UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
Amendment No. 1 to Current Report on Form 8-K
Dated February 13, 1997 Reporting Event of January 31, 1997
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
January 31, 1997
CORNELL CORRECTIONS, INC.
(Exact name of registrant as specified in its charter)
1-14472
(Commission File Number)
DELAWARE 76-0433642
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
4801 WOODWAY, SUITE #100E
HOUSTON, TEXAS 77056
(Address of principal executive offices and zip code)
(713) 623-0790
(Registrants telephone number, including area code)
The undersigned registrant hereby amends the following items of
its Current Report on Form 8-K dated February 13, 1997, reporting an
event
on January 31, 1997 as set forth in the pages attached hereto:
Item 7. Financial Statements and Exhibits
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this document to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORNELL CORRECTIONS, INC.
By: /S/ STEVEN W. LOGAN
Steven W. Logan
Date: April 11, 1997 Chief Financial Officer, Treasurer
and Secretary
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Interventions Co. Audited Financial Statements
Balance Sheet as of December 31, 1996
Statement of Operations for the Year Ended December 31, 1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
(B) PRO FORMA FINANCIAL INFORMATION.
Cornell Corrections, Inc. Pro Forma Condensed Consolidated
Financial Statements (unaudited)
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1996
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year
Ended December 31, 1996
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Cornell Corrections, Inc.:
We have audited the accompanying balance sheet of Interventions Co. as of
December 31, 1996, and the related statements of operations and cash flows for
the year then ended. These financial statements are the responsibility of
Interventions Co.'s management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Interventions Co. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 19, 1997
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<PAGE>
INTERVENTIONS CO.
BALANCE SHEET--DECEMBER 31, 1996
(In Thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $696
Accounts receivable, net of allowance of $584 1,659
Prepaids and other 78
-----
Total current assets 2,433
PROPERTY AND EQUIPMENT, net 3,047
INVESTMENTS 1,298
------
Total assets $6,778
======
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $372
Notes payable 2,250
------
Total current liabilities 2,622
LONG-TERM LIABILITIES 77
CONTINGENCIES
NET ASSETS 4,079
------
Total liabilities and net assets $6,778
======
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
INTERVENTIONS CO.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In Thousands)
REVENUES:
Occupancy fees $7,168
Other income 76
------
7,244
OPERATING EXPENSES 5,608
DEPRECIATION 162
GENERAL AND ADMINISTRATIVE EXPENSES 644
------
INCOME FROM OPERATIONS 830
INTEREST EXPENSE (173)
UNREALIZED APPRECIATION FROM INVESTMENTS 227
INVESTMENT INCOME 73
------
INCOME $957
======
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
INTERVENTIONS CO.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income $ 957
Adjustments to reconcile income to net cash provided by operating
activities-
Depreciation 162
Provision for write-down of assets 11
Unrealized appreciation from investments (227)
Change in assets and liabilities-
Increase in accounts receivable (115)
Decrease in prepaids and other 134
Decrease in accounts payable and accrued liabilities (298)
Increase in long-term liabilities 77
------
Net cash provided by operating activities 701
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,717)
Purchases of investments (170)
------
Net cash used in investing activities (2,887)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 2,250
Payments on notes payable (50)
------
Net cash provided by financing activities 2,200
------
NET INCREASE IN CASH AND CASH EQUIVALENTS 14
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 682
------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 696
=====
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid during the period $ 168
=====
The accompanying notes are an integral part of this financial statement.
6
<PAGE>
INTERVENTIONS CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BUSINESS, ORGANIZATION
AND BASIS OF PRESENTATION:
Interventions Co. (Interventions), a Texas nonprofit corporation, was formed in
1991 and currently provides chemical dependency treatment services for adult
probationers for Dallas County, Texas, transitional living services for Bexar
County, Texas, youth and residential care to homeless adolescents in San Antonio
(Bexar County), Texas.
In January 1997, Cornell Corrections, Inc. (collectively with its subsidiaries,
"the Company"), acquired substantially all of the assets and liabilities of
Interventions for $6.0 million which included the assumption of $2.3 million of
notes payable and $230,000 of transaction costs. The Company provides to
governmental agencies the integrated development, design, construction and
operation of correctional facilities. The accompanying financial statements were
prepared in connection with the sale of assets to the Company.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
The financial statements of Interventions have been prepared on the accrual
basis. The significant accounting policies followed are described below.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, Interventions considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
Interventions maintains cash balances at several financial institutions in
Texas. Accounts are insured up to $100,000 by the Federal Deposit Insurance
Corporation. At December 31, 1996, the uninsured cash balances totaled $399,000.
ACCOUNTS RECEIVABLE
Accounts receivable primarily consist of receivables from Dallas County, Texas,
Bexar County, Texas, and the state of Texas.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost; donated property and equipment are
recorded at the estimated fair market value on the date of donation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Routine maintenance and repairs that do not improve
or extend the life of the respective assets are expensed as incurred.
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<PAGE>
FEDERAL INCOME TAXES
Interventions is exempt from federal income tax under Section 501(c)(3) of the
Internal Revenue Code. Interventions had no unrelated business income during the
year ended December 31, 1996. Accordingly, no provision for income taxes is made
in the accompanying financial statements.
REVENUE RECOGNITION
Occupancy fees are principally derived from billings to government agencies
which pay per diem rates based upon the number of occupant days for the period.
Revenues are recognized as services are provided.
USE OF ESTIMATES
Interventions' financial statements are prepared in accordance with generally
accepted accounting principles (GAAP). Financial statements prepared in
accordance with GAAP require the use of management estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Additionally, management estimates affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
BUSINESS CONCENTRATION
Contracts with governmental agencies account for substantially all of
Interventions' revenues.
FINANCIAL INSTRUMENTS
Interventions considers the fair value of all financial instruments not to be
materially different from their carrying values at December 31, 1996, based on
management's estimate of Interventions' ability to borrow funds under terms and
conditions similar to those of the existing debt.
EMPLOYEE BENEFIT PLAN
Eligible employees of Interventions may make voluntary contributions to a 403(b)
tax-sheltered annuity program. Interventions does not contribute to the program.
3. INVESTMENTS:
In 1996, Interventions adopted Statement of Financial Accounting Standards
(SFAS) No. 124, "Accounting for Certain Investments Held by Not-for-Profit
Organizations." Under SFAS No. 124, investments in equity securities with
readily determinable fair values and all investments in debt securities are
reported at their fair values with net unrealized appreciation and depreciation
included in the statement of operations. The effect of SFAS No. 124 on
Interventions' net assets for 1996 was an increase of $227,000 from what would
have been reported under prior accounting principles.
Cost basis for sales of investments is determined by specific identification.
Expenses relating to investment revenues, including custodial fees and
investment advisory fees, were approximately $16,000. These expenses have been
netted against investment revenues in the accompanying statement of operations.
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<PAGE>
4. PROPERTY AND EQUIPMENT:
At December 31, 1996, property and equipment consisted of the following (in
thousands):
Estimated
LIFE IN YEARS AMOUNT
Land - $ 675
Buildings and improvements 2-40 2,155
Furniture, fixtures and equipment 3-10 316
Vehicles 3 223
------
3,369
Less- Accumulated depreciation 322
------
$3,047
======
5. NOTES PAYABLE:
At December 31, 1996, Interventions had a $1,000,000 note payable to a bank. The
note is secured by an investment account held at a financial institution and
requires monthly interest payments at the prime interest rate, 8.25 percent at
December 31, 1996. Interventions also had a $1,250,000 note payable to a third
party in connection with the purchase of property in 1996. The note accrues
interest at 10 percent, payable monthly, and is secured by the deed of trust of
the related property. In connection with the Company's acquisition of
Interventions, both notes and all accrued interest were repaid in January 1997.
6. LEASE OBLIGATIONS:
Interventions leases certain administrative and program facilities under
operating lease agreements that expire September 30, 1997. Future minimum lease
obligations are approximately $28,000 through September 1997. Interventions
incurred rent expense of approximately $31,000 in 1996.
7. CONTINGENCIES:
Interventions performed services under contracts with the Texas Commission on
Alcohol and Drug Abuse (TCADA) and the Private Industry Council of Dallas (PIC),
which are governed by various rules and regulations of the respective agencies.
Costs charged to the respective programs are subject to audit and adjustment by
the agencies; therefore, to the extent that Interventions has not complied with
the rules and regulations governing the contracts, if any, refunds of any funds
received may be required and the collectibility of any related receivable at
December 31, 1996, may be impaired.
During 1995 and 1996, the state of Texas conducted an audit of TCADA and the
contractors which it funded during the years 1993 through 1995. Statewide
allegations of improper costs charged to TCADA programs are currently being
disposed of in arbitration while TCADA has been in conservatorship. During the
audit of Interventions, its former management company, BHS Management Corp.
(BHS), did not provide all documentation requested by the state auditors.
Subsequent to receiving the summary of findings and questioned costs,
Interventions obtained and presented information to satisfy audit questions
except for $245,000 of management fees charged by BHS to the programs and
$35,000 of other costs. Interventions has recorded a reserve for this $280,000
and is seeking collection of these amounts from TCADA or, in the alternative,
through recovery by claim against BHS or its insurance carrier.
Interventions is not aware of any other contingent liabilities relating to
compliance with the rules and regulations governing the respective contracts;
therefore, no provision has been recorded in the accompanying financial
statements for such contingencies.
9
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as of
December 31, 1996 and the unaudited pro forma condensed consolidated statement
of operations for the year ended December 31, 1996, reflect the consolidated
financial position and results of operations, respectively, of Cornell
Corrections, Inc. and subsidiaries ("Company") as if the acquisition of the
assets of Interventions Co. by Cornell Corrections of Texas, Inc., a wholly
owned subsidiary of the Company, had occurred, in the case of the balance sheet,
on December 31, 1996, and in the case of the statement of operations, on January
1, 1996.
The pro forma financial statements are based on certain assumptions and
preliminary estimates which are subject to change. These statements do not
purport to be indicative of the consolidated results of operations of the
Company that might of occurred, nor are they necessarily indicative of the
Company's results of operations in the future.
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<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
CORNELL PRO FORMA
CORRECTIONS, INC. INTERVENTIONS CO. ADJUSTMENTS PRO FORMA
------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................. $ 4,874 $ 696 $ (3,773)(1) $ 1,339
(458)(2)
Accounts receivable, net.................. 4,976 1,659 (22)(2) 6,613
Other current assets...................... 2,583 78 -- 2,661
------- ------- --------- --------
Total current assets.................. 12,433 2,433 (4,253) 10,613
Property and equipment, net............... 26,074 3,047 1,452 (3) 30,573
Goodwill, net............................. 5,864 -- -- 5,864
Other assets.............................. 2,453 1,298 (1,298)(2) 2,453
------- ------- --------- --------
Total assets........................ $46,824 $ 6,778 $ (4,099) $ 49,503
======= ======= ========= ========
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities.. $ 4,403 $ 372 $ 230 (4) $ 5,005
Current portion of long-term debt......... 283 2,250 (250)(5) 2,283
------- ------- --------- --------
Total current liabilities............. 4,686 2,622 (20) 7,288
Long-term, net of current portion......... 462 -- -- 462
Other long-term liabilities............... 625 77 -- 702
Total equity.............................. 41,051 4,079 (4,079)(6) 41,051
------- ------- --------- --------
Total liabilities and stockholders'
equity.............................. $46,824 $ 6,778 $ (4,099) $ 49,503
======= ========= =========== ============
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
condensed consolidated financial statement.
11
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------
CORNELL PRO FORMA
CORRECTIONS, INC. INTERVENTIONS CO. ADJUSTMENTS PRO FORMA
------- ------- --------- --------
<S> <C> <C> <C> <C>
REVENUES:
Occupancy fees........................ $31,877 $ 7,168 $ -- $ 39,045
Other income.......................... 450 76 -- 526
------- ------- --------- --------
32,327 7,244 -- 39,571
OPERATING EXPENSES........................ 26,038 5,608 644 (7) 32,290
DEPRECIATION AND AMORTIZATION............. 1,390 162 (18)(8) 1,534
GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 4,560 644 (644)(7) 4,560
------- ------- --------- --------
INCOME FROM OPERATIONS.................... 339 830 18 1,187
INTEREST EXPENSE.......................... 2,810 173 (25)(9) 2,958
INVESTMENT INCOME......................... (167) (300) 300(10) (167)
------- ------- --------- --------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES...................... (2,304) 957 (257) (1,604)
PROVISION FOR INCOME TAXES................ 75 -- 73(11) 148
------- ------- --------- --------
NET INCOME (LOSS)......................... $(2,379) $ 957 $ (330) $ (1,752)
======= ======= ========= ========
LOSS PER SHARE............................ $ (.53) $ (.39)
======= ========
NUMBER OF SHARES USED IN PER SHARE
CALCULATION........................... 4,466 4,466
======= ========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
condensed financial statement.
12
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. ACQUISITION OF INTERVENTIONS CO.
On January 31, 1997, Cornell Corrections, Inc. (the "Company") acquired
substantially all the assets and liabilities 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 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 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 Company financed the purchase with $2,000,000 of borrowings under the
multiple advance term loan of the Company's 1996 Credit Facility, as amended,
and the remainder with cash. The multiple advance term loan bears interest at
prime plus 1.75%. The 1996 Credit Facility matures and all amounts, if any,
outstanding thereunder will be due on December 31, 1997. The 1996 Credit
Facility is secured by all of the Company's assets, including the stock of all
the Company's subsidiaries.
2. PRO FORMA ADJUSTMENTS AND MANAGEMENT ASSUMPTIONS
The pro forma balance sheet assumes the acquisition had occurred on December
31, 1996 and the pro forma statement of operations assumes the acquisition had
occurred on January 1, 1996. Permitted pro forma adjustments include only the
effects of events directly attributable to a transaction that are factually
supportable and expected to have a continuing impact. These pro forma financial
statements should be read in conjunction with the historical financial
statements and notes thereto of the Company and Interventions as filed with the
Securities and Exchange Commission.
The following pro forma adjustments and management assumptions are reflected
in the pro forma financial statements:
BALANCE SHEET
(1) Record the reduction in cash for the cash portion of the purchase price
and for $250,000 for the net reduction of indebtedness.
(2) Record adjustments to eliminate Interventions' investments and receivable
not acquired.
(3) Record the estimated fair value of property and equipment acquired.
(4) Record the transaction costs payable resulting from the acquisition.
(5) Record the net reduction of indebtedness for the repayment of
Interventions' notes payable totaling $2,250,000 less the borrowings of
$2,000,000 to fund the acquisition.
(6) Record the elimination of net assets of Interventions in connection with
the acquisition.
13
<PAGE>
STATEMENT OF OPERATIONS
(7) Record reclassification of Interventions' general and administrative
expenses to operating expenses.
(8) Record adjustments to depreciation for revised basis in depreciable
assets.
(9) Record adjustment to reduce interest expense for reduction in
indebtedness.
(10) Record adjustment to eliminate investment income earned on investments
not acquired.
(11) Record adjustments to record income tax effects of the foregoing
adjustments.
14
