UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
Amendment No. 1 to Current Report on Form 8-K
Dated August 27, 1998 Reporting Event of August 13, 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)
August 13, 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)
1700 WEST LOOP SOUTH, SUITE 1500
HOUSTON, TEXAS 77027
(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 August 27, 1998, reporting an event
on August 13, 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: __________________________
Brian E. Bergeron
Date: October 27, 1998 Chief Financial Officer
and Treasurer
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Allvest Corporation Alaska Corrections Division Audited Financial
Statements
Report of Independent Auditors
Balance Sheet as of December 31, 1997
Statement of Operations and Parent's Equity in Division for the Year
Ended December 31, 1997
Statement of Cash Flows for the Year Ended December 31, 1997
Notes to Financial Statements
Allvest Corporation Alaska Corrections Division Unaudited Interim
Financial Statements
Unaudited Balance Sheet as of June 30, 1998
Unaudited Statements of Operations and Parent's Equity in Division
for the Six Months Ended June 30, 1998 and 1997
(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, 1998
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1997
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 1998
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
(C) EXHIBITS.
None.
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Allvest Corporation:
We have audited the accompanying balance sheet of Allvest Corporation's Alaska
Corrections Division as of December 31, 1997, and the related statement of
operations and parent's equity in division, and cash flows for the year then
ended. These financial statements are the responsibility of the Company'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 Allvest Corporation's Alaska
Corrections Division as of December 31, 1997, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
As indicated in note 2, substantially all operating assets of Allvest
Corporation's Alaska Corrections Division were sold on August 13, 1998.
KPMG Peat Marwick LLP
Anchorage, Alaska
October 9, 1998
3
<PAGE>
ALLVEST CORPORATION
ALASKA CORRECTIONS DIVISION
BALANCE SHEET (NOTE 2)
DECEMBER 31, 1997
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 244,103
Receivables, net of allowance for doubtful accounts of $0:
Trade .............................................. 861,250
Employees .......................................... 8,735
Other .............................................. 1,100
-----------
Total receivables ............................. 871,085
-----------
Prepaid expenses ........................................... 129,986
Deposits ................................................... 13,385
-----------
Total current assets .......................... 1,258,559
-----------
Property and equipment (note 4):
Land ....................................................... 275,011
Buildings and improvements ................................. 3,332,162
Furniture and equipment .................................... 699,355
-----------
4,306,528
Accumulated depreciation ................................... (1,950,903)
-----------
Net property and equipment .................... 2,355,625
-----------
Total assets .................................. $ 3,614,184
===========
LIABILITIES AND PARENT'S EQUITY IN DIVISION
Current liabilities:
Accounts payable ........................................... $ 250,946
Accrued payroll and related taxes and benefits ............. 165,054
Current portion of long-term debt (note 4) ................. 115,165
Notes payable (note 3) ..................................... 107,865
-----------
Total current liabilities ..................... 639,030
-----------
Long-term debt, net of current portion (note 4) ................. 925,099
Affiliated company payable (note 5) ............................. 1,384,482
-----------
Total liabilities ............................. 2,948,611
-----------
Parent's equity in division ..................................... 665,573
-----------
Commitments and contingencies (note 7)
Total liabilities and parent's equity in
division .................................... $ 3,614,184
===========
See accompanying notes to financial statements.
4
<PAGE>
ALLVEST CORPORATION
ALASKA CORRECTIONS DIVISION
STATEMENT OF OPERATIONS AND PARENT'S EQUITY IN DIVISION
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
REVENUES:
State of Alaska corrections contracts ............................ $ 7,412,076
Other contracts .................................................. 446,397
Miscellaneous .................................................... 40,000
-----------
Total revenues ........................................... 7,898,473
-----------
EXPENSES:
Salaries and fringe benefits ..................................... 2,076,030
Subcontracts, including $756,000 to related party (note 5) ....... 1,033,245
Facility rent, related party (note 5) ............................ 876,000
Food ............................................................. 655,088
Facility maintenance, including $124,800 to related party (note 5) 185,264
Utilities ........................................................ 286,828
Depreciation ..................................................... 204,433
Insurance ........................................................ 115,418
Interest ......................................................... 112,293
Professional services ............................................ 54,885
Equipment rent, including $63,000 to related party (note 5) ...... 67,903
Equipment repair ................................................. 62,388
Household supplies ............................................... 78,150
Other supplies ................................................... 54,755
Telephone ........................................................ 23,540
Equipment supplies ............................................... 15,583
Training, including $2,200 to related party (note 5) ............. 8,386
Office Supplies .................................................. 17,589
Property taxes ................................................... 36,165
Printing, including $10,500 to related party (note 5) ............ 17,014
Program supplies ................................................. 7,026
Travel ........................................................... 12,304
Medical supplies ................................................. 3,790
Dues and subscriptions ........................................... 7,946
Advertising ...................................................... 1,669
Miscellaneous .................................................... 2,575
-----------
Total expenses ........................................... 6,016,267
-----------
Net income ............................................... 1,882,206
Distributions to parent ............................................... (2,502,104)
PARENT'S EQUITY IN DIVISION AT BEGINNING OF YEAR ...................... 1,285,471
-----------
PARENT'S EQUITY IN DIVISION AT END OF YEAR ............................ $ 665,573
===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
ALLVEST CORPORATION
ALASKA CORRECTIONS DIVISION
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 1,882,206
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................... 204,433
Changes in assets and liabilities:
Trade receivables ............................... (227,431)
Employee receivables ............................ (5,866)
Other receivables ............................... 14
Prepaid expenses ................................ (19,773)
Deposits ........................................ (515)
Accounts payable ................................ 138,992
Accrued payroll and related taxes and benefits .. (46,540)
-----------
Net cash provided by operating activities .. 1,925,520
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ..................... (36,261)
-----------
Net cash used in investing activities ...... (36,261)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt ................................ (124,907)
Distributions to parent ................................... (2,502,104)
Proceeds from borrowings on note payable .................. 374,698
Payments on note payable .................................. (370,903)
Advances received from affiliated companies ............... 651,329
-----------
Net cash used in financing activities ...... (1,971,887)
-----------
Net decrease in cash and
cash equivalents ......................... (82,628)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................. 326,731
-----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ....................... $ 244,103
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID FOR INTEREST .................................... $ 112,293
===========
See accompanying notes to financial statements.
6
<PAGE>
ALLVEST CORPORATION
ALASKA CORRECTIONS DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Allvest Corporation (the "Company"), an Alaska corporation, is engaged in
the business of operating residential correction facilities in the states
of Alaska and Washington. The Alaska Corrections Division (the "Division")
is an operating division of the Company which includes all Alaskan
correctional facilities. The financial statements do not include
activities, assets or liabilities of the Company's other operations.
CONCENTRATIONS
All of the Division's operations are located in the State of Alaska.
Contracts with the State of Alaska, Department of Corrections to operate
correction facilities in Anchorage, Fairbanks and Bethel, Alaska, provided
94% of the Division's revenues in 1997 and accounted for $861,250 of trade
receivables at December 31, 1997. These contracts extend to dates ranging
through June 30, 1998. The State of Alaska, Department of Corrections
renewed these contracts subsequent to year end with terms through June 30,
1999.
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 those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and equivalents, receivables and payables are recorded at historical
cost which approximates fair value.
PROPERTY AND EQUIPMENT
Buildings are recorded at cost and depreciated by the straight-line method
over the estimated useful life of 30-40 years of the buildings. Building
improvements are recorded at cost and depreciated by the straight-line
method over the remaining life of the building or the improvements of 30-40
years, whichever is shorter.
Furniture and equipment are recorded at cost and depreciated by the
straight-line method over the estimated useful lives of 5-7 years of the
related assets.
Expenditures for major additions, renewals and betterments are capitalized
and maintenance, repairs and minor additions and renewals are charged to
expense. Gains and losses upon asset disposal are taken into income.
PROGRAM FACILITY EXPENDITURES
The Division expenses program facility expenditures over the term of the
contract to which they relate.
7
<PAGE>
ALLVEST CORPORATION
ALASKA CORRECTIONS DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
ALLOCATION OF ADMINISTRATIVE EXPENSES
The Company allocates administrative costs which cannot be specifically
identified to one division to all divisions based on each division's total
revenue as a percent of the Company's total revenue. Based on the nature of
the Company's operations, management believes that such allocation
methodology is appropriate in the circumstances. The Company's
administrative costs amounted to $573,576 for the year, of which $496,466
were allocated to the Division.
REVENUES
Revenues under corrections contracts are recognized ratably based on the
number of clients served as the related services are rendered.
INCOME TAXES
The stockholder has elected, pursuant to the provisions of the Internal
Revenue Code, to treat the Company as an S-Corporation for income tax
purposes. As a result, the Company's taxable income is included in the
stockholder's individual income tax return and, accordingly, there is no
provision for income taxes reflected in the Division's financial
statements.
CASH AND CASH EQUIVALENTS
The Division considers cash equivalents to include short-term investments
that are readily convertible to known amounts of cash and that present an
insignificant risk of change in value due to changes in interest rates or
other factors with maturities at acquisition date of three months or less.
(2) DISPOSAL OF DIVISION
On June 20, 1998, the Company entered into an agreement to sell certain
assets of the Alaska Corrections Division, along with a building owned by
the Company's stockholder and vehicles and office furniture owned by St.
John Investments, Inc. (an affiliated company), to Cornell Corrections,
Inc. ("Cornell"), a Delaware Corporation, for approximately $20 million.
The disposal date is August 13, 1998. The assets of the Alaska Corrections
Division which will be sold include property and equipment, operating
supplies and deposits held for clients of $38,500. The sale price of the
assets exceeds the carrying amount. Excluded from the sale are:
o accounts receivable;
o prepaid expenses;
o deposits, excluding deposits held for clients; and
o cash.
Cornell will not assume or agree to pay, perform or discharge, and will not
be responsible for any commitments, contracts, agreements, or obligations
or claims against or liabilities of the Division other than accrued
obligations for vacation leave.
Cornell also will acquire all contracts, management agreements and leases
related to the Division. Most employees of the Division will be offered
employment by Cornell. Records associated with the operation of the
Division will be acquired by Cornell.
8
<PAGE>
ALLVEST CORPORATION
ALASKA CORRECTIONS DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(3) NOTES PAYABLE
Notes payable of $107,865 at December 31, 1997 consist of uncollateralized
short-term obligations due to financing companies. Such amounts are to be
repaid in monthly installments of $19,047, including interest at 8%.
(4) LONG-TERM DEBT
Long-term debt at December 31 is comprised of the following:
Note payable to a bank, due in monthly
installments of $4,048, including
interest at the prime rate plus 2%
(10.5% at December 31, 1997) through July
1999, collateralized by property, assignment of
contracts and guaranteed by the stockholder ........ $ 70,579
Note payable to a bank, due in monthly installments
of $13,600, including 9.75% interest through
November 2006, collateralized by property,
assignment of contracts and guaranteed by the
stockholder ........................................ 969,685
----------
Total long-term debt .......................... 1,040,264
Less current portion .......................... 115,165
----------
Long-term debt, net of current portion ........ $ 925,099
==========
Maturities of long-term debt for years subsequent to December 31, 1997 are
as follows:
DECEMBER 31 AMOUNT
---------------- -------------
1998 $ 115,165
1999 106,356
2000 87,202
2001 96,095
2002 105,895
Thereafter 529,551
-----------
$ 1,040,264
===========
9
<PAGE>
ALLVEST CORPORATION
ALASKA CORRECTIONS DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(5) RELATED PARTY TRANSACTIONS
The Company's sole stockholder owns 100% of a management firm with which
the Company subcontracts to perform management services. During the year
ended December 31, 1997, the Division incurred $756,000 in expenses related
to management services provided by the affiliated company. Additionally,
during the year ended December 31, 1997, the Division incurred $124,800 of
facility maintenance expense provided by the management firm. Also, during
the year ended December 31, 1997, the Division incurred $10,500 of printing
expenses and $2,200 of training expenses provided by the management firm.
During the year ended December 31, 1997, the Division incurred $939,000 in
rental expense related to equipment and facilities leased from an
affiliated company.
The Division has payables to affiliates of $1,384,482 as of December 31,
1997. The payables have no set repayment terms, and the affiliate has
agreed that repayment is not required in the next twelve months and
therefore are classified as long-term.
(6) PROFIT-SHARING PLAN
Effective January 1, 1996, the Company implemented a 401(k) profit sharing
plan (Plan) for all those employees who meet the eligibility requirements
set forth in the Plan. The amount of the contribution to the Plan is at the
discretion of the Company's Board of Directors. The Division's
contributions for the year ended December 31, 1997 totaled $7,319. All Plan
assets and liabilities are included in the parent company's financial
statements and are not included in the Division's balance sheet.
(7) CONTINGENCIES
The Company is a defendant in various suits and allegations involving ATS
(Adolescent Treatment Services, formerly known as BLAADE) and the
Division's operation of correctional facilities. The plaintiffs are seeking
both compensatory and punitive damages. The Company remains liable on these
matters as the purchaser assumed no responsibility for them. In the opinion
of management, the ultimate disposition of these matters will not have a
material adverse effect on the Division's financial position, results of
operations or liquidity.
10
<PAGE>
ALLVEST CORPORATION
ALASKA CORRECTIONS DIVISION
BALANCE SHEET
(UNAUDITED)
JUNE 30, 1998
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 1,087,689
Receivables, net of allowance for doubtful accounts of $0:
Trade .................................................. 1,011,326
Employees .............................................. 8,276
Other .................................................. 21,079
-----------
Total receivables ............................. 1,040,681
-----------
Prepaid expenses ........................................... 50,856
Deposits ................................................... 13,966
-----------
Total current assets .......................... 2,193,192
-----------
Property and equipment
Land ....................................................... 275,011
Building and improvements .................................. 3,332,162
Furniture and equipment .................................... 766,362
-----------
4,373,535
Accumulated depreciation ................................... (2,051,452)
-----------
Net property and equipment .................... 2,322,083
-----------
Total assets .................................. $ 4,515,275
===========
LIABILITIES AND PARENT'S EQUITY IN DIVISION
Current liabilities:
Accounts payable ........................................... $ 214,594
Accrued payroll and related taxes and benefits ............. 447,366
Current portion of long-term debt .......................... 169,150
Notes payable .............................................. 268,254
-----------
Total current liabilities ..................... 1,099,364
-----------
Long-term debt, net of current portion .......................... 1,830,391
Affiliated company payable ...................................... 588,230
-----------
Total liabilities ............................. 3,517,985
-----------
Parent's equity in division ..................................... 997,290
-----------
Commitments and contingencies
Total liabilities and parent's equity
in division ................................. $ 4,515,275
===========
11
<PAGE>
ALLVEST CORPORATION
ALASKA CORRECTIONS DIVISION
STATEMENTS OF OPERATIONS AND PARENT'S EQUITY IN DIVISION
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
---------------------------
1998 1997
----------- ------------
REVENUES:
State of Alaska corrections contracts ....... $ 4,684,198 3,503,268
Other contracts ............................. 236,532 184,032
Miscellaneous ............................... 84,466 39,095
----------- -----------
Total revenues ...................... 5,005,196 3,726,395
----------- -----------
EXPENSES:
Salaries and fringe benefits ................ 1,240,609 1,040,504
Subcontracts ................................ 659,052 510,110
Facility rent ............................... 368,773 438,000
Food ........................................ 396,343 317,397
Facility maintenance ........................ 135,307 93,000
Utilities ................................... 155,037 136,129
Depreciation ................................ 100,549 100,974
Insurance ................................... 60,002 52,669
Interest .................................... 118,801 39,381
Professional services ....................... 44,273 39,544
Equipment rent .............................. 40,460 33,866
Equipment repair ............................ 53,494 28,170
Household supplies .......................... 58,259 36,555
Other supplies .............................. 29,390 23,967
Telephone ................................... 14,520 10,206
Equipment supplies .......................... 53,962 16,469
Training .................................... 5,171 2,859
Office Supplies ............................. 14,083 7,022
Property taxes .............................. 21,257 20,177
Printing .................................... 14,567 6,447
Program supplies ............................ 8,151 3,577
Travel ...................................... 9,933 5,294
Medical supplies ............................ 3,521 1,631
Dues and subscriptions ...................... 2,583 2,434
Advertising ................................. 2,896 338
Miscellaneous ............................... 83,793 4,352
----------- -----------
Total expenses ...................... 3,694,786 2,971,072
----------- -----------
Net income .......................... 1,310,410 755,323
Distributions to parent .......................... -- (255)
Intra Company Transfers .......................... (978,693) (1,172,737)
PARENT'S EQUITY IN DIVISION AT BEGINNING OF PERIOD 665,573 1,285,471
----------- -----------
PARENT'S EQUITY IN DIVISION AT END OF PERIOD ..... $ 997,290 867,802
=========== ===========
12
<PAGE>
ALLVEST CORPORATION
ALASKA CORRECTIONS DIVISION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1998 1997
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 1,310,410 $ 755,323
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................... 100,549 100,974
Changes in assets and liabilities:
Trade receivables ............................ (150,076) (29,269)
Employee receivables ......................... 459 (9,315)
Other receivables ............................ (19,979) (19,359)
Prepaid expenses ............................. 79,130 49,469
Deposits ..................................... (581) (3,701)
Accounts payable ............................. (36,352) 83,650
Accrued payroll and related taxes and benefits 282,312 79,330
----------- -----------
Net cash provided by operating activities 1,565,872 1,007,102
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment .................. (67,007) (35,690)
----------- -----------
Net cash used in investing activities ... (67,007) (35,690)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on long-term debt ............. 959,277
Payments on long-term debt ............................. -- (65,211)
Distributions to parent ................................ -- (255)
Proceeds from borrowings on note payable ............... 1,872,939 686
Payments on note payable ............................... (1,712,550) (97,607)
Advances received from (paid to) affiliated companies .. (796,252) 67,304
Intra company transfers ................................ (978,693) (1,172,737)
----------- -----------
Net cash used in financing activities ... (655,279) (1,267,820)
----------- -----------
Net increase (decrease) in cash and
cash equivalents ...................... 843,586 (296,408)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............ 244,103 326,731
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................. $ 1,087,689 $ 30,323
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID FOR INTEREST ................................. $ 118,801 $ 39,381
=========== ===========
</TABLE>
13
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as of
June 30, 1998 and the unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1997 and for the six months ended
June 30, 1998 reflect the consolidated financial position and results of
operations, respectively, of Cornell Corrections, Inc. and its subsidiaries
("the Company") as if the acquisition of Allvest Corporation's Alaska
Corrections Division ("Allvest") by the Company had occurred, in the case of the
balance sheet, on June 30, 1998, and in the case of the statements of
operations, on January 1, 1997. In addition, the unaudited pro forma condensed
consolidated statement of operations for the year ended December 31, 1997
reflects the results of operations as if the Company's acquisition of the Great
Plains Correctional Facility in January 1998 and the acquisition of The Abraxas
Group, Inc. in September 1997 had occurred on January 1, 1997. 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.
14
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------- PRO FORMA
THE PRO FORMA FOR THE
COMPANY ALLVEST ADJUSTMENTS ACQUISITION
---------- --------- ----------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents .................. $ 1,141 $ 1,088 $ (1,088)(1) $ 1,141
Receivables, net ........................... 22,462 1,041 (1,041)(1) 22,462
Other current assets ....................... 4,897 65 (27)(1) 4,935
-------- -------- -------- --------
Total current assets ..................... 28,500 2,194 (2,156) 28,538
Property and equipment, net .................... 126,454 2,322 14,692 (2) 143,468
Intangibles .................................... 5,904 -- 4,015 (3) 9,919
Other assets ................................... 3,941 -- 3,941
-------- -------- -------- --------
Total assets ............................. $164,799 $ 4,516 $ 16,551 $185,866
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued liabilities ... $ 22,537 $ 932 $ (919)(4) $ 23,153
603 (5)
Current portion of long-term debt .......... 239 169 (169)(4) 239
-------- -------- -------- --------
Total current liabilities ................ 22,776 1,101 (485) 23,392
Other long-term liabilities .................... 810 588 (588)(4) 810
Long-term debt, excluding current portion ...... 51,769 1,830 (1,830)(4) 72,220
20,451 (6)
Stockholders' equity ........................... 89,444 997 (997)(7) 89,444
-------- -------- -------- --------
Total liabilities and stockholders' equity $164,799 $ 4,516 $ 16,551 $185,866
======== ======== ======== ========
-- -- -- --
</TABLE>
See accompanying notes to unaudited pro forma
condensed consolidated balance sheet.
15
<PAGE>
CORNELL CORRECTIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------- TOTAL PRO FORMA
THE GREAT PRO FORMA FOR THE
COMPANY ABRAXAS PLAINS ALLVEST ADJUSTMENTS ACQUISITIONS
---------- --------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues .......................... $ 70,302 $ 22,832 $ 14,766 $ 7,898 $ -- $ 115,798
Operating expenses ................ 57,047 17,413 7,766 5,700 (368) (1) 91,703
300 (2)
367 (3)
3,145 (4)
333 (5)
Depreciation and amortization ..... 2,231 801 984 204 (4) (6) 4,186
201 (7)
230 (8)
(501) (9)
40 (10)
General and administrative expenses 5,394 3,145 -- -- (3,145) (4) 5,394
--------- --------- --------- --------- --------- ---------
Income from operations ............ 5,630 1,473 6,016 1,994 (598) 14,515
Interest expense .................. 491 808 3,318 112 2,631 (11) 7,360
Interest income ................... (414) -- (692) -- 692 (12) (414)
--------- --------- --------- --------- --------- ---------
Income before provision
for income taxes ................ 5,553 665 3,390 1,882 (3,921) 7,569
Provision for income taxes ........ 1,999 -- -- -- 1,029 (13) 3,028
--------- --------- --------- --------- --------- ---------
Net income ........................ $ 3,554 $ 665 $ 3,390 $ 1,882 $ (4,950) $ 4,541
========= ========= ========= ========= ========= =========
Earnings per share:
Basic ........................ $ 0.48 $ 0.62
Diluted ...................... $ 0.46 $ 0.59
Number of shares used in per share
computation (thousands):
Basic ...................... 7,350 7,350
Diluted .................... 7,740 7,740
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
statements of operations.
16
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
THE PRO FORMA FOR THE
COMPANY ALLVEST ADJUSTMENTS ACQUISITION
---------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues .......................... $ 56,140 $ 5,005 $ -- $ 61,145
Operating expenses ................ 45,734 3,480 49,214
Depreciation and amortization ..... 1,900 155 (55)(6) 2,100
100 (7)
General and administrative expenses 3,631 -- 3,631
-------- -------- -------- --------
Income from operations ............ 4,875 1,370 (45) 6,200
Interest expense .................. 716 60 815 (11) 1,591
Interest income ................... (72) -- -- (72)
-------- -------- -------- --------
Income before provision
for income taxes ................ 4,231 1,310 (860) 4,681
Provision for income taxes ........ 1,692 -- 180 (13) 1,872
-------- -------- -------- --------
Net income ........................ $ 2,539 $ 1,310 $ (1,040) $ 2,809
======== ======== ======== ========
Earnings per share:
Basic ..................... $ 0.27 $ 0.30
Diluted ................... $ 0.26 $ 0.29
Number of shares used in per share
computation (thousands):
Basic ..................... 9,407 9,407
Diluted ................... 9,854 9,854
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
statement of operations.
17
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. ACQUISITION OF ALLVEST CORPORATION ALASKA CORRECTIONS DIVISION
On August 13, 1998, Cornell Corrections, Inc., a Delaware corporation (the
"Company"), through its wholly owned subsidiary, Cornell Corrections of
Alaska, Inc., acquired substantially all of the Alaskan assets of Allvest,
Inc. (the "Acquisition"). The Acquisition was completed pursuant to an Asset
Purchase Agreement dated as of June 20, 1998 by and between the Company and
Allvest, Inc., St. John Investments, Inc. and William C. Weimar. The Company
paid an aggregate purchase price of $20.0 million and financed the purchase
with borrowings from its revolving credit facility. The Acquisition is being
treated as a purchase for accounting purposes.
The Acquisition included the operations of five pre-release facilities
located in Anchorage, Fairbanks and Bethel, Alaska with a total offender
capacity of 540 beds and the real properties of three of the five facilities.
2. PRO FORMA ADJUSTMENTS AND MANAGEMENT ASSUMPTIONS
The pro forma balance sheet assumes the Acquisition had occurred on June
30, 1998 and the pro forma statements of operations assume the Acquisition
had occurred on January 1, 1997. 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 elimination of assets not acquired in the Acquisition.
(2) Records an increase in the carrying value of property and equipment to
estimated fair value.
(3) Records the excess of purchase price over fair value of identifiable net
assets to goodwill.
(4) Records the elimination of liabilities not assumed in the Acquisition.
(5) Records accrued transaction costs.
(6) Records the increase in long-term debt related to financing the
Acquisition.
(7) Records the elimination of the net assets of Allvest prior to the
acquisition.
STATEMENTS OF OPERATIONS
(1) Records the elimination of one half of the annual management fee paid to a
third party operator included in Great Plains' operating expenses as the
operations of the facility were assumed by the Company after a six month
contract termination period with the third party operator.
(2) Records an adjustment to operating expenses to record estimated property
taxes on property and equipment purchased in the Great Plains acquisition
which were tax exempt prior to the purchase.
(3) Records an estimated per diem payable to the Hinton Economic Development
Authority for the twelve months ended December 31, 1997 at the Great
Plains Correctional Facility.
(4) Records a reclassification of Abraxas' general and administrative expenses
to operating expenses to conform to Company Policy.
(5) Records an adjustment to operating expenses to record eight months of
estimated property taxes for property acquired from Abraxas which were tax
exempt prior to the acquisition.
(6) Records an adjustment to depreciation expense for the revised basis in
depreciable assets acquired from Allvest.
18
<PAGE>
(7) Records goodwill amortization expense of $201,000 for the year ended
December 31, 1997 and $100,000 for the six months ended June 30, 1998 for
the Allvest acquisition.
(8) Records an adjustment to depreciation expense for the revised basis in
depreciable assets purchased in the Great Plains acquisition.
(9) Records an adjustment to depreciation expense for the revised basis in
depreciable assets acquired in the Abraxas acquisition.
(10) Records an adjustment to amortization expense to recognize eight months of
amortization related to a non-compete agreement with the president of
Abraxas.
(11) Records additional interest expense of $2.6 million for the year ended
December 31, 1997 on assumed bank borrowings of $82.8 million incurred to
consummate the Allvest, Great Plains and Abraxas acquisitions and
additional interest expense of $815,000 for the six months ended June 30,
1998 on assumed bank borrowings of $20.0 million incurred to consummate
the Allvest acquisition based at an interest rate of 8.75%.
(12) Records the elimination of investment income recognized by Great
Plains for the year ended December 31, 1997.
(13) Records an adjustment to income tax expense for the foregoing adjustments.
19
