving only the claims of Plaintiffs Womble and Johnson remaining in the suit. The Company believes that it has meritorious defenses to the claims made by the remaining plaintiffs in this case and is vigorously pursuing its defenses to those claims. However, given the inherent uncertainties associated with litigation and the fact that the damages sought by the plaintiffs in this case substantially exceeds the amount of insurance coverage available to the Company, no assurance can be given that the outcome of this litigation will not have a materially adverse effect on the Company. A trial on the remaining Plaintiffs’ claims commenced on February 7, 2005, but, the next day, the trial judge had a family emergency and declared a mistrial. The Court recently reset this case for trial on April 11, 2005.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to the stockholders during the fourth quarter of 2004.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The common stock of the Company is traded on the Nasdaq National Market under the trading symbol “CSCQ.” The following table sets forth, for the calendar quarters indicated, the high and low closing sale prices per share on the Nasdaq National Market, based on published financial sources (such quotations represent inter-dealer prices without retail markup, markdown or commission, and may not necessarily represent actual transactions) .

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On March 14, 2005, there were 219 holders of record and approximately 2,143 beneficial shareholders registered in nominee and street name. The Company paid no cash dividends during the years ended December 31, 2004 and 2003.

The following table sets forth securities authorized for issuance under equity compensation plans of the Company as of December 31, 2004.

The Company has not issued or sold any securities during the past three years that were not registered pursuant to the Securities Act of 1933, as amended, and has not issued or sold any securities registered thereunder during the past three years otherwise than pursuant to the exercise of options pursuant to the equity compensation plans of the Company. The proceeds of all securities sold by the Company pursuant to the exercise of such options were used by the Company for general working capital purposes.

Neither the Company nor any affiliated purchaser purchased any shares of the Company’s equity securities during 2004.

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Item 6. Selected Financial Data

The information below is only a summary and should be read in conjunction with the Company’s historical financial statements and related notes (in thousands, except per share data).

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company routinely evaluates its estimates based on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. A summary of our significant accounting policies is set forth below and in Note A to our financial statements included herein.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the accompanying financial statements and the discussion of the Company’s significant accounting policies which is set forth below and in Note A to the financial statements.

Overview

During 2004, the Company’s contribution from operations, consisting of revenues less operating expenses and start up costs was $15.5 million. The Company incurred a loss from continuing operations in 2004 of $97,000 and a net loss $3.2 million or $(0.32) per diluted share in 2004, when losses for discontinued operations are included. During the year

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2004, revenues from the Adult/Community Corrections programs comprised 59.7% of the Company’s consolidated revenue, and 92.2% of the consolidated contribution margin. During the year 2004, revenues from the Juvenile Division comprised 40.3% of the Company’s consolidated revenues, and 7.8% of the consolidated contribution margin.

Results of Operations

The following table sets forth the Company’s results of operations as a percentage of total revenues for the fiscal years indicated:

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Revenue increased by $7.2 million or 5.7% for the year ended December 31, 2004 to $133.7 million compared to the same period in 2003. The increase in annual revenue from 2003 to 2004 was primarily due to:

Operating expenses increased $2.6 million or 2.3% for the year ended December 31, 2004 to $114.9 million compared to the same period in 2003. However, as a percentage of revenues, operating expenses decreased to 86.0% for the twelve months ended December 31, 2004 from 88.8% for the twelve months ended December 31, 2003. The decrease in operating expense as a percentage of revenue is due in part to the discontinuation of operations by the Company in 2004 of certain unprofitable facilities and an increase in 2004 in the ratio of adult facilities operated by the Company, which traditionally operate at lower costs and higher margins than juvenile facilities. During 2004, the overall decrease in operating expense as a percentage of revenue was offset by increases in certain operating expenses, such as medical/dental services and business insurance.

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Startup costs were $3.3 million for the twelve months ended December 31, 2004, related primarily to the startup of the eight new facilities that opened during 2004. This compares to $378,000 in start-up costs for 2003, which related to the openings of the Northwest Regional Detention Center and two new juvenile facilities that opened in the 2004. The Company incurs costs as it relates to the start up of new facilities. Such costs are principally comprised of expenses associated with the recruitment, hiring and training of staff, travel of personnel, certain legal costs and other costs incurred after a contract has been awarded. The Company expenses start up costs as they are incurred. Start up costs are usually incurred through the population ramp up period, but generally within the first three full months of operations. Also, to the extent that other operating expenses exceed revenue during the ramp up period, they are recognized as start up expenses. This is due to the need to incur a significant portion of the facility’s operating expenses while the facility is in the process of attaining full occupancy.

General and administrative expenses decreased to $8.5 million for the twelve months ended December 31, 2004, compared to $9.2 million for the twelve months ended December 31, 2003. As a percentage of revenues, general and administrative expenses decreased to 6.3% for the twelve months ended December 31, 2004 from 7.3% for the same period in 2003. The decrease in 2004 was primarily due to decreases in corporate payroll as a result of position elimination and vacancies.

During the fourth quarter of 2004, the Company determined that the carrying amount of the net assets identifiable with its Colorado County Juvenile Facility located in Eagle Lake, Texas was not recoverable and exceeded its fair value. Based on FASB 144, “Accounting for the Impairment or Disposal of Long-lived Assets,” the Company recognized an impairment of $1.5 million on these net assets.

During the twelve months ended December 31, 2004, the Company recorded a loss on the disposal of assets of $618,000 compared to a gain of $53,000 recorded during the same period 2003. The current period loss is related to the Company’s settlement of claims related to the operation of the facility in Bayamon, Puerto Rico, which the Company ceased to operate in January, 2003. During 2003, the Company initiated legal action against the Puerto Rican government to recover unpaid revenues and receive reimbursement for certain costs and to recover breach of contract damages. The Puerto Rican government initiated a counter suit seeking a similar amount for the cost of repairs that it alleged were necessary to restore the Bayamon facility. The Company had approximately $2.0 million in receivables and approximately $560,000 in deferred charges related to assets purchased by the Company for use at the facility as of December 31, 2003, pending resolution of the aforementioned lawsuit. During the year ended December 31, 2004, the Company settled its dispute with the government, whereby the Company received $2.0 million in settlement of all claims the Company had asserted against the government, and paid the Puerto Rican Government $600,000 in order to settle the claims asserted by the Government against the Company. The $600,000 amount was accrued as of December 31, 2003. As a result of this settlement, the Company wrote off $560,000 in deferred charges, which is included in the accompanying financial statements as loss on disposal of assets.

Interest expense, net of interest income, was $4.6 million for the twelve months ended December 31, 2004 compared to $2.2 million for the twelve months ended December 31, 2003, a net increase in interest expense of approximately $2.4 million. The Company’s interest expense for 2004 relates to interest paid by the Company with respect to borrowings under its working capital line of credit, interest deemed payable under the Company’s capitalized lease obligations with respect to the Arizona State Prison – Phoenix West, Arizona State Prison – Florence West and interest payable with respect to the financings of the Northwest Regional Detention Center and the South Texas Detention Complex.

During 2004, the Company capitalized interest of $803,000 and recognized $2.0 million in interest expense with respect to the note payable related to the construction of the Northwest Regional Detention Center. In connection with the financing of the Northwest Regional Detention Center, CSC of Tacoma LLC issued a note payable to WEDFA with respect to the proceeds of the bond issuance that were loaned by WEDFA to the LLC. Interest incurred on the note payable by CSC of Tacoma, LLC to WEDFA was capitalized with respect to qualified expenditures during the construction phase of that project and otherwise expensed as incurred. Construction of the Northwest Regional Detention Center was completed in April, 2004. Accordingly, since that time, interest incurred on the foregoing note payable has been expensed. Interest of $1.3 million related to the Northwest Regional Detention Center was capitalized during 2003.

In 2004, the Company capitalized $279,000 in interest related to qualified expenditures in connection with the construction of the South Texas Detention Complex and incurred an additional $334,000 in interest expense related to this project.

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For the twelve months ended December 31, 2004, the Company recognized an income tax benefit of $1.6 million compared to an income tax provision of $1.3 million for the twelve months ended December 31, 2003. Of the 2004 amount, income taxes of $381,000 and $2.0 million were allocated to continuing operations and discontinued operations, respectively. In 2003, income taxes of $1.2 million and $82,000 were allocated to continuing operations and discontinued operations, respectively. During 2004 the tax provision exceeded income before taxes due principally to non-deductible items and the relatively low amount of income before income tax. To calculate the tax provision (benefit) the Company uses an estimated effective tax rate. This effective rate is based on the federal and state statutory rates as adjusted by various non-deductible items, which caused the income tax from continuing operations to exceed the statutory rate.

In 2004, the Company recorded a loss from discontinued operations of $3.2 million, net of a $2.0 million tax benefit, compared to income from discontinued operations of $128,000, net of an $82,000 tax expense in 2003. The losses incurred by the Company in 2004 from discontinued operations arose from the closing of the Tarkio Academy in Missouri and the Hemphill County Juvenile Facility in Canadian, Texas in 2004, and continuing costs associated with the Keweenaw Academy facility in Michigan, and the Genesis Treatment Agency program in Newport News, Virginia, which were closed in prior periods. The Company recorded charges for the impairment of assets during the year ended December 31, 2004 related to the closing of the Tarkio Academy and Hemphill County Juvenile Facility, in the amount of $2.9 million, which are included in the loss from discontinued operations for 2004. Revenue included in discontinued operations amounted to $4.1 million and $13.7 million in 2004 and 2003, respectively.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenue decreased by $18.0 million or 12.5% for the year ended December 31, 2003 to $126.5 million compared to the same period in 2002. The change was primarily due to:

Operating expenses decreased $16.4 million or 12.7% for the year ended December 31, 2003 to $112.4 million compared to the same period in 2002 primarily due to the closing of the eleven facilities mentioned above. This decrease was partially offset by legal costs of $1.6 million incurred during the year ended December 31, 2003. Approximately $1.1 million of costs are related primarily to certain outstanding legal matters from closed facilities. The Company’s legal reserve balance is approximately $1.7 million as of December 31, 2003.

As a percentage of revenues, operating expenses decreased to 88.8% for the twelve months ended December 31, 2003 from 89.1% for the twelve months ended December 31, 2002. The Company made significant improvements in cost control initiatives, such as payroll target initiatives and changes in the structure of the Company’s health benefit plan. Those improvements were partially offset by the increased cost of workers compensation insurance and general liability insurance and the increase in the Company’s legal settlement costs discussed above.

Start-up costs were $378,000 for the twelve months ended December 31, 2003 and were related to the openings of the Northwest Regional Detention Center in Tacoma, Washington and two new juvenile facilities that opened in 2004. These costs consisted primarily of payroll expenses associated with transitioning the operations of the Seattle, Washington ICE facility to the new Tacoma facility. There were no start up costs incurred during 2002.

General and administrative expenses increased to $9.2 million for the twelve months ended December 31, 2003, compared to $9.1 million for the twelve months ended December 31, 2002. As a percentage of revenues, general and administrative expenses increased to 7.3% for the twelve months ended December 31, 2003 from 6.3% for the same period in 2002. The increase in 2003 was primarily due to increases in directors and officers’ liability insurance costs, professional and consulting fees, corporate payroll, and workers’ compensation costs, compared to the same period in 2002.

The Company recorded a $220,000 loss reserve for the year ended December 31, 2002, for estimated contract losses through the contract termination at the Bayamon, Puerto Rico juvenile facility, which ended January 31, 2003.

During the twelve months ended December 31, 2002, the Company recorded a gain on the disposal of assets of $1.5 million primarily related to the sale of the Salinas, Puerto Rico facility to the Puerto Rican government for $15.0 million. The facility was constructed by the Company, and was completed in 2001, but had never been operational, due to the Puerto Rican government’s inability to fulfill its contract with the Company, and provide inmates for the facility.

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Interest expense, net of interest income, was $2.2 million for the twelve months ended December 31, 2003 compared to $2.3 million for the twelve months ended December 31, 2002, a net decrease in interest expense of approximately $123,000. The Company incurred interest charges during 2003 primarily related to the 2002 sale of its Phoenix and Florence, Arizona facilities which, under applicable accounting principles, resulted in the recognition of a long-term liability and a capital lease obligation with higher imputed interest rates than the bank debt to which the Company was subject prior to the sale of those facilities, interest on the note payable, the amortization of deferred loan costs, borrowings under the Company’s line of credit, and interest on outstanding letters of credit. Interest incurred during the comparable period in 2002 was related primarily to borrowings under the Company’s line of credit, and the amortization of deferred loan costs. During the twelve months ended December 31, 2003, the Company capitalized interest of approximately $1.3 million related to the construction of its Tacoma, Washington facility. No interest was capitalized during the same period in 2002.

For the twelve months ended December 31, 2003, the Company recognized an income tax provision of $1.3 million compared to an income tax benefit of $277,000 for the twelve months ended December 31, 2002. Of the 2003 amount, $1.2 million and $82,000 were allocated to continuing operations and discontinued operations, respectively. Of the 2002 amount, $1.1 million expense and $1.4 million benefit were allocated to continuing operations and discontinued operations, respectively. To calculate the tax provision (benefit) the Company uses an estimated effective tax rate. This rate is based on the federal and state statutory rates as adjusted by various non-deductible items, which caused the income tax from continuing operations to exceed the statutory rate for 2003. Income tax from continuing operations for 2002 was also affected by the Company recognizing a $1.4 million tax benefit principally attributable to a change in estimate of the recoverability of deferred tax assets associated with exiting Puerto Rico operations. The effective rate associated with discontinued operations is not affected by non-deductible items.

The Company recorded income from discontinued operations of $128,000, net of an $82,000 tax expense in 2003 compared to loss from discontinued operations of $2.1 million, net of a $1.4 million tax benefit, in 2002. These losses relate to its Keweenaw, Michigan; Newport News, Virginia; Tarkio Academy, Missouri; and Canadian, Texas facilities, which were closed due to low utilization. The Company recognized a $1.3 million loss on facility contracts for the year ended December 31, 2002 related to the Company’s Keweenaw, Michigan juvenile facility, which is included in the loss from discontinued operations for the year ended December 31, 2002, as a result of low utilization by the contracting agencies. However, the Company reached an agreement with its landlord to terminate the lease effective December 2003, at which time the Company began terminating facility contracts. The Company recorded a loss contract recovery credit of $896,000, representing a change in estimate of contract losses. No reserve remains at December 31, 2003. The Company recorded a charge for the impairment of assets during the year ended December 31, 2002, related to the Keweenaw, Michigan facility, in the amount of $1.9 million, which is included in the loss from discontinued operations for 2002. No impairment reserve was recorded related to the closure of the Newport News facility, as the Company believes the net book values of facility assets are recoverable. Revenue included in discontinued operations amounted to $13.7 million and $15.9 million in 2003 and 2002, respectively.

During the year ended December 31, 2002, the Company sold its Phoenix, Arizona facility to a not-for-profit entity and received proceeds of approximately $8.5 million, which was used to reduce existing bank debt. The not-for-profit entity used proceeds from contract revenue bonds issued through the Industrial Development Authority of Maricopa County to purchase the facility from the Company. Neither the Company nor the State of Arizona is obligated to repay the bonds. The bond payments are payable exclusively from the revenue generated by the facility’s operations, or from the disposition of the facility. However, due to certain guarantee obligations of the Company with respect to the purchase of the facility by the State from the not-for-profit entity, and applicable generally accepted accounting principles, the Company was not permitted to record the transaction as a sale for accounting purposes. Therefore, the assets and associated liabilities remain on the financial statements of the Company. Legal title to the property is held by the not-for-profit entity. The ownership of the Phoenix, Arizona facility will eventually be passed to the State of Arizona over the passage of time, or when the State of Arizona exercises its option to purchase the facility. The Company’s non-recourse liability with respect to the debt service payments is $7.8 million as of December 31, 2003, and matures in 2022, or upon the State of Arizona’s exercise of its option to purchase the facility. On either of those occurrences a sale shall be deemed to have occurred, and the Company will recognize a $1.9 million gain.

Liquidity and Capital Resources

Cash, Cash Equivalents and Working Capital

At December 31, 2004, the Company had $725,000 in cash, $10.9 million in current restricted cash and equivalents, and $11.7 million of working capital, as compared to December 31, 2003, when the Company had $3.8 million in cash, $4.5 million in current restricted cash and $13.6 million of working capital. The current restricted cash consists primarily of (a) the proceeds of the bonds issued by the South Texas Development Corporation to finance the construction of the South Texas Detention Complex, which are currently held in escrow for use in completing the construction of the facility

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and to fund certain reserve requirements under the indenture for the bonds, and (b) the debt service and other reserve funds established under the loan agreement between WEDFA and CSC of Tacoma, LLC related to the financing of the Northwest Regional Detention Center.

The Company expects to continue to have cash needs as it relates to financing start-up costs in connection with new contracts that would improve the profitability of the Company. There can be no assurance that the Company’s operations together with amounts available under the revolving line of credit, which expires in 2005, will continue to be sufficient to finance its existing level of operations, fund start-up costs and meet its debt service obligations.

In October 2002, the Company entered into a financing agreement with General Electric Capital Corporation (hereinafter referred to as the “Credit Agreement”), which has been amended various times since inception. The Credit Agreement imposes various financial covenants on the Company, which, among other things, obligate the Company to maintain a minimum net worth, minimum monthly cash flow levels, minimum EBITDA levels, and establishes certain borrowing base criteria. The Company is in compliance with or has received waivers of compliance with all covenants as of December 31, 2004. Additionally, the Credit Agreement prohibits the payment of any dividends. In connection with the establishment of the Credit Agreement, the Company incurred $995,000 in loan fees, which are being amortized as interest expense over the term of the Credit Agreement. The Company’s borrowing base under the Credit Agreement is primarily a function of the balance of eligible accounts receivable held by the Company at any given time. The Credit Agreement is secured by all of the assets of the Company, except real property, and consists of a $19 million revolving line of credit which accrues interest at the lesser of LIBOR plus 4.0%, or prime plus 2.0%. The Company also incurs a monthly fee based on 0.5% of its unused line of credit, with an annual fee of $75,000. The line of credit is used primarily to fund the working capital requirements of the Company.

As of December 31, 2004, there was no outstanding balance under this revolving line of credit and the Company had approximately $7.0 million in borrowing availability thereunder, after taking into account outstanding letters of credit of $9.3 million, the principal amount of which are charged against the line of credit, and borrowing base limitations of $2.7 million.

The Credit Agreement matures on September 25, 2005. The Company expects to enter into a new long-term financing agreement under similar terms and conditions; however, there can be no assurances that the Company will be successful in obtaining this new agreement.

Sources and Uses of Cash During 2004

Net cash of $295,000 was provided by operating activities during the year ended December 31, 2004, as compared to $7.1 million provided by operations for the year ended December 31, 2003. The increase utilization of cash in 2004 was primarily attributable to the increased expenses associated with the startup of the eight new facilities and to the timing of receipts on accounts receivable.

Net cash of $42.3 million was provided by financing activities for the year ended December 31, 2004, as compared to $50.9 million provided by financing activities for the year ended December 31, 2003. During 2004, funds from financing activities were primarily provided by proceeds, net of issuance costs, from the bonds issued by the South Texas Development Corporation related to the construction of the South Texas Detention Complex. During the 2003 period, funds were borrowed under the Company’s line of credit and from WEDFA to provide capital necessary to cover the capital expenditures related to the Northwest Regional Detention Center.

As explained in Note I - Restricted cash equivalents, investments and notes payable in the accompanying financial statements, on September 22, 2004, the South Texas Development Corporation, a consolidated variable interest entity, issued $49.4 million of taxable revenue bonds, net of a $88,000 discount, to finance the construction of the South Texas Detention Complex. The proceeds of these bonds, net of the discount, were disbursed into escrow accounts held in trust as follows:

The amount deposited to the issuance costs funds, which are classified on the Company’s balance sheet as deferred loan costs, will be amortized using the effective interest method over the term of the bonds.

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The proceeds of the bonds deposited in the project fund are being used to complete the construction of the South Texas Detention Complex. The total construction costs of the project are expected to be $39.3 million, including $3.9 million, which was funded by the Company in current and prior periods. The Company is required by the bond indenture to fund an additional $1.1 million when the facility is substantially complete, which is expected to be used to fund certain additional reserve funds established under the bond indenture. Amounts deposited in the project fund and in the debt service and other reserves from the proceeds of the bonds are reflected on the Company’s balance sheet as non-current restricted cash, equivalents and investments.

Construction of the South Texas Detention Complex is expected to be completed by May 2005. The bonds are secured by the facility and payments will be primarily from the revenues of the facility, which will be used to make the debt service payments on the bonds. The effective interest rate on the bonds, including the amortization of the discount and issuance costs, is approximately 6.8% and the bonds mature in February 2016.

Also included in non-current restricted cash equivalents and investments as of December 31, 2004 are funds held in trust related to the financing of the South Texas Regional Detention Complex as follows (in thousands):

As described elsewhere herein, on June 30, 2003, CSC of Tacoma, LLC issued a $57.2 million note payable, net of a $175,000 discount, to WEDFA, which issued revenue bonds and subsequently loaned the proceeds of the bond issuance to CSC of Tacoma LLC, a wholly owned subsidiary of the Company. The bonds are non-recourse to CSC of Tacoma LLC and the Company. The proceeds of the note were disbursed into escrow accounts held in trust as follows (in thousands):

The proceeds of the note deposited in the construction fund reserve were used to build the Northwest Regional Detention Center. The total construction costs of the project were approximately $42.9 million, including $8.0 million that was funded by the Company. Construction on the facility was complete in early 2004. The note is secured by the facility, and payments will be made exclusively from the revenues of the facility, which will be used to make the debt service payments on the bonds. The annual blended interest rate ranges between 3.3% and 4.1% during the term of the note. The effective rate of the note, net of the estimated interest earned on the debt service reserve fund and amortization of the note discount and loan issuance costs, is approximately 5.0%, and the note matures in October 2014.

Net cash of $45.7 million was used in investing activities during the year ending December 31, 2004, as compared to $58.6 million used in investing activities during the year ended December 31, 2003. During the 2004 period, the Company’s uses of cash for investing activities included $25.9 million used for the payment of construction costs related to the South Texas Detention Complex and the Northwest Regional Detention Center and capital improvements at other new facilities. Uses also included the capitalization of interest in the amount of $1.1 million, and $3.0 million for the purchase of property and equipment at existing facilities. Additional cash provided by the bond issuance related to the South Texas Detention Complex project was invested, and held as non-current restricted cash and will be used to fund construction costs of the project. In the comparable period for 2003, $59.5 million in cash was used to purchase the land and make payments for construction and design costs relating to the Northwest Regional Detention Center, to make investments of restricted cash and to purchase of property and equipment at existing facilities. The funds held in 2003 as long-term restricted cash were used for the construction costs of the Northwest Regional Detention Center.

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Tabular Disclosure of Contractual Obligations

Registrant’s known contractual obligations as of December 31, 2004 (in thousands):

Treasury Stock

On October 20, 2000, the Company announced that its Board of Directors had authorized a share repurchase program of up to $10.0 million. No shares were repurchased in 2004, 2003 or 2002.

Critical Accounting Policies

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company routinely evaluates its estimates based on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. A summary of our significant accounting policies is described in Note A to our financial statements included herein. The significant accounting policies and estimates, which we believe are the most critical to aid in fully understanding and evaluating our reported financial results, include the following:

Revenue Recognition and Accounts Receivable

Facility management revenues are recognized as services are provided based on a net rate per day per inmate or on a fixed monthly rate. Certain revenues are accrued, based on population levels or other pertinent available data. Subsequent adjustments to revenue are recorded when actual levels are known or can be reasonably estimated.

The Company extends credit to the government agencies with which it contracts and other parties in the normal course of business. Further, the Company regularly reviews outstanding receivables, and provides estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, the Company makes judgments regarding its 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 be required. As of December 31, 2004 accounts in dispute with two agencies total approximately $2.5 million, of which no reserves have been recognized. While the Company expects to collect fully on these accounts, the ultimate outcome could vary from this estimate.

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Asset Impairments

As of December 31, 2004, the Company had approximately $92.3 million in long-lived property and equipment, assets under capital leases, and construction in progress. Additionally, the Company has assets held for sale of approximately $6.7 million. The Company evaluates the recoverability of the carrying values of its long-lived assets, other than intangibles, when events suggest that impairment may have occurred. In these circumstances, the Company utilizes estimates of undiscounted cash flows or other measures of fair value, to determine if impairment exists. If impairment exists, it is measured as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. During the year ended December 31, 2004, the Company recorded and included in discontinued operations impairment charges of $2.9 million associated with the assets of its discontinued Tarkio, Missouri and Canadian, Texas facilities. Included in continuing operations in 2004 is an impairment charge of $1.5 million associated with the assets of the Colorado County Juvenile Facility in Eagle Lake, Texas. No impairment of assets was recognized during 2003.

Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements are carried at cost. Depreciation of buildings is computed using the straight-line method over twenty and thirty year periods. Depreciation of equipment is computed using the straight-line method over a five-year period. Leasehold improvements are amortized over the life of the asset or the applicable lease term. Amortization of certain improvements to managed facilities may exceed the term of the management contract, including renewal options, based on management’s estimate of expected contract renewals. For tax purposes accelerated methods of depreciation are utilized. Repairs and maintenance costs are expensed as incurred.

Workers’ Compensation Insurance Reserves

The Company maintains insurance policies to indemnify the Company for excessive individual and aggregate workers’ compensation costs. However, these policies include large individual and aggregate deductibles for which the Company is liable. As a result of workers’ compensation risks inherent in our industry, we have incurred significant workers’ compensations costs. We estimate our total liability on an undiscounted basis as the total probable ultimate outcome that will be incurred by the Company and paid to, or on behalf of, the claimant over their life expectancy. We base this estimate upon the advice of our insurer/third party administrator and upon our review of claimant file information maintained by our insurer/third party administrator. While we estimate claims reserves based on their probable outcome, we have experienced changes in estimated claims during 2004 and 2003, resulting in workers’ compensation costs of approximately $1.2 million and $1.3 million that were not included in our estimated reserves prior to the beginning of those periods. As a result of these changes in estimate and increasing costs in general, we have instituted additional safety and back to work programs that we believe will reduce our ultimate costs incurred. As of December 31, 2004 and 2003, we recognized $2.8 million for both years of workers’ compensation claims liabilities for claims not yet paid. Under our insurance contracts currently in place, the maximum amount of incurred but unpaid claims for which we could be responsible amounts to $10.3 million as of December 31, 2004.

We use input from our insurance carriers, insurance brokers, and third party administrators to develop, monitor, and improve our insurance programs and assess our insurance coverage and costs, safety, incentive, and back to work type programs, and assist with our overall adequacy of the individual and aggregate claim reserves. In 2005, we anticipate that we would involve an independent actuary to further assist us in our ongoing assessment of the adequacy of our insurance coverage and review of our claim history for, among other things, trends, impacts of cost controlling measures, and the sufficiency of our insurance reserves. The results of the actuary’s review, among other things, could suggest that our reserves require further refinement, either an increase or a decrease, of the reserve amounts, which would be reflected in 2005’s results of operations as a change in estimate.

Income Taxes

Deferred tax assets and liabilities are recognized as the difference between the book basis and tax basis of assets and liabilities. In providing for allowances for deferred taxes, the Company considers current tax regulations, 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 deferred tax assets and liabilities may be required. The Company estimates that it will have sufficient taxable income during the next five years to fully utilize its net deferred tax assets. To calculate the tax provision (benefit) the Company uses an estimated effective tax rate. This effective rate is based on the federal and state statutory rates as adjusted by various non-deductible items, which may cause the income tax from continuing operations to vary from the statutory rate. During 2004, the tax provision exceeded income before taxes due principally to non-deductible items and the relatively low amount of income before income tax.

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Loss Contracts

The Company evaluates the future profitability of its contracts when events suggest that the contract may not be profitable over its remaining term. The Company measures the estimated future losses at the present value of the estimated net cash flows over the remainder of the contract from the time of measurement, with consideration first given to asset impairments as discussed above. For 2004 and 2003, the Company did not recognize any loss contract costs. However, in December 2003 the Company recorded a loss contract recovery of $896,000, which represented an excess of reserve over actual costs, and is included in the loss from discontinued operations for 2003. No reserve remained at December 31, 2003.

Discontinued Operations

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company has recorded the results of operations of components that have either been disposed of or are classified as held for sale under discontinued operations on the income statement. The Company defines components that have been disposed of as facilities not operating under a management agreement where the Company has unilaterally terminated its various contracts with sending agencies or has otherwise ceased operations. In these disposal situations, the Company typically has a significant facility investment or on-going lease obligations. In situations where management agreements with a principal agency are terminated in accordance with the contract provisions, whether or not subject to renewal or proposal and the Company has no significant facility investment or material exit costs, the results of operations of these facilities continue to be recorded in continuing operations. In the event that a termination of a management agreement involves material exit costs or where a significant asset is owned or leased, discontinued operations may be reported based on management’s assessment of the transaction. (See Note N – Discontinued Operations in the accompanying financial statements)

Commitments and Contingencies

As more fully discussed under “Legal Proceedings” in Item 3, the nature of the Company’s business results in numerous claims against the Company for damages allegedly arising from the conduct of its employees and others. Additionally, the Company is subject to audits of contracting agencies and other contingencies. Commitments and contingencies are evaluated and assessed individually to determine whether a liability has been incurred or whether disclosure is otherwise required.

The Company recognizes legal costs related to the defense or assertion of legal claims when the related services have been rendered. Legal costs that are associated with specific facility operations are recognized in facility operating expenses. Other legal costs are recognized in general and administrative expense.

During 2004, the Company expensed $1.0 million for estimated current and future legal settlements compared to $1.6 million accrued for during 2003. The legal settlement reserve balance is $1.5 million as of December 31, 2004 and December 31, 2003. Changes in estimates associated with the final resolution of these claims could significantly affect our results of operations in future periods. (See Note Q – Commitments and Contingencies in the accompanying financial statements)

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)). Statement 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. The cost will be measured based on the fair value of the instruments issued. Statement 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Statement 123(R) replaces statement 123, Accounting for Stock-Based Compensation and supersedes Opinion 25, Accounting for Stock Issued to Employees. As originally issued in 1995, Statement 123 established as preferable the fair-value-based method of accounting for share based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in Opinion 25 as long as the footnotes to the financial statements disclosed what net income would have been had the preferable fair-value-based method been used. The Company will be required to apply Statement 123(R) as of the first interim reporting period that begins after June 15, 2005, and the Company plans on using the modified prospective method, effective July 1, 2005. The Company is currently evaluating the impact of Statement 123(R). An illustration of the impact on our net income and earning per share is presented in Note A - item 13 “Stock Based Compensation” of this section, assuming, the Company elects to account for its employee stock compensation plans using the fair value based method of accounting defined in SFAS No. 123, using the Black-Scholes methodology. We have not yet determined whether we will use the Black-Scholes method in our adoption of Statement 123(R).

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In November 2004, the FASB Emerging Issues Task Force (EITF) released Issue No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations.” To qualify as a discontinued operation, paragraph 42 of Statement 144 requires that the cash flows of the disposed component be eliminated from the operations of the ongoing entity and that the ongoing entity not have any significant continuing involvement in the operations of the disposed component after the disposal transaction. EITF 03-13 provides guidance on how to interpret and apply the criteria in paragraph 42A (elimination of cash flows) and paragraph 42B (no significant continuing involvement) of Statement 144. EITF 03-13 is effective for all periods beginning after December 15, 2004. Previously reported operating results related to disposal transactions initiated within an enterprise’s fiscal year that includes November 30, 2004 (date that the consensus was ratified) may be reclassified to reflect the consensus. The Company does not believe that the adoption of EITF 03-13 will have a significant effect on its financial statements.

RISK FACTORS

Investors should carefully consider the following factors that may affect future results, together with the other information contained in this Annual Report on Form 10-K, in evaluating the Company before purchasing its securities. In particular, prospective investors should note that this Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and that actual results could differ materially from those contemplated by such statements. See “Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995” on page 3 of this Annual Report on Form 10-K. The factors listed below represent certain important risks the Company believes could cause such results to differ and are not intended to represent a complete list of the general or specific risks that may affect the Company. It should be recognized that other risks may be significant, presently or in the future, and the risks set forth below may affect the Company to a greater extent than indicated.

DECREASES IN OCCUPANCY LEVELS AT OUR FACILITIES OR RISING COSTS MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

While the non-personnel cost structures of the facilities we operate are relatively fixed, a substantial portion of our revenues are generated under facility management contracts with government agencies that specify a net rate per day per inmate or a per diem rate, with no minimum guaranteed occupancy levels. Under this per diem rate structure, a decrease in occupancy levels may have a material adverse effect on our financial condition, results of operations and liquidity. We are dependent upon the governmental agencies with which we have management contracts to provide inmates for, and maintain the occupancy level of, our managed facilities. We cannot control those occupancy levels. In addition, our ability to estimate and control our costs with respect to all of these contracts is critical to our profitability.

THE NON-RENEWAL OR TERMINATION OF OUR FACILITY MANAGEMENT CONTRACTS, WHICH GENERALLY RANGE FROM ONE TO THREE YEARS, COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

As is typical in our industry, our facility management contracts are short-term, generally ranging from one to three years, with renewal or extension options as well as termination for convenience clauses in favor of the contracting governmental agency. Many YSI contracts renew annually. Additionally, the Company received approximately 36.7% of its 2004 consolidated revenue from three agencies: Florida and Georgia Department of Juvenile Justice and Arizona Department of Corrections. Our facility management contracts may not be renewed or our customers may terminate such contracts in accordance with their right to do so. The non-renewal or termination of any of these contracts could materially adversely affect our financial condition, results of operations and liquidity, including our ability to secure new facility management contracts from others.

A contracting governmental agency often has a right to terminate a facility contract with or without cause by giving us adequate notice. At times a contracting government agency may notify us that we are not in compliance with certain provisions of a facility contract. Our failure to cure any such noncompliance could result in termination of the facility contract, which could materially adversely affect our financial condition, results of operations and liquidity. If a governmental agency does not receive necessary appropriations, it could terminate its contract or reduce the management fee payable to us. Even if funds are appropriated, delays in payments may occur which could have a material adverse

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effect on our financial condition, results of operations and liquidity. We currently lease many of the facilities that we manage. If a management contract for a leased facility were terminated, we would continue to be obligated to make lease payments until the lease expires.

OUR ABILITY TO SECURE NEW CONTRACTS TO DEVELOP AND MANAGE CORRECTIONAL DETENTION FACILITIES DEPENDS ON MANY FACTORS WE CANNOT CONTROL.

Our growth is generally dependent upon our ability to obtain new contracts to develop and manage new correctional and detention facilities. This depends on a number of factors we cannot control, including crime rates and sentencing patterns in various jurisdictions and acceptance of privatization. Certain jurisdictions recently have required successful bidders to make a significant capital investment in connection with the financing of a particular project, a trend which will require the combined company to have sufficient capital resources to compete effectively. We may not be able to obtain these capital resources when needed.

FUTURE ACQUISITIONS MAY INVOLVE SPECIAL RISKS, INCLUDING POSSIBLE ADVERSE SHORT-TERM EFFECTS ON OUR OPERATING RESULTS, DIVERSION OF MANAGEMENT’S ATTENTION FROM EXISTING BUSINESS, DEPENDENCE ON KEY PERSONNEL, UNANTICIPATED LIABILITIES AND COSTS OF AMORTIZATION OF INTANGIBLE ASSETS. ANY OF THESE RISKS COULD MATERIALLY ADVERSELY AFFECT US.

The Company also intends to grow through selective acquisitions of companies and individual facilities although there are no current plans or agreements to acquire any other companies. We may not be able to identify or acquire any new companies or facilities and we may not be able to profitably manage acquired operations. Acquisitions involve a number of special risks, including possible adverse short-term effects on our operating results, diversion of management’s attention from existing business, dependence on retaining, hiring and training key personnel, risks associated with unanticipated liabilities, and the costs of amortization of acquired intangible assets, any of which could have a material adverse effect on our financial condition, results of operations and liquidity.

OUR ABILITY TO OBTAIN FINANCING WHEN A CONTRACT REQUIRES THAT THE COMPANY CONSTRUCT A NEW FACILITY IN ORDER TO MEET THE NEEDS OF THE CONTRACT AND CONSTRUCT THE FACILITY WITHIN THE ESTABLISHED CONSTRUCTION BUDGET

Certain new contracts awarded to the Company require that the Company construct a new facility to meet the needs of the contract. In the past, the Company has relied upon bank financing and arrangements with government entities to finance the construction of new facilities. However, the Company may be unable to obtain this financing, due to borrowing limitations, or changes in governmental policies that have allowed certain types of financing in the past. The result of any of these events might compel the awarding agency to look for an alternative provider. Additionally, if the Company were not able to construct the facility within the established construction budget, the cost overruns could cause the Company to use cash on hand to fund the cost overruns, which may have a material adverse affect on the Company’s cash flows.

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 movement toward privatization of correctional and detention facilities has encountered resistance from certain groups, such as labor unions and others that believe that correctional and detention facility operations should only be conducted by governmental agencies. Political changes or changes in attitudes toward private correctional and detention facilities management in any market in which we will operate could result in significant changes to the previous acceptance of privatization in such market and the subsequent loss of facility management contracts. Further, some sectors of the federal government and some state and local governments are not legally permitted to delegate their traditional operating responsibilities for correctional and detention facilities to private companies.

OPPOSITION TO FACILITY LOCATION MAY ADVERSELY IMPACT THE COMPANY’S ABILITY TO DEVELOP SITES FOR NEW FACILITY LOCATIONS.

The Company’s success in opening new facilities is dependent in part upon its ability to obtain facility sites that can be leased or acquired on economically favorable terms. Some locations may be in or near populous areas and, therefore,

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may generate legal action or other forms of opposition from residents in areas surrounding a proposed site. Certain facilities are already located in or adjacent to such areas and, in one instance, the Company abandoned its plan to expand a facility after consulting with community leaders who raised concerns about the expansion. There can be no assurance the Company will be able to open new facilities or expand existing facilities in any particular location.

OUR FAILURE TO COMPLY WITH UNIQUE GOVERNMENTAL REGULATION COULD RESULT IN MATERIAL PENALTIES OR NON-RENEWAL OR TERMINATION OF OUR FACILITY MANAGEMENT CONTRACTS.

The industry in which we operate is subject to extensive federal, state and local regulations, including education, health care and safety regulations, which are administered by many regulatory authorities. Some of the regulations are unique to our industry, and the combination of regulations we face is unique. We may not always successfully comply with these regulations, and failure to comply can result in material penalties or non-renewal or termination of our facility management contracts. Our contracts typically include extensive reporting requirements, and supervision and on-site monitoring by representatives of the contracting governmental agencies. Corrections officers and youth care workers 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 businesses also are subject to operational and financial audits by the governmental agencies with which we have contracts. The outcomes of these audits could have a material adverse effect on our business, financial condition or results of operations.

DISTURBANCES AT ONE OR MORE OF OUR FACILITIES COULD RESULT IN CLOSURE OF THESE FACILITIES BY THE RELEVANT GOVERNMENTAL ENTITIES AND A LOSS OF OUR CONTRACTS TO MANAGE THESE FACILITIES.

An escape, riot or other disturbance at one of our facilities could have a material adverse effect on our financial condition, results of operations and liquidity. Among other things, the adverse publicity generated as a result of any such event could have a material adverse effect on our ability to retain an existing contract or obtain future ones. In addition, if such an event occurs, there is a possibility that the facility where the event occurred may be shut down by the relevant governmental entity. A closure of any of our facilities could have a material adverse effect on our financial condition, results of operations and liquidity.

INSURANCE COVERAGE MAY BECOME INADEQUATE OR UNAVAILABLE TO COVER POTENTIAL LIABILITY RELATED TO MANAGEMENT OF CORRECTIONAL AND DETENTION FACILITIES OR ITS COSTS MAY ADVERSELY AFFECT RESULTS OF OPERATIONS.

Our management of correctional and detention facilities exposes us to potential third-party claims or litigation by prisoners or other persons for personal injury or other damages, including damages resulting from contact with our facilities, programs, personnel or students (including students who leave our facilities without our authorization and cause bodily injury or property damage). Currently, we are subject to actions initiated by former employees, inmates and detainees alleging assault, sexual harassment, personal injury, property damage, and other injuries. In addition, our management contracts generally require us to indemnify the governmental agency against any damages to which the governmental agency may be subject in connection with such claims or litigation. We maintain insurance programs that provide coverage for certain liability risks faced by us, including personal injury, bodily injury, death or property damage to a third party where we are found to be negligent. There is no assurance, however, that our insurance will be adequate to cover potential third-party claims. In addition, we are unable to secure insurance for some unique business risks, which may include, but not be limited to, some types of punitive damages in states where it is prohibited by law.

Committed offenders often seek redress in federal courts pursuant to federal civil rights statutes for alleged violations of their constitutional rights caused by the overall condition of their confinement or by specific conditions or incidents. We may be subject to liability if any such claim or proceeding is made or instituted against us or the state with which we contract or subcontract.

The Company continues to incur increased costs for insurance. Workers’ compensation and general liability insurance represent significant costs to the Company.

STAFF RECRUITMENT DIFFICULTIES MAY IMPACT OPERATIONS.

Many of our facilities are located in areas where there are smaller populations and/or where there are more jobs than available workers. Our choice of employees is further limited by our drug free workplace status, and licensure and other policy prohibitions against hiring individuals with past criminal histories. However, many of our contracts require the

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Company to have certain numbers and certain types of employees on duty at the facility at all times. Although the Company makes rigorous efforts to recruit and retain a sufficient work force, it is sometimes unable to achieve adequate staffing without significant overtime expense. This additional expense may adversely effect the Company’s results.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company does not hold any investments or financial instruments that are subject to market risk. As discussed above in Item 7, “Liquidity and Capital Resources,” borrowings under the Company’s current line of credit established under the Credit Agreement are repayable at variable rates of interest and are therefore exposed to fluctuations in interest rates. There are no outstanding borrowings under the Company’s line of credit. The Company’s note payable with respect to the Northwest Regional Detention Center and its other note payable accrue interest at fixed rates of interest.

The table below presents the principal amounts, weighted average interest rates, fair value and other terms, by year of expected maturity, required to evaluate the expected cash flows and sensitivity to interest rate changes. Actual maturities may differ because of prepayment rights.

Item 8. Financial Statements and Supplementary Data

The information required by this item is contained on Pages F-1 thru F31- hereof.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable

Item 9A. Controls and Procedures

Under the supervision and with the participation of our management, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, we concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our filings with the SEC.

We have also evaluated our internal controls for financial reporting, and there have been no changes that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Any system of disclosure controls and internal controls, even if well-conceived, is inherently limited in detecting and preventing all errors and fraud and provides reasonable, not absolute, assurance that its objectives are met. The design of a control system must reflect resource constraints. Inherent limitations include the potential for faulty judgments in decision-making, breakdowns because of simple error or mistakes, and circumvention of controls by individual acts, collusion of two or more people, or management override of controls.

We included certifications of our Chief Executive Officer and our Chief Financial Officer as exhibits to this report as required by Section 302 of the Sarbanes-Oxley Act of 2002. The foregoing information concerning our evaluation of disclosure controls referenced in the Section 302 certifications should be read with the Section 302 certifications to more completely understand them.

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Item 9B. Other Information

In December 2004, the Company determined that the carrying amount of the net assets identifiable with its Colorado County Juvenile Facility located in Eagle Lake, Texas was not recoverable and exceeded its fair value. Based on FASB 144, “Accounting for the Impairment or Disposal of Long-lived Assets,” the Company recognized an impairment of $1.5 million on these net assets.

PART III

The information required by Items 10, 11, 12, and 13 of Form 10-K will be contained in, and is incorporated by reference from, the proxy statement for the Company’s 2005 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report.

Item 14. Principal Accountant Fees and Services

The aggregate fees billed or billable by Grant Thornton, LLP for professional services in connection with the audit of the Company’s 2004 and 2003 annual financial statements and review of the Company’s 2004 and 2003 quarterly financial statements were approximately $270,000 for 2004 and $205,000 for 2003.

The aggregate fees billed by Grant Thornton, LLP for assurance and related services in 2004 and 2003 that were reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees” above were approximately $45,000 and $46,000, respectively. The fees billed in 2004 and 2003 consisted primarily of an audit of financial data as required under an operating agreement, and the audits of the Company’s 401(k) plans.

The aggregate fees billed by Grant Thornton, LLP in 2004 and 2003 for tax compliance, tax advice and tax planning were approximately $60,000 and $84,000, respectively.

The aggregate fees billed during 2004 and 2003 for services rendered by Grant Thornton, LLP, other than the services described in the preceding paragraphs, were approximately $0 for 2004 and 2003.

In accordance with Section 10A(i) of the Securities Exchange Act of 1934, before Grant Thornton LLP is engaged by the Company, the engagement is approved by the Company’s audit committee. With respect to the provision of services other than audit, review, or attest services, pre-approval of the audit committee of the Company is required prior to the start of field work.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

The following documents are filed as part of this report:

The consolidated financial statements of the Company as at December 31, 2004 and for the year period then ended are included on pages F-1 through F-31 of this Form 10-K.

Exhibits: The following exhibits are incorporated by reference into this Form 10-K or filed with this Form 10-K:

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 31, 2005

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.