Damon T. Hininger - Chief Executive Officer, President, Director and Member of Executive Committee David M. Garfinkle - Former Chief Financial Officer and Executive Vice President.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division Brian W. Ruttenbur - CRT Capital Group LLC, Research Division Kevin D. McVeigh - Macquarie Research Brian Hoffman - Avondale Partners, LLC, Research Division Barry Klein.

Good morning, everyone, and welcome to CCA's Third Quarter 2014 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, David Garfinkle.

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

Thank you, Wendy. Good morning, and thank you to our valued shareholders, analysts and other participants who are joining our call today. Joining me in addition to David is also our Chairman, John Ferguson; and our Vice President of Finance, Brian Hammonds.

After this opening that I give, I'm going to highlight the results of the third quarter with a brief business update and then finally hand it off to David. So some highlights for the quarter. First, normalized FFO was nearly $80 million, an increase of nearly 7% in operating cash flow as compared to last year.

Second, adjusted diluted EPS is up over 6.5% to $0.49. Third, quarterly revenues declined on a year-over-year basis as we have been successful in transitioning out of several underperforming managed-only contracts. While this strategy negatively impacted top line growth, it has had minimal impact on overall earnings.

In fact, adjusted net income for the quarter increased nearly -- by nearly 8% year-over-year. The primary driver is that we have seen a nice expansion in our margins for both the quarter and year-to-date numbers in our owned and controlled properties segment, in addition to revenue growth for the segment growing by 3% year-over-year.

We're really proud of the solution we've been able to provide through a new project we announced in the quarter with Immigration and Customs Enforcement. The new 2,400-bed South Texas Family Residential Center will be ramping in this current quarter going into 2015.

This extraordinary project, the largest ever provided by the industry for ICE, meets an unprecedented need and shows again our ability to provide needed solutions very rapidly that are innovative and effective for our government partners. ICE has been tasked with providing appropriate residential care centers for families.

And this center will help meet that significant challenge within a safe, humane and appropriate environment. The announcement of this new ICE facility comes on the heels of our July 3 announcement with the state of Tennessee noting the agreement for our new Trousdale County facility.

These announcements demonstrate the continued and, we believe, growing need for this type of solutions we provide. We're pleased to have officially broken ground on this $140 million Trousdale County project during the third quarter.

We also officially named it the Trousdale-Turner Correctional Center to honor Jimmy Turner, a Vice President and a long-tenured employee for us who passed away this summer. The facility should be completed and online in 2015, and we're proud that it will help ease the overcrowding here within the state of Tennessee.

Now prior to the announcement of Trousdale, we also commenced the construction of a new San Diego facility and ramped up the first 500 beds at our Red Rock facility for the state of Arizona. Our new San Diego facility will have 500 new incremental beds available in a market that has been significantly underserved for many years.

As these 2 projects ramp up in 2015, they will be meaningful contributors to our partners and to our business in 2016 and beyond.

Also, in late 2013, we made great progress in our goal of optimizing our existing capacity, with us providing needed capacity for partners at both our 2,400-bed North Fork and 1,700-bed Cimarron, Oklahoma facilities, which are now fully utilized, along with the entire capacity at our Cal City facility being absorbed by the state of California.

The 6,400 owned beds at these 3 facilities were running at 50% to 80% occupancy, but now all 3 of them are near 100%. Even with this progress, our CCA team continues to actively identify ways to meet the significant needs of existing or new partners to optimize this existing capacity as we look to the end of 2014.

We are also evaluating opportunities to maximize the value of our noncore assets by utilizing the properties with nontraditional partners or through facility sales.

We disclosed this summer our plan to sell the Houston Educational Facility, a charter school the company acquired in the 1990s and is showing 650 vacant beds in our facility portfolio chart. We are looking to close on this transaction during this month.

We are also looking closely at 2 other noncore assets, our Mineral Wells and Queensgate properties, to see if it makes sense to take similar steps we are doing with our Houston facility on these 2 properties, which also combine -- or combine -- I should say, account for nearly 3,000 beds in our facility portfolio listing.

So good increases in utilization at existing facilities on top of our new South Texas facility, new Trousdale facility, ramping up of our Arizona contract at Red Rock and the new San Diego facility provides a trajectory of solid earnings growth in 2015 and 2016. Now just to comment also about CAI.

Over a year has passed since this acquisition, and we are thrilled by both the financial and operational performance at these facilities as well as the great work they do to help people prepare to come back into the community after serving their sentence.

We see this business, which is residential reentry, as a natural broadening of the scope of reentry services we already provide, as well as being a nice platform to contribute to our growth for the foreseeable future. And we are currently pursuing additional organic and acquisition opportunities within this area.

In a similar vein, I made a speech to the entire company in August laying out a series of commitments with the goal of creating the best inmate reentry program and value in corrections. This effort is not just the right thing to do, it is completely aligned with our business model, helping us deliver what our customers want.

We really see this as a differentiator, a way to really give services and programs to our customers that they really want. And everything that I'm hearing from our customers so far about these announcements and these goals, we see it really as a business opportunity to grow. Let me now provide a few specific updates on the business.

First, on the state book of business, and first of which is that we're thankful for our new Arizona contract, utilizing capacity that was formerly used by California, and we started housing inmates in January. Currently, our population is nearly 500 at this facility.

I noted in August that the 2015 budget has been enacted in Arizona and includes funding for a second allotment of 500 beds at our Red Rock facility.

This facility shows 31% occupancy in the quarter, and it will be a $0.13 to $0.15 earnings swing when at full utilization versus 2014 performance upon the final allotment of inmates that we get at the facility.

As I said earlier, proud to be underway at our new Trousdale County 2,500-bed facility here in Tennessee, which will help the state address overcrowding. This new contract is our first one in nearly 10 years here within the state of Tennessee.

And just a reminder that this will contribute almost $50 million in revenues and $0.10 to $0.12 in earnings when at full utilization. And again, this will be ramping up in early 2016. A couple of observations about the current landscape and how state partners will be looking at CCA to help them address their challenges.

And the first of which is the statistic I have shared in quarters past. Nine existing state customers that we do business with today have seen increases over the last 12 months at a combined total of over 6,000 inmates and that's a very meaningful increase.

We also have 11 state customers where we provide owned and managed solutions that are expecting a significant bed shortfall over the next 5 years.

And as for requested new public sector capacity, we have observed minimal new appropriations for construction of new government-owned capacity to address overcrowding and population growth over the last few years. With the legislative season behind us, that is also the case for this current fiscal year.

This limited amount of public-sector investment in prison capacity is unprecedented. And to make matters worse, our research indicates that 200,000 public-sector prison beds are in operation today that are in facilities that are 75 to 100 years old. Now to the federal book of business.

And the most notable updates here outside the new ICE project in Texas is on giving an update on the 2015 federal budget and also federal populations as we wind down this year.

As for the budget, in mid-September, Congress passed a continuing resolution to fund federal government operations until December 11, and federal agencies are now operating and funding programs and services at fiscal year '14 levels. At this time, it is unclear how Congress will deal with the full year appropriations for fiscal year 2015.

Most believe that the likely outcome for fiscal year '15 appropriations is dependent on the outcome of today's elections. Depending on the result, there may be a move to extend the continuing resolution until the new Congress is seated in January. On our federal population, they have softened a bit as we head towards the end of 2014.

A couple of comments on this. First, with ICE, as a reminder, the level of their detention population is determined annually by the funding from Congress and the administration, and recently, that funding level has been around $34,000.

Nationally, ICE populations were significantly above $34,000 during this past summer, with the population level coming down as we went into the fall below the annual budget amount as we started the new fiscal year, which was on October 1.

As for United States Marshals Service and the Bureau of Prisons, we think there could be several factors affecting their populations. First the federal government is operating on a continuing resolution, as I mentioned earlier, that may be affecting short term the spending plans of several agencies.

Second, sequestration last year did have an effect on the level of hiring for both federal law enforcement agencies and U.S. Attorney's Offices around the country and, with that, has impacted both Marshals and Bureau of Prison populations this year. Also, we typically see some softness in populations around the holidays.

So with that, we're very pleased with the quarter, and I have to give sincere appreciation out to the CCA management team, wardens and the entire team of CCA correction professionals here in Nashville and nationwide for all of the hard work they have done this year. With that, let me now turn the call over to Dave..

Thank you, Damon, and good morning, everyone. In the third quarter of 2014, we generated $0.49 of EPS compared to our August guidance range of $0.46 to $0.48. FFO totaled $0.67 per share compared to our August guidance range of $0.64 to $0.65, and AFFO totaled $0.66 per share compared to our August guidance range of $0.61 to $0.63.

Third quarter EPS and FFO per share exceeded our expectations primarily due to higher than anticipated federal revenues at certain facilities, combined with lower income tax expense and lower employee benefits expense resulting from federal claims experience.

Our effective tax rate was below 4% again this quarter, which reflected the favorable impact of our tax strategies, some of which are nonrecurring. These positive variances were partially offset by higher G&A expenses, primarily for professional fees for assistance with several corporate initiatives and legal matters.

AFFO also exceeded our expectations due to lower-than-expected maintenance capital expenditures on real estate assets. There were several factors affecting the comparison of Q3 2014 results with Q3 2013.

As mentioned in our press release, revenue decreased by approximately $28.6 million due to the termination of several management contracts in 2013 and the first quarter of 2014. However, facility NOI at these facilities decreased by only $400,000.

The prior year quarter was also favorably impacted by the implementation of sales tax strategies at a number of facilities, which generated approximately $3 million of sales tax refunds during the third quarter of 2013.

Thus, operating income grew despite the sales tax refunds in the prior year quarter, higher G&A expenses and the terminated contracts due to strong performance on our core portfolio, including an increase in detainee populations from ICE at several facilities.

Consistent with the first 2 quarters of 2014, NOI also increased over the prior year period due to the lease of our California City facility to the state of California effective December 1, 2013. In the prior year quarter, the California City facility was 44% occupied by the U.S. Marshals and ICE.

Net income also increased due to a lower effective income tax rate in the third quarter of 2014 compared with the third quarter of 2013 mainly for the reasons previously stated.

Note that adjusted EPS, normalized FFO and AFFO in the prior year quarter exclude a noncash impairment charge, REIT conversion costs and expenses associated with our acquisition of Correctional Alternatives, Inc. to provide a more balanced comparison with 2014.

Our balance sheet remains strong with low leverage and high fixed-charge coverage ratios and solid liquidity. Our leverage ratio ticked up just slightly at September 30, 2014, due to a $70 million prepayment we agreed to make to the third-party lessor of the site in Dilley, Texas for the South Texas Family Residential Center.

However, under terms with the -- under terms of our agreement with our partner, ICE agreed to prepay us $70 million in 2 $35 million installments during the fourth quarter of 2014. The payment due from ICE is reflected in accounts receivable and deferred revenue as of September 30.

Excluding this amount, accounts receivable would have been lower sequentially compared with the second quarter, and our leverage ratio would have been about 0.2x lower. Moving next to a discussion of our guidance.

As indicated in the press release, adjusted EPS guidance for the full year is a range of $1.88 to $1.91, while Q4 2014 adjusted EPS guidance is a range of $0.46 to $0.49. Full year FFO per share guidance is a range of $2.61 to $2.64, and full year AFFO per share guidance is $2.54 to $2.57.

I have just a few highlights regarding fourth quarter guidance. When we announced the expansion of the IGA to manage the South Texas Family Residential Center, we estimated that we would incur $0.02 to $0.04 in start-up expenses.

Although there are still a number of assumptions included in our guidance with respect to the unprecedented pace of ramping this facility, we are now expecting our ramp to be more efficient than originally projected. Conversely, we have recently seen softness in federal inmate populations as we end the year.

Our forecast reflects the marginally favorable impact of the South Texas Family Residential Center relative to our last announcement, net of the unfavorable impact against our previous guidance of the decline in federal populations.

This $0.03 range reflects a range of assumptions around the South Texas Family Residential Center and future federal inmate populations.

Our guidance also contemplates the hiring of additional staff late in the fourth quarter at our Red Rock facility in anticipation of receiving an additional 500 inmates from the state of Arizona during the first quarter of 2015.

This will have a slightly negative impact in the fourth quarter and is probably the only other noteworthy factor when comparing the sequential Q3 2014 to Q4 2014. We expect our effective income tax rate to normalize at around 5% to 7% in Q4.

G&A expense in the fourth quarter is expected to be approximately 6% of total revenues, while Q4 depreciation expense is estimated to be $29 million to $30 million. I will now turn it back over to Damon..

Thank you, Dave. So let me bring to a close our comments and make these final points. As for our business outlook, population increases we are seeing indicate continued need for our solutions we provide. We're also very encouraged by the improving budget environment on the state side.

We've also seen very extreme limited level of budget appropriations for new public sector capacity to deal with growth, overcrowding and aging infrastructure. We have existing capacity to deal with these challenges of our partners, and optimizing this capacity could add significant cash flow. Clearly, we have more to do on this front.

But last year, we had 6,400 beds at our North Fork, Cal City and Cimarron facilities running at 50% to 80% occupancy, and now all 3 are 100%. So we've made progress, but clearly more to do on this front.

So with increased utilization of existing owned beds, the future meaningful contribution of South Texas, new incremental beds in San Diego, the future contributions of Trousdale and Red Rock, not to mention purchase opportunities increasing for government-owned prisons and reentry facility opportunities where we could acquire those, we see a great earnings trajectory over the next 3 to 5 years on top of a nearly 5% dividend yield.

So that concludes our 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 comes from Tobey Sommer with SunTrust..

Question for you about, I guess, your last comment, a great earnings trajectory over the next 3 to 5 years.

What kind of trajectory would you contemplate?.

This is Damon. What we said publicly here in the last couple of years is 5% to 7%. So I think if you look at the next 3 to 5 years, it could be a little higher, a little lower, but I think that's still a pretty good number relative to range..

And what is the timing on the full swing in EPS derived from the ramping at Red Rock?.

So we'll have the second allotment of 500 beds. We think those will probably ramp fairly consistently to what we saw this year, which I think it was by end of February, maybe early March when those 500 were ramped into Red Rock. So by second quarter next year, we'll be up to 1,000.

Our -- what we're anticipating is that the -- another allotment for beds would be funded in the coming fiscal year next year, I should say, which should be '16. So you could see the swing as early as 2016..

Okay.

And what would the interim swing be as of kind of 2Q of next year when you're operating at 1,000? How does that work?.

Until the....

We had about -- it was about $1.6 million worse this quarter compared with last year's quarter, if that gives you some kind of a sense for the improvement. We'd expect -- we're operating at a loss, still with 500 inmates. So with the second allotment of 500 inmates, we expect that to return to profitability..

Okay, that's helpful. And just, Damon, a question about the kind of a broader scope of services that you alluded to in your reference to the internal presentation you made. How might that strategy unfold? Will it entail additional investments? Kind of a broader discussion, more color on that would be appreciated..

Absolutely. So the actual investment was -- it's going to be pretty minimal. To be honest with you, we've been doing a lot of important work within our existing prison facilities in the program area. And I break that kind of in a couple of categories, one of which is academic. Another is vocational.

We've got also addictions treatment and some other programs.

But what we're really trying to focus in on is the things that we know that work, one of which is, and this is common sense but just important to reinforce it, someone being in prison who doesn't have a high school diploma, getting them a GED is clearly going to make them a lot more employable once they get released.

And so it's focusing on those things that we know clearly are going to have an impact to lower their risk of being reentered into a prison and help them be more successful to get employed and support themselves and their family.

The second thing I would say, though, is that, and this is, I think, encouraging, not only just for us in the industry but really as taxpayers, there is a good appreciation now from customers that it may cost a little bit more to house an individual in a prison, in a CCA prison.

But they appreciate that we are going to provide these programs and again make them more successful when these individuals get released, when they get released back into the communities and back into society.

So say it in a different way, there has been some efforts by states in the past to use what I'd say jail facilities or detention facilities that don't have these programs that cost maybe a little less for a state to house them there.

So that's a savings they could see in the current fiscal year, but the argument there is that longer term, they're going to be likely to come back into the system, and you're going to have to house them again.

So that's been a nice shift over the last couple of years where you've seen states say, "Okay, I realize I'm going to have to spend a little bit more upfront, but I'm going to have a better chance with these individuals, once they get released, that they're going to stay out of prison long term.".

And from a financial perspective, would it be fair to, a, anticipate a slightly more buoyant per diems on a go-forward basis as a result of the shift in philosophy?.

I would say -- I'd say, it'd be modest, just depends on the location. But I wouldn't say it's significant. It may be -- might be a modest little bit of premium there for the -- some of the programs that we're putting in place. And of course, it's a conversation with every customer in every location.

We've got a real nice library of different programs we can provide, so not every customer will want everything that we can provide within our program department..

Okay. My last question, I'll get back in the queue. You mentioned 9 state customers with an increasing population in recent months.

Do the forecast and the conversations you're having with those customers indicate a similar kind of increase over the next year or so? Or kind of what's the trajectory from here for those customers?.

Yes, it's very similar. So the customers that have grown here in the last couple of years, I'd say, last 2 or 3 years, I'd say those customers, there was a few exceptions, some that maybe have been a little bit flattening now are projecting growth.

But I'd say the majority of those are ones that are still showing not only the growth here recently but also growth over the next 3 to 5 years..

And we'll take our next question from Brian Ruttenbur with CRT Capital..

Let's start off with a macro, hopefully a softball question for you guys, but we'll see.

So the elections today, so can you help us if the Republicans wins versus the Democratic wins, what happens, in your opinion, in terms of funding? Which one's positive and which one's negative for you and why?.

Softball question, okay. So let me just say, this is Damon, Brian, good to talk to you. So the bottom line, I would say, is that we've been around 31 years. We have been operating in states and obviously federal government with our 3 federal partners for many years.

And with that, as you know, we've seen big shifts from state houses going from Democrat to Republican, Republican to Democrat. And I think that what history has shown relative to our performance as a company is that we have been able to operate very effectively regardless of who's in the state house or who's in the legislature.

So yes, there's obviously a lot of elections going on today, but I think in places like Colorado or Oklahoma where they shifted from Democrat to Republican over the years, we've had good success on growing our business regardless of what political party is in control of the -- either Governor's House or the legislature..

So if the Republicans have a victory, a sweeping victory at the federal level, does that mean increased funding for INS or decreased funding? Or is it still murky out there on what this means, Democrat or Republican win?.

Well, I would say, as I said, too, earlier about the funding for 2015, I think we just have to wait and see. So we get through the election today, and then we'll see what action is taken here in the near term relative to dealing with the continuing resolution that expires in December because we'll have to do something obviously by then.

And so it could be the case where they'd just extend it a short period of time, say 30 or 45 days, to get into January to let the new Congress deal with the funding for the rest of the year..

Okay. Sorry, I thought that was more of a softball than it was. I apologize. And okay, now on to some other questions. You're selling a charter school.

Can you give us a range of what you intend to get out of that in terms of cash?.

Yes, it's a sale price around $4.5 million..

Okay.

And who are you selling that to?.

Actually, to another charter school that had a desire to own the real estate, not just lease it..

Okay, great. And then you'd mentioned 2 other facilities that you're going to sell.

And how much money do you expect to generate from those -- selling of those 2 properties?.

Yes. Selling is an option, but it's not a foregone conclusion on those 2. So we're evaluating either that type of action on those properties or finding another -- potentially another, what I'd say, kind of nontraditional partner for use of those facilities.

So those are still being analyzed on, say, on what's the best outcome for those 2 properties long term..

Okay.

What's an alternative use for a prison? Can you give me an example?.

So the facility, I -- so I mentioned 2 facilities, one of which is Queensgate up in Ohio, so give you a little bit of a visual. This is about 100 year old high-rise warehouse in downtown Cincinnati that was retrofitted, I think, in the '70s or '80s and turned into a -- basically a jail annex for Hamilton County.

So it could be for -- back to a commercial use for someone that needs a warehouse or it could be turned into kind of retail use or a residential use or it could be a couple of different opportunities there. Mineral Wells gave you a visual on that.

This is a facility that we acquired back in the '90s from a company that basically put a fence around a bunch of military barracks. So this was a -- Mineral Wells was a military reservation from World War II up until after Vietnam.

And so give you a visual, it's a bunch of military barracks with a big fence that were low-security housing for pre-released offenders in the state of Texas for many years.

So it could be an opportunity with the military for kind of either training or a solution they need in an unlikely event they've got an -- either a natural disaster or some type of other action where they just need a facility for temporary use. So it gives you at least a couple of options there..

Okay, very good. And then the other question I have was on payout ratio. As we calculated, you went up to 77%. I think your target had been stated at 75%.

Can you talk about what you expect your payout ratio to be going forward?.

Yes. Brian, it's Dave. Our payout ratio target was 80%. And actually, when you look at a year-to-date, we're actually right on that 80%. So we're a little bit above that during the first quarter as we had some accelerated purchases of some HVAC equipment and so forth. We've kind of had lower maintenance CapEx during Q2 and Q3.

So year-to-date, we're right on that 80% target..

Okay, great.

And then the plan going forward is to keep it there or you're going to reevaluate that going into 2015?.

It's something we evaluate periodically. We have discussions with the board obviously around the dividend level every quarter. As we've said, we look at that a little bit harder at year-end as we've closed the year-end books and as we look forward to the upcoming year after the budgets are finalized, and we're providing guidance.

And we'll tweak that or reaffirm that payout ratio. It will largely depend on what other opportunities we have to deploy capital toward growth opportunities..

Okay. Then the last question is just understanding a couple new projects ramping, Trousdale County, South Texas; San Diego, it appears to me, and just doing back-of-the-envelope type work, that these are above average.

Even your stated -- you want 25% to 30% EBITDA margins, seems like these new projects that you're announcing and working on over the next 12 to 18 months appear to be at the top end and maybe even above the top end of the range.

Is that a right direction to think of?.

Again, Brian, it's Dave. I'd say our target was 13% to 15% pretax unlevered ROI, and these projects are within that range..

And we'll take our next question from Kevin McVeigh with Macquarie..

It seems like there's been some runoff on the managed-only side, Damon.

Does that kind of free up management bandwidth to pursue other opportunities in terms of more focus on reentry and other growth initiatives as opposed to managed-only? Or is that just a function of the timing when these contracts have come off?.

Kevin, good question. Yes, I think it's -- I think that's right. If we've got less than the managed-only portfolio and we can focus more on like I said these acquisition opportunities on the reentry side or the owner side, I think that's absolutely accurate.

And as we've talked about previously on the managed-only segment, I mean, we're -- we have been and will continue to be very thoughtful on these contracts, especially when they come up for renewal, and making sure that we price it appropriately, and we feel comfortable about the earnings and the margin on these contracts.

And of course, we've had a few run off just because we have been so disciplined on our pricing, and so that will continue to be the strategy going forward. And also, I'd say the managed-only segment is not been part of the growth story here in the last 10 years, as you know.

So customers are looking for us to provide a real estate solution, along with a service solution. And the managed-only segment has not, like I said, been part of the story the last 10 years.

And so we're continuing to keep focused on owned and managed side but, again, be thoughtful on times when there are these opportunities to renew the managed-only contracts..

Understood.

And then just as we kind of talk about those 3, what I'd say less traditional facilities, you had the charter school you just sold and the other 2 that sounds like there may be an opportunity, does that do anything in terms of, would it add kind of 1 point or 0.5 point to earnings growth next year as your kind of some relief on the P&L as you monetize these? And how should that ultimately impact utilization as we think about '15?.

Well, help me here, Dave. I'd -- one thing I'd say is that so if one outcome is if we sell these facilities, then you'd obviously have a little bit of a pickup here because of the costs we've got carry in these vacant beds. So that would be a little pickup. It would be very, very modest, so it's pretty small, both to look....

Yes. We said we incur about $1,000 per bed per year to carry that idle capacity. I haven't looked specifically at this. I think they're in that range. So as Damon mentioned, if we were to dispose of them, you're picking up that amount and further paying down debt in all likelihood with some of the proceeds at least in the short term.

So it'd be a modest pickup. But I think all options are on the table in terms of what we're trying to do to maximize the value of those facilities.

That could include disposition or, as Damon mentioned, trying to find a nontraditional partner to utilize the facility, in which case, it could -- there could be some upside if we were to be successful in that effort..

Understood. And then just the last one from me.

On the San Diego facility, is that purely going to be -- is that any type of signal on any thought process on incremental opportunities within the state? Or is that going to be more focused for other opportunities? Or just how are we thinking about that relative to the current populations in California?.

So good -- another good question. The San Diego facility, it's -- a couple of things we're doing here, one of which, it's partially a replacement facility because we've got the lease in our current San Diego facility coming up for expiration, and that's the lease between us and San Diego County coming up in December of 2015.

And that facility, our current facility, has been running about 1,000 beds, and so it's always kind of historically been right at what I'd say kind of almost full occupancy at that location.

So when we get the new facility, which we'll -- I think we'll get the keys to it in the summer of 2015 and then start doing the transition in the last half of 2015, we will have, as I mentioned earlier, about 500 new incremental beds available.

And this has been a market with both ICE and Marshals that have always had a strong demand just because again, historically, we've been close to 100% occupancy at this current facility. And so as I look into the future, the incremental opportunity on those beds, I would say, is more on the federal side.

Now could it be opportunity in the county and state? Absolutely, but I'd say if I was going to rank them, I'd put federal first..

That's helpful.

And then, Damon, I know I said my last one, but any kind of additional thoughts on within actual county prisons or anything like that? Any change since last we chat?.

No. We've had conversations with a couple of jurisdictions around the country, and what we're seeing is that counties are having some challenges on getting voter referendums passed on capital needs they have with schools or kind of other capital needs within their respective governments.

And so we see the timing being pretty darn good where we could go in, elect to buy a jail. They monetize it. They can use those proceeds to deal with another capital need they have got within their either city or county government, and we become the landlord for those facilities.

So we are in the, what I'd say, beginning stages and kind of talking through what the value proposition and how this would actually work with several jurisdictions. So I think those conversations are progressing..

And we'll go next to Brian Hoffman with Avondale Partners..

My first question is with respect to ICE. We've seen several contracts awarded by ICE to house women and children over the past several months.

Do you have the sense that ICE still has more contracts like this to be awarded? Or have they fulfilled their needs with what's been awarded so far?.

The -- I think the short answer, Brian -- this is Damon -- is I don't think we'll know that until we get into next year because you're exactly right. They have had the new contract with us in Texas. They had the mission change with GEO at Karnes.

They stood at the facility out in Artesia, New Mexico, and they've currently got an existing facility, which I think they're expanding up in Pennsylvania. So our sense is -- from ICE is that they've done a lot here in the last 3 to 6 months to meet the need of this demand.

I think they want to get both our facility and some of these other facilities across the finish line relative to ramping up and then as we go into 2015 and beyond, do an assessment to see if they need more than that. But in the near term, I think this would be a little wait and see since they've done so much here in the last 3 to 6 months..

Great. Okay, that's very helpful. And then with respect to RFPs that are out there, we track all the publicly known RFPs. So if you could characterize the RFPs that are not publicly known. Are they more or less now than in past recent quarters? Any color here would be helpful in just understanding the level of opportunities that are out there..

I would -- this is Damon. I would say it's probably about the same. I'd say the level of interest and engagement we've got, either with existing or new partners, I'd say, is about the same as it was in the last 2 quarters..

And we'll take our next question from Barry Klein with Macquarie..

Just a couple of questions. Last quarter, you spoke about a normalized tax rate of 6% to 8%. This quarter, if I heard correctly, you're talking about a normalized tax rate of 5% to 7%.

Is 5% to 7% a good number to use for your tax rate longer term?.

Yes. I think we've been successful in reducing that effective tax rate from original guidance. During each quarter of 2014, we've been able to maintain it below 4%. I don't think that's sustainable. We continue to look for ways to maximize the savings associated with our tax strategies, and we've been successful in each of the quarter.

There have been different reasons. It's primarily at the state level as well since the REIT is pretty much -- sets the rate for the REIT, so all of our taxes are really coming out of the taxable REIT subsidiary. And it can be lumpy.

I think in the first quarter, we had unemployment taxes that was driving that rate down because of lower taxable income in the taxable REIT subsidiary. This quarter, we had some tax credits, and a couple of states lowered their effective tax rate.

But depending on our ability to come up with those tax savings opportunities on a quarter-by-quarter basis, that can result in some fluctuations in the tax rate. But assuming we're not able to come up with additional strategies that smoothens out that lumpiness, I'd say a good rate going forward is 5% to 7%..

Got you. And then I may have missed it, but did you guys put out -- I saw the -- on the call, you were talking about Red Rock. You gave some earnings guidance there. Same with Trousdale.

Did you give any earnings guidance on the new ICE contracts? Or if you didn't, could you provide a little bit more color on how we should look at the earnings coming in from that project?.

Yes, I'll take that. It's Dave again. We don't provide contract-specific economics.

But I can say that the results will be reported in our owned and managed segment, and we'll have operating margins reflecting risk-adjusted returns based on the pricing of the agreement with ICE, which contemplated the short-term duration of the contracts, unprecedented accelerated commencement and ramp schedule requested by ICE, uncertainty, the cost structure including staffing, which could be a combination of -- what will be a combination of external versus internal staff and how many we're able to hire in the San Antonio area internally versus contracting out on a more expensive external staffing, accommodations for that staffing while they're there, as well as the facility and services being provided are highly customized to meet the unique needs of the residents placed in our care at that facility.

So more toward the high end of that range on the owned and managed side, I'd say..

Okay. So because there's actually risks and difficulties, we should expect some maybe margins slightly above the average for your entire portfolio.

Is that fair?.

Yes, I think that's fair. Now there are a number of assumptions, as I just kind of mentioned all of them, if they all go our way, you're at the high end. If they don't go our way, you could be at low end. So I think this kind of gives you a flavor for our methodology and price in that contract..

And we have no further questions at this time..

All right, Wendy, thank you. And thank you to everybody on the call today and for your participation, and more importantly, to our investors, thank you for your investment in CCA. Your management team is focused on executing another great quarter and a strong ending to 2014.

And we look forward to reporting our progress in 2015 in our February earnings call. So thank you so much. Have a great day..

This concludes today's program. You may disconnect at this time. Thank you, and have a great day..