CoreCivic, Inc. (CXW) Q3 2011 Earnings Report, Transcript and Summary

Good morning everyone and welcome to CCA’s Third 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, Todd Mullenger. I’d now like to turn the call over to Mr. Hininger. Please go ahead, sir. Damon Hininger – President and Chief Executive Officer: Thank you so much, (Gill). 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 Lappin 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’d 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 will provide more commentary on this later, but we are very excited about the industry’s first purchase of a state-owned correctional facility. I am 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 macro environment is also very favorable. For the second consecutive year, not one of the 50 states is appropriating 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 Gerogia and the United States Marshal Service during the year. And we get a new milestone recently with the United States Marshal Service, which has now have in nearly 12,000 prisoners with them around the country and that compares to 8100 on January 1st of 2010. Let me now say a few words about our focus on managing cost. 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 had another good quarter on managing cost. 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 on margin rate for the quarter. So, overall is very pleased with our performance in the third quarter. I would especially like to thank all those, my fellow CCA colleagues with their distinguished performance they have enabled us to achieve for our company this year. Now, I would like to hand the call over to Todd to discuss the detailed financials. After which, I will discuss how we see the market and our opportunities going forward. Todd? Todd Mullenger – Chief Financial Officer: Thank you, Damon, and good morning everyone. We’re 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 costs 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-only 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 have repurchased 7.6 million shares, including the shares we purchased under our first share repurchase program announced in November 2008. We have repuchased 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 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 payment basket. Future additions will made to the basket each quarter and the amount roughly equals 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 range with $1.50 to $1.51. Guidance for Q4 is in the 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 additonal 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 apprpximate 9,400. The fourth quarter also includes approximately $1.5 million of startup cost for our new Lake Erie, Ohio in 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 30th, 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. Damon Hininger – President and Chief Executive Officer: Thank you very 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 our long-term strategic priorities, our focus is going to continue to be carrying beds and inventory to meet future demands. With a meaningful amount of mew incremental bed demand in the marketplace today targeting existing capacity, we continue to think this strategy is very appropriate for the company. With the nearly 2.3% increase in the 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 higher occupancy rate before building more spec 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 type of procurements. Finally, let me also mention that 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 are optimistic that just like earlier this year and this past quarter we will be able to see the additional opportunities that will deliver additional growth. Let me take you through how we are looking at the market and also where we see the main opportunities for the coming year. First, a couple of comments on state’s fiscal environment. As reported by the National Conference of State Legislatures 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 addressed budget gaps totaling over $0.5 trillion. And though additional budget gaps loom, the magnitude in number of states projecting them has fallen considerably. Better revenue performance is driving us around the state finances. Collections are stabilizing or growing in nearly every state. Although it will take years for revenues to reach pre-recession levels, which is what some state officials are predicting higher 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 to fiscal year 2012 albeit at a very slow rate. Despite the modest improvement in state finances, considerable challenges remains. Revenue growth is not expected to keep pace with anticipated increases in Medicaid and other healthcare costs. Additionally, public education demands and funding for other state programs will continue to present lawmakers with difficult budget sources. Potential federal policy changes also present uncertainty for state budgets. Now, I am stating the obvious, but there are also widespread concerns about the strength at economic recovery, which mini state law, state policymakers describe as fragile. They note that any significant disruptions into recovery would stall or derail recent state fiscal improvements. So, with these fiscal pressures, it is allowing CCA more than ever to provide innovative and conflict solutions to our state partners. So, with that, let me provide a couple of additional positive observations that we see with the states. First of which is we are extremely excited to add a new state to our own and managed portfolio, which is State of Ohio. Ohio has been a targeted state for CCA for several years. Their system is the 10th largest system and sixth largest state system in the country. And by 2015, they are expected to be overcapacity by 15,000 inmates. But our soon-to-be-purchased facility is an important transaction for the industry. After a conservative effort by our team, we are executing on the 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 half a dozen states we have mentioned recently that are currently not doing business with CCA. We estimate that these states are approximately 12,000 inmates overcapacity today and by 2015 are projected to be overcapacity by 18,000. We think we could see several states use the private sector that don’t have capacity to deal with their own crowding and our growth. And you have 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 a 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 slower rate of growth regarding this issue, our long-term value proposition is resonating more and more. Now last week this was really reinforce to me again and I had the opportunity to me with a chief staff of governor for a respective new state and we talk through the media solutions we provide to their respective state. Three times during the conversation, this chief of staff expressed to me how we understood our value proposition. But also with our any prompting for me and we could help them flow the rate of growth of their long-term cost for pension and healthcare. We think this issue is a key catalogues for many state like Ohio, Florida that will provide these unprecedented opportunities we are seeing right now. And we think we could see additional states come to the marketplace and replicate this 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 continue resolution or CR that funds federal agencies at fiscal year 2011 levels until November 18, is expected that another CR will be past to fund a federal government until mid-December as congress tries to complete its work on the appropriation bills. At this point, is our understand the key congressional leaders want to complete on omnibus appropriation bill based on overall spending caps contained in the budget control act, which I will discuss in a minute, but there is still chance the congress ultimately passed a full years CR or fiscal year 2012 that funding a fiscal year 2011 levels. As a reminder in early August, congress passed the Budget Control Act, which increased the federal debt limit and exchange for instituting overall spending caps in fiscal year 2012 and 2013 and establish a congressional super committee to identify at least 1.2 trillion in additional savings over the next 10 years. The Budget Control Act that I’d spending for government programs and services in fiscal year 2012 and 2013 into two buckets, National Security and Non-National Security. Three of our partners, the Bureau of Prisons, the United States Marshal Service, and Office of Federal Detention Trustee, fall under the Non-National Security bucket, which has $359 billion spending cap in fiscal year 2012, which would be only a $4 billion reduction over a 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 program within that bucket. Going short, as we stated in the Q2 earnings call, we believe that the fundamental day-to-day operation for 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 expect that they will continue into a third partners add sufficient funding to meet their requirements. Also of note, the fiscal environment in Washington has created real challenges for the BOP and getting funding for new capacity. We estimated that to be a peak could lead 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 the requirements for 5000 new beds owned and operated in state. As why we reported in media last week, the core challenge on this procurement was dismissed last Friday. We expected that would be sometime this quarter. Just a reminder, this procurement is look at two dates for ramp of these 5000 beds. The first 2000 would ramp no later than April of 2013 and the next 3000 makes would ramp no later than April 2015. In Florida, our 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 in beds. These will due on October 4th to get the procurement were splendid due to court ruling regarding the states method for authorizing the RFPs issuance. The state appealed the ruling late Tuesday night, and it’s too early to tell what will happen in that or what will be the ultimate outcome. We are, however also aggressively pursuing an opportunity the state is undertaking to optimize operation of existing private Florida facilities by up to 1200, which we think could be decided later this year. With that earlier this year, we are given the intent toward and we are working with immigration customs enforcement on new facilities in Florida and Illinois. If we are successful in working out on an agreement on both facilities, it would require that we build approximately 1500 beds in Florida and 750 beds in Illinois. Harris County, Texas, issued a RFP on June 10th 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 bet 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’re very excited about renewing through recent competitive procurement with the BOP, with the new contract with them at our, McRae Georgia facility. We’re very grateful to serve the BOP in 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 progress with their realignment plan, which was effective on October 1st. It is too early to tell – too early to report I’d say any significant results. The California’s population is declining and the full impact is expected to take several years. And California continues to include the use of outside beds as a component of their response to the federal count on population caps. Additionally, another former vendor of the state terminated their contract for the house 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 bank in state, we take this is an encouraging sign that the program again is a 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 have 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. But let me bring to close my comments and make these final points. We continue to believe that we are very well-positioned in the 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 a need to avoid increasing their pension liabilities that we believe our value proposition to customers is getting stronger. Actions underway in Florida and Ohio approved us. This environment has also led us the security partner. We are again very excited about our new relationship with the State of Ohio and implementing the innovative solution that for the first time that’s 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 building construction 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 see states see more states take large steps in using a private sector like Ohio, Florida, and Arizona deals this year. We believe the supply demand imbalance will develop further long-term and insufficient public sector capital investments 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 operations in a largely un-penetrated U.S. market. In summary, the business is performing well and we are 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 and 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. And let me now turn it back over to the operator for Q&A.

(Operator Instructions) And our first question today comes from Kevin Campbell with Avondale Partners. Kevin Campbell – Avondale Partners: Thanks for taking my questions. I was hoping Todd, first you could start with just given us some additional details on the start-up costs, so 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. I think we have $1.5 million. Kevin Campbell – Avondale Partners: Okay.

In total for about a little bit for Jenkins. Kevin Campbell – Avondale Partners: Okay, that’s helpful. And G&A for the quarter came in a little bit higher than expected, you guys typically guided sort of 5%, it’s 5.3%, can you give us a sense for a) why that was higher, b) where that should go going forward as 5.3 the new run rate. Should it tick back down to 5%?

With regards to that was larger in the quarter is largely due to increases in accruals or incentive compensation driven by timing of the accruals and expense increased 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. Kevin Campbell – Avondale Partners: Okay. And so let me ask you raised your fourth quarter guidance by a penny, but if we do the math on the buyback and the 8 million shares that would add about $0.03. You have some maybe a penny or so from that from the additional start-up costs. 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. And there are some other costs that we need to be thinking about be it incremental D&A or things like that?

On the depreciation and amortization expense and 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 it factoring a little more debt about $100 million more in debt. We used to fund those share repurchase. Couple of tweaks there on the forecast, nothing else on the cost side, I will say we have seen some recent volatility in morsels, the nice 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 fluctuations, some years we don’t. We are now assuming we see some of those seasonal fluctuations, but we may not. Kevin Campbell – Avondale Partners: Okay. And so again you said the D&A would go up to $28.5 million, is that right?

$28.5 million yes. Kevin Campbell – Avondale Partners: And that’s up about 2 million bucks sequentially, is that right? What’s the driver there, is it just Jenkins and some of these coming online?

It’s primarily increased maintenance CapEx, but it’s heavily weighted towards third and fourth quarters. Kevin Campbell – Avondale Partners: Okay.

Generally fourth quarter. Kevin Campbell – Avondale Partners: Okay, that’s helpful. The ICE contracts that you are 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 and you answered the question pretty well actually without me doing, because it does take a little while and we are 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 or probably 2013, because again we are still working through the numbers and the type of facility and also working to kind of their time. If we are going to share everything say by the end of the year based on the size, slowly I think it probably would take about 14 maybe 16 months to build these facilities, again, maybe a little longer and all know maybe less than Florida, but I would say either 2013 events. Kevin Campbell – Avondale Partners: In terms of events, you don’t mean the actual signing of the contract you mean the actual intake of inmates?

Right. So, yeah, they have different ways. So if we finalize agreements by the end of this year and allows say anywhere from say 14 to 16 months to build these new facilities, again as assuming they start at the same time, I don’t have a clear understanding today and that’s going to be case they may want to (indiscernible) just to add, but at a 2013 when it will open. Kevin Campbell – Avondale Partners: Okay. And then last question Harris County, you didn’t give a potential timeframe there, may be you can give us some thoughts around when you think that might happen, I know Harris County before, I did that similar types of procurement is not necessary the size and they haven’t move forward so, maybe that’s why you are reluctant to give a data, but I’m curious what you think at this point on a potential timing of an award.

G&A captures that pretty well, we submitted a bit and initially when it came out with this procurement in early June they had a very quick turnaround, I think they wanted the procurement proposals within 30 days and I think they are looking at award initially like in August or September, but I think the share side of it several facility is 9000 beds, we required a lot of work on the front-end by us and other vendors to our facilities look at the finance understanding kind of the fiscal plan conditions of these existing facilities at all took a lot more time and probably was appreciated on the finance. So, we committed – also we submitted a bit they have not – accounting is not indicated a timetable for award or in terms of making a final decision. There has been some back-and-forth to have that clarification and there has been back-and-forth with the vendors like they haven’t set forth the clear timetable and they expect to reward. Kevin Campbell – Avondale Partners: Okay, thank you very much. Congratulations on a very good quarter.

Thank you, (indiscernible).

We will go next to Todd Van Fleet with First Analysis. Todd Van Fleet – First Analysis: Hi, good morning guys. Damon, among the take issue with your comment on things taking longer in Illinois were experts had efficiency here in the state. So, I think.

I apologize, I apologize. Todd Van Fleet – First Analysis: I wanted to touch on California for a second. You said you were the beneficiaries of GEO closing down that facility in Baldwin and that we received those and I guess the beginning of this quarter, is that right?

It was I guess during the month of September and the early October.

Okay. And then Todd, your comment regarding guidance I just thought it was unusual just kind of called out California is being a variable I guess in the guidance. Is that because, I mean, assume that the additional – the incremental California made so embedded in the guidance since Q4.

Well, my intention was in the Colorado is variable, but just write some direction on our assumption on our population, we’ve obviously see a lot of questions around California whether happening the population to just people know that they are stable. Todd Van Fleet – First Analysis: Okay. And so there is no real I guess with respect to California and then I guess you’re absorbing GOs the capacity GO let go off in the year facilities doesn’t give you an indication that may be you could see more I’m just trying to what is the needle goes, it fall kind of more on the maybe we could see some more in May sort of it we’re kind of still a little bit uncertain about how much we’re going to have or I mean, how it’s a better is a confident as we have in the population.

I’d say in the near-term obviously with the ruling and the blending of our facilities for the full fiscal year gives the comfort here in the near-term. On the longer term and I say longer term say 24 to 36 months a little less certain on at least more demand they actually just started the program in October 1st, I think they are doing every couple of weeks updates to the core on the progress with realignment and so, I don’t think it will be until probably 2012 may be late next year – may be early 2013 as you know they got the key milestone that they’ve got a yet in May 2013, but we get a better kind of feel and how they think about the program little more longer term may be to an increase in it. I think they want to see truly do they get the progress they are opening yet was to realign the program and moving population down to a local facilities. So, I think near-term it’s the base I think we’ll look over let’s say 12, 24 months how they think about potential growing the program and the flip side is that at the program goes very successful how that, how you think about the program more long-term. But I do as certainly my comment I take as the encouraging sign within you would have thinking away fairly easy to take the 27 (indiscernible), you would think that small amount take that back into stay we took it’s the encouraging sign that they didn’t take that population back into say they moved it two facilities within CCA. Todd Van Fleet – First Analysis: 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 collaborate the size little bit of that contract there Lake Erie.

No specifics here on guidance for 2012, I will say that we continue to find our RIO 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 startup cost in 2012 would impact 2012 EBITDA levels for Lake Erie. Todd Van Fleet – First Analysis: All right, would that be a Q1 event with the startup, I mean, how long would startup continue?

That would be a Q1, yes. Todd Van Fleet – First Analysis: Okay. And so, we’re seeing the $1.5 million in Q4 here this year, right.

It can be up to $1.5 million of return refined of the timing obviously we like it from a time value money standpoint purchase much of that in the Q1 is possible. I want to make sure we have a very tight execution on the transition so we might be willing to invest money in the frontend. Todd Van Fleet – First Analysis: I’m sorry, could we see a larger startup 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 startup cost in total of around $2 million is and the question is how much of that in Q4 versus Q1. Todd Van Fleet – First Analysis: Okay, okay, that’s helpful. And then lastly I guess the pricing increases from the feds is coming in this quarter, is that right and help us understand may be what the aggregate pricing increase would be across that portfolio?

We prefer right that level of detail. Todd Van Fleet – First Analysis: Okay, thanks.

(Operator Instructions) And we’ll go next to (Tobey Summer) with SunTrust. Tobey Summer – SunTrust: Thank you. In your discussions with new states is about what’s going on with the Ohio and Florida moved to outsource, how long do you think they need to see the results before that will be able to render judgment of the success of that and then take those examples and move on their own.

Yeah, good question. I would say some states may be just don’t want to be the trail blazer and now that Ohio has done a transaction like this and is going to be executed first the year and is going to be after before I should say they’re sourcing down and finalizing the budget for the coming fiscal year, you could see a couple of phase as early as next spring can take a similar action. So, not as waiting on the results just didn’t want to be the first one out here to do that type of transaction and then again you could have some other states that may be a little more – obviously a little more of a kind of performance after that transaction so, may be they wait a full fiscal year before they take so many steps. So, I think you could have the combination of both. Tobey Summer – SunTrust: Thanks. I know the Florida situation is pretty fluid, right now at least sits in the course, but what other avenues to pursue the goal does covenant in the legislature have a disposal.

Well, they appeal Tuesday and as we kind of thought about their next step, they could have done that as I did a few, they could have potentially go back to let’s say in the spring and maybe we try to get a standalone bill to get it already to do the procurement and then may be some iteration – some type of hybrid between those two things. So, with that what you said earlier it is very fluid, we don’t have a clear sense exactly what the stage of generics then how the state will act on the procurement while they go through this issue with the course. Tobey Summer – SunTrust: One last question from me, you brought back lot of stock in the quarter and in the availability based on the bucket stipulations for repurchase is relatively modest at this point. Given your propensity that kind of buyback stock in recent years should we assume that you probably still dedicate some resources towards that over time.

Well, I have got the authority with – lots have got more authority than we have got through – available through the covenant restriction. So, it will be – continue to be kind of 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. Tobey Summer – SunTrust: Okay. I will get back in the queue. Thank you.

Thanks (indiscernible).

And we will go next to Dennis (indiscernible) with Brighton Capital.

Good morning. I want to ask about legal accruals and if you are putting aside any extra reserves, so that there is an ACLU lawsuit and I just don’t know what that kind of thing cost mean? I mean, I have used lawyers myself and I don’t remember them being cheap, so I am just wondering how much I should adjust for that?

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

Is that pretty much unchanged? Where would that go? Does that go under G&A?

That would typically end up winning upon the nature of the lawsuit, more often than that in operations covering expenses.

Gotcha. And just trying to figure out, you guys are very well indexed to inflation, so you per diems change as inflation hits? So, it looks to me like healthcare costs and salaries are the big wildcards for you? What are the other expense wildcards that you say are kind of on the list, because you are very well indexed, I mean, it’s just – it moves your rates move, that’s great. I am just wondering what else I should pay most attention to?

Well, salaries and benefits which include the large component for employee healthcare benefits are the two largest components that accounts for two-thirds of our operating cost and you’ve got inmate healthcare when you 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.

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

The average cash operating carrying costs for vacant beds about $1000 per bed per year, that it carry all the 10,000 empty beds and inventory, $10 million to $12 million in cash operating carrying costs, I guess, are very modest cash operating carrying costs is unlike the hotel industry, for example, that had to keep those beds, the facilities fully staffed.

Right.

To capture the business as they are walking off the street. We can idle our facilities and then reactivate those facilities once we have a contract in hand we know the populations are headed towards the facility, so the cash operating carrying cost is very modest.

Understood. Well, I am right now, I am in Arizona, so good luck on the Arizona procurement. I know you are going to the beauty contest stage right now?

Thank you. Thank you very much.

And our next question comes from Martin Ji with Clearbridge Advisors. Martin Ji – Clearbridge Advisors: Question, what’s your excess inventory – debt inventory at the end of the quarter?

It’s about 10,500 beds. Martin Ji – Clearbridge Advisors: 10,500. Okay, thanks.

And our next question comes from Patrick Donnelly with Blackrock. Patrick Donnelly – Blackrock: Hi, good afternoon guys or is the good morning still. I just wanted to ask you about capital deployment, obviously, you are buying in your shares and now you are limited, you have got a business that’s 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 the token, but something that’s meaningful 2%, 3%, 4% given the cash flow of characteristics and given that you would broaden out your investor base. I should think it makes a lot of sense. I’d like in you to the REIT sector and if you are looking at the AFFO figures, you are trading – the REITs are trading at 2.5 times in the level. I just think that it makes a lot of sense to institute a dividend and to broaden out your investor base? Please comment.

Yeah. We are always – I think we hopefully have shown a pretty good track record over last couple of years on looking at those type of alternatives, it was, I guess late 2008 there was a great feedback from investors about implementing a share repurchase program and we did that. I also feel like we have been successful in the two different programs we have had in place. So that is always something we are taking a close look at. Is there a 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, talk about the management team and discuss extensively with the board. Patrick Donnelly – Blackrock: Okay. Well, I look forward to hearing more. Thank you.

And we have no more questions in our queue. Damon Hininger – President and Chief Executive Officer: All right, (Gill). Well, thank you very much and thank you to all that call in today for your questions and for your comments. More importantly to our shareholders, thank you very much for your investment in CCA. Please note that your management team is focused on executed on another good quarter and a strong finish to 2011 and we look forward to talking to you not only this – later this fall, but in early 2012. So, thank you again for calling in.

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