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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report -- July 22, 1997
YOUTH SERVICES INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Maryland 0-23284 52-1715690
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(State of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
2 Park Center Court, Suite 200, Owings Mills, Maryland 21117
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(Address of principal executive offices) (Zip Code)
(410) 356-8600
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(Registrant's telephone number, including area code)
Not Applicable
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(Former Address)
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 22, 1997, Youth Services International, Inc. (YSI or the
Company) entered into a definitive agreement with Youth and Family Centered
Services, Inc. (YFCS), an unrelated party, to sell to YFCS its subsidiaries
which conduct the Company's behavioral health programs (the Behavioral Health
Business). Pursuant to the agreement, and after the closing of the sale, YFCS
will pay to YSI in cash, approximately $21,720,000 plus or minus the amount by
which the Final Net Working Capital, as defined in the agreement, is greater
than or less than $4,041,500 as of the closing, for all of the outstanding
common stock of a wholly-owned subsidiary corporation of YSI, which will be, at
the time of the closing, the parent of the following wholly-owned subsidiaries:
Developmental Behavioral Consultants, Inc., Introspect Healthcare, Corporation,
Desert Hills Center for Youth and Families, Inc., Desert Hills Center for Youth
and Families of New Mexico, Inc., Promise House, Inc., Southwestern Children's
Health Services, Inc., Youth Services International of Florida, Inc., Youth
Services International of New Mexico, Inc., Youth Services International of
Texas, Inc. and YSI of Utah, Inc. In connection with the sale, YSI has agreed
to indemnify YFCS for certain existing and contingent payment and lease
obligations. The closing of the sale is subject to governmental approvals, the
purchaser's consummation of borrowing under its credit facility to finance the
purchase and other normal closing conditions. YSI will continue to operate the
subsidiaries held for sale until the closing which is expected to be on or
before September 30, 1997.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Not applicable
(b) Pro Forma Financial Information
(1) Unaudited Pro Forma Consolidated Balance Sheet
as of March 31, 1997
(2) Unaudited Pro Forma Consolidated Statements of
Income for the year ended June 30, 1996 and the
nine months ended March 31, 1997
(c) Exhibits
Exhibit No. Description of Exhibits
2 Stock Purchase Agreement By
and Among Youth and Family
Centered Services, Inc.,
Youth Services International
Holdings, Inc. and Youth
Services International, Inc.
dated as of July 22, 1997
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YOUTH SERVICES INTERNATIONAL, INC.
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
YOUTH SERVICES INTERNATIONAL, INC.
By: /s/ William P. Mooney
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William P. Mooney
Chief Financial Officer
Date: August 6, 1997
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YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma consolidated financial statements include the unaudited
pro forma consolidated statements of income for the year ended June 30, 1996
and for the nine months ended March 31, 1997 and the unaudited pro forma
balance sheet as of March 31, 1997. The unaudited pro forma consolidated
statements of income are adjusted to give effect to the disposition of the
Company's behavioral health business as if such transaction had occurred at
the beginning of each period presented. The unaudited pro forma consolidated
balance sheet is adjusted to give effect to the disposition of the Company's
behavioral health business as if such transaction had occurred on March 31,
1997.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. The pro forma
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and related notes thereto. The
unaudited pro forma consolidated financial statements do not purport to
represent what the Company's results of operations or financial position would
have been had the disposition occurred on the dates assumed or to project the
Company's results of operations or financial position for or at any future
period or date.
In March 1997, the Company committed to a plan to sell the Behavioral Health
Business. Given the fact that the net realizable value of the Business held for
sale was estimated to be below the carrying value of the net assets, in
accordance with generally accepted accounting principles, the Company
recognized a $27 million restructuring loss in the quarter ended March 31,
1997.
In April 1997, the Company changed its fiscal year from June 30 to December 31.
The pro forma statements of income in this Form 8-K continue to utilize June
30, 1996 as the Company's most recent yearend as the Company believes that this
twelve month period is the most informative for purposes of pro forma analysis.
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YOUTH SERVICES INTERNATIONAL, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1996
(IN 000'S EXCEPT PER SHARE DATA)
YSI Business Pro Forma YSI
Historical Sold Adjustments Adjusted
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Revenues $ 100,353 $ (43,497) $ - $ 56,856
Program Expenses:
Direct operating 86,861 (39,236) - 47,625
Startup costs 58 - - 58
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Contribution from operations 13,434 (4,261) - 9,173
Selling, general and administrative expenses 5,760 - - 5,760
Costs of attempted acquisitions 569 - - 569
Loss on disposal of business - - 20,514 (b) 20,514
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(Loss) income from operations 7,105 (4,261) (20,514) (17,670)
Other Income (Expense) (2,978) 1,761 233 (d) (984)
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(Loss) income before income taxes 4,127 (2,500) (20,281) (18,654)
Income tax (benefit) expense 1,856 (1,238) 89 (g) 707
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Net (loss) income $ 2,271 $ (1,262) $ (20,370) $ (19,361)
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(Loss) earnings per common and common $ 0.25 $ (2.09)
equivalent share
Weighted average shares outstanding 9,267 9,267
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YOUTH SERVICES INTERNATIONAL, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(IN 000'S EXCEPT PER SHARE DATA)
YSI Business Pro Forma YSI
Historical Sold Adjustments Adjusted
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Revenues $ 84,293 $ (35,600) $ - $ 48,693
Program Expenses:
Direct operating 72,151 (33,583) - 38,568
Amortization of goodwill 1,606 (1,309) - 297
Startup costs 142 - - 142
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Contribution from operations 10,394 (708) - 9,686
Selling, general and administrative expenses 6,137 - (607) (f) 5,530
Loss on disposal of business 27,000 - (6,486) (b) 20,514
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(Loss) income from operations (22,743) (708) 7,093 (16,358)
Other Income (Expense) (2,516) 459 25 (d) (2,032)
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(Loss) income before income taxes (25,259) (249) 7,118 (18,390)
Income tax (benefit) expense (5,431) (94) 6,332 (c) 807
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Net (loss) income $ (19,828) $ (155) $ 786 $ (19,197)
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(Loss) earnings per common and common (2.12) (2.06)
equivalent share
Weighted average shares outstanding 9,333 9,333
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YOUTH SERVICES INTERNATIONAL, INC.
PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1997
(IN 000'S)
YSI Business Pro Forma YSI
Historical Sold Adjustments Adjusted
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Current Assets:
Cash $ 3,075 721 18,720 (a) 22,516
Investments 5,084 - - 5,084
Accounts receivable, net 22,396 (8,393) - 14,003
Prepaid expenses and supplies 2,090 (491) - 1,599
Other current assets 3,126 - (530) (c) 2,596
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Total current assets 35,771 (8,163) 18,190 45,798
Property and equipment, net 20,377 (8,644) 5,133 (d) 16,866
Deferred debt issue costs, net 2,406 - - 2,406
Goodwill, net 2,464 - - 2,464
Deferred tax asset 5,632 - (5,632) (c) -
Note receivable, net 3,133 - (3,133) (d) -
Other assets, net 1,912 (378) - 1,534
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Total assets 71,695 (17,185) 14,558 69,068
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Current Liabilities:
Accounts payable and accruals 10,217 (3,906) 3,287 (b) 9,598
Other current liabilities 752 (220) - 532
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Total current liabilities 10,969 (4,126) 3,287 10,130
Long-term debt and capital lease obligations, net 14,908 (2,112) - 12,796
7% Convertible subordinated debentures 32,200 - - 32,200
Other long-term liabilities 221 - - 221
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Total liabilities 58,298 (6,238) 3,287 55,347
Shareholders' Equity:
Common stock 100 - - 100
Additional paid-in capital 29,604 - - 29,604
Retained earnings (16,307) (10,947) 11,271 (e) (15,983)
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Total shareholders' equity 13,397 (10,947) 11,271 13,721
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Total liabilities and shareholders' equity 71,695 (17,185) 14,558 69,068
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YOUTH SERVICES INTERNATIONAL, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) Reflects the cash proceeds from the sale of the Behavioral Health Business,
net of amounts utilized to pay transaction costs and Company cash utilized to
purchase land and buildings at Tampa Bay Academy (see Note (d)) as
follows:
Estimated proceeds from the sale of the Behavioral Health Business $21,720,000
Estimated transaction costs (1,000,000)
Net cash paid to purchase Tampa Bay property ( 2,000,000)
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$18,720,000
(b) Reflects the loss on sale of the Behavioral Health Business as follows:
Estimated proceeds from the sale of the Behavioral Health Business $21,720,000
Estimated transaction costs (1,000,000)
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Net proceeds from sale 20,720,000
Estimated basis of the net assets of the Behavioral Health Business
at the September 30, 1997 closing date 10,947,000
Restructuring charge previously recorded 27,000,000
Reserves to be recognized in connection with closing related to the
payment of certain future lease obligations of the buyer and other
indemnification contingencies 3,287,000
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Loss on sale of Behavioral Health Business $20,514,000
(c) Reflects the reversal of deferred tax benefits totalling $6,162,000
recognized in connection with the Company's $27 million restructuring charge
recorded during the quarter ended March 31, 1997. The recognition of these tax
benefits assumed an ordinary loss in connection with the Company's disposition.
The contemplated sale of the Behavioral Health Business is structured as a stock
sale and, as such, would give rise to a capital loss. The Company's ability to
utilize the tax benefits associated with this capital loss at the present time
is not more likely than not. The pro forma adjustment for income taxes in the
Pro Forma Statement of Income for the nine months ended March 31, 1997 also
reflects the tax effect of the net gains related to the Tampa Bay option
exercise described in Note (d) and the reductions to selling, general and
administrative expenses described in Note (f).
(d) Reflects the Company's intention to exercise its option to purchase land
and buildings related to the Tampa Bay Academy for a net consideration of
$2,000,000 and lease it back to the buyer. The Company currently holds the
mortgage on this property which had a book value of approximately $3,133,000
as of March 31, 1997. The pro forma statements of income for the year ended
June 30, 1996 and the nine months ended March 31, 1997 reflect the net
gain from increase in rental income derived from the option exercise and
lease arrangement offset by the loss of interest income derived from the
mortgage note receivable and the depreciation expense attributable to the
property to be purchased.
(e) Reflects the estimated retained earnings impact of the other pro forma
adjustments described herein.
(f) Reflects the Company's estimate of the selling, general and administrative
expense savings due to the assumption by the buyer of certain costs and
obligations.
(g) Reflects the tax effect of the net gains related to the Tampa Bay option
exercise noted above.