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Executives

John D. Ferguson - Chairman and CEO

Todd Mullenger - EVP and CFO

Damon Hininger - President and COO

Analysts

Thomas Robillard - Banc of America Securities

Kevin Campbell - Avondale Partners

Todd Van Fleet - First Analysis

Bill Gilchrist - Westfield Capital

Corrections Corporation of America (CXW) Q3 FY08 Earnings Call November 6, 2008 11:00 AM ET

Operator

Good morning, everyone, and welcome to the Corrections Corporation of America Third Quarter 2008 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.correctionscorp.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 the 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 discussions of non-GAAP measures. The reconciliation of the most comparable GAAP measures is provided in our corresponding earnings release or posted 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 Chairman of the Board and CEO, John Ferguson; Chief Financial Officer, Mr. Todd Mullenger and Damon Hininger President and Chief Operating Officer.

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

John D. Ferguson - Chairman and Chief Executive Officer

Thank you, Steve and welcome everyone to our third quarter conference call. In addition to the individuals that Steve mentioned we also have Dave Garfinkle, our Vice President of Finance. We begin today with some comments by Todd Mullenger, our CFO.

Todd Mullenger - Executive Vice President and Chief Financial Officer

Thank you, John. Good morning everyone. Moving straight to the summary of our results for Q3, in the third quarter of 2008 we generated $0.30 of EPS compared to EPS of last year's Q3 of $0.26 representing an increase in EPS of over 15%. EBITDA increase 14% nearly $99 million for the quarter and adjusted free cash flow for the quarter increased over 12% to $62 million. This brings adjusted free cash flow for the ninth months year-to-date to $191 million, an increase of 20% over the same period last year.

Total revenue for this year's third quarter was up 8.9% over last year, an increase of $33.6 million. Total compensated man-days in Q3 increased 5.4% compared to the previous year. Revenue per compensated man-day increased in Q3 4.2% to $57.23 from $54.94.

While compensated man-days increased 5.4% you may have noticed that average compensated occupancy for the third quarter declined from 97.9% to 95.3%, as a result of placing nearly 9000 new beds into service during 2007, 2008. 4000 of these beds were placed into service during the first half of 2008 alone.

With regards to the 4.2% increase in revenue per compensated man-day, results in Q3 2008 reflect the impact of certain pricing leverage we enjoyed from renegotiating several contracts, the increase in populations under our state of California contract as well as routine per diem increase.

Moving next to a discussion of operating costs, operating costs per man-day for Q3 2008 were $40.33, a 2.8% increase over Q3 2007. Our Q3 2008 operating costs per man-day reflect normal wage and other general inflationary increases, as well as operating inefficiencies associated with the ramp up of new bed activations at facilities such as La Palma, Tallahatchie, Davis, and Leavenworth.

As we have discussed previously, the operating costs per man-day on newly activated beds start off higher, as we are ramping up fixed costs, particularly staffing costs, and then declined as we increased occupancy which allows us to leverage those fixed costs lower on a per compensated man-day basis.

Operating margins per man-day in Q3 2008 increased 7.6% or $16.90, with an operating margin percentage of 29.5%. As a result of the operating cost inefficiencies we just discussed, margins on inmates placed in newly-developed beds will be depressed during the facility ramp-up period. However, the margins per compensated man-day on new beds will improve over time as we approach full occupancy on those new beds.

General and administrative expenses for the quarter were 5% of revenues. The increase in G&A compared to Q3 2007 was due primarily to the expansion of our real estate department as we added resources to assist in the development of new beds, increased focused at the corporate level on quality and efficiency of facility operations and an increase in non-cash stock based compensation expense related to the change in accounting rules. GAAP income tax expense for the quarter was computed based upon the rate of approximately 37%. We currently anticipate a rate of 38% for full year 2008.

I will finish with a discussion of our guidance for 2008. As indicated in the press release, we have updated full year guidance to a range of $1.18 to $1.20 compared to previous guidance of $1.21 to $1.24. Guidance for Q4 is in the range of $0.30 to $0.32.

We have revised guidance primarily as a result of longer than anticipated delays in the State of California to make transfers to Tallahatchie county facility, slower than anticipated ramp up of State of California inmate populations at our other facilities, delays in negotiating the new U.S. Marshall contract at our DC Correctional Treatment Facility and recent and projected reductions in inmate populations from the states of Washington and Minnesota resulting from earlier than anticipated utilization of new stated-owned bed capacity.

The delays in inmate transfers to our Tallahatchie facility was a result of negotiations and implementation of the corrective action plan with the CDCR and Federal Medical Receiver requiring more time than anticipated.

In addition, the processing of inmates by CDCR for other state placement has experienced delays resulting in a slower than anticipated ramp up at other facilities.

Unfortunately, these delays have caused us to revise our occupancy and revenue forecast related to the State of California for the balance of 2008.

However it's important to note that our relationship with the customer remains strong, and the State of California continues to express its intentions to fully utilize all of the 8,132 beds available to it under our contract.

As noted in the press release, we have finalized negotiations with the U.S. Marshal for a new contract at our DC Correctional Treatment Facility. Although negotiations required more time than anticipated, we're excited about the growth opportunities provided by this new contract.

Finally with regard to declines in our populations from the State of Washington and Minnesota, both have begun utilizing new state-owned bed capacity earlier than anticipated. As a result, Minnesota has removed 228 inmates with plans to remove another 200 to 250 by Q2 2009 and Washington has removed approximately 220 inmates.

One of the primary risks to our guidance continues to be timing around the receipt of inmates. This continues to be a risk with the State of California contract. However, should there be a shortfall in our expectations, we are still optimistic the demand from customers will ultimately fill our beds albeit over a longer period of time.

Turning next to discussion of our liquidity, as of September 30th 2008, we had cash on hand of $29 million and $237 million of availability out of our $450 million revolver.

For the nine months ended September 30th 2008 as I mentioned earlier, we generated $190 million of adjusted free cash flow excluding the cash outflows associated with new construction projects.

At the end of September, we had $236 million left to spend to complete all of the new development projects announced today. We believe that cash on hand, free cash flow from operations and capacity available under our revolver will allow us to fund all development projects announced today without the need to access the capital markets.

We believe our strong liquidity position, balance sheet and free cash flow provides us a competitive advantage especially given the uncertainty in the financial market. Overall, the outlook for our business remains quite favorable. Projected demand for additional prison beds combined with our new beds underdevelopment and our ability to fund further development provides CCA with significant opportunities for growth.

I'll now turn it over to John for specifics on our new business prospects and bed development.

John D. Ferguson - Chairman and Chief Executive Officer

Okay. As I typically do, I'll briefly touch on the two major customer segments that there we have. Starting out with the federal segment, year-to-date we've added about net 2000... net new inmates and detainees. Overview of where the BOP is, the BOP's population currently is little over 200 and 3000 which is 37% over their rate of capacity which is pretty consistent to what it was last quarter. Their most recent projections, although they are down a tad, they're still expecting a growth of between 13000 and 14000 net new inmates between now and September 30, 2011 and we're going to identify only about 7500 new beds available to them.

Obviously one of the ways that they are dealing with their bed needs is they issued a solicitation referred to as CAR-8 and CAR-9 for approximately 4000 contract beds. The present fiscal year 2009 budget had in there $50 million for this 4000 additional contract beds for six months of that fiscal year and with that in turn that would have been starting around the first of April to the end of the fiscal year 9, 30.

We do know that at the moment the Department of Justice and therefore the Federal Bureau of Prisons is operating under a continuing resolution and that the bureau has expressed reluctance to award a long-term contract until they get a firm budget. And so the uncertainty would lead us to believe that the activation that had recently been planned [ph] will probably be delayed.

Obviously with a democratic President that might in fact allow the passing of the budget sooner than it might have otherwise. And of course they have now the solicitation that's referred to as CAR-10 and CAR-11 and these are actually re-bids of the two contracts we currently have under what was referred to as CAR-1. For these contracts expire in the fourth quarter of 2010 and this is preparing for the anticipation of the expiration of those contracts.

We continue to see needs for the U.S. Marshall service. As we've said many times that they have been averaging about 7% growth here in the last four or five years and don't know of anything that would change that growth and as we look at the BOP and shortfall that they have in their bed needs that in fact influences the need for additional Marshal's bed as many of the Marshal's inmates are transferred to BOP facilities, once a detainee is convicted of a crime.

One business note, in the third quarter we've had a long-term contract with the Marshal Service at our Central Arizona facility in Florence, Arizona that actually expired in May that had a solicitation for those beds. We were identified as the organization for them to negotiate and in September we signed a new 20-year contract for the continuation of that relationship, not only does it includes the beds that are in our Central Arizona facility but also includes additional beds that is in our Florence facility which is right next door and also includes availability of some of those beds for immigration custom enforcement.

As we noted in our press release, the planned completion of facility for the Las Vegas district, our Nevada Southern now it looks like that the completion would be in the second quarter of 2010 as opposed to fourth quarter 2009 and this delay is based upon the request of a customer.

As we look at the activity in immigration custom enforcement, one budget that was put in place for the full year was immigration custom enforcement or one of three that we're putting together and the funding for that is for 33,400 beds, that's an increase from 32,000 in the prior fiscal year and also that compares to little over 31,000 detainees in... there have been as of June 30. Also in the budget that was approved for '09, we saw an increased funding to identify criminal aliens that are in local and state facilities.

And just to remind everyone that as we point out numerous occasions that detainee beds that would be sourced from us for several places that immigration custom boys need, that's border apprehensions, people that overstay their visas, people that are identified as criminal and the jails and prisons people that who have completed their time in jail and prisons and will be deported. Obviously additional illegal aliens residing in the United States and of course those who get caught who are engaged in criminal activities.

So even though we have seen the border crossings and apprehensions decline in the last couple of years, we are really talking about dealing with a population well north of 12 million, estimated more than 12 million illegal immigrants residing in the United States.

One quick observation on, now the results of our national election and a more democratically controlled Congress as well as Democrat leadership in the present seat, I think as, I don't see anything that would dramatically changed what we said previously. Obviously, we can't be sure of all the public policy changes that might come about. But as we have said previously the Federal Bureau of Prisons, US Marshall Services, Immigration, Custom Enforcement are carrying out statutory obligations for their responsibility.

We have now experienced democratic control Congress in last couple of years and not seeing anything dramatic as it relates to funding of these responsibilities. In fact we have increased funding for these areas recognizing that the need is there and will continue to exist.

We do know that the Immigration Reform that was debated and discussed in April, 2007 the grand compromise will probably be revisited. But I think the attitude of... the current President and attitude of the future President were pretty aligned as to warning some comprehensive Immigration Reform and I think we evaluated that at some distance. And I think reported on that. So obviously can't make sure but right now we think that our relationships with the federal agencies that should continue and we should continue to see their utilization of the private sector to meet their statutory obligations and requirements.

We are seeing our state populations grow right at 2500, since, the beginning of the year. I had mentioned that we continue to move toward the 8,000 plus to be in our system, the end of the first quarter of 2009 or very closely thereafter. Of course we did respond to the new request for information that California issued a few months back for additional beds and our response included numerous beds that are available right away as well as some new beds that could be available or we could make available. And so we have not heard when that might deal with... making a decision there. But as we've said previously we think we are one of the several items [ph] that work... we deal with Tallahatchie is that I think we've demonstrated our ability to the level of care that now the receiver expects and we think that it should be beneficial as California looks at future beds.

The Arizona 12,000 beds solicitation is still in place, have not heard when they might award that. We also received a new contract but it was actually renewal of the females from Hawaii that we provide inmate bed space at our Otter Creek, Kentucky facility. So we're pleased with that. Plus we pointed out in the press release that Texas put out some of their facilities for a new contract, two of them are ours, contract expires on January 16th and we were not able to receive our award. That award came... became all about price and I think we've tried to express that, we believe we had some discipline as to what price we think and margin we would need for any housing of any inmates regardless where we own the facility or not.

So what you have is an RFP for 1500 expansion beds currently active. And of course Idaho has an RFP for the management of their facility which is a facility we've managed for close to 10 years. So it is both an opportunity and a threat, that contract expires on June 30, 2009 and we believe that somewhere in the March timeframe is when they will make an award certainly, we are competing... continue to maintaining that business. And then we have discussions going on with several prospective states that we feel that based on the current environment that many states are experiencing gives us the opportunity to help them deal with some of their budget problems and looking at the private sector where maybe they didn't previously.

So, just to reinforce what Todd says in his comments and what we've said in the press release that we're in unprecedented times that we're continuing to monitor the challenges faced by our customers; they're going to receive less revenue than they had previously anticipated.

It's unusual financial for them seeing some states having a hard time, borrowing at even at some decent rates. We will expect most legislators to go back into session in the beginning of the new calendar year and that will bring on all kind of actions that to deal with budget shortfalls some of may affect us. Of course we've been through this previously back in 2000 and 2001. So it's hard to know the uncertainties and what... at least we know that the uncertainties but what the consequences about will be. But as Todd said we really believe that long-term this will benefit the private prison industry and specifically CCA.

So, all those areas some uncertainties, we believe CCA continues to be in a very good place to benefit from our customers and prospective customers, continued demand for prison beds because we believe that as we've said regardless of the economic cycle there continues to be a growth in inmate populations. And that growth continues at a time when the supplier is not being developed by our customers.

So let me finish up with the opportunities for growth that we see and where we are. If you look at our press release we have a pipeline of nearly 13000 beds, about half of them of beds that we currently have finished developing are part of the facility that we manage for our customer but those are our in inventory and another 6500 of them under development primarily in four major facilities that we have under development.

If we can take a look at those 13000 and counting the soon to be completed the Adams County we have over 5000 beds that we can a make available to meet some of the outstanding requests that are out there and that's specifically California, Arizona and Bureau of Prisons which collectively... and we just got a guess what California's numbers might be, but we would believe that those three government entities are looking at probably somewhere around 10,000 bed. So we feel pretty good that if their decisions are made that we have the opportunity to help meet some of their demand.

And once again it's all about timing. Even though we have a large solicitation collectively the timing in which they might make the decision, the time in which they may use the bed or something that we have very little control over.

In addition that if you look at 13,000 beds we have nearly 6,000 of them or beds that are available with an active customer contract and some of the beds overlap in the ones I just mentioned. But those 6,000 beds obviously, we don't have any guarantees against those, the utilization by our customers and in some cases we are not guaranteed to deliver those beds, but I think it is noteworthy that about half of the 13 are in situations that we believe over some period of time could be absorbed by our current customers under their current contract.

So again we feel that we've got fairly good visibility for ultimate utilization. Obviously, as we said we are in some unprecedented times. Even though we know that inmate populations will continue to grow, our state customers and our federal customers, we know that they are going through unprecedented budgetary time which may mean that some of their actions in the short-term may affect the utilization of beds that they may need right away but maybe postpone to try to balance their budget. But if we just take a look at the 13,000 beds that we have available both under development and in inventory and as we usually do, just supply what our margin for owned and managed only business for that.

We are looking at potential of additional $108 million of facility EBITDA which is approaching 40% of what our nine months EBITDA for the company has been. And then to talk about the continued opportunity for us to meet demand that we believe will continue to see develop in the marketplace. I think our liquidity and balance sheet are in great shape for future opportunities.

In fact, right now two stories, one is that if we did announce another product, another development with our cash on hand, the cash we expect to generate for this second half of this last quarter of the year, looking back over the last 12 months and looking at, we just generated in 2009, the last 12 months of free cash flow that we could fund the completion of all those projects and have excess cash available. But if we were to see the need to develop numerous beds which we believe long-term is going to be needed and we were to see the market settle down, be able to utilize the capital markets, take our leverage ratio from less than three up to four. I think we are comfortable looking at the ability to fund some 13,000 additional beds over the 13,000 we have in our pipeline between now and the end of 2011.

So we're going to be in some uncertain times... uncertain times that probably nobody alive today that remembers a time that's comparable to what the markets are going through, what the financial marketplace is going through. And so although we feel that we will continue to see our customers' needs for inmate beds to grow even during this period of time, there is uncertainty as to the timing of when they might use these beds and uncertainty as to how they might approach their next budget that they will start to put together, starting it after the course of the year.

But we think we are well positioned to benefit long-term of what is happening now, it just may unfold over a longer period of time than it normally would have if we were not all experiencing what, what we're currently experiencing. I will say it is comforting to see our liquidity in balance sheet position, and if that is one of the things that we don't have to worry about and we believe that somewhere along the way that will benefit us and maybe some unknown could unfold because there is so much... so many things happening that haven't happened previously.

So with that, I will... operator, we're ready to entertain any questions.

Question And Answer

Operator

Thank you. [Operator Instructions] We'll take our first question from TC Robillard from Banc of America Securities.

Thomas Robillard - Banc of America Securities

Thank you. Good morning everyone. Todd, can you give us a sense because obviously California seems to be the area that stripped you guys up now two quarters in a row as its relates to forward guidance. Can you give us what your assumptions were for California's ramp rate for the third quarter and for the fourth quarter prior to your revised guidance. I am just trying to get a sense as to your prior comments that inmate transfers didn't come in as expected. Can you just give us a sense as to what you were expecting?

Todd Mullenger - Executive Vice President and Chief Financial Officer

I don't have the exact numbers in front of us. We pay when disclosing exact numbers but we were hopeful that in kind of a best case scenario, we'll be in a position to start that ramp up in September. And we thought may be the worse case was somewhere in early October ramp and unfortunately we were disappointed those negotiations took longer than we anticipated and now it's a November timeframe. And as a reminder all of the, the majority of fixed costs were in place and receiving those inmates starting in September and October, we had a significant impact, a little bit of the favorable impact in Q3 and a significant impact on Q4.

Thomas Robillard - Banc of America Securities

But what about, I guess just California as a whole you made some comments that even to some of your other facilities the transfer rates were slower than you were expecting. And I mean if you look at the quarter California was transferring roughly 300 inmates a month on average which degraded lower than what it was in the first half. But, seemed relative to what was happening on your call back in August didn't seem to me to be a bad number. So I am just trying to get a sense, what were you guys looking for in the second half, if you go back to your August call what were your expectations for California as a whole into Corrections Corp system for the back half of ''08?

Todd Mullenger - Executive Vice President and Chief Financial Officer

When California started to have concerns around their ability to fill bed to Tallahatchie we had additional capacity at La Palma and North Fork that they could have accelerated a ramp up on and they expressed the desire to do that and actually provided us as a schedule which showed a more aggressive ramp on both those facilities and at the end of the day they didn't meet those ramp up schedules.

John D. Ferguson - Chairman and Chief Executive Officer

TC,it was not only just Tallahatchie when we were providing guidance back in August, we were also thinking that we were going to see utilization, let's say La Palma little quicker and La Palma and Tallahatchie really the same in that we have been staffing well ahead of receiving the inmates. So we have been carrying a lot of staff in both locations.

Todd Mullenger - Executive Vice President and Chief Financial Officer

And North Fork was in a position except inmates, a larger number of inmates sooner. And again California expressed the desire to do so. Just remember they are under tremendous pressure to be able to continue to show progress in relieving the overcrowding to keep the federal courts off their beds. So they had desire to increase the ramp up the both their facilities but at the end of the day they didn't get it done.

Thomas Robillard - Banc of America Securities

So were they looking to do 400 inmates a month then.

Todd Mullenger - Executive Vice President and Chief Financial Officer

I don't want to get in to the specific numbers, but it was higher than the numbers that they ultimately delivered. Yes.

Thomas Robillard - Banc of America Securities

Well I guess and this is kind of where I am a little confused. So, they didn't hit their targeted transfers but you guys hit your third quarter numbers October it looks like the transport of over 400 inmates for the month and yet your guidance has come down substantially so it seems to me that they're kind of in the line with what they're expecting as we're entering the fourth quarter, you think your third quarter number, but fourth quarter is coming, can you help me kind of connect the dots here, I must be missing something obviously but I can't see it.

Todd Mullenger - Executive Vice President and Chief Financial Officer

Hey, we just outlined. They had provided us a revised schedule of both La Palma and North Fork which would have given us higher inmates than we ultimately ended up with and that was built into our guidance, impacted Q3 a little bit but more importantly on Q4.

Thomas Robillard - Banc of America Securities

Okay, and so basically you guys have in your original fourth quarter guidance, you guys were looking to start off with a higher California made population.

Todd Mullenger - Executive Vice President and Chief Financial Officer

That's right.

Thomas Robillard - Banc of America Securities

Sothen, as we look at the new guidance, I mean obviously one of that concerns in the questions that's out there we're getting, I am sure you guys have already started to get is, we want to make sure that this isn't kind of the an ongoing issue each quarter with the couple of pennies coming out of each quarter's guidance, can you give us a sense as to some of the parameters or your assumptions to the low end and the high end of your guidance? I mean I know there were some other things that you discussed which changed your guidance, but it sounds California's kind of the bulk of it, can you just give us some sensitivity here? So we can really kind of gauge to kind of whether its conservative of early aggressive what have you, just so people can really get a sense as to what what's baked into your current forecast?

Todd Mullenger - Executive Vice President and Chief Financial Officer

I think the biggest exposure we have to our fourth quarter guidance is the State Of California, and again they appear to be very motivated and desire to meet the ramp up schedule they provided us. We tried to discount that a little bit given their... our past experience with their ability to meet those schedules but they are motivated, they're under a lot of pressure from the Federal Courts but we're dealing with a large bureaucracy out there. There is a multiple levels of bureaucracy within the state of California. Don't have a lot of control over their decision making and their processing of those inmates. Is it possible we're disappointed again? It's possible we're disappointed again.

Again they are motivated, they have a desire to send those inmates out of state because it's only the component of their comprehensive plan that's working to reduce the overcrowding, but it is a large bureaucracy, still relatively new process and that is medical receiver, federal medical receiver has inserted himself into that process more aggressively. There is a risk around the timing of the receipt of the inmates and we could be disappointed again. We have tried to factor in some conservatism against that but it's possible, we're disappointed again, yes it's possible.

Thomas Robillard - Banc of America Securities

Well I guess I'm sorry. I don't mean to belabor this here, but I'm just trying to predict really crystal clear and I know maybe it's just being at the end of the earnings seasons I need things to be very simple for my understanding. But so what is their goal for transfers and then what is your assumption on guidance? Because you say you're trying to be conservative, I am just trying to get sense as to... are they expecting, I are they telling you they are going to transfer 400 month and you guess are baking in 350 in your guidance or are you baking in 250? I am just trying to get a sense as to where the risk can come in? We all understand it is out of your control what I think shareholders are going to really want to get their arms around as s to what is that risk as you go into this call come early February?

Todd Mullenger - Executive Vice President and Chief Financial Officer

You like we are sitting call it 5500 state of California inmates currently as we sit here today and the forecast would assume around 63 to 6500 by the end of the year.

Thomas Robillard - Banc of America Securities

Okay.

Todd Mullenger - Executive Vice President and Chief Financial Officer

California's stated goal... their desire to have all 8100 beds filled by the end of the first quarter 2009, now based on their most recent performance in meeting their proposed schedules you got to question their ability to do that. They are motivated, they have a strong desire because they are under tremendous pressure from the federal court to continue to show progress against relieving their over crowding and that is the powerful motivator but it is the large bureaucracy that sometimes doesn't meet its own expectations.

Thomas Robillard - Banc of America Securities

And so that 6300 to 6500 that's what you're basing your guidance off of?

Todd Mullenger - Executive Vice President and Chief Financial Officer

That's a rough estimate, yes.

Thomas Robillard - Banc of America Securities

I just want to make sure that was your number or not California's number. Okay and I'll jump back into the queue let somebody else have a crack, thanks guys.

Todd Mullenger - Executive Vice President and Chief Financial Officer

Sure.

Operator

Our next question will come from Kevin Campbell from Avondale Partners

Kevin Campbell - Avondale Partners

Thanks, just some more questions on Tallahatchie here. You guys had talked last quarter obviously about the medical receiver, you have the corrective action plan in place, what are the costs associated with that plan and you'd thought they may potentially roll over into some of the other facilities. So are there any incremental costs we might be expecting to incur?

Todd Mullenger - Executive Vice President and Chief Financial Officer

Well, I think we are still on negotiations with the State of California, we've come up with an estimate of those costs are going to be going forward and they are evaluating that laundry list of items and the costs associated with those items to make sure they want to invest in all those services. So we've provided a list, we've provided an estimate on those costs and they're going to get back to us in terms of whether they wanted to proceed with implementing all of those new standards and services at Tallahatchie and all of our facilities going forward. So they're evaluating the costs going forward to determine whether not they wanted to implement all of those things they've asked for.

Kevin Campbell - Avondale Partners

And so they would be willing... I mean these costs they are looking at, what they are going to have to pay, it's not as if they are demanding these services and you are going to eat the incremental costs. That's for specific types of services, you're telling them what they're going to have to pay for those services?

Todd Mullenger - Executive Vice President and Chief Financial Officer

Right and then and keep in mind you have got the third party involved the Federal Medical Receiver who has their own perspective on what the level of service should be. And the Federal Receiver doesn't to pay, it's the State of California and so that's where some of the prospect comes from and some or some of the discussions and debate comes from. You have got three parties involve CCA, CDCR who is our customer and the Federal Medical Receiver.

Kevin Campbell - Avondale Partners

And then just looking at some of the expenses at Tallahatchie and I guess La Palma, what where... can you give us a sense for what those were... specifically at Tallahatchie, so we have a better idea as to what that impact might have been in the quarter?

Todd Mullenger - Executive Vice President and Chief Financial Officer

On Tallahatchie?

Kevin Campbell - Avondale Partners

Yes.

Todd Mullenger - Executive Vice President and Chief Financial Officer

The expenses on Tallahatchie are going to be primarily staffing, I am not sure we want to get to a point where we're parsing out that level of detail what the exact expenses were.

Kevin Campbell - Avondale Partners

Okay. Maybe not the exact number, can you maybe give us range was it a million dollar, $3 million or 1 to 2 or?

Todd Mullenger - Executive Vice President and Chief Financial Officer

That's in the range of $1 million to $2 million but the bigger impact is the lost EBITDA. As we have most of the staff in place, the failure to deliver those inmates and our inability to fill those beds, the incremental margins lost were pretty significant, especially in the fourth quarter.

Kevin Campbell - Avondale Partners

Okay. And looking at some of the other issues you outlined in the release Washington and Minnesota, what are... who you were expecting to replace those inmates with at this point. Do you have multiple potential customers for those beds?

John D. Ferguson - Chairman and Chief Executive Officer

We are not in the position to give some identity now. We do have multiple customers good uses. We also believe that eventually both those customers will have a chance to use those beds again. One of things that we had believed was that as this new capacity was being brought online that was going to be their growth capacity. And what they've done is reverse that, they have now decided to go ahead and utilize their capacity and use the vacant beds at CCA which is primarily at our Prairie facility for their growth.

Kevin Campbell - Avondale Partners

What would drive that decision? I mean you guys, typically offer a discount to what the states can do for themselves. So why would they decide to pull from your facilities where presumably they're paying a lower per diem and put them back in their room?

John D. Ferguson - Chairman and Chief Executive Officer

Politicalreasons, having facility in somebody's area that if the inmates go there, then it creates jobs.

Kevin Campbell - Avondale Partners

Okay. And on the other states that are current customers of yours that have beds opening either this year or next?

John D. Ferguson - Chairman and Chief Executive Officer

Yes, but I didn't tell you that, I mean that goes to where we have seen that as we on a continuing basis try to identify what we expect is the total growth and I think we're somewhere between 9,000 and 10,000 beds is what we see that our customers total have bringing online between now and 2011. And we can never disclose that obviously if we go out and find it but.

Kevin Campbell - Avondale Partners

Okay couple of quick questions, you know looking at the various reasons, the four different issues, you sited for the fourth quarter fourth quarter guidance. I mean what would you say, were they equally contributing to the results, was it primarily Tallahatchie, was it primarily the other facility? I mean can you give us the sense at least in the order of magnitude of those 4 issues how they played out.

Todd Mullenger - Executive Vice President and Chief Financial Officer

It's primarily California.

Kevin Campbell - Avondale Partners

Okay, both of those two combined.

Todd Mullenger - Executive Vice President and Chief Financial Officer

Yes.

Kevin Campbell - Avondale Partners

Okay and looking at the G&A it was up about $1 million sequentially. What was the big driver there?

Todd Mullenger - Executive Vice President and Chief Financial Officer

That's the combination of adding additional staff primarily in the real estate department, some other areas to support above, new development and continued focus on trying to take costs out of facility operating expenses and then also increase in the non-cash stock base compensation expense due to change in economy accounting rules that took place a couple of years ago.

Kevin Campbell - Avondale Partners

Okay. That change from the couple of years ago wasn't reflected in second quarter but was?

Todd Mullenger - Executive Vice President and Chief Financial Officer

Well it's been growing because it's each year stock option grant you've got a 3 to 4 year investing and trying to get ph past fourth year doesn't normalize.

Kevin Campbell - Avondale Partners

Okay, Okay you might have said this your earlier result what was the... is impact may be dollar impact of those stock options stock-based compensation?

Todd Mullenger - Executive Vice President and Chief Financial Officer

The stock-based compensation increase was about 6 or $700,000.

Kevin Campbell - Avondale Partners

Is that sequential or year-over-year?

Todd Mullenger - Executive Vice President and Chief Financial Officer

Year-over-year.

Kevin Campbell - Avondale Partners

Okay. And then last question as it relates to your free cash flow and your cash tax payment. Can you give us a sense as to, obviously they have been... cash back savings have been below what you have on the income statements; can you give us sense as to how long it will take before they get up to those the normalized level or actually paying the amount that you are booking and what should we maybe expect for this year or next, is it going to be 60% to 70%?

Todd Mullenger - Executive Vice President and Chief Financial Officer

Well this year our cash tax is going to be around in total for the full year about $55 million and we continue to look for ways to minimize that tax by the... obviously there won't be a... the cash tax rate will be lower than the GAAP tax rate for several years until depreciation... the tax based depreciation turns in relation to book based, so next year's cash tax rate right now, we estimate around call it maybe 35% absent some additional tax planning that lowers that tax rate.

Kevin Campbell - Avondale Partners

Okay

Todd Mullenger - Executive Vice President and Chief Financial Officer

GAAP tax rate 38%.

Kevin Campbell - Avondale Partners

Okay thank you very much.

Todd Mullenger - Executive Vice President and Chief Financial Officer

You're welcome.

Operator

[Operator Instructions]. We take our next question from Todd Van Fleet from First Analysis.

Todd Van Fleet - First Analysis

Good morning guys, I have a bit of a cold but I am hoping you bear with me for a moment but I just... I wanted to get a couple of questions, am I coming, okay?

Todd Mullenger - Executive Vice President and Chief Financial Officer

We can understand it, doesn't sound Todd Van Fleet though.

Todd Van Fleet - First Analysis

Yes it doesn't, I want to ask you about Nevada, if I could. You said the customer had requested that you kind of delayed that facility coming online by maybe it sounds like a couple of quarters. I am wondering if that is related to the variability as they see it to fund that facility or is it related to issues specific to the site?

John D. Ferguson - Chairman and Chief Executive Officer

I think I'll let Damon answer that if --

Damon Hininger - President and Chief Operating Officer

Absolutely, good morning Todd. Trustee's office, who was the one that awarded that contract to us, as part of that procurement, part of that construction they had to get approval of mitigation plan on that site, the site that we submitted from fish and wildlife because there's pretty complex environment issues as it related that site and constructing something on the property. They were hopeful that site would have been as early as June of this year. And it did not take place and in fact we just got a report from trustee's office in the last couple of weeks. So it's about 5 to 6 month delay, but we are going to sit down with them during the month of November kind of finalize the mitigation plan and executing that plan here in the next couple of weeks, so that's what pushes off into late... or excuse me middle of 2010.

Todd Van Fleet - First Analysis

Okay, so it's really site specific then.

Damon Hininger - President and Chief Operating Officer

Correct.

Todd Van Fleet - First Analysis

Okay. Okay, I want to circle back. Again please stay with me. With respect to Minnesota and Washington, you guys have talked in the past about there being visibility on do you seeing customers developing new capacity I think you talked about their being 9,000 to 10,000 beds, but they bring online to 2011. I'm wondering if kind of taking tackling this issue or at least the question little bit differently. Of those 9,000 to 10,000 beds, have you perhaps want quantified the amount of beds that you currently service for those state customers, so the 77 and some are 1000. Average bed count that was occupied, I think was 7,600 with the average daily compensated population.

I was just wondering how many of those beds are at risk to the same type of activity that we saw here with Minnesota and Washington so to the extent that state budgets are same new capacity has been funded and is coming online and stats that we previously saw to perhaps use these this new capacity coming online for growth all of the sudden say it look or may be we're going to use it as core capacity and then our outsourced vendor like CCA will be the vendor or be the beds that we use for growth. So kind of this, the similar to what happened with you guys in Wisconsin whereby several years ago where they utilized some existing capacity that they had and you lost that bed-count or headcount related to those openings. How do you... have you been able to kind of quantify in your own mind what you think the risk is in that regard?

John D. Ferguson - Chairman and Chief Executive Officer

Well, we are constantly assessing that. Sometimes plans don't come to fruition even though we've seen them. But as to be able to answer you specifically Todd we're really not in a position to give you a thorough answer as to the risk and at each case what is the risk. Our short term obviously as we continue to develop our forecast in the future we plugged that in and that will probably be definitely be included in any 2009 numbers that we put together as to what we think the risk is there. I don't have not... in the position to be able to give you a thorough answer on that.

Todd Van Fleet - First Analysis

Let me ask you on California then, I think if we go back to the beginning of this year it was widely reviewed that California was going to or intended to fund and send out of state I think about 6000 inmates by the end of this year. It sounds like factored into your forecast maybe going back to three months, once the expectation met may be California, would send out of state perhaps many as 6300 or 6400. What point, I guess I am wondering at what point did you revised your expectations in terms of your planning and budgeting up from the 6000 to 6300 or 6400.

John D. Ferguson - Chairman and Chief Executive Officer

Yes I think, since we last provided guidance, and we've obviously continued in the negotiations and implementation cap agreement become apparent... that became apparent that we're going to hit our expectations in terms of the timeline for competing that and that's just played out over time.

Todd Van Fleet - First Analysis

Okay thank you guys.

Operator

And we will answer our next question from the line of Manas Amek [ph] from Marketplace Capital.

Unidentified Analyst

Thank you hi guys. First question is could you just remind us again what exactly was the medical requirements that you had to do at Tallahatchie? What I am trying to get at is does this... what you have just got us negotiated with the CDCR et cetera or person in charge of the medical does that give you sort of a competitive advantage or a step ahead in terms of any of the potential new beds that they might decide to outsource?

John D. Ferguson - Chairman and Chief Executive Officer

We think so because we believe that we have learned something through experience that any expectations that are a little bit beyond what we would have originally expected. The RFI that went out did have a medical section that was quiet thorough because I think the Department of Corrections with rotation also. I think has learnt sometimes that would be expected in providing the care for that inmate population.

So we believe that we now have demonstrated our responsiveness to issues that have now come up and have put in place. Sometimes it would hopefully give comfort to this customer, will it carry the today all the way? I don't know but I would say that we do have some expertise now that I don't believe any of our competitors would have.

Unidentified Analyst

And could you characterize maybe how the requirements that California is asking for you at Tallahatchie differ from you know what your other facilities provide or what your other facilities that you have given to California provide like why was Tallahatchie exception, why is that much different than your entire facility?

John D. Ferguson - Chairman and Chief Executive Officer

Well there were several times, one was the structure of the medical staff we've mentioned, I think in the last call there was... there is expectations to have this a little bit more experience in higher level staff than we've typically have and that's one of the adjustments we're making. And I think to use example of having more RNs than LPNs having nurse practitioners.

Also the ratio of maybe doctors to the inmates, also there is a fairly complex and thorough reporting expectation so that the customer and the receiver are kept and informed in a certain way, there is certain protocol on review of inmates that maybe continue to need care, but would be in their housing unit some other thing. So it's just a laundry list of some expectations and that the customers have been rebuild [ph] that hopefully customer will recognize that they wouldn't have to go their trial and error again with another vendor.

Unidentified Analyst

Okay. And then excluding the California ramp up expectations, what is sort of reasonable given the demand to find balance out there, the customer discussions that you have ongoing what is sort of reasonable number ex-California gives you in terms of a ramp up like a really base case number, like what... is it 2 to 300 inmates a month, is it what sort of number is something that you guys would be comfortable with using?

Todd Mullenger - Executive Vice President and Chief Financial Officer

In terms of ramp up, I think we have tried to build that into our earnings guidance and don't have schedule in front of me but so we're sitting here at 6500 and hopefully to get to 6300 by the end of the year. Right. So that up to 800 additional inmates between now and end of the year.

Unidentified Analyst

Great that's for the California what I am trying to get as is just what in excluding the California ramp up, everything else like, is there a number that you feel comfortable with each of the base that you can achieve?

Todd Mullenger - Executive Vice President and Chief Financial Officer

We set first guidance at that level.

Unidentified Analyst

Okay, fair enough. And then finally, I guess it still appears that the industry fundamentals are strong as in favor of you guys and sort of lumpiness with the ramp ups is just one of the things you just have to deal with your customer is the government. But just given I guess the financing situations and I am referring more to on the budget constraints. I know as of now, there aren't any data points or signs that you're going to see any pricing pressure. But can you give us an idea of... if you have any preliminary discussions with our customers and if not now, at what point in time that gives it a fair way closer to the July in the next fiscal year that they come approach you and historically have you maybe dealt with that?

John D. Ferguson - Chairman and Chief Executive Officer

We've a few customers who have come to us to begin discussions on how, we might be able reduce our costs so in turn provide that value to them, we've not had a specific and formal request to do anything but we have had those discussion, so which is what they are doing in your own system is are there programs that we can eliminate the stepping goals of those programs they are doing that within their core system, and so there as to look at that, the timing would probably be closer to the end of the first quarter but then the end of the fiscal year, because governors will submit their budgets typically before the end of January maybe 1st of February then you will start all your budgetary hearing and during that period of time that some agencies will begin to see what has been expected of them. In addition to what the governors expect, and the legislature what they are expecting. And so it's in that timeframe that we would probably get into some serious discussions with folks. Budgets are all ultimately pay as by June 30th but it will be usually several months part of that. So I'd say the end of the first quarter is one we will start to maybe experience some meaningful discussions.

Unidentified Analyst

Okay fair enough, thank you guys.

Operator

We move onto our next question, a follow up question from TC Robillard from Banc of America Securities.

Thomas Robillard - Banc of America Securities

Great thanks. Todd, just to go back to your expectations around California, another 400 plus inmates a month coming into your system. Just given what's happened in the two quarters here with California, it just seems little aggressive to me or little optimistic I guess is possibly a better way to say. I mean I guess from that standpoint I am just wondering why you guys want little more conservative at least this go around with your guidance just giving all the moving parts. Its new customers can had some adjustment surround ramps schedule very recently. So I am just trying to get simplest to why guys want it more conservative?

Todd Mullenger - Executive Vice President and Chief Financial Officer

I mean that's fair question I think up until the time the federal medical receiver has inserted himself into the process. California by and large met their ramp up schedule, there might have been one month they're off, and maybe next month, so up until June due timeframe they were meeting their schedule. We thought like we were making progress in our discussions with the medical receiver.

But unfortunately those conversations and negotiations ultimately took a little longer than we thought they would, we knew CBCR was jumping at the bed, they were very motivated trying to bring resolution to the negotiations because again they were focused... been able to show continued progress in relieving the overcrowding. So in retrospect maybe optimistic we were little optimistic but we took the best information we had at the time and we made our best estimate possible.

Thomas Robillard - Banc of America Securities

So did the medical receiver have control over the California transfers to your other facilities aside from Tallahatchie.

Todd Mullenger - Executive Vice President and Chief Financial Officer

Yes. They still have to sign up on all transfers.

Thomas Robillard - Banc of America Securities

Okay. So I guess that kind of brings me to fourth quarter guidance seems to be on the aggressive side or the optimistic side just given that the court receivers still kind of involve in the process. Just they will run in 300 a month through the third quarter, I think they did greater than 400 in October for a year press release but to maintain that rate, doesn't that seem to be I guess optimistic given that this receiver is still involved in the process.

Todd Mullenger - Executive Vice President and Chief Financial Officer

Well keep in mind the Tallahatchie beds were not an option for a transfers up and till just recently, so they had less capacity available to them until Tallahatchie became available here in November.

Thomas Robillard - Banc of America Securities

But this receiver did impact the transfer rate of the other facilities relative to your original expectations correct?

Todd Mullenger - Executive Vice President and Chief Financial Officer

No I think there was more of a CDCR, not being able to process as many inmates and make them available for transfer as they bring any help. And I really can... at the other facilities, I don't think it was much of the medical receiver there as was just the license processing by the CDCR.

Thomas Robillard - Banc of America Securities

And so what has the CDCR done to improve that process?

Todd Mullenger - Executive Vice President and Chief Financial Officer

One thing part of the challenge for CDCR was they were their spending their a lot of time and effort focused on resolving this issues at Tallahatchie with the medical receiver and now that hopefully we have got that behind us and frees up resources to focus on the primary objective which is processing inmates for transfer out of state.

Thomas Robillard - Banc of America Securities

Okay then just real quick John you had mentioned in your prepared remarks about some prospect states, these new states too using the private sector?

John D. Ferguson - Chairman and Chief Executive Officer

Yes.

Thomas Robillard - Banc of America Securities

And is it more than one?

John D. Ferguson - Chairman and Chief Executive Officer

Yes.

Thomas Robillard - Banc of America Securities

Okay and any thoughts on kind of timing when these states may or may not make a decision?

John D. Ferguson - Chairman and Chief Executive Officer

No, it's hard to forecast that. And so we'll be very conservative to not forecast. The activities out there and these are the times that each of the states are going to go through I think puts us in a opportunity... a better opportunity than we probably would have had otherwise.

Thomas Robillard - Banc of America Securities

Okay.

John D. Ferguson - Chairman and Chief Executive Officer

Because these folks will be in a situation where we can't provide a very affordable alternative to their choices.

Thomas Robillard - Banc of America Securities

Okay, and then Todd, just how just real quick, can you give me cash from ops and your total CapEx for the quarter?

Todd Mullenger - Executive Vice President and Chief Financial Officer

I have got nine-months ended cash from ops 223.

Thomas Robillard - Banc of America Securities

That's fine.

Todd Mullenger - Executive Vice President and Chief Financial Officer

And expenditures for new construction $423 million.

Thomas Robillard - Banc of America Securities

423 year-to-date that's new construction CapEx?

Todd Mullenger - Executive Vice President and Chief Financial Officer

That's new construction and then $23 million for maintenance CapEx.

Thomas Robillard - Banc of America Securities

Okay great thank you.

Todd Mullenger - Executive Vice President and Chief Financial Officer

You're welcome.

Operator

Next we will take our first question from Bill Gilchrist from Westfield Capital.

Bill Gilchrist - Westfield Capital

Hey guys thanks for the question. I was wondering could you talk about on the real estate team when you guys will be I guess through adding personnel for that I mean how many more people do you really need to add there to build out the pipeline and continue to grow the business?

John D. Ferguson - Chairman and Chief Executive Officer

I think as far as our organizational structure we're pretty much there. I don't think that there any additional... the dilemma what's happened is that we brought on broad last September a new Vice President and that individual began to build the organization that he thought was needed to do the job that we were expecting of him. And so there was additional recruitment and that recruitment took place over the year. So, I will say it's probably normalized beginning first quarter of 2009.

Todd Mullenger - Executive Vice President and Chief Financial Officer

And then the other thing that we throw in to the real estate bucket is expenses we incur in trying to site new facilities. So given the difficulty of trying to site a facility we are looking to site a single facility will move out and prospect 3 to 5 locations and will incur expenses of those other 3 to 5 facilities, maybe only one who crosses the finish line but there is expenses we've been incurred those are 3 or 4 facilities that we have to write off. And so in the third quarter of 2008, we had about $400,000 of calling development expenses associated with putting options on land, trying tie up the land for a period of time, cost evaluated, community rights is the activity, preliminary, result in the design work on some of those sights and then so when you pick a side, if you've been looking at foresight, only one crosses the finish line together right after these expenses on those other three sites,

Bill Gilchrist - Westfield Capital

Great, that's helpful. Can you talk about, I mean I guess looking historically and I know it's clear from your commentary that we're in uncharted times and I think anybody out there understands that. But, what's... what do you fundamentally think is much different than the 2002 and 2004 state budget issues, if you looked back for the industry populations kept growing and per diems were generally still growing during that period as well. So I am just trying to get this, understand how the states might act differently this time around than last time?

John D. Ferguson - Chairman and Chief Executive Officer

Well, I think there will be some similarities this time around the last time. And that is, they will be doing things to try to reduce their budget as much as they can. You might see a lot more aggressiveness on paroles. You might see a little more aggressiveness in letting an overcrowding situation creep into their system that they might not otherwise. Or they may take a delay in moving somebody who typically would be assigned to prison leave them in the local jail. So that will count. That will be things that will go along to try to reduce their inmate population during that period of time. I think we experienced some of that.

So we anticipate that we or I might see that. At one thing it is unique from where we had before is the decent demand and passing [ph] about the three customers that I just identified, I don't remember, had seen the demand out there at that point in time like we do now. But I am confident that some of our customers will try to do things to reduce their inmate population. And you're right they can because if they can reduce their inmate population that is the greater benefit to their operating budget than trying to cut out maybe some programming here and doing some other stuff.

Todd Mullenger - Executive Vice President and Chief Financial Officer

In our concern this time around, there is a couple of dynamics that are different. One, to talk about a much longer and maybe deeper recession than we have seen for a while. And then two, when you've got states who appear to have difficulty barrowing in the short-term to fund their day-to-day operating activities because of the difficulty in the credit markets that could change the decision making towards more conservatism right, so states have concerns about their ability to borrow in the short-term markets until a sales-tax revenues and income tax revenues come in. And those revenue receipts are lumpy too, many of the states had to borrow in the short-term capital markets to fund their day-to-day activities until those revenues come in. That could change our psychology a little bit versus the last recession when they didn't have that problem.

Bill Gilchrist - Westfield Capital

I guess the follow up on that is, so if these fiscally strapped states are looking for to bring on 9 to 1000 beds, excluding whatever California wants to. Do any of those projects now become delayed because of they can't get short-term financing or are they going to go back on to build all these 9,000 to 10000 beds over the three years?

Todd Mullenger - Executive Vice President and Chief Financial Officer

I think as we mentioned in our press release we think there is a significant possibility that some of the states may choose to defer or out-right cancel plans, for constructing new stated owned prison bed capacity as a result of those difficult financial markets.

And the other thing that could be on the positive side, we could see some new states or existing states come to us with a more aggressive push towards privatization to help them reduce their budget shortfall. They might be willing to shutter some old inefficient facilities this time around, whereas during last recession maybe they weren't willing to do and outsource those inmates as a cost cutting mechanism.

Bill Gilchrist - Westfield Capital

Okay. And just to make sure understand this in terms of Tallahatchie thing basically medical the Federal Receiver hadn't direct impact on Tallahatchie uptake but not direct on CDCR processing of California image for other facilities. Although you would say that maybe the CDCR still focus correcting the Tallahatchie issues and getting that approved that has something to do with the uptake at La Palma and other facilities.

Todd Mullenger - Executive Vice President and Chief Financial Officer

Yes.

Operator

And we will take our final question from Chris [ph] Blackman from Empirical Capital.

Unidentified Analyst

Yes, I appreciate that. Would you speak a little bit about labor costs and any concerns you may have on new administrations policy towards the Unions?

John D. Ferguson - Chairman and Chief Executive Officer

Well, on specifically as it relates to labor costs, I think we don't see anything dramatic taking place overall, and in fact probably will help with our turnover because their employment will make it a little easier. As it relates to National Public Policy dealing with the card check and other things, I think we like lot of businesses in America would be concerned if the legislation was to be implemented as has been discussed. And that would make it very easy for many industries to be unionized that might not otherwise. So long-term I guess that's something we're going to monitor and hopefully we'll able to share with our legislators that in long-term is not in the best interest.

Unidentified Analyst

Okay. And then also if you would speak of a competitive landscape a little bit and any primary customer relationships you may have with your competitors, is there.... I'll leave at that, can you comment on that please?

John D. Ferguson - Chairman and Chief Executive Officer

I'm not sure what you mean by the question?

Unidentified Analyst

Well I know the industry is under pressure right now and how many primary customer relations like with your competitors do you have? Do you share certain or well...

John D. Ferguson - Chairman and Chief Executive Officer

Okay I think I understand. We do business with three federal agencies, each of our major competitors do business with each of those three in different magnitude. We are... we have relationships with 20 state customers, and I think our competitors state customer relationships are substantially less, I could come up with what it is. But I think each of our major competitors, publicly traded major competitors, I think are in the range of 5 or 6 each, it's kind of a guess. So there is 3 or 4 states that we probably overlapping doing business with.

Unidentified Analyst

Okay. Do you see opportunity there? In the states where you overlap? Any synergies?

John D. Ferguson - Chairman and Chief Executive Officer

No.

Unidentified Analyst

No. Thank you very much and thanks for disclosure today, it was very helpful.

John D. Ferguson - Chairman and Chief Executive Officer

You're welcome.

Operator

And that concludes the question and answer session for today. At this time I would like to call back to over our speakers for any additional or closing remarks.

John D. Ferguson - Chairman and Chief Executive Officer

Okay. We thank everyone for participating, thanks for some really good questions and hopefully we were able to help. I wish the clarity of going forward was good. As Todd mentioned, we think that one thing that may be unique this downturn is these issues may stretch on a lot longer.

One thing to point out is what we learned from the last downturn is that once the states get back with decent revenues, they take a while to really get back to where they would like to be and typically their capital expenditures are lots of other things other than prison beds. So not only where we could see some direct benefits in just the immediate term and long-term I think that's what we begin to see the benefits what we do. So thank you all for participating and we'll chat with you all next quarter, thanks.

Operator

And that concludes today's teleconference. We thank you for your participation and have a wonderful day. .

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