Cornell Companies Reports $0.20 EPS in Q2 2002 Excluding Unusual Expenses.

Business Editors

HOUSTON--(BUSINESS WIRE)--Aug. 13, 2002

Cornell Companies Inc. (NYSE:CRN)

    --  Q2 2002 diluted EPS was $0.20 prior to unusual expenses vs.
        $0.23 EPS in the prior year quarter (before net start-up
        costs).
        --  Revenues rose 5.1% to $69.1 million, driven primarily by
            new contracts, facility ramp-ups and rate increases.
        --  Income from operations increased 9.4% to $9.1 million,
            excluding the previously reported unusual expenses
            associated with this year's financing costs of the
            Southeast FBOP bid that was not awarded to the Company,
            special committee expenses and last year's net start-up
            costs.

    --  Q2 2002 previously disclosed unusual expenses associated with
        the write-off of project financing costs related to the
        Southeast FBOP bid and special committee expenses totaled
        $(0.05) per share:
        --  ($0.04) per share of unusual financing costs associated
            with the Southeast FBOP bid and special committee expenses
            of ($0.01) per share. No further costs for either item are
            expected.

    --  Management confirms $0.80 estimate of full-year 2002 diluted
        EPS prior to unusual expenses and the cumulative effect of
        change in accounting.
        --  Q3 2002 diluted EPS is expected to be approximately $0.20.
        --  Achievement of 2002 EPS estimate expected even with a
            lower number of clients projected by year-end at the New
            Morgan Academy; however, a decrease in population beyond
            forecasts could cause a reduction in estimated earnings
            per share.


                       Second Quarter Highlights
             (Amounts in thousands, except per share data)

                               Second Quarter        Year to Date
                                   Ended                 Ended
                            -------------------   -------------------
As Reported                  6/30/02    6/30/01    6/30/02    6/30/01
                                      (restated)            (restated)
---------------------------------------------------------------------
Revenue                      $69,077    $65,745   $137,552   $126,373
Income from operations         7,888      8,121     14,264     12,691
Interest expense, net (1)      4,613      4,735      9,880      9,387
Income before cumulative
 effect of changes
 in accounting                 1,974      2,129      2,611      2,183
Net income                     1,974      2,129      1,646      2,953
EPS-diluted                     $.15       $.22       $.12      $0.31
---------------------------------------------------------------------
Pro Forma, before start-up
 and unusual expenses
---------------------------------------------------------------------
Revenues                     $69,077    $65,745   $137,552   $126,373
Income from operations         9,091      8,313     17,126     13,766
Interest expense, net          4,613      4,735      9,055      9,387
Income before cumulative
 effect of changes
 in accounting                 2,684      2,242      4,786      2,817
EPS-diluted, before
 cumulative effect of
 changes in accounting          $.20       $.23       $.36       $.29
---------------------------------------------------------------------
Avg. shares outstanding
 - diluted EPS                13,307      9,675     13,406      9,552
---------------------------------------------------------------------
Reconciliation of
 Operating Income
 - Reported vs. Pro Forma
---------------------------------------------------------------------
Income from Operations,
 as reported                  $7,888     $8,121    $14,264    $12,691
FBOP Southeast project
 financing costs               1,003       --        1,003       --
Special Committee costs          200       --        1,859       --
Start-up costs, net of
 start-up revenue               --          192       --        1,075
Income from Operations
 pro forma                    $9,091     $8,313    $17,126    $13,766
---------------------------------------------------------------------

(1) YTD 2002 includes $0.8 million or approximately $(0.4) EPS in
    banking fees associated with the waivers obtained after the
    consolidation of the August 2001 sale and leaseback transaction.

Cornell Companies Inc. (NYSE:CRN) today reported Q2 2002 diluted earnings per share of $0.20 prior to unusual expenses compared to $0.23 per diluted share, net of start-up expenses, in the second quarter of 2001. The earnings prior to the expected unusual expenses met Company and consensus analysts' estimates. Actual reported diluted earnings per share of $0.15 reflects previously disclosed unusual expenses and charges consisting of financing costs of approximately $(0.04) per share and special committee expenses of approximately $(0.01) per share.

Revenues increased 5% to $69.1 million from $65.7 million reported in the second quarter 2001. The majority of the revenue increase was driven by new contract awards in the Company's juvenile division, including the Alexander Youth Services Center in Arkansas and the William Penn Harrisburg Alternative Day School in Pennsylvania. Other expansions and higher occupancy at certain secure facilities added to the revenue increase, and were partially offset by the Company's decision last year to not re-bid the unprofitable adult contract in Santa Fe, New Mexico. Excluding revenue from the Santa Fe facility in last year's results, second quarter revenues increased 8% from a year ago.

Second quarter 2002 income from operations was $9.1 million compared with $8.3 million in the previous year period, excluding unusual pre-tax expenses totaling $1.0 million related to project financing costs associated with the FBOP Southeast bid that was not awarded to the Company and special committee expenses of $0.2 million in Q2 2002, and $0.2 million of net start-up costs in Q2 2001. Including unusual expenses, second quarter 2002 operating income was $7.9 million. The operating income margin for Q2 2002 increased to 13.2% from 12.6% prior to start-up and unusual expenses. The increase in operating income margin was primarily due to the addition of new contracts, several new expansions and per diem increases and the discontinuance in late 2001 of the unprofitable Santa Fe adult facility. Operating results were negatively impacted by lower occupancy at the New Morgan Academy, which was affected by budget cuts in one city in Pennsylvania, the source of over half of the facility's client population in prior quarters. Although New Morgan is broadening its client population, Cornell management believes it will take several quarters before the facility's occupancy is restored to its prior levels.

"We are pleased with the growth in second quarter operating profits excluding unusual items, especially given the weakness in a key property," said Harry Phillips, Cornell's executive chairman. "Our cash balance and our strong financial strength provide an effective cushion against market downdrafts and provide flexibility for future growth."

Phillips concluded, "Looking ahead, we continue to expect fiscal 2002 earnings excluding one-time items and the accounting change to be $0.80 per diluted share, with third quarter earnings targeted at $0.20 per diluted share. While we currently expect to meet these expectations, it's possible that results at New Morgan Academy could slip further than projected and reduce these forecasts. On a positive note, we've identified the problems at New Morgan Academy and expect this facility to be operating close to its capacity by this time next year."

Income from operations for the six-month period ended June 30, 2002 increased by 24% to $17.1 million compared with $13.8 million in the previous year, excluding unusual pre-tax expenses totaling $1.0 million related to project financing costs associated with the FBOP Southeast bid and special committee expenses of $1.9 million in 2002, and $1.1 million of net start-up costs in 2001. Including unusual items and start-up expenses in 2001, income from operations for the six-month period ended June 30, 2002 was $14.3 million as compared to $12.7 million in the same period of prior year.

Quarterly Webcast

Cornell's management will host a conference call and simultaneous webcast of the call at 10:00 am CST today, August 13th. The webcast may be accessed through www.ccbn.com, as well as Cornell's home page, www.cornellcompanies.com. A replay will also be available on the above Web sites and by dialing 800/642-1687 or 706/645-9291 and providing confirmation code 5191029. The replay will be available through August 20th by phone and for 30 days on the Internet.

Cornell Companies Inc. is a leading private provider of corrections, treatment and educational services outsourced by federal, state and local governmental agencies. Cornell provides a diversified portfolio of services for adults and juveniles, including incarceration and detention, transition from incarceration, drug and alcohol treatment programs, behavioral rehabilitation and treatment, and grades 3-12 alternative education in an environment of dignity and respect, emphasizing community safety and rehabilitation in support of public policy. Cornell (http://www.cornellcompanies.com ) has contracts to operate 69 facilities with a total service capacity of 15,444. Cornell's facilities are located in 13 states and the District of Columbia.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current plans and actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include, among others, (i) the impact of the restatement of our financial statements on current, anticipated or future Company awards, agreements, projects and financing arrangements, (ii) the outcomes of pending putative class action shareholder and derivative lawsuits, and related insurance coverage, (iii) risks associated with acquisitions and the integration thereof (including the ability to achieve administrative and operating cost savings and anticipated synergies), (iv) the timing and costs of expansions of existing facilities, (v) changes in governmental policy and/or funding to eliminate or discourage the privatization of correctional, detention and pre-release services in the United States, (vi) the availability of debt and equity financing on terms that are favorable to the Company, (vii) fluctuations in operating results because of occupancy, competition (including competition from two competitors that are substantially larger than the Company), increases in cost of operations, fluctuations in interest rates and risks of operations and (viii) significant charges to expense of deferred costs associated with financing and other projects in development if management determines that one or more of such projects is unlikely to be successfully concluded.

(Financial Tables Follow)

                        CORNELL COMPANIES INC.
                         FINANCIAL HIGHLIGHTS
                   ($000's except per share amounts)

                             Three Months Ended     Six Months Ended
                                  June 30,              June 30,
                             ------------------   -------------------
                              2002       2001       2002       2001
                                      (restated)            (restated)
                            --------   --------   --------   --------
Revenues                     $69,077    $65,745   $137,552   $126,373
Operating expenses            53,511     51,374    107,317     98,200
Pre-opening and start-up
 expenses (A)                   --          280       --        3,858
Depreciation and
 amortization                  2,374      2,372      4,580      4,545
General and administrative
 expenses (B)                  5,304      3,598     11,391      7,079
Income from operations         7,888      8,121     14,264     12,691
Interest expense, net          4,613      4,735      9,880      9,387
Minority interest in
 losses of consolidated
 special purpose Entities       --         (222)       (40)      (396)
Income before provision
 for income taxes and
 cumulative effect of
 changes in accounting
 principles                    3,275      3,608      4,424      3,700
Provision for income taxes     1,301      1,479      1,813      1,517
Income before cumulative
 effect of changes in
 accounting principles         1,974      2,129      2,611      2,183
Cumulative effect of
 changes in accounting
 principles, net of related
 income tax provision
 (benefit) of $(671) and
 $535 in 2002 and 2001,
 respectively                   --         --         (965)       770

Net income                    $1,974     $2,129     $1,646     $2,953

Earnings per share:
  - Basic
    Income before
     cumulative effect of
     changes in accounting
     principles                 $.15       $.23       $.20       $.24
    Cumulative effect of
     changes in accounting
     principles                 --         --         (.07)       .08
    Net income                  $.15       $.23       $.13       $.32
  - Diluted
    Income before
     cumulative effect of
     changes in accounting
     principles                 $.15       $.22       $.19       $.23
    Cumulative effect of
     changes in accounting
     principles                 --         --         (.07)       .08
    Net income                  $.15       $.22       $.12       $.31

Number of shares used in
 per share computation:
  - Basic                     13,004      9,237     12,978      9,232
  - Diluted                   13,307      9,675     13,406      9,552

Total service capacity
 (end of period)              15,444     15,850     15,444     15,850
Contracted beds in
 operation (end of period)     9,503     10,071      9,503     10,071
Average occupancy (C)           99.8%      96.8%      98.7%      95.6%
Average occupancy excluding
 start-up operations            99.8%      97.4%      98.7%      96.4%

(A) Revenues associated with the reported start-up expenses were $88
    and $2,783 for the quarter and six months ended June 30, 2001,
    respectively.
(B) General and administrative expenses for the three months ended
    June 30, 2002 included $1,003 of charges related to the write-off
    of deferred project financing costs related to the Southeast FBOP
    bid and $200 of charges related to the special committee. General
    and Administrative expenses for the six months ended June 30, 2002
    include $1,003 of charges related to the write-off of deferred
    project financing costs related to the Southeast FBOP bid and
    $1,859 of charges related to the special committee.
(C) Occupancy percentages are based on contracted service capacity of
    residential facilities in operation. Since certain facilities have
    service capacities that exceed contracted capacities, occupancy
    percentages can exceed 100% of contracted capacity.

    Balance Sheet Data:
    ------------------
                                       June 30,   Dec. 31,
                                         2002       2001
                                       --------   --------
    Working capital                    $100,277    $97,814
    Property and equipment, net         254,049    253,243
    Total assets                        438,838    444,807
    Long-term debt                      239,310    238,768
    Stockholders' equity                154,745    153,104