Corrections Corporation of America (CXW)

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Corrections Corporation of America (CXW)

Q4 2011 Earnings Call

February 9, 2012 11:00 AM ET

Executives

Damon Hininger – President and CEO

Todd Mullenger – CFO

Analysts

Kevin Campbell – Avondale Partners

Todd Van Fleet – First Analysis

Manav Patnaik – Barclay’s Capital

Tobey Summer – SunTrust

Derrick Broadnax – Macquarie

Barry Klein – Macquarie

Jonathan Evans – Edmunds White Partners

Dennis Wurst – Britton Hill Capital

Presentation

Operator

Good morning, everyone, and welcome to 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 “Investors” 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

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 and I will discuss the marketplace and new opportunities after which we look forward to taking your questions.

First, 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’re executing on a strategy very well.

From a financial perspective, our full year diluted EPS was 10.8%. This made for 11 consecutive years of EPS growth for CCA in with the worst economic environment of our lifetime, a compounded annual growth rate over the last three years is just under 9%. Revenue was up nearly 4% and 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 made real progress on many fronts at a time when there has been a lot of doubt and uncertainty about the economy. After I received a 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’d 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’d 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?

Todd Mullenger

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

Average US Marshal 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 have been averaging for the first three 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 the guidance range for Q4 2011 of $0.37 to $0.38. As a reminder, in early January, we closed on a new $785 million all revolver bank credit facility, 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 our 6 1/4% senior notes that mature in March of 2013.

The refinancing of the notes will be completed on February 13 when we finalize and fund redemption call. This will leave $40 million outstanding under those senior notes.

Moving next to the discussion on our guidance, as indicated in the press release, Q1 2012 guidance is in a range of $0.32 to $0.33. Guidance for the full year is in range of a $1.62 to $1.70 and then AFFO guidance for the full year is in a range of $2.35 to $2.50. Guidance excludes any charges that will be taken Q1 associated with the partial tendering call of the 2013 senior notes.

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