UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
ý | ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | |
For the Fiscal Year Ended December 31, 2002 |
| | |
OR |
| | |
o | TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | |
For the transition period from to |
Commission File Number 1-14472
Cornell Companies, Inc. 401(k) Profit Sharing Plan
CORNELL COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware | | 76-0433642 |
(State or other jurisdiction
of incorporation or organization) | | (I.R.S. Employer
Identification No.) |
| | |
1700 West Loop South, Suite 1500, Houston, Texas | | 77027 |
(Address of Principal Executive Offices) | | (Zip Code) |
| | |
Registrant’s telephone number, including area code: | | (713) 623-0790 |
REPORT OF INDEPENDENT AUDITORS
To the Participants and Administrator of
Cornell Companies, Inc. 401(k) Profit Sharing Plan:
In our opinion, the accompanying statements of net assets available for benefits and the related statements of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of Cornell Companies, Inc. 401(k) Profit Sharing Plan (the “Plan”) at December 31, 2002, and the changes in net assets available for benefits for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The financial statements of the Plan as of December 31, 2001 and for the year then ended were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statements in their report dated May 21, 2002.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule H, line 4i – schedule of assets (held at end of year) as of December 31, 2002, is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
PricewaterhouseCoopers LLP
Houston, Texas
June 26, 2003
1
The following report is a copy of a report previously issued by Arthur Andersen LLP (“Andersen”). This report has not been reissued by Andersen and Andersen did not consent to the incorporation by reference of this report into any of the Company’s registration statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of the
the Cornell Companies, Inc. 401(k) Profit Sharing Plan:
We have audited the accompanying statements of net assets available for plan benefits of the Cornell Companies, Inc. 401(k) Profit Sharing Plan (the Plan) as of December 31, 2001 and 2000*, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements and supplemental schedule referred to below are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements and supplemental schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Plan as of December 31, 2001 and 2000*, and the changes in net assets available for plan benefits for the years then ended, in conformity with accounting principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule H, line 4i - schedule of assets (held at end of year) as of December 31, 2001*, is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
May 21, 2002
* The Plan’s statement of net assets available for plan benefits as of December 31, 2000 and the related statement of changes in net assets available for plan benefits for the year then ended, as well as the supplemental schedule H, line 4i - schedule of assets (held at end of year) as of December 31, 2001, is not included in this Form 11-K.
2
CORNELL COMPANIES, INC. 401(k) PROFIT SHARING PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
| | 2002 | | 2001 | |
ASSETS: | | | | | |
Investments (at fair value) | | $ | 13,396,899 | | $ | 14,149,965 | |
| | | | | |
Receivables: | | | | | |
Accrued income | | — | | 1,185 | |
Employee contributions | | 53,960 | | — | |
Employer contributions | | 21,596 | | — | |
Pending sales | | — | | 16,286 | |
Total receivables | | 75,556 | | 17,471 | |
| | | | | |
Total assets | | 13,472,455 | | 14,167,436 | |
| | | | | |
LIABILITIES: | | | | | |
Corrective distributions payable | | (94,502 | ) | (91,500 | ) |
Expenses payable | | (4,524 | ) | (15,537 | ) |
Pending purchases | | — | | (84,004 | ) |
| | | | | |
Total liabilities | | (99,026 | ) | (191,041 | ) |
| | | | | |
NET ASSETS AVAILABLE FOR PLAN BENEFITS | | $ | 13,373,429 | | $ | 13,976,395 | |
The accompanying notes are an integral part of these financial statements.
3
CORNELL COMPANIES, INC. 401(k) PROFIT SHARING PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
| | 2002 | | 2001 | |
| | | | | |
ADDITIONS: | | | | | |
Net investment loss from mutual funds | | $ | (1,786,568 | ) | $ | (1,134,531 | ) |
Net appreciation (depreciation) in fair value of common stock | | (1,361,142 | ) | 1,795,984 | |
Interest | | 43,081 | | 38,418 | |
Employee contributions | | 2,967,497 | | 2,885,967 | |
Employer contributions | | 1,188,489 | | 1,095,497 | |
Employee rollover contributions | | 110,357 | | 57,516 | |
| | | | | |
Total additions | | 1,161,714 | | 4,738,851 | |
| | | | | |
DEDUCTIONS: | | | | | |
Benefit payments and withdrawals | | (1,559,191 | ) | (1,378,343 | ) |
Corrective distributions | | (94,502 | ) | (97,742 | ) |
Plan expenses | | (110,987 | ) | (46,762 | ) |
| | | | | |
Total deductions | | (1,764,680 | ) | (1,522,847 | ) |
| | | | | |
INCREASE (DECREASE) IN NET ASSETS AVAILABLE FOR PLAN BENEFITS | | (602,966 | ) | 3,216,004 | |
| | | | | |
NET ASSETS AVAILABLE FOR PLAN BENEFITS, BEGINNING OF YEAR | | 13,976,395 | | 10,760,391 | |
| | | | | |
NET ASSETS AVAILABLE FOR PLAN BENEFITS, END OF YEAR | | $ | 13,373,429 | | $ | 13,976,395 | |
The accompanying notes are an integral part of these financial statements.
4
CORNELL COMPANIES, INC. 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
1. DESCRIPTION OF THE PLAN
General
The Cornell Companies, Inc. 401(k) Profit Sharing Plan (the Plan) was established on January 1, 1993, and is a trustee-defined contribution plan in which generally all employees of Cornell Companies, Inc., and its subsidiaries (the Company), are eligible to participate. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The following description of the Plan provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
Plan Administration and Trustee
The Company is the Plan’s administrator and trustee. The board of directors of the Company appoints an individual to be responsible for the administration of the Plan. Prior to October 11, 2002, Comerica Bank was the Plan’s asset custodian and record keeper to hold and control the assets of the Plan in accordance with the terms of the Plan. Effective October 11, 2002, the Company appointed Reliance Trust Company as the Plan’s asset custodian and DailyAccess.Com as the Plan’s record keeper.
Eligibility and Contributions
Effective September 1, 2000, all employees except leased employees are eligible to participate in the Plan with no service requirements and can enroll in the Plan immediately. Prior to September 1, 2000, all employees, except leased employees, who had completed one year of service were eligible to participate in the Plan and could enroll in the Plan quarterly.
Employees may elect to contribute from 1 percent to 20 percent of their compensation, as defined, up to the maximum allowed under Internal Revenue Service (IRS) guidelines. The Company makes matching contributions equal to 50 percent of the participants’ elective deferrals for the Plan year up to 6 percent of the participant’s eligible compensation. Participant rollover contributions from other qualified plans are allowed under the Plan.
Effective October 11, 2002, employees may elect to contribute from 1 percent to the maximum allowable by law.
Participant Accounts and Investment Options
Each participating employee’s share of the net assets of the Plan is segregated in an individual account. Participants exercise control over the types of investments made on their behalf, provided that such investments shall be invested only in investment funds designated by the Plan sponsor. Each participant may elect to invest his/her contribution and the Company’s contributions made on the participant’s behalf in any one or more of the investment funds. Prior to October 11, 2002, participants could direct the investment of their individual accounts among seven mutual funds and Cornell Companies, Inc. common stock. Subsequent to October 11, 2002, participants can direct the investment on their individual accounts among seventeen mutual funds and a Cornell Unitized Stock Fund.
5
Investment income or loss is allocated daily to a participant’s account in the same ratio as the participant’s investment in each fund bears to the total of all participants’ investments in each fund.
Vesting
All participant contributions are 100 percent vested and nonforfeitable at all times. Participants become vested in the Company’s contributions to the Plan as follows:
Years of Service | | Hired Before 9/1/00
Vested Percent | | Hired After 8/31/00
Vested Percent | |
| | | | | |
1 | | 0 | % | 0 | % |
2 | | 20 | % | 0 | % |
3 | | 100 | % | 100 | % |
Loans
A participant may borrow from the Plan up to the lesser of $50,000 or 50 percent of the participant’s vested account balance with a minimum loan requirement of $1,000. The loans are secured by the participant’s vested account balance. Interest is charged at the current commercial lending rate and is credited to the participant’s account. The participant is entitled to no more than one loan concurrently.
Payment of Benefits
Benefits are payable to a participant upon separation from service, total and permanent disability, retirement or death in accordance with the aforementioned vesting schedule. In addition, hardship distributions are permitted if certain Plan provisions are met. Distributions are made in the form of lump-sum payments. No other optional form of payment is available.
Effective September 1, 2000, an early retirement option was added to the Plan. Upon completion of five years of service and attained age 55, a participant may elect to retire from the Company and begin receiving benefits.
Also, a participant who has attained the normal retirement age and who has not separated from service may receive a distribution of his or her vested account balance.
Forfeitures
Forfeitures of any Company contributions are to be used either to reduce the Company’s contributions to the Plan or to pay the expenses of the Plan. As of December 31, 2002 and 2001, $53,531 and $68,472, respectively, of forfeitures are included in net assets available for benefits. In 2002 and 2001, $134,502 and $59,418, respectively, of forfeitures were utilized by the Company to pay the expenses of the Plan and reduce Company contributions.
Plan Termination
The Company currently intends to continue the Plan for the benefit of its employees but reserves the right to discontinue contributions and/or terminate the Plan, subject to the provisions of ERISA. In the event of a complete termination of the Plan, the affected participants shall be fully vested in all amounts allocated to their accounts, and such amounts shall be nonforfeitable.
6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The financial statements of the Plan are prepared on the accrual basis of accounting. Benefit payments are recorded when paid.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires the Plan’s management to use estimates and assumptions that affect the accompanying financial statements and disclosures. Actual results could differ from those estimates.
Valuation of Investments
Investments in mutual funds are stated at fair value based on published market prices. The Company common stock is valued at its quoted market price. Participant loans are valued at cost which approximates fair value. Purchases and sales are recorded on a trade-date basis. Interest income is recorded as earned and dividends are recorded on the ex-dividend date. Realized gains (losses) on the sale of mutual funds, unrealized appreciation (depreciation) in fair value of mutual funds, and interest and dividends are shown as net investment loss from mutual funds in the statements of changes in net assets available for plan benefits. Realized gains (losses) on the sale of common stock and unrealized appreciation (depreciation) in fair value of common stock are shown at net appreciation (depreciation) in fair value of common stock in the statements of changes in net assets available for plan benefits.
Expenses
Administrative and other expenses of the Plan are to be paid by the Company or with forfeitures of the Plan.
3. RISKS AND UNCERTAINTIES
The Plan provides for investment in mutual funds and Company common stock. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility risk. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term.
7
4. INVESTMENTS
Individual investments that exceed 5 percent of net assets available for benefits at December 31, 2002 and 2001 are as follows:
2002 - | | | |
AIM Balanced Fund | | $ | 1,278,035 | |
AIM Cash Reserve Fund | | 2,526,590 | |
AIM Constellation Fund | | 1,626,159 | |
Goldman Sachs Small Cap Value Fund | | 1,883,731 | |
Janus Advisor International Growth | | 1,303,830 | |
Oppenheimer Select S&P 500 Index | | 1,466,543 | |
Strong Advisor Bond Fund | | 1,089,451 | |
Cornell Unitized Stock Fund | | 1,290,858 | |
| | | |
2001 - | | | |
AIM Balanced Fund (Class A) | | $ | 1,373,548 | |
Franklin Balance Sheet Investment Fund | | 1,840,339 | |
Janus Worldwide Fund | | 1,735,942 | |
Munder Index 500 Fund (K-shares) | | 1,827,798 | |
Munder U.S. Government Income Fund (K-shares) | | 768,607 | |
Munder U.S. Treasury Money Market Fund (K-shares) | | 1,152,220 | |
Putnam Investors Fund (Class A) | | 2,272,598 | |
Cornell Companies, Inc. Common Stock | | 2,662,132 | |
5. FEDERAL INCOME TAXES
Effective January 1, 1993, the Company adopted the Cornell Companies, Inc. 401(k) Profit Sharing Plan (the Plan). The Plan received a favorable determination letter on March 8, 1994. The Plan has since been amended; however, the Company believes that the Plan is being operated in compliance with the applicable requirements of the Internal Revenue Code of 1986, as amended. Therefore, the Company believes that the Plan was qualified and the related trust was tax-exempt as of December 31, 2002 and 2001.
6. RECONCILIATION TO FORM 5500
The following table reconciles employee benefit payments and withdrawals per the financial statements to the Form 5500 as of December 31, 2002 and 2001:
| | 2002 | | 2001 | |
| | | | | |
Benefit payments and withdrawals per the financial statements | | $ | 1,559,191 | | $ | 1,378,343 | |
Add - Amounts allocated to withdrawing participants
at December 31, 2002 and 2001 | | — | | — | |
Less - Amounts allocated to withdrawing participants at
at December 31, 2001 and 2002 | | — | | (123,690 | ) |
Benefit payments and withdrawals per the Form 5500 | | $ | 1,559,191 | | $ | 1,254,653 | |
8
Amounts allocated to withdrawing participants that have been processed and approved for payment prior to December 31 but not yet paid as of that date are recorded on the Form 5500 as benefit payments and withdrawals.
There were no other reconciling items between the financial statements and the Form 5500.
7. PARTY-IN-INTEREST TRANSACTIONS
Participants may invest in the common stock of the Company. The Company is the sponsor of the Plan and, therefore, these transactions qualify as party-in-interest transactions.
9
SCHEDULE
CORNELL COMPANIES, INC. 401(k) PROFIT SHARING PLAN
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2002
Identity of Issue/Description of Asset | | Number of
Shares/Units | | Cost | | Current
Value | |
| | | | | | | |
AIM Balanced Fund | | 61,414 | | (a) | | $ | 1,278,035 | |
AIM Capital Development Fund | | 1,292 | | (a) | | 16,771 | |
AIM Cash Reserve Fund | | 2,473,011 | | (a) | | 2,526,590 | |
AIM Constellation Fund | | 97,785 | | (a) | | 1,626,159 | |
AIM Funds Basic Value Fund | | 926 | | (a) | | 20,252 | |
AIM High Yield Fund | | 2,818 | | (a) | | 10,399 | |
AIM Income Fund | | 9,177 | | (a) | | 58,915 | |
AIM Real Estate Fund | | 4,107 | | (a) | | 60,491 | |
AIM Small Cap Growth Fund | | 1,290 | | (a) | | 23,834 | |
Cornell Unitized Stock Fund * | | 93,257 | | (a) | | 1,290,858 | |
Goldman Sachs Midcap Value | | 1,181 | | (a) | | 26,701 | |
Goldman Sachs Small Cap Value Fund | | 69,485 | | (a) | | 1,883,731 | |
Janus Advisor International Growth | | 71,757 | | (a) | | 1,303,830 | |
Oppenheimer Select S&P 500 Index | | 217,588 | | (a) | | 1,466,543 | |
Scudder Lifecycle Long Midrange Fund | | 2,606 | | (a) | | 23,221 | |
Scudder Lifecycle Long Range Fund | | 3,395 | | (a) | | 30,724 | |
Scudder Lifecycle Short Range Fund | | 4,200 | | (a) | | 40,991 | |
Strong Advisor Bond Fund | | 100,133 | | (a) | | 1,089,451 | |
Participant Loans *
(interest rates ranging from 5.25% to 11.50%) | | 619,403 | | | | 619,403 | |
| | | | | | $ | 13,396,899 | |
* Indicates party-in-interest.
(a) cost omitted for participant-directed investments.
10
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrator has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| | CORNELL COMPANIES, INC. |
| | 401(k) PROFIT SHARING PLAN |
| | |
| | |
Date: June 30, 2003 | By: | /s/ Patrick N. Perrin |
| | Patrick N. Perrin |
| | Senior Vice President, Chief Administrative
Officer and Plan Coordinator
for Cornell Companies, Inc. |
INDEX TO EXHIBITS
Exhibit
Number | | |
| | |
23.1 | | Consent of Independent Accountants |
| | |
99.1 | | Certification of Plan Administrator |
