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 SEPTEMBER 30, 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 October 31, 1997 Registrant had outstanding 9,390,904 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)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------- -------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ............................. $ 4,874 $ 2,534
Accounts receivable, net .............................. 4,976 18,923
Current portion of notes receivable ................... 211 362
Prepaids and other .................................... 1,248 1,664
Restricted assets ..................................... 1,124 1,481
-------- --------
Total current assets ............................... 12,433 24,964
PROPERTY AND EQUIPMENT, net .............................. 26,074 46,012
OTHER ASSETS:
Intangibles, net ...................................... 5,864 6,204
Notes receivable, noncurrent .......................... 620 448
Deferred tax asset, noncurrent ........................ 488 488
Deferred costs and other .............................. 1,345 2,205
-------- --------
Total assets ....................................... $ 46,824 $ 80,321
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities .............. $ 4,403 $ 14,985
Current portion of long-term debt ..................... 283 290
-------- --------
Total current liabilities .......................... 4,686 15,275
LONG-TERM DEBT, net of current portion ................... 462 18,198
OTHER LONG-TERM LIABILITIES .............................. 625 3,241
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 7,460,404 shares issued and outstanding,
respectively ........................................ 7 7
Additional paid-in capital ............................ 47,562 47,921
Stock option loans .................................... (455) (455)
Retained deficit ...................................... (3,710) (1,513)
Treasury stock (555,000 shares of
common stock, at cost) .............................. (2,353) (2,353)
-------- --------
Total stockholders' equity ......................... 41,051 43,607
-------- --------
Total liabilities and stockholders' equity ......... $ 46,824 $ 80,321
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1996 1997 1996 1997
------ ------ ------ ------
REVENUES.................................. $10,608 $18,013 $21,945 $46,053
OPERATING EXPENSES........................ 8,537 14,752 17,998 37,308
DEPRECIATION AND AMORTIZATION............. 425 506 935 1,625
GENERAL AND ADMINISTRATIVE EXPENSES....... 1,759 1,235 3,388 3,453
------ ------ ------ ------
INCOME (LOSS) FROM OPERATIONS............. (113) 1,520 (376) 3,667
INTEREST EXPENSE.......................... 2,163 147 2,661 356
INTEREST INCOME........................... (36) (36) (87) (122)
------ ------ ------ ------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES............................ (2,240) 1,409 (2,950) 3,433
PROVISION FOR INCOME TAXES................ -- 507 -- 1,236
------ ------ ------ ------
NET INCOME (LOSS)......................... $(2,240) $ 902 $(2,950) $2,197
======= ====== ======= ======
INCOME (LOSS) PER SHARE................... $ (.63) $ .12 $ (.87) $ .31
====== ====== ====== ======
NUMBER OF SHARES USED IN PER SHARE
CALCULATION............................. 3,574 7,328 3,383 7,202
====== ====== ====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
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CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) ................................................ $ (2,950) $ 2,197
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities --
Depreciation .................................................... 311 618
Amortization .................................................... 624 1,007
Non-cash stock-based compensation and financing charges ......... 1,596 --
Change in assets and liabilities, net of effects from acquisition
of businesses --
Accounts receivable .......................................... 29 (3,734)
Restricted assets ............................................ (131) (357)
Other assets ................................................. (598) (1,346)
Accounts payable and accrued liabilities ..................... (279) 4,911
Other liabilities ............................................ -- 2,000
-------- --------
Net cash provided by (used in) operating activities ............. (1,398) 5,296
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................. (687) (3,399)
Acquisition of businesses, less cash acquired .................... (25,174) (22,263)
-------- --------
Net cash used in investing activities ........................... (25,861) (25,662)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ..................................... 30,856 28,000
Payments on long-term debt ....................................... (3,301) (10,257)
Proceeds from exercise of stock options and warrants ............. -- 283
Proceeds from issuance of common stock ........................... 279 --
Direct costs related to issuance of common stock ................. (602) --
-------- --------
Net cash provided by financing activities ....................... 27,232 18,026
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS .......................... (27) (2,340)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 390 4,874
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 363 $ 2,534
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid (net of interest capitalized) ...................... $ 970 $ 391
======== ========
Income taxes paid ................................................ $ -- $ 416
======== ========
</TABLE>
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 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 program is operated.
On September 9, 1997, the Company acquired substantially all of the assets of
Abraxas Group, Inc. ("Abraxas"), a privately held, not-for-profit company based
in Pittsburgh, Pennsylvania. Abraxas, a nationally recognized leader in the
treatment of juveniles, provides residential, educational and community based
treatment services to over 1,400 youths in Pennsylvania, Ohio, Delaware and the
District of Columbia. The Company paid an aggregate purchase price of
$19,192,000 comprised of $17,917,000 in cash, $600,000 for a non-compete
agreement with the president of Abraxas and $675,000 of transaction and other
costs. The Company financed the purchase with borrowings from its revolving line
of credit under its 1997 Credit Facility (see note 3).
The acquisition costs and the estimated fair market value of the assets
acquired and liabilities assumed associated with the above mentioned
acquisitions are as follows (in thousands):
INTERVENTIONS ABRAXAS
------- -------
Net assets acquired --
Cash ............................................... $ 409 $ 482
Receivables, net ................................... 1,509 9,100
Other current assets ............................... 54 154
Property and equipment ............................. 4,577 12,174
Intangible assets .................................. -- 600
Other non-current assets ........................... -- 5
Accounts payable and accrued liabilities(546) ...... (3,323)
------- -------
Total purchase price .............................. $ 6,003 $19,192
======= =======
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<PAGE>
Both the Interventions and Abraxas acquisitions have been accounted for as
purchases; therefore, the accompanying statements of operations reflect the
results of operations since their respective acquisition dates.
The unaudited consolidated results of operations on a pro forma basis as
though the 1996 acquisitions of MidTex and Reid Center and the 1997 acquisitions
of Interventions and Abraxas had occurred as of the beginning of the Company's
1996 fiscal year are as follows (amounts in thousands, except per share data):
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1997
-------- -------
Total revenues ............................. $ 61,021 $69,121
Net income (loss) .......................... (2,499) 2,834
Earnings (loss) per share .................. (.74) .39
3. LONG-TERM DEBT
On September 9, 1997, the Company entered into a new $60 million revolving
line of credit (the "1997 Credit Facility"), which matures in 2003 and bears
interest at rates ranging from LIBOR plus 1.75% to 2.5% or prime at the
Company's option. The 1997 Credit Facility is secured by substantially all of
the Company's assets, and requires the Company to meet various financial
covenants. Commitment fees of .375% are assessed on the unused portion of the
line of credit. As of September 30, 1997, the Company had borrowings of $18.0
million outstanding under the 1997 Credit Facility.
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
On October 17, 1997, the Company completed an offering of its common stock.
Net proceeds to the Company from the sale of the 2,250,000 newly issued shares
were approximately $41.2 million. The Company used a portion of the proceeds to
repay borrowings under the 1997 Credit Facility, and will use the remainder for
future acquisitions and working capital.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company provides integrated facility development, design, construction
and operational services to governmental agencies within three areas of
operational focus: (i) secure institutional correctional and detention services;
(ii) pre-release correctional services and (iii) juvenile correctional and
detention services. The following table sets forth the number of facilities,
offender capacity and beds under contract or award at the end of the periods
shown.
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------ -------------
Facilities in operation (1) ......................... 16 39
Total offender capacity:
Residential ........................................ 3,349 6,172
Non-residential community based .................... -- 900
Total ............................................ 3,349 7,072
Beds under contract (end of period)(3) .............. 3,101 5,747
Contracted beds in operation (end of period)(3) ..... 2,866 4,161
Average occupancy based on
contracted beds in operation(2)(3) ................ 97.2% 97.5%
(1) As of September 30, 1997, the Company has 39 facilities in operation and
contracts to operate two additional facilities under development. Of the
41 facilities, 11 are non-residential community-based facilities.
(2) For any applicable facilities, includes reduced occupancy during the
start-up phase.
(3) Does not include the offender capacity from non-residential programs.
The Company derives substantially all its revenues from operating
correctional, detention and pre-release facilities for federal, state and local
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 and related employment taxes and costs, lease expense, insurance,
utilities, food, medical services, supplies and clothing. Depreciation and
amortization includes amortization of prepaid facility use costs pertaining to
the Big Spring Complex, amortization of intangible assets including goodwill,
amortization of facility start-up costs, and depreciation of buildings and other
property and equipment. General and administrative expenses consist primarily of
salaries and related overhead of the Company's corporate and administrative
personnel who provide senior management, accounting, finance, personnel,
information systems 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.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1997 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Total revenues .......................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses ...................................... 80.5 81.9 82.0 81.0
Depreciation and amortization ........................... 4.0 2.8 4.3 3.5
General and administrative expenses ..................... 16.6 6.9 15.4 7.5
----- ----- ----- -----
Income (loss) from operations ........................... (1.1) 8.4 (1.7) 8.0
Interest expense, net ................................... 20.0 0.6 11.7 0.5
----- ----- ----- -----
Income (loss) before provision for income taxes ......... (21.1) 7.8 (13.4) 7.5
Provision for income taxes .............................. 0.0 2.8 0.0 2.7
----- ----- ----- -----
Net income (loss) ....................................... (21.1) 5.0 (13.4) 4.8
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
REVENUES. Revenues increased 69.8% to $18.0 million for the three months
ended September 30, 1997 from $10.6 million for the three months ended September
30, 1996. The increase in revenues of approximately $7.4 million was due
principally to the September 1997 acquisition of Abraxas and the January 1997
acquisition of Interventions. Additionally, the Company opened a 75 bed
pre-release facility in Durham, North Carolina and a 160 bed juvenile detention
facility in Salt Lake City, Utah in February 1997, and assumed the operation of
a 240 bed adult and juvenile detention facility in Santa Fe, New Mexico in July
1997.
OPERATING EXPENSES. Operating expenses increased 72.8% to $14.8 million for
the three months ended September 30, 1997 from $8.5 million for the three months
ended September 30, 1996. The increase in operating expenses was due principally
to the September 1997 acquisition of Abraxas and the January 1997 acquisition of
Interventions as well as the opening of two new facilities in February 1997 and
the assumption of the Santa Fe, New Mexico contract in July 1997. As a
percentage of revenues, operating expenses increased to 81.9% from 80.5%. The
increase in operating expenses as a percentage of revenues is principally a
result of lower operating margins at the Santa Fe facility and Abraxas. The
Company's operating margins fluctuate depending on the relative mix of operating
contracts among the Company's three areas of operational focus and their
respective occupancies.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 19.1%
to $506,000 for the three months ended September 30, 1997 from $425,000 for the
three months ended September 30, 1996. The increase was due principally to the
depreciation of the Griffin Juvenile Facility and related assets acquired in the
January 1997 acquisition of Interventions, depreciation and amortization of
assets acquired in the September 1997 Abraxas acquisition and depreciation and
amortization of deferred start-up costs for the three new facilities which began
operations during the first nine months of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 29.8% to $1.2 million for the three months ended September 30, 1997
from $1.8 million for the three months ended September 30, 1996. General and
administrative expenses for the three months ended September 30, 1996 included a
non-recurring, non-cash charge of $870,000 in connection with options to
purchase shares of common stock granted in July 1996 to certain officers of the
Company. Excluding the non-recurring charge,
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<PAGE>
general and administrative expenses increased $346,000 or 39.3% as a result of
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, excluding the
non-recurring charge, general and administrative expenses decreased to 6.9% from
8.4% due principally to spreading fixed costs over a larger revenue base.
INTEREST. Interest expense, net of interest income, decreased to $111,000 for
the three months ended September 30, 1997 from $2.1 million for the three months
ended September 30, 1996. The decrease in net interest expense was principally
due to the $1.3 million non-recurring charge in the third quarter of 1996 to
expense deferred financing costs associated with the early retirement of
significant portions of the 1996 Credit Facility using the proceeds of the
initial public offering in October 1996 ("IPO"). Excluding the non-recurring
charge, interest expense decreased approximately $689,000, or 86.1%, as a result
of lower outstanding borrowings under the 1997 and 1996 Credit Facilities for
the respective periods.
INCOME TAXES. For the three months ended September 30, 1997, the Company
recognized a provision for income taxes at an estimated effective rate of 36%
compared to no provision for income taxes for the three months ended September
30, 1996 due to a taxable loss. The effective income tax rate applied in 1997
includes a benefit for the reversal of previously reserved deferred tax assets
resulting from prior net operating losses which are expected to be utilized in
1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
REVENUES. Revenues increased by 109.9% to $46.1 million for the nine months
ended September 30, 1997 from $21.9 million for the nine months ended September
30, 1996. The increase in revenues of $24.1 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 acquisition of
Abraxas in September 1997. Additionally, the Company opened a 75 bed pre-release
facility in Durham, North Carolina and a 160 bed juvenile detention facility in
Salt Lake City, Utah in February 1997, and assumed the operation of a 240 bed
adult and juvenile detention facility in Santa Fe, New Mexico in July 1997.
OPERATING EXPENSES. Operating expenses increased by 107.3% to $37.3 million
for the nine months ended September 30, 1997 from $18.0 million for the nine
months ended September 30, 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 acquisition of Abraxas in September 1997. Additionally, the Company opened
two new facilities in February 1997 and assumed the operations of the Santa Fe,
New Mexico contract in July 1997. As a percentage of revenues, operating
expenses decreased to 81.0% from 82.0%. The decrease in operating expenses as a
percentage of revenues is principally due to higher operating margins at the Big
Spring Complex which was acquired in July 1996 and improved occupancy of certain
facilities as compared to the prior year period. The Company's operating margins
fluctuate depending on the relative mix of operating contracts among the
Company's three areas of operational focus and their respective occupancies.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 73.8%
to $1.6 million for the nine months ended September 30, 1997 from $935,000 for
the nine months ended September 30, 1996. The increase was due principally to
the amortization of prepaid facility use costs of the Big Spring Complex
acquired in July 1996, depreciation of the Reid Center acquired in May 1996 and
the Griffin Juvenile Facility acquired in January 1997, depreciation of assets
acquired from Abraxas in September 1997 and depreciation and amortization of
deferred start-up costs of the three new facilities which commenced operation
during the first nine months of 1997. In addition, amortization costs for the
nine months ended September 30, 1997
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<PAGE>
include approximately $187,000 to expense start-up costs related to the
non-renewal of a contract as of June 30, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by 1.9% to $3.5 million for the nine months ended September 30, 1997
from $3.4 million for the nine months ended September 30, 1996. General and
administrative expenses for the nine months ended September 30, 1996 include a
$870,000 non-recurring, non-cash charge in connection with options to purchase
shares of common stock granted in July 1996 to certain officers of the Company.
Excluding the non-recurring charge, general and administrative expenses
increased $935,000, or 37.1%, as a result of 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, excluding the non-recurring charge, general and
administrative expenses decreased to 7.5% from 11.5% due principally to
spreading fixed costs over a larger revenue base.
INTEREST. Interest expense, net of interest income, decreased to $234,000 for
the nine months ended September 30, 1997 from $2.6 million for the nine months
ended September 30, 1996. Interest expense for the nine months ended September
30, 1996 included a $1.3 million non-recurring charge in the third quarter of
1996 to expense deferred financing costs associated with the early retirement of
significant portions of the 1996 Credit Facility using proceeds of the IPO.
Excluding the non-recurring charge, net interest expense decreased approximately
$1.1 million as a result of lower outstanding borrowings under the Company's
1997 and 1996 Credit Facilities for the respective periods.
INCOME TAXES. For the nine months ended September 30, 1997, the Company
recognized a provision for income taxes at an estimated effective annual rate of
36% compared to no provision for income taxes for the nine months ended
September 30, 1997 due to a taxable loss. The effective income tax rate applied
in 1997 includes a benefit for the reversal of previously reserved deferred tax
assets resulting from prior net operating losses which are expected to be
utilized in 1997.
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 and will require 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.
WORKING CAPITAL. The Company's working capital increased to $9.7 million at
September 30, 1997 from $7.7 million at December 31, 1996. Increases to working
capital include a $2.0 million cash advance from the State of Georgia for the
construction and development of the newly awarded 550 bed contract in Charlton
County, Georgia. This advance will be applied to future per diem billings to the
State of Georgia once the facility begins operating.
CASH PROVIDED BY OPERATING ACTIVITIES. The Company had net cash provided by
operating activities of $5.3 million for the nine months ended September 30,
1997. Significant sources of cash include $3.8 million of net income plus
depreciation and amortization, the $2.0 million advance from the State of
Georgia for the
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<PAGE>
Charlton County contract, and increases in accounts payable and accrued
liabilities. Significant uses of operating cash during the period include
increased accounts receivable and start-up costs for facilities under
development, and increased prepaid insurance and other items related to the
additional acquired and newly opened facilities.
CAPITAL EXPENDITURES. Capital expenditures for the nine months ended
September 30, 1997 were $3.4 million and related to construction-in-progress for
the 516 bed expansion of the Big Spring Complex and the 550 bed Charlton County
Facility, improvements and furniture and equipment at the newly opened
facilities and normal replacement of furniture and equipment at various
facilities. The Company anticipates expending an additional $26.0 million
through 1998 to complete the Big Spring Complex expansion and the development of
the Charlton County Facility, and is currently seeking to obtain additional
long-term project financing in the amount of approximately $25.0 million for
these capital expenditures.
EXISTING CREDIT FACILITIES. Under the 1997 Credit Facility, the Company has a
$60.0 million revolving line of credit, the availability of which is determined
by the Company's projected pro forma cash flow. The 1997 Credit Facility matures
in 2003 and bears interest at rates ranging from LIBOR plus 1.75% to 2.50%.
1997 EQUITY OFFERING. On October 17, the Company completed an offering of its
common stock (the "1997 Offering"). Net proceeds to the Company from the sale of
the 2,250,000 newly issued shares were approximately $41.2 million. The Company
used a portion of the proceeds to repay borrowings under the 1997 Credit
Facility, and intends to use the remainder for potential future acquisitions and
working capital.
Management of the Company believes that the cash flows anticipated to be
generated from operations, together with the credit available under the 1997
Credit Facility and the net proceeds of the 1997 Offering, will provide
sufficient liquidity for its foreseeable needs. The Company anticipates it will
need to obtain separate additional sources of financing for significant
acquisitions and construction costs related to future secure institutional
contract awards.
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 revenues.
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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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
none.
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
On September 22, 1997, the Company filed a report on Form 8-K dated
September 9, 1997 reporting the acquisition of Abraxas Group, Inc.
Amendment No. 1 to that Form 8-K with historical and pro forma
financial information was filed on November 10, 1997.
- 12 -
<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: November 14, 1997 By: /S/ DAVID M. CORNELL
--------------------
DAVID M. CORNELL
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 By: /S/ STEVEN W. LOGAN
-------------------
STEVEN W. LOGAN
Chief Financial Officer, Treasurer
and Secretary
(Principal Financial Officer)
- 13 -
<PAGE>
Cornell Corrections, Inc.
Statement Re: Computation of Per Share Earnings
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) ............................................ $(2,240) $ 902 $(2,950) $ 2,197
======= ======= ======= =======
Shares used in computing earnings (loss) per share:
Weighted average common shares and common share equivalents 3,479 7,450 3,288 7,390
Less treasury shares ...................................... (555) (555) (555) (555)
Effect of shares issuable under stock options
and warrants based on the treasury stock method ......... 650 433 650 367
------- ------- ------- -------
3,574 7,328 3,383 7,202
======= ======= ======= =======
Earnings (loss) per share ................................... $ (0.63) $ 0.12 $ (0.87) $ 0.31
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,534
<SECURITIES> 0
<RECEIVABLES> 18,923
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,964
<PP&E> 46,012
<DEPRECIATION> (1,625)
<TOTAL-ASSETS> 80,321
<CURRENT-LIABILITIES> 15,275
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 43,600
<TOTAL-LIABILITY-AND-EQUITY> 80,321
<SALES> 0
<TOTAL-REVENUES> 46,053
<CGS> 0
<TOTAL-COSTS> 42,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 356
<INCOME-PRETAX> 3,433
<INCOME-TAX> 1,236
<INCOME-CONTINUING> 2,197
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,197
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0
</TABLE>
