UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
Amendment No. 1 to Current Report on Form 8-K
Dated September 22, 1997 Reporting Event of September 9, 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)
September 9, 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 September 22, 1997, reporting an event
on September 9, 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: November 10, 1997 Chief Financial Officer,
Treasurer and Secretary
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Abraxas Group Audited Combined Financial Statements
Report of Independent Auditors
Combined Balance Sheets as of June 30, 1997 and 1996
Combined Statements of Activities for the Years Ended June 30,
1997 and 1996 Combined Statements of Cash Flows for the Years
Ended June 30, 1997 and 1996 Notes to Combined Financial
Statements
(B) PRO FORMA FINANCIAL INFORMATION.
Cornell Corrections, Inc. Unaudited Pro Forma Condensed Consolidated
Financial Statements
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 1997
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1996
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 1997
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
2
<PAGE>
Report of Independent Auditors
The Board of Directors
Abraxas Group
We have audited the combined financial statements listed in the accompanying
table of contents of the Abraxas Group (see Note 1) at June 30, 1997 and 1996,
and for the years then ended. These financial statements are the responsibility
of the Abraxas Group's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements listed in the accompanying table of
contents present fairly, in all material respects, the combined financial
position of the Abraxas Group at June 30, 1997 and 1996, and the combined
results of their operations, changes in net assets, and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
3
<PAGE>
Abraxas Group
Combined Balance Sheets
JUNE 30
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents, including assets whose
use is limited ($736,693 in 1997 and $885,935 in
1996)............................................ $ 2,343,980 $ 1,022,602
Accounts receivable, less allowance for doubtful
accounts of $1,797,891 in 1997 and $1,525,774 in
1996............................................. 8,288,218 8,102,013
Accounts receivable--affiliate ................... 109,645 --
Food and supplies inventories .................... -- 180,195
Other current assets ............................. 92,668 93,005
----------- -----------
Total current assets ............................... 10,834,511 9,397,815
Property and equipment:
Land ............................................. 1,002,806 1,002,806
Buildings ........................................ 13,834,153 13,950,910
Mobile homes ..................................... 19,590 19,590
Vehicles ......................................... 271,622 289,933
Equipment ........................................ 2,263,647 1,979,549
Furniture and fixtures ........................... 1,302,870 1,281,957
Leasehold improvements ........................... 752,453 732,825
----------- -----------
19,447,141 19,257,570
Less accumulated depreciation .................... 7,067,303 6,217,454
----------- -----------
Net property and equipment ......................... 12,379,838 13,040,116
Other assets ....................................... 2,260,927 2,252,578
=========== ===========
$25,475,276 $24,690,509
=========== ===========
4
<PAGE>
JUNE 30
1997 1996
----------- -----------
LIABILITIES AND UNRESTRICTED NET ASSETS Current liabilities:
Accounts payable ............................... $ 437,396 $ 139,439
Accounts payable--affiliate .................... 138,150 --
Demand notes payable to bank ................... 2,700,000 2,330,000
Accrued salaries and wages ..................... 1,870,448 2,446,584
Accrued interest payable ....................... 244,240 263,893
Other accrued expenses ......................... 1,061,285 622,205
Long-term obligations due within one year ...... 454,227 375,997
----------- -----------
Total current liabilities ........................ 6,905,746 6,178,118
Revenue bonds, less unamortized bond
discount ($146,550 in 1997 and $153,522 in
1996) 11,243,450 11,491,478
Other borrowings ................................. 1,121,038 1,235,132
----------- -----------
12,364,488 12,726,610
Net assets:
Unrestricted ................................... 6,020,116 5,559,163
Temporarily restricted ......................... 184,926 226,618
----------- -----------
6,205,042 5,785,781
----------- -----------
$25,475,276 $24,690,509
=========== ===========
SEE ACCOMPANYING NOTES.
5
<PAGE>
Abraxas Group
Combined Statements of Activities
YEAR ENDED JUNE 30
1997 1996
------------ ------------
UNRESTRICTED NET ASSETS:
Public and private support:
Governmental health and welfare programs ..... $ 5,172,854 $ 5,424,549
Commonwealth of Pennsylvania Act 30 funds .... 2,401,567 2,386,225
Fees for service--government ................. 24,930,840 21,231,906
Contributions:
Unrestricted--cash ......................... 77,888 263,012
Unrestricted--in-kind ...................... 207,464 380,028
Assets released from restrictions .......... 101,692 33,759
------------ ------------
Total support ................................... 32,892,305 29,719,479
Revenues:
Interest ..................................... 143,846 164,106
Administrative and rental fees charged to
affiliate .................................... -- 1,417,404
Miscellaneous ................................ 34,989 10,122
------------ ------------
Total revenues .................................. 178,835 1,591,632
------------ ------------
Total support and revenues ...................... 33,071,140 31,311,111
Expenses:
Program services:
Operating .................................. 22,752,918 21,183,797
Educational--Act 30 ........................ 2,507,693 2,458,759
------------ ------------
Total program ................................... 25,260,611 23,642,556
Management and general ....................... 7,349,576 7,346,819
------------ ------------
Total expenses .................................. 32,610,187 30,989,375
------------
Excess of support and revenues over expenses .. 460,953 321,736
Other changes in unrestricted net assets:
Distribution to affiliate, net ............... -- (2,314,288)
------------ ------------
Increase (decrease) in unrestricted net assets .. 460,953 (1,992,552)
Temporarily restricted assets:
Contributions ................................. 60,000 243,519
Assets released from restrictions ............. (101,692) (33,759)
------------ ------------
(Decrease) increase in temporarily restricted net
assets .......................................... (41,692) 209,760
------------ ------------
Increase (decrease) in net assets ............... 419,261 (1,782,792)
Beginning of year ............................... 5,785,781 7,568,573
------------ ------------
End of year ..................................... $ 6,205,042 $ 5,785,781
============ ============
SEE ACCOMPANYING NOTES.
6
<PAGE>
Abraxas Group
Combined Statements of Cash Flows
YEAR ENDED JUNE 30
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Increase (decrease) in net assets .................. $ 419,261 $(1,782,792)
Distribution to affiliate .......................... -- 2,484,280
Adjustments to reconcile increase (decrease)
in net assets to net cash provided
by operating activities:
Depreciation .................................... 1,027,623 1,000,678
Amortization .................................... 220,226 220,226
Bad debt provision .............................. 272,117 289,628
Increase in value of investment securities ...... (17,280) (17,280)
Loss on sale of assets .......................... 56,808 --
Increase in accounts receivable ................. (458,322) (1,488,298)
Decrease in food and supplies inventory ......... 180,195 76,203
Decrease in other current assets ................ 337 68,506
Increase (decrease) in accounts payable ......... 297,957 (1,234,435)
(Decrease) increase in accrued salaries and wages (576,136) 729,612
(Decrease) increase in accrued interest payable . (19,653) 10,750
Increase in other accrued expenses .............. 439,080 209,783
----------- -----------
Total adjustments .................................. 1,422,952 (134,627)
----------- -----------
Net cash provided by operating activities .......... 1,842,213 566,861
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ................ (405,522) (545,945)
Proceeds from sale of assets ....................... 66,500 --
Increase in accounts receivable--affiliate, net .... (109,645) (577,330)
(Decrease) increase in other assets ................ (204,321) 295,107
----------- -----------
Net cash used by investing activities .............. (652,988) (828,168)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in accounts payable--affiliates 138,150 (100,455)
Borrowings under line of credit .................... 370,000 --
Repayments on line of credit ....................... -- (370,000)
Payments on other borrowings ....................... (135,997) (123,751)
Payments on revenue bonds .......................... (240,000) (230,000)
----------- -----------
Net cash provided (used) by financing activities ... 132,153 (824,206)
Net increase (decrease) in cash and cash equivalents 1,321,378 (1,085,513)
Cash and cash equivalents, beginning of year ....... 1,022,602 2,108,115
----------- -----------
Cash and cash equivalents, end of year ............. $ 2,343,980 $ 1,022,602
=========== ===========
Cash paid during the year for interest ............. $ 942,231 $ 1,241,479
=========== ===========
SEE ACCOMPANYING NOTES.
7
<PAGE>
Abraxas Group
Notes to Combined Financial Statements
June 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying financial statements have been prepared to present the combined
financial position and the combined results of operations for The Abraxas
Foundation, Inc. (TAF), The Abraxas Group, Inc. (TAG), Abraxas Foundation of
Ohio, Inc. (TAFO), and Foundation for Abraxas (FFA) (collectively, the Group).
Effective April 30, 1997, the Board of Directors approved the sale of the Group
to Cornell Corrections, Inc. for $18,083,250 (subject to certain potential,
prospective adjustments). This transaction is to be consummated on September 9,
1997. The amounts included in the accompanying financial statements are
presented on a historical basis and do not give effect to the acquisition.
TAF, incorporated in 1973, is a Pennsylvania nonprofit membership corporation
which operates rehabilitation, training, and educational facilities, as an
alternative to incarceration, primarily for youthful offenders of the criminal
laws, the majority of whom have a diagnosis of drug or alcohol abuse.
Substantially all its support results from annual fee for service contracts with
the Commonwealth of Pennsylvania and various county governmental units. TAG,
incorporated in 1983 as a Pennsylvania nonprofit membership corporation, is
charged with the responsibilities of coordinated long-range planning, and
ownership and management of the property and equipment for the entire Abraxas
Group. TAFO, incorporated in 1992, is an Ohio nonprofit membership corporation
which operates rehabilitation, training, and educational facilities as an
alternative to incarceration for youthful offenders of the criminal laws who
have a diagnosis of drug or alcohol abuse. FFA, incorporated in 1983 as a
Pennsylvania nonprofit membership corporation, is dedicated to the active
solicitation of funds for the benefit of its affiliates.
Since the majority of the Group's funding is derived from governmental sources,
such amounts are susceptible to changes in governmental spending patterns, which
are not highly predictable over the long term.
TAG is the parent company of TAF and TAFO by virtue of its control as the sole
member of those corporations. FFA is a "brother-sister" organization to TAG.
TAG is also the parent company of Abraxas Foundation of West Virginia, Inc.
(WV). Until April 1996, WV operated rehabilitation and training facilities as
an alternative to incarceration for youthful offenders of the law. Since June
1995, WV operated its facilities under a provisional
8
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ORGANIZATION (CONTINUED)
license with the Department of Health and Human Resources which was to expire on
May 31, 1996. In March 1996, WV agreed to let its license expire by the end of
its term and to cease doing business in the state of West Virginia; WV
operations were discontinued in April 1996. Management is presently completing
the business affairs of WV, which includes negotiating the satisfaction of
remaining trade payables. Until agreements are reached with its vendors,
management is unable to determine WV's actual cash requirements. However, it is
possible that any shortfall in cash available to satisfy WV's trade payables
could become the responsibility of the Group. Management cannot presently
estimate the amount of shortfall, if any, that could result from resolution of
this matter. The accompanying financial statements do not include the accounts
of WV since this entity is not being purchased in connection with the sale
transaction described above.
BASIS OF PRESENTATION
The combined financial statements are presented on the accrual basis of
accounting for nonprofit organizations. All significant intercompany
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, the Group considers all highly
liquid investments, purchased with a maturity of three months or less, to be
cash equivalents. Also included in cash at June 30, 1997 and 1996, respectively,
is approximately $737,000 and $886,000 restricted primarily for the construction
of certain capital projects and debt service requirements.
PROPERTY AND EQUIPMENT
Assets acquired are stated at cost; donated assets are stated at the estimated
fair value at the date of the gift. Depreciable assets are depreciated over
their estimated useful lives on the straight-line method.
9
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONTRIBUTIONS
Unconditional promises to give cash and other assets to members of the Group are
reported at fair value at the date the promise is received. Contributions,
whether cash or in-kind, are generally recorded by the entity whose fundraising
efforts resulted in the receipt of the gift. FFA retains a portion of its
unrestricted cash contributions to defray operating expenses; the remainder is
contributed to TAF, TAFO, WV, or TAG. Contributions from major fundraising
campaigns undertaken by FFA and restricted as to their ultimate use or purpose
are initially recorded by FFA as temporarily restricted net assets, and then
transferred to TAG (if restricted to the purchase of property and equipment or
TAG's operating expenses) or TAF or TAFO (if restricted to certain programs or
types of operating expenses).
INCOME TAXES
Members of the Group are exempt from federal income taxes under Section 501(a)
of the Internal Revenue Code (the Code) and are public charities under Section
509(a) of the Code. Contributions to members of the Group are deductible under
Section 170(a) of the Code.
RISKS AND UNCERTAINTIES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amount of assets and liabilities recorded in the
balance sheet. Estimates also affect the reported amounts of revenue and
expenses and disclosures included in the financial statements. Actual results
could differ from those estimates.
Included in accounts receivable at June 30, 1997 and 1996, respectively, is
approximately $2,158,000 and $2,053,000 from the Pennsylvania Department of
Education related to TAF's school programs. TAF is reimbursed for these programs
by the Department of Education based upon its actual direct costs plus a
percentage for allowable indirect costs. Historically, the Department of
Education has disallowed certain costs in connection with its annual audit. TAF
has filed appeals with the Department of Education for each year audited, which
includes each school year in the period from July 1, 1989 through June 30, 1996.
At June 30, 1997, accounts receivable from the Department of Education in excess
of the related allowance is $589,000 for the years under appeal. The ultimate
outcome of these appeals is uncertain, however in the opinion of management,
such resolution will not have a material effect on the Group.
10
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. IN-KIND CONTRIBUTIONS
Contributions for the years ended June 30, 1997 and 1996 include approximately
$207,000 and $380,000, respectively, of in-kind donations consisting of various
goods, services, food, material, supplies, furniture, fixtures, and equipment.
In-kind contributions are recorded at management's estimate of fair market
value.
3. OTHER LONG-TERM ASSETS
In 1997 and 1996, respectively, other long-term assets include bond issuance
costs of approximately $528,000 and $552,000, U.S. Treasury securities of
approximately $205,000 and $187,000, which serve as collateral under the terms
of TAG's mortgage payable obligation described in Note 5, and debt service
reserve funds of approximately $1,200,000 in both years.
4. DEMAND NOTES PAYABLE
At June 30, 1997 and 1996, TAG's demand notes payable consists of the following:
1997 1996
---------- -----------
Line of credit of $2,700,000 to be used for
operating purposes. Interest is at the
bank's prime rate plus .25% (8.75% at
June 30, 1997 and 8.5% at June 30,
1996). The line is secured by a
pledge of accounts receivable. $2,700,000 $2,330,000
The line of credit expired on November 30, 1996 but was extended to June 1997.
On June 25, 1997, TAG, TAF, and TAFO executed a new line of credit agreement
which provides a $2,700,000 line of credit and includes a payment-on-demand
feature.
5. LONG-TERM OBLIGATIONS
On July 7, 1993, the Jenks Township Municipal Authority sold $12,330,000 of
Abraxas Group, Inc. Revenue Bonds, Series of 1993 (the Bonds). The Bonds were
issued to pay the cost of certain capital projects, refinance existing long-term
debt, and provide needed working capital for members of the Obligated Group
(includes TAF, TAG, and TAFO). The Bonds mature in
11
<PAGE>
5. LONG-TERM OBLIGATIONS (CONTINUED)
amounts increasing from $255,000 due on April 1, 1998 to $1,065,000 due on April
1, 2018, including mandatory sinking fund redemption requirements through April
1, 2017. The Bonds have varying interest rates ranging from 5% to 8%.
Principal and interest payments are the responsibility of the Obligated Group
under a Loan and Trust Agreement dated as of June 1, 1993, as amended, by and
among Jenks Township Municipal Authority, the Obligated Group and Integra Trust
Company, National Association, the Trustee. Effective September 1, 1995, PNC
Bank was named successor trustee. The Bonds are secured solely by the gross
receipts of the Obligated Group. At June 30, 1997 and 1996, the bond trustee
held approximately $2,100,000, primarily in debt service reserve and
construction and acquisition funds.
Other borrowings consist of:
1997 1996
---------- ----------
Rental Housing Development and Improvement Program loan
through the Urban Redevelopment Authority of
Pittsburgh. The loan consists of three notes due
monthly beginning September 1998 through August 2025
in varying amounts. The notes are noninterest-bearing $ 551,988 $ 551,988
Mortgage payable with $3,853 due monthly, including
interest at 8.5%. The unpaid principal and interest
payment are due August 1, 2007 ...................... 477,236 482,564
Promissory note due in its entirety on June 1, 1998 plus
accrued interest at 5% per annum. The note is secured
by real property ..................................... 100,000 100,000
Equipment and vehicle leases ........................... 191,041 236,577
---------- ----------
1,320,265 1,371,129
Less current portion ................................... 199,227 135,997
---------- ----------
$1,121,038 $1,235,132
========== ==========
12
<PAGE>
5. LONG-TERM OBLIGATIONS (CONTINUED)
Future minimum payments for all long-term obligations as of June 30, 1997 are as
follows:
REVENUE OTHER
YEAR ENDING JUNE 30 BONDS BORROWINGS TOTAL
- -------------------------------------------------------------------------------
1998 .................................. $ 1,151,188 $ 282,326 $ 1,433,514
1999 .................................. 1,151,398 110,054 1,261,452
2000 .................................. 1,150,198 74,739 1,224,937
2001 .................................. 1,147,100 74,739 1,221,839
2002 .................................. 1,151,100 57,545 1,208,645
Thereafter ............................ 18,386,097 1,153,948 19,540,045
----------- ---------- -----------
Total long-term obligation payments ... 24,137,081 1,753,351 25,890,432
Less amount representing interest and
discount .............................. 12,638,631 433,086 13,071,717
----------- ---------- -----------
Present value of net payments ......... 11,498,450 1,320,265 12,818,715
Less current portion .................. 255,000 199,227 454,227
=========== ========== ===========
Long-term obligations ................. $11,243,450 $1,121,038 $12,364,488
=========== ========== ===========
Interest cost incurred during fiscal 1997 and 1996 was approximately $1,185,000
and $1,268,000, respectively.
6. COMMITMENTS
Members of the Group lease certain office space and facilities, automobiles,
computers, and office equipment under operating leases, which have cancelable
and noncancelable lease terms of three to ten years. Total rent expense was
approximately $947,000 and $849,000 in 1997 and 1996, respectively.
13
<PAGE>
6. COMMITMENTS (CONTINUED)
Future minimum rental payments applicable to the noncancelable operating leases
described above are as follows at June 30, 1997:
ANNUAL
FISCAL YEAR RENTALS
- ------------- ------------
1998 ................................................ $ 868,808
1999 ................................................ 676,227
2000 ................................................ 472,547
2001 ................................................ 392,815
2002 ................................................ 281,615
Thereafter .......................................... 237,728
----------
$2,929,740
==========
7. DISTRIBUTION TO AFFILIATE
In April 1996, WV ceased operations (Note 1) and subsequently negotiated a
settlement with the West Virginia Department of Health and Human Services
relative to various disputes involving payments for Medicaid services. As part
of that settlement, WV agreed to not use any of the funds received from the
state to liquidate payables to its affiliates. Accordingly, the board of
directors passed a resolution authorizing a distribution to WV equal to the
receivable balance at June 30, 1996. The distribution is reflected in the
accompanying statement of activities as an other change in unrestricted net
assets.
8. PENSION PLAN
Members of the Group have provided a defined contribution pension plan for all
full-time employees with one or more years of service. Employer contributions
are based upon defined percentages of eligible participants' salaries and
totaled approximately $634,000 in 1997 and $516,000 in 1996.
9. OTHER COMMITMENTS
During 1997, it was determined that the Group was delinquent in complying with
certain governmental reporting requirements related to various employee benefit
plans. Management has estimated maximum potential penalties totaling
approximately $155,000 related to this matter. The Group has requested relief
from these penalties. Due to the historic pattern of the government agency
granting at least some relief from such penalties, but at widely varying levels,
management is unable to estimate the probable amount of settlement and,
accordingly, no loss has been recorded in the accompanying financial statements.
14
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as of
June 30, 1997 and the unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1996 and for the six months ended
June 30, 1997 reflect the consolidated financial position and results of
operations, respectively, of Cornell Corrections, Inc. and its subsidiaries
("the Company") as if the acquisition of Abraxas by the Company had occurred, in
the case of the balance sheet, on June 30, 1997, and, in the case of the
statements of operations, on January 1, 1996. In addition, the unaudited pro
forma condensed consolidated statements of operations for the year ended
December 31, 1996 and for the six months ended June 30, 1997 reflect the results
of operations as if the Company's initial public offering in October 1996 and
the acquisitions by the Company in 1996 and the acquisition of Interventions in
1997 had occurred on January 1, 1996. These statements do not purport to be
indicative of the consolidated results of operations of the Company that might
have been obtained had these events actually then occurred or of the Company's
future results.
The unaudited pro forma condensed consolidated financial statements are based
on certain assumptions and estimates which are subject to change.
15
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------- PRO FORMA
THE PRO FORMA FOR THE
COMPANY ABRAXAS ADJUSTMENTS ACQUISITION
------- -------- -------- -------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ................ $ 1,579 $ 1,607 $ -- $ 3,186
Receivables, net ......................... 8,383 8,398 -- 16,781
Other current assets ..................... 3,071 829 (737)(1) 3,163
------- -------- -------- -------
Total current assets .................. 13,033 10,834 (737) 23,130
Property and equipment, net .............. 31,743 12,380 687 (2) 44,810
Intangibles .............................. 5,694 -- 600 (3) 6,294
Other assets ............................. 2,812 2,261 (2,261)(1) 2,812
------- -------- -------- -------
Total assets ........................ $53,282 $ 25,475 $ (1,711) $77,046
======= ======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities . $ 5,432 $ 3,752 $ 1,012 (4) $10,196
Current portion of long-term debt ........ 2,283 3,154 (3,154)(5) 283
-- -- (2,000)(6) --
------- -------- -------- -------
Total current liabilities ........... 7,715 6,906 (4,142) 10,479
Other long-term liabilities .............. 2,721 -- -- 2,721
Long-term debt, excluding current portion 309 12,364 (12,364)(5) 21,309
-- -- 2,000 (6) --
-- -- 19,000 (7) --
Stockholders' equity ..................... 42,537 6,205 (6,205)(8) 42,537
------- -------- -------- -------
Total liabilities and stockholders' equity $53,282 $ 25,475 $ (1,711) $77,046
======= ======== ======== =======
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated balance
sheet.
16
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS,
EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------------
THE REID INTER- PRO FORMA
COMPANY MIDTEX CENTER VENTIONS ABRAXAS ADJUSTMENTS PRO FORMA
-------- ------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues .............................. $ 32,327 $ 8,603 $1,131 $ 7,244 $ 31,080 $ -- $ 80,385
Operating expenses .................... 26,038 5,774 997 5,608 23,543 5,359(1) 67,927
500(2)
108(3)
Depreciation and
amortization ....................... 1,390 407 22 162 1,316 (866)(4) 2,387
60 (5)
(18)(6)
(97)(7)
11 (8)
General and administrative
expenses ........................... 4,560 672 -- 644 5,054 (5,359)(1) 5,571
-------- ------- ------ ------- -------- ------- --------
Income from operations ................ 339 1,750 112 830 1,167 302 4,500
Interest expense ...................... 2,810 843 -- 173 1,226 939 (9) 1,671
(1,281)(10) --
(3,039)(11) --
Interest income ....................... (167) (14) -- (300) -- 300 (12) (181)
-------- ------- ------ ------- -------- ------- --------
Income (loss) before
provision for income
taxes .............................. (2,304) 921 112 957 (59) 3,383 3,010
Provision for income taxes ............ 75 -- -- -- -- 1,129 (13) 1,204
-------- ------- ------ ------- -------- ------- --------
Net income (loss) ..................... $ (2,379) $ 921 $ 112 $ 957 $ (59) $ 2,254 $ 1,806
======== ======= ====== ======= ======== ======= ========
Earnings (loss) per share ............. $ (.53) $ .25
======== ========
Number of shares used in
per share computation .............. 4,466 7,119
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
17
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA
THE PRO FORMA FOR THE
COMPANY ABRAXAS ADJUSTMENTS ACQUISITION
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Revenues ............................... $ 28,041 $17,124 $ -- $ 45,165
Operating expenses ..................... 22,556 13,060 1,860 (1) 37,726
-- -- 250 (2) --
Depreciation and amortization .......... 1,120 601 (376)(4) 1,375
-- -- 30 (5) --
General and administrative expenses .... 2,218 2,359 (1,860)(1) 2,717
-------- ------- ------- --------
Income from operations ................. 2,147 1,104 96 3,347
Interest expense ....................... 209 606 314 (9) 1,129
Interest income ........................ (86) (86)
-------- ------- ------- --------
Income before provision for income taxes 2,024 498 (218) 2,304
Provision for income taxes ............. 729 -- 100(13) 829
-------- ------- ------- --------
Net income ............................. $ 1,295 $ 498 $ (318) $ 1,475
======== ======= ======= ========
Earnings per share ..................... $ .18 $ .21
======== ========
Number of shares used in per share
computation ......................... 7,139 7,139
======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
18
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. ACQUISITION OF ABRAXAS GROUP, INC.
On September 9, 1997, Cornell Corrections, Inc. (the "Company") acquired
substantially all of the assets (the "Acquisition") of The Abraxas Group, Inc.
and four related entities (collectively "Abraxas"). The Acquisition was
completed pursuant to an Asset Purchase Agreement dated as of August 14, 1997 by
and between the Company and Abraxas. The Company paid an aggregate purchase
price of $19.2 million. The Company financed the purchase with $19.0 million of
borrowings from the revolving line of credit under its credit facility with ING
(U.S.) Capital Corporation. The Acquisition is being treated as a purchase for
accounting purposes.
Abraxas was a non-profit provider of seven residential and eleven
non-residential community-based juvenile programs serving approximately 1,400
juvenile offenders throughout Pennsylvania, Ohio, Delaware and the District of
Columbia.
2. PRO FORMA ADJUSTMENTS AND MANAGEMENT ASSUMPTIONS
The pro forma balance sheet assumes the Acquisition had occurred on June 30,
1997 and the pro forma statement of operations assumes the Acquisition had
occurred on January 1, 1996. These pro forma financial statements should be read
in conjunction with the historical financial statements and notes thereto of the
Company 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) Records an adjustment to eliminate a reserve fund and other assets not
acquired in the Acquisition.
(2) Records a net increase in the carrying value of Abraxas property and
equipment to estimated fair value.
(3) Records the cost of a non-compete agreement with the President of Abraxas.
(4) Records Acquisition related liabilities.
(5) Records the elimination of Abraxas current and non-current debt which was
not assumed by the Company in the Acquisition.
(6) Records the reclassification of the Company's current portion of long-term
debt to long-term debt as a result of refinancing amounts due under the
1996 Credit Facility with the 1997 Credit Facility.
(7) Records the increase in long-term debt related to the financing of the
Acquisition.
(8) Records the elimination of net assets prior to the Acquisition.
19
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
STATEMENTS OF OPERATIONS
(1) Records reclassification of general and administrative expenses for
Abraxas, Interventions and MidTex to operating expenses to conform to the
Company's policy.
(2) Records an adjustment to operating expenses to reflect estimated property
taxes for land and buildings acquired from Abraxas which were tax-exempt
prior to the Acquisition.
(3) Records an adjustment to operating expenses to reflect annual payments in
lieu of property taxes to the City of Big Spring resulting from the
acquisition of substantially all the assets of MidTex.
(4) Records adjustments to depreciation expense for revised basis in depreciable
assets for Abraxas.
(5) Records amortization expense of $60,000 for the year ended December 31,
1996 and $30,000 for the six months ended June 30, 1997 for the non-compete
agreement with the President of Abraxas.
(6) Records adjustments to depreciation expense for revised basis in
depreciable assets for Interventions.
(7) Records adjustments to depreciation and amortization for MidTex.
(8) Records adjustments to depreciation expense for the revised basis in
depreciable assets for the Reid Center.
(9) Records additional interest expense for the year ended December 31, 1996 on
bank borrowings of $50.8 million incurred to consummate the Abraxas,
Interventions, MidTex and Reid Center acquisitions and additional interest
expense for the six months ended June 30, 1997 on bank borrowings of $19.0
million incurred to consummate the Acquisition based on a stated interest
rate of 8.00%, plus amortization of debt issuance costs incurred under the
terms of the 1997 Credit Facility.
(10) Records an adjustment to reverse a $1.3 million non-recurring charge in
1996 to expense deferred financing costs associated with the 1996 Credit
Facility.
(11) Records a reduction in interest expense of $3.0 million to reduce assumed
indebtedness with proceeds of $38.0 million from the IPO.
(12) Records an adjustment to eliminate investment income earned on investments
not acquired in the Interventions acquisition.
(13) Records adjustments to record the income tax effects of the foregoing
adjustments.
