UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
Amendment No. 1 to Current Report on Form 8-K
Dated January 21, 1998 Reporting Event of January 6, 1998
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 6, 1998
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 January 21, 1998, reporting an event
on January 6, 1998 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: Steven W. Logan
Date: February 26, 1998 Sr. Vice President and
Chief Financial Officer
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Hinton Economic Development Authority Audited Financial Statements
Report of Independent Public Accountants
Balance Sheets as of December 31, 1996 and 1995
Statements of Revenues, Expenses and Changes in Fund Balance
(Deficit)for the Years Ended December 31, 1996 and 1995
Statements of Cash Flows for the Years Ended December 31, 1996
and 1995
Notes to Financial Statements
Hinton Economic Development Authority Unaudited Interim Financial
Statements
Unaudited Balance Sheets as of September 30, 1997
and December 31, 1996 (audited)
Unaudited Statements of Revenues, Expenses and Changes in
Fund Balance (Deficit) for the Nine Months Ended September
30, 1997 and 1996
Unaudited Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996
(b) PRO FORMA FINANCIAL INFORMATION.
Cornell Corrections, Inc. Unaudited Pro Forma Condensed
Consolidated Financial Statements
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 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 Nine Months Ended September 30, 1997
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(c) EXHIBITS.
None.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees of
Hinton Economic Development Authority:
We have audited the accompanying balance sheets of Hinton Economic Development
Authority (the "Authority") an Oklahoma authority, as of December 31, 1996 and
1995, and the related statements of revenues, expenses and changes in fund
balance (deficit), and cash flows for the years then ended. These financial
statements are the responsibility of the Authority'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
and the financial audit standards contained in GOVERNMENT AUDITING STANDARDS
(1994 revision), issued by the Comptroller General of the United States. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Authority as of December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards, we have also issued a report
on our consideration of the Authority's internal control structure and a report
on its compliance with laws and regulations, both dated May 23, 1997.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
May 23, 1997
<PAGE>
HINTON ECONOMIC DEVELOPMENT AUTHORITY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
ASSETS 1996 1995
------ ----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 6,146,446 $ 2,571,675
Accounts receivable .................................. 1,487,958 1,319,440
Prepaid interest on capital lease obligation ......... -- 158,319
Other prepaid expenses ............................... 310,948 241,047
Inventory ............................................ 147,601 151,035
----------- ------------
Total current assets .......................... 8,092,953 4,441,516
----------- ------------
LAND, BUILDINGS AND EQUIPMENT, net ...................... 23,169,892 23,952,354
----------- ------------
OTHER NONCURRENT ASSETS:
Debt service reserve fund ............................ 4,146,674 3,772,660
Debt issuance costs, net ............................. 1,352,604 1,385,206
----------- ------------
Total other noncurrent assets ................. 5,499,278 5,157,866
----------- ------------
Total assets .................................. $36,762,213 $ 33,551,736
=========== ============
LIABILITIES AND FUND BALANCE (DEFICIT)
--------------------------------------
CURRENT LIABILITIES:
Trade accounts payable ............................... $ 238,840 $ 194,179
Payable to management company ........................ 355,011 352,972
Accrued liabilities .................................. 427,477 281,339
Current portion of capital lease obligations ......... 797,112 836,637
Current portion of long-term debt .................... 4,348 10,438
Short-term debt ...................................... -- 9,351
----------- ------------
Total current liabilities ..................... 1,822,788 1,684,916
CAPITAL LEASE OBLIGATIONS, less current portion ......... 34,252,841 35,003,534
LONG-TERM DEBT, less current portion .................... 108,850 129,366
----------- ------------
Total liabilities ............................. 36,184,479 36,817,816
COMMITMENTS AND CONTINGENCIES
FUND BALANCE (DEFICIT) .................................. 577,734 (3,266,080)
----------- ------------
Total liabilities and fund balance (deficit) .. $36,762,213 $ 33,551,736
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
HINTON ECONOMIC DEVELOPMENT AUTHORITY
STATEMENTS OF REVENUES, EXPENSES
AND CHANGES IN FUND BALANCE (DEFICIT)
DECEMBER 31,
---------------------------
1996 1995
------------ ------------
REVENUES:
Service income ................................ $ 15,013,303 $ 11,525,983
Investment income ............................. 475,353 268,776
Contributions and other income ................ 141,278 162,976
------------ ------------
Total revenues ......................... 15,629,934 11,957,735
------------ ------------
EXPENSES:
Operating, general and administrative ......... 7,671,746 6,871,731
Management and marketing ...................... 711,577 517,500
Interest ...................................... 3,402,797 3,007,529
------------ ------------
Total expenses ......................... 11,786,120 10,396,760
------------ ------------
EXCESS OF REVENUES OVER EXPENSES ................. 3,843,814 1,560,975
FUND DEFICIT, beginning of year .................. (3,266,080) (4,827,055)
------------ ------------
FUND BALANCE (DEFICIT), end of year .............. $ 577,734 $ (3,266,080)
============ ============
The accompanying notes are an integral part of these financial
statements.
<PAGE>
HINTON ECONOMIC DEVELOPMENT AUTHORITY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Excess of revenues over expenses .................................. $ 3,843,814 $ 1,560,975
Adjustments to reconcile excess of revenues over expenses
to net cash provided by operating activities-
Depreciation and amortization ................................. 1,083,961 1,029,811
Loss on sale of assets ........................................ 1,124 19,141
Increase in accounts receivable ............................... (168,518) (475,265)
(Increase) decrease in other prepaid expenses ................. (69,901) 28,548
Decrease in inventory ......................................... 3,434 17,057
Increase in trade accounts payable ............................ 44,661 3,916
Increase in payable to management company ..................... 2,039 42,593
Increase in accrued liabilities ............................... 146,138 127,154
----------- -----------
Net cash provided by operating activities .................. 4,886,752 2,353,930
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to land, buildings and equipment ........................ (270,111) (4,501,454)
Increase in debt service reserve fund ............................. (374,014) (5,883)
----------- -----------
Net cash used in investing activities ...................... (644,125) (4,507,337)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligation .............................. (790,218) (667,474)
Decrease in prepaid interest on capital lease obligation .......... 158,319 830,143
Decrease in construction projects fund ............................ -- 3,647,114
Payments on long-term debt ........................................ (26,606) (16,514)
Net payments on line of credit .................................... (9,351) (93,757)
----------- -----------
Net cash (used in) provided by financing activities ........ (667,856) 3,699,512
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................ 3,574,771 1,546,105
CASH AND CASH EQUIVALENTS, at beginning of year ...................... 2,571,675 1,025,570
----------- -----------
CASH AND CASH EQUIVALENTS, at end of year ............................ $ 6,146,446 $ 2,571,675
=========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amount capitalized ................. $ 3,370,196 $ 2,955,434
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
HINTON ECONOMIC DEVELOPMENT AUTHORITY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND MANAGEMENT AGREEMENT:
The Hinton Economic Development Authority (the "Authority") was created by a
trust indenture dated June 29, 1987, for the use and benefit of the Town of
Hinton for the public purposes set forth under the provisions of Title 60,
Oklahoma Statutes 1981, Sections 176 to 180.4, inclusive as amended and
supplemented, the Oklahoma Trust Act and other applicable statutes and laws of
the State of Oklahoma.
The Authority's activities, to date, have related principally to Great Plains
Correctional Facility (the "Facility"), a medium security correctional facility
located in Hinton, Oklahoma. In July 1995, the Authority completed a 288-bed
expansion (the "Expansion") of the Facility, which brings the capacity to 768
beds.
Effective January 1, 1994, the Authority entered into a management agreement
with Correction Management Affiliates, Inc. ("CMA"). The agreement was for a
period of five years, cancelable after three years. Under the terms of the
management agreement, the Authority was committed to paying CMA $45,000 per
month for its services, and there was no provision for an incentive fee. Under
the agreement, the Authority reimburses CMA for certain facility related
expenses. During 1995, CMA was acquired by Corrections Corporation of America
("CCA"), a publicly held company. CMA became a subsidiary and CCA took over
management under the agreement. Effective July 1, 1996, the Authority entered
into a new management agreement with CCA. The agreement is for a period of five
years, beginning May 1, 1994, and is cancelable after three years with certain
notice requirements. Under the terms of the new management agreement, the
Authority is committed to paying CCA $30,000 per month for its services plus
reimbursement for certain facility related expenses. CCA is also eligible for an
incentive fee ranging from 6% to 24% of gross service revenue if certain levels
of monthly gross service revenue are met. The incentive fee for the year ended
December 31, 1996, totaled $261,577. Reimbursable expenses totaled $4,002,847
and $3,473,039 for the years ended December 31, 1996 and 1995, respectively.
As of December 31, 1996 and 1995, the payable to the management company
consisted entirely of reimbursable expenses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Authority considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORY
Inventory, which consists of food and supplies, is stated at the lower of
first-in, first-out cost or market.
<PAGE>
LAND, BUILDINGS AND EQUIPMENT
Land, buildings and equipment are carried at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the related
assets, which are 33 years for buildings and improvements and 5 to 15 years for
furniture and equipment. Capitalized interest is depreciated over an estimated
useful life of 5 to 33 years depending on the asset to which it is related and
totaled $306,773 in 1995 and $0 in 1996.Construction of the Expansion was
completed in July 1995.
DEBT SERVICE RESERVE FUND
The debt service reserve fund is invested in liquid investment accounts and
carried at market which is equivalent to cost. The balance in this fund is
restricted for debt service payments.
DEBT ISSUANCE COSTS
As part of the capital lease agreement, the Authority paid issuance costs
associated with the underlying bond issues. Debt issuance costs are being
amortized over the life of the related capital lease obligation using the
effective interest rate method and were net of accumulated amortization of
$152,858 and $120,257 at December 31, 1996 and 1995, respectively.
REVENUE RECOGNITION
The Facility is compensated and service revenue is recognized on a fee per day
basis considering the number of inmates held at the Facility.
SIGNIFICANT CUSTOMER
In December 1993, an agreement was reached with the North Carolina Department of
Corrections ("NCDOC") to house North Carolina inmates at the Facility. In May
1994, the agreement with the NCDOC was amended to include, among other things, a
commitment by the NCDOC to utilize all beds in the Facility, including those in
the Expansion, by January 1, 1996. As a result, approximately 97% of 1996 and
95% of 1995 service income was derived from the contract with the NCDOC. This
amendment also provides that the Authority may contract with other jurisdictions
for use of available bedspace. The NCDOC has notified the Authority in
accordance with the agreement of its intent to terminate the contract on October
1, 1997. The Authority has negotiated a contract with the Oklahoma Department of
Corrections to house Oklahoma inmates and management believes it will be able to
achieve occupancy levels from Oklahoma inmates similar to those under the NCDOC
contract.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make 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 and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," effective for years beginning after December 15, 1995. The
Authority adopted SFAS No. 121 in 1996 with no impact to its financial position
or results of operations.
<PAGE>
3. LAND, BUILDINGS AND EQUIPMENT:
As of December 31, 1996 and 1995, land, buildings and equipment consisted of the
following:
1996 1995
------------ ------------
Land .......................................... $ 269,716 $ 247,310
Buildings and improvements .................... 25,331,599 25,264,402
Furniture and equipment ....................... 2,072,900 1,942,599
Construction in progress ...................... 58,103 19,575
------------ ------------
27,732,318 27,473,886
Less- Accumulated depreciation ................ (4,562,336) (3,521,532)
------------ ------------
$ 23,169,982 $ 23,952,354
============ ============
Depreciation expense on all fixed assets totaled $1,046,269 and $998,925 in 1996
and 1995, respectively.
4. SHORT-TERM DEBT:
The Authority has a line of credit with a bank that permits the Authority to
borrow up to $1,000,000. Borrowings under this line bear interest at 1.50% above
the U.S. Money Center Commercial Rate with a minimum rate of 7% and a maximum
rate of 14% (9.75% at December 31, 1996). Borrowings under the line are limited
to 80% of and secured by inmate per diem receivables of the Facility. In
addition, CCA has guaranteed up to $200,000 of borrowings made under the line of
credit in excess of $800,000. At December 31, 1996, there was no balance
outstanding under the line of credit. The line matured on April 13, 1997, and
was not renewed by the Authority.
As of December 31, 1996 and 1995, the Authority had borrowings of $0 and $9,351,
respectively, outstanding under a note payable to a bank.
5. CAPITAL LEASE OBLIGATIONS:
The Authority entered into a lease in 1990, with total proceeds of $24,430,000,
to finance the acquisition and construction of property, plant and equipment for
the Facility. In May 1994, the Authority executed an amendment to this lease,
resulting in additional proceeds of $12,800,000, to fund the acquisition and
construction of property, plant and equipment for the Expansion. The leases have
been capitalized at interest rates of 9.76% and 8.93%, respectively, which
approximate the rates implicit in the lease agreement and related amendment. The
capital lease obligation is secured by essentially all fixed assets of the
Facility and the Expansion. The Authority also leases copiers under capital
leases.
<PAGE>
The future minimum lease payments under capitalized leases are as follows:
1997 $ 4,033,526
1998 3,930,667
1999 3,930,296
2000 3,928,605
2001 3,927,754
Thereafter 56,795,794
-----------
Total minimum payments 76,546,642
Less- Interest (41,496,689)
-----------
Present value of net minimum lease payments 35,049,953
Less- Current portion (797,112)
-----------
$34,252,841
===========
In accordance with the capital lease obligations, the Authority maintains a
"Reserve Account" in the amount of $3,723,000 as of December 31, 1996 and 1995,
which is included in the Debt service reserve fund in the accompanying balance
sheets. In addition to the Reserve Account, the Authority is required to make
certain lease payments into the "Lease Payment Account" prior to the semi-annual
payment of the obligations. The Lease Payment Account is also included in the
Debt service reserve fund in the accompanying balance sheets and totaled
approximately $424,000 and $50,000 at December 31, 1996 and 1995, respectively.
Amounts in the Reserve Account are to be used only to make payments of debt
service of the capital lease obligations to the extent amounts in the Lease
Payment Account are insufficient and, on the final lease payment date or the
payment date on which the capital lease obligations are to be redeemed in whole,
to pay the final lease payment or the prepayment as necessary.
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
At December 31, 1996 and 1995, long-term debt consists of:
1996 1995
--------- ---------
<S> <C> <C>
Note payable to a bank, interest at 6.675%, principal and
interest due in monthly installments of $1,072,
collateralized by certain real property ........................... $ -- $ 22,624
Note payable to a bank, interest at the prime rate plus
1.5% (9.75% at December 31, 1996), payable semi-annually
until January 1995, principal and interest due in monthly
installments of $1,311 beginning January 1995, maturing
December 2009, collateralized by certain real property ............ 113,198 117,180
--------- ---------
113,198 139,804
Less- Current portion ................................................ (4,348) (10,438)
--------- ---------
$ 108,850 $ 129,366
========= =========
</TABLE>
<PAGE>
All borrowings outstanding under the two notes above are payable at the
scheduled dates described above or on demand. The Authority has received
representation from the bank stating that it is not aware of, nor does it
anticipate, any facts, events or occurrences that would cause it to demand
repayment of the amounts advanced to the Authority prior to the scheduled dates.
Accordingly, the debt has been classified as long-term debt in the accompanying
balance sheets.
Future principal maturities as of December 31, 1996, on this debt are as
follows:
1997 $ 4,348
1998 4,827
1999 5,359
2000 5,919
2001 6,602
Thereafter 86,143
----------
$ 113,198
==========
7. RELATED PARTY TRANSACTIONS:
The Facility employs certain inmates for various duties at the Facility.
Performance pay for the work performed by the inmates is transferred by the
Facility to the Great Plains Correctional Facility Inmate Trust Fund which holds
cash in trust for the Facility's inmates.
During the normal course of business, the Authority has transactions with
companies, including a financial institution, in which certain Trustees have a
financial interest or that employ certain Trustees.
In November 1995, the Authority received a $125,000 contribution from a member
of CMA management. The contribution was subsequently distributed as additional
compensation to the employees of the Facility. This amount is included in
contributions and other income and is also reflected in operating, general and
administrative expense.
8. COMMITMENTS AND CONTINGENCIES:
The nature of the Facility's business results in claims and litigation alleging
that the Facility is liable for damages arising from the conduct of its
employees or others. In the opinion of management, there are no pending legal
proceedings that would have a material effect on the financial position or
results of operations of the Authority.
<PAGE>
HINTON ECONOMIC DEVELOPMENT AUTHORITY
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 9,599,889 $ 6,146,446
Accounts receivable............................... 1,206,124 1,487,958
Other prepaid expenses............................ 24,914 310,948
Inventory......................................... 164,693 147,601
----------- ----------
Total current assets............................ 10,995,620 8,092,953
LAND, BUILDING AND EQUIPMENT, net..................... 22,520,639 23,169,982
OTHER NONCURRENT ASSETS:
Debt service reserve fund......................... 4,055,031 4,146,674
Debt issuance costs, net.......................... 1,326,510 1,352,604
----------- -----------
Total other noncurrent assets................... 5,381,541 5,499,278
----------- -----------
Total assets $38,897,800 $36,762,213
=========== ===========
LIABILITIES AND FUND BALANCE
CURRENT LIABILITIES:
Trade accounts payable............................ $ 219,966 $ 238,840
Payable to management company..................... 205,460 355,011
Accrued liabilities............................... 683,129 427,477
Current portion of capital lease obligations...... 698,048 797,112
Current portion of long-term debt................. 3,730 4,348
----------- -----------
Total current liabilities....................... 1,810,333 1,822,788
CAPITAL LEASE OBLIGATIONS, less current portion....... 33,723,178 34,252,841
LONG-TERM DEBT, less current portion.................. 89,515 108,850
----------- -----------
Total liabilities............................. $35,623,026 $36,184,479
=========== ===========
COMMITMENT AND CONTINGENCIES
FUND BALANCE.......................................... 3,274,774 577,734
----------- -----------
Total liabilities and fund balance.............. $38,897,800 $36,762,213
=========== ===========
</TABLE>
<PAGE>
HINTON ECONOMIC DEVELOPMENT AUTHORITY
STATEMENTS OF REVENUES, EXPENSES
AND CHANGES IN FUND BALANCE (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1997 1996
----------- ----------
<S> <C> <C>
Revenues.............................................. $11,216,214 $11,297,122
Operating expenses.................................... 5,763,040 5,354,557
Depreciation and amortization......................... 735,744 801,709
General and administrative............................ -- --
----------- ----------
4,717,430 5,140,856
Interest expense...................................... 2,521,137 2,575,085
Interest income....................................... (500,747) (329,639)
----------- ----------
Excess of revenues over expenses...................... 2,697,040 2,895,410
Fund balance (deficit), beginning of period........... 577,734 (3,266,080)
----------- ----------
Fund balance (deficit), end of period................. $ 3,274,774 $ 370,670
=========== ==========
</TABLE>
<PAGE>
HINTON ECONOMIC DEVELOPMENT AUTHORITY
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Excess of revenues over expenses.................. $ 2,697,040 $2,895,410
Adjustments to reconcile excess of revenues over
expenses to net cash provided by operating
activities:
Depreciation and amortization................. 761,837 826,159
Decrease in accounts receivable............... 281,834 2,531
Decrease in other prepaid expenses............ 286,034 155,101
(Increase) decrease in inventory.............. (17,092) 18,633
Decrease in trade accounts payable............ (18,874) (26,588)
Decrease in payable to management company..... (149,551) (326,290)
Increase in accrued liabilities............... 255,652 319,831
----------- ----------
Net cash provided by operating activities......... 4,096,880 $3,864,787
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to land, buildings and equipment...... (86,400) (173,868)
(Increase) decrease in debt service reserve fund 91,643 (90,512)
----------- ----------
Net cash provided by (used in) investing activities 5,243 (264,380)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations........... (628,727) (634,889)
Decrease in prepaid interest on capital lease
obligations .................................... -- 158,319
Payments on long-term debt...................... (19,953) (26,029)
Net payments on line of credit.................. -- (9,351)
----------- ----------
Net cash (used in) provided by financing activities (648,680) (511,950)
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS............. 3,453,443 3,088,457
CASH AND CASH EQUIVALENTS, at beginning of year....... 6,146,446 2,571,675
----------- ----------
CASH AND CASH EQUIVALENTS, at end of year............. $ 9,599,889 $5,660,132
=========== ==========
</TABLE>
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as of
September 30, 1997 and the unaudited pro forma condensed consolidated statements
of operations for the year ended December 31, 1996 and for the nine months ended
September 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 the Great Plains Correctional Facility
by the Company had occurred, in the case of the balance sheet, on September 30,
1997, and, in the case of the statements of operations, on January 1, 1996. In
addition, the unaudited pro forma condensed consolidated balance sheet as of
September 30, 1997 reflects the consolidated financial position of the Company
as if the stock offering in October 1997 had occurred on September 30, 1997 and
the unaudited pro forma condensed consolidated statements of operations for the
year ended December 31, 1996 and for the nine months ended September 30, 1997
reflect the results of operations as if the Company's initial public offering in
October 1996, the acquisitions by the Company in 1996 and 1997 and the stock
offering in October 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.
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
---------- ----------
PRO FORMA AS ACQUISITION PRO FORMA
THE OFFERING ADJUSTED FOR GREAT PRO FORMA FOR THE
COMPANY ADJUSTMENTS THE OFFERING PLAINS ADJUSTMENTS ACQUISITION
------- ----------- ------------ ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents ........................ $ 2,534 $ 23,028(1) $ 25,980 $ 9,600 $ (9,600)(3) $ 980
418(2) (25,000)(4)
Receivables, net ................................. 18,923 -- 18,923 1,206 (1,206)(3) 18,923
Other current assets ............................. 3,507 -- 3,507 190 (190)(3) 3,507
-------- -------- --------- ------- -------- ---------
Total current assets ........................... 24,964 23,446 48,410 10,996 (35,996) 23,410
Property and equipment, net .......................... 46,012 -- 46,012 22,521 21,229 (5) 89,762
Intangibles .......................................... 6,204 -- 6,204 -- -- 6,204
Other assets ......................................... 3,141 -- 3,141 5,381 (5,381)(3) 3,141
-------- -------- --------- ------- -------- ---------
Total assets ................................. $ 80,321 $ 23,446 $ 103,767 $38,898 $(20,148) $ 122,517
======== ======== ========= ======= ======== =========
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable and accrued liabilities ......... $14,985 $ -- $ 14,985 $ 1,108 $ (1,108)(3) $ 14,985
Current portion of long-term debt ................ 290 -- 290 702 (702)(3) 290
-------- -------- --------- ------- -------- ---------
Total current liabilities ...................... 15,275 -- 15,275 1,810 (1,810) 15,275
Other long-term liabilities .......................... 3,241 -- 3,241 -- 3,241
Long-term debt, excluding current portion ............ 18,198 (18,198)(1) -- 33,813 (33,813)(3) 18,750
18,750 (6)
Stockholders' equity ................................. 43,607 41,226 (1) 85,251 3,275 (3,275)(3) 85,251
418 (2)
-------- -------- --------- ------- -------- ---------
Total liabilities and stockholders' equity ..... 80,321 $ 23,446 $ 103,767 $38,898 $(20,148) $ 122,517
======== ======== ========= ======= ======== =========
</TABLE>
See accompanying notes to unaudited pro forma condensed
consolidated balance sheet.
<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
-------------------------------------------------------- PRO FORMA
THE REID INTER- GREAT PRO FORMA FOR THE
COMPANY MIDTEX CENTER VENTIONS ABRAXAS PLAINS ADJUSTMENTS ACQUISITION
------- ------ ------ -------- ------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $32,327 $ 8,603 $ 1,131 $ 7,244 $31,080 $15,155 $ -- $ 95,540
Operating expenses...... 26,038 5,774 997 5,608 24,078 7,299 6,259 (1) 76,972
(356) (2)
367 (3)
800 (4)
108 (5)
Depreciation and
amortization........ 1,390 407 22 162 1,316 1,084 (866) (6) 3,632
161 (7)
(18) (8)
(97) (9)
11 (10)
60 (11)
General and administrative
expenses............ 4,560 672 -- 644 4,943 -- (6,259) (1) 4,560
------- ------- -------- -------- ------- ------- ------- --------
Income (loss) from
operations.......... 339 1,750 112 830 743 6,772 (170) 10,376
Interest expense........ 2,810 843 -- 173 1,226 3,403 1,036 (12) 1,839
(1,281)(13)
(6,371)(14)
Interest income......... (167) (14) -- (300) -- (475) 775 (16) (181)
------- ------- -------- -------- ------- ------- ------- --------
Income (loss) before
provision for income
taxes............... (2,304) 921 112 957 (483) 3,844 5,671 8,718
Provision for income taxes 75 -- -- -- -- -- 3,063 (18) 3,138
------- ------- -------- -------- ------- ------- ------- --------
Net income (loss)....... $(2,379) $ 921 $ 112 $ 957 $ (483) $ 3,844 $ 2,608 $ 5,580
======= ======= ======== ======== ======= ======= ======= ========
Earnings (loss) per share $ (.53) $ .58
======= ========
Number of shares used in
per share computation 4,466 9,578
======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
statements of operations.
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------- PRO FORMA
THE GREAT PRO FORMA FOR THE
COMPANY ABRAXAS PLAINS ADJUSTMENTS ACQUISITION
------- ------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues....................................... $ 46,053 $22,832 $11,216 $ -- $ 80,101
Operating expenses............................. 37,308 17,413 5,763 3,145 (1) 63,864
(598) (2)
275 (3)
558 (4)
Depreciation and amortization.................. 1,625 801 736 (501) (6) 2,874
173 (7)
40 (11)
General and administrative expenses............ 3,453 3,145 -- (3,145) (1) 3,453
-------- ------- ------- --------- ---------
Income (loss) from operations.................. 3,667 1,473 4,717 53 9,910
Interest expense............................... 356 808 2,521 4,251 (12) 4,292
(3,644)(15)
Interest income................................ (122) -- (501) 501 (16) (122)
-------- ------- ------- --------- ---------
Income (loss) before provision for income taxes 3,433 665 2,697 (1,055) 5,740
Provision for income taxes..................... 1,236 -- -- 830 (17) 2,066
-------- ------- ------- --------- ---------
Net income (loss).............................. $ 2,197 $ 665 $ 2,697 $ (1,885) $ 3,674
======== ======= ======= ========= =========
Earnings (loss) per share...................... $ .31 $ .38
======== =========
Number of shares used in per share
computation............................ 7,202 9,661
======== =========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
statements of operations.
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. ACQUISITION OF THE GREAT PLAINS CORRECTIONAL FACILITY
On January 6, 1998, Cornell Corrections, Inc., a Delaware corporation (the
"Company") through its wholly owned subsidiary, Cornell Corrections of Oklahoma,
Inc. ("CCOI"), acquired the Great Plains Correctional Facility, an existing 812
bed medium security prison located in Hinton, Oklahoma. The purchase was
completed pursuant to an Agreement of Purchase and Sale, as amended
("Agreement") between Foresite Capital Facilities Corporation ("Foresite") and
the Hinton Economic Development Authority ("HEDA"). Foresite had assigned its
rights under the Agreement to CCOI. The Company paid an aggregate purchase price
of $43.0 million, excluding transaction costs. The Company financed the purchase
with $18.8 million of borrowings under its 1997 Credit Facility with ING (U.S.)
Capital Corporation, and the remainder with cash. The acquisition is being
treated as a purchase for accounting purposes.
The Great Plains Correctional Facility is currently operated pursuant to a
one-year contract with nine one-year renewal options between the Oklahoma
Department of Corrections and HEDA; HEDA in turn currently subcontracts the
daily operations of the prison to another operator. The Company will immediately
begin the transition from the current operator and will assume the complete
operations of the prison on or before July 5, 1998.
The aggregate purchase price of $43.0 million included the 812 bed facility
and all surrounding infrastructure, a 30-year operating contract with four
five-year renewals between HEDA and the Company, plus an additional 20 adjacent
acres of land for potential future expansion of the facility.
2. PRO FORMA ADJUSTMENTS AND MANAGEMENT ASSUMPTIONS
The pro forma balance sheet assumes the acquisition had occurred on
September 30, 1997 and the pro forma statements of operations assume 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 the sale of 2,250,000 shares of Common Stock, par value $.001 per
share, at $19.625 per share, net of aggregate offering expenses of $2.9
million, the use of $18.2 million of the net proceeds thereof to repay
outstanding indebtedness, and the use of the remaining proceeds of $23.0
million as an increase to cash to reflect the Company's October 1997 stock
offering (the "Offering").
(2) Records the proceeds upon the exercise, concurrent with the Offering, of
stock options by certain selling stockholders in order to purchase shares
of Common Stock that were sold by such selling stockholders in the
Offering.
(3) Records the elimination of assets and liabilities not assumed as part of
the acquisition.
(4) Records a reduction to cash used to fund a portion of the acquisition.
(5) Records an increase to the carrying value of Great Plains Correctional
Facility's property and equipment to estimated fair value.
(6) Records an increase to long-term debt related to the financing of the
acquisition.
<PAGE>
STATEMENTS OF OPERATIONS
(1) Records reclassification of general and administrative expenses for
Abraxas, Interventions and MidTex to operating expenses to conform with
the Company's policy.
(2) Eliminates the management fee of $356,000 for the year ended December 31,
1996 and $598,000 for the nine months ended September 30, 1997 due to the
assumption of operations by the Company after the six month contract
termination period of the existing operator of the facility.
(3) Records a per diem fee of $367,000 for the year ended December 31, 1996
and $275,000 for the nine months ended September 30, 1997, payable to
HEDA.
(4) Records an adjustment to operating expenses to reflect estimated ad
valorem taxes for properties acquired from Great Plains and Abraxas which
were tax-exempt prior to the acquisitions.
(5) 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 of the assets of MidTex.
(6) Records adjustments to depreciation expense for revised basis in
depreciable assets for Abraxas.
(7) Records adjustments to depreciation expense for revised basis in
depreciable assets for Great Plains.
(8) Records adjustments to depreciation expense for revised basis in
depreciable assets for Interventions.
(9) Records adjustments to depreciation expense for the revised basis in
depreciable assets for MidTex.
(10) Records adjustments to depreciation expense for the revised basis in
depreciable assets for the Reid Center.
(11) Records amortization expense of $60,000 for the year ended December 31,
1996 and $40,000 for the nine months ended September 30, 1997 for the
non-compete agreement with the President of Abraxas.
(12) Records additional interest expense for the year ended December 31, 1996
on assumed bank borrowings of $94.6 million incurred to consummate the
Great Plains, Abraxas, Interventions, MidTex and Reid Center acquisitions
and additional interest expense for the nine months ended September 30,
1997 on assumed bank borrowings of $62.8 million incurred to consummate
the Great Plains and Abraxas acquisitions based on a stated interest rate
of 8.00% and 8.75%, respectively, plus amortization of debt issuance costs
incurred under the terms of the 1997 Credit Facility.
(13) 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.
(14) Records a reduction to interest expense of $6.4 million to reduce assumed
indebtedness with proceeds of $38.0 million from the Company's initial
public offering in October 1996 and $42.0 million from the Offering in
October 1997.
(15) Records a reduction to interest expense of $3.6 million to reduce assumed
indebtedness with proceeds of $42.0 million from the Company's stock
offering in October 1997.
(16) Records an adjustment of $775,000 for the year ended December 31, 1996 to
eliminate investment income earned on investments not acquired in the
Great Plains Correctional Facility and Interventions acquisitions and an
adjustment of $501,000 for the nine months ended September 30, 1997 to
eliminate investment income earned on investments not acquired in the
Great Plains Correctional Facility acquisition.
(17) Records adjustments to record the income tax effects of the foregoing
adjustments.
