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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD __________ TO _______________
COMMISSION FILE NUMBER 1-14472
CORNELL CORRECTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0433642
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4801 WOODWAY, SUITE #100E, HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 623-0790
Indicate by a check mark whether Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
At April 30, 1997 Registrant had outstanding 6,858,384 shares of its Common
Stock.
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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORNELL CORRECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................... $ 4,874 $ 368
Accounts receivable, net ...................... 4,976 8,719
Current portion of notes receivable ........... 211 453
Deferred tax asset ............................ 120 120
Prepaids and other ............................ 1,128 1,478
Restricted assets ............................. 1,124 1,225
------------ ------------
Total current assets ....................... 12,433 12,363
PROPERTY AND EQUIPMENT, net ...................... 26,074 30,927
OTHER ASSETS:
Goodwill, net ................................. 5,864 5,779
Notes receivable, noncurrent .................. 620 555
Deferred tax asset, noncurrent ................ 488 488
Deferred costs and other ...................... 1,345 1,870
------------ ------------
Total assets ............................... $ 46,824 $ 51,982
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ...... $ 4,403 $ 5,794
Current portion of long-term debt ............. 283 3,401
------------ ------------
Total current liabilities .................. 4,686 9,195
LONG-TERM DEBT, net of current portion ........... 462 364
OTHER LONG-TERM LIABILITIES ...................... 625 719
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 10,000,000
shares authorized, none outstanding ......... -- --
Common stock, $.001 par value, 30,000,000
shares authorized, 7,320,398 and 7,321,648
shares issued and outstanding, respectively . 7 7
Additional paid-in capital .................... 47,562 47,715
Stock option loans ............................ (455) (455)
Retained deficit .............................. (3,710) (3,210)
Treasury stock (555,000 shares of common
stock, at cost) ............................. (2,353) (2,353)
------------ ------------
Total stockholders' equity ................. 41,051 41,704
------------ ------------
Total liabilities and stockholders' equity . $ 46,824 $ 51,982
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
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<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
---------------------------
1996 1997
------------ ------------
REVENUES:
Occupancy fees ................................. $ 5,083 $ 13,120
Other income ................................... 370 80
------------ ------------
5,453 13,200
OPERATING EXPENSES ............................... 4,562 10,797
DEPRECIATION AND AMORTIZATION .................... 237 448
GENERAL AND ADMINISTRATIVE EXPENSES .............. 714 1,069
------------ ------------
INCOME (LOSS) FROM OPERATIONS .................... (60) 886
INTEREST EXPENSE ................................. 229 106
INTEREST INCOME .................................. (28) (54)
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES .. (261) 834
PROVISION FOR INCOME TAXES ....................... -- 334
------------ ------------
NET INCOME (LOSS) ................................ $ (261) $ 500
============ ============
INCOME (LOSS) PER SHARE .......................... $ (.07) $ .07
============ ============
NUMBER OF SHARES USED IN PER SHARE CALCULATION ... 3,522 7,106
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
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<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
---------------------------
1996 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................. $ (261) $ 500
Adjustments to reconcile net income (loss)
to net cash used in operating activities --
Depreciation .................................. 74 185
Amortization .................................. 163 264
Change in assets and liabilities, net
of effects from acquisition of business --
Accounts receivable ........................ 567 (2,411)
Restricted assets .......................... (18) (101)
Other assets ............................... (355) (845)
Accounts payable and accrued liabilities ... (395) 939
------------ ------------
Net cash used in operating activities ......... (225) (1,469)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................... (387) (616)
Acquisition of business, less cash acquired .... -- (5,594)
------------ ------------
Net cash used in investing activities ......... (387) (6,210)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ................... 1,875 4,600
Payments on long-term debt ..................... (1,021) (1,580)
Proceeds from exercise of stock options ........ -- 153
------------ ------------
Net cash provided by financing activities ..... 854 3,173
------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ................... 242 (4,506)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD ...................... 390 4,874
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD ............................... $ 632 $ 368
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid .................................. $ 232 $ 116
============ ============
Income taxes paid .............................. $ -- $ --
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
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<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments and disclosures
necessary for a fair presentation of these financial statements have been
included. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1996 Annual
Report on Form 10-K as filed with the Securities and Exchange Commission.
2. ACQUISITIONS
On January 31, 1997, the Company acquired the assets of Interventions Co.
("Interventions"). The Company paid an aggregate purchase price of $6,003,000
comprised of $3,523,000 in cash, $2,250,000 for the repayment of Interventions'
outstanding notes payable, and $230,000 of transaction costs. The Company
financed the purchase with $2,000,000 of borrowings from the multiple-advance
term loan facility under its 1996 Credit Facility and the remainder with cash.
The acquisition is being treated as a purchase for accounting purposes.
The operations acquired from Interventions include (i) a 300 bed residential
pre-release correctional center in Dallas County, Texas, (ii) various
non-residential aftercare treatment programs for an additional 170 probationers
in Dallas, Texas, and (iii) a 44 bed juvenile residential transitional living
center program in San Antonio, Texas. In addition, the Company acquired from
Interventions the 72,000 square foot, 150 bed capacity facility in San Antonio
in which the juvenile transitional living center is operated.
The acquisition costs and the estimated fair market value of the assets
acquired and liabilities assumed associated with the Interventions acquisitions
are as follows (in thousands):
Cash paid ........................................ $ 5,773
Transaction costs ................................ 230
----------
Total purchase price ......................... $ 6,003
==========
Net assets acquired --
Cash .......................................... $ 409
Receivables, net .............................. 1,509
Other current assets .......................... 54
Property and equipment ........................ 4,577
Accounts payable and accrued liabilities ...... (546)
----------
Total purchase price ......................... $ 6,003
==========
3. LONG-TERM DEBT
As of March 31, 1997, the Company had borrowings outstanding under the 1996
Credit Facility of $3,100,000. Currently, the 1996 Credit Facility will mature
and all amounts, if any, outstanding thereunder will be due on December 31,
1997. Although the Company intends to refinance any amounts due under the 1996
Credit Facility prior to its maturity, the amount due at March 31, 1997 has been
classified as current portion of long-term debt pending such refinancing.
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<PAGE>
4. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, EARNINGS PER SHARE ("SFAS No. 128"). SFAS
No. 128 replaces Accounting Principles Board Opinion 15, EARNINGS PER SHARE, and
simplifies the computation of earnings (loss) per share ("EPS") by replacing the
presentation of primary EPS with basic EPS. Basic EPS is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. SFAS No. 128 also requires dual presentation
of basic and diluted EPS on the face of the income statement for entities with
complex capital structures. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
Earlier application is not permitted. Restatement of all prior period EPS data
is required. Management of the Company believes that the adoption of SFAS No.
128 will not have a material effect on previously reported EPS.
5. SUBSEQUENT EVENT
In May 1997, the Company entered into a letter of understanding to acquire
substantially all of the assets of the privately held, not-for-profit Abraxas
Group, Inc., based in Pittsburg, Pennsylvania. Abraxas, a nationally recognized
leader in the treatment of juveniles, provides residential, educational and
community based treatment services to over 1300 youths in Pennsylvania, Ohio,
Delaware and the District of Columbia, generating approximately $30 to $35
million in annual revenues. Closing of the transaction is subject to various
conditions, including completion of due diligence and receipt of required
governmental and other consents.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company provides to governmental agencies the integrated development,
design, construction and operation of correctional and detention facilities. The
following table sets forth the number of facilities and beds under contract or
award at the end of the periods shown.
DECEMBER 31, MARCH 31,
1996 1997
----- -----
Contracts (1) ................................ 24 31
Facilities in operation ...................... 18 23
Design capacity of facilities in operation ... 3,142 4,046
Beds under contract (end of period) .......... 3,254 4,813
Contracted beds in operation (end of period) . 2,899 3,537
Average occupancy based on contracted
beds in operation (2) ...................... 97.0% 94.7%
(1) Consists of facilities in operation, facilities under development and
facilities for which awards have been obtained.
(2) For any applicable facilities, includes reduced occupancy during the
start-up phase.
During the first quarter of 1997, the Company has added the management of
1,726 beds through opening or contracting to open 3 new facilities (1,276 beds)
and the acquisition of Interventions (450 beds). As of March 31, 1997, the
Company had 31 contracts to operate 26 private correctional, detention and
pre-release facilities with an aggregate design capacity of 5,303 beds. Of these
facilities, 23 are currently in operation (4,046 beds), 2 are under development
and 1 will commence operation by the Company on July 1, 1997. Both facilities
under development are scheduled to commence operations during 1998.
The Company derives substantially all its revenues from operating
correctional, detention and pre-release facilities for federal and state
governmental agencies in the United States. Revenues for operation of
correctional, detention and pre-release facilities are generally recognized on a
per diem rate based upon the number of occupant days for the period.
The Company's operating expenses consist primarily of facility personnel
costs, lease expense, insurance, utilities, food, medical services, supplies and
clothing. Depreciation and amortization includes amortization of prepaid
facility use costs pertaining to BSCC, amortization of intangible assets
including goodwill, and depreciation of buildings and other property and
equipment. General and administrative expenses consists primarily of salaries
and related overhead of the Company's corporate and administrative personnel who
provide senior management, accounting, finance, personnel and other services,
and costs of developing new contracts.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages of
total revenue represented by certain items in the Company's consolidated
statement of operations.
THREE MONTHS
ENDED MARCH 31,
----------------
1996 1997
------ ------
Total revenues ..................................... 100.0% 100.0%
Operating expenses ................................. 83.7 81.8
Depreciation and amortization ...................... 4.3 3.4
General and administrative expenses ................ 13.1 8.1
------ ------
Income (loss) from operations ...................... (1.1) 6.7
Interest expense, net .............................. 3.7 0.4
------ ------
Income (loss) before provision for income taxes .... (4.8) 6.3
Provision for income taxes ......................... 0.0 2.5
------ ------
Net income (loss) .................................. (4.8) 3.8
====== ======
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
TOTAL REVENUES. Total revenues increased 142.0% to $13.2 million for the
three months ended March 31, 1997 from $5.5 million for the three months ended
March 31, 1996. The increase in occupancy fees of approximately $8.0 million was
due principally to the acquisition of MidTex in July 1996, the acquisition of
the Reid Center in May 1996, the acquisition of Interventions in January 1997,
and the opening of two new juvenile facilities and one new pre-release center
during the first quarter of 1997.
OPERATING EXPENSES. Operating expenses increased 136.7% to $10.8 million for
the three months ended March 31, 1997 from $4.6 million for the three months
ended March 31, 1996. The increase in operating expenses was due principally to
the acquisition of MidTex in July 1996, the acquisition of the Reid Center in
May 1996, the acquisition of Interventions in January 1997, and the opening of
two new juvenile facilities and one new pre-release center during the first
quarter of 1997. As a percentage of revenues, operating expenses decreased to
81.8% from 83.7%.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
89.0% to $448,000 for the three months ended March 31, 1997 from $237,000 for
the three months ended March 31, 1996. The increase was due principally to the
amortization of prepaid facility use costs of the Big Spring Facility acquired
in July 1996, depreciation of the Reid Center acquired in May 1996 and the
Griffin Juvenile Facility acquired in January 1997, and depreciation and
amortization of deferred start-up costs of the three new facilities opened
during the first quarter of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 50.0% to $1.1 million for the three months ended March 31, 1997 from
$714,000 for the three months ended March 31, 1996. The increase in general and
administrative expenses resulted from adding corporate and administrative
personnel, including a new chief operating officer position, to manage the
increased business of the Company, and from additional costs of administering
the Company since the initial public offering in the fourth quarter of 1996. As
a percentage of revenues, general and administrative expenses decreased to 8.1%
from 13.1% due principally to spreading fixed costs over a larger revenue base.
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<PAGE>
INTEREST. Interest expense, net of interest income, decreased to $52,000 for
the three months ended March 31, 1997 from $201,000 for the three months ended
March 31, 1996 due to lower outstanding borrowings under the Company's 1996 and
1995 Credit Facilities for the respective periods.
INCOME TAXES. For the three months ended March 31, 1997, the Company
recognized a provision for income taxes at an estimated effective rate of 40%
compared to no provision for income taxes for the three months ended March 31,
1996 due to a taxable loss. The 40% effective income tax rate applied in 1997
does not factor in any future benefit from reversal of previously reserved
deferred tax assets resulting from prior net operating losses.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company's primary capital requirements are for working capital,
start-up costs related to new operating contracts, furniture, fixtures and
equipment, supply purchases, new facility renovations, acquisitions and new
facility construction. Working capital requirements generally increase
immediately prior to the Company commencing management of a new facility as the
Company incurs start-up costs and purchases necessary equipment and supplies
before facility management revenue (through occupancy fees) is realized. Some of
the Company's management contracts have required the Company to make substantial
initial expenditures of cash in connection with the opening or renovating of a
facility. Substantially all these start-up expenditures are fully or partially
recoverable as pass-through costs or are reimbursable from the contracting
governmental agency over the term of the contract.
CHANGES IN FINANCIAL POSITION. As of March 31, 1997, total assets had
increased $5.2 million to $52.0 million since December 31, 1996. The increase
related principally to the acquisition of Interventions in January 1997. The
Company paid $6.0 million for Interventions' assets including the retirement of
$2.3 million of pre-acquisition bank debt. The purchase price was paid with $2.0
million of borrowings from the multiple-advance term loan facility under the
1996 Credit Facility, and the remainder with cash.
WORKING CAPITAL. The Company's working capital decreased to $3.2 million at
March 31, 1997 from $7.7 million at December 31, 1996. This decrease was
principally due to the use of cash to fund a portion of the Interventions
acquisition and the current classification of $3.1 million of indebtedness
outstanding under the 1996 Credit Facility, offset in part by increased
receivables for newly opened facilities and due to timing of collections.
EXISTING CREDIT FACILITIES. Under the 1996 Credit Facility, as amended, the
Company has a $15.0 million credit facility comprised of a $5.0 million
revolving credit facility for working capital purposes and a $10.0 million
multiple-advance term loan facility available for new and expanded facilities
costs. The Company intends to refinance amounts due under the 1996 Credit
Facility prior to its maturity on December 31, 1997.
CAPITAL EXPENDITURES. Capital expenditures for the three months ended March
31, 1997 were $616,000 and related to improvements and furniture and equipment
at the newly opened facilities, normal replacement of furniture and equipment at
various facilities, and additional furniture and equipment at the Corporate
office.
CASH USED IN OPERATING ACTIVITIES. The Company had net cash used in operating
activities of $1.5 million for the three months ended March 31, 1997.
Significant uses of operating cash during the period include start-up costs for
facilities under development, and increased prepaid insurance and other items
related to the additional acquired and newly opened facilities.
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<PAGE>
Management of the Company believes that the cash flows generated from
operations, together with the credit available under the 1996 Credit Facility,
will provide sufficient liquidity to meet the Company's working capital
requirements for the near term. It is not anticipated that the 1996 Credit
Facility will provide sufficient financing to fund construction costs related to
future institutional contract awards or significant future acquisitions. The
Company anticipates obtaining separate sources of financing to fund such
activities.
INFLATION
Management of the Company believes that inflation has not had a material
effect on the Company's results of operations during the past three years.
However, most of the Company's facility management contracts provide for
payments to the Company of either fixed per diem fees or per diem fees that
increase by only small amounts during the terms of the contracts. Inflation
could substantially increase the Company's personnel costs (the largest
component of facility management expense) or other operating expenses at rates
faster than any increases in occupancy fees.
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<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently and from time to time is subject to claims and suits
arising in the ordinary course of business, including claims for damages for
personal injuries or for wrongful restriction of, or interference with, inmate
privileges. In the opinion of management of the Company, the outcome of the
proceedings to which the Company is currently a party will not have a material
adverse effect upon the Company's operations or financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
11.1 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
b. Reports on Form 8-K
Form 8-K of the Company dated February 13, 1997 reporting the
acquisition of Interventions Co. on January 31, 1997. Amendment No.
1 to that Form 8-K with historical and pro forma financial
information was filed on April 11, 1997.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CORNELL CORRECTIONS, INC.
Date: May 15, 1997 By: /s/ DAVID M. CORNELL
DAVID M. CORNELL
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1997 By: /s/ STEVEN W. LOGAN
STEVEN W. LOGAN
Chief Financial Officer, Treasurer
and Secretary
(Principal Financial Officer)
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EXHIBIT 11.1
Cornell Corrections, Inc.
Statement Re: Computation of Per Share Earnings
(in thousands except per share amounts)
Three Months Ended
March 31,
---------------------------
1996 1997
------------ ------------
Net income (loss) ................................. $ (261) $ 500
============ ============
Shares used in computing earnings (loss) per share:
Weighted average common shares and
common share equivalents ................... 3,189 7,321
Less treasury shares ......................... (555) (555)
Effect of shares issuable under stock
options and warrants based on the
treasury stock method ...................... 888 340
------------ ------------
3,522 7,106
------------ ------------
Earnings (loss) per share ......................... $ (0.07) $ 0.07
============ ============
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 368
<SECURITIES> 0
<RECEIVABLES> 8,719
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,363
<PP&E> 32,532
<DEPRECIATION> (1,605)
<TOTAL-ASSETS> 51,982
<CURRENT-LIABILITIES> 9,195
<BONDS> 364
0
0
<COMMON> 7
<OTHER-SE> 41,697
<TOTAL-LIABILITY-AND-EQUITY> 51,982
<SALES> 0
<TOTAL-REVENUES> 13,200
<CGS> 0
<TOTAL-COSTS> 12,314
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106
<INCOME-PRETAX> 834
<INCOME-TAX> 334
<INCOME-CONTINUING> 500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 500
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.00
</TABLE>
