CoreCivic Inc (CXW) 2005 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Corrections Corporation of America 2005 third quarter conference call. Today's call is being recorded.

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 risks 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 10K, as well as in the other documents filed with the Securities and Exchange Commission, and these factors include but are not limited, to changes in 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 on 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, Irving Lingo.

I'd now like to turn the conference over to Mr. Andrews. Please go ahead, sir.

Welcome everyone, to our third quarter financial release, and our question and answer period. In addition to the people that were mentioned, David Garfinkle, our Controller and Vice President of Finance, is here today as well. And with that I'll turn it over to Irv, who will run through our financial results for the quarter.

Thank you Bill. Obviously, we feel we've registered a pretty strong quarter here in Q3. I'll get right to the numbers. For the three months ended September 30th, we reported net income available to common shareholders of 25.8 million. That's $0.52 a share, and that's compared to $17 million last year, or $0.43 per diluted share. The results for the third quarter were somewhat better than our previously issued guidance for the quarter of $0.47 to $0.50. Operating income for the quarter increased to 48.7 million, that's compared to 42.5 million last year. EBITDA was up to 63.8 million, compared to 56.2 million last year. And adjusted free cash flow for the quarter increased 13.9 million, to $43.6 million, that's compared to 29.7 million in the same period of 2004.

The significant increase in adjusted free cash flow was primarily driven by our strong operating results, but it should also be noted that maintenance CapEx for the quarter was roughly 4.5 million less than in last year's third quarter. Same-store facility EBITDA was up approximately 15% from the prior year, as we saw strong same store performance from a number of facilities, such as Northeast Ohio, where we secured a large new contract with the Federal Bureau of Prisons, Leavenworth and Lake City, where expansions were recently completed, and we're filling the new beds. Our Prairie and Diamondback facilities, where we are the beneficiaries of new populations from Washington, Minnesota, and Arizona. Finally, in our 4 Colorado facilities, we are seeing our occupancy increase, as a result of the overall growth in Colorado inmate populations.

Turning to operations, total revenue for the quarter increased almost 7% to 304.4 million, from 284.8 million in last year's third quarter, while total compensated man days increased slightly to 5.9 million, from 5.7 million man days in last year's comp quarter. Revenue for man day increased to $50.82 from $48.99 in the prior year. That's an increase of 3.7%.

As we have discussed in the first two quarters of this year, it's a bit difficult to get an apples-to-apples comparison with the prior year regarding occupancy. Based on our inventory of beds as we now measure capacity, average compensated occupancy actually decreased to 92.7%, from 95.1% in last year's third quarter. This decline however, is misleading in that we increased the design capacity of a number of our facilities, based on what we expect will be the utilization of those facilities on a going forward basis, based on customer demands. Adjusting for these changes, getting us to apples-to-apples, would have put our occupancy at 95.5%.

And I would add that if this wasn't confusing enough, during Q4 we will be adding additional beds as we bring our [Stuart] facility online, and an additional 382 beds from the expansion of the Hernando County facilities. What this means is that our percentage of occupancy comps will again be affected by the change in the denominator of beds next quarter. So my suggestion would be focus on compensated man days first and foremost, and spend a little time trying to understand the percentage of occupancy.

Continuing with our operations review, operating costs increased to $37.44, from $36.84 in the prior year. Fixed costs were up $0.42 a man day, to $28.17 from $27.75. Variable costs increased $0.18 per man day to $9.27, from $9.09. The increase in fixed costs can be substantially attributed to salaries and benefit expenses. They represent about 64, 65% of the Company's total operating expenses, and 85% of our fixed expenses. Salaries increased $0.28 as a man day, as a result of pay increases that we instituted this year, and the on going rampup of a Northeast Ohio facility, where we had for a period of time employees coming in prior to having the actual inmates.

As much in the press release, this increase in salaries was somewhat mitigated by approved control over benefit costs. We were pleased at the rather moderate increase in variable expense, which is caused by a large degree of travel expenses for personnel assisting with the absorption of inmates at a number of facilities, as identified in the press release. We're also continuing to have success in settling legal matters in amounts less than what we had originally estimated.

So the end result was that our operating margins per man day increased $1.23 to $13.38, from $12.15 in the prior year. Our margin percentage increased to 26.3%, from 24.8%. General and Administrative expense was roughly 2 million higher than the previous year. Most of this increase is a result of additional headquarters staff in a variety of areas including information security, compliance, and human resources.

In addition, 25% of the increase was due to the expensing of restricted stock, which was new for this year. Despite the increase, G&A came in about 4.7% of revenues. That is very much in-line with where we have been previously.

So all in all we had a very strong quarter. Occupancy has improved in a number of our facilities, wile margins improved, not only because of the increased populations, but also because cost increases in almost all categories were moderate.

As a result of this performance, we are generating significant free cash flow, which we intend to invest in new prison facilities. Our Red Rock facility continued on track for a second quarter opening in 2006. Based on potential customer demand, as John will discuss shortly, you should expect additional announcements regarding new facility construction in the near future.

With that, I'll turn 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. Our first two quarters were negatively affected by seasonality, but more importantly by the decline in Federal inmate populations at a number of our facilities. That was thoroughly discussed in the last two conference calls.

In our last earnings call we pointed out that Congress passed a supplemental funding measure, and that we expected that funding to translate into a rebound in Federal populations in the second half of the year. We also indicated that we were anticipating a considerable improvement in earnings over the last two quarters of 2005, as a result of the Northeast Ohio contract, improvement in our Federal inmate population, as well as increased population at several of our recently expanded facilities.

Clearly our expectations have been met as evidenced by our strong Q3 performance. Our Northeast Ohio contract commenced on-schedule, we're currently being paid based on a guarantee of 90% of occupancy. We've begun to see a distinct improvement in inmate populations, not only at our expanded facilities, but at a number of other existing facilities such as Prairie and Diamondback. Again, John will go into greater detail regarding these events, as well as pending opportunities. However, to repeat what I said in last quarter's conference call, the events we anticipated happening for a strong finish to 2005, and a robust 2006, are happening.

Looking forward to the remainder of the year, we expect diluted earnings per share for the fourth quarter to be in the range of $0.55 to $.058, and full-year EPS to be in the range of $1.77 to $1.80, excluding the refinancing charges that we incurred in the first quarter. The Company's full year guidance for 2005 includes expenses of $0.53 per diluted share, net of taxes for the amortization of restricted stock issued to employees. During 2005, the Company expects to invest in total 120.9 million in capital, consisting of approximately 81.6 million in prison construction, and expansions, 20.6 million in maintenance CapEx, and approximately $18.7 million in CapEx for Information Technology.

And with that, I will turn the call over to John to get into specifics on our business prospects.

As we tried to point out last conference call about the momentum that we were beginning to see in the last half of the year, and as I think as pointed out in Irv's comments as well as the second paragraph of our press release, we are seeing a lot of activity at a lot of our facilities.

I had mentioned that when we compared first quarter bed population against I think it's July that we were seeing some 3,000 bed growth, and if we compare that now to the October averages, we've seen almost 4,400 net bed growth for that period of time. That does not include roughly 800 or so temporary ICE inmates, that we are housing in Hutto and Florence. With that activity, we find ourselves obviously with a diminishing inventory, probably 2,000 to 2,500 beds available just throughout our system. In various places, the biggest of course, would be Colorado right now. That has been absorbed, as we said.

In addition to that, we have three facilities, our T9 Hutto facility, North Fork, and Stuart. And, as I think we mentioned, all three of those have been bid in the current outstanding solicitation with the Federal Bureau of Prisons. And we are encouraged that there are other opportunities developing, which I'll talk about. Then, of course, we do have some 1,600 beds opening up in Red Rock in the second quarter of 2006.

I have mentioned with the last couple conference calls about the states that we monitor closely, most of which we currently do business with, or have had some business activity, and today we can identify some 17 states that have growing bed needs that we think we are in a position to help out. In fact, of those 17, 10 of them since the second quarter and through October, have had an inmate population growth, 9 of which are in facilities that we own. So we continue to see the demand at the state level, based on growing populations, and lack of infrastructure being built by the states, and a greater comfort by these states to continue to utilize the private sector and CCA, as their populations grow.

We think the big news is, continues to be what the Federal government's needs are, and how they're developing. We pointed out last time, and it hasn't changed, that in the 2006 budget for the Department of Justice, that the Federal Bureau of Prisons had requested, or the President requested $20 million for additional beds that it still is in the Appropriation Act, although unpassed, to fit in up to $64 million for additional contract beds. And as we have continued to point out right now, that there's some 30,000 bed needs by the Federal Bureau of Prisons based on their forecast, of what their populations will be in 2010, as against to the beds that they are bringing online in their capacity.

We continue to see the same increase for the U.S. Marshal Service that we pointed out last time which should find somewhere in the 4,000 to 5,000 additional beds. I think of what is real interesting has been fairly publicly discussed now, is the issues around the Board of Security. I think many of you have probably observed, Governors in New Mexico and Arizona declared states of emergency, based on the number of illegal immigrants that were in their state, and coming into their state. And that was followed by some comments by Homeland Security Secretary, Michael Chertoff, in a breakfast that he had in August, about the fact that they had to do something. That he had sympathized with both of the Governors and felt that the Board of Security, had to be addressed differently than they had been addressing it.

That was followed by some testimony that he made to the Senate Judiciary in October, same day that the Homeland Security Bill actually -- Appropriation bill was passed. That they were going to quit releasing other than Mexican illegals, that they did not have bed space, and that he intended to return every single illegal immigrant entrant that was available.

In fact, to put that in perspective, in the budget year just ending, the Border Patrol apprehended some 160,000 non-Mexican nationals, and only removed 30,000 of them. Meaning the other 130,000 were released with expecting to come back for a court date. I think the statistic is that 92% do not return to it.

So, under this new policy, it would be the intent of Homeland Security to return all, to detain and return all 160,000 non-Mexican nationals to their home country. Of course, we did see the signing of the Homeland Security bill on that same date, funding additional Border Patrol, as well as additional beds.

I think what we are most encouraged about, is the fact that we see once again as late as last night, a press release by the Department of Homeland Security, in which they were going to eliminate completely the catch and release enforcement problem, and that they were going to enforce our laws, and make sure that the removable is achieved. I think why we are encouraged is that we know that we have bed capacity in some pretty strategic locations, that could assist their need to detain these illegal immigrants, so that they could be adjudicated and deported. So, as we look at 2006 and beyond, because I think we demonstrated I think what we think's going to happen in the balance of this year.

We continue to see strong need by the Federal Government at the Federal Bureau of Prisons, the U.S. Marshal Service, and now very definitely Immigration and Custom enforcement needs. We continue to see, as I said, some 17 states, most of which we currently do business with, that have a growing need and looking to CCA to help deliver that. And then we have Red Rock, our Red Rock facility coming online in May.

The Act of Procurement that we think has some potential is, obviously the Federal Bureau of Prisons 1,200 bed need, that we now understand will be awarded sometime in end of this calendar year or in January. The Shelby County procurement is on going and active. There's still the outstanding 2,800 beds for the U.S. Marshals in southern Texas. And there is is a 680-bed RFP in Bay County, Florida, which is is a facility we currently manage. So it is an opportunity and a threat, and that should be dealt with between now and the end of the year.

So with that, we'd be happy to open up for any questions and answers.

Thank you. The question and answer session will be conducted electronically. [OPERATOR INSTRUCTIONS] We'll pause just a moment to let everyone assemble their questions. Our first question comes from Patrick Swindle of Avondale Partners.

Looking at the ICE demand coming out over the next 12 months, is it expected that that demand, if it materializes as quickly as it appears, that it will require RFPs for those procurements, or is it possible that ICE may contract directly with you as a provider?

We don't know that for sure. There are, in those situations in which a [inaudible-coughing in background] governmental agreement would be in place, that could be a vehicle, in which they could utilize it, as opposed to doing a competitive procurement.

Then when you look at the ICE populations during the third quarter and so far into the fourth, have you seen an acceleration since the supplemental passed, as we've come through the third, and then moving into the new budget year? Would that be accurate or how would you characterize the progression of the growth?

I guess over the last four months from the end of the second quarter until now, it's really been a little spotty. We've seen some substantial runups in facilities much higher than normal, and then we've seen some, I guess, inmate populations decline.

The one thing that makes it a little difficult to interpret anything, over the last several months is the Secretary Chertoff's comments were made in August of this year, and subsequently we have had three hurricanes that completely distracted the focus of all of Homeland Security to those things, as opposed to dealing with immigration and we now have a sense that they are now back into where they intended to be heading, in August of last year.

So, again, we've seen some places where the inmate population has gone up. We've seen some backing off. Of course, we did receive almost 1200 about ten days ago on assisting ICE, as it relates to the issues they were dealing with down in southern Florida.

All right. Then next question. Looking at the potential for adding new capacity over the next year. Do you all have any sense yet of the magnitude you might be looking to add beyond Red Rock?

Not that we'd be willing to talk about now, other than we're constantly, as we believe that performance of the last four months, or the last nine months would bear out, that we think our best business model is to try to anticipate where customer demand is developing ,or will be developing, and try to stay a little bit ahead of that.

One thing I would say is that some of this might be targeted to specific customers and some would be speculative. I think everybody should understand from a strategic point of view just what John was saying. Carrying a certain amount of inventory we think provides us, we have the ability to do it safely, and it provides a competitive advantage. And people just shouldn't be expected to see that. If we do start to get a line of sight, if this ICE demand does materialize, you have to realize it's an 18 to even 24 month lead time to put these beds in place. All we're trying to say is, we're thinking out a little bit, that's all.

Okay. Then last question, just a technical question. What is the effective tax rate assumed by the fourth quarter guidance, and then the full year guidance?

Subject to change because it keeps changing. It's very, very complicated. I think any company would tell you that the tax accrual is one of the most complicated things they're dealing with right now. Right now, the year-to-date tax rate that I would assume would be 36 and 37% for this year. On an on-going basis, we said before, because this year had the issue of the financing that we did, and the deductibility of those costs. Longer term we think somewhere around 38.5% would be our rate.

Okay. Thank you very much.

Our next question comes from Scott Schneeberger of Lehman Brothers.

Hey, good afternoon, guys. And very nice work in the quarter.

Thank you.

You know, something else that not only did you have some very good performance on the bottom line, but free cash flow is quite strong. Could you talk about how you're going to finish the year in free cash flow. Any thoughts going forward and maybe a follow-up on that?

We did, I want to say, a little over $40 million this quarter, and we did indicate that we were $4 million less in maintenance CapEx, and Information Technology expenditures than we were last year. Because we deduct those before, in trying to arrive at this cash flow number.

So I would say that that $43 million is -- I think was $43 million, was a little bit strong. $43.6 million was a little bit stronger than I would anticipate maybe in Q4. Scott, I don't have just the maintenance CapEx forecast in front of me right now. I would tell you somewhere between 35 and $40 million, based on guidance we're giving, is a reasonable number.

As a run rate going forward, or fourth quarter specifically?

The problem with the run rate going forward is at some point next year, we're going to start paying cash income taxes. I'd rather get into the 2006, both the income forecast and cash flow forecast, after we've had a little more time to press forward with our budget.

We have, I think everybody knows we've had the good situation, I suppose, of having a lot of NOLs, that we have been burning through for the last several years. We do expect sometime next year, maybe midyear, that we will become a cash taxpayer. We've been wrong about that before, based on the utilization of these NOLs. But we need to do a little bit more work, and see what that means. I still think that regardless of that, that you're looking at something over $100 million of free cash flow for next year, regardless of the tax situation.

Okay. Thanks. That's helpful. And I guess kind of shifting gears a little bit, you mentioned on this call, by the end of the year, or perhaps January, you thought that that BOP contract would be awarded. It's rare that you guys give timing, on when you think a contract will be awarded. Can you give us a sense why you feel so confident there?

Well let me tell you that, maybe confident isn't the right word. I tried to describe what we are hearing but having had an experience where we waited almost a year before the award of the [McCray] contract. You never know what other issues that an Agency or a Bureau are dealing with. But right now, that's what we are understanding, based on the feedback we're getting. I will point out that October was the targeted time back when they first released this, through subsequent events it now appears that it will be later.

You got things like the budget, because every month they move it one way or another. Obviously creates an appropriation issue. And they may feel they can move quicker because of the way other things are going, or they may say we need to delay it a month, because we need to utilize the appropriations somewhere else. But, it's just the best estimate we have right now.

Great. Thanks. Just one final question, if I could. Could you give us a little bit update on Stewart with regard to its opening, potential to fill, et cetera?

Well, it is now in a position where we can bring it online. We've had a few construction delays, that are now behind us. We have, I think, for the last two quarters indicated that we thought that we had a customer that would be able to utilize it.

In fact, I think by the time of the last conference call we thought maybe that would happen in third quarter. We're still dealing with all of the same prospects. Of course, one of which is the Federal Bureau of Prisons that we had previously, are still encouraged that we will sometime in the next 3 to 6 months, see a customer who will utilize the facility.

One thing I would add, just for your models and whatnot. We brought that facility online close to October 1, so we will be depreciating it in the fourth quarter. We will not be capitalizing any interest associated with Stewart beginning in the fourth quarter.

Great. Thank you very much, guys.

Okay.

Our next question comes from Jim Macdonald at First Analysis.

Good quarter, guys.

Thank you.

You talked a little about the drop in fixed expenses on the manage-only side? There seemed to be a pretty large drop. Was Tulsa, was the Tulsa jail really a big negative that came off?

I would tell you that Tulsa would be a negative, yes. But I don't -- I kind of looked at it on an overall global. We'll do some digging here, see if we can come up with an answer on this call for that.

Okay. On Otter Creek, can you give us an update of kind of how that's going to refill?

Well currently we have approaching 400 Kentucky inmates. If it's not 400, it's 397 or 8, or something like that. And we are housing currently 80 Hawaiian inmates with, I think, the desire to go to -- let me look, make sure, 120 or 140. I don't know if we put it in the press release or not. Up to 140 females Right now it's roughly 80 Hawaiian females, and 400 Kentucky females. The Kentucky levels will stay at that level, until after the end of this fiscal year. We have reason to believe that they will fund more Kentucky inmates, and then the Hawaii contract is up to 140, and we currently have 80.

Jim, while you're there, you said the question was why were the fixed expenses up on the managed only portfolio?

No, down. Sequentially.

I'm sorry. I'm looking at quarter over quarter. We'll have to get back to you on that then.

Just sometimes you give kind of an up-to-date occupancy as of kind of today or something, are you willing to do that this time?

The occupancy at October 31 was net of the ICE inmates that we described as temporary. 65,270.

Great. Thank you very much.

Okay.

Our next question comes from Susan Jansen of Lehman Brothers.

Good afternoon, everyone. My congratulations on a really solid quarter as well. I did notice in your Investor presentation on the webpage, that your San Diego facility has returned to 100% occupancy. I was wondering if you could give us some commentary about that? Also, you've talked a little bit about your CapEx having dropped in the quarter. Could you just tell us what was the reason behind that, and if you expect to pick that up in the fourth quarter? Was it just a timing issue, in other words?

Why don't you start with San Diego?

On the San Diego population, the contract that we renewed, or it was actually a new award for up to an 18-year period, that began July 1. There is an occupancy guarantee of 1,200 inmates.

Excellent.

On the CapEx question, there were just some, on a comparable basis, there were just some things we were working on last year, that had some size to them that we are not doing this year. That's why we had the comparable decline. We were doing a major renovation at our Eden facility. In one place, we were doing some work on corporate office here, just expanding some of the office space here in our building. So on a comp basis, it was down $4 million.

With respect to the balance of the year, Susan, what I would say to do, we provided the guidance as to what the maintenance CapEx will be, both for IT and maintenance, facility maintenance CapEx for the balance of the year. I would just go with that.

Perfect. Thank you very much.

Our next question comes from Barry Stouffer of BB&T Capital Markets.

Good afternoon. Could you give us an update on the IT project, such as how close to completion, how much money left to spend, and any benefits you might share with us, on what you've implemented so far?

Sure. The project was designed to be about a three-year rollout project. It started a little over a year ago. First two facilities took a little longer than we expected. By virtue of that process we did not have any failures with it. It's been a successful implementation. We took longer than we wanted on the first two. But we are starting to see is a great deal of acceleration on that project now. In total, that project alone was estimated to cost over the 3-year period about $25 million.

We're still reasonably on-track. We might be a little over than the $25 million. Still 25, $27 million. So by the standards of IT projects, it's on-budget.

What I have told people, and what we are seeing and consistently seeing, is that we expect to see an excess of 20% ROI on that project. We are getting it. We are getting a solid return on that project. I've always told people we would do better than we would do on prison construction or expansion, and we are.

The other thing I would tell you is from a business process prospective for our employees, I think once they get used to it, it is improving the quality of life in our facilities.

Thank you. That's all I have.

[OPERATOR INSTRUCTIONS] Any follow-up questions? Our next question comes from Scott Schneeberger of Lehman Brothers.

Hi, guys. Just a real quick follow-up. I apologize if I missed it in the prepared remarks. Did you put any quantification on this short-term temporary housing, that you're doing as a result of weather? And might we see any fluctuation quarter to quarter of that wearing off looking ahead?

We did not quantify it because we really can't right now. It's very fluid. Lot of it's going depend on how quickly they can deal with repairs, power restoration, and everything in Florida. And then come back and get the inmates.

I think what we're seeing is we expect it to be profitable for us. But we cannot comment right now on the extent of it.

Of the original 1177 or whatever it was, that we took, if the moves had taken place tha I was alerted to, we were really down to about 600, which we do expect to maybe stay for another three to four weeks.

I was under the impression that we incurred some costs ourselves because of the hurricanes. So, it's a mixed bag of getting new business and some costs that we incurred that were abnormal as well.

Net net, Scott, this will be a plus. This is good for us. I think it's good in that ICE gets used to the facilities. There's a lot of good things that have come from this qualitatively also, but we don't just have a number to put to it right now.

Plus it was my point out aside from the financials, the ability of this Company to react within hours of a request from our customer and respond, it was almost, I think, 48 hours from when they told us they wanted them, until we started receiving the first inmates. And we received them over the next 72 hours. And it was flawless. So --

We hope that's good from a customer relations standpoint. Just while I have the phone, if Mr. MacDonald is out there. On his question about the fixed costs for manage only.

Mr. Garfinkle here did some digging. We were ramping up our Lake City facility. That was a 540 some bed expansion in Q2. And that would have had some effect on cost that you would have seen go away, now that the inmates are in place. Scott, do you have any other questions?

I'm all set. Thank you very much.

Okay. Thanks.

We did have a follow-up question from Jim MacDonald of First Analysis.

While we're thinking about the hurricanes, I noticed that transportation group was down a little bit. I might have thought with all this busing people around, that maybe that would have been up. Can you give us any thoughts on that?

It's hard, again, I have said this before, to ascertain what's going on in the transportation group, from looking at the financial statements. Because the transportation revenue is third-party revenue, the transportation expenses are all expenses we incur, even when a lot of our facilities not using transport, have transportation expenses that are classified as transportation expenses. So you really can't tell. What I think -- I just want to be clear with people. I'm trying to get transport a little bit off the radar screen.

Transport is a subsidiary and we've said that some day, some big Federal initiative comes down to Federalize, or outsource transportation, maybe some day that could be a big add for us. The way we should look at transport, it is a very value-added service, that we can provide our customer in a situation like this. We're not really trying to knock the ball out of the park on profits for this. If we could breakeven, or make a mild profit on transport, that's what we're trying to do.

Jim, most of the moves were done by the government itself. They took them either to Austin or to Phoenix, and then we picked them up there.

Okay. Thanks.

At this time, gentlemen, we have no further questions. I would like to turn it back over to Mr. William Andrews for any closing remarks or additional comments.

As usual, I'll try to sum up the salient points that you should leave this meeting with. And that's the third quarter, we were up 20.9% as compared to the third quarter of 2004. $0.52 earnings per share in 2005, versus $0.43 in 2004. Our EBITDA was up 13.5%. Our free cash flow actually increased 46.8%, because of the increase in net income, but also a decrease in our maintenance CapEx. For the nine months excluding the 35 million plus charge for refinancing earlier this year, our earnings per share are showing $1.22, versus the $1.18 from 2004.

Our third quarter occupancy was 92.7% in '05, versus 95.1 opinion in '04. As we mentioned, that's not an actual true number, we have new construction and reconfiguration of facilities in there. As we bring on new beds in some of these expansions, they add to our capacity until we fill them, we don't get this. We have more beds than we had before.

Our operating margins are up to 26.3% in '05 versus 24.8% in '04. The new increases, it caused our improvement in earnings, were the results of new prisoners in Northeast Ohio, Leavenworth, Lake City, Houston, Diamondback, and Prairie, as well as Colorado, and this influx of new inmates temporary, because of the hurricanes in Louisiana and Texas.

But we did incur some cost as a result of those hurricanes. The projections that we're giving you are $0.55 to $0.58 for the fourth quarter, and full year $1.77 to $1.80, excluding those refinancing charges which I referred to. John pointed out that we are still looking at positive demand for this business. 17 states have growing bed needs. We are currently bidding in the local area on Bay County and Shelby County.

And in the Federal government, where we see probably the biggest opportunity, we got this BOP contract coming up at the first part of the year. We've actually bid three of our facilities, Stewart, Hutto, and North Fork, that they can choose among any of the three. The Federal government has increased the budget for BOP, but they're requesting even more, because the BOP sees a bed need of some 30,000 beds into the future.

The Marshal Services are looking at an increased demand of potentially 4,000 to 5,000 beds, and the big new one is ICE, where this new, not ruling, but new statement by Chertoff, that they're going to detain and return illegal aliens, rather than catching and releasing them, because they never show up for their court dates. And there has been additional funding for beds for this purpose, and we do have bed capacity in the areas where they are arresting these illegal aliens. So, if these things fall into place, we have some favorable prospects ahead of us.

With that, I want to thank you for your attention today. We're pleased with the quarter, and hopefully will be pleased with the fourth quarter. Thank you very much.

Ladies and gentlemen, we do appreciate your participation in today's conference call. At this time, you may disconnect.