CoreCivic Inc (CXW) 2011 Q3 法說會逐字稿

Good morning, everyone, and welcome to CCA's third quarter 2011 earning conference call. If you need a copy of our press release or supplemental financial data, both documents are available on the investor page of our website at www.CCA.com.

Before we begin, let me remind today's listeners this call contains forward-looking statements pursuant to the Safe Harbor Provisions of the Securities and Litigation Reform Act. These statements are subject to risks and uncertainties that could cause actual results to differ materially from statements made today. Factors that could cause operating and financial results to differ are described in the press release as well as our Form 10K and other documents filed with the SEC. This call may include discussion of non-GAAP measures. The reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data on our website. We are under no obligation to update or revise any 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 our President and CEO, Damon Hininger and Chief Financial Officer, Todd Mullenger. I would like to turn the call over to Mr. Hininger. Please go ahead, sir.

Thank you so much, Jill. Good morning, and thank you for joining our call today. With us today is our Chairman, John Ferguson and our CFO, Todd Mullenger. Also joining us is our new Chief Corrections Officer, Harley Lapin and our VP of Finance, David Garfinkle. In a few minutes, Todd will take you through the numbers for the quarter, then I'll discuss market opportunities, after which we look forward to taking your questions. First, though, I would like to make some comments on the past quarter.

Let me start by saying that with this quarter, we accomplished a very significant industry milestone, which is the purchase of the Lake Erie facility in Conneaut, Ohio. I'll provide more commentary on this later, but we are very excited about the industry's first purchase of a state-owned correctional facility. I'm also very pleased with our third-quarter results, both operationally and financially. Our core business, which remains us providing adult-secure correctional and detention management services to our federal, state and local partners remains very strong.

As for the business going forward, we are living through a very favorable new development environment, and the macro environment is also very favorable. For the second consecutive year, not one of the 50 states has appropriated money for new prisons, which is going to further exacerbate the supply/demand imbalance. Additionally, in new state development, we are seeing some potential partners come into the marketplace soon in a very meaningful way for new beds. For some, this is their first venture in using the private sector. Finally, we are increasing occupancy within the system with considerable increases from the State of Georgia and the United States Marshal Service during the year. And we hit a new milestone recently with United States Marshal Service with us now housing nearly 12,000 prisoners for them around the country, and that compares to 8,100 on January 1 of 2010.

Let me now say a few words about our focus on managing costs. As you know, we implemented a Company wide initiative in 2009 aimed at driving greater efficiency, and we continue to make significant progress. We believe we've had another good quarter of managing costs. However, we did give merit increases this past quarter, and this is our first merit increases to our employees since 2008, and this cost obviously impacted our margin rate for the quarter. Overall, was very please with our performance in the third quarter. I would especially like to thank all of my fellow CCA colleagues for their distinguished performance they have been able to achieve for our Company this year. Now, I'd like to hand the call over to Todd to discuss the detailed financials, after which I'll discuss how we see the market and our opportunities going forward. Todd?

Thank you, Damon, and good morning, everyone. We are very pleased with our third-quarter operating results. In the third quarter of 2011, we generated $0.37 of EPS. The third quarter financial performance exceeded our forecast, due primarily to favorable operating cost performance and our share repurchase program. Revenue per compensated man day in Q3 was essentially flat against last year, reflecting increases in per diems from certain federal and state partners, offset by change in mix with more managed homing populations that carry a lower per diem. Operating expenses per man day increased 1.8% compared to a year ago, which reflects the merit increase we provided to our employees, the first they have seen in three years. The annualized impact of the merit increase is approximately $15 million.

Regarding our current share repurchase program, during the third quarter we repurchased 7.6 million shares, including the shares we purchased under our first share repurchase program announced in November 2008. We repurchased a total of 28.3 million shares at an average cost per share of approximately $17.87. This represents nearly 23% of the shares outstanding at the beginning of November 2008. As of September 30, 2011, we had approximately $119 million remaining under the share repurchase program authorized by the Board of Directors. As a reminder, our debt agreements restrict certain types of payments, including share repurchases, to an aggregate amount or basket. Currently we have approximately $26 million of capacity available under this restricted payments basket. Future additions will be made to the basket each quarter in an amount roughly equal to 50% of net income.

Moving next to discussion of our guidance, as indicated in the press release, we have raised full-year EPS guidance to a range to $1.50 to $1.51. Guidance for Q4 is in a range of $0.37 to $0.38. Our guidance is impacted by a couple of key assumptions, which I would like to outline. First, the guidance assumes no additional share repurchases will be made. The guidance also assumes no material changes for the balance of the year in State of California inmate populations, which currently approximate 9,400. The fourth quarter also includes approximately $1.5 million of start-up costs for our new lake Lake Erie, Ohio, and Jenkins Georgia, facilities. The forecast also assumes generally stable populations elsewhere as we await decisions on outstanding RFPs.

Finally, with regards to our liquidity, as of September 30, we had very ample liquidity provided by approximately $190 million of availability under our bank credit facility, plus approximately $48 million of cash on hand. We believe our strong liquidity and balance sheet are competitive advantages that position us well to capitalize on future growth opportunities. I will now turn it back over to Damon.

Thanks so much, Todd. Now looking forward, as we move towards the end of 2011, as mentioned earlier, I'm very optimistic about the business. In terms of long-term strategic priorities, our focus is going to continue to be carrying beds and inventory to meet future demand. With a meaningful amount of new incremental bed demand in the marketplace today targeting existing capacity, we continue to think this strategy is very appropriate for the Company.

With a nearly 2.3% increase in computated man days, we have made good progress here, but more importantly, one of our top priorities remains to be filling vacant capacity and achieving a higher occupancy rate before building more speck capacity. We will also continue to aggressively pursue build-to-suit opportunities, and as demonstrated with our new Jenkins facility, we have had good success with these types of procurements. Finally, let me also mention we are well underway on the transition with our new Lake Erie facility in Ohio that we will officially transition into on January 1. Additionally, construction is progressing nicely at our new Jenkins facility in Georgia, and we anticipate taking our first inmates there the first week of March of 2012.

Now for the market industry observations and opportunities. As Todd has described, our financial guidance is based on our prospects as we see them right now. Of course, we're optimistic that, just like earlier this year and this past quarter, we will be able to seize additional opportunities that will deliver additional growth. Let me take you through how we're looking at the market and also where we see the main opportunities for the coming year. First, a couple of comments on states' fiscal environment. As reported by the National Conference of State Legislators, or NCSL, their latest fiscal survey finds that state budgets are recovering, but are far from being full recovered from the effects of the great recession.

The fiscal impact has been deep and prolonged with the fiscal year 2012 marking the fourth consecutive year that states face significant mismatches between revenues and spending. To date, state lawmakers have faced and largely address budget gaps totaling over $500 billion. And though additional budget gaps loom, the magnitude and number of states projecting them has falling considerably. Better revenue performance is driving a turnaround of state finances. Elections are stabilizing or growing in nearly every state. Although it will take years for revenues to reach prerecession levels, which is what some state officials are predicting, our collections in the near term are easing some current budget pressures.

The return to positive revenue growth that began in fiscal year 2011 is expected to continue fiscal year 2012, albeit at a very slow rate. Despite the modest improvement of state finances, considerable challenges remain. Revenue growth is not only -- is not expected to keep pace with anticipated increases in Medicaid and other health care costs. Additionally, public education demands and funding for other state programs will continue to present lawmakers will difficult budget choices. Potential federal policy changes also present uncertainty for state budgets. Now, I'm stating the obvious, but there are also widespread concerns about the strength of the economic recovery, which many state law -- state policy makers describe as fragile. They note that any significant disruptions to their recovery would stall or derail recent state fiscal improvements. With these fiscal pressures, it is allowing CCA more than ever to provide innovative and cost-effective solutions to our state partners.

With that, let me provide a couple additional positive observations that we see with the States. First of which is we are extremely excited to add a new state to owned and managed portfolio, which is the State of Ohio. Ohio has been a targeted state for CCA for several years. Their system is the tenth-largest system and sixth-largest state system in the country, and by 2015, they're expected to be over capacity by 15,000 inmates. Our soon-to-be purchased facility is an important transaction for the industry. After a concerted effort by our team, we are executing on a transaction that is a good fiscal solution for Ohio. We are excited about our prospects on replicating this type of innovative solution with other state and local governments in this difficult fiscal environment.

CCA's current state customers are projecting a growth of 13,000 inmates over the next five years. This is, of course, without California. This is on top of the nearly six states we have mentioned recently that are currently not doing business with CCA. We estimate that these states are approximately 12,000 inmates over capacity today, and by 2015 are projected to be over capacity by 18,000. We think we could see several states use a private sector that don't have capacity to deal with their overcrowding and/or growth. And you've also heard me report earlier that for the second consecutive year, not one state is funding new prisons. But you've also heard me report for many quarters the chronic problem states face in funding their pensions. As you all know, this recent legislative season has put this issue front-and-center for governors and legislative leadership, and as they think about ways to slow the rate of growth regarding this issue, our long-term value proposition is resonating more and more.

Now, last week, this was really reinforced to me, again, and I had the opportunity to meet with a chief of staff of a governor for a prospective new state, and we talked through the immediate solutions we could provide to their respective state. Three times during the conversation, this chief of staff expressed how he understood our value proposition, but also without any prompting from me, that we could help them slow the rate of growth of their long-term cost for pension and health care. We think this issue is a key catalyst for many states like Ohio and Florida that are providing these unprecedented opportunities we are seeing right now, and we think we could see additional states come to the marketplace and replicate these type of solutions.

Now, this is a point where I typically give updates on pending procurements, but before I do that, let me make a brief comment on the federal budget for 2012. As like last year, the federal government is currently working under a continued resolution, or CR, that funds federal agencies at fiscal year 2011 levels until November 18. It is expected that another CR will be passed to fund the federal government until mid-December as congress tries to complete its work on the appropriation bills. At this point, it is our understanding that key congressional leaders want to complete an omnibus appropriations bill based on overall spending caps contained in the budget control act, which I'll discuss in the minute, but there is still a chance that congress will ultimately pass a full-year CR of fiscal year 2012 that sets funding at fiscal year 2011 levels.

As a reminder, in early August, congress passed the budget control act which increased the federal debt limit in exchange for instituting overall spending caps in fiscal year '12 and '13 and established a congressional super committee to identify at least $1.2 trillion in additional savings over the next 10 years. The budget control act divides spending for government programs and services in fiscal year '12 and '13 into two buckets, national security and nonnational security. Three of our partners, the Bureau of Prisons, the United States Marshal Service and Office of Federal detention Trustee, fall under the nonnational security bucket which has a $359 billion spending cap in fiscal year '12, which would be only a $4 billion reduction over fiscal year 2011 levels for all the agencies and programs within that bucket.

Our other federal partner, ICE, fall under the national security bucket along with the Department of Defense which has a $684 billion spending cap for fiscal year 2012, and that would represent only a $2 billion reduction for fiscal year 2011 levels for all the agencies and programs within that bucket. So, in short, as we stated, in the Q2 earnings call, we believe that the fundamental day-to-day operations for the federal government will be tilted downward only slightly during the next two fiscal years. And we continue to believe that OMB, DOJ and DHS understand the relatively inflexible nature of bed space requirements for federal prisoners and detainees, and we would expect that they will continue to ensure federal partners have sufficient funding to meet their requirements. Also of note, the fiscal environment in Washington has created real challenges for the BOP on getting funding for new capacity. We are estimating that the BOP could need up to 15,000 to 20,000 new beds over the next five years.

So, now to significant pending procurements. The first of which is Arizona and their requirement for 5,000 new beds owned and operated in-state. As widely reported in the media last week, the court challenge on this procurement was dismissed last Friday. We expect the award to be some time this quarter. Just a reminder, this procurement is looking at two dates for the ramp of these 5,000 beds. The first 2,000 would ramp no later than April of 2013, and the next 3,000 inmates would ramp no later than April of 2015.

In Florida, a procurement was issued in the third quarter for the management and operation of the south Florida region, or region 4. This will include 28 facilities housing approximately 16,000 inmates. Beds were due on October 4, yet the procurement was suspended due to a court ruling regarding the states' method for authorizing the RFP's issuance. The state appealed the ruling late Tuesday night, and it is too early to tell what will happen next or what will be the ultimate outcome. We are, however, also aggressively pursuing an opportunity the state is undertaking to optimize the operation of existing private Florida facilities by up to 1,200 inmates, which we think could be decided later this year.

With ICE early this year, we were given the intent award and we are working with immigration custom enforcement on new facilities in Florida and Illinois. If we are successful in working out an agreement on both facilities, it would require that we build approximately 1,500 beds in Florida and 750 beds in Illinois. Harris County, Texas, issued an RFP on June 10 of this year under which the county is seeking proposals for the management of the entire Harris County jail system of approximately 9,000 beds. We submitted a bid in September, but more importantly, I think it just shows how meaningful the opportunities are, not only at the federal and state level, but also at the local level. As for renewals, as mentioned in the press release, we are very excited about renewing through the recent competitive procurement with the BOP for the new contract with them at our McRae, Georgia facility. We're very grateful to serve the BOP another 10 years at this facility. As mentioned earlier, a significant amount of activity for the industry with approximately 32,000 new beds out for bid.

Now, before I make my final comments, let me give a brief update on a couple of topics relative to California. I gave a fairly comprehensive update last quarter on the enacted budget in the supreme court ruling, which I won't repeat today. However, we have been monitoring the state's progress with their realignment plan which was effective on October 1. It is too early to tell -- too early to report, I should say, any significant results, but California's population is declining, and the full impact is expected to take several years. And California continues to include the use of out-of-state beds as a component of their response to the federal court on population caps.

Additionally, another former vendor of the state terminated their contract for the housing of 270 inmates out of state, and the state elected to send that population to CCA during the month of September. This, in essence, takes our occupancy percentage with our California facilities from about 96% to 99%. Instead of taking this population back in state, we take this as an encouraging sign that the program, again, is key component to help them comply with the federal court ruling.

Finally, it has been well reported that we submitted our La Palma and Red Rock facilities in Arizona, which both currently house exclusively California inmates, under the pending Arizona procurement for 5,000 beds. We have had extensive conversation with California, both in advance of the due date and since proposals have been submitted. We feel we've presented compelling alternatives of the use of existing CCA capacity to California if we were to win business with Arizona at either or both facilities.

Let me bring to a close my comments and make these final points. We continue to believe we are very well positioned in a market that, despite the economic pressures faced by our customers, has provided healthy, financial performance. Indeed, it is because of these pressures, which lead to severe capital constraints and the need to avoid increasing their pension liabilities, that we believe our value proposition to customers is getting stronger. Actions underway in Florida and Ohio prove this. This environment has also led us to secure a new partner. We are again very excited about our renewed relationship with the State of Ohio and implemented an innovative solution that for the first time, has been done in the industry. We don't see any change to the current position that we are able to meet their needs, either through existing capacity or our ability to construct facilities faster and at much lower cost. And with that, you heard me say earlier that this last legislative session was the most meaningful in which governors and legislators are forced to look at innovative solutions, and we think next spring we could see more states take large steps in using the private sector like Ohio, Florida and the Arizona did this year. We believe this supply/demand imbalance will develop further long term and insufficient public sector capital investment is opening up significant possibilities with potential new customers.

Financially, our business continues to be very strong, we have a strong balance sheet, good liquidity to fund new capacity development and focus operation in a largely unpenetrated US market. In summary, the business is performing well, and we're taking actions in the short-and-long-term to make sure it continues to do so. As mentioned earlier, I am very optimistic about the business. We have been very deliberate in how we manage expenses in capital in order to deliver healthy financial performance and position our Company for long-term growth, and we will continue with this strategy well into the future.

So, that concludes my prepared remarks. Thank you again for calling in today's conference. Let me now turn it back over to the operator for Q&A.

Thank you. (Operator Instructions) Our first question today comes from Kevin Campbell with Avondale Partners.

Thanks for taking my questions. I was hoping, Todd, first you could start with just giving us some additional details on the start-up costs. I think you said it was $1.5 million. Can you give us a sense for how much of that is attributable to Lake Erie versus Jenkins?

The majority of that would be Lake Erie. It could be up to $1.5 million.

Okay.

In total, for both. A little bit for Jenkins.

Okay, that's helpful. And G&A for the quarter came in a little bit higher than expected. You guys typically guide to sort of 5%, and it was 5.3%. Can you give a sense for, A, why that was higher; B, where that should go, going forward? Is 5.3% the new run rate? Should it tick back down to 5%?

Sure. With regards to why it was larger in the quarter, it's largely due to increases in accruals for incentive compensation driven by timing. So, the accruals and expense increase, as we increase our EPS forecast. With regards to guidance for Q4, our forecast assumes G&A expense for the full year at just a little north of 5% of revenues for the full year.

Okay. And -- let me ask you, you raised your fourth-quarter guidance by $0.01, but as we do the math on the buyback, and the 8 million shares, that would add about $0.03. You have some, maybe $0.01 or so from that from the additional start-up cost. And so it sounds like -- all things equal, it sounds like operationally things are maybe a little bit lower than you would have originally expected. Are there some other costs that were -- we need to be thinking about, be it incremental D&A or things like that?

On the depreciation and amortization expense, you can back into this with the AFFO guidance, depreciation and amortization expense for fourth quarter $28.5 million, which is a bit of an increase over Q3. Interest expense, you need to factor in a little more debt, about $100 million more in debt that we used to fund the share repurchase, so a couple of tweaks there on the forecast. Nothing else on the cost side.

I will say we have seen some recent volatility in Marshals and ICE populations that has caused us to make a slight adjustment for Q4. As a reminder, historically we can experience some seasonal fluctuations in these populations during the holidays. Some years we see that fluctuation, some years we don't. We're now assuming we see some of those seasonal fluctuations, but we may not.

Okay. And so again, you said the D&A would go up to $28.5 million? Is that right?

$28.5 million, yes.

That's up about $2 million sequentially? Is that right? What's the driver there? Is it just Jenkins and some of these coming online?

It's primarily increase -- it's increased maintenance CapEx, and it's heavily weighted towards third and fourth quarters.

Okay.

And really fourth quarter.

That's helpful. The ICE contract that you're negotiating, Chicago and Florida, can you give us a sense on timing, when you expect to officially -- and I know things are fluid and things always take a little bit longer than expected, dealing with government customers, but can you give us a sense on potential timing of when you might actually see those inmates start to impact your income statement?

Good morning, Kevin, this is Damon. You answered the question pretty well, actually, without me doing it for you. Because it does take a little while, and we're kind of working through the different details and discussions with ICE. Having said that, we have progressive conversations here into the Fall, and I would say sitting here today, that probably wouldn't be an event until probably 2013 because, again, we're still working through the numbers and the type of facility, and also working to kind of their timetable. If we finished everything, say, by the end of the year, based on the size of the facility, I think it probably would take about 14, maybe 16 months to build these facilities. Again, maybe a little longer in Illinois, maybe a little less in Florida, but I'd say these are 2013 events.

In terms of events, you don't mean the actual signing of the contract, you mean the actual intake of inmates?

Right, so, yes, say it a different way -- so if we finalize agreements by the end of this year, and allow, say, anywhere from say 14 to 16 months to build these new facilities, again, that's assuming they start at the same time. I don't have a clear understanding today if that's going to be the case. They may want to stagger them just a tad, but I'd say 2013 when they would open.

Okay. And then last question, Harris County, you didn't give a potential timeframe there. Maybe you can give us some thoughts around when you think that might happen. I know Harris County before has had bids out for similar types of procurements, not necessarily the size, and they haven't moved forward, so maybe that's why you're reluctant to give a date. But I'm curious what you think, at this point, on the potential timing of an award.

Again, that captures it pretty well. We submitted a bid, and initially when they came out with this procurement in early June, they had a very quick turn-around. I think they wanted procurement or proposals within 30 days, and I think they were looking at an award initially like in August or September. But I think the sheer size of it, several facilities, 9,000 beds, required a lot of work on the front end by us and other vendors that tour facilities, look at the plans, understanding kind of the physical plant conditions of these existing facilities. That all took a lot more time than probably was appreciated on the front end.

So, we submitted a bid. They have not -- the County has not indicated a timetable for award or making their final decision. There has been some back-and-forth, they have asked clarifications, and there's been a little bit of back-and-forth with the vendors. They have not set forth a clear timetable when they expect to award.

Great, thank you very much. Congratulations on a very good quarter.

Thank you, Kevin.

We'll go next to Todd Van Fleet with First Analysis.

Hi, good morning, guys. Damon, I'm going to take issue with your comment on things taking longer in Illinois. We're experts at efficiency here in this state.

(Laughter) I apologize, I apologize.

I want to touch on California for a second. You said that the -- you were the beneficiaries of GEO closing down that facility in Baldwin, and that was at the -- you received those inmates at the beginning of this quarter, is that right?

It was during, really, I guess, during the month of September into early October.

Okay, and then Todd, your comment regarding guidance, I Just thought it was unusual that you kind of called out California as being a variable, I guess, in the guidance. Is that because -- I assume that the additional, the incremental California inmates are embedded in the guidance then for Q4.

Well, my intention wasn't to call it out as a variable, but just to provide some direction on our assumptions around populations. We have obviously seen a lot of questions around California, what are happening to populations, so just to let people know that they're stable.

Okay. So, there's no real, I guess with respect to California, and them -- I guess you absorbing GEO's -- the capacity that GEO let go of into your facilities doesn't give you an indication that maybe you could see more? I'm just trying to -- where does the needle go? Does it fall more on the -- maybe we could see some more inmates, or does it -- we're kind of still a little bit uncertain about how much we're going to have, or -- is there better -- is there more comfort, I guess, you have in that population?

I would say in the near term, obviously with the ruling and the funding of our facilities for the full fiscal year gives us some comfort here in the near term. On the longer term, and I'd say longer term, say, 24 to 36 months, a little less certain on at least more demand. They just started the program on October 1. They're doing, every couple of weeks, updates to the court on the progress with realignment. And so I don't think it will be until probability 2012, maybe late next year, maybe early 2013. As you know, they've got their kind of key milestone that they've got to get in May of 2013 where we get a better feel on how they think about the program a little more longer term, maybe to increasing it. I think they want to see, truly, do they get the progress they're hoping to get with the realignment program and moving population down to local facilities.

I think near term, it's the base. I think we'll look over the next, say, 12, 24 months, how they think about potentially growing the program. And the flip side is, is that if the program goes very successful, how that -- again, how they think about the program more long term. But I do -- as I said in my comments, I take it as an encouraging sign it would then -- you would think, anyway, fairly easy to take to 270, I'd say fairly easy. You would think that with that small amount, take that back in state, we took it as an encouraging sign that they didn't take that population back in state, and they moved it to facilities within CCA.

Yes, okay. And the -- I know we're not talking about 2012 yet, but I'm just thinking about Ohio. And I apologize if I missed this, but can we calibrate the size a little bit of that contract there at Lake Erie?

No specifics yet on guidance for 2012. I will say that we continue to apply our ROI hurdle rate of 13% to 15% cash-on-cash, pretax EBITDA returns to all capital investments. But also keep in mind that we will incur some start-up costs in 2012 that would impact 2012's EBITDA levels for Lake Erie.

Right. Would that --?

(multiple speakers) last couple.

Would that be a Q1 event though, with the start up? How long would start up continue?

That would be a Q1, yes.

Okay, so we're seeing the $1.5 million in Q4 here this year, right?

It's going to be up to $1.5 million, and we're trying to refine the timing. Obviously, we'd like to, from a time, value, and money standpoint, push as much of that into Q1 as possible. We want to make sure we have a very tight execution on the transition, so we might be willing to invest the money on the front end, sooner rather than later.

I'm sorry, so could we see a larger start-up expense in Q1 then, related to Lake Erie than Q4?

I don't think so. It's really a question of -- I would put a band on the start-up costs in total of around $2 million-ish, and the question is -- how much of that is in Q4 versus Q1.

Okay, that's helpful. And then lastly, I guess the pricing increases for the feds is coming in this quarter. Is that right? Can you help us understand maybe what the aggregate pricing increase would be across that portfolio?

We prefer not to provide that level of detail.

Okay. Thanks.

(Operator Instructions) And we'll go next to Tobey Sommer with SunTrust.

Thank you. In your discussions with new states about what is going on with the Ohio and Florida move to outsource, how long do you think they need to see the results before they'll be able to render a judgment as to the success of that, and then take that -- those examples and move on their own?

Good question. I would say some states maybe just don't want to be the trail blazer, and now that Ohio has done a transaction like this, and it's going to be executed first of the year, and it's going to be after -- or before, I should say, they start sitting down and finalizing their budgets for the coming fiscal year. You could see a couple of states as early as next Spring taking similar action. Not necessarily waiting on the results, just didn't want to be the first one out of the chute to do that type of transaction. And then again, you could have some other states that may be a little more -- want to see a little more of a kind of performance after that transaction, so maybe they wait a cycle, they wait a full fiscal year before they take a similar step. I think you could have a combination of both.

Thanks. I know the Florida situation is pretty fluid. Right now, at least, sits in the courts, but what other avenues to pursue the goal does the Governor and the Legislature have at its disposal?

They appealed Tuesday, and as we kind of thought about their next step, they could have done that, which they did, appeal. They could have potentially go back to the Legislature in the Spring and maybe try to get a stand-alone bill to get authority to do the procurement. And there may have been some iteration -- or some type of hybrid between those two things. So, with that, to what you said earlier, it is very fluid. We don't have a clear sense exactly what the state will do next, and how the state will act on the procurement while they go through this issue with the courts.

One last question from me. You bought back a lot of stock in the quarter, and the availability based on the bucket stipulations for repurchases is relatively modest at this point. Given your propensity to kind of buy back stock in recent years, should we assume that you probably still dedicate some resources towards that over time?

We've got the authority. We've also got more authority than we've got through -- available through the covenant restrictions, so it will be -- continue to be part of the playbook. As we kind of look at everything going on within the business and within the market, that could be a tool we continue to use.

Okay. I'll get back in the queue. Thank you.

Thanks, Tobey.

And we'll go next to Dennis Wurst with Britton Capital.

Good morning. I wanted to ask about legal accruals, and if you're putting aside any extra reserves, I saw that there was an ACLU lawsuit, and I just don't know what that kind of thing costs. I've used lawyers myself, and I don't remember them being cheap, so I'm just wondering how much I should adjust for that?

I would say our legal accruals are in line with our historical averages.

Pretty much unchanged. Where would that go? Does that go under G&A?

That would typically end up, depending upon the nature of the lawsuit, more often than not in operations -- operating expense.

Got you. Just trying to figure out -- you guys are very well indexed to inflation, so your per diems change as inflation hits. It looks to me like health care costs and salaries are the big wild cards for you. What are the other expense wild cards that you would say are on the list? You guys -- you're very well indexed. It moves, your rates move. That's great. I'm just wondering what else I should pay most attention to.

Well, salaries and benefits, which include a large component for employee health care benefits, are the two largest components. That accounts for two-thirds of our operating cost. Then you've got inmate health care when you'll see some inflation, maybe above-average CPI. Utilities -- you can see some variability in utilities based on -- obviously on energy costs. Food -- we have a fixed-price contract in place that takes us through the end of 2012. Those are the major components.

Got you. Okay, how about insurance on the idle properties? What is the overhead to keep some of these idle properties? You have to have at least somebody walking around in the middle of the night and electricity and insurance. What kind of drain is that, say, per quarter?

The average cash operating carrying cost for a vacant bed, about $1,000 per bed per year. So they carry, call it 10,000 empty beds in inventory, call it $10 million to $12 million in cash operating carrying costs a year, so very modest cash operating carrying cost. Because unlike the hotel industry, for example, that has to keep those beds or the facilities fully staffed to capture the business as it walks in off the street, we can idle our facilities, and then reactivate those facilities once we have a contract in hand, and we know the populations are headed towards the facility, so the cash operating carrying costs are very modest.

Understood. Well, right now I'm in Arizona, so good luck on the Arizona procurement. I know you're going through the beauty contest stage right now.

Thank you. Thank you very much.

And our next question comes from Martin Ji with ClearBridge Advisors.

Question -- what's your excess bed inventory at the end of the quarter?

It's about 10,500 beds.

10,500. Okay. Thanks.

And next question comes from Patrick Donnelly with Black Rock.

Good afternoon, guys, or is it good morning still? I just wanted to ask you about your capital deployment. Obviously, you're buying in your shares and now you're limited. You've got a business that is incredibly durable. Over the last few years, never had a down year, top or bottom line. Why not institute a dividend, a common dividend that's not just a token, but something that is meaningful -- 2%, 3%, 4%? Given the cash flow characteristics, and given that you would broaden out your investor base, I just think it makes a lot of sense. I liken you to the REIT sector. And if you look at the AFFO figures, the REITs are trading at 2.5 times your level. I just think that it makes a lot of sense to institute a dividend, and to broaden out your investor base. Please comment.

Yes, we're always -- I think we hopefully have shown a pretty good track record over the last couple of years on looking at those type of alternatives. It was late 2008, there was great feedback from investors about implementing a share repurchase program, and we did that, and obviously feel like we have been success in the two different programs we've had in place. That is always something we're taking a close look at. Is there an opportunity to deploy what we call [strategic] alternative like a dividend to maximize return to shareholders? So, that is something that we definitely take a close look at, and talk about as a management team, and discuss extensively with the Board.

Okay. Well, I look forward to hearing more. Thank you.

And we have no more questions in our queue.

All right, Jill. Well, thank you very much, and thank you to all that called in today for your questions and for your comments. More importantly, to our shareholders, thank you very much for your investment in CCA. Please know that your management team is focused on executing on another good quarter and a strong finish to 2011, and we look forward to talking to you not only later this Fall, but into early 2012. So, thank you again for calling in.

This concludes today's call. We thank you for your participation.