HOUSTON, Nov. 7, 2006 (PRIMEZONE) -- Cornell Companies, Inc. (NYSE:CRN) today announced results for the three and nine months ended September 30, 2006. The Company reported net income of $2.6 million, or $0.18 per diluted share, compared with net income of $1.3 million, or $0.09 per diluted share, in the same period last year. This year's third-quarter results included $1.0 million of losses associated with New Morgan Academy. The 2005 third-quarter results included a total of approximately $0.5 million for start-up costs (net of start-up revenues) for new facilities, $0.3 million of losses from discontinued operations, and $0.5 million of losses associated with New Morgan Academy.
Third-quarter 2006 pro forma earnings were $3.6 million, or $0.26 per diluted share, versus pro forma earnings of $2.3 million, or $0.17 per diluted share, in the comparable 2005 quarter. Pro forma amounts exclude the effects of pre-opening and start-up costs (net of start-up revenues) for new facilities and losses associated with New Morgan Academy. Cornell calculates pro forma amounts for comparative purposes to help analyze its business performance and assist investors to better understand the operating results attributable to the Company's core continuing business operations. Reconciliations of these non-Generally Accepted Accounting Principles (GAAP) measures to the comparable GAAP measures are included in the attachments hereto.
James E. Hyman, Cornell's chairman and chief executive officer, said, "Our third quarter performance indicates our progress in strengthening each of our business lines. Though we still have much work ahead of us, we believe we will achieve our fourth quarter objectives."
Third-Quarter Summary (Amounts in thousands, except per share data)
---------------------------------------------------------------------
Third Quarter Ended Nine Months Ended
------------------- --------------------
As Reported 9/30/2006 9/30/2005 9/30/2006 9/30/2005
Revenue from operations $ 92,383 $ 79,198 $266,728 $231,340
Income from operations 10,556 8,192 31,476 20,667
Net loss from
discontinued operations -- (279) (707) (3,394)
Net income (loss) 2,584 1,277 7,152 (1,307)
EPS - diluted $ 0.18 $ 0.09 $ 0.51 $ (0.10)
---------------------------------------------------------------------
Diluted shares outstanding
used in per share
computation 14,113 13,686 14,036 13,608
Pro Forma, excluding New
Morgan Academy and
pre-opening and start-up
costs and related
revenue: (a)
Revenue $ 92,383 $ 78,474 $266,728 $226,582
Income from operations 11,338 9,427 35,785 25,467
Net income 3,632 2,311 10,914 2,435
EPS - diluted $ 0.26 $ 0.17 $ 0.78 $ 0.18
---------------------------------------------------------------------
(a) See reconciliation of historical GAAP and non-GAAP information
attached.
Third-Quarter Results
Revenues increased 16.6 percent to $92.4 million for the third-quarter of 2006 from $79.2 million in the 2005 period. Much of this increase was attributable to the Moshannon Valley Correctional Center, which commenced operations in April 2006, and Mesa Verde Community Correctional Facility, which opened in January 2006. Improved performance at the Regional Correctional Center, as well as strong contributions from core facilities, also contributed to the 2006 increase.
Pro forma third quarter 2006 revenues, which exclude the impact of start-up revenues, grew 17.7 percent to $92.4 million compared with $78.5 million in the prior year's quarter. Average contract occupancy levels were 97.7 percent in residential facilities compared with 95.7 percent in last year's third quarter. Excluding start-up operations in both quarters, average contract occupancy was 97.7 percent in the Company's residential facilities in the 2006 quarter and 99.8 percent in the 2005 period. The decrease in contract occupancy in the third quarter of 2006 is primarily due to the continued ramp-up in operations at the Moshannon Valley Correctional Center.
The Company reported income from operations of $10.6 million for the third quarter of 2006 compared with $8.2 million in the same quarter of 2005. The increase in the 2006 quarter was due primarily to the commencement of operations or improved performance at those facilities previously mentioned, partially offset by approximately $1.2 million in costs associated with the Company's review of strategic alternatives and subsequent entry into a Merger Agreement with Veritas Capital (as announced in October 2006). Comparisons of income from operations were also affected by ongoing costs related to New Morgan Academy of $0.8 million in 2006 and $0.4 million in 2005, as well as $0.9 million in net start-up costs in 2005.
Excluding the effects of start-up costs (net of start-up revenues) for new facilities, and losses associated with New Morgan Academy, pro forma income from operations was $11.3 million in the third-quarter of 2006 compared with $9.4 million in the 2005 quarter. The increase in the 2006 third-quarter results was principally attributed to the previously noted operational and administrative factors.
Nine-Month Results
For the nine months ended September 30, 2006, revenues increased 15.3 percent to $266.7 million from $231.3 million in the previous year's nine months, once again due to contributions from those facilities/programs previously noted. Income from operations was $31.5 million for this year's nine-month period compared with $20.7 million in the prior-year period. Net income was $7.2 million, or $0.51 per diluted share, compared with a net loss of $1.3 million, or $0.10 per diluted share, in the previous year's first nine months. The 2006 period included $1.3 million in costs associated with the strategic review and Merger Agreement described above. In addition, the 2006 period also included charges of approximately $1.6 million related to the adoption of Statement of Financial Accounting Standards No. 123R. The 2005 period included charges totaling $2.4 million to streamline management and close several underperforming programs.
Pro forma nine-month 2006 revenues were $266.7 million compared with $226.6 million in the prior year's period. Pro forma income from operations was $35.8 million in 2006 compared with $25.5 million in 2005. Pro forma net income was $10.9 million, or $0.78 per diluted share, in the 2006 period, compared with $2.4 million, or $0.18 per diluted share, for the nine months ended September 30, 2005.
Outlook for 2006
The Company expects fourth-quarter earnings to range from $0.19 to $0.22 per share on an as-reported basis. On a pro forma basis, which excludes net pre-opening and start-up costs for new facilities, and losses associated with New Morgan Academy, earnings per share are expected to range from $0.23 to $0.26.
For the full year, the Company expects earnings to range from $0.70 to $0.73 per share on an as-reported basis. On a pro forma basis, which excludes net pre-opening and start-up costs for new facilities, and losses associated with New Morgan Academy, earnings per share are expected to range from $1.01 to $1.04 per share. Reconciliations of these forward-looking non-GAAP measures to the comparable GAAP measures are included in the attached financial data tables.
The 2006 guidance reflects an annual effective tax rate of approximately 41.0 percent on continuing operations.
Quarterly Webcast
Cornell's management will host a conference call and simultaneous webcast at 11 a.m. Eastern time today. The webcast may be accessed through Cornell's website at http://www.cornellcompanies.com. An audio replay and podcast will be available on the above web site, or can be heard by dialing (800) 405-2236 or (303) 590-3000 and providing confirmation code 11074520. The replay will be available through Tuesday, November 14, 2006 by phone and through Thursday, December 7, 2006 on the website. This earnings release can be found on Cornell's website at www.cornellcompanies.com under "Investor Relations - Press Releases."
Important additional information regarding the merger will be filed with the SEC.
In connection with the proposed merger, Cornell Companies will file a proxy statement with the Securities and Exchange Commission (SEC). INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT WHEN IT BECOMES AVAILABLE, AS IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER AND THE PARTIES THERETO. Investors and security holders may obtain a free copy of the proxy statement (once available) and other documents filed by Cornell at the SEC's website at http://www.sec.gov. The proxy statement and other relevant documents (when available) may also be obtained free of charge from Cornell Companies by directing such requests to Cornell Companies, Attn: Investor Relations, 1700 W Loop South Suite 1500, Houston, Texas 77027, telephone: (713) 623-0790.
Cornell Companies and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from its stockholders in connection with the proposed merger. Information concerning the interests of Cornell's participants in the solicitation, which may be different from those of Cornell stockholders generally, is set forth in the Company's proxy statements and Annual Reports on Form 10-K, previously filed with the SEC, and in the proxy statement relating to the merger (once available).
Certain statements included in this news release are intended as "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based our forward-looking statements on management's beliefs and assumptions based on information available to management at the time the statements are made. The Company cautions that, as a result of numerous risks, uncertainties and other factors, actual future results may vary materially from those expressed or implied in any forward-looking statements and in particular, there can be no assurance that that any transaction will occur with respect to the Company. Risk factors include, but are not limited to: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; (2) the outcome of any legal proceedings that may be instituted against Cornell and others following announcement of the merger agreement; (3) the inability to complete the merger due to the failure to obtain stockholder approval or the failure to satisfy other conditions to completion of the merger, including the receipt of stockholder approval and expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (4) the failure to obtain the necessary financing arrangements set forth in commitment letters received in connection with the merger; (5) risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the merger; (6) the ability to recognize the benefits of the merger; (7) the amount of the costs, fees, expenses and charges related to the merger and the actual terms of certain financings that will be obtained for the merger; and (8) the impact of the substantial indebtedness incurred to finance the consummation of the merger. Many factors that may affect the completion of the transaction are beyond the Company's ability to control or predict. Each forward looking-statement speaks only as of the date of the particular statement, and Cornell Companies undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. Information in this release is subject to adjustment resulting from further review and the obtaining of additional information that may impact our consolidated financial statements. More information about the risks and uncertainties inherent in the Company's businesses relating to these forward-looking statements are found in the Company's SEC filings, which are available free of charge on the SEC's web site at http://www.sec.gov.
This release includes non-GAAP (pro forma) revenue, non-GAAP (pro forma) income from operations, non-GAAP (pro forma) net income, non-GAAP (pro forma) net income per share data, and non-GAAP (pro forma) earnings before interest, taxes, depreciation and amortization (EBITDA). These measures are not in accordance with, or an alternative for, Generally Accepted Accounting Principles and may be different from non-GAAP (pro forma) measures used by other companies. Our management believes that the presentation of non-GAAP (pro forma) revenue, non-GAAP (pro forma) income from operations, non-GAAP (pro forma) net income, non-GAAP (pro forma) net income per share data, and non-GAAP (pro forma) EBITDA, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors regarding financial and business trends relating to our financial condition and results of operations. Our management further believes that where the adjustments used in calculating non-GAAP (pro forma) revenue, non-GAAP (pro forma) income from operations, non-GAAP (pro forma) net income, non-GAAP (pro forma) net income per share data, and non-GAAP (pro forma) EBITDA are based on specific, identified charges that impact different line items in our statements of operations, it is useful to investors to know how these specific line items in the statements of operations are affected by these adjustments.
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. The Company (www.cornellcompanies.com) has 78 facilities in 17 states and the District of Columbia with a total service capacity of 18,555.
The Cornell Companies, Inc. logo is available at http://www.primezone.com/newsroom/prs/?pkgid=1468
CORNELL COMPANIES, INC.
FINANCIAL HIGHLIGHTS
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Revenues $ 92,383 $ 79,198 $ 266,728 $ 231,340
Operating expenses 71,457 60,805 203,735 174,844
Pre-opening and
start-up expenses
(A) -- 1,607 2,657 8,453
Depreciation and
amortization 4,317 3,834 12,256 11,379
General and
administrative
expenses 6,053 4,760 16,604 15,997
--------- --------- --------- ---------
Income from
operations 10,556 8,192 31,476 20,667
Interest expense,
net 6,500 5,395 18,137 16,719
--------- --------- --------- ---------
Income before
provision for
income taxes and
discontinued
operations 4,056 2,797 13,339 3,948
Provision for
income taxes 1,472 1,241 5,480 1,861
--------- --------- --------- ---------
Income before
discontinued
operations 2,584 1,556 7,859 2,087
Discontinued
operations, net
of tax benefit -- (279) (707) (3,394)
--------- --------- --------- ---------
Net income (loss) $ 2,584 $ 1,277 $ 7,152 $ (1,307)
========= ========= ========= =========
Earnings (loss)
per share:
- Basic $ 0.19 $ 0.09 $ 0.51 $ (0.10)
- Diluted $ 0.18 $ 0.09 $ 0.51 $ (0.10)
Number of shares
used in per share
computation:
- Basic 13,962 13,579 13,898 13,484
- Diluted 14,113 13,686 14,036 13,608
Total service
capacity (end of
period) (B) 19,226 19,506 19,226 19,506
Contracted beds in
operation (end of
period) (B) 13,508 11,997 13,508 11,997
Average contract
occupancy (B) (C) 97.7% 95.7% 96.4% 95.7%
Average contract
occupancy
excluding
start-up
operations (B) 97.7% 99.8% 96.4% 101.6%
=====================================================================
(A) Revenues associated with reported start-up expenses were $0.0
million and $0.7 million for the quarters ended September 30,
2006 and 2005, respectively. Revenues associated with reported
start-up expenses were $0.0 million and $4.8 million for the nine
months ended September 30, 2006 and 2005, respectively.
(B) Data presented excludes discontinued operating facilities.
(C) Average contract occupancy percentages are based on actual
occupancy for the period as a percentage of the contracted
capacity of residential facilities in operation. Since certain
facilities have service capacities that exceed contracted
capacities, average contract occupancy percentages can exceed
100% if the average actual occupancy exceeded contracted
capacity.
Balance Sheet Data:
-------------------
(in thousands) September 30, December 31,
2006 2005
------------- ------------
Cash and cash equivalents $ 11,473 $ 13,723
Investment securities 9,975 7,250
Working capital 61,865 57,286
Property and equipment, net 321,055 323,861
Total assets 509,433 510,628
Long-term debt 255,472 266,659
Total debt 265,982 276,360
Stockholders' equity 176,618 165,461
Non-GAAP Financial Measures
The Company uses non-GAAP financial measures to assess the operating results and effectiveness of its core continuing business operations. Pro forma measures exclude the effect of pre-opening and start-up revenues and costs, and revenues and costs associated with New Morgan Academy. Earnings before interest, taxes, depreciation and amortization (EBITDA) measures operating income before depreciation and amortization, excluding the effect of pre-opening and start-up expenses, net of start-up revenue. The Company calculates EBITDA amounts for comparative purposes to assist investors to analyze its business performance. These non-GAAP financial measures may not be comparable to similarly titled measurements used by other companies and should not be used as a substitute for net income, earnings per share or other GAAP operating measurements. The following table includes reconciliations to GAAP measures of non-GAAP measures used in this release.
RECONCILIATION OF HISTORICAL
GAAP BASIS RESULTS TO HISTORICAL
NON-GAAP BASIS INFORMATION
(in thousands, except per share data):
--------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2006 2005 2006 2005
-------- -------- -------- --------
GAAP revenues from
operations $ 92,383 $ 79,198 $266,728 $231,340
Less: Start-up
revenue -- 724 -- 4,758
-------- -------- -------- --------
Pro forma revenues
from operations $ 92,383 $ 78,474 $266,728 $226,582
======== ======== ======== ========
GAAP income from
operations $ 10,556 $ 8,192 $ 31,476 $ 20,667
Plus:
New Morgan Academy
loss from
operations 782 352 1,652 1,105
Pre-opening and
start-up expenses,
net of start-up
revenue -- 883 2,657 3,695
-------- -------- -------- --------
Pro forma income
from operations $ 11,338 $ 9,427 $ 35,785 $ 25,467
======== ======== ======== ========
GAAP net income
(loss) $ 2,584 $ 1,277 $ 7,152 $ (1,307)
Plus:
New Morgan Academy
net loss 1,048 513 2,194 1,562
Pre-opening and
start-up expenses,
net of start-up
revenue -- 521 1,568 2,180
-------- -------- -------- --------
Pro forma net income $ 3,632 $ 2,311 $ 10,914 $ 2,435
======== ======== ======== ========
GAAP earnings (loss)
per share - diluted $ 0.18 $ 0.09 $ 0.51 $ (0.10)
Plus:
New Morgan Academy 0.08 0.04 0.16 0.12
Pre-opening and
start-up expenses,
net of start-up
revenue -- 0.04 0.11 0.16
-------- -------- -------- --------
Pro forma earnings
per share - diluted $ 0.26 $ 0.17 $ 0.78 $ 0.18
======== ======== ======== ========
RECONCILIATION OF
HISTORICAL GAAP BASIS
RESULTS TO HISTORICAL
NON-GAAP BASIS INFORMATION:
---------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2006 2005 2006 2005
-------- -------- -------- --------
GAAP income from
operations $ 10,556 $ 8,192 $ 31,476 $ 20,667
Plus:
Depreciation and
amortization 4,317 3,834 12,256 11,379
Pre-opening and
start-up expenses,
net of start-up
revenue -- 883 2,657 3,695
-------- -------- -------- --------
EBITDA $ 14,873 $ 12,909 $ 46,389 $ 35,741
======== ======== ======== ========
RECONCILIATION OF FORWARD-LOOKING INFORMATION:
----------------------------------------------
Fourth Quarter Twelve Months
Ending Ending
December 31, 2006 December 31, 2006
----------------- -----------------
GAAP earnings per share
- diluted $ 0.19 - 0.22 $ 0.70 - 0.73
New Morgan Academy 0.04 0.20
Pre-opening and start-up
expenses, net of start up
revenue -- 0.11
--------------- ----------------
Pro forma earnings per
share - diluted $ 0.23 - 0.26 $ 1.01 - 1.04
=============== ================
Cornell Companies, Inc.
Operating Statistics from Continuing Operations
For the Three and Nine Months Ended September 30, 2006 and 2005
Three Months Ended September 30,
----------------------------------------------
2006 2005
-------------------- ---------------------
% %
---------- ---- ---------- ----
Contracted beds in
operation:
------------------
Secure Institutional(1) 9,213 68% 7,553 63%
Adult Community-
Based(1) 2,805 21% 2,718 23%
Juvenile(1) 1,490 11% 1,726 14%
---------- ---- ---------- ----
Total 13,508 100% 11,997 100%
========== ==== ========== ====
Number of billed mandays:
-------------------------
Secure Institutional 836,325 55% 665,808 49%
Adult Community-
Based:
Residential 249,393 17% 252,274 19%
Non-residential(2) 128,510 9% 133,027 10%
Juvenile:
Residential 128,187 8% 137,814 10%
Non-residential(2) 166,566 11% 168,139 12%
---------- ---- ---------- ----
Total 1,508,981 100% 1,357,062 100%
========== ==== ========== ====
Revenues (in thousands):
------------------------
Secure Institutional $ 47,243 51% $ 32,190 41%
Adult Community-
Based:
Residential 15,415 17% 15,614 19%
Non-residential 1,315 1% 1,342 2%
Juvenile:
Residential 22,059 24% 23,263 29%
Non-residential 6,351 7% 6,789 9%
---------- ---- ---------- ----
Total $ 92,383 100% $ 79,198 100%
========== ==== ========== ====
Average revenue per diem:
-------------------------
Secure Institutional $ 56.49 $ 48.35
Adult Community-
Based:
Residential $ 61.81 $ 61.89
Non-residential(2) $ 10.23 $ 10.09
Juvenile:
Residential $ 172.08 $ 168.80
Non-residential(2) $ 38.13 $ 40.38
---------- ----------
Total $ 61.22 $ 58.36
Nine Months Ended September 30,
----------------------------------------------
2006 2005
-------------------- ---------------------
% %
---------- ------ ---------- ----
Contracted beds in
operation:
------------------
Secure Institutional(1) 9,213 68% 7,553 63%
Adult Community-
Based(1) 2,805 21% 2,718 23%
Juvenile(1) 1,490 11% 1,726 14%
---------- ---- ---------- ----
Total 13,508 100% 11,997 100%
========== ==== ========== ====
Number of billed mandays:
-------------------------
Secure Institutional 2,322,059 53% 1,955,799 48%
Adult Community-
Based:
Residential 739,168 17% 697,763 17%
Non-residential(2) 395,981 9% 386,431 10%
Juvenile:
Residential 396,373 9% 424,281 10%
Non-residential(2) 530,340 12% 585,674 15%
---------- ---- ---------- ----
Total 4,383,921 100% 4,049,948 100%
========== ==== ========== ====
Revenues (in thousands):
------------------------
Secure Institutional $ 130,953 49% $ 94,296 41%
Adult Community-
Based:
Residential 45,373 17% 42,874 19%
Non-residential 4,001 2% 3,664 1%
Juvenile:
Residential 67,091 25% 71,003 31%
Non-residential 19,310 7% 19,503 8%
---------- ---- ---------- ----
Total $ 266,728 100% $ 231,340 100%
========== ==== ========== ====
Average revenue per diem:
-------------------------
Secure Institutional $ 56.40 $ 48.21
Adult Community-Based:
Residential $ 61.38 $ 61.44
Non-residential(2) $ 10.10 $ 9.48
Juvenile:
Residential $ 169.26 $ 167.35
Non-residential(2) $ 36.41 $ 33.30
---------- ----------
Total $ 60.84 $ 57.12
========== ==========
(1) Residential contract capacity only
(2) Non-residential "mandays" includes a mix of day units and hourly
units. Mental health facilities are reported in hours.