CoreCivic Inc (CXW) 2011 Q4 法說會逐字稿

Good morning everyone and welcome to the CCA's fourth-quarter 2011 earnings 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 that 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 10-K 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, and Tom Mullenger. I'd now like to turn -- Todd Mullenger. I would now like to turn the call over to Mr. Hininger. Please go ahead, sir.

Thank you, Lauren. Good morning and thank you all for joining our call today. With me today also is our Chairman, John Ferguson and CFO, Todd Mullenger. Also joining us is our Chief Corrections Officer, Harley Lappin and our VP of Finance, David Garfinkle.

In a few minutes Todd will take you through the numbers for the quarter and the year. Then I'll discuss the marketplace and new business opportunities after which we look forward to taking your questions. First, though, I'd like to make some comments on the past quarter and the full year.

I am very pleased with the fourth-quarter results which capped off another successful year overall. I believe that our performance over the past year demonstrates clearly that we are executing on a strategy very well. From a financial perspective, our full-year diluted EPS was 10.8%.

This makes for 11 consecutive years of EPS growth for CCA and with the worst economic environment of our lifetime, a compounded annual growth rate over the last 3 years is just under 9%. Revenue was up nearly 4% and net income was nearly 3.5% even though we reinstated our merit increase program in 2011.

But more importantly, 2011 will be seen as a very significant year for CCA. During the year, we've made real progress on many fronts at a time when there has been a lot of doubt and uncertainty about the economy. After I receive the call back from Todd, I will outline the factors that have given us real momentum as we head into 2012. So, overall, I am very pleased with our performance in 2011.

I would especially like to thank all of my fellow CCA colleagues for their commendable achievements they have been able to achieve and accomplish for our Company during the course of 2011. I am eternally grateful to all of them. Now I would like to hand the call over to Todd to discuss the financials and our EPS guidance for the year. And after which I will discuss how we see the market and the opportunities going forward. Todd?

Thank you, Damon, and good morning, everyone. We're very pleased with our fourth quarter operating results. In the fourth quarter of 2011, we generated $0.41 of EPS. The fourth-quarter financial performance exceeded our guidance, due primarily to higher US martial populations, a lower effective income tax rate, and lower than anticipated operating costs.

Average US martial populations in Q4 increase over Q3 with increases coming at facilities that were operating at very high occupancy rates, thus generating attractive incremental margin dollars on those inmates in the quarter.

The effective income tax rate for Q4 was 35.6%, which was significantly below the approximately 38% we had been averaging for the first 3 quarters. The lower tax rate was a result of several tax credits available at the end of the year. This lower tax rate added $0.02 to Q4 EPS. So adjusting for the unusually low tax rate for Q4, we really need to think about Q4 as a $0.39 quarter on a normalized basis, which is still ahead of a guidance range for Q4 2011 of $0.37 to $0.38.

As reminder, in early January, we closed on a new $785 million all revolver bank credit facility that replaced our previous $450 million revolving bank facility. The increased capacity under the new facility will be used to repay $335 million of the $375 million outstanding under are 6.25% [2 new notes to mature in market] 2013. The refinancing of the notes will be completed on February 13 when we finalize and fund the redemption call. This will leave $40 million outstanding under those senior notes.

Moving next to a discussion of our guidance, as indicated in the press release, Q1 2012 guidance is in the range of $0.32 to $0.33. Guidance for the full year is in range of $1.60 to $1.70. And then AFFO guidance for the full year is in the range of $2.35 to $2.50. Guidance excludes any charges that will be taken in Q1 associated with the partial tendering call of the 2013 senior notes.

Our guidance is impacted by several key items which I would like to outline. First, the sequential decline from $0.41 of EPS in Q4 to a range of $0.32 to $0.33 in Q1 can largely be explained by several items. As I mentioned earlier, the unusually low tax rate for Q4 of 35.6% benefited Q4 EPS by $0.02, a benefit we don't expect to be replicated in Q1 2012 as we expect the 2012 income tax rate to average 38%.

Next, you will recall from prior years that Q1 is always weaker compared to Q4 due to a large seasonal increase in unemployment taxes. Generally speaking we pay over two-thirds of our annual unemployment taxes in Q1 because of how the taxes are calculated and when they are paid. That translates into a $0.03 negative impact on Q1 EPS versus Q4.

The first quarter 2012 also includes approximately $3 million of startup costs related to the opening of our Jenkins, Georgia, facility and the ramp-up of Puerto Rico inmates at our Cimarron, Oklahoma, facility. This amount is around $2 million higher than the amount of startup costs occurred in Q4 which negatively impacts Q1 EPS by $0.01.

In addition, beginning later in December and continuing into Q1 of this year, we have experienced a decline in US martial populations at several facilities, which we believe is due to transfers of detainees from martial custody to the custody of the BOP. This occurred at the same time that new prosecutions slowed over the holidays.

The negative impact on margins [for mandates] from these transfers will be material as populations declined at facilities that are operating at very high occupancy rates. We are forecasting around $0.03 of impact on Q1 this year versus Q4 2011 as a result of these declines with the expectation that populations rebound by Q2. Finally, we have around $0.02 of favorable impact on EPS from a combination of our new Lake Erie, Ohio, facility as well as lower G&A and interest expenses.

So to recap the crosswalk from Q4 EPS of $0.41 to the Q1 guidance range of $0.32 to $0.33, the total impact of these items just outlined is around $0.07 to $0.08 net, a $0.02 reduction from the increase in the effective tax rate, $0.03 reduction from higher employment taxes, $0.01 from increased startup costs, around $0.03 from declines in martial populations, with these items being partially offset by $0.02 from EBITDA at our new Lake Erie facility and a reduction in G&A and interest expenses.

Looking past Q1 into Q2 and forward, in addition to the rebound in US martial populations in Q2, we will benefit from a material reduction in unemployment taxes from Q1 to Q2 of approximately $4 million. Q2 forward will also benefit from the completion later this month of the refinancing of $335 million of 6.25% senior note debt with borrowings under the expanded bank facility where our current borrowing rate is LIBOR plus 1.5% or around 2% in total.

Next, the ramp of Puerto Rico inmates at Cimarron will begin with a small transport in February, with additional transports in March, April, and May, with 480 Puerto Rico inmates expected in total. We will also activate the Jenkins, Georgia, facility with a gradual ramp-up of populations beginning in March, with completion of the ramp expected in the third quarter when the population will reach approximately 1,135.

Guidance also assumes no additional share repurchases are made. General and administrative expenses for 2012 should approximate 5% of revenues. Depreciation and amortization expense is forecast at approximately $115 million for the full year. And then AFFO guidance for 2012 is impacted by the assumption that the low 2011 cash tax rate of around 27% increases to 38% in 2012. I will now turn it back over to Damon.

Thanks so much, Todd. As I said earlier, we see this past year as a defining moment for CCA. What has helped us build that momentum? Several factors were key. First, we have made significant progress in educating our government partners on the value proposition of partnership corrections. We witnessed tremendous strides by states like Ohio, Florida, Puerto Rico, and New Hampshire to use the private sector for their correctional needs.

We closed the first-of-its-kind transaction on January 1 with the state of Ohio by buying the Lake Erie facility. This type of solution which is monetizing a state asset with a fixed income stream provided through a long-term management contract, we know is very attractive to other states. And with New Hampshire, they are taking steps to close a facility that is 130 years old and replacing it with a modern and cost-effective facility provided by the private sector.

And with our new contract with Puerto Rico, the Commonwealth was attracted to a similar solution that has been extremely effective for many years with the state of Hawaii, with them using existing capacity within our system. The reason for this momentum is our continued focus on providing innovative, high-quality, cost-effective solutions to our partners.

Second, critics of the Company and industry will continue to discount the cost savings with irrational and incorrect claims. This year we observed an enhanced appreciation of the significant cost savings we can provide our partners, especially at the state level. Examples of this include the steps Ohio, New Hampshire, Puerto Rico, and Florida are taking with their individual initiatives.

These discussions validate that our solutions are compelling from a cost and quality perspective. But I would also say that states and other stakeholders are looking more closely at their actual cost of corrections. And I would like to give you a couple of recent examples to support this point.

The Vera Institute of Justice released a report last month titled, The Price of Prisons. In it, it reports that of the 40 states it surveyed, the total taxpayer cost of prisons in the 40 states was on average nearly 14% higher than the cost represented by their combined corrections budgets.

Now this is because of what I highlighted last year which is, many state DOC budgets typically have not fully embedded the costs for pensions, health care benefits, and capital outlays. With these costs factored in, which clearly has not been the case in the past when cost comparisons are done, our value proposition is even further enhanced.

The other example is that the Florida Department of Management Services, or DMS, testified in January at a House Appropriations Committee hearing that CCA and the other vendors in the state are saving the taxpayers in the state of Florida 10% to 27% when compared to publicly operated facilities. And this was not a third-party making this claim, it was a state agency with oversight on our contracts.

My final point on 2011, which is, we had the second consecutive year of no new prison construction at the state level. I cannot underscore how significant a dynamic this is for the industry. The partnership corrections industry makes up approximately 9% of the total prison capacity in the United States, with public facilities encompassing the other 91%.

As the public sector, the 91% of the marketplace, continues to defer the cost associated with growth, overcrowding, an old dilapidated facilities, the partnership corrections industry is well positioned to fill this void, at the same time delivering cost savings and capital voidance to distressed state budgets. Given CCA's existing capacity plus our strong balance sheet, we are extremely well-positioned to help states deal with their correctional challenges for many years to come.

We will know our federal partners proposed funding when the president releases his budget on February 13, but with it being an election year, I suspect it actually could be sometime after the election.

We will report on this next quarter but it is still the case that this fiscal environment in Washington has created real challenges for the BOP on getting funding for new capacity which we believe the BOP will not receive any new funding in fiscal year 2013. With this, we are estimating the BOP could need up to 15,000 to 20,000 new beds in the next 5 years.

So now to significant pending procurements. And the first of which is Arizona and the requirement for 2,000 new beds owned and operated in-state. Arizona released a procurement last Thursday for a contractor-owned, contractor-operated, 2,000-bed, in-state facility. Proposals are due March 6 and we anticipate a second or third quarter award. We also anticipate a start date in late 2013 or early 2014.

In Florida, as widely reported in the media, the Florida State Legislature is debating a bill in the Senate to reauthorize privatization of the state's Region IV facilities. Clarity should be achieved in the next couple weeks on what will happen within the state.

New Hampshire released a series of procurements late last year, the primary one being for a new 1,550-bed in-state facility. Proposals are due on February 24 and we anticipate a second or third quarter award. We also anticipate a start date in 2014.

With ICE, in 2011 our locations were selected as the preferred sites and we are working with Immigration and Customs Enforcement on new facilities in Florida and Illinois. If we are successful in working out an agreement on both facilities, it will require that we build approximately 1,500 beds in Florida and 750 beds in Illinois, with an anticipated opening of each facility in late 2013 or early 2014.

Harris County, Texas, which is Houston, issued a request for proposal on June of this last year under which the county is seeking proposals for the management of the entire Harris County jail system of approximately 9,000 beds.

We understand it currently cost the county more than $200 million per year to operate their jail system and we were asked to do a day-long presentation in December to various stakeholders in Harris County and it is clear that the county has taken a close look at our proposal. So a significant amount of activity for the industry with approximately 32,000 new beds opportunities around the country.

And now a brief update on a couple of topics relative to California. The state has made progress with the realignment program which went into effect October, 2011. California's population has decreased by over 14,000 since the start of the program and as of January 25, their population was 129,720. The next big milestone for the state is achieving a population of 124,000 by June.

Now as it relates to our contract in the out-of-state program, I'd like to report on 2 very notable events. First, the state has to file monthly updates to the court on progress the state is making on reducing overcrowding. In the state's January report, it highlighted for the first time our out-of-state program and its contribution on helping the state be successful in reducing overcrowding.

Additionally, Governor Brown's proposed fiscal year 2013 budget, which he released in January, proposes full funding of our contract which would fund 9,858 beds. That includes the additional funding for the 270 inmates previously held with another vendor and language that protects CCA from losing its population to another private provider.

In this section, it also gives CDCR the flexibility to move population to other CCA facilities which this is a new provision compared to last year's bill. I think this signals clearly the recognition from the Brown administration on the value of the program as well as the need for flexibility the program provides to address the mandates of the court for the foreseeable future.

As it relates to our near-term capital strategy, as you know, the Company in the past has deployed its cash primarily on speculative capacity, build-to-suit opportunities, facility acquisitions, and the share repurchase program. We are still holding off on new spec capacity and aggressively pursuing build-to-suit opportunities and also facility acquisition opportunities, like we've pursued in New Hampshire and also completed in Ohio.

As I mentioned earlier, we have demonstrated durable earnings over a very challenging economic environment and with that, we continue to evaluate these and other strategic and capital structure alternatives the Company can pursue to further enhance shareholder value.

So let me bring to a close my comments and make these final points. We believe the Company is very well-positioned in a market that has tremendous opportunity for the Company. As mentioned earlier, states are moving forward on meaningful efforts to use the private sector because of compelling cost savings, severe capital constraints, and the need to avoid increasing their pensions and health-care liabilities.

With all of these factors -- costs factored into the equation, our value proposition to customers is getting stronger. And actions underway in Florida, Arizona, New Hampshire, Ohio, and Puerto Rico prove this. Last quarter we announced a new partner in the state of Ohio. That momentum continued this quarter which led us to secure another new partner. We are very excited about our new relationship with the Commonwealth of Puerto Rico and implementing an innovative solution for them by using existing capacity.

And it doesn't stop with Puerto Rico; we are actively talking to other states needing this type of solution utilizing existing CCA capacity. With our available capacity of over 12,000 beds in inventory, already bought and paid for, securing more partners like Puerto Rico could be extremely impactful to earnings. Filling all this capacity will generate $0.72 in EPS and $117 million in incremental EBITDA.

Financially our business is very sound. We have a strong balance sheet, good liquidity to fund new capacity development and focus operations in a largely unpenetrated US market. Our recent upgrade by Moody's and favorable rating by Fitch supports this point.

In summary, the business is performing well. We have taken 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 on how we manage expenses and capital in order to grow and deliver healthy financial performance, but also position the Company for long-term growth and we will continue with this strategy well into the future.

That concludes my prepared remarks. Thank you again for calling today's conference and let me now turn it over to Lauren for Q&A. Thank you.

Thank you. (Operator Instructions) Kevin Campbell, Avondale Partners.

Thanks for taking my questions, just a couple of quick ones here. Damon, I missed the timing on Arizona, in terms of when you thought that might actually ramp. What was the timing on that?

We are hearing that it will be late 2013 or early 2014.

And just a couple of other questions. You know you guys -- GEO had a facility open up in Georgia in the fourth quarter. You have one this quarter and your existing Georgia facility that housed Georgia inmates are over their stated capacity so, can you give us some sense as to whether or not you might lose some inmates from those existing facilities that are pulled to ramp up these new ones, or do you think that they will maintain those populations and pull them from other state-run facilities?

We are not expecting any material impact. With the GEO facility opening up late last year, we saw a little bit of up and down in our facilities, but it was not material so I suspect we will see a little bit of the same thing here later this quarter or early next quarter with a ramp up in Jenkins, but not a material impact.

So, are those inmates then, coming from existing state-run facilities that they have closed or that are overcrowded themselves?

I think it's probably all of the above. I suspect we'll see a little bit, like the little bit from our facilities, but like I said, not a material impact. We'll see them from public facilities and maybe some of the facilities that are looking to ramp down. So I would say it's any and all facilities, public and private.

Okay, great. And on California, you mentioned the funding for 9858 inmates. And I think you have roughly 9400 there now. So, do you expect that to go up to that 9858 or do you feel like this is -- they're just giving themselves a little bit of wiggle room, and it'll move around but there's probably not a material change in additional inmates from where we are today from California?

I think the latter is correct. I think they're giving themselves a little bit of wiggle room. We've creeped up a little bit since the 270 was put into our system late last year, and they have never run consistently right at 100% so I think we're probably at the level that would be a good run rate for this year.

Okay. And then just a question for Todd. The press release mentioned some unfavorable claims experience in the fourth quarter. Could you give us some sense as to the magnitude of that and whether or not that was a one-time negative in the quarter, as well?

I don't recall the magnitude, Kevin, but this is an expense line item where we will see some variability from quarter-to-quarter. We have seen in past and we saw claims increase in Q4, but there's no indication that it's the beginning of a trend.

Okay. And then, last question. On the buyback, you didn't really do much in the quarter, is there anything we should read into that on your thoughts about how you're going to use capital going forward?

No, nothing to read there or implied. We've got the authority and we will move forward when on plan as appropriate, but that, yes. I would not say there is anything you should take away from the quarter.

Okay great. Thank you very much and congratulations on the excellent quarter.

Thanks Kevin.

Todd Van Fleet, First Analysis.

Congratulations on a good 2011.

Thank you.

I wanted to just -- I mean, you ran through the pipeline, Damon. But I just want to get a sense -- so, if you could summarize for us the procurements that you think could come to resolution here in 2012 that as we have an award announcement. If you could just run those down us real quickly?

I would say, Arizona. Florida, obviously, is tied by what happens in the legislature, but if that goes through then would be this year. New Hampshire we understand will be this year. And the -- if we're successful in the new contracts with ICE, that would be this year. And Harris County potentially could be this year. So everything I mentioned in the pipeline potentially could be awarded and executed on this year.

Okay.

The impact of those, depending if it is a new build, obviously it would be later years, but everything could be acted on this year.

Yes. What is your current read of the Florida situation?

Oh boy, that's a -- a lot of people in the media down in Florida that are providing a lot of different opinions. I don't know if I could provide any additional color than what has been reported in various news outlets. I think, as I said in my comments, I think next couple of weeks we will see some clarity, but obviously it is a lot of activity going on within the Senate right now.

And I guess just to clarify would you be inclined to be buyers of the stock here at these prices?

I would not care to comment on that.

All right.

No harm in asking.

Manav Patnaik, Barclays Capital.

Congratulations on the quarter in 2011, and a couple of questions here. So firstly, in your prepared remarks you mentioned something about the language in the California budget. I sort of missed what you exactly said, but I think you referenced something like you had a clause in there that you could not lose inmates to any other competitors, could you just rephrase that?

Absolutely. So really, three key points in the budget. The first is fully funding our beds which includes the 270 that were displaced last fall, so nearly 95 -- 9800 beds total, fully funded for 2013. That is number one.

Number two is, the way the budget proposal is structured, in essence, puts a fence around the funding to only CCA facilities. So, instead of kind of general budget language where it just says, we'll fully fund 9800 beds, but doesn't necessarily identify facilities. The opposite is in place here.

They actually identify each individual CCA facility for this funding, so it puts the fence around that funding. And then the third thing, it gives the CDCR flexibility that if they need to move population around within the CCA facilities. They could go to another CCA facility currently in our system.

Great, that's helpful. And then just around that front, with all the moving parts, Todd maybe, are you willing to provide -- what sort of inmate reduction are you expecting from USMS in this quarter? And so are we talking about 500 inmates and then that ramps back up in second quarter, just the magnitude of what the decline and subsequent ramp back up you are expecting?

I don't have the specific numbers in front of me, Manav. But I did try and -- well, I did provide an EPS.

Okay, fair enough.

And so since they're coming out of facilities that are already very high occupancy rates, the incremental margin dollars are impactful.

Okay. And then in -- I guess just to get some color in what is going on, other than what you said in the press release in Kentucky and Mississippi. In either place you have another facility, one in Mississippi I think you are managing and in Kentucky you still own one. What do you see -- are they going to be similar potential risks with those two facilities? What's the dynamics going on in those 2 areas?

We don't own the facility in Mississippi, so I don't see any additional risk there. And again, that was a facility that was, best case, breakeven, many times ran at a loss. So, that has been a pretty straightforward transition. It was very collaborative effort with the state of Mississippi and so we were fine on that transition. And then the same thing with Kentucky again, that is a breakeven at best and running at a little bit of loss here in 2011, so obviously that is owned by CCA and we will pursue other opportunities for either in-state or out-of-state solutions for that facility.

I was referring to the other facility that you own, I think, in Kentucky. I was just wondering, are there other dynamics in the state that could put that at risk, as well?

No, we are off to very early in the legislative cycle for state budgets but I will tell you, we've got 16 state partners right now and 11 of those 16 have released budgets for this coming fiscal year. Obviously, I gave a lot of commentary earlier about California, but the other 10 budgets that we have seen released to date, look favorable for the exception, obviously, with Otter Creek in Kentucky. One state that has not released is Louisiana, which will be late this year, but I'm not expecting anything controversial there, and then we've got four state partners that work on two-year budgets, and so this is an off year.

So we've in essence, gotten a pretty good preview of all the budget proposals first from our respective state partners, and, like I said, outside of Otter Creek up in Kentucky, don't see anything troubling or concerning. Like I said, it is early in the season. These are just budgets out from governors. They haven't made their way through legislators, so, as I've said, we'll provide a lot more commentary in our May call, but at least initial proposals are looking pretty favorable.

Okay and last question. With all the refinancing and the favorable rates you're getting, what is the discussion in the backrooms around just the covenant restrictions you currently have for buyback?

Well, Mav, this is Todd. On the refinancing of the bank facility we were successful in obtaining greater flexibility on the restrictions around dividends and share repurchases. So, under the bank facility, the restrictions have improved significantly. So, right now under the bank facility, so long as we are less than 3.5 times the total debt to EBITDA leverage, we essentially have no restrictions on the amount of shares we can buy back or dividends we can pay.

But we're still governed by the more restrictive covenants under the senior notes indentures. So, we're hopeful that the greater flexibility we obtain from the bank community, which I think is always viewed as more conservative than the bond community, will help us argue for greater flexibility when we start to refinance our senior notes indentures. But right now, we are still governed by those more restrictive provisions in the senior note indentures which limits that [abuiliter basket] of 50% of net income.

All right. Great.

Manav, let me just add one more point, too, on the marshals to your question earlier, because we saw one unique thing late last year, so to reinforce a couple of Todd's points. So, we typically do see a little bit of a seasonal slowdown during the last part of the year, as Todd said, with the prosecutions slowing down and maybe a slowing down a little bit with the courts because of the holidays.

But also, we've talked about this on the call on previous quarters, but haven't talked about it probably in the last couple quarters, but I think everybody remembers that the fair sentencing act went into place last year, and it was put in place to where it dealt with the delta between crack and powder cocaine sentencing for offenders. That went into effect to where it impacted the BOP population in a way to where they were releasing about 1500 inmates from early November through early January.

So, during November and December, we had kind of a slow down for the marshall service typically because of the courts, you also had 1500 inmates also being released by the BOP. So, you had a little bit of a situation, kind of a unique situation, where you had some capacity opening up during a time where you had that typical slow down. So, that is one thing we were seeing also during this period of time in addition to the typical slow down from the marshals.

Tobey Summer, SunTrust.

Thanks for taking my question. This is Frank in for Tobey. Wanted to ask about your -- I know it is early in the cycle, but the tone of your discussions with the states at this point, given their revenue trajectories. Do you see any moderation in pressure on per diems, increase for services? And then, two, as you look out a little bit further, do you see any more possibility for funding of new state facilities? You spoke to 2012 budgets but anything a little further out, do you have any thoughts on?

Yes. So, let me give a little commentary on both. As you made your first point, it is obviously very early in the legislative season, but I would say this year feels better than it did two years ago and three years ago from a state budget pressure perspective and also pricing pressure on CCA. Again, obviously, we've got to wait until we get through the rest of the legislative season, but it does feel a lot better this year than it does -- than it did back in say 2009, 2010.

As it relates to prison capacity, the only thing we are seeing right now for 2013 for new prison capacity is part of this procurement, the state Department of Corrections is asking for some money for some new maximum security beds. And we don't understand that to be very much from a dollar perspective or a bed quantity perspective. And that's the only one I am aware of early in the season where we are seeing any movement from a state to try to secure funding for new prison capacity. So if that's the case, that that's the only thing that comes to pass then it'll be, again, the third year in a row, very limited new development of capacity for public facilities.

Okay, great. And then looking at the cost side of the equation, you gave some nice color on wages, do you expect anything else there, and if you could comment on either commodity food costs, SG&A, other initiatives you expect to play out this year.

Yes. On the salaries and -- employee salaries and merit increase, that typical decision we'll do in spring, evaluating all the various factors and, obviously, looking at the Business and looking at what the opportunities and challenges are with our customer base. So that'll be the game plan going into the spring. I'll let Todd comment on the other cost categories.

Sure. On the food, again we have a fixed contract price in place that limits any impact from inflation. It's a fixed escalator, I want to say, around 2.5% And then the rest of our costs, we haven't seen any meaningful indications of significant inflation.

Okay, great.

Kevin McVeigh, Macquarie.

This is Derek Sbrogna on for Kevin McVeigh. Thanks for taking my question. Just a quick question, sorry if I missed this, did you guys provide what the total CapEx was in 2011?

We did in the press release. If it's not included in the press release, it will be in the cash flow statement. And so expenditures for facility development and expansion for the full year, $126 million roughly. And then expenditures for maintenance CapEx, what we'd call other capital improvements, a little over $48 million full year.

Okay, thanks. And then, just looking forward to your 2012 guidance, you have $50 million to $55 million for maintenance and technology. Can you parse out how much each of those is for maintenance and how much is for technology?

It's going to be around $10 million for information technology and then the balance for facility maintenance CapEx.

Great, okay. And just one final question, we have been hearing about Harris County for a while now. It is fairly substantial contract, can you guys give a little more color on where you are in those discussions and whether -- since we first heard about it earlier in the year, whether you have made any progress or any headway there?

Yes. I would say it is a very, very large opportunity. 9000 beds for a major metropolitan area, that's a very large project and if it comes to pass it would be the largest ever done by a local government. And so I think just the sheer size of that is making the folks in Harris County and the stakeholders to really take their time and evaluate everything and ask all the right questions.

So all of the discussions I guess late last year, going to this year, have been very, what I would say, interactive, a lot of feedback back and forth. And so all indications that I am getting and what I've participated in to date, it looks like they are taking us very seriously and really evaluating this type of solution we're going to provide.

These type of solutions, though, at the local level can be very controversial for many different reasons. One of which is that you've got situations where you've got different governing bodies that manage both the budget and the operation of the jail. So I think that is going to take a little while also to work its way through to make sure all of the various stakeholders are truly aligned on this type of solution and are comfortable with this type of approach.

But as I said in the prepared remarks, they invited us for a daylong presentation in December, where we sat in a room with about a dozen various employees from Harris County asking questions and going in detail through our proposal and that was followed up with tours. So it appears that they're, like I said, taking it seriously, but taking their time with such an important decision.

Great, that's helpful.

Barry Klein, Macquarie.

I have a few questions. It looks like you're operating margin per man day has decreased quarter-on-quarter. Can you please address this? And also, it looks like you lost or cut back on a number of beds that seem to have been operating at a loss. Was this more strategic? And do you have the flexibility to purge additional beds where you've been losing money? Thank you.

Yes. Let me address the last part of the question first, one thing that we are always looking at is looking at our system-wide capacity and looking at opportunities to optimize and/or change customer mix. And so yes, these type of decisions that you see us taking the last year with the two properties you just mentioned, but also even with California out of our Florence facility, we're always looking at opportunities to optimize the capacity and get a better return on those facilities.

But also trying to be sensitive to customer demand and needs and make sure we accommodate all those various needs. So, don't be surprised if we continue to do those type of decisions. That's part of our play-book that we're always evaluating.

And with regards to your question on margins, year-over-year, Q4 2011 versus Q4 2010, the margin decline was due largely to the merit increase.

Okay.

Kevin Campbell, Avondale Partners.

Two other quick questions. First, obviously, you had the facility in Ohio that you bought and I'm curious if you had -- if that has spurred discussions with other customers about going along the same route, and maybe you could just give us some overall bigger picture commentary as it relates to the interest in other asset sales from customers.

Absolutely. So, we think this was a great transaction and I think if you talk to anybody in Ohio within the state government, I think they would say the same thing. It was a great solution for them and it helped them to get some money into a fiscal year where they can address some really pressing priorities.

So, by all accounts the various stakeholders thought this was a great transaction And even the community loves it because even though the facility wasn't going to go anywhere, they are now recipients of some property tax money since we now own that asset, and now it not being publicly owned.

So, that is a solution that we think can really be duplicated in other states around the country, and as you saw in my prepared remarks, I said as such. So, we think various states, as they think about some of the challenges they've got in this fiscal environment, and maybe some of the capital priorities they've got within their existing facilities, this may be a way to help us -- help them address some of those issues, those priorities, especially, if they have been going on for several years, and we provide a solution that is not only taking an asset off their balance sheet and, like I said, helping with their priorities, but also providing some meaningful cost savings.

Have you had any meaningful or even early-stage discussions with other potential customers about pursuing this same route?

I would say this, the transaction in Ohio is well known around the country. Obviously, you know as well as I do, Kevin, these directors of corrections talk to each other a lot. There is a lot of Association meetings, so this solution is well known. And like I said, if anybody picks up the phone and talks to anybody in Ohio, I think everybody would say this was a good solution for the state and provides a lot of value to them so we're seeing that type of message resonating with a lot of other prospective states.

And then last question on your comments, Damon, about the US Sentencing Commission and the crack versus powder cocaine, that change in inmates going out of the BOP system, 1500 inmates or so, that was really -- we should think of that is a one-time thing? It's not as if there is going to be -- that was going back and making things retroactive, is that correct?

That's correct. And it was front-end loaded, so you'll see a little bit of impact I think over the next, I think, six to eight years. But this was the big increment that you're going to see right now and when the President releases his budget, I think there's a good chance that we will see a revised pop projection from the Bureau of Prisons, so we will get a little bit more clarity there. But all indications are that if you take out this one-time event with these 1500 inmates, their normal rate of growth was -- their rate of growth, I should say, was kind of normal, which has been significant, as you know, over the last couple of years.

Okay, great.

Todd Van Fleet, First Analysis.

I just wanted to follow up on the pipeline. You guys have, I think, been helpful in providing some positive catalysts over the past year or two and producing a new piece of business that really was not necessarily on the radar screen of anyone. I'm just wondering, off-the-radar-type opportunities that could land this year, are there any in the pipeline that you think are out there at this point?

I think, you asked me I think this question last year and I think I said that there was a possibility. And obviously, we had a couple of pass, especially with Puerto Rico. So, I would say yes. We've got conversations with some potential partners that are off the radar screen that could pop this year.

Okay. And then Todd, what was the -- can you give us the aggregate pricing increase for the Fed contracts this year, was it 2%, 1.5%?

Well, the year-over-year increase in revenue [per man] is 1.2%. On the Fed side, I don't recall off the top of my head what the increase was on the Federal side.

Is that impacted by mix or is that just the pure pricing?

It's going to be impacted by mix as well as absolute increases. And the mix could impact it favorably or negatively.

Right. So you don't want to give me the raw increase or pricing?

That would be a fair statement.

Okay.

Jon Evans, Edmunds White Partners.

I know you give annual guidance and then you give quarterly guidance. But could you help us understand a little bit better, the ramp of how your earnings ramp as you go through the year? Because it sounds like you have some cost in the first quarter and you're expecting populations to be better in the back half, et cetera?

That is correct. As I mentioned in the prepared remarks, we will have the rebounding US Marshal populations in Q2.

Okay.

We will benefit from a material reduction in unemployment taxes from Q1 to Q2, about $4 million.

Okay.

And Q2 forward will also benefit from the completion later this month of the refinancing of $335 million of the $375 million of 6.25% senior notes with borrowings from the expanded bank facilities where our current borrowing rate is LIBOR plus 1.5%, around 2%. So, we're going to be going from around 6.25% debt to 2% debt. And we will have the ramp of Puerto Rico inmates at Cimarron which will begin with a small transport in February and then additional transports March, April, and May that will benefit Q2 and subsequent quarters. And we will also activate the Jenkins, Georgia facility with a gradual ramp up of populations beginning in March, and then with the completion of that ramp expected in the third quarter. We're going to --

Got it.

Approximately -- (multiple speakers)

So we should think that Q2 will be up year-over-year and then you see an acceleration in Q3? Is that fair, of the growth rate?

Yes. That is a good way to look at it, yes.

Okay, got it.

Dennis Wurst, Britton Hill Capital.

I wanted to ask about the -- you had a pretty hefty early tender bonus, and I was wondering why so much motivation to get the bonds in as early as possible. It seemed to eat up half of the difference between the old rate and the new rate.

It was an incentive to try to get them to tender early. And as it turned out, it wasn't high enough. But even with that tender premium, it was still NPV positive, not materially so, but it was still NPV positive.

But at the end of the day, the premium wasn't high enough. There wasn't enough of new activity available where the reinvestors could redeploy the cash they received from the tender into bonds that were generating a similar yield, and so most of them decided to hold onto the cash and wait for the redemption.

Got you. It just seemed like a big chunk of it went to that. And I wanted to bring up the other elephant in the room, the PR stuff. You guys did a good job. You did this CCA360.com website to respond to the CNBC piece.

Yes.

I was just wondering -- all of that media distraction, all of the PR stuff, what does that cost you?

Not much. Not much. You know we've got -- we've always have had critics of the Company and Industry, but yes, at the end of the day, it is not a material cost.

And then what is the cost of -- I live out in Arizona and I watched your bidding process and it was on again then it was off again then it was on again. What does that aggravation cost you -- you know say there is a beauty contest, is it -- and GEO gets it or you do get it? What does that process normally cost, or where do you account for that?

It is in G&A.

Okay.

And so we've got, I'd say, kind of, a couple, probably two buckets. We've got just the resource here in this building and this office here in Nashville. We've got people putting together a proposal for the RFP. And then you may have some actual development costs in-state, so if we're -- not necessarily in the case with Arizona in the last couple procurements because we offered existing facilities. But you could have some site development costs or option on a piece of property if we're looking at a new build. But again, that is not material. It's -- most of the times we're able to do options on property versus buying it outright.

Okay. So, it's not like the whole Arizona dance cost you $2.5 million or something silly?

No, no, no, no.

Okay. I was just trying to get a handle on the numbers.

It appears there are no further questions at this time. Mr. Hininger, I would like to turn the conference back to you for any additional or closing remarks, sir.

Lauren, thank you. And thank you to everyone who called in for your time and attention. But more importantly, thank you for your investment in CCA. Your management team here in Nashville is focused on executing another good quarter and a strong year. And we look forward to reporting our progress during the course of 2012 so thanks again for calling in.

This concludes today's conference. Thank you for your participation.