Long - Cornell CRN 10 3/4 7/2012

Cornell is a full-service provider of
corrections, treatment and educational services for adults and
juveniles. The
company provides residential & community based
programs and has a total operating capacity of 20.667 beds
in 69
facilities across 15 states.

Source: Cornell

(1)
Pie chart represents $73.9 million of operating income
in YTD 2009
before $19.9 million of G&A expenses, amortization
of intangibles
and corporate overhead charges.

• Operating cash flow has been very predictable for all three correction companies.

• Cornell is the third largest private correction operator with a 8% market share.

• Cornell's current liquidity situation is somewhat tight, with USD 12.1MM available under
  it's USD 100MM credit facility (due in December 2011) and only USD 5MMM in cash.
  However, we think this is managable and wanted to note that they have a USD 75MM
  gross proceeds shelf registration. The company did not pay dividends in the last five years.

• Total Debt / LTM EBITDA stands at 3.3x vs. total leverage reatio of 3.75x (8x rent adjusted Total Debt / EBITDAR at 3.8x) -max bank debt to EBITDA 1.5x

• USD 306MM of total debt consists of:
  1. Asset Backed Debt 8.47% due 2016 issued by Municipal Correction Finance (SPV) - USD 121.7MM
  2. Revolver due 2011 by Cornell Companies Inc. - USD 73MM
  3. 10.75% senior unsecured bonds issued by Cornell Companies Inc. - USD 112MM

• Cornell's contract utilization rates are 88.5% in Adult Secure, 109.4% in ACB and 86.9% in the Abraxas
  segment.

• Public prisons are overcrowded with significant population growth projected.

• About 8% of prison population (which is a total market of USD 68 billion market) are in private beds as per
  the Bureau of Justice Statistics.

• Corrections
  Corp is the 6th largest operator overall and largest of the private
  operators. Private beds
  have grown 16% CAGR to 188.000 since 1990.

• State
  budget constraints put pressure on correction companies to accept lower
  "per diem" rates while
  lowsingle digit declines can be expected, after
  "per diem" rates grew low single digits over the past several
  years.

• Private
  correction companies do provide a lower cost alternative to government
  constructed and operate.Cost
  benefits are estimated to be at a minimum of 10-15% with lower construction and lower operating costs and
  quicker construction and response time and significantly lower escape and mortality rates.

• The
  government should have a relatively strong incentive to keep their
  counterparts in the private prisonsspace
  alive as they provide the
  capital for the facilities and offer a significant cost advantage.

• Compared
  to other industrialized countries the US has a very high incarceration
  rate but growing populationand
  the weakening economic environment is
  likely to work against a fall in the absolute number of prisoners.

Source: Barclays

Prison Population Growth

Source: Bureau of Justice Statistics

Return
on capital for the private correction companies has been quite
moderate. The below charts show
an Adjusted Cap Rate for the three
players we follow. This ratio is calculated as EBIT reduced by an
assumed taxrate of 35% and adjusted for Net Non-Operating and
Extraordinary Losses (Gains) - averaged
over the last 5 years - divided
by the Enterprise Value.

Cornell

Geo Group:

Corrections Corp:

Comparison of total capacity vs owned and controlled beds:

Source: CCA

Contract Structures

Per Diem
* Payment based on nightly occupancy
* Contract structure derived from daily cost of housing an inmate, including:
* The programs
* The contract
* Staffing levels
* Local wage levels
* Operations
* Represent the majority of existing contracts in corrections and treatment sector

Cost Plus
* Payment based on actual and estimated operating costs, plus a negotiated
* Ensures costs are covered, but minimizes potential for upside
* Represents a moderate portion of juvenile and prison contracts
* Payment based on occupancy, but minimum revenue streams are guaranteed
* Operator also receives fees for occupancy above minimum level on a per diem

Take-Or-Pay
* Minimum revenue based on 80%-95% occupancy rates
* Payment based on occupancy regardless if occupancy level is below 90%-95%
* Used mainly by Federal BOP

Cornell's Q3 presentation