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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
MARCH 31, 1996 0-23284
- - ------------------- ----------------------
YOUTH SERVICES INTERNATIONAL, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-1715690
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(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
2 PARK CENTER COURT, SUITE 200, OWINGS MILLS, MARYLAND 21117
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 410-356-8600
------------
NOT APPLICABLE
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR IF CHANGED
SINCE LAST REPORT)
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON MARCH 31, 1995:
5,578,398
- - ---------------
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
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YOUTH SERVICES INTERNATIONAL, INC.
INDEX - FORM 10-Q
MARCH 31, 1996
PAGE
----
PART I - FINANCIAL INFORMATION
- - ------------------------------
Item 1. Financial Statements
Consolidated Statements of Income -
For the Three and Nine Month Periods Ended March 31,
1996 and 1995................................................................................. 2
Consolidated Balance Sheets - March 31, 1996 and
June 30, 1995................................................................................. 3
Consolidated Statements of Cash Flows -
For the Nine Month Periods Ended March 31,
1996 and 1995................................................................................. 5
Notes to Consolidated Financial Statements.................................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................................... 9
PART II - OTHER INFORMATION
- - ---------------------------
Item 1. Legal Proceedings...................................................................................... 14
Items 2 through 5 have been omitted since the items are either inapplicable
or the answer is negative.
Item 6. Exhibits and Reports on Form 8-K....................................................................... 14
Signatures.............................................................................................................. 15
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YOUTH SERVICES INTERNATIONAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in 000's except per share data)
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- -------------------
1996 1995 1996 1995
--------- ------- ------- -------
REVENUES $ 21,552 $13,818 $61,276 $37,416
--------- ------- ------- -------
OPERATING EXPENSES
Program 17,809 11,449 51,009 30,987
Amortization of goodwill 271 159 749 434
Program preopening and start-up cost 28 - 58 716
Selling, general and administrative 1,246 1,036 4,046 2,982
--------- ------- ------- -------
19,354 12,644 55,862 35,119
--------- ------- ------- -------
Income from operations 2,198 1,174 5,414 2,297
OTHER INCOME (EXPENSE)
Interest expense (691) (72) (1,335) (162)
Other 254 18 33 (18)
--------- ------- ------- -------
(437) (54) (1,302) (180)
--------- ------- ------- -------
INCOME BEFORE INCOME TAXES 1,761 1,120 4,112 2,117
PROVISION FOR INCOME TAXES 657 444 1,603 798
--------- ------- ------- -------
NET INCOME $ 1,104 $ 676 $ 2,509 $ 1,319
========= ======= ======= =======
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.18 $ 0.12 $ 0.42 $ 0.24
========= ======= ======= =======
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 6,233 5,687 5,967 5,582
========= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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Page 1 of 2
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in 000's)
ASSETS
March 31, June 30,
1996 1995
--------- --------
CURRENT ASSETS:
Cash & cash equivalents $ 14,970 $ 784
Cash held in escrow - 2,543
Restricted cash 517 656
Investments available for sale 9,811 -
Accounts receivable, net of allowance for doubtful
accounts of $703 and $175, respectively 15,136 8,804
Tax refund receivable 40 40
Notes receivable 4,273 -
Prepaid expenses, supplies and other 2,272 1,224
--------- --------
Total current assets 47,019 14,051
--------- --------
PROPERTY, EQUIPMENT AND IMPROVEMENTS:
Land 622 307
Leasehold improvements 4,166 2,280
Program equipment 3,392 1,135
Buildings 6,904 2,164
Office furniture and equipment 2,428 1,738
Vehicles 1,136 1,354
--------- --------
18,648 8,978
Accumulated depreciation (2,713) (1,726)
--------- --------
15,935 7,252
--------- --------
OTHER ASSETS:
Deposits 248 204
Other deferred charges 3,311 219
Goodwill, net 10,026 5,874
Consulting agreement 1,673 -
Non-compete agreements, net 303 116
Deferred tax asset 614 392
Management fee receivable 450 510
Other assets, net 213 432
--------- --------
16,838 7,747
--------- --------
Total assets $ 79,792 $ 29,050
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
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Page 2 of 2
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in 000's)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, June 30,
1996 1995
-------- --------
CURRENT LIABILITIES:
Accounts payable $ 1,190 $ 1,927
Accrued payroll 2,092 538
Other accrued expenses 4,109 1,121
Short-term borrowings 3,250 568
Current portion of long-term debt and
capital lease obligations 796 133
Deferred tax liability 60 38
-------- --------
Total current liabilities 11,497 4,325
DEFERRED REVENUE 47 102
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion 8,019 5,981
12% SUBORDINATED DEBENTURES, net of
unamortized discount 981 974
7% CONVERTIBLE SUBORDINATED DEBENTURES 37,950 -
-------- --------
Total liabilities 58,494 11,382
-------- --------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 20,000,000
authorized shares; issued and outstanding
5,578,398 at March 31, 1996 and
5,370,721 at June 30, 1995 56 54
Additional paid-in capital 17,664 16,364
Unrealized loss on investments (181) -
Retained earnings 3,759 1,250
-------- --------
Total shareholders' equity 21,298 17,668
-------- --------
Total liabilities and shareholders' equity $ 79,792 $ 29,050
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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Page 1 of 2
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in 000's)
Nine Months Ended
March 31,
-----------------------
1996 1995
------- -------
OPERATING ACTIVITIES:
Net income $ 2,509 $ 1,319
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,255 1,296
Net change in operating assets and liabilities (1,574) (3,093)
Loss on disposal of assets 81 -
------- -------
Net cash provided by (used in) operating activities 3,271 (478)
------- -------
INVESTING ACTIVITIES:
Purchases of property, equipment and improvements, net (7,399) (2,931)
Purchase of available for sale securities (10,112) -
Purchase of notes receivable (4,273) -
Proceeds from sale of assets 378 -
Other deferred charges (3,269) (324)
Non-compete (250) -
Other assets (250) (267)
Purchase of goodwill (2,171) (1,584)
------- -------
Net cash used in investing activities (27,346) (5,106)
------- -------
FINANCING ACTIVITIES:
Proceeds from borrowings 8,206 2,050
Repayments of long-term debt and capital lease obligations (9,197) (168)
Proceeds from the issuance of convertible subordinated
debentures 37,950 -
Proceeds from the issuance of common stock under
the Employee Stock Option Plan and the Employee
Stock Purchase Plan, net 1,302 220
Other - (109)
------- -------
Net cash provided by financing activities 38,261 1,993
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,186 (3,591)
CASH AND CASH EQUIVALENTS, beginning of period 784 3,816
------- -------
CASH AND CASH EQUIVALENTS, end of period $14,970 $ 225
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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Page 2 of 2
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in 000's)
Nine Months Ended
March 31,
-----------------------
1996 1995
------- -------
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Cash held in escrow $ 2,543 $ -
Restricted cash 139 (125)
Accounts receivable (6,387) (3,245)
Tax refund receivable - 126
Prepaid expenses, supplies and other (1,048) (772)
Deferred tax asset (222) (64)
Deposits (44) -
Management fee receivable 60 -
Deferred tax liability 142 -
Accounts payable and accrued expenses 1,800 1,124
Accrued payroll 1,443 (137)
------- -------
Net change in operating assets and liabilities $(1,574) $(3,093)
======= =======
SUPPLEMENTAL DISCLOSURES:
Noncash reduction of accounts receivable through
application of advance payments for services $ 55 $ 29
======= =======
Noncash asset acquisition through notes payable,
bank loan and mortgage assumption $ 9,315 $ 278
======= =======
Noncash unrealized loss on investments available for sale $ 302 $ -
======= =======
Cash paid for interest $ 887 $ 163
======= =======
Cash paid for taxes $ 1,589 $ 280
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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YOUTH SERVICES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL INFORMATION
In management's opinion, the accompanying interim unaudited
consolidated financial statements include all adjustments, consisting only of
normal, recurring adjustments, necessary for a fair presentation of Youth
Services International, Inc.'s (YSI's) financial position at March 31, 1996 and
the results of its operations for the three months and nine months ended March
31, 1996 and 1995 and its cash flows for the nine months ended March 31, 1996
and 1995. The accompanying consolidated balance sheet at June 30, 1995 is
presented herein as set forth in YSI's Annual Report on Form 10-KSB/A for the
year ended June 30, 1995. These statements are presented in accordance with
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in YSI's annual
consolidated financial statements have been omitted from these statements, as
permitted under the applicable rules and regulations. Readers of these
statements should refer to the consolidated financial statements and notes
thereto as of June 30, 1995 and 1994 and for the years then ended filed with
the Securities and Exchange Commission on Form 10-KSB/A.
Operating results for the three months and nine months ended
March 31, 1996 and 1995 are not necessarily indicative of the results that may
be expected for a full fiscal year.
2. SIGNIFICANT AGREEMENTS
In January, 1996, YSI issued 7% Convertible Subordinated
Debentures due February 1, 2006, in the principal amount of $37.95 million.
Interest is payable semi-annually commencing August 1, 1996. The Debentures,
not callable for three years, are convertible into shares of the Company's
Common Stock at a conversion price of $18.70 per share.
In January, 1996, YSI commenced operation of a 45 bed juvenile
boot camp program in Walters, Virginia for youth who have committed crimes or
are considered at risk of being adjudicated.
Effective March 1, 1996, YSI acquired the business and certain
assets of Tampa Bay Academy, L.P. ("Tampa Bay Academy) and a management
agreement contract with a related entity for $973,000 in cash, a note payable
in the amount of $3.25 million and the assumption of liabilities in the amount
of $325,000. Tampa Bay Academy is primarily a residential treatment center
licensed for 104 youth.
3. PRO FORMA INFORMATION
The unaudited consolidated results of operations for the three
months and nine months ended March 31, 1996 include the operating results of
Desert Hills of New Mexico which was acquired as of the close of business June
30, 1995. Tampa Bay Academy was acquired effective March 1, 1996; accordingly,
the unaudited consolidated results of operations for the three months and nine
months ended March 31, 1996 include the operating results of Tampa Bay Academy
for the one month period ended March 31, 1996. Assuming the acquisition of
Desert Hills of New Mexico and Tampa Bay Academy had been consummated at the
beginning of fiscal year 1995, the unaudited pro forma consolidated results of
operations would have been as follows:
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Three Months Ended Nine Months Ended
---------------------- ---------------------------
March 31, March 31,
---------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues $23,101 $17,441 $67,576 $48,182
Net Income 1,116 792 2,593 1,842
Net Income per share .18 .14 .43 .33
Weighted average common and common
equivalent shares outstanding 6,233 5,687 5,967 5,582
The above information reflects adjustments, net of tax
effects, to recognize additional goodwill amortization expense, interest
expense, lease expense, and depreciation expense on fair market value write-up
of fixed assets, as well as reflect reduced amortization expense on deferred
assets not acquired.
The unaudited pro forma information presented above may not be
indicative of the results of operations which actually would have occurred if
the transaction had taken place as of the beginning of fiscal year 1995.
4. SUBSEQUENT EVENTS
On April 11, 1996, the Company entered into a binding letter
of intent to acquire Three Springs, Inc. Three Springs conducts outdoor
adventure programs and residential treatment centers for over 500 youth. The
letter of intent contemplates that the parties will enter into a definitive
agreement and close the acquisition by June 30, 1996, subject to the Company's
due diligence review and the acquisition qualifying as a "pooling of interests"
for the Company. The letter of intent provides that YSI will acquire Three
Springs, Inc. for 800,000 shares of YSI Common Stock (1,200,000 shares after
giving effect to the three-for-two stock split discussed below).
On April 30, 1996, the Company's Board of Directors declared a
three-for-two split of the Company's outstanding common stock. Shareholders
will receive a stock dividend on the outstanding shares of common stock in the
amount of one-half of one share of common stock for each share of common stock
held by the shareholder on the record date. Cash will be paid in lieu of
fractional shares based upon the price of common stock on the record date of
the split. The number of shares outstanding after the split will be
approximately 8,453,000 based on the number of shares of YSI common stock
currently outstanding.
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YOUTH SERVICES INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Youth Services International, Inc. ("YSI" or the "Company")
currently manages or operates nineteen residential and community-based programs
in twelve states. The Company operates its programs through wholly-owned
subsidiaries pursuant to contracts directly with government agencies and third
party payors or, alternatively, with unaffiliated not-for-profit entities which
have contracts with government agencies.
The Company's programs are provided pursuant to fixed per diem
contracts based upon program occupancy, management contracts, including those
management contracts with not-for-profit entities and various third party payor
contractual reimbursement contracts. The Company recognizes revenues under all
contracts as the services are performed. Under certain contracts, some
contract costs, including indirect costs, are subject to audit and adjustment
by negotiations with government or third party payor representatives. Under
these contracts, contract revenues are recorded at amounts which are expected
to be realized.
"Program contribution margin" is defined by the Company as
revenues less direct program expenses, goodwill, depreciation and other
amortization expense, but before program preopening costs, selling, general and
administrative expenses, interest and income taxes. Program contribution
margin, in general, is lower in the initial stages of a program's development
due to staffing requirements to obtain licensing and other direct program
expenses necessary for the operation of the program. The Company earns greater
program contribution margins, as a percentage of revenue, under some
contractual arrangements with unaffiliated not-for-profit entities because, in
certain of these arrangements, the not-for-profit entity is responsible for
some elements of operating the program and, therefore, incurs some of the costs
which are reimbursed to the not-for-profit without margin. Accordingly, the
amount of program contribution margin earned by the Company depends in part on
the nature and extent of the program elements for which it is responsible.
RECENT DEVELOPMENTS
In January, 1996, YSI issued 7% Convertible Subordinated
Debentures due February 1, 2006, in the principal amount of $37.95 million.
Interest is payable semi-annually commencing August 1, 1996. The Debentures,
not callable for three years, are convertible into shares of the Company's
Common Stock at a conversion price of $18.70 per share.
In January, 1996, YSI commenced operation of a 45 bed juvenile
boot camp in Walters, Virginia.
Effective March 1, 1996, YSI acquired the business and certain
assets of Tampa Bay Academy, L.P. ("Tampa Bay Academy) and a management
agreement contract with a related entity for $973,000 in cash, a note payable
in the amount of $3.25 million and the assumption of liabilities in the amount
of $325,000. Tampa Bay Academy is primarily a residential treatment center
licensed for 104 youth.
On April 11, 1996, the Company entered into a binding letter
of intent to acquire Three Springs, Inc. Three Springs conducts outdoor
adventure programs and residential treatment centers for over 500 youth. The
letter of intent contemplates that the parties will enter into a definitive
agreement and close the acquisition by June 30, 1996, subject to the Company's
due diligence review and the acquisition qualifying as a "pooling of interests"
for the Company. The letter of intent provides that YSI will acquire Three
Springs, Inc. for 800,000 shares of YSI Common Stock (1,200,000 shares after
giving effect to the three-for-two stock split discussed in "Notes to
Consolidated Financial Statements").
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RESULTS OF OPERATIONS
The following table sets forth selected items from the
Company's consolidated financial statements expressed as a percent of revenues:
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Program expenses . . . . . . . . . . . . . . . . 83.9% 84.0% 84.5% 83.9%
Program contribution margin . . . . . . . . . . . 16.1% 15.9% 15.5% 16.0%
Selling, general and administrative expenses . . 5.8% 7.5% 6.6% 8.0%
Total operating expenses . . . . . . . . . . . . 89.8% 91.5% 91.2% 93.9%
Income from operations . . . . . . . . . . . . . 10.2% 8.5% 8.8% 6.1%
Net income . . . . . . . . . . . . . . . . . . . 5.1% 4.9% 4.1% 3.5%
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Revenues. Revenues increased $7,734,000, or 55.9%, to $21,552,000 for
the three months ended March 31, 1996 from $13,818,000 for the three months
ended March 31, 1995. This increase in revenues reflects the acquisition of
Developmental Behavioral Consultants (DBC) in June 1995, Desert Hills of New
Mexico as of the close of business on June 30, 1995, and Tampa Bay Academy in
March 1996; management agreements the Company entered into with respect to
Desert Hills of Arizona, Desert Hills of Nevada, and College Station as of the
close of business on June 30, 1995; the opening of Woodward Academy in July
1995 and the opening of Camp Washington, the Virginia boot camp, in January
1996; and an expanded student population at existing academies. Revenues
attributable to programs that existed during the three month period ended March
31, 1995 increased by $15,866,000, or 14.8% for the three months ended March
31, 1996 due to the increased student populations in these programs.
Program Expenses. Program expenses, including goodwill amortization,
increased $6,472,000, or 55.8%, to $18,080,000 for the three months ended March
31, 1996 from $11,608,000 for the three months ended March 31, 1995. The
increase in program expenses reflects the increase in the number of programs
operated by the Company and the number of students in the Company's existing
programs. Salaries and related employee benefits constituted approximately
67.6% of program expenses for the three months ended March 31, 1996 compared to
65.0% of program expenses for the three months ended March 31, 1995.
Substantially all other operating expenses consist of the cost of food, medical
care, insurance, rent, utilities, vehicles, supplies, depreciation and goodwill
and other amortization. Generally, until a program reaches maturity, program
expenses decrease as a percentage of the related revenues.
Program Contribution Margin. The program contribution margin earned
by the Company for the three months ended March 31, 1996 was $3,472,000, or
16.1% of revenues, compared to $2,210,000, or 15.9% of revenues, for the
comparable prior period.
Program Preopening Costs. Program preopening costs represent the
non-recurring staffing, training and other direct costs of developing a program
prior to the actual program start date. The Company has determined it is
prudent to reflect these costs as expenses when they are incurred instead of
amortizing such costs over a period of time. Program preopening costs for the
three months ended March 31, 1996 of $28,000 represent preopening costs related
to the opening of the Virginia boot camp. The Company incurred no preopening
costs for the three months ended March 31, 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of salaries, travel and other overhead
expenses. For the three months ended March 31, 1996, selling, general and
administrative expenses increased $210,000 to $1,246,000, or 5.8% of revenues,
from $1,036,000, or 7.5% of
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revenues, for the comparable prior period. The most significant component of
these costs relates to the compensation expense associated with program and
business professionals necessary for the development and oversight of the
Company's programs and operations. The decrease as a percentage of revenues
between periods is primarily attributable to the outsourcing of new business
development and the increase in revenue between periods.
Interest Expense. Interest expense increased to $691,000 from $72,000
for the three months ended March 31, 1996 from the comparable period in 1995.
This increase primarily resulted from interest payable on the debt incurred in
connection with the acquisitions of DBC and Desert Hills of New Mexico,
interest payable on the financing of the Company's personal property, and
interest payable on the 7% Convertible Subordinated Debentures.
Income Taxes. The provision for income taxes was $657,000 for the
three months ended March 31, 1996 and $444,000 for the three months ended March
31, 1995.
Net Income. Net income increased $428,000 from $676,000 for the three
months ended March 31, 1995 to $1,104,000 for the same period this fiscal year.
NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO NINE MONTHS ENDED MARCH 31, 1995
Revenues. Revenues increased $23,860,000, or 63.8%, to $61,276,000
for the nine months ended March 31, 1996 from $37,416,000 for the nine months
ended March 31, 1995. This increase in revenues reflects a full nine months of
operations for Parc Place, Promise House, and Tarkio Academy which were
acquired or opened during the nine months ended March 31, 1995; the operations
of DBC, Desert Hills of New Mexico, Woodward Academy, the Virginia boot camp
and Tampa Bay Academy which were acquired or opened subsequent to the nine
months ended March 31, 1995; management agreements with respect to Desert Hills
of Arizona, Desert Hills of Nevada, and College Station which the Company
entered into subsequent to the nine months ended March 31, 1995; and an
expanded student population at existing academies. Revenues attributable to
programs that existed during the nine month period ended March 31, 1995
increased by $47,261,000, or 26.3%, for the nine months ended March 31, 1996
due to the increased average student population in these programs.
Program Expenses. Program expenses, including goodwill amortization,
increased $20,337,000, or 64.7%, to $51,758,000 for the nine months ended March
31, 1996 from $31,421,000 for the nine months ended March 31, 1995. The
increase in program expenses reflects the increase in the number of programs
operated by the Company and the number of students in the Company's existing
programs. Salaries and related employee benefits constituted approximately
65.7% of program expenses for the nine months ended March 31, 1996 compared to
60.2% of program expenses for the nine months ended March 31, 1995.
Program Contribution Margin. The program contribution margin earned
by the Company for the nine months ended March 31, 1996 was $9,518,000, or
15.5% of revenues, compared to $5,995,000, or 16.0% of revenues, for the
comparable prior period. The decrease is primarily due to the programs at
College Station, Texas, the Virginia boot camp and Woodward which were in the
early stages of operation during the period.
Program Preopening Costs. Program preopening costs for the nine
months ended March 31, 1996 of $58,000 represent preopening costs related to
the opening of the Virginia boot camp. Program preopening costs for the nine
months ended March 31, 1995 of $716,000 represent preopening costs related
primarily to the opening of Tarkio Academy.
Selling, General and Administrative Expenses. For the nine months
ended March 31, 1996, selling, general and administrative expenses increased
$1,064,000 to $4,046,000, or 6.6% of revenues, from $2,982,000, or 8.0% of
revenues, for the comparable prior period. The most significant component of
these costs relates to the compensation expense associated with program and
business professionals necessary for the development and oversight of the
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Company's programs and operations. The decrease as a percentage of revenues
between periods is primarily attributable to the outsourcing of new business
development and the increase in revenue between periods.
Interest Expense. Interest expense increased to $1,335,000 from
$162,000 for the nine months ended March 31, 1996 from the comparable period in
1995. This increase primarily resulted from increases in borrowings on the
Company's revolving line of credit to fund working capital needs, interest
payable on the debt incurred in connection with the acquisitions of DBC and
Desert Hills New Mexico, interest payable on the financing of the Company's
personal property, and interest payable on the 7% Convertible Subordinated
Debentures.
Income Taxes. The provision for income taxes was $1,603,000 for the
nine months ended March 31, 1996 and $798,000 for the nine months ended March
31, 1995.
Net Income. Net income increased $1,190,000 from $1,319,000 for the
nine months ended March 31, 1995 to $2,509,000 for the same period this fiscal
year.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had $24,781,000 in cash, cash
equivalents and investments available for sale and working capital of
$35,522,000. Net cash provided by operating activities was $3,271,000 for the
nine months ended March 31, 1996 compared to net cash used in operating
activities of $478,000 for the nine months ended March 31, 1995.
Approximately $27,346,000 was invested during the nine months ended
March 31, 1996 of which approximately $10,112,000 was invested in liquid
securities, $4,246,000 was used to fund the Tampa Bay Academy acquisition and
the purchase of a related mortgage note receivable, $3,400,000 was used to fund
the acquisition of Desert Hills New Mexico and the transactions with Introspect
with respect to Desert Hills Arizona and Desert Hills Nevada (including costs
incurred therewith), $2,827,000 of deferred financing costs were incurred in
connection with the 7% Convertible Subordinated Debt Offering and $1,000,000 was
advanced under the line of credit facility provided to Introspect. The
remaining approximately $5,761,000 of investments were made in leasehold
improvements, vehicles, computer equipment and other capital expenditures in
support of operating activities of existing programs compared to $5,106,000
invested during the prior year. Capital expenditures during the nine months
ended March 31, 1996 include approximately $758,000 of costs incurred in the
construction of 116 additional beds at Clarinda Academy, approximately $285,000
of costs incurred in the construction and renovation of additional beds and
classrooms at Tarkio Academy, approximately $123,000 of costs incurred in the
construction of additional beds at Woodward Academy, approximately $114,000 of
costs incurred in the renovation of the Virginia boot camp, approximately
$249,000 of costs incurred in the construction and renovation of additional beds
and classrooms at various other facilities, and approximately $261,000 of costs
incurred in renovations to the corporate conference center and offices.
The Company funded its cash needs with short-term and long-term
borrowings, cash generated from existing programs and funds raised from the 7%
Convertible Subordinated Debt Offering. As of March 31, 1996, the Company had
approximately $8,500,000 of credit available on its existing bank revolving
line of credit.
Total debt of $50,996,000 on March 31, 1996 consisted primarily of
$37,950,000 of 7% Convertible Subordinated Debentures, $3,250,000 for a note
payable in connection with the Tampa Bay acquisition, $2,200,000 for a capital
lease for the Company's personal property, $2,200,000 for a capital lease
assumed in the acquisition of Desert Hills of New Mexico, $1,731,000 for a
consulting note payable in connection with the Desert Hills transaction and
$981,000 of 12% subordinated debentures.
The Company believes the funds raised in its recent 7% Convertible
Subordinated Debt Offering and funds available under its revolving line of
credit, together with existing capital resources and cash flow from its
existing operations, will be sufficient to meet all indebtedness payments, to
make all planned capital additions and improvements and meet other working
capital needs for the next twelve months.
The Company had restricted cash of $517,000 as of March 31, 1996, of
which $389,000 was restricted pursuant to the Victor Cullen Academy contract
which provides for the payment of $5.00 per student per day to be
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deposited equally into a facility renewal and equipment fund and an aftercare
fund uses of which are subject to the advance budgetary approval of the State
of Maryland Department of Juvenile Justice. Any residual funds, as well as any
fixed assets or capital improvements purchased from these funds, revert to the
State of Maryland Department of Juvenile Justice upon contract termination.
The Company's collection experience on accounts receivable continues
to be favorable. The Company receives monthly payments in advance under the
Hickey School contract.
The increase in net accounts receivable of $6,332,000, as well as the
increase in accounts payable and accrued expense of $2,251,000, from June 30,
1995 to March 31, 1996 is primarily attributable to the addition of the Desert
Hills, Woodward, Virginia and Tampa Bay programs, the expansion of the Tarkio
program and the increased number of students in the Company's other programs.
The increase in notes receivable of $4,273,000 from June 30, 1995, to
March 31, 1996, is attributable to the purchase of a $3,273,000 mortgage note
receivable in connection with the acquisition of Tampa Bay Academy and the
advancing of $1,000,000 under the line of credit facility provided to
Introspect Healthcare Corporation.
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YOUTH SERVICES INTERNATIONAL, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than routine
litigation which the Company does not believe is significant to its future
financial position or results of operations.
ITEMS 2 THROUGH 5 have been omitted since the items are either inapplicable or
the answer is negative.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
10 Letter of Intent Regarding the Acquisition of Three Springs, Inc.
11 Computation of Weighted Average Common and Common Equivalent Shares Outstanding
27 Financial Data Schedule
(b) The registrant filed a Current Report on Form 8-K on April 10,
1996 to report its acquisition of certain assets and contractual rights and the
assumption of certain liabilities and contractual obligations from The Tampa
Bay Academy, Ltd. The financial statements filed included Audited Financial
Statements of The Tampa Bay Academy, Ltd. for the years ended December 31,
1995, 1994 and 1993; Audited Financial Statements of American Residential
Centers, Inc. for the years ended December 31, 1995, 1994, and 1993; Audited
Financial Statements of Desert Hills Center for Youth and Families of New
Mexico, Inc. for the year ended December 31, 1995 and unaudited financial
statements of Desert Hills Center for Youth and Families of New Mexico, Inc. as
of December 31, 1994; Pro Forma Financial Information of the Company for the
year ended June 30, 1995; and Pro Forma Financial Information for the six-month
period ended December 31, 1995.
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YOUTH SERVICES INTERNATIONAL, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
YOUTH SERVICES INTERNATIONAL, INC.
By: /s/ William P. Mooney
-------------------------------------
William P. Mooney
Chief Financial Officer and Treasurer
Date: May 15, 1996
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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YOUTH SERVICES INTERNATIONAL, INC.
-----------------
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
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YOUTH SERVICES INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit No. Description
- - ----------- -----------
10 Letter of Intent Regarding the Acquisition of
Three Springs, Inc.
11 Computation of Weighted Average Common and Common
Equivalent Shares Outstanding
27 Financial Data Schedule