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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1996 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.)
4801 WOODWAY, SUITE #100E, HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 623-0790
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.001 par value per Share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ( X ) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will be not contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( ).
At February 28, 1997, Registrant had outstanding 6,765,398 shares of its
common stock. The aggregate market value of the Registrant's voting stock held
by non-affiliates at this date was approximately $45,796,000 based on the
closing price of $10.625 per share as reported on the American Stock Exchange.
For purposes of the foregoing calculation, all directors and officers of the
Registrant have been deemed to be affiliates, but the Registrant disclaims that
any of such directors or officers is an affiliate.
Documents Incorporated by Reference
Portions of the Proxy Statement for 1996 Annual Meeting of Stockholders.Part III
PART I
ITEM 1. BUSINESS
Cornell Corrections, Inc. (the "Company") is one of the leading providers of
privatized correctional, detention and pre-release services in the United
States. The Company is the successor to entities that began developing
institutional correctional and detention facilities in Massachusetts and Rhode
Island in 1991, and pre-release facilities in California in 1977. The Company
has rapidly expanded its operations through acquisitions and internal growth and
is currently developing or operating facilities in the following 7 states:
California, Texas, Rhode Island, Utah, North Carolina, Georgia and New Mexico.
As of December 31, 1996, the Company had 24 contracts to operate 21 private
correctional, detention and pre-release facilities with an aggregate design
capacity of 3,577 beds. Of these facilities, 18 were in operation (3,142 beds)
and 3 were under development (435 beds). The 3 facilities under development
commenced operations during the first quarter of 1997.
As of March 25, 1997, the Company had expanded its operations to include 31
contracts to operate 26 facilities with an aggregate design capacity of 5,303
beds. The increase from December 31, 1996 included completing the acquisition of
Interventions, Co. (300 pre-release beds and 150 juvenile beds), two newly
awarded contracts in Santa Fe, New Mexico (504 secure institutional beds and 156
juvenile beds), and the beginning of a 516 bed expansion of the Company's Big
Spring, Texas operations, with the balance from internal expansion. Construction
on the Santa Fe, New Mexico and Big Spring, Texas expansion projects are
expected to be completed during 1998.
The Company provides to governmental agencies the integrated development,
design, construction and operation of facilities within three areas of
operational focus: (i) secure institutional correctional and detention services,
(ii) pre-release correctional services and (iii) juvenile correctional and
detention services. Institutional correctional and detention services primarily
consist of the operation of secure adult incarceration facilities. Pre-release
correctional services primarily consist of providing pre-release and halfway
house programs for adult inmates serving the last three to six months of their
sentences and preparing for re-entry into society at large. At the facilities it
operates, the Company generally provides maximum and medium security
incarceration and minimum security residential services, institutional food
services, certain transportation services, general education programs (such as
high school equivalency and English as a second language programs), health care
(including medical, dental and psychiatric services), work and recreational
programs and chemical dependency and substance abuse programs. Additional
services provided in the Company's pre-release facilities typically include life
skills and employment training and job placement assistance. Juvenile services
provided by the Company will include medical, educational and counseling
programs tailored to meet the special needs of juveniles.
ACQUISITIONS HISTORY
In March 1994, the Company acquired Eclectic Communications, Inc.
("Eclectic"), the operator of 11 privatized institutional and pre-release
facilities in California with an aggregate design capacity of 979 beds.
Consideration for this acquisition was $10.3 million, consisting of $6.0 million
in cash, $3.3 million of subordinated indebtedness, approximately $700,000 of
other long-term obligations, and $300,000 of direct acquisition costs.
In May 1996, the Company acquired the Reid Center, a 310 bed pre-release
facility located in Houston, Texas, for approximately $2.0 million. Included in
the acquisition were the Reid Center facility property and buildings, the
equipment, inventory and supplies used in the operation of the Reid Center
facility and the assignment of the Reid Center's contract with the Texas
Department of Criminal Justice ("TDCJ"). Following the consummation of this
acquisition, approximately 100 employees of the Reid Center became
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employees of the Company. The Company believes that the Reid Center is the
largest single facility pre-release center in Texas and that its acquisition
enhances the Company's position as one of the leaders in providing pre-release
services.
In July 1996, the Company completed the acquisition of substantially all the
assets of MidTex Detentions, Inc. ("MidTex"), an operator of secure
institutional facilities in Big Spring, Texas ("Big Spring Facility"), for an
aggregate purchase price of approximately $23.7 million. The City of Big Spring
has an Intergovernmental Agreement ("IGA") with the Federal Bureau of Prisons
("FBOP") to house up to 1,333 inmates at the Big Spring Facility, and, as part
of the acquisition, MidTex assigned to the Company its rights under an operating
agreement with the City of Big Spring ("Big Spring Operating Agreement") to
manage the Big Spring Facility. The Big Spring Operating Agreement has a base
term of 20 years from the closing of the acquisition and three five-year renewal
options at the discretion of the Company. The IGA has an indefinite term,
although it may be terminated or modified by the FBOP upon 90 days' written
notice. Following consummation of the this acquisition, approximately 250
employees of the City of Big Spring and MidTex became employees of the Company.
In January 1997, the Company acquired substantially all of the assets and
liabilities of Interventions, Co. ("Interventions") for $6.0 million which
included the assumption of $2.3 million of pre-acquisition debt and $230,000 of
transaction costs. Included as part of the acquisition is the operation of a 300
bed residential pre-release facility in Dallas, Texas and a 150 bed capacity
residential Transitional Living Center for juveniles in San Antonio, Texas. In
addition to the residential program operated at the Dallas facility,
Interventions provides various non-residential aftercare treatment programs for
probationers in Dallas, Texas. Following consummation of this acquisition,
approximately 150 employees of Interventions became employees of the Company.
INDUSTRY AND MARKET
There is a growing trend in the United States toward privatization of
governmental correctional and detention services and functions. Generally, this
trend results from continuing pressures faced by governments to control costs
and improve service efficiency as a result of the rapidly growing inmate
population in the United States. Further, as a result of the number of crimes
committed each year and the corresponding number of arrests, incarceration costs
generally grow faster than other parts of government budgets. In an attempt to
address these pressures, governmental agencies are increasingly privatizing new
facilities.
According to reports issued by the Bureau of Justice Statistics ("BJS"), the
number of adult inmates in United States federal and state prison facilities
increased from 503,601 at December 31, 1985 to 1,104,074 at June 30, 1995, an
increase of more than 119%. According to the Private Adult Correctional Facility
Census, prepared by the Private Corrections Project Center for Studies in
Criminology & Law, University of Florida, ("Private Correctional Facility
Census"), the design capacity of privately managed adult correctional and
detention facilities in the United States increased from 26 facilities with a
design capacity of 10,973 beds at December 31, 1989 to 92 facilities with a
design capacity of 57,609 beds at December 31, 1995. By year-end 1995, according
to the Private Correctional Facility Census, numerous counties, various agencies
of the federal government and 20 states had awarded management contracts to
private companies. According to the Private Correctional Facility Census,
privatized facilities include (i) correctional facilities operated for the FBOP
and detention facilities operated for the Immigration and Naturalization Service
("INS") and U.S. Marshals Service, (ii) state prisons, pre-release correctional
facilities, intermediate sanction facilities, work program facilities and state
jail facilities operated for state agencies and (iii) city jail and transfer
facilities operated for local agencies. Even after such growth, according to the
Private Correctional Facility Census, less than five percent of adult inmates in
United States correctional and detention facilities
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were housed in privately-managed facilities. There are also many privatized
juvenile offender facilities. The Company believes that the market for juvenile
services is also growing rapidly because of an increasing population of
teenagers and an escalation of crime rates and incidents of mental health
problems among that population. In addition, the Company believes that there is
a growing trend toward privatization of juvenile services by governmental
agencies.
AREAS OF OPERATIONAL FOCUS
INSTITUTIONAL. At December 31, 1996, the Company operated 6 facilities, with
an aggregate design capacity of 2,193 beds, that provide secure institutional
correctional and detention services for incarcerated adults. These facilities
consist of: the Big Spring Facility, medium and minimum security facilities
operated primarily for the FBOP; the Donald W. Wyatt Federal Detention Facility
("Wyatt Facility"), a medium and maximum security unit operated primarily for
the U.S. Marshals Service in Central Falls, Rhode Island; and two minimum
security facilities in California operated for the California Department of
Corrections ("CDC").
The Company operates the Big Spring Facility pursuant to the Big Spring
Operating Agreement between the Company and the City of Big Spring. The City of
Big Spring in turn is a party to the IGA with the FBOP for an indefinite term
with respect to the facilities. The INS and the U.S. Marshals Service also use
the facilities. Inmates include detainees held by the INS, adjudicated inmates
held by the INS who will be deported after serving their sentences and
adjudicated inmates held for the FBOP. These facilities are equipped with an
interactive satellite link to INS courtroom facilities and judges that should
allow processing of a high volume of INS detainees, while reducing the time,
effort and expense incurred in transporting inmates to offsite courtrooms.
The Wyatt Facility in Central Falls opened in 1993 and primarily houses
federal inmates awaiting adjudication under federal criminal charges. In
addition, the Wyatt Facility houses certain other inmates under a contract with
the Suffolk County, Massachusetts, Sheriff's Department. The Company's
California facilities house primarily inmates sentenced by the State of
California, most of whom are non-violent offenders with sentences of up to two
years.
Under its contracts, the Company provides a variety of programs and services
at its institutional adult incarceration facilities, including secure
incarceration services, institutional food services, certain transportation
services, general education programs (such as high school equivalency and
English as a second language programs), work and recreational programs and
chemical dependency and substance abuse programs.
PRE-RELEASE. At December 31, 1996 the Company operated or had contracts to
operate 13 facilities, with an aggregate design capacity of 1,024 beds, that
provide pre-release correctional services. Of these facilities, 6 are operated
primarily for the FBOP, 5 are operated primarily for the CDC, 1 is operated for
the TDCJ and 1 began operations for the North Carolina Department of Corrections
("NCDC") during the first quarter of 1997. Most residents of these facilities
are or will be serving the last three to six months of their sentences and
preparing for re-entry into society at large.
At its pre-release facilities, the Company typically provides minimum
security residential services, institutional food services, general education
programs, life skills and employment training, job placement assistance and
chemical dependency and substance abuse counseling. About 20% of the inmates at
the FBOP pre-release facilities in California, Utah and Texas are on home
confinement; monitoring is primarily done by required check-ins and by
unscheduled visits to places of residence and employment.
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JUVENILE SERVICES. At December 31, 1996, the Company had contracts to operate
2 facilities, with an aggregate design capacity of 360 beds, that provide
juvenile services. During the first quarter of 1997, the Company completed the
construction, and began the operation of a 160 bed short-term juvenile detention
facility for the State of Utah in Salt Lake City. The facility primarily houses
pre-adjudicated juvenile detainees and juveniles awaiting placement in long-term
correctional facilities. The Salt Lake City Juvenile Detention Facility includes
an interactive satellite link to juvenile courtroom facilities and judges that
should allow processing of a high volume of juvenile detainees, while reducing
the time, effort and expense incurred in transporting detainees to offsite
courtrooms. During the first quarter of 1997, the Company began the operation of
a 200 bed capacity juvenile correctional facility for the State of Georgia
located in Pelham, Georgia ("Pelham Facility"). The current contract is for 120
beds. Services at the Pelham Facility include intake and evaluation, mental
health care, counseling, and an education program.
The Company intends to pursue additional contract awards to provide juvenile
detention and correctional services, including contracts for specialized
rehabilitation programs and services for juveniles such as military style boot
camps, wilderness programs and secure education and training centers.
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FACILITIES
The following table summarizes certain additional information with respect to
contracts and facilities under operation by the Company as of December 31, 1996
(note: This table does not reflect new facilities from contracts awarded or
acquired after December 31, 1996):
PRINCIPAL DESIGN
CONTRACTING CAPACITY INITIAL COMMENCEMENT
GOVERNMENT (NO. OF CONTRACT OF CURRENT TERM RENEWAL
FACILITY NAME AND LOCATION AGENCY BEDS)(1) DATE(2) CONTRACT (YEARS)(3) OPTION(4)
- ------------------------------------------------------------------------------ ------- -------- ---------- ---------
SECURE INSTITUTIONAL CORRECTIONAL AND
DETENTION FACILITIES:
Baker Correctional Facility CDC 288 1987 7/92 5 None
Baker, California (5)
Big Spring Correctional Facility FBOP (6) 1,333 (6) (6) (6) (6)
Big Spring, Texas
Donald W. Wyatt Federal Detention Facility U.S. 302 1992 11/93 5 One
Central Falls, Rhode Island (5) Marshals Five-Year
Service (7)
Leo Chesney Correctional Facility CDC 270 1988 4/93 5 None
Live Oak, California (5)
PRE-RELEASE FACILITIES:
Durham Center NCDC 75 1996 6/96 5 One
Durham, North Carolina Five Year
El Monte Center FBOP 52 1993 4/93 (8) (8)
El Monte, California (5)
Indiana Street Center CDC 96 1990 7/94 3 None
San Francisco, California (5)
Inglewood Men's Center CDC 53 1982 7/94 3 None
Inglewood, California (5)
Inglewood Women's Center CDC 27 1984 7/92 4 1/2 None
Inglewood, California (5)
Leidel Community Correctional Center FBOP 94 1996 1/96 1 1/2 Three
Houston, Texas One-Year
Marvin Gardens Center CDC 42 1981 7/94 3 None
Los Angeles, California (5)
Oakland Center FBOP (9) 61 1981 9/93 (10) (10)
Oakland, California (5)
Reid Community Correctional Center TDCJ 310 1996 1/96 1 1/2 One
Houston, Texas Unspecified
Term
Salt Lake City Center FBOP (9) 58 1995 12/95 2 Three
Salt Lake City, Utah One-Year
San Diego Center FBOP 50 1984 11/95 2 Three
San Diego, California (5) One-Year
Santa Barbara Center CDC (11) 25 1977 7/94 3 None
Santa Barbara, California (5)
Taylor Street Center FBOP (12) 81 1984 2/96 2 Three
San Francisco, California (5) One Year
JUVENILE FACILITIES:
Pelham Juvenile Correctional Facility State of 200 1996 1/97 10 None
Pelham, Georgia Georgia (13)
Salt Lake City Juvenile Detention Facility State of 160 1996 6/96 3 None
Salt Lake City, Utah Utah (14)
- ----------
(1) Design capacity is based on the physical space available presently, or with
minimal additional expenditure, for inmate or residential beds in compliance
with relevant regulations and contract requirements. In certain cases, the
management contract for a facility provides for a different number of beds.
(2) Date from which the Company, or its predecessor, has had a contract with the
contracting governmental agency on an uninterrupted basis.
(3) Substantially all contracts are terminable by the contracting government
agency for any reason upon the required notice to the Company.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
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(4) Except as otherwise noted, the renewal option, if any, is at the
discretion of the contracting government agency.
(5) Facility is accredited by the American Correctional Association.
(6) The City of Big Spring, Texas entered into the IGA with the FBOP for an
indefinite term (until modified or terminated) with respect to the Big
Spring Facility, which began operations during 1989 and expanded through
1995. The Big Spring Operating Agreement has a term of 20 years with
three five-year renewal options at the Company's discretion, pursuant to
which the Company will manage the Big Spring Facility for the City of
Big Spring.
(7) The U.S. Marshals Service entered into an intergovernmental agreement
with the Central Falls Detention Facility Corporation ("DFC") in August
1991 for an indefinite term (until modified or terminated) with respect
to the Wyatt Facility. The DFC, in turn, entered into a Professional
Management Agreement with the Company for the Company to operate this
facility effective November 1993 for a term of five years, with one
five-year renewal option. In addition, pursuant to a contract between
the DFC and the Suffolk County, Massachusetts Sheriff's Department,
entered into in March 1996, Massachusetts state inmates are housed under
the Company's management at this facility.
(8) The current contract term was less than one year, with an original
termination date of September 1993; the FBOP has exercised three of its
four one-year renewal options.
(9) In addition to its contract with the FBOP with respect to these
facilities, the Company has contracts with the Administrative Office of
the United States Courts, Pretrial Services ("Pretrial Services") to
provide beds at these facilities.
(10) The current contract term was two years, with an original termination
date of August 1995; the FBOP has exercised the first of its three
one-year renewal options.
(11) In addition to its contract with the CDC with respect to this facility,
in March 1996 the Company entered into a contract with the FBOP, with a
term of two years and three one-year renewal options, to provide beds at
this facility.
(12) In addition to its contract with the FBOP with
respect to this facility, the Company has contracts with Pretrial
Services and with the City of San Francisco to provide beds at this
facility.
(13) State of Georgia, Department of Children and Youth
Services.
(14) Utah Department of Human Services, Division of Youth
Corrections.
FACILITY MANAGEMENT CONTRACTS
Generally, the Company is compensated on the basis of the number of inmates
held or supervised under each of its facilities' management contracts. The
Company's existing facility management contracts generally provide that the
Company will be compensated at an occupant per diem rate. Such compensation is
invoiced in accordance with applicable law and is paid on a monthly basis. Under
a per diem rate structure, a decrease in occupancy rates would cause a decrease
in revenues and profitability. The Company is, therefore, dependent upon
governmental agencies to supply the Company's facilities with a sufficient
number of inmates to meet the facilities' design capacities, and in most cases
such governmental agencies are under no obligation to do so. Moreover, because
many of the Company's facilities have inmates serving relatively short sentences
or only the last three to six months of their sentences, the high turnover rate
of inmates requires a constant influx of new inmates from the relevant
governmental agencies to provide sufficient occupancies to achieve
profitability. Occupancy rates during the start-up phase when facilities are
first opened typically result in capacity underutilization for 30 to 90 days.
After a management contract has been awarded, the Company incurs facility
start-up costs consisting principally of initial employee training, travel and
other direct expenses incurred in connection with the contract. These costs vary
by contract and can range between $30,000 and $1.0 million.
All the Company's contracts are subject to legislative appropriations. A
failure by a governmental agency to receive appropriations could result in
termination of the contract by such agency or a reduction of the management fee
payable to the Company.
The Company's contracts generally require the Company to operate each
facility in accordance with all applicable laws and regulations. The Company is
required by its contracts to maintain certain levels of insurance coverage for
general liability, workers' compensation, vehicle liability and property loss or
damage. The Company is also required to indemnify the contracting agency for
claims and costs arising out of the Company's operations, and in certain cases,
to maintain performance bonds.
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The Company's facility management contracts typically have terms ranging from
one to five years, and many have one or more renewal options for terms ranging
from one to five years. Only the contracting governmental agency may exercise a
renewal option. To date, all renewal options under the Company's management
contracts have been exercised. However, in connection with the exercise of the
renewal option, the contracting governmental agency or the Company typically has
requested changes or adjustments to the contract terms. Additionally, the
Company's facility management contracts typically allow a contracting
governmental agency to terminate a contract without cause by giving the Company
written notice ranging from 30 to 180 days.
MARKETING
The Company's principal customers are the federal, state, and county
governmental agencies responsible for correctional, detention and pre-release
services. These governmental agencies often procure these services from the
private sector by issuing a Request for Proposal ("RFP") to which a number of
companies may respond. Most of the Company's activities in the area of securing
new business are expected to be in the form of responding to RFPs. As part of
the Company's process of responding to RFPs, management of the Company meets
with appropriate personnel from the requesting agency to best determine the
agency's distinct needs. If the Company believes that the project complies with
its business strategy, the Company will submit a written response to the RFP.
When responding to RFPs, the Company incurs costs, typically ranging from
$10,000 to $75,000 per proposal, to determine the prospective client's distinct
needs and prepare a detailed response to the RFP. The preparation of a response
to an RFP typically takes from five to 10 weeks. In addition, the Company may
incur substantial costs to (i) acquire options to lease or purchase land for a
proposed facility and (ii) engage outside consulting and legal expertise related
to a particular RFP.
A typical RFP requires bidders to provide detailed information, including,
but not limited to, descriptions of the following: the services to be provided
by the bidder, the bidder's experience and qualifications, and the price at
which the bidder is willing to provide the services requested by the agency
(which services may include the renovation, improvement or expansion of an
existing facility or the planning, design and construction of a new facility).
Based on proposals received in response to an RFP, the governmental agency will
award a contract; however, the governmental agency does not necessarily award a
contract to the lowest bidder. In addition to costs, governmental agencies also
consider experience and qualifications of bidders in awarding contracts.
The marketing process for obtaining facility management contracts consists of
several critical events. These include issuance of an RFP by a governmental
agency, submission of a response to the RFP by the Company, the award of the
contract by a governmental agency and the commencement of construction or
operation of the facility. The Company's experience has been that a substantial
period of time may elapse from the initial inquiry to receipt of a new contract,
although, as the concept of privatization has gained wider acceptance, the
length of time from inquiry to the award of contract has shortened. The length
of time required to award a contract is also affected, in some cases, by the
need to introduce enabling legislation. The bidding and award process for an RFP
typically takes from three to nine months. Generally, if the facility for which
an award has been made must be constructed, the Company's experience has been
that management of a newly constructed facility typically commences between 12
and 24 months after the governmental agency's award.
The Company also at times receives inquiries from or on behalf of
governmental agencies that are considering privatization of certain facilities
or that have already decided to contract with private providers. When such an
inquiry is received, the Company determines whether there is a need for the
Company's services and whether the legal and political climate in which the
governmental agency operates is conducive to serious consideration of
privatization. The Company then conducts an initial cost analysis to further
determine project feasibility.
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When a contract requires construction of a new facility, the Company's
success depends, in part, upon its ability to acquire real property for its
facilities on desirable terms and at satisfactory locations. Management of the
Company expects that many such locations will be in or near populous areas and
therefore anticipates legal action and other forms of opposition from residents
in areas surrounding each proposed site. The Company may incur significant
expenses in responding to such opposition and there can be no assurance of
success. In addition, the Company may choose not to bid in response to an RFP or
may determine to withdraw a bid if legal action or other forms of opposition are
anticipated.
OPERATIONS
Pursuant to the terms of its management contracts, the Company is responsible
for the overall operation of its facilities, including staff recruitment,
general administration of the facilities, security and supervision of the
offenders and facility maintenance. The Company also provides a variety of
rehabilitative and educational programs at many of its facilities. Inmates at
most facilities managed by the Company may receive basic education through
academic programs designed to improve inmate literacy levels (including English
as a second language programs) and the opportunity to acquire General Education
Development certificates. At many facilities, the Company also offers vocational
training to inmates who lack marketable job skills. In addition, the Company
offers life skills, transition planning programs that provide inmates job search
training and employment skills, health education, financial responsibility
training and other skills associated with becoming productive citizens. At
several of its facilities, the Company also offers counseling, education and/or
treatment to inmates with chemical dependency or substance abuse problems.
The Company operates each facility in accordance with Company-wide policies
and procedures generally based on the standards and guidelines established by
the American Correctional Association ("ACA") Commission on Accreditation. The
ACA is an independent organization comprised of professionals in the corrections
industry which establishes guidelines and standards by which a correctional
institution may gain accreditation. The ACA standards, which are the industry's
most widely accepted correctional standards, describe specific objectives to be
accomplished and cover such areas as administration, personnel and staff
training, security, medical and health care, food service, inmate supervision
and physical plant requirements. At December 31, 1996, 12 of the Company's
facilities are accredited by the ACA and the Company intends to seek ACA
accreditation for certain of its other facilities.
Internal quality control, conducted by senior facility staff and executive
officers of the Company, takes the form of periodic operational, programmatic
and fiscal audits; facility inspections; regular review of logs, reports and
files; and strict maintenance of personnel standards, including an active
training program. The requirements for training at the Company meet and often
exceed ACA standards. Each of the Company's facilities develops its own training
plan that is reviewed, evaluated and updated annually. Dedicated space and
equipment for training is provided and outside resources such as community
colleges are utilized in the training process. All correctional officers undergo
an initial 40-hour orientation upon their hiring and receive academy-level
training amounting to 120 hours and on-the-job training of up to 80 hours. Each
correctional officer also receives up to 40 hours of training and education
annually.
FACILITY DESIGN, CONSTRUCTION AND FINANCE
In addition to operating correctional facilities, the Company also provides
services to governmental agencies with respect to the development, design and
construction of new correctional and detention facilities and the redesign and
renovation of older facilities. The Company has developed and/or managed: (i)
the development, design and construction of the 302 bed Wyatt Facility in
Central Falls, Rhode Island; (ii) the development, design and construction of a
1,140 bed multi-purpose, multi-jurisdictional detention center in Plymouth,
Massachusetts; (iii) the development of the 288 bed facility in Baker
California; (iv) the
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development of the 270 bed facility in Live Oak, California; (v) the
development, design and construction of the 58 bed FBOP facility in Salt Lake
City, Utah; (vi) the development, design and construction of the 94 bed Leidel
Center in Houston, Texas; (vii) the development, design and remodeling of a 75
bed pre-release center in Durham, North Carolina, (viii) the development,
design, and construction of the 160 bed Salt Lake City Juvenile Detention
Facility in Salt Lake City, Utah; and (ix) the development, design and
remodeling of the 200 bed capacity Pelham, Georgia Juvenile Facility. Currently,
the Company operates all of the facilities it has developed, designed and
constructed with the exception of the detention center in Plymouth,
Massachusetts, which is operated by the Sheriff's Department of the County of
Plymouth, Massachusetts.
The Company utilizes an experienced team of outside professional
architectural consultants as part of the group that participates from conceptual
design through final construction of a project. When designing a facility, the
Company's outside architects utilize, with appropriate modifications, prototype
designs the Company has previously used in developing projects. Management of
the Company believes that the use of such proven designs allows the Company to
reduce cost overruns and avoid construction delays. Additionally, the Company
designs its facilities with the intention to improve security and minimize the
number of guards or correctional officers needed to properly staff the facility
by enabling enhanced visual and electronic surveillance of the facility.
The Company may propose various construction financing structures to the
contracting governmental agencies. The governmental agency may finance, or the
Company may arrange for the financing of, the construction of such facilities
through various methods including, but not limited to, the following: (i) a
one-time general revenue appropriation by the governmental agency for the cost
of the new facility, (ii) general obligation bonds that are secured by either a
limited or unlimited tax levy by the issuing governmental entity or (iii) lease
revenue bonds or certificates of participation secured by an annual lease
payment that is subject to annual or bi-annual legislative appropriations. If
the project is financed using project-specific tax-exempt bonds or other
obligations, the construction contract is generally subject to the sale of such
bonds or obligations. Substantial expenditures for construction will not be made
on such a project until the tax-exempt bonds or other obligations are sold. If
such bonds or obligations are not sold, construction and management of the
facility will be delayed until alternate financing is procured or development of
the project will be entirely suspended. When the Company is awarded a facility
management contract, appropriations for the first annual or bi-annual period of
the contract's term have generally already been approved, and the contract is
subject to governmental appropriations for subsequent annual or bi-annual
periods. Of the 21 facilities the Company operates or has contracted to operate
as of December 31, 1996, 2 were funded using one of the above-described
financing methods, 2 are owned by the Company and 17 are leased. Of the 17
leased facilities, 3 at the Big Spring Facility are operated under long-term
leases ranging from 34 to 38 years including renewal options at the discretion
of the Company. As part of the purchase price for the MidTex acquisition, the
Company prepaid a majority of the facility costs related to the Big Spring
Facility through at least the year 2030.
The Company has in the past worked with governmental agencies and placement
agents to obtain and structure financing for construction of facilities. In some
cases, an unrelated special purpose corporation is established to incur
borrowings to finance construction and, in other cases, the Company directly
incurs borrowings for construction financing. A growing trend in the
privatization industry is the requirement by governmental agencies that private
operators make capital investments in new facilities and enter into direct
financing arrangements in connection with the development of such facilities.
- 10 -
COMPETITION
The Company competes with a number of companies, including, but not limited
to, Corrections Corporation of America ("CCA"), Wackenhut Corrections
Corporation ("WHC") and U.S. Corrections Corporation ("USCC"). At December 31,
1995, CCA and WHC accounted for more than 70% of the privatized secure adult
beds under contract in the United States, according to the Private Correctional
Facility Census. Therefore, certain competitors of the Company are larger and
may have greater resources than the Company. The Company also competes in some
markets with small local companies that may have better knowledge of local
conditions and may be better able to gain political and public acceptance. In
addition, the Company may compete in some markets with governmental agencies
that operate correctional and detention facilities.
EMPLOYEES
At December 31, 1996, the Company had 715 full-time employees and 39
part-time employees. Of such full-time employees, approximately 30 were employed
at the Company's corporate and administrative offices in Houston, Texas and
Ventura, California. The remainder of the employees work at the Company's
facilities. The Company employs management, administrative and clerical,
security, educational and counseling services, health services and general
maintenance personnel. The Company believes its relations with its employees are
good. From time to time, collective bargaining efforts have begun at certain of
the Company's facilities, although to date none of the efforts has been
successful. The Company expects such collective bargaining efforts to continue.
REGULATIONS
The industry in which the Company operates is subject to federal, state and
local regulations administered by a variety of regulatory authorities.
Generally, prospective providers of correctional, detention and pre-release
services must comply with a variety of applicable state and local regulations,
including education, healthcare and safety regulations. The Company's contracts
frequently include extensive reporting requirements and require supervision with
on-site monitoring by representatives of contracting governmental agencies.
In addition to regulations requiring certain contracting governmental
agencies to enter into a competitive bidding procedure before awarding
contracts, the laws of certain jurisdictions may also require the Company to
award subcontracts on a competitive basis or to subcontract with businesses
owned by women or members of minority groups.
INSURANCE
The Company maintains a $10 million general liability insurance policy for
all its operations. The Company also maintains insurance in amounts it deems
adequate to cover property and casualty risks, workers' compensation and
directors' and officers' liability.
The Company's contracts and the statutes of certain states in which the
Company operates typically require the maintenance of insurance by the Company.
The Company's contracts provide that, in the event that the Company does not
maintain such insurance, the contracting agency may terminate its agreement with
the Company. The Company believes that it is in compliance in all material
respects with respect to these requirements.
- 11 -
ITEM 2. PROPERTIES
The Company leases corporate headquarters office space in Houston, Texas and
an administrative office in Ventura, California. The Company also leases space
for 20 of the facilities it is currently operating or developing. In connection
with the acquisition of MidTex, and as part of the purchase price, the Company
prepaid a majority of the facility costs related to the Big Spring Facility
through at least the year 2030.
At December 31, 1996, the Company owned two facilities, the Leidel Center and
the Reid Center, both located in Houston, Texas. The Company is not required to
lease space at the Wyatt Facility, which is owned by the DFC, or the Salt Lake
City Juvenile Detention Facility, which is owned by the County of Salt Lake and
leased to the State of Utah.
ITEM 3. 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, and employment matters. 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
No matters were submitted to the Company's security holders during the fourth
quarter of 1996.
ITEM 5. MARKET FOR CORNELL CORRECTIONS, INC. COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The common stock of the Company is currently listed on the American Stock
Exchange ("AMEX") under the symbol CRN. As of February 28, 1997, there were
approximately 37 record holders of common stock. The high and low sales prices
for the common stock on the AMEX since the common stock began trading on October
3, 1996 are shown below:
1996
Period HIGH LOW
1st Quarter..................... N/A N/A
2nd Quarter..................... N/A N/A
3rd Quarter..................... N/A N/A
4th Quarter..................... 12 3/4 8 7/8
The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain excess cash flow, if any, for use in the
operation and expansion of its business and does not anticipate paying cash
dividends on the common stock in the foreseeable future. The payment of
dividends is within the discretion of the Board of Directors and will be
dependent upon, among other factors, the Company's results of operations,
financial condition, capital requirements, restrictions, if any, imposed by
financing commitments and legal requirements. The Company's current credit
facility prohibits payment of dividends.
- 12 -
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this report.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1992 1993 1994 (1) 1995 1996 (2)
------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Occupancy fees ................................... $ -- $ 107 $ 15,389 $ 20,594 $ 31,877
Other income ..................................... 2,540 3,091 300 98 450
------- ------- -------- -------- --------
Total revenues ................................ 2,540 3,198 15,689 20,692 32,327
Operating expenses .................................. -- 2,827 12,315 16,351 26,038
Depreciation and amortization ....................... 3 16 758 820 1,390
General and administrative expenses ................. 1,627 1,315 2,959 3,531 4,560
------- ------- -------- -------- --------
Income (loss) from operations ....................... 910 (960) (343) (10) 339
Interest expense .................................... -- -- 294 1,115 2,810
Interest income ..................................... (30) (45) (138) (136) (167)
------- ------- -------- -------- --------
Income (loss) before income taxes ................... 940 (915) (499) (989) (2,304)
Provision for income taxes .......................... -- -- 101 -- 75
------- ------- -------- -------- --------
Net income (loss) ................................... $ 940 $ (915) $ (600) $ (989) $ (2,379)
======= ======= ======== ======== ========
Earnings (loss) per share ........................... $ .38 $ (.34) $ (.16) $ (.25) $ (.53)
======= ======= ======== ======== ========
Number of shares used in per share
computation (3) .................................. 2,491 2,695 3,811 3,983 4,466
Supplemental earnings per share (4) ................. $ .03 $ .04
======== ========
OPERATING DATA:
Beds under contract (end of period) ................. -- 282 1,155 1,478 3,254
Contracted beds in operation (end of period) ........ -- 282 1,155 1,135 2,899
Average occupancy based on contracted
beds in operation (5) ............................ -- -- 92.1% 98.9% 97.0%
BALANCE SHEET DATA:
Working capital ..................................... $ 812 $ 810 $ 2,015 $ 1,525 $ 7,747
Total assets ........................................ 1,300 2,048 13,095 14,184 46,824
Long-term debt ...................................... -- -- 3,447 7,649 745
Stockholders' equity ................................ 896 1,085 6,631 3,053 41,051
- ----------
(1) Includes the operations of Eclectic purchased by the Company on March
31, 1994.
(2) Includes the operations of the Big Spring Facility and the Reid Center
acquired in July 1996 and May 1996, respectively.
(3) Prior to March 31, 1994, the Company was organized as a partnership. For
purposes of computing average shares outstanding for the period prior to
March 31, 1994, the partnership units were converted to common shares
using a one-to-one unit-to-share conversion ratio.
(4) Supplemental per share data is presented to show what the earnings would
have been if the repayment of debt with proceeds from the initial public
offering had taken place at the beginning of the respective periods.
(5) For any applicable facilities, includes reduced occupancy during the
start-up phase. For the year ended December 31, 1993, occupancy did not
commence until December 1993.
- 13 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company provides to governmental agencies the integrated development,
design, construction and operation of correctional and detention facilities. The
following table sets forth the number of facilities under contract or award at
the end of the periods shown.
DECEMBER 31,
-------------------------------------------
1994 1995 1996
---------- ---------- -------
Contracts (1) ................................................................... 16 19 24
Facilities in operation ......................................................... 13 12 18
Design capacity of facilities in operation ...................................... 1,281 1,347 3,142
Beds under contract (end of period) ............................................. 1,155 1,478 3,254
Contract beds in operation (end of period) ...................................... 1,155 1,135 2,899
Average occupancy based on contracted beds in operation (2) ..................... 92.1% 98.9% 97.0%
- ----------
(1) Consists of facilities in operation, facilities under development and
facilities for which awards have been obtained.
(2) For any applicable facilities, includes reduced occupancy during the
start-up phase.
During 1996, the Company added the management of 2,230 beds through opening
or contracting to open five new facilities (587 beds) and the acquisitions of
MidTex and the Reid Center (1,643 beds). As of December 31, 1996, the Company
had 24 contracts to operate 21 private correctional, detention and pre-release
facilities with an aggregate design capacity of 3,577 beds. Of these facilities,
18 were in operation (3,142 beds) and 3 were under development (435 beds). The 3
facilities under development commenced operations during the first quarter of
1997.
The Company derives substantially all its revenues from operating
correctional, detention and pre-release facilities for federal and state
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.
The Company's operating expenses consist primarily of facility personnel
costs, lease expense, insurance, utilities, food, medical services, supplies and
clothing. Depreciation and amortization includes amortization of prepaid
facility use costs pertaining to the Big Spring Facility, amortization of
intangible assets including goodwill, and depreciation of buildings and other
property and equipment. General and administrative expenses consists primarily
of salaries and related overhead of the Company's corporate and administrative
personnel who provide senior management, accounting, finance, personnel and
other services, and costs of developing new contracts.
RESULTS OF OPERATIONS
The Company's historical operating results reflect that the Company has
expanded its business significantly since 1994. Material fluctuations in the
Company's results of operations are principally the result of the timing and
effect of acquisitions, the level of development activity conducted by the
Company, and occupancy rates at Company-operated facilities. The Company's
acquisitions to date have been accounted for using the purchase method of
accounting, whereby the operating results of the acquired businesses have been
reported in the Company's operating results since the date of acquisition.
- 14 -
The Company's operations grew significantly with the March 1994 acquisition
of Eclectic. The operations of Eclectic were included in the Company's results
of operations for nine months in 1994 and a full twelve months in the years
thereafter. The Company's acquisition of the Reid Center in May 1996 and MidTex
in July 1996 significantly increased 1996 revenues over 1995 and will have a
greater impact in 1997 once such operations are included in the Company's
reported results of operations for a full year.
In connection with the Company's July 1996 credit facility ("1996 Credit
Facility"), the Company incurred expenses, issued certain options and warrants,
and sold shares of common stock, for which the Company recognized total deferred
financing costs of $1.3 million, of which $726,000 was noncash, to be amortized
over the life of the 1996 Credit Facility. Since the use of proceeds from the
initial public offering were used to retire the outstanding indebtedness under
the 1996 Credit Facility, the total deferred financing costs were charged to
interest expense during the third quarter of 1996 in connection with the early
retirement of the borrowings under the 1996 Credit Facility. In addition, the
Company recognized noncash compensation expense of $870,000 during the third
quarter of 1996 in connection with the issuance of certain options granted in
July 1996 to purchase shares of common stock.
The following table sets forth for the periods indicated the percentages of
total revenue represented by certain items in the Company's historical
consolidated statements of operations.
YEAR ENDED DECEMBER 31,
1994 1995 1996
---------------------------
Total revenues..................................... 100.0% 100.0% 100.0%
Operating expenses................................. 78.5 79.0 80.5
Depreciation and amortization...................... 4.8 4.0 4.3
General and administrative expenses................ 18.9 17.0 14.1
------ ------ ------
Income (loss) from operations...................... (2.2) 0.0 1.1
Interest expense (income).......................... 1.0 4.8 8.2
------ ------ ------
Income (loss) before income taxes.................. (3.2) (4.8) (7.1)
Provision for income taxes......................... 0.6 0.0 0.2
------ ------ ------
Net income (loss).................................. (3.8) (4.8) (7.3)
====== ====== ======
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
TOTAL REVENUES. Total revenues increased by 56.2% to $32.3 million for the
year ended December 31, 1996 from $20.7 million for the year ended December 31,
1995. The increase in occupancy fees of $11.3 million, or 54.8%, was due
principally to the acquisition of MidTex as of July 1, 1996, the opening of two
new pre-release facilities during the first quarter of 1996, and the acquisition
of the Reid Center as of May 1, 1996. The increase in other income for the year
ended December 31, 1996 to $450,000 from $98,000 for the year ended December 31,
1995 was due principally to the recognition of revenue related to a previously
reserved note receivable of $206,000 pertaining to 1994 operations of the Wyatt
Facility, the realization of which improved from prior periods due to payments
received on the note and due to the additional operating experience with the
facility. Additional other income related to commissary operations and
commissions earned at the Big Spring Facility.
OPERATING EXPENSES. Operating expenses increased by 59.2% to $26.0 million
for the year ended December 31, 1996 from $16.4 million for the year ended
December 31, 1995. This increase was principally attributable to the acquisition
of MidTex as of July 1, 1996, the opening of two new pre-release facilities
during the first quarter of 1996, and the acquisition of the Reid Center as of
May 1, 1996. As a percentage of revenues, operating expenses increased to 80.5%
from 79.0% due primarily to the relative increase in secure institutional
operations.
- 15 -
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased 69.5%
to $1.4 million for the year ended December 31, 1996 from $820,000 for the year
ended December 31, 1995. The increase was principally due to the amortization of
prepaid facility use costs of the Big Spring Facility, the opening of two new
pre-release facilities in January 1996, and to the acquisition of the Reid
Center in May 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by 29.1% to $4.6 million for the year ended December 31, 1996 from
$3.5 million for the year ended December 31, 1995. Included in general and
administrative expenses for the year ended December 31, 1996 was a
non-recurring, non-cash charge of $870,000 in connection with the July 1996
grant of certain options to purchase shares of the Company's common stock. As a
percentage of revenues, excluding the non-recurring charge, general and
administrative expenses decreased to 11.4% from 17.0% due principally to
spreading fixed costs over a larger revenue base.
INTEREST. Interest expense, net of interest income, increased to $2.6 million
for the year ended December 31, 1996 from $979,000 for the year ended December
31, 1995. The increase in net interest expense was principally due to the $1.3
million non-recurring charge ($726,000 of which was non-cash) to expense
deferred financing costs associated with the early retirement of significant
portions of the 1996 Credit Facility, borrowings under the Company's 1995 and
1996 Credit Facilities related to the acquisition of MidTex in July 1996, the
Company's financing of the purchase of certain outstanding stock in November
1995, the construction and development of the two new pre-release facilities
which opened during the first quarter of 1996, and the acquisition of the Reid
Center in May 1996.
INCOME TAXES. The Company did not recognize any provision for federal income
taxes due to a taxable loss in both years. The Company recognized a provision
for state income taxes of $75,000 for the year ended December 31, 1996. As of
December 31, 1996, the Company had recognized a deferred tax asset of $608,000.
Management of the Company believes that this deferred tax asset is realizable.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
TOTAL REVENUES. Total revenues increased 31.9% to $20.7 million for the year
ended December 31, 1995 from $15.7 million for the year ended December 31, 1994.
The revenue increase was due principally to the recognition of occupancy fees
for a full 12 months in 1995 related to the Eclectic acquisition versus the
recognition of nine months in 1994. Additionally, an increase in occupancy fees
of approximately $1.1 million was attributable to the Wyatt Facility principally
as a result of a higher occupancy and per diem rate in 1995 compared to 1994.
OPERATING EXPENSES. Operating expenses increased 32.8% to $16.4 million for
the year ended December 31, 1995 from $12.3 million for the year ended December
31, 1994. The increase in operating expenses was due principally to the
recognition of operating expenses of Eclectic for a full 12 months in 1995. As a
percentage of revenues, operating expenses increased to 79.0% from 78.5%
principally for the same reason.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased by
8.2% to $820,000 for the year ended December 31, 1995 from $758,000 for the year
ended December 31, 1994. The increase was due principally to recognizing 12
months of contract value and goodwill amortization in 1995 as compared to nine
months of amortization in 1994 resulting from the acquisition of Eclectic,
offset in part by an accounting adjustment in the first quarter of 1995 to
adjust depreciation expense in prior periods.
- 16 -
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 19.3% to $3.5 million for the year ended December 31, 1995 from $3.0
million for the year ended December 31, 1994. The increase in general and
administrative expenses was principally due to the addition of the operations of
Eclectic and an increase in RFP and development costs. Development costs
increased by $457,000 for the year ended December 31, 1995 compared to the year
ended December 31, 1994. As a percentage of revenues, general and administrative
expenses decreased to 17.0% from 18.9% due principally to spreading fixed costs
over a larger revenue base.
INTEREST. Interest expense, net of interest income, increased to $979,000 for
the year ended December 31, 1995 from $156,000 for the year ended December 31,
1994. The increase resulted from the expensing of debt issuance costs and
commitment fees of $472,000 associated with the 1995 Credit Facility, the
incurrence of $4.0 million of debt and other long-term obligations in connection
with the acquisition of Eclectic and increased borrowings under the 1995 Credit
Facility to purchase treasury stock.
INCOME TAXES. There was no provision for income taxes for the year ended
December 31, 1995 due to a taxable loss. The Company recognized a provision for
income taxes of $101,000 for the year ended December 31, 1994, even though the
Company incurred a loss for financial reporting purposes in 1994, principally
because certain goodwill amortization contributing to the loss for financial
reporting purposes was not deductible for income tax purposes.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
REVENUES. Revenues increased 390.6% to $15.7 million for the year ended
December 31, 1994 from $3.2 million for the year ended December 31, 1993. The
revenue increase was principally due to the recognition of occupancy fees for
nine months of operations in 1994 for the facilities added as part of the
Eclectic acquisition in March 1994. Additionally, because the Wyatt Facility did
not begin operations until December 1993, Wyatt Facility occupancy fees for 1994
increased by approximately $3.5 million as compared to 1993. For the year ended
December 31, 1993, there were $3.0 million of procurement and preopening
revenues included in development fees and other income related to the
procurement and preopening activities of the Wyatt Facility.
OPERATING EXPENSES. Operating expenses increased 335.6% to $12.3 million for
the year ended December 31, 1994 from $2.8 million for the year ended December
31, 1993. The increase in operating expenses was principally due to the addition
of the operations of Eclectic and to a full year of operating costs of the Wyatt
Facility. As a percentage of revenues, operating expenses decreased to 78.5%
from 88.4% due principally to spreading fixed costs over a larger revenue base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$758,000 for 1994 from $16,000 in 1993. The increase was due to recognizing nine
months of amortization and depreciation in 1994 resulting from the Eclectic
acquisition.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 125.0% to $3.0 million for the year ended December 31, 1994 from $1.3
million for the year ended December 31, 1993. The increase was principally due
to the addition of the operations of Eclectic. As a percentage of revenues,
general and administrative expenses decreased to 18.9% from 41.1% due
principally to spreading fixed costs over a larger revenue base.
- 17 -
INTEREST. Interest expense was $294,000 for the year ended December 31, 1994
compared to no interest expense for the year ended December 31, 1993 due to the
incurrence of indebtedness related to the Eclectic acquisition. Interest income
increased to $138,000 for the year ended December 31, 1994 from $45,000 for the
year ended December 31, 1993 due to the assumption of certain interest-bearing
receivables from the California Department of Corrections in connection with the
Eclectic acquisition.
INCOME TAXES. As described above, the Company recognized a provision for
income taxes of $101,000 for the year ended December 31, 1994. There was no
provision for income taxes for the year ended December 31, 1993 because the
Company was organized as a partnership prior to March 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
INITIAL PUBLIC OFFERING. On October 8, 1996, the Company completed an initial
public offering ("IPO") of its common stock. Net proceeds to the Company from
the sale of the 3,523,103 shares of newly issued common stock were approximately
$37.4 million. On October 8, 1996, the Company repaid a total of $33.9 million
of indebtedness, $27.9 million of which was borrowed under the 1996 Credit
Facility and $6.0 million of which was borrowed under a short term convertible
note ("Convertible Bridge Note").
GENERAL. The Company's primary capital requirements are for working capital,
start-up costs related to new operating contracts, furniture, fixtures and
equipment, supply purchases, new facility renovations and acquisitions. 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
(through occupancy fees) is realized. Some of the Company's management contracts
have required the Company to make substantial initial expenditures of cash in
connection with the opening or renovating of a facility. Substantially all these
start-up expenditures are fully or partially recoverable as pass-through costs
or are reimbursable from the contracting governmental agency over the term of
the contract.
CHANGES IN FINANCIAL POSITION. As of December 31, 1996, total assets had
increased $32.6 million to $46.8 million since December 31, 1995. The increase
related principally to the acquisitions of MidTex and the Reid Center for which
total consideration was $25.7 million, and excess cash proceeds from the IPO.
Total stockholders' equity increased $38.0 million to $41.1 million as of
December 31, 1996 largely as a result of the IPO and certain other equity
transactions. The Company utilized the net proceeds from the IPO in early
October 1996 to retire all of the outstanding borrowings under the 1996 Credit
Facility and the Convertible Bridge Note. Therefore, immediately following the
consummation of the IPO, the Company had no material debt. The Company used
borrowings under the 1996 Credit Facility to refinance outstanding borrowings
under the 1995 Credit Facility, to finance a portion of the MidTex acquisition
and for working capital. As of December 31, 1996, the Company had no outstanding
borrowings under the 1996 Credit Facility.
WORKING CAPITAL. The Company's working capital increased to $7.7 million at
December 31, 1996 from $1.5 million at December 31, 1995. This increase was
principally due to excess cash proceeds from the IPO after repayment of
indebtedness, and an increase in receivables resulting from the acquisition of
MidTex in July 1996 and the Reid Center in May 1996.
EXISTING CREDIT FACILITIES. Under the 1996 Credit Facility, as amended, the
Company has a $15.0 million credit facility comprised of a $5.0 million
revolving credit facility for working capital purposes and a $10.0 million
multiple-advance term loan facility available for new and expanded facilities
costs.
- 18 -
In January 1997, the Company acquired the assets of Interventions. The
Company financed the $6.0 million purchase price, which included the retirement
of $2.3 million of pre-acquisition bank debt, with $2.0 million of borrowings
from the multiple-advance term loan facility under the 1996 Credit Facility, and
the remainder with cash. See Note 7 to the consolidated financial statements.
CAPITAL EXPENDITURES. Capital expenditures for the year ended December 31,
1996 were $1.3 million and related to construction in progress for a new
pre-release facility which opened during the first quarter of 1997, completion
of construction and purchase of furniture and equipment for the two pre-release
facilities which opened during the first quarter of 1996, and for normal
replacement of furniture and equipment at various facilities.
CASH USED IN OPERATING ACTIVITIES. The Company had net cash used in operating
activities of $540,000 for the year ended December 31, 1996. For the three
months ended December 31, 1996, the Company had net cash provided by operating
activities of $858,000. Significant uses of operating cash during 1996 include
start-up costs for facilities under development, and increased prepaid insurance
and other items related to the additional acquired facilities.
Management of the Company believes that the cash flows anticipated to be
generated from operations, together with the credit available under the 1996
Credit Facility, will provide sufficient liquidity to meet the Company's working
capital requirements for the near term. It is not anticipated that the 1996
Credit Facility will provide sufficient financing to finance construction costs
related to future institutional contract awards or significant future
acquisitions. The Company anticipates obtaining separate sources of financing to
finance such activities.
INFLATION
Management of the Company believes that inflation has not had a material
effect on the Company's results of operations during the past three years.
However, most of the Company's facility management contracts provide for
payments to the Company 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 the Company's personnel costs (the largest
component of facility management expense) or other operating expenses at rates
faster than any increases in occupancy fees.
- 19 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Cornell Corrections, Inc.:
We have audited the accompanying consolidated balance sheets of Cornell
Corrections, Inc. (formerly Cornell Cox, Inc., a Delaware corporation and
successor to the Cornell Cox Group, L.P., a Delaware limited partnership), and
subsidiaries as of December 31, 1995 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cornell Corrections, Inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 7, 1997
- 20 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CORNELL CORRECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
1995 1996
------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................... $ 390 $ 4,874
Accounts receivable, net ............................ 3,436 4,976
Current portion of notes receivable ................. 216 211
Deferred tax asset .................................. 27 120
Prepaids and other .................................. 187 1,128
Restricted assets ................................... 284 1,124
------- -------
Total current assets ............................. 4,540 12,433
PROPERTY AND EQUIPMENT, net ............................ 1,909 26,074
OTHER ASSETS:
Notes receivable, noncurrent ........................ 519 620
Goodwill, net ....................................... 6,204 5,864
Contract value, net ................................. 206 --
Deferred tax asset, noncurrent ...................... 409 488
Deferred costs and other ............................ 397 1,345
------- -------
Total assets ..................................... $14,184 $46,824
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ............ $ 2,991 $ 4,403
Current portion of long-term debt ................... 24 283
------- -------
Total current liabilities ........................ 3,015 4,686
LONG-TERM DEBT, net of current portion ................. 7,625 462
OTHER LONG-TERM LIABILITIES ............................ 491 625
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 and $.001 par value, respectively,
1,000,000 and 10,000,000 shares authorized, respectively,
none outstanding................................... -- --
Common stock, $.01 and $.001 par value, respectively,
9,000,000 and 30,000,000 shares authorized, respectively,
3,189,385 and 7,320,398 shares issued and outstanding,
respectively....................................... 32 7
Additional paid-in capital........................... 6,955 47,562
Stock option loans................................... -- (455)
Retained deficit..................................... (1,331) (3,710)
Treasury stock (555,000 shares of common stock, at cost) (2,603) (2,353)
------- -------
Total stockholders' equity........................... 3,053 41,051
------- -------
Total liabilities and stockholders' equity........... $14,184 $46,824
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
- 21 -
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
1994 1995 1996
-------- -------- --------
REVENUES:
Occupancy fees ............................. $ 15,389 $ 20,594 $ 31,877
Other income ............................... 300 98 450
-------- -------- --------
15,689 20,692 32,327
OPERATING EXPENSES ........................... 12,315 16,351 26,038
DEPRECIATION AND AMORTIZATION ................ 758 820 1,390
GENERAL AND ADMINISTRATIVE EXPENSES .......... 2,959 3,531 4,560
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS ................ (343) (10) 339
INTEREST EXPENSE ............................. 294 1,115 2,810
INTEREST INCOME .............................. (138) (136) (167)
-------- -------- --------
LOSS BEFORE PROVISION FOR INCOME TAXES ....... (499) (989) (2,304)
PROVISION FOR INCOME TAXES ................... 101 -- 75
-------- -------- --------
NET LOSS ..................................... $ (600) $ (989) $ (2,379)
======== ======== ========
LOSS PER SHARE ............................... $ (.16) $ (.25) $ (.53)
======== ======== ========
NUMBER OF SHARES USED IN PER SHARE CALCULATION 3,811 3,983 4,466
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
- 22 -
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
TOTAL
PARTNERSHIP COMMON STOCK ADDITIONAL STOCK RETAINED
CAPITAL ------------------ PAID-IN OPTION EARNINGS TREASURY
BALANCE SHARES AMOUNT CAPITAL LOANS (DEFICIT) STOCK
------- --------- ---- -------- ----- ------- -------
BALANCES AT DECEMBER 31, 1993 .............. $ 1,085 -- $-- $ -- $-- $ -- $ --
ALLOCATION OF JANUARY 1, 1994, TO
MARCH 31, 1994 (i.e., PRE-
INCORPORATION), LOSS TO
RESPECTIVE PARTNERS' ACCOUNTS ........... (258) -- -- -- -- 258 --
CONVERSION OF PARTNERSHIP INTO
CORNELL CORRECTIONS, INC., A C
CORPORATION ............................. (827) 2,100,376 21 806 -- -- --
ISSUANCE OF COMMON STOCK ................... -- 1,088,009 11 6,490 -- -- --
DIRECT COSTS RELATED TO ISSUANCE
OF COMMON STOCK ......................... -- -- -- (355) -- -- --
NET LOSS ................................... -- -- -- -- -- (600) --
------- --------- ---- -------- ----- ------- -------
BALANCES AT DECEMBER 31, 1994 .............. -- 3,188,385 32 6,941 -- (342) --
EXERCISE OF STOCK OPTIONS .................. -- 1,000 -- 3 -- -- --
PURCHASE OF TREASURY STOCK
(555,000 shares, at cost) ............... -- -- -- -- -- -- (2,603)
ISSUANCE OF WARRANTS ....................... -- -- -- 11 -- -- --
NET LOSS ................................... -- -- -- -- -- (989) --
------- --------- ---- -------- ----- ------- -------
BALANCES AT DECEMBER 31, 1995 .............. -- 3,189,385 32 6,955 -- (1,331) (2,603)
CONVERSION OF PAR VALUE
FROM $.01 to $.001 ...................... -- -- (29) 29 -- -- --
ISSUANCES OF COMMON STOCK .................. -- 3,618,091 3 37,670 -- -- --
EXERCISE OF STOCK OPTIONS
AND WARRANTS ............................ -- 512,922 1 1,140 (455) -- --
INCOME TAX BENEFITS FROM STOCK
OPTIONS EXERCISED ....................... -- -- -- 172 -- -- --
STOCK-BASED COMPENSATION ................... -- -- -- 1,596 -- -- --
REVERSAL OF PUT RIGHT COST ................. -- -- -- -- -- -- 250
NET LOSS ................................... -- -- -- -- -- (2,379) --
------- --------- ---- -------- ----- ------- -------
BALANCES AT DECEMBER 31, 1996 .............. $ -- 7,320,398 $ 7 $ 47,562 $(455) $(3,710) $(2,353)
======= ========= ==== ======== ===== ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
- 23 -
CORNELL CORRECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
1994 1995 1996
------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................................... $ (600) $ (989) $ (2,379)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation .................................................................. 271 166 498
Amortization .................................................................. 487 654 892
Deferred income taxes ......................................................... 101 -- (172)
Non-cash stock-based compensation and financing charges ....................... -- -- 1,596
Change in assets and liabilities, net of effects from acquisition
of businesses --
Accounts receivable ..................................................... (1,161) (1,086) 1,090
Restricted assets ....................................................... (71) (5) (233)
Other assets ............................................................ 779 166 (1,765)
Accounts payable and accrued liabilities ................................ 92 (137) (67)
------- -------- --------
Net cash used in operating activities ......................................... (102) (1,231) (540)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................................. (167) (1,159) (1,256)
Acquisition of businesses, less cash acquired .................................... (5,921) -- (25,174)
Redemption of commercial paper and U.S. Treasury notes ........................... 585 -- --
------- -------- --------
Net cash used in investing activities ......................................... (5,503) (1,159) (26,430)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ..................................................... 50 11,360 40,841
Payments on long-term debt ....................................................... (284) (7,158) (47,745)
Proceeds from issuance of common stock ........................................... 6,146 3 37,673
Proceeds from exercise of stock options and warrants ............................. -- -- 685
Purchase of treasury stock ....................................................... -- (2,353) --
------- -------- --------
Net cash provided by financing activities ..................................... 5,912 1,852 31,454
------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ 307 (538) 4,484
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................................... 621 928 390
------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................................... $ 928 $ 390 $ 4,874
======= ======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid .................................................................... $ 293 $ 520 $ 1,454
======= ======== ========
Income taxes paid ................................................................ $ -- $ -- $ 75
======= ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
- 24 -
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cornell Corrections, Inc. (collectively with its subsidiaries, the
"Company"), a Delaware corporation, provides to governmental agencies the
integrated development, design, construction and management of facilities within
three areas of operational focus: (i) secure institutional correctional and
detention services, (ii) pre-release correctional services and (iii) juvenile
correctional and detention services.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
RESTRICTED ASSETS
For certain facilities, the Company maintains bank accounts for restricted
cash belonging to inmates and commissary operations, for an equipment
replacement fund for the replacement of equipment used in state programs, and
for a restoration fund for any necessary restorations of the related facilities.
These bank accounts and commissary inventories are collectively referred to as
"restricted assets" in the accompanying financial statements.
DEFERRED COSTS
Facility start-up costs, which consist of costs of initial employee training,
travel and other direct expenses incurred in connection with the opening of new
facilities, are capitalized and amortized on a straight-line basis over the
lesser of the initial term of the contract plus renewals or five years. Direct
incremental development costs paid to unrelated third parties incurred in
securing new facilities, including certain costs of responding to requests for
proposal ("RFPs"), are capitalized as deferred costs and amortized as part of
start-up costs. Internal payroll and other costs incurred in securing new
facilities are expensed to general and administrative expenses. Deferred
development costs are charged to general and administrative expenses when the
success of obtaining a new facility project is considered doubtful.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Ordinary maintenance and repair
costs are expensed while renewal and betterment costs are capitalized. Prepaid
facility use cost, which resulted from the July 1996 acquisition of MidTex, is
being amortized over 35 years using the straight-line method. Buildings and
improvements are depreciated over their estimated useful lives of 20 to 40 years
using the straight-line method. Furniture and equipment are depreciated over
their estimated useful lives of 3 to 10 years using the straight-line method.
Amortization of leasehold improvements is computed on the straight-line method
based upon the shorter of the life of the asset or the term of the respective
lease.
- 25 -
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment at December 31, 1995 and 1996, are as follows (in
thousands):
1995 1996
-------- --------
Land ................................................. $ -- $ 561
Prepaid facility use ................................. -- 21,637
Buildings and improvements ........................... -- 2,651
Leasehold improvements ............................... 598 1,100
Furniture and equipment .............................. 407 938
Construction in progress ............................. 1,334 439
-------- --------
2,339 27,326
Accumulated depreciation and amortization (430) (1,252)
-------- --------
$ 1,909 $ 26,074
======== ========
Construction in progress at December 31, 1996 represents construction and
development costs attributable to a new pre-release facility which opened during
the first quarter of 1997.
CONTRACT VALUE
Contract value represents the estimated fair value of the contracts acquired
with the acquisition of Eclectic Communications, Inc. ("Eclectic") which were
amortized over the remaining term of the contracts. Accumulated amortization was
$542,000 as of December 31, 1995 and contract value was fully amortized as of
December 31, 1996.
GOODWILL
Goodwill represents the total consideration the Company paid to acquire
Eclectic in excess of the fair market value of the net tangible and identifiable
intangible assets acquired. Goodwill is being amortized on a straight-line basis
over 20 years, which represents management's estimation of the related benefit
to be derived from the acquired business. Under Accounting Principles Board
("APB") Opinion No. 17, the Company periodically evaluates whether events and
circumstances after the acquisition date indicate that the remaining balance of
goodwill may not be recoverable. If factors indicate that goodwill should be
evaluated for possible impairment, the Company would compare estimated
undiscounted future cash flow from the related operations to the carrying amount
of goodwill. If the carrying amount of goodwill were greater than undiscounted
future cash flow, an impairment loss would be recognized. Any impairment loss
would be computed as the excess of the carrying amount of goodwill over the
estimated fair value of the goodwill (calculated based on discounting estimated
future cash flows). Accumulated amortization of goodwill was $599,000 and
$939,000 as of December 31, 1995 and 1996, respectively.
REALIZATION OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of."
SFAS No. 121 requires that long-lived assets be probable of future recovery in
their respective carrying amounts as of each balance sheet date. The Company
adopted SFAS No. 121 effective January 1, 1996. Management believes its
long-lived assets are realizable and that no impairment allowance is necessary
pursuant to the provision of SFAS No. 121.
- 26 -
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
Substantially all occupancy fees are derived from contracts with federal and
state government agencies, which pay per diem rates based upon the number of
occupant days for the period. Such revenues are recognized as services are
provided.
Revenues related to other income include development fees and miscellaneous
other income. The development fees relate to the development, design and
supervision of facility construction activities.
Revenues are recognized as services are provided.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as
required by SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying values of existing assets and liabilities and their respective tax
bases based on enacted tax rates.
USE OF ESTIMATES
The Company's financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP"). Financial statements prepared in
accordance with GAAP require the use of management estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Additionally, management estimates affect the reported amounts of revenues and
expenses during the reporting period.
Actual results could differ from those estimates.
BUSINESS CONCENTRATION
Contracts with federal and state governmental agencies account for nearly all
of the Company's revenues.
FINANCIAL INSTRUMENTS
The Company considers the fair value of all financial instruments not to be
materially different from their carrying values at the end of each fiscal year
based on management's estimate of the Company's ability to borrow funds under
terms and conditions similar to those of the Company's existing debt.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective for the Company's 1996 fiscal year. SFAS No.
123 allows the Company to adopt either of two methods for accounting for stock
options. The Company intends to continue to account for its stock-based
compensation plans under Accounting Principles Board, Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB Opinion No. 25"). In accordance
with SFAS No. 123, certain pro forma disclosures are provided in Note 6.
PER SHARE DATA
Per share data is based on the weighted average number of common shares and
common share equivalents outstanding for the period. Common shares equivalents
have been included in the calculation of the shares used in computing net loss
per common share using the treasury stock method.
- 27 -
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INITIAL PUBLIC OFFERING
On October 3, 1996, the Company completed an initial public offering ("IPO")
of its common stock. Net proceeds to the Company from the sale of the 3,523,103
shares of newly issued common stock were approximately $37.4 million. Proceeds
of the IPO were used to repay indebtedness and for general working capital
purposes.
NON-RECURRING CHARGES
In connection with the Company's July 1996 credit facility ("1996 Credit
Facility"), the Company incurred expenses, issued certain options and warrants,
and sold shares of common stock, for which the Company recognized total deferred
financing costs of $1.3 million, of which $726,000 was noncash, to be amortized
over the life of the 1996 Credit Facility. Since the use of proceeds from the
IPO were used to retire significant portions of the 1996 Credit Facility, the
total deferred financing costs were charged to interest expense as of September
30, 1996. In addition, the Company recognized noncash compensation expense of
$870,000 during the third quarter of 1996 in connection with options to purchase
shares of common stock granted in July 1996 to certain officers of the Company
based upon the estimated valuation of the shares of common stock compared to the
exercise price on the date of grant.
2. ACQUISITIONS
In July 1996, the Company completed the acquisition of substantially all the
assets of MidTex Detentions, Inc. ("MidTex"), a private correctional center
operator for the Federal Bureau of Prisons ("FBOP"), operating secure
institutional facilities in Big Spring, Texas with a capacity of 1,305 beds at
the date of acquisition ("Big Spring Facility"). In May 1996, the Company
acquired a 310-bed facility located in Houston, Texas ("Reid Center"),
previously operated by Texas Alcoholism Foundation, Inc., and The Texas House
Foundation, Inc. (collectively, "Texas House"). Total consideration for these
acquisitions was approximately $25.7 million. The acquisitions were financed
primarily through borrowings under the 1996 Credit Facility and a short term
convertible note ("Convertible Bridge Note"). In connection with the MidTex
acquisition, the Company entered into various agreements for the use of the
facilities and the annual payment of $216,000 (in lieu of property taxes) per
year for approximately the next 35 years.
The acquisition costs and the estimated fair market value of the assets
acquired and liabilities assumed associated with the above-mentioned
acquisitions are as follows (in thousands):
MIDTEX REID CENTER
Cash paid.................................. $23,200 $1,986
Transaction costs.......................... 470 90
------- ------
Total purchase price.................... $23,670 $2,076
======= ======
Net assets acquired --
Cash..................................... $ 486 $ --
Receivables, net......................... 2,726 --
Other current assets..................... 755 --
Property and equipment, net:
Prepaid facility use.................... 21,710 --
Other................................... 10 2,090
Other assets............................. 5 --
Accounts payable and accrued liabilities. (2,022) (14)
------ ------
$23,670 $2,076
=======
- 28 -
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying value of the prepaid facility use relates to the Company's right
to use the three detention facilities retained by the City of Big Spring for 19,
20, and 23 years, respectively, plus three five-year extensions. Extensions of
the lease agreement are at the option of the Company. The costs will be
amortized over the respective periods, including the option periods. The Company
currently intends to exercise these extensions.
Both the Reid Center and MidTex acquisitions have been accounted for as
purchases; therefore, the accompanying statements of operations reflect the
results of operations since their respective acquisition dates.
The unaudited consolidated results of operations on a pro forma basis as
though the Reid Center and MidTex had been acquired as of the beginning of the
Company's fiscal years 1995 and 1996 are as follows (amounts in thousands,
except per share data):
YEAR ENDED DECEMBER 31,
1995 1996
Total revenues........................... $38,716 $42,061
Net loss................................. (8) (2,030)
Loss per share........................... (.00) (.45)
The unaudited consolidated results of operations on a pro forma basis (i)
assuming the Reid Center and MidTex had been acquired as of the beginning of the
Company's fiscal year 1996, (ii) assuming the IPO had occurred at the beginning
of the Company's fiscal year 1996, and (iii) excluding the $2.1 million of
non-recurring charges described above, are as follows (amounts in thousands,
except per share data):
YEAR ENDED
DECEMBER 31, 1996
Total revenues............................... $42,061
Net income................................... 1,772
Earnings per share........................... .25
Effective March 31, 1994, the Company purchased all outstanding stock of
Eclectic, a California-based operator of residential care and secure
correctional facilities. Consideration for the Eclectic acquisition was $10.3
million, consisting of $6 million in cash, $3.3 million in seller subordinated
debt, approximately $700,000 of other long-term obligations, and $300,000 of
transaction costs. The Eclectic acquisition was accounted for as a purchase, and
the accompanying statement of operations reflects the operating results of
Eclectic since the acquisition date.
- 29 -
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consideration paid and total net book value of the assets acquired and
liabilities assumed associated with the Eclectic acquisition were as follows (in
thousands):
Cash paid (including transaction costs) ............ $ 6,334
Debt issued and other obligations incurred ......... 4,000
--------
Total purchase price ............................. $ 10,334
========
Net assets acquired --
Current assets ................................... $ 2,532
Property and equipment ........................... 586
Contract value ................................... 748
Goodwill ......................................... 6,799
Other assets ..................................... 1,717
Current liabilities .............................. (1,577)
Other liabilities ................................ (471)
--------
$ 10,334
========
3. INCOME TAXES
The following is an analysis of the Company's deferred tax assets (in
thousands):
DECEMBER 31,
---------------------
1995 1996
------- -------
Deferred tax assets relating to --
Net operating loss carryforwards ....... $ 380 $ 609
Accelerated depreciation and amortization
of property and equipment for financial
reporting purposes .................... 114 290
Accrued expenses recorded for financial
reporting purposes and deferred for tax
purposes .............................. 217 282
Deferred compensation .................. -- 331
------- -------
711 1,512
Deferred tax liabilities ................. -- --
Net deferred tax asset before valuation
allowance .............................. 711 1,512
Valuation allowance ...................... (275) (904)
------- -------
Net deferred tax asset ................. $ 436 $ 608
======= =======
The components of the Company's income tax provision were as follows (in
thousands):
YEAR ENDED DECEMBER 31,
1994 1995 1996
-------------------------
Current provision................. $ -- $ -- $ 247
Deferred provision (benefit)...... 101 -- (172)
------ ------ ------
Tax provision................... $ 101 $ -- $ 75
====== ====== ======
- 30 -
YEAR ENDED DECEMBER 31,
------------------------
1994 1995 1996
----- ----- -----
Computed taxes at statutory rate of 34 percent ...... $(170) $(336) $(783)
Amortization of non-deductible intangibles .......... 166 162 186
1994 first quarter loss reported in
partnership tax return ........................... 88 -- --
State income taxes, net of federal benefit .......... 35 -- (39)
Changes in valuation allowance ...................... -- 190 629
Other ............................................... (18) (16) 82
----- ----- -----
$ 101 $-- $ 75
===== ===== =====
As of December 31, 1996, the Company has a net operating loss ("NOL")
carryforward for income tax purposes of approximately $1,600,000 available to
offset future taxable income. This carryforward will expire beginning 2008.
4. LONG-TERM DEBT
The Company's long-term debt consisted of the following (in thousands):
DECEMBER 31,
1995 1996
------ ----
1995 Credit Facility (all repaid in 1996):
Revolving credit .................................... $ 740 $--
Term loan ........................................... 4,000 --
Multiple-advance term loan .......................... 500 --
Stock repurchase loan ............................... 2,350 --
------ ----
Total ............................................ 7,590 --
Other notes payable, interest at 2.9% to 9.9% .......... 59 745
------ ----
7,649 745
Less -- current maturities ............................. 24 283
------ ----
$7,625 $462
====== ====
In conjunction with the acquisition of MidTex, the 1995 Credit Facility
was replaced with the1996 Credit Facility. The 1996 Credit Facility provided up
to $35,000,000 in loans pursuant to four separate facilities consisting of a
$2,500,000 revolving credit facility, a $23,200,000 term loan facility that was
used to finance a portion of the Mid-Tex acquisition costs, a $6,950,000
multiple-advance term loan facility for new and expanded facilities costs and a
$2,350,000 facility that was used to refinance the stock repurchase loan. In
addition, in July 1996, the Company borrowed $6.0 million under the Convertible
Bridge Note.
On October 8, 1996, the Company repaid a total of $33.9 million of
borrowings under the 1996 Credit Facility and the Convertible Bridge Note using
proceeds from the IPO. As a result of the repayments of the term loan facility
and the stock repurchase loan facility, such facilities were canceled.
- 31 -
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1996, the 1996 Credit Facility was amended to increase the
revolving credit facility to $5.0 million and the multiple-advance term loan
facility to $10.0 million. Loans under the 1996 Credit Facility bear interest at
a designated prime rate plus the following margins: revolving credit, 1%;
multiple-advance term loan, 1.75%. Commitment fees equal to 0.5% per annum are
payable on the unused portions of the revolving credit and multiple-advance term
loan facilities. The revolving credit facility and the multiple-advance term
loan facility will mature and all amounts, if any, outstanding thereunder will
be due on December 31, 1997. The 1996 Credit Facility is secured by all of the
Company's assets, including the stock of all the Company's subsidiaries, does
not permit the payment of cash dividends and requires the Company to comply with
certain earnings, net worth and debt service covenants. At December 31, 1996,
there were no borrowings outstanding under the 1996 Credit Facility.
Other notes payable pertain to financed insurance premiums and various
vehicle notes. Scheduled maturities of long-term debt are as follows (in
thousands):
DECEMBER 31,
1996
1997..................................... $ 283
1998..................................... 316
1999..................................... 119
2000..................................... 27
------
Total.................................. $ 745
======
In connection with the 1996 Credit Facility, the Company issued warrants to
the lender enabling the lender to purchase 264,000 shares of Class B Common
Stock at a per share exercise price of $2.82. The warrants are fully vested and
expire in 2003. As a condition to funding, the 1996 Credit Facility required
certain existing stockholders to purchase at least $200,000 of Class B Common
Stock. On July 9, 1996, the existing stockholders purchased an aggregate of
90,331 shares of Class B Common Stock for $254,733 (or $2.82 per share). As a
condition to the Convertible Bridge Note, the lender and certain existing
stockholders entered into a put agreement dated as of July 3, 1996 ("Put
Agreement"). The Company issued options to an existing stockholder to purchase
60,221 shares of Class B Common Stock at $2.82 per share in consideration for
entering into the Put Agreement (see Note 6 - "Treasury Stock" regarding the
expiration of this Put Agreement in 1996). Total financing costs of $1,261,000
(which includes (i) transaction costs of $535,000, (ii) the $568,000 difference
between the exercise price of the warrants granted to the lender and an existing
stockholder and the estimated valuation of the shares of common stock underlying
such options and (iii) the $158,000 difference between the purchase price and
the estimated valuation of the 90,331 shares of common stock purchased by an
existing stockholder) were capitalized as deferred financing costs.
- 32 -
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and certain facilities under long-term
operating leases. Rent expense for all operating leases for the years ended
December 31, 1994, 1995 and 1996, was approximately $1,667,000, $2,244,000, and
$2,358,000, respectively. As of December 31, 1996, the Company had the following
rental commitments under noncancelable operating leases (in thousands):
For the year ending December 31 --
1997................................... $2,209
1998................................... 1,378
1999................................... 874
2000................................... 447
2001................................... 175
Thereafter............................. 1,257
------
$6,340
401(K) PLAN
The Company has a defined contribution 401(k) plan. The Company's matching
contribution represents 50 percent of a participant's contribution, up to the
first six percent of the participant's salary. The Company can also make
additional discretionary contributions. For the years ended December 31, 1994,
1995 and 1996, the Company recorded $100,000, $139,000, and $210,000,
respectively, of contribution expense.
OTHER
The Company is subject to certain claims and disputes arising in the normal
course of the Company's business. In the opinion of the Company's management,
uninsured losses, if any, resulting from the ultimate resolution of these
matters will not have a material adverse impact on the Company's financial
position or results of operations.
6. STOCKHOLDERS' EQUITY
CAPITALIZATION
Upon the completion of the IPO, the Company's authorized stock was as
follows:
CLASS AUTHORIZED PAR VALUE
Common stock.................. 30,000,000 $ .001
Preferred stock............... 10,000,000 .001
Preferred stock may be issued from time to time by the Board of Directors of
the Company, which is responsible for determining the voting, dividend,
redemption, conversion and liquidation features of any preferred stock.
The Company effected a reclassification of its equity in 1996 in connection
with the IPO which resulted in the reclassification of each share of Class A
Common Stock and Class B Common Stock of the Company into one share of Common
stock, par value $.001 per share, of the Company.
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CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPTIONS AND WARRANTS
In May 1996, the Company adopted the 1996 Stock Option Plan ("1996 Plan").
Pursuant to the 1996 Plan, the Company may grant non-qualified and incentive
stock options. The Compensation Committee of the Board of Directors is
responsible for determining the exercise price and vesting terms for the
options. Additionally, prior to the IPO, the Company made various grants of
options and warrants to purchase the Company's common stock.
The Company may grant options for up to 880,000 shares under the 1996 Plan.
The Company has granted options on 673,358 shares through December 31, 1996. The
1996 Plan option exercise price can be no less than the stock's market price on
the date of grant. The 1996 Plan options vest up to four years, and expire after
seven to ten years.
On July 8, 1996, the chairman of the board and the chief financial officer of
the Company exercised options to purchase 137,110 and 82,750 shares of Class A
Common Stock and Class B Common Stock at an aggregate price of $274,220 and
$180,638, respectively. In connection with the exercise, each officer entered
into a promissory note with the Company for the respective aggregate exercise
amounts. The promissory notes bear interest at the applicable short-term federal
rate as prescribed by Internal Revenue Service regulations, mature in four
years, are full recourse and are collateralized by shares of common stock
exercised.
A summary of the status of the Company's stock option plan and other options
and warrants at December 31, 1995 and 1996 and changes during the years then
ended is presented in the table and narrative below:
1995 1996
------------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- --------- --------- ---------
Outstanding at beginning of year................. 83,062 $ 5.11 814,562 $ 2.12
Granted.......................................... 732,500 1.78 776,469 5.24
Exercised........................................ (1,000) 2.50 (512,922) 2.22
Forfeited........................................ -- -- -- --
Expired.......................................... -- -- -- --
-------- ---------
Outstanding at end of year....................... 814,562 2.12 1,078,109 4.32
======== =========
Exercisable at end of year....................... 793,562 2.11 930,609 3.46
Weighted average fair value of options granted... $.55 $4.10
Of the 1,078,109 options outstanding at December 31, 1996, 948,109 options
have exercise prices between $2.00 and $5.64, with a weighted average exercise
price of $3.26 and a weighted average remaining contractual life of 7.3 years.
The remaining 130,000 options have exercise prices of $12.00 and a weighted
average remaining contractual life of 9.8 years.
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CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost for the stock option grants under the 1996 Plan and
other stock options and warrants been determined under SFAS No. 123, the
Company's net loss and loss per share would have been the following pro forma
amounts (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31,
1995 1996
Net Loss: As reported $ (989) $(2,379)
Pro Forma (1,391) (3,503)
Loss per share: As reported (.25) (.53)
Pro Forma (.35) (.80)
Because SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
Under SFAS No. 123, the fair value of each option grant was estimated on the
date of grant using the minimum value calculation prior to the IPO, and the
Black-Scholes option pricing model subsequent to the IPO. The following weighted
average assumptions were used for grants in 1995 and 1996, respectively:
risk-free interest rates of 6.1% and 6.8%; dividend rates of $0 and $0; expected
lives of 7.0 and 7.5 years; expected volatility of 32.5% since the Company's
stock began trading in October 1996.
The Black-Scholes option valuation model and other existing models were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferrable. In addition, option valuation
models require the input of and are highly sensitive to subjective assumptions
including the expected stock price volatility. The Company's employee stock
options have characteristics significantly different from those of traded
options, and changes in the subjective input assumptions can materially affect
the fair value estimate.
TREASURY STOCK
Effective November 1, 1995, the Company repurchased 555,000 shares of Class
A Common Stock from a former officer of the Company ("Stock Repurchase"). The
Stock Repurchase and related expenses were financed with borrowings under the
1995 Credit Facility. In connection with the Stock Repurchase, the Company
issued options to purchase 555,000 shares of Class B Common Stock, each with an
exercise price of $2.00 per share, to certain existing stockholders and to the
lender under the 1995 Credit Facility. Also, in connection with the Stock
Repurchase, the Company granted the lender under the 1995 Credit Facility the
Put Agreement to require the Company to repurchase options to purchase 31,250
shares of Class B Common Stock for an aggregate price of $250,000 (i.e., $8.00
per share) upon the first to occur of (a) the closing of an initial public
offering of shares of common equity of the Company, (b) the repayment by the
Company of the Stock Repurchase Loan or (c) December 31, 1996. The Put
Agreement, which was accrued in 1995, expired and was reversed in 1996.
- 35 -
CORNELL CORRECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SUBSEQUENT EVENTS
On January 31, 1997, the Company acquired the assets of Interventions, Co.
("Interventions"). The Company paid an aggregate purchase price of $6,003,000
comprised of $3,523,000 in cash, $2,250,000 for the repayment of Interventions'
outstanding notes payable, and $230,000 of transaction costs. The Company
financed the purchase with $2,000,000 of borrowings from the multiple-advance
term loan facility under its 1996 Credit Facility and the remainder with cash.
The acquisition is being treated as a purchase for accounting purposes.
The operations acquired from Interventions include (i) a 300 bed residential
pre-release correctional center in Dallas County, Texas, (ii) various
non-residential aftercare treatment programs for an additional 170 probationers
in Dallas, Texas, and (iii) a 44 bed juvenile residential transitional living
center program in San Antonio, Texas. In addition, the Company acquired from
Interventions the 72,000 square foot, 150 bed capacity facility in San Antonio
in which the juvenile transitional living center is operated.
- 36 -
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Items 10, 11, 12 and 13 of Part III have been omitted from this report
because the Company will file with the Securities and Exchange Commission, not
later than 120 days after the close of its fiscal year, a definitive proxy
statement. The information required by Items 10, 11, 12 and 13 of this report,
which will appear in the definitive proxy statement, is incorporated by
reference into Part III of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
1. Financial statements and reports of Arthur Andersen LLP
Reports of Independent Auditors
Consolidated Balance Sheets - December 31, 1995 and 1996
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995, and 1996
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1994, 1995 and 1996 Consolidated Statements of
Cash Flows for the years ended December 31, 1994, 1995,
and 1996
Notes to Consolidated Financial Statements
2. Financial statement schedules
All schedules are omitted because they are not applicable or
because the required information is included in the financial
statements or notes thereto.
3. Exhibits
EXHIBIT INCORPORATED
NO. DESCRIPTION BY REFERENCE
- --------------------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the Company.
3.2 Amended and Restated Bylaws of the Company.
4.1 Certificate representing Common Stock. (1)
4.2 Registration Rights Agreement dated as of March 31, 1994, as amended, (1)
among the Company and the stockholders listed on the signature pages
thereto.
9.1 Stock Transfer and Voting Agreement dated November 23, 1994 between (1)
David M. Cornell and Jane B. Cornell.
10.1 Cornell Corrections, Inc. 1996 Stock Option Plan. (1)
10.2 Employment Agreement dated as of March 31, 1994 between the Company (1)
and Marvin H. Wiebe.
10.3 Form of Indemnification Agreement between the Company and each of its (1)
directors and executive officers.
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EXHIBIT INCORPORATED
NO. DESCRIPTION BY REFERENCE
- --------------------------------------------------------------------------------------------
10.4 Stockholders Agreement among certain stockholders named therein.
10.5 Contract between CCCI and the CDC (No. 92.401) for the Baker, California (1)
Facility dated June 25, 1992, as amended.
10.6 Professional Management Agreement between the Company and Central Falls (1)
Detention Facility Corporation dated July 15, 1992.
10.7 Operating Agreement by and between each of MidTex Detentions, Inc., the (1)
City of Big Spring, Texas ("Big Spring") and Cornell Corrections of
Texas, Inc. ("CCTI") dated as of July 1, 1996 and related Assignment and
Assumption of Operating Agreement.
10.8 Contract between CCCI and the CDC (No. R92.132) for the Live Oak, (1)
California Facility dated March 1, 1993, as amended.
10.9 Asset Purchase Agreement dated as of January 31, 1997 by and between (2)
Cornell Corrections of Texas, Inc. and Interventions, Co.
10.10 [Intentionally Omitted]
10.11 [Intentionally Omitted]
10.12 Contract between Texas Alcoholism Foundation, Inc. and the Texas (1)
Department of Criminal Justice, Parole Division for the Reid Facility
dated January 31, 1996, as amended.
10.13 [Intentionally Omitted]
10.14 Form of Contract between CCCI and the Utah State Department of Human (1)
Services, Division of Youth Corrections for the Salt Lake City, Utah
Juvenile Facility.
10.15 Asset Purchase Agreement among CCTI, Texas Alcoholism Foundation, Inc. (1)
and the Texas House Foundation, Inc. dated May 14, 1996.
10.16 Asset Purchase Agreement among CCTI, the Company, Ed Davenport, Johnny (1)
Rutherford and MidTex Detentions, Inc. dated May 22, 1996.
10.17 Lease Agreement between CCCI and Baker Housing Company dated August 1, (1)
1987 for the Baker, California facility.
10.18 Lease Agreement between CCCI and Sun Belt Properties dated as of May 23, (1)
1988, as amended for the Live Oak, California facility.
10.19 Lease Agreement between Big Spring and Ed Davenport dated as of July 1, (1)
1996 for the Interstate Unit and related Assignment and Assumption of
Leases.
10.20 Secondary Sublease Agreement between Big Spring and Ed Davenport dated (1)
as of July 1, 1996 for the Airpark Unit and related Assignment and
Assumption of Leases.
10.21 Secondary Sublease Agreement between Big Spring and Ed Davenport dated (1)
as of July 1, 1996 for the Flightline Unit and related Assignment and
Assumption of Leases.
10.22 [Intentionally Omitted]
10.23 Amended and Restated Credit Agreement among the Company, subsidiaries of (1)
the Company, the lenders listed therein ("Lenders"), and ING, as agent
to the Lenders, dated as of July 3, 1996.
10.24 Convertible Subordinated Promissory Note from the Company to ING dated (1)
as of July 3, 1996.
10.25 Put Agreement among the Company, Concord II, CEP II, and ING dated as of (1)
July 3, 1996.
10.26 Subordination Agreement among the Company and ING dated July 3, 1996. (1)
10.27 Extension Agreement among the Company, Concord II, and CEP II dated as (1)
of July 3, 1996.
- 38 -
EXHIBIT INCORPORATED
NO. DESCRIPTION BY REFERENCE
- --------------------------------------------------------------------------------------------
10.28 Warrant Issuance Agreement between the Company and ING dated July 3, (1)
1996.
10.29 Stock Option Agreement between the Company and CEP II dated July 9, (1)
1996.
10.30 Warrant Issuance Agreement between the Company and ING dated March 14, (1)
1995.
10.31 Investors Agreement among the Company, ING and certain stockholders of (1)
the Company listed therein dated as of November 1, 1995.
10.32 Option Agreement between the Company and ING dated as of November 1, (1)
1995.
10.33 Form of Option Agreement between the Company and the Optionholder listed (1)
therein dated as of November 1, 1995.
11.1 Computation of Per Share Earnings.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
(1) Registration Statement on Form S-1 of the Company (Registration No.
333-08243).
(2) Current Report on Form 8-K of the Company dated January 31, 1997 (File
No. 1-14472).
(b) REPORTS ON FORM 8-K
None.
- 39 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this annual report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CORNELL CORRECTIONS, INC.
Dated: March 28, 1997 By: /S/ DAVID M. CORNELL
David M. Cornell
Chairman of the Board,
President and Chief
Executive Officer
SIGNATURE TITLE DATE
/S/ DAVID M. CORNELL Chairman of the Board, President March 28, 1997
David M. Cornell and Chief Executive Officer
(Principal Executive Officer)
/S/ STEVEN W. LOGAN Chief Financial Officer, Treasurer March 28, 1997
Steven W. Logan and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
/S/ RICHARD T. HENSHAW III* Director March 28, 1997
Richard T. Henshaw III
/S/ PETER A. LEIDEL* Director March 28, 1997
Peter A. Leidel
/S/ CAMPBELL A. GRIFFIN, JR.* Director March 28, 1997
Campbell A. Griffin, Jr.
/S/ TUCKER TAYLOR* Director March 28, 1997
Tucker Taylor
* By: DAVID M. CORNELL
David M. Cornell
Attorney-in-Fact
- 40 -