1016152--3/16/2006--CORNELL_COMPANIES

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Risk Factors and Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 Resistance to privatization of correctional and detention facilities could result in our inability to obtain new contracts or the loss of existing contracts. We are subject to the short-term nature of government contracts. Budgetary pressure on federal, state and local governments may result in contract cancellation or a reduction in per diem rates, which would reduce our profitability. Our ability to win new contracts to develop and manage correctional, detention and treatment facilities depends on many factors outside our control. Our profitability may suffer if the number of offenders occupying our correctional, detention and treatment facilities decreases or there is a shift in occupancy among our divisions. A failure to comply with existing regulations could result in material penalties or non-renewal or termination of our contracts. Governmental agencies may investigate and audit our contracts and, if any improprieties are found, we may be required to refund revenues we have received, and/or to forego anticipated revenues and may be subject to penalties and sanctions, including prohibitions on our bidding in response to RFPs. If we fail to satisfy our contractual obligations, our ability to compete for future contracts and our financial condition may be adversely affected. Competitors in our industry may adversely affect the profitability of our business. A disturbance or violent occurrence in one of our facilities could result in closure of a facility or harm to our business. Negative media coverage, including inaccurate or misleading information, could adversely affect our reputation and our ability to bid for government contracts. We often incur significant costs before receiving related revenues, which could result in cash shortfalls and a risk of not recovering our investment. We may be unable to attract and retain sufficient qualified personnel necessary to sustain our business. If we do not successfully integrate the businesses that we acquire, our results of operations could be adversely affected. Because environmental laws impose strict as well as joint and several liability for clean up costs, unforeseen environmental risks could prove to be costly. We have in the past incurred, and may continue to incur, significant expenses for facilities that we no longer operate. We may continue to operate under unprofitable contracts at facilities that we own to offset expenses associated with ownership of the facility. We depend on a limited number of governmental customers for significant portion of our revenues. Because our revenues can fluctuate from period to period, we may face short-term funding shortfalls from time to time. We are subject to significant insurance costs. We may be adversely affected by inflation. We are subject to risks associated with ownership of real estate.

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1016152--3/16/2006--CORNELL_COMPANIES_INC