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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD __________ TO _______________
COMMISSION FILE NUMBER 1-14472
CORNELL CORRECTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0433642
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1700 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TEXAS 77027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 623-0790
Indicate by a check mark whether Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At July 31, 1999 Registrant had outstanding 9,582,528 shares of its Common
Stock.
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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORNELL CORRECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 656 $ 2,519
Accounts receivable, net ............................... 36,274 27,564
Deferred tax asset ..................................... 1,209 1,209
Prepaids and other ..................................... 1,839 2,203
Restricted assets ...................................... 2,086 2,613
--------- ---------
Total current assets .............................. 42,064 36,108
PROPERTY AND EQUIPMENT, net .................................. 172,453 159,219
OTHER ASSETS:
Intangible assets, net ................................. 9,598 9,935
Deferred costs and other ............................... 3,887 7,433
--------- ---------
Total assets ...................................... $ 228,002 $ 212,695
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ............... $ 23,607 $ 17,838
Deferred revenues ...................................... 624 1,369
Note Payable ........................................... 10,000 --
Current portion of long-term debt ...................... 4 73
--------- ---------
Total current liabilities ......................... 34,235 19,280
LONG-TERM DEBT, net of current portion ....................... 100,250 98,407
DEFERRED TAX LIABILITIES ..................................... 800 2,769
OTHER LONG-TERM LIABILITIES .................................. 731 739
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 10,000,000 shares
authorized, none outstanding ......................... -- --
Common stock, $.001 par value, 30,000,000 shares
authorized, 10,137,528 and 10,105,916 shares issued
and outstanding, respectively ........................ 10 10
Additional paid-in capital ............................. 90,255 90,038
Stock option loans ..................................... (455) (455)
Retained earnings ...................................... 6,175 5,906
Treasury stock (697,100 shares of common stock, at cost) (3,999) (3,999)
--------- ---------
Total stockholders' equity ........................ 91,986 91,500
--------- ---------
Total liabilities and stockholders' equity ........ $ 228,002 $ 212,695
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 2 -
<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES .................................................. $ 43,609 $ 29,099 $ 81,965 $ 56,140
OPERATING EXPENSES ........................................ 32,521 23,618 62,590 45,734
START-UP EXPENSES ......................................... 1,722 -- 2,265 --
DEPRECIATION AND AMORTIZATION ............................. 1,554 965 2,958 1,900
GENERAL AND ADMINISTRATIVE EXPENSES ....................... 2,997 2,034 5,350 3,631
-------- -------- -------- --------
INCOME FROM OPERATIONS .................................... 4,815 2,482 8,802 4,875
INTEREST EXPENSE .......................................... 1,862 377 3,471 716
INTEREST INCOME ........................................... (18) (30) (39) (72)
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE ................................... 2,971 2,135 5,370 4,231
PROVISION FOR INCOME TAXES ................................ 1,188 854 2,148 1,692
-------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE ......................... 1,783 1,281 3,222 2,539
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, NET OF RELATED INCOME TAX
PROVISION OF $1,969 .................................... -- -- 2,954 --
-------- -------- -------- --------
NET INCOME ................................................ $ 1,783 $ 1,281 $ 268 $ 2,539
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE:
BASIC
Income before cumulative effect of change
in accounting principle ........................ $ .19 $ .14 $ .34 $ .27
Cumulative effect of change in accounting principle -- -- (.31) --
-------- -------- -------- --------
Net income ........................................ $ .19 $ .14 $ .03 $ .27
======== ======== ======== ========
DILUTED
Income before cumulative effect of change
in accounting principle ........................ $ .18 $ .13 $ .33 $ .26
Cumulative effect of change in accounting principle -- -- (.31) --
-------- -------- -------- --------
Net income ........................................ $ .18 $ .13 $ .03 $ .26
======== ======== ======== ========
NUMBER OF SHARES USED IN PER SHARE COMPUTATION:
BASIC ............................................... 9,429 9,416 9,421 9,407
DILUTED ............................................. 9,700 9,813 9,683 9,854
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 3 -
<PAGE>
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 268 $ 2,539
Adjustments to reconcile net income to net cash provided
by operating activities --
Cumulative effect of change in accounting principle . 2,954 --
Depreciation ........................................ 2,302 1,289
Amortization ........................................ 656 611
Change in assets and liabilities, net of effects from
acquisitions:
Accounts receivable ............................ (8,710) (2,325)
Restricted assets .............................. (66) (135)
Other assets ................................... (981) (2,402)
Accounts payable and accrued liabilities ....... 4,994 3,158
Deferred revenues and other liabilities ........ (753) (374)
-------- --------
Net cash provided by operating activities ........... 664 2,361
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................... (14,518) (28,189)
Acquisition of businesses, less cash acquired .......... -- (43,750)
-------- --------
Net cash used in investing activities ............... (14,518) (71,939)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ........................... 9,750 63,000
Payments on long-term debt ............................. (7,976) (11,424)
Proceeds from note payable ............................. 13,800 --
Payments on note payable ............................... (3,800) --
Proceeds from exercises of stock options ............... 217 175
-------- --------
Net cash provided by financing activities ........... 11,991 51,751
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ................. (1,863) (17,827)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......... 2,519 18,968
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................ $ 656 $ 1,141
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid, net of amounts capitalized .............. $ 2,136 $ 1,290
======== ========
Income taxes paid ...................................... $ 1,904 $ 1,831
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 4 -
<PAGE>
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by Cornell Corrections, Inc. (the "Company" or "Cornell") pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, all adjustments and disclosures necessary for a fair presentation of
these financial statements have been included. These financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's 1998 Annual Report on Form 10-K as filed with the Securities
and Exchange Commission.
2. PENDING ACQUISITIONS, CONSTRUCTION COMMITMENTS AND SHORT-TERM CREDIT
FACILITIES
As of August 13, 1999, the Company had approximately $150 million in
anticipated capital requirements for pending acquisitions, new correctional
facilities and existing facility expansions. These requirements are primarily
comprised of the following:
PENDING ACQUISITIONS
In May 1999, Cornell executed an agreement to acquire certain of the adult
and juvenile behavioral health and correctional assets of Interventions, a
not-for-profit corporation headquartered in Chicago, Illinois. The assets to be
acquired include approximately 45 programs provided throughout Illinois. In June
1999, Cornell announced that it had entered into an agreement to acquire
substantially all of the assets of Archway Programs, Inc. and Archway Programs
Delaware, Inc. (collectively "Archway"), both not-for-profit corporations based
in Camden, New Jersey. Archway operates adolescent, juvenile and adult treatment
educational facilities in New Jersey and Delaware.
Closing of the Interventions and Archway acquisition transactions is subject
to various conditions, including receipt of required governmental and other
consents. The Company expects to fund these pending acquisitions through a
combination of one or more financing alternatives discussed below.
CONSTRUCTION COMMITMENTS
The Company has commitments for three new correctional facilities and two
existing facility expansions. The funds for these new facilities, expansions and
related furnishings will be expended during the next twelve months. The Company
has an off-balance sheet lease financing agreement that is available to fund up
to approximately $17.5 million of these facility investments. The Company
believes that the remainder of the commitments discussed above will be funded
from (a) the expected net proceeds of a proposed sale and leaseback transaction
of one or more secure institutions currently scheduled to be consummated during
September 1999, (b) an expansion of the Company's off balance sheet lease
financing agreement, (c) a possible increase in the Company's lines of credit,
(d) additional sale and leaseback arrangements to be negotiated with leasing
investors and/or (e) other debt or equity financing arrangements.
Current credit facilities do not provide sufficient financing to fund the
pending acquisitions and all of the committed construction costs for the
announced new facilities and projects under construction. Management believes
that the remaining commitments of approximately $133 million will be funded
through the aforementioned anticipated financing transactions. There is no
assurance, however, that any of these planned financing transactions can be
consummated. If these contemplated financing transactions are not consummated,
the Company would be required to seek alternative, and potentially dilutive,
capital funding sources.
- 5 -
<PAGE>
SHORT-TERM CREDIT FACILITIES
As of June 30, 1999 and August 13, 1999, $10.0 million and $3.1 million
respectively of borrowings were outstanding under the Company's $10.0 million
subordinated line of credit ("Subordinated Note") which bears interest at prime
plus a margin of 3.25%. The Subordinated Note is due and payable on October 15,
1999.
3. LONG-TERM DEBT
As of June 30, 1999, the Company had borrowings outstanding under the 1998
Credit Facility of $50.3 million. Under the 1998 Credit Facility, the Company
has a $60.0 million revolving line of credit, the availability of which is
determined by the Company's projected pro forma cash flow. The 1998 Credit
Facility matures in 2003 and bears interest, at the election of the Company, at
either the prime rate plus a margin of 0% to .5% or a rate which is 1.75% to
2.50% above the applicable LIBOR rate. The 1998 Credit Facility is secured by
all of the Company's assets, including the stock of all the Company's
subsidiaries, does not permit the payment of cash dividends and requires the
Company to comply with certain earnings, net worth and debt service covenants.
Additionally, the 1998 Credit Facility provides the Company with the ability to
enter into future operating lease agreements that provide for residual value
guarantees.
As of June 30, 1999, the Company had outstanding $50.0 million of Senior
Secured Notes ("Senior Notes"). The Senior Notes, which bear interest at a fixed
rate of 7.74%, mature on July 15, 2010. Under the Senior Notes purchase
agreements, the Company is required to make eight annual principal payments of
$6.25 million beginning on July 15, 2003 and comply with certain financial
covenants. Earlier payments of principal are allowed subject to certain
prepayment provisions. Interest is payable semi annually. The holders of the
Senior Notes and the lender under the 1998 Credit Facility have a
collateral-sharing agreement whereby both sets of creditors have an equal
security interest in all the assets of the Company.
4. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted EPS is computed in the same manner as basic EPS, except that, among
other changes, the average share price for the period is used in all cases when
applying the treasury stock method to potentially dilutive outstanding stock
options.
5. START-UP EXPENSES
The Company adopted Statement of Position 98-5, Reporting on the Costs of
Start-Up Activities ("SOP 98-5") on January 1, 1999, and as a result recorded a
cumulative effect of a change in accounting principle of approximately $3.0
million, net of the related income tax provision of approximately $2.0 million.
SOP 98-5 required the Company to begin expensing start-up costs as incurred and
to expense previously capitalized start-up costs as a cumulative effect of a
change in accounting principle effective January 1, 1999.
- 6 -
<PAGE>
6. SEGMENT DISCLOSURE
The Company's three operating divisions are its reportable segments. The
secure institutional segment consists of the operation of secure adult
incarceration facilities. The juvenile segment consists of providing residential
treatment and educational programs and non-residential community-based programs
to juveniles between the ages of 10 and 17. The pre-release segment consists of
providing pre-release and halfway house programs for adult offenders. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Notes to Consolidated
Financial Statements included in the Company 1998 Annual Report on Form 10-K.
Intangible assets are not included in each segment's reportable assets, and the
amortization of intangible assets is not included in the determination of a
segment's operating income or loss. The Company evaluates divisional performance
based on income or loss from operations before general and administrative
expenses, incentive bonuses, amortization of intangibles, interest and income
taxes.
The only significant noncash item reported in the respective segments' income
or loss from operations is depreciation and amortization (excluding
intangibles):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Secure institutional ............. $ 19,055 $ 12,478 $ 35,968 $ 24,442
Juvenile ......................... 16,873 11,775 30,564 22,230
Pre-release ...................... 7,681 4,846 15,433 9,468
--------- --------- --------- ---------
Total revenues ...................... $ 43,609 $ 29,099 $ 81,965 $ 56,140
========= ========= ========= =========
Income from operations
Secure institutional ............. $ 4,616 $ 2,991 $ 8,541 $ 5,552
Juvenile ......................... 1,878 1,066 2,790 2,262
Pre-release ...................... 1,640 706 3,394 1,160
General and administrative expense (2,997) (1,944) (5,350) (3,442)
Incentive bonuses ................ -- (180) -- (350)
Amortization of intangibles ...... (154) (100) (306) (200)
Corporate and other .............. (168) (57) (267) (107)
--------- --------- --------- ---------
Total income from operations ........ $ 4,815 $ 2,482 $ 8,802 $ 4,875
========= ========= ========= =========
JUNE 30, DECEMBER 31,
1999 1998
--------- -------------
Assets
Secure institutional ............. $ 137,227 $ 127,774
Juvenile ......................... 42,311 37,917
Pre-release ...................... 32,141 28,815
Intangible assets, net ........... 9,598 9,935
Corporate and other .............. 6,725 8,254
--------- ---------
Total assets ........................ $ 228,002 $ 212,695
========= =========
</TABLE>
- 7 -
<PAGE>
7. MAJOR VENDOR TRANSACTIONS
The Company utilizes an unrelated privately owned construction company
(Construction Contractor) as its preferred contractor for construction projects.
The Construction Contractor has received contracts to construct facilities which
the Company owns and/or operates totaling approximately $68.5 million, $20.4
million, and $71.0 million during the six months ended June 30, 1999 and the
years ended December 31, 1998 and 1997, respectively. Management believes the
Company is a substantial customer of the Construction Contractor.
During the six months ended June 30, 1999, this Construction Contractor paid
the Company $1.0 million related to a cost-sharing agreement in connection with
the operations of the Santa Fe Adult Detention Facility because the operating
margins had not reached certain levels until June 1999. These cost-sharing
payments were reported by the Company as a reduction of operating expenses. The
Construction Contractor has no obligation to make any further cost-sharing
payments.
- 8 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Cornell provides integrated development, design, construction and operational
services to governmental agencies within three operating divisions: (a) secure
institutional correctional and detention services; (b) juvenile treatment,
educational and detention services and (c) pre-release correctional services.
The following table sets forth total offender capacity, the contracted offender
capacity and beds in operation at the end of the periods shown, and the average
occupancy percentage for the periods then ended.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- -------------
<S> <C> <C>
Offender capacity (end of period):
Residential .............................................. 11,395 9,135
Non-residential community-based .......................... 1,668 1,390
Total .................................................. 13,063 10,525
Contracted offender capacity in operation (end of period) ..... 9,714 8,700
Contracted beds in operation (end of period) (1) .............. 8,046 7,310
Average occupancy based on contracted beds in operation (1) (2) 94.8% 93.8%
</TABLE>
- -----------
(1) Occupancy percentages are based on contracted offender capacity of
residential facilities in operation. Since certain facilities have offender
capacities that exceed contracted capacities, occupancy percentages can
exceed 100% of contracted capacity.
(2) Occupancy percentages reflect reduced occupancy during the start-up phase
of any applicable facility, resulting in a lower average occupancy in
periods when Cornell has substantial start-up activities.
Cornell derives substantially all its revenues from operating correctional,
detention and pre-release facilities for federal, state and local governmental
agencies in the United States. Revenues for operation of correctional, detention
and pre-release facilities are generally recognized on a per diem rate based
upon the number of occupant days for the period.
Factors which Cornell considers in determining the per diem rate to charge
include: (a) the programs specified by the contract and the related staffing
levels; (b) the wage levels customary in the respective geographic areas; (c)
whether the proposed facility is to be leased or purchased and (d) the
anticipated average occupancy levels which Cornell believes could reasonably be
maintained.
Cornell's operating margins generally vary from facility to facility
(regardless of whether the facility is secure institutional, juvenile or
pre-release) based on (a) the level of competition for the contract award, (b)
the proposed length of the contract, (c) the occupancy levels for a facility,
(d) the level of capital commitment required with respect to a facility and (e)
the anticipated changes in operating costs, if any, over the term of the
contract.
Cornell is responsible for all facility operating expenses, except for
certain debt service and lease payments with respect to facilities for which it
has only a management contract (six facilities in operation at June 30, 1999).
A majority of Cornell's facility operating expenses consist of fixed costs.
These fixed costs include lease and rental expense, insurance, utilities and
depreciation. As a result, when Cornell begins operating new or expanded
facilities, fixed operating expenses increase. The amount of Cornell's variable
operating expenses, including food, medical services, supplies and clothing,
depend on occupancy levels at the facilities operated by Cornell. Cornell's
largest single operating expense, facility payroll expense and related
employment
- 9 -
<PAGE>
taxes and costs, has both a fixed and a variable component. Cornell can adjust
staffing and payroll to a certain extent based on occupancy at a facility, but a
minimum fixed number of employees is required to operate and maintain any
facility regardless of occupancy levels.
Start-up expenses consist primarily of payroll, benefits, training and other
operating costs prior to opening a new or expanded facility and during the first
three months of operation while occupancy is ramping up.
In January 1999, Cornell adopted Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities," or SOP 98-5, and recorded a net-of-tax charge
of approximately $3.0 million for the cumulative effect of a change in
accounting principle. As a result of Cornell's adoption of SOP 98-5, Cornell
began to record start-up expenses as incurred.
General and administrative expenses consist primarily of salaries of
Cornell's corporate and administrative personnel who provide senior management,
accounting, finance, human resources, payroll, information systems and other
services and costs of business development.
Newly opened facilities are staffed according to contract requirements when
Cornell begins receiving offenders. Offenders are typically assigned to a newly
opened facility on a phased-in basis over a one- to three-month period. Cornell
often incurs start-up operating losses at new facilities until break-even
occupancy levels are reached. Quarterly results can be substantially affected by
the timing of the beginning of operations as well as construction of new
facilities.
Working capital requirements generally increase immediately prior to Cornell
beginning management of a new facility as it incurs start-up costs and purchases
necessary equipment and supplies before facility management revenue is realized.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages of
revenue represented by certain items in Cornell's historical consolidated
statements of operations.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ---------------------
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues ................................ 100.0% 100.0% 100.0% 100.0%
Operating expenses ...................... 74.6 81.2 76.4 81.5
Start-up expenses ....................... 3.9 -- 2.8 --
Depreciation and amortization ........... 3.6 3.3 3.6 3.4
General and administrative expenses ..... 6.9 7.0 6.5 6.5
----- ----- ----- -----
Income from operations .................. 11.0 8.5 10.7 8.6
Interest expense, net ................... 4.2 1.2 4.2 1.1
----- ----- ----- -----
Income before provision for income
taxes and cumulative effect of change
in accounting principle .............. 6.8 7.3 6.5 7.5
Provision for income taxes .............. 2.7 2.9 2.6 3.0
----- ----- ----- -----
Income before cumulative effect of change
in accounting principle .............. 4.1% 4.4% 3.9% 4.5%
===== ===== ===== =====
</TABLE>
- 10 -
<PAGE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUES. Revenues increased 49.9% to $43.6 million for the three months
ended June 30, 1999 from $29.1 million for the three months ended June 30, 1998.
Secure institutional division revenues increased 52.7% to $19.1 million for
the three months ended June 30, 1999 from $12.5 million for the three months
ended June 30, 1998 due principally to (a) the opening of the 560 bed expansion
of the Big Spring Complex in the fourth quarter of 1998, (b) the opening of the
550 initial beds in the D. Ray James Prison in the fourth quarter of 1998 and an
additional 450 beds in the second quarter of 1999 and (c) the opening of the 672
bed Santa Fe County Adult Detention Facility in the third quarter of 1998.
Revenues attributable to start-up operations were approximately $904,000 for the
three months ended June 30, 1999.
Juvenile division revenues increased 43.1% to $16.9 million for the three
months ended June 30, 1999 from $11.8 million for the three months ended June
30, 1998 due to (a) the reimbursement for increased educational program costs at
certain residential facilities, (b) the opening of the Santa Fe County Juvenile
Detention Facility late in the third quarter of 1998, (c) increased occupancy at
the Cornell Abraxas I and Cornell Abraxas of Ohio facilities due to facility
expansions completed in the third quarter of 1998, (d) the opening of the
Cornell Abraxas Youth Center in early 1999 and (e) the addition of various new
non-residential, day treatment and mental health programs in Pennsylvania.
Revenues attributable to start-up operations were approximately $221,000 for the
three months ended June 30, 1999.
Pre-release division revenues increased 58.3% to $7.7 million for the three
months ended June 30, 1999 from $4.8 million for the three months ended June 30,
1998 due principally to the operations of five pre- release centers in Alaska
acquired from Allvest, Inc. in August 1998.
OPERATING EXPENSES. Operating expenses increased 37.7% to $32.5 million for
the three months ended June 30, 1999 from $23.6 million for the three months
ended June 30, 1998.
Secure institutional division operating expenses increased 35.0% to $12.1
million for the three months ended June 30, 1999 from $9.0 million for the three
months ended June 30, 1998 due principally to the opening of the 560 bed
expansion of the Big Spring Complex and the 550 initial beds in the D. Ray James
Prison in the fourth quarter of 1998. As a percentage of revenues, excluding
start-up operations, secure institutional division operating expenses were 66.9%
for the three months ended June 30, 1999 compared to 72.1% for the three months
ended June 30, 1998. The improved operating margin for the three months ended
June 30, 1999 compared to the three months ended June 30, 1998 was due
principally to a greater mix of owned versus leased facilities and a reduction
to operating expenses of $500,000 at the Santa Fe Adult Detention Facility
resulting from a cost-sharing agreement with the Company's construction
contractor (See Note 7 to the Consolidated Financial Statements).
Juvenile division operating expenses increased 37.4% to $14.5 million for the
three months ended June 30, 1999 from $10.6 million for the three months ended
June 30, 1998. This increase in operating expenses was due to (a) increased
educational program costs at certain residential facilities, (b) the start of
operations at the Santa Fe County Juvenile Detention Facility in the third
quarter of 1998 and (c) the opening of the Cornell Abraxas Youth Center in early
1999. As a percentage of revenues, excluding start-up operations, operating
expenses were 87.3% for the three months ended June 30, 1999 compared to 89.8%
for the three months ended June 30, 1998. The improved operating margin for the
three months ended June 30, 1999 compared to the three months ended June 30,
1998 was due principally to results from certain expanded residential
facilities.
- 11 -
<PAGE>
Pre-release division operating expenses increased 45.4% to $5.8 million for
the three months ended June 30, 1999 from $4.0 million for the three months
ended June 30, 1998 due principally to the acquisition of five pre-release
centers in Alaska from Allvest, Inc. in August 1998. As a percentage of
revenues, operating expenses were 75.4% for the three months ended June 30, 1999
compared to 82.2% for the three months ended June 30, 1998. The improved
operating margin for the three months ended June 30, 1999 compared to the three
months ended June 30, 1998 was due principally to a greater mix of owned versus
leased facilities, including four owned facilities in Alaska.
START-UP EXPENSES. Start-up expenses were $1.7 million for the three months
ended June 30, 1999 and were attributable to the start-up activities of the
additional 450 beds in the D. Ray James Prison during the second quarter of 1999
and new juvenile programs in Pennsylvania.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 61.0%
to $1.6 million for the three months ended June 30, 1999 from $1.0 million for
the three months ended June 30, 1998 due to (a) depreciation of buildings and
equipment acquired from Allvest, Inc. in August 1998, (b) the opening of the 560
bed expansion of the Big Spring Complex in the fourth quarter of 1998, (c) the
opening of the first 1,000 beds of the D. Ray James Prison from the fourth
quarter of 1998 through the second quarter of 1999 and (d) various facility
expansions and related equipment.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 47.3% to $3.0 million for the three months ended June 30, 1999 from
$2.0 million for the three months ended June 30, 1998. The increase in general
and administrative expenses resulted principally from additional corporate,
business development and administrative personnel, overhead and travel to manage
the increased business of Cornell and for development of new contracts.
Additionally, there were non-recurring severance, recruiting and relocation
expenses incurred during the three months ended June 30, 1999 as a result of
certain executive and other senior management changes.
INTEREST. Interest expense, net of interest income, increased to $1.8 million
for the three months ended June 30, 1999 from $347,000 for the three months
ended June 30, 1998 due principally to increased borrowings to finance the
acquisition of the Alaskan assets of Allvest, Inc. in August 1998 and for the
construction costs of new facilities including the 560 bed Big Spring Complex
expansion and the completed portions of the D. Ray James Prison. During the
three months ended June 30, 1999, Cornell capitalized interest totaling $377,000
related to costs for construction of the D. Ray James Prison.
INCOME TAXES. For the three months ended June 30, 1999 and 1998, Cornell
recognized a provision for income taxes at an estimated effective rate of 40%.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES. Revenues increased 46.0% to $82.0 million for the six months ended
June 30, 1999 from $56.1 million for the six months ended June 30, 1998.
Secure institutional division revenues increased 47.2% to $36.0 million for
the six months ended June 30, 1999 from $24.4 million for the six months ended
June 30, 1998 due principally to (a) the opening of the 560 bed expansion of the
Big Spring Complex in the fourth quarter of 1998, (b) the opening of the 550
initial beds in the D. Ray James Prison in the fourth quarter of 1998 and an
additional 450 beds in the second quarter of 1999 and (c) the opening of the 672
bed Santa Fe County Adult Detention Facility in the third quarter of 1998.
Revenues attributable to start-up operations were approximately $904,000 for the
six months ended June 30, 1999.
- 12 -
<PAGE>
Juvenile division revenues increased 37.4% to $30.5 million for the six
months ended June 30, 1999 from $22.2 million for the six months ended June 30,
1998 due to (a) the opening of the Danville Center for Adolescent Females in the
second quarter of 1998, (b) the opening of the Santa Fe County Juvenile
Detention Facility in the third quarter of 1998, (c) increased occupancy at the
Cornell Abraxas I and Cornell Abraxas of Ohio facilities due to facility
expansions completed in the third quarter of 1998 and (d) the addition of
various new programs including two new non-residential mental health programs in
Pennsylvania. Revenues attributable to start-up operations were approximately
$302,000 for the six months ended June 30, 1999.
Pre-release division revenues increased 62.9% to $15.4 million for the six
months ended June 30, 1999 from $9.5 million for the six months ended June 30,
1998 due principally to the operations of five pre-release centers in Alaska
acquired from Allvest, Inc. in August 1998.
OPERATING EXPENSES. Operating expenses increased 36.9% to $62.6 million for
the six months ended June 30, 1999 from $45.7 million for the six months ended
June 30, 1998.
Secure institutional division operating expenses increased 35.5% to $24.3
million for the six months ended June 30, 1999 from $17.9 million for the six
months ended June 30, 1998 due principally to the opening of the 560 bed
expansion of the Big Spring Complex and the 550 initial beds in the D. Ray James
Prison in the fourth quarter of 1998. As a percentage of revenues, excluding
start-up operations, secure institutional division operating expenses were 69.2%
for the six months ended June 30, 1999 compared to 73.3% for the six months
ended June 30, 1998. The improved operating margin for the six months ended June
30, 1999 compared to the six months ended June 30, 1998 was due principally to a
greater mix of owned versus leased facilities and a reduction to operating
expenses of $1.0 million at the Santa Fe Adult Detention Facility resulting from
a cost-sharing agreement with the Company's construction contractor (See Note 7
To the Consolidated Financial Statements).
Juvenile division operating expenses increased 35.5% to $26.7 million for the
six months ended June 30, 1999 from $19.7 million for the six months ended June
30, 1998. This increase in operating expenses was due to (a) the Danville Center
for Adolescent Females which began operations in the second quarter of 1998, (b)
the Santa Fe County Juvenile Detention Facility which began operations late in
the third quarter of 1998, (c) increased occupancy at the Cornell Abraxas I and
Cornell Abraxas of Ohio facilities due to facility expansions completed in the
third quarter of 1998 and (d) the addition of new programs including two new
non-residential mental health programs in Pennsylvania. As a percentage of
revenues, excluding start-up operations, operating expenses were 88.2% for the
six months ended June 30, 1999 compared to 88.5% for the six months ended June
30, 1998.
Pre-release division operating expenses increased 44.9% to $11.6 million for
the six months ended June 30, 1999 from $8.0 million for the six months ended
June 30, 1998 due principally to the acquisition of five pre-release centers in
Alaska from Allvest, Inc. in August 1998. As a percentage of revenues, operating
expenses were 75.5% for the six months ended June 30, 1999 compared to 84.5% for
the six months ended June 30, 1998. The higher operating margin for the six
months ended June 30, 1999 versus the six months ended June 30, 1998 was due
principally to a greater mix of owned versus leased facilities, including four
owned facilities in Alaska.
START-UP EXPENSES. Start-up expenses were $2.3 million for the six months
ended June 30, 1999 and were attributable to the start-up activities of the
additional 450 beds in the D. Ray James Prison during the second quarter of
1999, the Cornell Abraxas Youth Center during the first quarter of 1999 and to
other new juvenile programs in Pennsylvania.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 55.7%
to $3.0 million for the six months ended June 30, 1999 from $1.9 million for the
six months ended June 30, 1998 due to (a)
- 13 -
<PAGE>
depreciation of buildings and equipment acquired from Allvest, Inc. in August
1998, (b) the opening of the 560 bed expansion of the Big Spring Complex in the
fourth quarter of 1998, (c) the opening of the first 1,000 beds in the D. Ray
James Prison from the fourth quarter of 1998 through the second quarter of 1999
and (d) various facility expansions and related equipment.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 47.3% to $5.4 million for the six months ended June 30, 1999 from $3.6
million for the six months ended June 30, 1998. The increase in general and
administrative expenses resulted principally from additional corporate, business
development and administrative personnel, overhead and travel to manage the
increased business of Cornell and for development of new contracts.
Additionally, there were non-recurring severance, recruiting and relocation
expenses incurred during the 1999 period as a result of certain executive and
other senior management changes.
INTEREST. Interest expense, net of interest income, increased to $3.4 million
for the six months ended June 30, 1999 from $644,000 for the six months ended
June 30, 1998 due principally to increased borrowings to finance the acquisition
of the Alaskan assets of Allvest, Inc. in August 1998 and for the construction
costs of new facilities including the 560 bed Big Spring Complex expansion and
the completed portions of the D. Ray James Prison. During the six months ended
June 30, 1999, Cornell capitalized interest totaling $828,000 related to costs
for construction of the D. Ray James Prison.
INCOME TAXES. For the six months ended June 30, 1999 and 1998, Cornell
recognized a provision for income taxes at an estimated effective rate of 40%.
ACCOUNTING CHANGE. Cornell adopted SOP 98-5 in January 1999 and recorded a
net-of-tax charge of approximately $3.0 million for the cumulative effect of a
change in accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Cornell's primary capital requirements are for (a) construction of
new facilities, (b) acquisitions, (c) expansions of existing facilities, (d)
working capital, (e) start-up costs related to new operating contracts and (f)
furniture, fixtures and equipment. Working capital requirements generally
increase immediately prior to the Company commencing management of a new
facility as the Company incurs start-up costs and purchases necessary equipment
and supplies before facility management revenue (typically through per diem
occupancy fees) is realized.
As of August 13, 1999, the Company had approximately $150 million in
anticipated capital requirements for pending acquisitions, new correctional
facilities and existing facility expansions. These requirements are primarily
comprised of the following:
PENDING ACQUISITIONS. In May 1999, Cornell executed an agreement to acquire
certain of the adult and juvenile behavioral health and correctional assets of
Interventions, a not-for-profit corporation headquartered in Chicago, Illinois.
The assets to be acquired include approximately 45 programs provided throughout
Illinois. In June 1999, Cornell announced that it had entered into an agreement
to acquire substantially all of the assets of Archway Programs, Inc. and Archway
Programs Delaware, Inc. (collectively "Archway"), both not-for-profit
corporations based in Camden, New Jersey. Archway operates adolescent, juvenile
and adult treatment educational facilities in New Jersey and Delaware.
Closing of the Interventions and Archway acquisition transactions is subject
to various conditions, including receipt of required governmental and other
consents. The Company expects to fund these pending acquisitions through a
combination of one or more financing alternatives discussed below.
- 14 -
<PAGE>
CONSTRUCTION COMMITMENTS. The Company has commitments for three new
correctional facilities and two existing facility expansions. The funds for
these new facilities, expansions and related furnishings will be expended during
the next twelve months. The Company has an off-balance sheet lease financing
agreement that is available to fund up to approximately $17 million of these
facility investments. The Company believes that the remainder of the commitments
discussed above will be funded from (a) the expected net proceeds of a proposed
sale and leaseback transaction of one or more secure institutions currently
scheduled to be consummated during September 1999, (b) an expansion of the
Company's off balance sheet lease financing agreement, (c) a possible increase
in the Company's lines of credit, (d) additional sale and leaseback arrangements
to be negotiated with leasing investors and/or (e) other debt or equity
financing arrangements.
Current credit facilities do not provide sufficient financing to fund the
pending acquisitions and all of the committed construction costs for the
announced new facilities and projects under construction. Management believes
that the remaining commitments of approximately $133 million will be funded
through the aforementioned anticipated financing transactions. There is no
assurance, however, that any of these planned financing transactions can be
consummated. If these contemplated financing transactions are not consummated,
the Company would be required to seek alternative, and potentially dilutive,
capital funding sources.
SHORT-TERM CREDIT FACILITIES. As of June 30, 1999 and August 13, 1999, $10.0
million and $3.1 million respectively of borrowings were outstanding under the
Company's $10.0 million subordinated line of credit ("Subordinated Note") which
bears interest at prime plus a margin of 3.25%. The Subordinated Note is due and
payable on October 15, 1999.
LONG-TERM DEBT FACILITIES. In December 1998, Cornell entered into the 1998
Credit Facility with a banking syndicate. The 1998 Credit Facility provides for
borrowings of up to $60.0 million under a revolving line of credit, the
availability of which is determined by Cornell's projected pro forma cash flow.
The 1998 Credit Facility matures in March 2003 and bears interest, at the
election of Cornell, at either the prime rate plus a margin of up to 0.5% or a
rate which is 1.75% to 2.50% above the applicable LIBOR-rate. The 1998 Credit
Facility is secured by all of Cornell's assets, including the stock of all of
Cornell's subsidiaries, does not permit the payment of cash dividends and
requires Cornell to comply with certain leverage, net worth and debt service
covenants. As of August 13, 1999, Cornell had borrowings outstanding under the
1998 Credit Facility of $60.0 million.
Under the 1998 Credit Facility, Cornell is allowed to enter into future
operating lease agreements for the acquisition or development of operating
facilities at a cost not to exceed $40 million. The lease(s) under this
arrangement will have a term of five years, will include purchase and renewal
options and will provide for a substantial residual value guarantee
(approximately 85% of the total cost) by Cornell which would be due upon
termination of the lease(s). Upon termination of a lease, Cornell could either
exercise a purchase option, or the facilities could be sold to a third party.
Cornell expects the fair market value of the leased facilities to substantially
reduce or eliminate Cornell's payment under the residual value guarantee. At
August 13, 1999 there was approximately $17.5 million available under this
arrangement.
As of August 13, 1999, Cornell had outstanding $50 million of Senior Secured
Notes, or Senior Notes. The Senior Notes bear interest at a fixed rate of 7.74%
and mature on July 15, 2010. Under the Senior Notes purchase agreements, Cornell
is required to make eight annual principal payments of $6.25 million beginning
on July 15, 2003 and comply with certain financial covenants. Earlier payments
of principal are allowed subject to certain prepayment provisions. Interest is
payable semi annually. The holders of the Senior Notes and the lenders under the
1998 Credit Facility have a collateral-sharing agreement whereby both sets of
creditors have an equal security interest in all of the assets of Cornell.
- 15 -
<PAGE>
CAPITAL EXPENDITURES. Capital expenditures for the six months ended June 30,
1999 were $14.5 million and related principally to (a) construction-in-progress
for completion of the 1,625 bed D. Ray James Prison, (b)
construction-in-progress for the 722 bed expansions at the Big Spring Complex,
(c) the purchase of the Parkview Center and an additional building for future
development, both in Anchorage, Alaska, (d) leasehold improvements at the
Cornell Abraxas Youth Center and (e) various hardware and software for
information systems upgrades. Cornell spent approximately $1.1 million during
the period for its management information systems upgrades. An estimated
additional $3.5 million is expected to be used in the next six months to improve
Cornell's internal hardware and software systems.
ANNOUNCED NEW FACILITIES AND PROJECTS UNDER CONSTRUCTION. The Company is
currently constructing the 180-bed New Morgan Academy in New Morgan,
Pennsylvania, the expansion of 722-beds at the Big Spring Correctional Complex,
and certain other expansions and renovation of existing facilities.
In April 1999, the Company was awarded a contract to design, build, own and
operate a 1,000-bed prison for the FBOP in Moshannon Valley, Pennsylvania
("Moshannon Valley Correctional Complex") and immediately commenced construction
and activation activities. In June 1999, the FBOP issued a Stop-Work Order
pending a re-evaluation of their environmental documentation supporting the
decision to award the contract. The Stop-Work Order is still in effect.
In June 1999, the Company was selected by the State of Utah to design, build,
own and operate a 500-bed prison. The Company is currently involved in contract
negotiations for this project.
YEAR 2000 ISSUES
Cornell continues to identify, evaluate and implement modifications to its
business systems in order to achieve Year 2000 date conversion compliance.
Cornell's business systems are comprised of third-party vendor systems and
certain internally developed systems that vary greatly in size, complexity and
technical architecture. As a part of Cornell's ongoing business plan, Cornell
continues to install new applications and upgrade existing ones in order to
bring applications for its various locations into compliance. The majority of
information technology systems readiness efforts and critical-systems testing
were completed by the middle of 1999. The remaining systems are to be completed
by the fourth quarter of 1999. Cornell is in the process of receiving responses
from third-party software vendors. Preliminary indications are that they will be
Year 2000 ready and will provide updated software on a timely basis.
The majority of the non-information technology, or non-IT, systems were
inventoried during the second quarter of 1999. All non-IT systems are scheduled
to be ready by the end of the third quarter of 1999, with minor exceptions.
Normal maintenance schedules for the fourth quarter of 1999 will allow Cornell
to complete any final readiness efforts.
The inability of Cornell's contracting governmental agencies to timely pay
Cornell for its services or the inability of Cornell's third-party suppliers to
provide their products and services could seriously harm Cornell's business.
Contacts have been made with all critical third parties, such as governmental
agencies, financial institutions, suppliers and vendors, to determine if they
will be Year 2000 compliant. An aggressive follow-up program has been
implemented with those third parties not responding or those returning an
unacceptable response. If it is determined that there is a significant risk, an
effort will be made to work with this third-party supplier. If this is not
successful, a new provider of the same services will be found. However, if
Cornell's contracting governmental agencies do not respond or return
unacceptable responses and are not able to timely pay Cornell for its services,
Cornell's business could be seriously harmed. Cornell still has not yet
determined the complete status of Year 2000 compliance of its third parties or
what additional costs, if any, might be required by Cornell.
- 16 -
<PAGE>
Cornell is currently implementing a broad information systems upgrade. In
connection with such upgrades, Cornell is upgrading certain hardware and
software systems to ensure Year 2000 compliance at an estimated aggregate cost
of $1.8 million. As Year 2000 impact assessment nears completion and the
renovation planning, readiness implementation and testing evolve, the estimated
costs may change.
The most reasonably likely worst-case Year 2000 scenarios would be the
inability of Cornell's contracting governmental agencies to timely pay Cornell
for its services or the inability of third-party suppliers, such as utility
providers, telecommunication companies, and other critical suppliers such as
food service suppliers and health care suppliers, to continue providing their
products and services. These pose the most material operational, safety and/or
financial risks to Cornell. In addition, Cornell may not obtain accurate and
timely Year 2000 date impact information from suppliers of automation and
process control systems and processes. Without quality information from
suppliers, specifically on embedded chip technology, some Year 2000 problems
could go undetected until after January 1, 2000.
Cornell has localized contingency plans already in place and is currently
working to develop a corporate-wide contingency plan format. This format
includes a template and other guidelines to help develop a plan that will cover
the Year 2000 areas of concern. These plans are to be completed and tested, when
practicable, by the fourth quarter of 1999.
The foregoing Year 2000 discussion includes forward-looking statements of
Cornell's efforts and management's expectations relating to Year 2000 readiness.
Cornell's ability to achieve Year 2000 readiness, and the level of costs
associated therewith, could be adversely impacted by, among other things, the
availability and cost of programming and testing resources, vendors' ability to
install or modify proprietary hardware and software, and unanticipated problems
identified in the ongoing Year 2000 readiness review.
INFLATION
Management of Cornell believes that inflation has not had a material effect
on its results of operations during the past three years. However, most of
Cornell's facility management contracts provide for payments to Cornell of
either fixed per diem fees or per diem fees that increase by only small amounts
during the terms of the contracts. Inflation could substantially increase
Cornell's personnel costs (the largest component of facility management expense)
or other operating expenses at rates faster than any increases in occupancy
fees.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, Cornell is exposed to market risk,
primarily from changes in interest rates. Cornell continually monitors exposure
to market risk and develops appropriate strategies to manage this risk. Cornell
is not exposed to any other significant market risks, including commodity price
risk, foreign currency exchange risk or interest rate risks from the use of
derivative financial instruments. Management does not use derivative financial
instruments for trading or to speculate on changes in interest rates or
commodity prices.
Cornell's exposure to changes in interest rates primarily results from its
long-term debt with both fixed and floating interest rates. Cornell's debt with
fixed interest rates consists of the Senior Notes. Cornell's debt with variable
interest is its revolving line of credit. At June 30, 1999, approximately 54.7%
($60.3 million) of the long-term debt was subject to variable interest rates.
The detrimental effect of a hypothetical 100 basis point increase in interest
rates would be to reduce income before provision for income taxes by
approximately $240,000 for the six months ended June 30, 1999. At June 30, 1999,
the fair value of Cornell's fixed rate debt approximated carrying value based
upon discounted future cash flows using current market prices.
- 17 -
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently and from time to time is subject to claims and suits
arising in the ordinary course of business, including claims for damages for
personal injuries or for wrongful restriction of, or interference with, inmate
privileges. In the opinion of management of the Company, the outcome of the
proceedings to which the Company is currently a party will not have a material
adverse effect upon the Company's operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 12, 1999, the Company held its 1999 Annual Meeting of Stockholders.
The matters voted on at the meeting and the results thereof are as follows:
Stockholders elected the persons listed below as directors whose terms expire
at the 2000 Annual Meeting of Stockholders. Results by nominee were:
AUTHORITY
VOTED FOR WITHHELD
----------- ----------
David M. Cornell................. 6,830,935 24,786
Campbell A. Griffin, Jr.......... 6,854,835 886
Peter A. Leidel.................. 6,830,935 24,786
Arlene R. Lissner................ 6,830,735 24,986
Tucker Taylor.................... 6,854,735 986
Stockholders ratified the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31, 1999,
with 6,851,381 shares voted for, 2,850 shares voted against, 1,490 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
11.1 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
99.1 Press release issued August 12, 1999
b. Reports on Form 8-K
None.
- 18 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CORNELL CORRECTIONS, INC.
Date: August 16, 1999 By: /s/ STEVEN W. LOGAN
STEVEN W. LOGAN
Chief Executive Officer and
Acting Chief Financial Officer
(Principal Executive Officer)
Date: August 16, 1999 By: /s/ KEVIN B. KELLY
KEVIN B. KELLY
Chief Accounting Officer and Controller
(Principal Accounting Officer)
- 19 -
EXHIBIT 11.1
CORNELL CORRECTIONS, INC.
Statement Re: Computation of Per Share Earnings
(in thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
-----------------------------------------------
1999 1998
--------------------- ---------------------
BASIC DILUTED BASIC DILUTED
--------------------- ---------------------
<S> <C> <C> <C> <C>
Net Earnings ........................................ $ 1,783 $ 1,783 $ 1,281 $ 1,281
===================== =====================
Shares used in computing net earnings per share:
Weighted average common shares and
common share equivalents ..................... 10,126 10,126 9,971 9,971
Less treasury shares ............................ (697) (697) (555) (555)
Effect of shares issuable under stock options
and warrants based on the treasury stock method -- 272 -- 397
--------------------- ---------------------
9,429 9,701 9,416 9,813
--------------------- ---------------------
Net earnings per share ............................. $ 0.19 $ 0.18 $ 0.14 $ 0.13
===================== =====================
SIX MONTHS ENDED JUNE 30
-----------------------------------------------
1999 1998
------------------------ ---------------------
BASIC DILUTED BASIC DILUTED
------------------------ ---------------------
Net Earnings ........................................ $ 268 $ 268 $ 2,538 $ 2,538
===================== =====================
Shares used in computing net earnings per share:
Weighted average common shares and
common share equivalents ..................... 10,118 10,118 9,962 9,962
Less treasury shares ............................ (697) (697) (555) (555)
Effect of shares issuable under stock options
and warrants based on the treasury stock method -- 262 -- 447
--------------------- ---------------------
9,421 9,683 9,407 9,854
--------------------- ---------------------
Net earnings per share ............................. $ 0.03 $ 0.03 $ 0.27 $ 0.26
===================== =====================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 656
<SECURITIES> 0
<RECEIVABLES> 36,274
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,064
<PP&E> 181,419
<DEPRECIATION> (8,996)
<TOTAL-ASSETS> 228,002
<CURRENT-LIABILITIES> 34,235
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 91,976
<TOTAL-LIABILITY-AND-EQUITY> 228,002
<SALES> 0
<TOTAL-REVENUES> 81,965
<CGS> 0
<TOTAL-COSTS> 73,163
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,471
<INCOME-PRETAX> 5,370
<INCOME-TAX> 2,148
<INCOME-CONTINUING> 3,222
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,954
<NET-INCOME> 268
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
EXHIBIT 99.1
Contact: Steven W. Logan
Chief Executive Officer
(713) 623-0790
FOR IMMEDIATE RELEASE
CORNELL COMPANIES APPOINTS STEVEN W. LOGAN
AS CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR
HOUSTON, TEXAS - AUGUST 12, 1999 - CORNELL COMPANIES, INC. (NYSE: CRN) today
announced that Steven W. Logan has been named Chief Executive Officer and
President and has also been added to the Board of Directors. David M.
Cornell will remain active in the vision of the Company as the Chairman of
the Board.
David M. Cornell, Chairman of the Board, stated "Having founded Cornell
Companies, I have enjoyed directing this management team through the many
opportunities faced by a growing company. Mr. Logan and I have worked closely
together for many years overseeing the growth of this Company from its early
stages into one of the leading providers of private correctional services in the
United States. I am confident that Mr. Logan's broad based experience as Chief
Financial Officer and Chief Operating Officer will provide the proper foundation
to continue the Company's mission and growth under his leadership."
Steven W. Logan, Chief Executive Officer and President, stated "Cornell
Companies would not be the company it is today without the leadership, vision
and drive provided by David Cornell. I am fortunate to have had a seasoned
mentor such as David over the many years, and I look forward to David's
continued vision provided as Chairman of the Board. We have built a strong core
management team which is well positioned for the Company's future."
Cornell (WWW.CORNELLCOMPANIES.COM) has contracts to operate 56 facilities with a
total offender capacity of 13,063. Cornell's facilities are located in 12 states
and the District of Columbia.
Cornell Companies, a Houston, Texas-based firm, is one of the leading providers
of privatized correctional, detention and pre-release services in the United
States. The Company provides integrated facility development, design,
construction, and operational services to governmental agencies within three
divisions: (i) secure institutional, (ii) juvenile and (iii) pre-release.
THIS PRESS RELEASE MAY CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS ARE BASED
ON CURRENT PLANS AND EXPECTATIONS OF CORNELL COMPANIES, INC. AND INVOLVE RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL FUTURE ACTIVITIES AND RESULTS OF
OPERATIONS TO BE MATERIALLY DIFFERENT FROM THOSE SET FORTH IN THE
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER INCLUDE, AMONG OTHERS, (I) RISKS ASSOCIATED WITH ACQUISITIONS AND THE
INTEGRATION THEREOF (INCLUDING THE ABILITY TO ACHIEVE ADMINISTRATIVE AND
OPERATING COST SAVINGS AND ANTICIPATED SYNERGIES), (II) THE TIMING AND COSTS OF
EXPANSIONS OF EXISTING FACILITIES, (III) CHANGES IN GOVERNMENTAL POLICY TO
ELIMINATE OR DISCOURAGE THE PRIVATIZATION OF CORRECTIONAL, DETENTION AND
PRE-RELEASE SERVICES IN THE UNITED STATES, (IV) AVAILABILITY OF DEBT AND EQUITY
FINANCING ON TERMS THAT ARE FAVORABLE TO THE COMPANY, AND (V) FLUCTUATIONS IN
OPERATING RESULTS BECAUSE OF OCCUPANCY, COMPETITION (INCLUDING COMPETITION FROM
TWO COMPETITORS THAT ARE SUBSEQUENTLY LARGER THAN THE COMPANY), AND RISKS OF
OPERATIONS.
# # #
