CoreCivic Inc (CXW) 2004 Q3 法說會逐字稿

Welcome to the Corrections Corporation of America 2004 Third Quarter Conference Call. Before we begin, let me remind today's listeners that this conference call contains statements that are forward looking as defined within the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from the statements made.

Factors that could cause operating and financial results to differ are described in the company's Form 10-K, as well as other documents filed with the Securities & Exchange Commission. These factors include, but are not limited to, growth of private corrections and detention industry, the Company's ability to obtain and maintain facility management contracts, and general economic market conditions. The Company does not undertake any obligation to publicly release the results of any revisions to the forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrences of unanticipated events.

Participating in today's call will be the Company's Chairman of the Board, William Andrews; President and Chief Executive Officer, John Ferguson; and its Chief Financial Officer, Irv Lingo. I would now like to turn the conference over to Mr. Andrews. Go ahead, sir.

Thank you, and good afternoon, everyone. Welcome to our third quarter earnings call, and as we have in the past, Irv will give you the financial review, John will give you an update on operations and marketing, and then I'll try to summarize what's been discussed after the question and answer period. Also with us is our Controller David Garfinkle. So with that, I'll turn the meeting over to Irv.

Thank you, Bill. I'll get right to the numbers and then John, as Bill said, will give a business development update comment to the extent people are interested on the effects of the election, etcetera. Going right to the numbers for the three months ended September 30th; we reported net income available to common shareholders of 17 million. That was $0.43 a share, compared to net income of 18.2 million, or $0.47 a share last year. Please remember that the results of last year did not include a provision for income taxes.

As stated in our press release, the third quarter results did include an income tax benefit of approximately 1.4 million, and that resulted from a change in estimated income taxes associated with certain financing transaction completed last year. We estimate that the change in tax rate amounted to approximately $0.03 a share this quarter.

Results for the third quarter of last year did not include again a provision for income taxes, and did include a charge of approximately $2.6 million, associated with the Company's debt refinancing transactions completed during August of last year. We estimate that net income available to common stockholders for last year's third quarter, excluding the refinancing charge and adjusted for an income tax provision using a federal tax rate of about 40%, would have been 12.3 million, or $0.32 diluted share. So to compare apples-to-apples, our third quarter earnings per diluted share for this year, excluding the impact of the $0.03, represents a 25% increase over estimated third quarter last year earnings, again as adjusted and as taxed.

Operating income for Q3 of this year increased to 43 million, that's compared with 40.8 million last year. Adjusted EBITDA for the quarter increased to 56.8 million and that was compared to 54.1 million for the same period last year. Our same store facility EBITDA for this quarter increased approximately 4.3% over the prior year.

Adjusted free cash flow was up 9% to 27.9 million during the current quarter, that's compared with 27.3 million generated in the same period last year. And we achieved the increase in adjusted free cash flow despite an increase in maintenance CapEx and technology expenditures over the same period last year.

As we mentioned in last year's conference call, we expect that most of the Company's -- or excuse me, last quarter's conference call, that most of the Company's adjusted free cash flow for the next year to two years will be targeted for facility expansion and development to meet current and anticipated needs of our customers.

Turning to operations, total revenue for the quarter increased 11% to 292.5 million, as total compensated man-days increased to 5.8 million from 5.1 million last year. Compensated occupancy for the quarter increased to 94.9% and that was versus 93.7% last year. Revenue per man-day decreased from $50.82 last year to $48.98 during the current quarter, and that is primarily the result of lower per diems associated with the Texas contract award we received in January.

We've mentioned in each of our last two calls that the Texas contracts are managed only and managed only business typically contains lower per diems and lower margins and we think that's fine given the fact that there's no capital outlay required to procure that business. So again, a decline in revenue per man-day was expected and was essentially the result of a change in business mix.

Looking at operating costs, they decreased to $37.05 a day from $38.12 last year. Fixed costs decreased to $27.88 a man-day against $28 last year, that's a decrease of $0.12 a man-day. Salaries and benefits, which make up over 85% of fixed costs were down $0.58 a man-day and that's the result, and we talk about this from time to time, that's a result of higher occupancy levels and thus we're starting to really leverage our fixed cost.

Secondly, the other contributing factor was that salary levels associated with the new Texas contracts are lower than typical company averages. So that's really the story behind the most of the decrease in fixed costs. There were some offsetting factors and those were some slight increases in utilities, property taxes and repairs and maintenance.

Variable costs also declined a $9.17 a day that was from $10.12 a day last year, that's a decrease of $0.95. We've registered decreases in several categories at variable expense but most notably in the legal area where expenses declined $0.80 a man-day and inmate medical, which was down $0.22 per man-day.

Legal expense varies from quarter-to-quarter, that's based on incidence. And our experience in Q3 of this year was improved over last year's third quarter. The decline in inmate medical expense on a per day basis was primarily attributable to the fact that the Texas Department of Criminal Justice retains responsibility for providing medical under the new managed-only contracts.

So, in sum, we added a significant number of man-days without the associated medical costs. The end result was that operating margins per man day actually declined $0.77 from last year's third quarter to $1.93 a day from $12.70 and our margin percentage declined to 24.4% from 25%. Again the major reason underlying the reduction was a change in business mix related to the Texas contract.

General and administrative expenses increased to 12.3 million from 9.8 million last year, and we're looking at a run rate now for 2004 in the neighborhood of $47 million. In prior calls, I've discussed the higher levels of expenditures we're making in headquarters personnel in the areas of IT, business development, and human resources. Again, we believe these investments should result in improved operating margins at the facility levels.

Overall, I believe it was a solid quarter, pretty much as expected and with that I will turn to our outlook. And I will begin by saying that like many companies, we're in the midst of our budget season, and are not at this time in a position to provide guidance with respect to 2005. We do expect to provide 2005 guidance in our fourth quarter call, and that should take place in early February.

With respect to the remainder of 2004, fourth quarter earnings per share are expected to be in the range of $0.39 to $0.41, and that would result in full year EPS in the range of $1.54 to $1.56, again after adjusting for the 3-cent tax item discussed earlier.

With respect to CapEx for the full year, we expect to invest approximately 134.6 million, consistent with approximately 84.2 million in prison construction and expansions, 29.8 million in maintenance CapEx and 20.6 million in information technology. One last comment on the maintenance CapEx, we've traditionally told people that we expect on a recurring basis our maintenance CapEx outside of information technology should be in the $20 million area, we did have a couple of anomalies in the number this year.

One of them was who required to expand some bathrooms and do some kitchen work at one of our facilities under a BOP contract, again that was an unusually large affair. And the second item was we spent several million dollars, we're having actually our corporate offices this year. So, again we wouldn't expect those to be recurring. We think that that $20 million on a going forward basis would be more representative of a run rate. And with that I will turn the call over to John for a business development update.

The third quarter business activity was light by comparison. Of course, we had two facilities which we have let contracts to come to an end, and both of these were contracts in which we were losing money, so they're a net positive pickup. In addition to that, we announced that we entered into a new contract with the state of Mississippi to house inmates in our Tallahatchie County, Mississippi facility. And also we saw an increased utilization by the state of Washington providing another 113 inmates, which we have located in our Prairie facility in Appleton, Minnesota.

With that, we only saw a growth of inmate population net of the southern Nevada and Tall Trees bed capacity of about 451 inmates, which means that our available occupancy is pretty much where it was 90 days ago, I think we reported some 8,200 available beds. Once we complete some of our expansion and we're now looking at about 7,900 with the effect of the expansions that we completed.

Although of note is that during the third quarter we had the rated capacity of our Prairie facility in Appleton, Minnesota raised to 1550. That's an addition of 212 beds in that facility that we can now utilize. And our facility in the District of Columbia, the capacity rated capacity on that has now been authorized for 1500 beds and that adds 634 additional beds to our capacity. And those new beds are actually in the 7900 available beds we have out there.

To talk about the current state of business development and the things that we have going on, remind everyone of the announcements we've made over the last several quarters about expansions. We have now brought on line the beds, 224 beds at Florence, 256 beds at Leavenworth, half of the 494 beds at Houston, and as each of you can see in our supplement those facilities are all currently running above 100%, so we'll see that those beds will be utilized fairly quickly and also then we'll allow additional growth by the federal customers in those locations.

In the month of October, we realized the minimum target we had set for ourselves for opening the Northeast Ohio facility, and we have averaged over 300 inmates in that facility, and starting to see an appreciation for the utilization of an area of a facility like that and logistics. Our Lake City expansion should be completed sometime in March. That's 543 beds to -- that youthful offender program we run.

We also feel that over the next several quarters that we'll start to see some continued utilization of the Prairie facility in Appleton, Minnesota, by Minnesota, and we also of course, expect to continue to see the decline in the Wisconsin inmates, but the Minnesota usage of those beds should more than offset that and actually be a net growth. And then part of our available beds we think that we should see utilization -- potential utilization by Arizona in the Diamondback facility, as well as potential utilization for some of the inmates we lost at the -- in our Colorado facility. So there's some 2800 beds that we feel that are now available and have the potential of being used by our current customers.

Just to highlight again, the current procurement that are out there that still have not been dealt with, Arizona, 1000-bed in-state, we're sensing that that may be coming close to a decision. We still have the 2800-bed US Marshal's in the Southern Texas, and the 1000-bed in the BOP.

I'll be happy to answer questions about the effect of the election, but one of the things that I think is beneficial is that with the continuation of the current administration, that removes some of the unknown and potentially could have slowed those two procurements and now I think it'll kind of be business as usual and we'll move on with that. The 1,000-bed procurement for New Hampshire is still there although, Governor Benson in New Hampshire was defeated, and I would say that that would probably impact that decision and it might be changed or definitely slowed.

Shelby County, Tennessee, just recently we released an RFP for up to 5,000 beds. That will be a management of their jail population as well as the -- what's called locally sentenced felons that they house for the state of Tennessee. And this potentially could be -- a response to this is to build a new annex for the Shelby County jail. Our discussions and negotiations with Dixon County, Tennessee continue, and that's for 600 beds. And then Montgomery County, Texas recently released an RFP for the management of 1,150 beds. Kansas recently released an RFP for 250 beds, and Texas has an RFP out for up to 700 additional beds.

To remind once again, some of the activity that we see as coming, that Florida authorized a 1,280-bed facility, and we think that RFP should be issued some time in the next 60 to 90 days. The Immigration and Customs Enforcement recently issued a pre-solicitation for 1,000 beds within 75 miles of Florence, Arizona, which of course is where we have three facilities currently. And then we understand that there's continued discussion about dealing with the president's long-range of a year ago of some -- up to 4,500 beds to be acquired by the Federal Bureau of Prisons.

Our discussions with Montana or Montana's need for additional beds continued, and as I discussed, we've been in discussions with them. Of course, they will have a new governor based on this election.

And then Smith County, Texas has issued an RFI, request for information or RFQ, one of those two, for the management of their facility and the expansion of their facility, to house up to 700 beds. And then, as I mentioned last time, the State of Utah has a RFQ out there to gather information on 550 beds, and they also will have a new governor here shortly. So those are the kinds of things that we have going on. Again, some of those we feel that we're in a very competitive position because of our availability of beds.

And then the last thing, I'd like to talk about, which we have disclosed on our website a couple of months ago, that we were considering how to deal with the continued needs by the federal customers at our facilities in Arizona, and that also the continued need by state customer that we have in Arizona, and we expressed that we had substantial, but not totally made a commitment to build a new 1,590-bed facility in Arizona, actually, it'll be adjoining the facility we have in Eloy. And I'd say right now that you should anticipate that unless something changes, that we would probably break ground on that facility in February of 2005, and bring it online in March of 2006.

One other note of interest, of course, we announced the resignation of the chief operating officer about 90 days ago. I'd like to disclose that I have taken this opportunity to seek some guidance from some correctional folks that have ties with the company. Mike Quinlan, our prior Chief Operating Officer, and was Retired Director of the Federal Bureau of Prison, Don Huttu is the founder of the company, but is also State Director for the States of Virginia and Arkansas. And then, we have an advisory board made up of correctional professionals as to what the structure for the operational side of this business needs to be going forward. I am close to, I think, reaching decisions on how I think the executive management of this company would be structured, and that would lead me to begin to make some choices as to the individual or individuals that I feel might be necessary to promptly lead the company.

So with that, I would open it up for questions and answers.

Thank you, sir. Ladies and gentlemen, at this time we will begin the question-and-answer session. If you do have a question today, please press the "star" followed by the "one" on your pushbutton phone. If you would like to decline from the polling process, please press "star" followed by the "two." You will hear a three-tone prompt acknowledging your selection and your questions will be polled in the order that they are received. If you are using speaker equipment today, you will need to lift the handset before pressing the numbers. One moment, please, for our first question.

And our first question comes from Jim Macdonald with First Analysis. Please go ahead.

Good afternoon, guys.

Hi. How are you Jim?

Good. Could you talk a little bit -- I think it was mentioned in the press release about an interest rate or a bank line change, and kind of maybe tie out your debt level with the interest on the balance sheet, I mean -- or interest on the income statement, there seem to be some capitalized interest or something there?

Yes, we -- well, I don't recall anything in the press release. We have -- is it supplemental on the website at this point? The supplemental, I guess, has hit the website, so I guess you have that, Jim?

Yes.

Is that what you're looking at?

Yes, I've seen that, but your interest expense was down and your debt level is the same and your interest rate is up.

It's capitalized interest.

Can you tell us kind of the magnitude and how that's going to trend?

I would say that it's going to trend a little bit lower. We have brought -- we brought a number of facilities on -- as John said, we brought a number of our expansion facilities online this quarter. The largest facility for which we're still capitalizing interest is the Stewart facility. We expect that to be completed probably some time during the first quarter of next year.

And then Jim -- and then after that the question is, do we break ground on the new Pinole (ph) County site, as John said, there are a few issues we need to resolve, real estate type issues. We expect to do that. And the question is, how does that draw schedule work up? So I don't have an answer for you today. All I can tell you is that, I just don't have an analysis in front of me right now. But the last piece of Stewart -- and then what happens after that is, you're going to see it really depend on draw schedules for things if we move forward on Dixon, if we move forward on Pinole County, if we're awarded the Arizona contract and we start building there. So...

OK. Well, that leads to my second question and it ties together. Can you talk a little about what's happening in Georgia, both for Stewart and for your existing facilities, and kind of a follow-up to the other one as if you don't get a contract for Stewart, will you still start depreciating and taking the interest on to the P&L?

Let me answer the last part, and then I'll let John talk about the prospects for it. The last part is once that facility is completed and ready for occupancy, we need to start depreciating it. It had been stopped at the time John and I got here back in 2000, just because there really wasn't any clear customer boardage . You know, we decided to proceed with that last year, and it was about a $19 million expenditure to get it ready.

So that, regardless of customer, that thing -- that facility will be completed some time, again, we believe during the first quarter of next year, just pick an April 1 date. I don't have a precise date for it. That's anticipated. And then we would be depreciating that full facility and the book value on that would be somewhere around $65 million, and the life span is probably 50 years for the base building, and however you formulate that out.

And on the -- as we've noted last time, there was a procurement outstanding which State of Georgia made the decision to withdraw. There had been a lot of discussions about some ways that the Department of Corrections could lower the budget deficit that they feel that they might have at the end of this fiscal year and then with next year's budget and one of those things, as I discussed, was closing some state-run facilities as well as a private-run facility. We, at the moment, don't see that that action will be taken. It is something that was put out there, but we'll have to believe that that's not -- that was just one of many items gone out there to deal with it.

But they did make the decision not to move forward with the procurement, although, they have some 2,500 inmates in their local jails above what they like as their ideal capacity, which is about 2,000, so they have some 4,500 inmates. So they really continue to need the beds, just they're having to work with the budget issues they have. We have some discussions currently with one of our federal customers that has some needs in that part of the country, and I feel like that those might turn into something that would allow us to utilize the facility for them, but that's about all I can say about it right now.

Jim, one more thing on the capitalized interest. Just looking at a schedule, the Crowley, the Houstons, the things that we brought online, the Leavenworths this quarter, that's a roll-off of capitalized interest or interest that we won't be capitalizing. I'm talking about 500,000 of interest that was capitalized for those projects. So the question then becomes, when do -- I would say in the fourth quarter, without -- just off the top of my head, we're probably 500,000 less in capitalized interest in Q4, and then what happens after that really does depend on the draw schedule that I'm talking about.

Thanks very much. I'll come back.

Sure.

Our next question comes from Barry Stouffer with BB&T Capital Management. Please go ahead.

Good afternoon. I just want to clarify, on the fourth quarter is the tax rate going to be 40%?

Yes. 39.8.

OK.

To be precise.

And just curious about sequential increase in depreciation in the third quarter.

Yep.

That seems larger than you would think, given what you added capacity wise.

A lot of that has to do with one extra day, on the sequential quarter. And then we brought on Crowley, again we brought on Crossroads, and -- but a lot that had to do with -- the extra day alone was about 150,000, I believe. And then, we brought on Crowley that was about $11.5 million in cost that we're depreciating, the Crossroads facility and the other facilities.

Other than the extra day, nothing that would be nonrecurring. So that's a pretty good run rate going forward, then.

Yes.

I would like to make the comment that we're looking at our state tax rates and trying to determine whether we will or will not do anything at this point. So for your benefit right now, I think you use what Irv said, at 40.

Yes.

But I don't want you to think that we aren't looking at all areas of expense in this company. Right now, the rate to use is 39.8.

Just back on the tax rate. Just curious, typically, most companies, if I remember correctly, would change the accrual for the rest of the year rather than a one-quarter catch-up. I'm curious what the rationale was there.

The treatment for this is that, we looked at some expenses that we had capitalized, I guess in prior years from a tax perspective. We went back and relooked at those, and we decided that we could make the election to expense those, primarily financing costs associated with an couple of financings we did last year. That was a change in estimate and it was all recognized in the third quarter, so it has the effect from a GAAP perspective of lowering the third quarter tax rate to about 34 and change. That will have the effect on the overall -- the fourth quarter again will stand on its own at 39.8. You take it all together, in the soup there, and you probably looking at an annual tax rate about 100 basis points less than that 39.8. Say high 38s or 39 for year, because of that item.

OK. And last question from me. You've disclosed in the past few quarters some level of start-up costs in different facilities. Was there anything that was considered nonrecurring in the third quarter along those lines?

Anything that was in the third quarter from a start-up perspective was immaterial.

OK. Thank you.

Sure.

Our next question comes from Patrick Swindle with Avondale Partners. Please, go ahead.

Fine quarter. First of all, the Pinole County potential new build, you mentioned there's issues related to real estate that have caused you to push back a definitive start date for the bills are those zoning related issues or...?

No. I'm sorry, Patrick. What I'm saying there is that, as you move forward with a project like this, there are permits, approvals and things that you've just got to -- things you've got to get done. And we're working hard to get all of those things done. They're the normal process that you would go through. There's not -- nothing has come up that has put it back. We made the decision to go forward. We had to deal with some customer issues, we think that we're all squared away. It's just the normal process that you go through -- we're trying to get a few ducks in a row as it were and again I think that before that happens we expect that it would happen, the anticipated start date would be sometime in February.

Right. The next question, looking at the Shelby County, Tennessee opportunity, had a chance to look at the RFP and in terms of the timeline, I guess it appears to be a rather large jail contract. What would you anticipate the timeline would be on a potential award? And then what should we look at in terms of things that are unique to this contract that might make that drag out longer or may occur more quickly than we might anticipate?

Well, we're a little bit at a disadvantage in that we are in the process of developing our response or responses to think the RFP gives the vendors the latitude to propose some alternatives. And as I mentioned, one of the alternatives could be to build new facilities to deal with a lot of the inmates that are in their downtown jail, which is an aging building.

And so what you might have is the beginning of a contract, I think, say, by July 1, in which you would manage the inmate population, but that you would be bringing on line maybe a new building, which would become more cost-efficient in dealing with a couple of thousand inmates that are in the jail. So it's really early for us to say, what the options that might be looked at. You know, I think we got until February when that is actually due. There's some site visits scheduled, I think, in middle of November. So again, we need time, because we're not exactly sure, how we would propose the solution that I think that they are looking for from vendors.

Then moving on real quick. On the Montgomery, Texas and Kansas and the State of Texas opportunities are those for the management of existing facilities, or would those be to house inmates in your facilities?

Montgomery County, as I understand it, would be to -- well, I'm sorry. Montgomery county would be to manage in their facility, so that -- let me start over. Montgomery County managing their facility. Kansas is looking probably for out of state beds, location, so we would be delivering the beds. And Texas is looking for beds to be delivered. So that would be deliver the beds as well as manage.

OK. And last question and I'll go back in the queue. After the incident with Crowley -- or at the Crowley facility, I know there were some Arizona inmates transferred back into the state, with the expectation that we would begin to see a potentially different class of inmates come back into the Crowley facility. What trends have you seen from an inmate perspective, as of the end of the quarter, with Arizona?

Arizona was in our Diamondback facility. And we have over the last several months, it's been actually kind of a move in and out, because in addition to trying to align the inmate population so that they're all at a consistent level, there will be different nationalities. But they'll all be the same custody level. There has been identified those individuals who participated in the disturbance, who will have to leave because of they in essence have violated an Oklahoma law. And so right now we are just kind of holding steady because we will provide -- we will deliver some 30 inmates back into the Arizona system, they will give us 30 and bring them back. So any growth, that's going to come from this point forward will probably come over the next three to four months and beyond.

Thank you.

Our next question comes from Scott Scheinberger (ph) with Lehman Brothers. Please go ahead.

Hi, thanks, good afternoon.

I know your name, Scott.

That was actually pretty good for it.

Not too bad.

Yes, pretty close. Just a question. Could you give us an update on Connecticut's over capacity issue, and where you guys stand with northeast Ohio. You mentioned, I think, a 300-inmate run rate federal. Just your plans there.

Well, the Connecticut RFP was, I don't think they technically used the word pull. I think they used the word shelf or defered. We know nothing to lead us to believe that, there is any immediate plans to reactivate that and utilize our beds. So we continue to be in dialogue with the state of Connecticut, still trying to understand what their population needs are, right now. But it is something that is hard for us to forecast.

They're not building anything.

Yes, they're not building anything, and we do understand that they might be coming up with space in the state of Connecticut, that really wouldn't be what you call your ideal space, but again, you got a new governor, who I think is trying to figure out what the requirements will be going forward.

On northeast Ohio, we did propose it for the State of Connecticut, we did propose it for the State of New Hampshire, and I think I've described each of those and then it is one of a couple of the total facility that we proposed for the Federal Bureau of Prisons 1,000-bed solicitation, and we don't know anything on that, but Will has mentioned early on is that we're starting to develop some confidence that the logistics benefit that we bring to the housing of assigned inmates is being appreciated by our federal customers, and that that we think there will be continued utilization and growth utilization of those beds.

OK. Great. That's all I have.

...right now.

OK. Appreciate it.

Thank you.

Our next question comes from James Adams (ph) with Scotia Capital. Please go ahead.

Hi, I missed the first couple of minutes if you already addressed this, I apologize. But the G&A costs were up sequentially a little bit and I thought they were elevated a little bit last quarter. Is there anything unusual there? And do you still think the run rate is 45 million or so?

No, no, no. The run rate is about -- right now we're looking at a run rate in the $47 million area. Again, it really continues to relate to, we had business development people, because we're really trying to expand our outreach and generate more business, and we think if you listen to John's presentation, we have a lot of prospects there. We've added a number of people in the HR areas here, trying to address what's 63% of our fixed costs, which are personnel related costs. It's a high turnover business, there's a lot of training involved, it's a business that has its share of workers' compensation.

So again, we're putting some resources in the corporate office to try to deal with our people costs. And then just our IT initiatives. We're adding a lot of people in that area. And then the last thing, I don't have the number in front of me, but like every company, we're dealing with Sarbanes-Oxley costs. I can tell you they're over $1 million. And so that's part of the G&A this year also. And every company is seeing -- getting hit by those, and they seem to just keep trending up. So, we're trying to get our hands around that. So, right now, I'd go with the $47 million run rate for this year.

OK. And for next year would you think that would be a reasonable...

No. It's probably going to be a bit higher next year. I don't have that number yet, but I'd definitely move that up to the 48 to 50 range for next year. And that's just very preliminary, and we'll have a lot more about that in the Q4 call.

OK. And the Crowley reimbursement costs, have those hit the P&L?

The Crowley situation is complicated. There are three parts of that. There's the damage to the facility. We have booked a receivable from the insurance for the property casualty damage. There's a piece of business interruption that is related to our securing the facility and having people there to do that. We've booked something of a receivable for that. And then, the last part are the margins that we lost from inmates that had to be removed or were not given to us. And GAAP will not allow you to book a receivable for that, so there might be some -- I don't have a number to disclose, but there might be something there. We can't book that until we actually get a check. That's always based on negotiation with the business interruption carrier. So, we would expect something there in the fourth quarter.

OK. And what about the costs that you have to reimburse to the state for subduing the riot?

Yes. That was not booked in the third quarter. That will be booked either in the fourth or a subsequent quarter. Probably, in one of the next two quarters we'll have to deal with that.

OK. And then, can you just remind me on the IT CapEx for this year, how much of that is maintenance versus the special projects, and whether that's a run rate number on the maintenance?

The maintenance -- the CapEx of 20 million this year is a run rate for next year also, then I would expect it would start to trend down. That's primarily related to the rollout of the, what have we call the IMS, inmate management system, to all of our field locations. What I would tell you right now is to split that probably -- I would say that probably 11 million to 12 million of that would be something that we would expect to generate a return from, and I would say 8 million of that is just staying in business kind of stuff.

OK. Thanks.

And we have a follow-up question from Jim Macdonald. Please go ahead.

Any update on price increases as we enter kind of a new government year?

Actually our government year would be -- most are in July 1.

Right.

So we will be making a case at most -- every customer we have, if there is a choice that can be made for the budget year that will begin July 1, 2005.

So, maybe you can go back and remind me kind of what your final result was for 2004?

I don't think I could quantify that.

Jim, what we tell people, I guess as a general rule is that you should book about an inflationary kind of a CPI increase across the board. There are always going to be a customer or two that are going to push back on us on rates, but, by and large, we are getting the majority of our rate increases, and those have been in the inflationary CPI type range. It would be hard to break out the two or three customers that push back and what the effect on that inflationary increase would be. But, you're not far off just using a CPI type number.

OK. And just one more, on the TransCor business, any update on that?

No. We've got our system in place over there. There were some federal regulations that we had to comply with; part of our CapEx for this year was invested there to make some changes that all prisoner transportation companies need to make. But really, no new business update there. TransCor has handled a lot. I mean, one way to think about TransCor, and I think people need to think about this is that we have been doing a lot of business with states like Washington and Arizona this year that are moving them up, inmates from their state to our locations, and we drive a big benefit having TransCor be able to do this for us. So, we clearly desire to make a profit from TransCor at some point, but again, it's not a major, major part of our business model.

Thanks very much.

And our next question comes from Dana Walker with Kalmar Investments. Please go ahead.

Good afternoon.

Hi.

It is my understanding that California has been considering three strikes legislation or law change. Where does that stand? What implications might that have for you?

You know, I don't know. And, I guess, it was an initiative that was in the budget this year. I mean it may have -- I don't know the answer to that.

All right.

Other than I do remember hearing some polling information that it probably was not going to succeed, but I don't know the outcome on that. So we can check into that.

Question number two, even though it wouldn't be overly visible, how would you describe your healthcare costs experience at the inmate level in Q3?

I'm not aware of anything in Q3 that was unusual from spiking our -- we actually experienced -- I don't have the sequential number in front of me. It was a decline year-over-year. I'm not aware of anything unusual in Q3 in the inmate medical area.

Final question is this. John, you listed a variety of business developments prospects, how would you compare that pipeline to a pipeline earlier in the year, and how would you handicap what you have before you versus at some prior time?

Well, if you go back to the last several quarters, you would probably find that there's some -- a lot of common description of active procurements. We deal, our customer base, you know, it is a very slow moving, slow to make decisions. They'll put a deadline, and then, not for a variety of reasons, don't make it. Of course, we think that's one of the advantages of this business, is that the same deliberation to make a decision to procure something also happens to make a change.

The beds that I mentioned in the opening remarks about -- the fact that we've completed our expansion at Florence and Leavenworth, and almost at Houston, and we're going to complete the Lake City by March of next year, and then there are available beds in Prairie and Diamondback, Colorado. Those, I think, that potential feels pretty good.

As far as the other procurements, I think the state of Arizona is going to make a decision. I can't give you the timing on that. I feel like the BOP on their 1000 bed solicitation, it is going to make a decision, and we think that could be shortly, but we went through almost an 18-month period on a forecast of our McCrae, Georgia facility before that finally came down. I would say that something like the Shelby County is an unusual procurement in that it is something that the leadership, both political and business, is observing because they think they can have a significant impact on their tax rate, and Shelby County, Dixon County, we think that has a good chance of happening. Montgomery County, we think that has a pretty good chance of happening.

So, I don't think I've put anything out there on this list that doesn't have some chance of happening. Again, it's a customer base that makes slow decisions and sometimes rational things, or irrational things will change the -- as we -- hadd at Connecticut. We have we had a 2500 bed RFP that we had discussed on probably three different quarters -- or four different quarters, and then a governor who was a strong proponent of making that happen got in trouble. And so you have those kinds of things that change. So it is hard to handicap them, but those are things that can happen.

Let me twist the question mildly. With what happened in New Hampshire or -- pardon me, in Connecticut, are you going to be more circumspect on talking about prospects until they get to a more pregnant state, or is Connecticut just one of those things?

It's kind of impossible to do that, because there are people that get hold of these items and they start raising them, and you know, I don't want to talk with just you about it because you happen to see it in the Connecticut paper and not talk with the world. So, I think that we have been circumspect in that it's impossible for us not to acknowledge that they exist. But I don't -- I think that -- I hope that we try to be as cautious as we possibly can that some of these things are going to happen, some of these things are going to not happen. And I know we've been circumspect about the timing around them. So, there's really no way, if they are publicly disclosed, that we can avoid talking about it, just from a FD perspective, we're going to need to do that. And it's incumbent on us to just try to continue to try to be conservative, and just explain that you're dealing with government and sometimes the peculiarities of the government contracting process.

Yes. I would note that everything -- that there are things that we are working on currently that we don't -- that we are circumspect and not talking about. One, because we don't feel like it's something that we may have a competitive advantage in where we are, or it has not reached the level in which it has a chance to be publicly expressed, and at that time we feel like we need to do it. So this is not all of the business development activity that we have working right now.

But I presume these are the ones that are most likely, or are they the ones...

No, I think it's more along what Irv just described. We have certain obligations, I think, to disclose things that become a little bit public, so that everybody knows about it, as opposed to just selective folks that know about it. So it's, again, more along what Irv described.

Thank you very much.

Yes sir.

And our next question is from Bob Bartholomew with PMI Windjammer Capital. Please go ahead.

Good afternoon, fellows. John, Irv and Bill, how are you?

Good.

Great. What about you?

Good. First of all, to make a comment to the questioner about California. Proposition 66 did not pass. That was to reduce the effects of three strikes and out. So, essentially three strikes remains in effect in the state of California. Secondly, I was wondering if you fellows actually went back and looked at your business cycles historically, for example, during presidential elections and maybe elections that took place for the senate, or just election years in general, whether you saw prior to the elections, perhaps, a slowdown in new business activity because folks want to get elected and as a result of that, they might -- don't want to upset unions and try to conserve as much of their base of voters as they possibly could. And if you've actually looked at prior presidential elections in that particular regards?

Well, I think we did sense in some locations that the election was causing people just to not do something, just to not move forward. And then I described a couple of the private contracts, and I don't know if it was affected by that, but probably to remind you, you know, I joined this company in August of 2000, so my experience with presidential elections and the outcome, I think, are probably not experienced enough to draw those conclusions. As you remember, the company was in a different - it was dealing with different issues then.

I would say we probably do have a feeling, and that's what it is, that the things do tend to slow down and freeze up just prior to an election. So what you hope is particularly at the federal level with he administration being constant, it's more business as usual as opposed to seeing what in-kind of changes a new administration would make.

OK. Thank you. That's my recollection of it as well.

OK. Thanks, Bob.

Ladies and gentlemen, if there are any additional questions, please press the "star" followed by the "one" at this time. As a reminder, if you are using speaker equipment, you will need to lift the handset before pressing numbers.

Gentlemen, there are no further questions at this time. Please continue.

OK. In summary, financially, our revenues are up 11% for the quarter. Our adjusted earnings like-for-like are up 25%. Our free cash flow is up 9%. All good numbers. Our occupancy is at 94.9% up. Our operating margin is at 24.4%, slightly down. But our operating cost per man-day is down by over a penny it's down to 37.05, versus 38.12. You ask why, and that's because we now have more managed business in Texas, which comes in at a lower revenue base. We're now saying for the full year we'll be between 154 and 156, a share and that's excluding the 3-cent tax benefit that we had in this quarter.

Capital expenditures for the year were quite large, 134.6 million this year. In the marketing area, in the third quarter, we chose not to renew two contracts where we were losing money. Nevada Women's Correctional and Shelby County and we got a new contract, a small one with Mississippi. John mentioned that the expansions, three of them were completed in the third quarter Florence, Leavenworth and Houston. And one will be completed in the first quarter Lake City, and all of these facilities have been operating at 100% or more. So there's a very good chance that these will be filled in a reasonable period of time.

There were questions about John's comments about these future opportunities. And these are all competitive bidding processes and you know, I think we have to state what's out there, because our competitors are stating what's out there as well and the RFPs, I'm not going to go through them but they add up to about 13,500 beds, which are out there at the present time. I'm not counting Connecticut, which is out there, but kind of pulled and the RFIs, which is request for information are about 8,000. So, that's the pretty good number of prospects out there and I want to remind you that we currently had 8200 beds to help to serve this potential demand and none of the other competitors out there have that. So we have a reasonably good chance of getting some of this business going forward.

And with that thank you for your attention today and we'll look forward in talking to you at the end of year.

Operator?

Ladies and gentlemen, this concludes the Corrections Corporation of American third quarter 2004 conference call. If you'd like to listen to the replay of today's conference, please dial in 303-590-3000 or 1-800-405-2236 and enter the pass code of 1101-1667. Those number again 303-590-3000 or 1-800-405-2236 and enter the pass code of 1101-1667 and now disconnect and thank you for using AT&T.