CoreCivic Inc (CXW) 2005 Q2 法說會逐字稿

Welcome to the Corrections Corporation of America 2005 second 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 in other documents filed with the Securities and Exchange Commission, and these factors include, but are not limited, to the growth of the 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 his Chief Financial Officer, Irv Lingo. I would now like to turn the conference over to Mr. Andrews. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us for our second quarter earnings release and conference call. And as usual, we're going turn this over to Irv to take you through the second quarter financials and then to John for the operation update, and then for your question and answer period. We also have David Garfinkle here, who is our Vice President and Controller.

With that, Irv, do you want to lead us off?

Thanks. I think everybody has seen the press release that was released earlier this morning. I'll recap it briefly. For the three months ended June 30, 2005, we reported net income available to common shareholders of 14.9 million, or $0.37 per diluted share compared to net income of 14.8 million, or $0.38 per share, in the prior year.

The results for the second quarter were in line with our previously issued guidance for this quarter of $0.37 to $0.39 a share. Operating income for Q2 declined to 38.9 million. That's compared to 34 million last year. Adjusted EBITDA for the quarter declined to 53.5 million compared to 57 million for the same period last year.

Adjusted free cash flow for Q2 increased 1.6 million to 27.4 million during the three months ended June 30, compared with 25.8 million generated during the same period last year. So we continue generating healthy amounts of cash flow. Same-store facility EBITDA for the quarter was down approximately 2% over the prior year. The decline in operating income EBITDA and same-store facility EBITDA was expected.

We've discussed on a number of occasions that populations have been down in a number of facilities for varying reasons. During Q2, these facilities included Otter Creek, San Diego, Bay County, and Metro-Davidson County.

I'm sure most of you notice in the business section of our press release that we've begun working through some of the issues at these facilities. For example, at Otter Creek, we signed a new contract with the State of Kentucky. We're also beginning to see an overall improvement in our federal population as John will discuss in a few moments.

Turning to operations, total revenue for the second quarter increased to 295.8 million, up from 287.4 million during last year's second quarter. Total compensated man days increased slightly to 5.8 million from 5.7 million days in last year's comp quarter. Revenue per man day increased to $50.26 from $49.15 in the prior year, and that is an increase of 2.3%.

As we discussed last quarter, it is a bit difficult to get an apples to apples comparison with the prior year with respect to occupancy. Based on our inventory of beds as we now measure capacity, average compensated occupancy decreased to 90.1% from 95.9% in the second quarter of 2004. That decline is misleading in that we increased the design capacity of a number of our facilities at the beginning of the year, based on what we expect will be utilization going forward.

Adjusting for these changes alone would have increased the occupancy to 93.2%, so, you know, sequentially on average, we were up slightly from 89.4% in the first quarter to 90.1% in the second quarter and then as of midnight yesterday, we're at 92.2%. So we are seeing our occupancies start to increase.

Operating costs were up to $38.46. That's from $36.82 in last year's second quarter. Fixed costs were up $1.27 a man day, while variable costs increased $0.37 a man day to $9.57 from $9.20. The increase in fixed costs is substantially attributable to salaries and benefits expenses, having increased from last year due to pay increases combined with the relative flatness and the number of compensated man days year-over-year, so essentially higher fixed costs were being spread over roughly the same number of man days.

Also contributing to the increase in fixed costs per man day was the ramp-up at northeast Ohio in anticipation of the June 1 start of the BOP contract, and also the ramping down of Otter Creek as the Indiana inmates were removed over the course of the second quarter.

The increase in variable expenses resulted primarily from an increase in inmate medical as described in the press release. The end result was that operating margins per man day actually declined $0.53 per man day to 11.80 from 12.33 in the prior year and our margin percentage declined to 23.5% from 25.1%.

I would add here that the decline in margins is primarily due to the loss of fixed cost leverage in certain of our historically highly occupied facilities where we have seen declines in inmate populations over the last few quarters. We do not believe that the margin decline is due to any fundamental change in our business operations.

G&A expense was roughly 1.5 million higher than in the previous year, roughly one third of that increase was due to the expensing of restricted stock, which is new for this year. Despite the increase, G&A still came in approximately 4.6% of revenues, pretty much in line with where we have been in the recent quarters.

Turning to our outlook, as indicated in our last two conference calls, we expected our earnings for 2005 to be substantially back-end loaded for a variety of reasons, including seasonality, the BOP contract at northeast Ohio, again, which commence order June 1, and also because of the softness that we were, we noticed beginning late last year in our federal inmate populations.

We indicated in our last call that we were anticipated congress to pass a supplemental funding measure, which was passed, and that that funding would translate into a rebound in federal populations later this year. Our northeast Ohio contract commenced on schedule. We're currently being paid based upon a guarantee of 50% occupancy and that will go to a 90% guarantee on September 1. We're beginning to see some improvement in federal customer populations at a number of additional facilities.

The loss we were anticipating this year in our Otter Creek facility will be mitigated when a new Kentucky contract begins next month, and we're encouraged by the ongoing ramp-up of the expansion space in Leavenworth, Houston and Lake City. Again, John will go into greater detail regarding these events as well as pending opportunities.

In short, the events we anticipated happening for a strong finish to 2005 and a robust 2006 are happening, so looking forward to the remainder of the year, we expect diluted earnings per share for Q3 to be in the range of $0.47 to $0.50, earnings per share for Q4 to be in the range of $0.56 to $0.59, and full year EPS to be in the range of $1.75 to $1.81 excluding the significant charges that we incurred in our refinancing in Q1.

The Company's full year guidance for 2005 includes expenses of about $0.03 per diluted share, net of taxes, for the amortization of restricted stock issued to employees. During 2005, where he expect to invest approximately 126.7 million in capital expenditures, consisting of approximately $81 million in prison construction and expansions, 24.3 million in maintenance CapEx, and approximately 21.4 million in information technology. With that overview, I'll turn it over to John.

Okay. The second quarter of 2005 was an active one. We had new contracts, renewals, extensions, and a fairly significant utilization of our current space. We'll go into that in some detail in a second.

As we pointed out in the last couple of conference calls, our guidance that we've given is tied to existing customers under existing contracts, of course with the exception that we've mentioned that we-- we encouraged might have a customer to utilize our Stewart facility. On the renewal and extension, we had ICE awards for both San Diego and Elizabeth, which are continuation of contracts we already have.

We had extensions in Florida for the three facilities that we manage for the State of Florida. Plus we had a new contract with the State of Kentucky for up to 400 inmates. We are encouraged that the need for female beds in Kentucky continues and that probably in the next fiscal year, there will be appropriations to utilize more of that facility.

In addition, there is appending RFP by the State of Hawaii to utilize up to 150 beds and we hope to hear what their decision is here shortly and are encouraged there. And as we announced in the press release, we were awarded new contract with the State of Kansas for up to 250 beds, which would be in our Kit Carson, facility, which is very close to the Kansas State line and would be utilized by them for overflow beds out of their system.

And of course, we announced in the press release that we have made a decision at the moment to idol the T. Don Hutto Correctional Center until we can find a customer that can utilize the entire facility. Did want to talk about the utilization because it's been-- it has been significant.

Comparing same-store numbers, or taking our average inmate population the first quarter without including Otter Creek and [INAUDIBLE] we had less than 61,000 inmates. As of July 31, we had right at 64,000 inmates, so we've had a better than 3,000-inmate bed growth from our averages that we had in the first quarter through the end of July.

The significant facilities in which this growth has taken place, we've seen the Colorado population by itself grow by some 530 inmates over that period of time, although the Colorado net has been about, is 271 because we did have some Washington inmates, as well as some Wyoming inmates. We saw our Diamondback facility increase by 425 beds, our Lake City facility increase by 542, and our Prairie facility increase by 641. So some 1900 inmate bed growth in those four facilities, determining Colorado as a facility.

We've also seen growth in our Houston Leavenworth of some 300 beds and, of course, we began to utilize the Northeast Ohio facility as well as continue to see growth for that facility by the use of the U.S. Marshall's of some 800-- I'm sorry-- 750 beds for that. So 3,000 bed growth in second quarter, plus July, I think, is fairly significant, and is performing as we had described in the earlier conference calls.

I would point out that one area that we're still trying to get a good handle on is what the Marshalls inmate bed needs are going to be in the future. We have seen in our Central Arizona area pretty much flat performance for the last couple of quarters and we have been researching that. I'm going to talk in a few minutes about the federal budget and the impact we think that it has on our industry and of course CCA. But we are trying to interpret some of that.

We know in Central Arizona District, they have had some 17% compounded inmate growth by the entire U.S. Marshalls for that district and-- but after about a 25% growth over the last four years, it has slowed, but it is the third time it has done that, so we were encouraged that this is a lull that we would see growth going forward.

If we look at the beds that we have available in light of what's taken place in this quarter, we really are down to the Stewart facility and Norfolk facility as to locations that do not have customers as of yet, but we do have some 788 beds in our Crowley facility, which if Kansas uses those, some of those beds, that will of course reduce that and then as I described earlier, we've seen some 500-bed growth by the State of Colorado since the beginning of the year.

So I've always said that sometime between now and the end of next year, we think Colorado will utilize all of the beds. We're down to 400 beds out of our 1500-bed Prairie Correctional facility in Minnesota, and as I described earlier, we've seen over 600-bed growth there. We have some beds available in our Florence facility, which would give us capacity for the Marshall growth there, and then we, we assume that over the next 18 months that the utilization of Northeast Ohio will be pretty much total utilization because every bureau prison contract we have is at least 100% or greater.

So that's the, the availability of beds, as you can see is starting to decline, which means that our customers are utilizing them as we had anticipated they would. As I look at the marketplace, as I have described on each conference call that we monitor very closely the developing and growing bed needs with our state customers, both current and past, and currently see some 14 states, which is consistent with where we were last quarter that are experiencing growth and will need beds sometime in the future.

To go back over the federal budget, our last conference call we talked about the supplemental that was passed, which provides the funding to make sure that the Marshalls had adequate funding for the bed needs they have, but also to allow ICE to contract for more beds. We have, at the moment, the districts are not seeing some of that money, and we're not exactly sure when it will flow, but the supplemental was to fund some 1920 new beds, but right now it appears that the inmate population has not grown.

But if you look to the 2006 budget and focusing on ICE, there is appropriations to take it from 19,400 beds to approaching 23,000 beds. We, I think, pointed out that there was a funding in the 2006 budget for the BOP to contract with beds.

That $20 million that was originally in the President's budget has now been increased by congress to $64 million. All indications are that that $64 million will remain in the, in the budget and, again, the 25 to 30,000 bed need by the Bureau of Prisons between now and 2010 has not really changed. And then we talked about in the 2006 appropriation is some $336 million increase in the U.S. Marshalls, which would fund an additional 4 to 5000 Marshall inmates.

And then the activity that I described at some of the local jails that we manage of expansions continue to be ongoing, although with Hernando, as we said, that expansion should come online sometime in probably October timeframe, which is doubling the size of that facility.

To point to the open procurements, the-- there's really no new procurement from last time that's out there, except the BOP has issued their CAR 5 solicitation. I think the marketplace was anticipating that, but it is now out there on the street and responses are due August 19th.

The solicitation for 1000 ICE beds in Arizona is still out there, as well as 2800 beds for the Marshalls in Texas. Shelby County, solicitation is still open, but moving slowly, but still one that has some chance of still happening. And then Indiana as a managed only solicitation for 2000 beds that should be being dealt with by Indiana shortly.

So as we look at our guidance for 2005, indicating, again, that it is all about the, our best estimates of the utilization by our existing customers and existing facilities that we have, but as the guidance in the fourth quarter, a number would say is that we feel that that sets up 2006 quite attractively, obviously there are things that will, expenses that will materialize in 2006 that will effect that fourth quarter run-rate in some way, but in addition to that, we see things materializing that would add positively to the revenue.

Of course our Red Rock facility will be open in the second quarter of 2006. As I described, Otter Creek, we think it has a good chance of being fully utilized in the second half of 2006. We feel that the remaining beds in our Minnesota facility will be utilized between now and the end of 2006, as well as the Colorado beds, as well as the beds we have available in our District of Columbia facility.

We mentioned the expansion beds that, with Florida, although those would be 2007 opportunities, and then of course, one that we are quite interested in and feel quite bullish about is the solicitation by the Federal Bureau of Prisons as well as potential additional funding for contract beds over and above the 1200 they already have.

So that's kind of an overview of what happened in the second quarter as it relates to utilization by our customers, as well as some of the opportunities that are out there that are not reflected in what we think we'll do for the remainder of 2005.

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. (OPERATOR INSTRUCTIONS)

Our first question comes from Jim McDonald with First Analysis. Please go ahead.

Good afternoon, guys.

Hi, Jim.

Hi, Jim.

On fourth quarter, I think you said something about it basically includes everything you can see now, but maybe also something about Stewart. Did I hear that right?

Well, in the guidance that we have developed, and is that we have assumed that there will be in some utilization of Stewart in the second half of the year. Timing is not sure, so it really would have a short-term negative effect when we of course have to open it, ramp up before we would see decent inmate population, but it is factored into our numbers.

As you say, it's going to have significant startup costs. When you factor it in, was that a positive or negative?

I think--

Stewart would be a negative, Jim, and, again, I don't want to get into-- I don't parse the guidance into how much for each facility, but just from a conceptual standpoint, you know, we do hope to open Stewart and it would be a negative for this year. That's baked in.

Okay, and when do you expect to start bringing Stewart into your bed base for interest and depreciation purposes?

Yes, August 1 or so, Q3. Excuse me. September 1. I'm sorry. We're in August, aren't we?

Yes, we are.

Okay. September.

Okay, and then I'll just ask one more. On Hutto, could you describe the situation there, you didn't mention that as one of your open facilities, I don't think.

We have utilized that facility from time to time. It's an overflow for some of the other districts in Texas, the Marshall districts, and we have just not been able to rely on a bed count that can utilize nearly all of the facility and therefore we have decided that we are really better off to idle it and wait until we can get a bed population that we can depend on. It's very difficult to have 400 inmates one day and 120 the next.

What are your prospects there?

Well, of course ICE and Marshall's needs is the southern part of Texas has continued to grow quite robustly over the last ten years and then we've got some other things that we are working on.

Well, how would you-- I mean ICE and Marshalls-- have been using that facility, is that correct? So what's going to change there?

Well, what's got to change for us to feel comfortable opening it up is to have some dependability on a decent bed count and right now we don't have that.

We'd have to know that their needs were going to be consistent, Jim, not just a quick overflow kind of a thing. It's just too difficult on the employee base and everything else.

In other words, you're looking for better contractor.

Yes, okay.

Okay. Thanks.

Or one that, where the utilization is dependable.

Right.

Okay, thanks.

Yes.

And our next question comes from Scott Schneeberger with Lehman Brothers. Please go ahead.

Hey, good afternoon. A couple questions. First off, just wanted to start by asking that RPF in Hawaii, are there any restrictions on location written up in that RPF, or is that pretty open?

You know, I don't know, but I do know that the-- if there are restrictions, it would not include the utilization of our Otter Creek facility.

Okay. Thanks. That's helpful. You guys had said, I think on last quarter conference call, that you were confident that you would do over $2 EPS in '06. Sounds-- I just want to get a gauge, you know, you don't have to quantify, by just directionally, feeling stronger there based on some of this commentary or about the same?

I think what we said last quarter, I don't remember saying-- I think we were talking about Q4 being in the mid-50s and I think people kind of extrapolated that out.

Mm-hmm.

And obviously we put the guidance out that we're, you know, now mid to high 50s, I guess, for Q4. So I would say, yes, we're confident of exceeding $2 in 2006. The thing I would caution about is trying to just take Q4 and extrapolating that. We do have the issues of seasonality in the first quarter that we've addressed before. We've got the issues of, you know, stock compensation next year, and--

Salary increases.

Well, yes, just a number of things that-- I think it's really primarily, you know, looking at the seasonality in the first quarter. Again, we are going have some type of stock option expense next year and the tax rate. We did say this year that our tax rate was artificially a bit lower because of the deductibility of the financing costs for that big financing in Q1.

I, you know, I think we said this year it would be somewhere between 35.5 and 37 going from memory and I think the long-term permanent tax rate is somewhere around 38.5.

So, again, I'm not trying to dampen next year. We do expect to be over $2 next year. I'll be clear about that, but you just wouldn't take, you know, high 50s and multiply times four is all I'm saying.

Sure. Thanks, that's helpful. You also indicate someday higher healthcare costs and some higher energy costs. How will that reflect upon next year? Tough to say now, but just kind of a gauge.

You know, it's just too hard to say right now. You know, if we could all forecast the price of oil and gas, you know, we could make a lot of money. Right now, when we look out, we kind of look at just the historical increases that we've seen and we try to do the very best we can. The energy costs and the medical costs certainly are for, you know, 63% of my operating costs are salaries and benefits, okay. And so there's only so much effect of the medical and the utilities can have and so, you know, I'm not terribly concerned about that, but it's something that we got to keep our eye on.

Sure, and just a real quickie finally on costs. You mentioned a positive offset was in the quarter was a reduction of some legal expenses. Can you talk just a little bit about, not necessarily what that was, but is there a lot behind now? Is there anything else coming up on that front?

What I would say to you right now is that our settlement experience has been a little better than it has been historically, and this is, you know, the way we do legal reserve, like all companies do, would be to look at the basket of litigation that they are looking at and try to assess outcomes for that litigation and a lot of that is based on some type of historical settlement rate and we're just right now at a point where we're doing better.

Okay. Thanks. I appreciate it.

Sure.

And our next question comes from Jeff Kessler with Lehman Brothers. Please go ahead.

It's the Lehman Brothers tandem here.

Oh, good.

We are the Lehman Brothers. You started talking out about U.S. Marshalls and ICE. Ahead of the states, I'm just wondering how that percentage of business done with those agencies, including the Federal Bureau of Prisons, has increased as a percentage of your total business in the last couple of years and how you, view it going forward as a percentage of your total business against the states because it seems as if states are relatively static going back and forth and the incremental growth is coming from, is coming from the feds.

You're asking what has been the change in mix of federal to state--

Yes, the change-- the short question is the change in mix of fed versus state over the last year or so, and that going to continue to change significantly into 2006?

The federal-- one quick one. I'll let John answer it, but the federal side is up about 1% over last year as a percentage of our business from 38 to 39%, but go ahead.

You know, it's hard to answer that, Jeff, other than we're making every effort to make our sales available and make bed space available for the growth in those areas and I would say that, you know, our business model is to, to try to have and anticipate bed needs and to have beds available. So if, if the federal budget is any indication of what the desires of congress is and securing our borders and dealing with some of those issues, there is the chance that the federal demand for beds will grow faster than the state's.

Okay. Secondly, can I get some, can I get some indication of given that the, it sounds like the federal government is going to be much more of a solid factor for you in 2006 than in 2005, can you talk a little bit about your capital spending plans, not -- I know you're not going to give me exact number, but if you could give me some directional help for 2006 because you did -- you have kind of spiked up on a couple of new, you know, on Greenfield facility. Next year, is most of what we're going to see the expansion to existing facilities and how does that effect your capital budget?

Those are-- that's a very good question. Red Rock will be substantially completed this year. Red Rock is about an $83 million facility, and I don't -- Jeff, happen to have in front of me how much will fall this year to next year, but it's anticipated to completed I'm guessing sometime around June 1, July 1 next year. So some of that 83 million is going to fall in the next year.

There are some potential expansions that will actually be funded by our customers on some of the facilities that we manage and so that would not be CapEx on our part, but we would get the benefit if that were to happen.

There are-- there will be opportunities for us to add space next year, and let me just go down one road, which I like to go down from time to time. If-- let's just say, you know, knock on wood, we were successful, you know, on CAR 5 and let's say that was north fork, for example, and that were to be gone. Let's say our hopes could true on Stewart and that starts to fill up. Well, all of a sudden as John said, we don't have any space. And I think I've told people on the call from time to time that it is our expectation and of course that would be subject to our Board approval as I look at Mr. Andrews, but I think it's the Company's intention to carry inventory because we think that carrying inventory helps us to achieve success in a number of opportunities and we've always said that that inventory could be as much as 5000 beds.

So without having anything specific to give you right now, we do anticipate completing Red Rock mid next year, early to late second quarter of next year. If we are successful on some of these opportunities, and our empty space goes away, I would not be surprised if you heard us talk about building some type of inventory space, that would happen. Again, we are hopeful that some of our customers will pursue some expansion, so I think it could be a little bit all of the above.

So, my final question based on what you just told me is that, should we be taking our CapEx estimates down slightly this year and bumping them up slightly for next year because of the scheduling of Red Rock?

I would go with what we gave you for this year.

All right.

Right there in the foot notes, take those numbers.

Okay, great. Thank you very much.

And our next question comes from Patrick Swindle with Avondale Partners. Please go ahead.

Good afternoon. In looking at the growth that you all saw posting in the first quarter, did that accelerate as we came out of the second quarter, and how much of it did you see in July as we entered the new budget year for some of the states? Maybe just in terms of direction and acceleration and/or was it a steady growth of inmates?

Well, it was a little of both. Obviously, the Northeast Ohio we saw a steady growth with the utilization by that Marshall population. But it jumped up 600 beds on June 1. Based on the 50% guarantee with Houston and Leavenworth it was -- those were both expansions and it was just kind of a steady growth there.

The state descriptions were, I think, steady over the -- although Colorado probably has done more in last couple of months than they did in the previous few months. The Diamondback facility is probably steady, Lake City was fairly quick starting -- May, I can't remember the exact population but it was late spring. And Prairie was kind of steady. So it's a little bit of both.

As we move through the quarter, do you see anything, for example, with Minnesota at Prairie, with Colorado at Crowley, with the Leavenworth expansion, with the Houston expansion, to the extent that that growth has been steady, has there been anything that you would expect to interrupt that as we go through the back half of the summer?

Where we have sufficient capacity, I don't see anything that would slow that -- let me add a qualification -- Colorado is opening up this month a pre-parole facility which is -- in which some inmates who are within, I think, six months or so, within their system would be moved. That's a 500 bed contract, and we understand that we might have 100 or so inmates that are affected by it. So we could see a temporary decline, but then once that's done then it starts to grow.

Colorado has been growing about 60 inmates, net inmates, a month. But every now and then they'll have something like that. So, I would say, as I just said earlier, what kind of plan to it is a steady growth between now and the end of next year. And, I'm not sure if that's your answer.

Of course, Lake City is completely utilized now. Houston is at 93%, it has run at over 100% so that's not to say it couldn't. And Leavenworth at the moment is running in excess of 100%, so how much capacity we really have there is going to be up to our customer, what they're willing to let us do on capacity over 100%.

My next question is on Stewart. To the extent that you've included the impact of a Stewart ramp in the back half of the year, would you expect to be submitting that facility for the federal procurement that's currently under way or is there another potential customer for that facility that makes you feel comfortable that you may open it in the back half of the year?

We're still in discussions internally as to what we're going to submit to the Bureau. We will be submitting more than one facility. But I'm not sure we're ready to publicly say what that is yet.

And there are other customers, as we've said before, besides the Bureau, that would be available for Stewart.

All right. And then my last question. As we go into '06 obviously, you all are not giving guidance, but thinking about the stock options expense through the year and the potential impacts from that, can you quantify as of this point, what the potential impacts may be from stock options expensing next year?

Here's what I can say about that, we have included in this year's forecast, that we will have an actual charge of $0.03 a share but related to restricted stock. We disclosed -- and will disclose on a footnote, that we are somewhere -- David, is it around $0.12?

Yes, $0.12.

$0.12, $0.03 a quarter. In the footnote disclosure this year, based upon our options experience of this year. The Board of Directors, and specifically the Compensation Committee, will need to assess these numbers, then they will need to assess the compensation packages, particularly for the senior executives and then management needs to make a recommendation as to how we will use equity compensation going forward.

So, I cannot tell you that the numbers that are disclosed for this year would be reflective of next year. It gives you some order of magnitude but again, that could change significantly as the Board gets into this a little bit more. I think I'm giving you an -- I hope I'm giving you something that I think is kind of a very high-end -- and again, at that point I just really can't speak for the Board and Compensation Committee.

That's very helpful, thank you.

And our next question comes from Barry Stouffer with BB&T Capital Markets. Please go ahead

Good afternoon, gentlemen.

Hi, Barry.

I was wondering if you could discuss specifically at Metro-Davidson, San Diego, and also Bay County?

I'm sorry, Barry, I couldn't quite hear the question.

He wanted to know what's going on at Metro-Davidson, San Diego, and Bay County.

Correct.

Okay, at Metro we -- the County opened up a women's facility out in the complex where our detention facility is and moved females over there was some 350. The male population has grown, but it's right at 9 -- [TECHNICAL DIFFICULTIES]

John? John?

One moment please.

John? John?

Sorry about that.

Okay, are we still on?

Yes, you are.

Barry, what we had was a movement of females out of that facility, we are a little under 1000 inmates that are all male, so the male population has grown a little bit, but we don't anticipate at the moment for that to grow much more. There was $10 million appropriated in the state budget a year ago and, for an expansion, but I don't think any plans have been made there. So we think Metro is going to stay where it is.

Bay, part of the utilization of that facility for the last few years had been about 125 ICE inmates, those were moved closer to their district and we have a very small federal population in Bay but that took that one down to around a 900 average and we don't anticipate that to change.

Now there is an active procurement which is a combination of expanding the annex and shutting down the downtown jail. The downtown jail is twenty-something years old and has lots of maintenance problems. And so they've made the decision they're going to just have a processing center in downtown and increase the annex by, I think, some 700 beds. That procurement would be for a vendor to begin operating the facility in October 1 of 2006, which is when our current contract expires. And obviously, we're bidding on it, in fact, I think there are two bidders at the moment. So that will play out over the next -- between now and January, I think, is when they will award it.

And then at Stewart, we did see in the second quarter a 200 bed decline but that now has come back to where it's, at the moment, fully utilized. As you have read, I'm sure, in prior reports we have --

Not Stewart, San Diego.

San Diego, I'm sorry. I wish I was talking about Stewart, that'd be good. San Diego went from a fully utilized facility in the first quarter down to like right at 1000 inmates, and now it's back up to an excess of 1200 which is right at capacity. There have been periods in time in which the demand has been such that it could exceed that, but we don't know if and when that would happen.

Okay, thank you. That's all I had.

Thanks, Barry.

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

Pardon me, Mr. McDonald, your line is open, please go ahead with your question.

Sorry, I was on mute. Could you talk a little bit about start-up costs last quarter and/or for the rest of the year?

We didn't disclose start-up costs, Jim. I would say that there were ramp-up costs at Northeast Ohio, as I said in my segment, and ramp-down costs at Otter Creek. Generally, they were in the neighborhood -- one was a little under 500,000 and one was a little over 500,000.

But the way we look at this, we've had our start-up costs for Northeast Ohio, we opened it last year. We had some start-up costs we talked about in the first quarter for Lake City. I would tell you that at both Otter Creek and Northeast Ohio, we clearly expect significant improvements in the operating EBITDA from those facilities because we now have inmates. We did take a little bit of a hit this quarter, not something that we disclose because we really don't consider that start-up at this point.

And just another quick follow-up. Any general thoughts on the level of price increases you were able to get through during this budget season?

Well, again the EBITDA, what's good now is we're past that interlude where the Texas contract was kind of obscuring our increases, but I've always said that we're getting somewhere in the nature of a CPI-type increase and our revenue per man day was up 2.3% across the board.

Okay, thanks very much.

Sure.

And ladies and gentlemen if there are any additional questions, please press the star followed by the 1 at this time. As a reminder, if you are using speaker equipment, it will be necessary to lift the handset before pressing the numbers.

Management, we have no further questions at this time. Please go ahead with any closing comments.

Well, as usual, I'll try to summarize what has been discussed here. The second quarter, Irv reported that our net was 14.9 million or $0.37 a share compared to 14.8 million or $0.38 a share in the second quarter of 2004. Our free cash flow was up $1.6 million. It was 27.4 million in the second quarter of '05, and 25.8 million in the second quarter of '04.

Our occupancy fell from 95.9% in '04, to 90.1% in 2005 second quarter, but as of last night it was up to 92.2%. And, as John said, it's a little misleading because the increase design capacity and more beds that we've added makes it more difficult to reach those occupancy rates.

So, we are increasing our occupancy after losing inmate populations earlier this year. Our margins were down from 12.33% to 11.8% in 2005 compared to 2004. Some higher expenses but mainly because of the occupancy rates, and we do believe going forward we can recover this deterioration. Congress did pass, in the last month, increased funding and this should help increase federal occupancy in the future.

Irv indicated that we had about 126 million or we expect 126 million of capital expenditures in 2005 and because of, probably, increased bed needs in the future, we should probably continue capital expenditures of that nature.

John mentioned that although we have business there now, we did get renewed contracts at San Diego, Elizabeth and the three businesses in Florida. We were able to refill the prison in Otter Creek in Kentucky with Kentucky women. We're looking at the possibility of putting some Hawaiian women in there as well, and we did get a contract in Kansas for 250 inmates to be put into Colorado.

We idled T. Don Hutto which has been a continual decision for us, we just don't seem to get enough people in that prison to make it viable, if we did, we obviously would open it again. John pointed out that since the first of the year when we did lose inmates and we've grown 3000 beds since the low point through the end of July. The Northeast Ohio fed contract will certainly provide us further growth in the second half of this year, and we should see more Marshall growth and possibly ICE growth as a result of this federal funding.

Irv gave you guidance for the third quarter of $0.47 to $0.50, for the fourth quarter of $0.56 to $0.59, and for the year $1.75 to $1.81 which excludes the refinancing charge which I believe was 35 million in the first quarter.

Stewart and North Fork are still empty but we're bidding on CAR 5, several facilities including North Fork for the Bureau of Prisons. And we are trying to work on selling Stewart and as we've indicated, we're ramping up Stewart in the fourth quarter of this year.

John indicated that by the end of '06, we'll probably see our Prairie facility filled because Minnesota continues to fill that facility. And probably by the end of '06, we'll see Crowley filled because Colorado is still growing even though they've added another facility of their own. As a result, we will probably need sometime in '06 to look at building some more inventory of beds, particularly if we fill store in North Fork as we anticipate doing.

The longer global type of future is that it looks like as a result of the federal budget, that ICE has a potential of approximately 4000 more beds over the next year or so, and the Bureau of Prisons is still indicating a significant demand of beds through 2010, some 25 to 30,000. And we see several states also with increased demands in 2006 and forward.

So all in all our outlook looks positive, and with a slow first half we're going to catch up in the second half and still have an increase issue with earnings per share.

So thank you all for attending today, and thank you for your questions. And we look forward to the third quarter.

Ladies and gentlemen, this concludes the Corrections Corporations of America second quarter conference call. If you'd like to listen to a replay of today's call, please dial in at 303-590-3000, or 1-800-405-2236 and enter the pass code of 11034556, those numbers again, 303-590-3000, or 1-800-405-2236 and enter the pass code of 11034556. We thank you for your participation. You may now disconnect.