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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
June 30, 1997 0-23284
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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
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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 June 30, 1997: 10,079,477
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 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
JUNE 30, 1997
PART I - FINANCIAL INFORMATION PAGE
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Item 1. Consolidated Financial Statements
Consolidated Statements of Operations -
For the Three Months and Six Months Ended
June 30, 1997 and 1996 2
Consolidated Balance Sheets -
As of June 30, 1997 and December 31, 1996 3
Consolidated Statements of Cash Flows-
For the Six Months Ended
June 30, 1997 and 1996 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
Items 2 through 5 have been omitted since the item is either
inapplicable or the answer is negative.
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 17
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YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN 000'S EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1997 1996 1997 1996
----------------------- -----------------------
REVENUES $ 29,064 $ 28,052 $ 56,314 $ 53,361
-------- -------- ---------- --------
PROGRAM EXPENSES:
Direct operating 24,711 24,262 49,333 46,371
Start-up costs - - - 28
-------- -------- ---------- --------
CONTRIBUTION FROM OPERATIONS 4,353 3,790 6,981 6,962
OTHER OPERATING EXPENSES:
Development costs 213 274 394 460
Selling, general and administrative 2,126 1,439 4,322 2,499
Restructuring costs - - 27,000 -
Costs of attempted acquisitions - 569 - 569
-------- -------- ---------- --------
INCOME (LOSS) FROM OPERATIONS 2,014 1,508 (24,735) 3,434
INTEREST EXPENSE, net (602) (809) (1,591) (1,555)
-------- -------- ---------- --------
INCOME (LOSS) BEFORE INCOME TAXES 1,412 699 (26,326) 1,879
INCOME TAX EXPENSE(BENEFIT) 525 333 (5,850) 878
-------- -------- ---------- --------
NET INCOME(LOSS) $ 887 $ 366 $ (20,476) $ 1,001
======== ======== ========== ========
EARNINGS(LOSS) PER SHARE $ 0.09 $ 0.04 $ (2.07) $ 0.10
======== ======== ========== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 10,388 9,794 9,905 9,572
======== ======== ========== ========
The accompanying notes are an integral part of these financial statements.
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PAGE 1 OF 2
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000'S)
ASSETS
JUNE 30, DECEMBER 31,
1997 1996
--------- ---------
(AUDITED)
CURRENT ASSETS:
Cash $ 116 $ 3,408
Investments - 5,204
Accounts receivable, net 21,898 23,175
Refundable income taxes 474 1,046
Current portion of notes receivable 133 51
Prepaid expenses, supplies and other 1,769 3,360
Deferred tax asset 1,511 110
--------- ---------
Total current assets 25,901 36,354
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PROPERTY AND EQUIPMENT, net 20,735 27,425
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OTHER ASSETS:
Deferred debt issue costs, net 2,370 2,511
Goodwill, net 2,365 20,675
Notes receivable, net of current portion 2,988 3,133
Deferred tax asset 5,632 591
Other assets, net 2,221 2,400
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15,576 29,310
--------- ---------
Total assets $ 62,212 $ 93,089
========= =========
The accompanying notes are an integral part of these financial statements.
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PAGE 2 OF 2
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000'S)
LIABILITIES AND SHAREHOLDER'S EQUITY
JUNE 30, DECEMBER 31,
1997 1996
-------- --------
(AUDITED)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 9,858 $ 10,175
Short-term borrowings 1,729 11,313
Current portion of long-term debt and
capital lease obligations 321 602
-------- --------
Total current liabilities 11,908 22,090
DEFERRED REVENUE 97 1,469
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion 2,286 3,752
7% CONVERTIBLE SUBORDINATED DEBENTURES 32,200 32,200
12% SUBORDINATED DEBENTURES, net of
unamortized discount 992 988
-------- --------
Total liabilities 47,483 60,499
-------- --------
SHAREHOLDERS' EQUITY
Common stock 100 93
Additional paid-in capital 30,050 27,500
Unrealized loss on investments - (58)
Retained earnings (15,421) 5,055
-------- --------
Total shareholders' equity 14,729 32,590
-------- --------
Total liabilities and shareholders' equity $ 62,212 $ 93,089
======== ========
The accompanying notes are an integral part of these financial statements.
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PAGE 1 OF 2
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN 000'S)
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
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OPERATING ACTIVITIES:
Net (loss) income $ (20,476) $ 1,001
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 3,081 2,025
Income from Introspect operations - (134)
Loss on sale of investments 203 -
Stock granted as compensation 45 -
Restructuring charge 27,000 -
Loss on sale of fixed assets 50 64
Net change in operating assets and liabilities (6,426) (4,617)
--------- ---------
Net cash provided by (used in) operating activities 3,477 (1,661)
INVESTING ACTIVITIES:
Purchases of property and equipment, net (2,796) (3,760)
Purchase of investments - (10,224)
(Increase in) repayments of notes receivable 63 (3,246)
Proceeds from sale of investment 5,101 -
Proceeds from sale of fixed assets 728 80
Increase in other assets (439) (3,182)
Cash paid for businesses acquired (628) (4,000)
--------- ---------
Net cash provided by (used in) investing activities 2,029 (24,332)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and employee stock
purchase plan 2,536 2,345
Repayments of short-term borrowings, long-term debt and (11,334) (9,249)
capital lease obligations, net
Proceeds from issuance of convertible debentures - 37,950
--------- ---------
Net cash (used in) provided by financing activities (8,798) 31,046
NET (DECREASE) INCREASE IN CASH (3,292) 5,053
CASH, beginning of period 3,408 2,492
--------- ---------
CASH, end of period $ 116 $ 7,545
========= =========
The accompanying notes are an integral part of these financial statements.
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PAGE 2 OF 2
YOUTH SERVICES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN 000'S)
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1997 1996
-------------------------------
CHANGE IN OPERATING ASSETS AND LIABILITIES, NET OF BUSINESSES
ACQUIRED:
Accounts receivable and refundable income taxes $ 863 $ (3,278)
Prepaid expenses, supplies and other 1,876 (310)
Deferred taxes (6,485) (305)
Deposits 40 81
Management fee receivable - 24
Accounts payable and accrued expenses (1,348) (810)
Deferred revenue (1,372) (19)
------------ ------------
Net change in operating assets and liabilities $ (6,426) $ (4,617)
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 1,621 $ 278
============ ============
Cash paid for taxes $ 78 $ 1,516
============ ============
The accompanying notes are an integral part of these 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" or the "Company's") financial position
at June 30, 1997 and the results of its operations for the three months and six
months ended June 30, 1997 and 1996 and its cash flows for the six months ended
June 30, 1997 and 1996. The accompanying audited consolidated balance sheet as
of December 31, 1996 is presented herein as set forth in YSI's Form 10-K for
the six months ended December 31, 1996. This transition report on Form 10-K
was filed due to the Company's decision in April 1997 to change its fiscal
yearend from June 30 to December 31. The statements herein 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 consolidated financial statements on Form 10-K 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 December 31, 1996 and June 30, 1996 and for
the periods then ended filed with the Securities and Exchange Commission on
Form 10-K. The consolidated financial statements as of and for the three
months and six months ended June 30, 1996 have been adjusted to reflect the
consolidation of the results of operations of Introspect HealthCare,
Corporation. See NOTE 3 - ACQUISITION OF INTROSPECT for further discussion.
The weighted average shares outstanding and the per share amounts as
of and for the three months and six months ended June 30, 1996 have been
restated to reflect a three-for-two stock split which was effective
May 24, 1996.
Operating results for the three months and six months ended June 30,
1997 and 1996 are not necessarily indicative of the results that may be
expected for a full fiscal year.
2. DISPOSITION OF BEHAVIORAL HEALTH BUSINESS
In March 1997, the board of directors approved, and management
committed to, a plan to sell the nine programs that comprise the Company's
behavioral health business. As a result of this decision to dispose of the
behavioral health business, the Company recorded a restructuring charge in the
quarter ended March 31, 1997 of $27.0 million to reduce the carrying amount of
behavioral health assets to their estimated fair value less selling costs. In
July 1997, the Company entered into a definitive agreement to sell the
behavioral health business for approximately $21.7 million. The Company expects
to record a pre-tax gain of approximately $6.0 million from the sale once
completed. The Company will continue to operate its behavioral health business
until the closing of the sale which is expected to occur on or before
September 30, 1997. Without the restructuring charge, the Company's earnings
per share would have been $.04 for the six months ended June 30, 1997.
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Revenues and contribution from operations for the behavioral health
business for the three and six months ended June 30, 1997 and 1996 were as
follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
Revenues $11,014 $12,176 $21,475 $23,075
Contribution from
operations 1,094 1,042 639 1,763
3. ACQUISITION OF INTROSPECT
In September 1996, the Company exercised its option (the "Option") to
acquire all of the stock of Introspect HealthCare, Corporation ("Introspect").
The Company acquired the Option on July 1, 1995, in conjunction with acquiring
the Desert Hills New Mexico program from Introspect and entering into a
management agreement to manage Introspect for a period of five years. As a
result of the "early" exercise of the Option effective as of September 1, 1996
(the Option was exercisable at any time during the five year period) and the
significant degree of Introspect's financial dependence on the Company,
accounting principles required that the pre-acquisition operating results of
Introspect be consolidated with those of the Company. Thus, the operations of
Introspect have been included in the Company's consolidated financial results
since the July 1, 1995 Option acqusition date.
4. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board released SFAS
128 "Earnings Per Share." The new statement is effective December 15, 1997 and
early adoption is not permitted. When adopted, SFAS 128 will require the
restatement of prior periods and disclosure of basic and diluted earnings per
share and related computations. The implementation of SFAS 128 and the
retroactive restatement process will have no effect on the Company's reported
earnings per share for the three months and six months ended June 30, 1997. The
retroactive restatement process would require additional disclosure of basic
earnings per share of $.04 and $.11 for the three months and six months ended
June 30, 1996, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YSI operates programs designed to provide educational and treatment
services to troubled youth. As of June 30, 1997, YSI operated 23 residential
programs in 12 states. The youth in these programs can be segregated into two
categories--juvenile justice programs for adjudicated youth and behavioral
health programs primarily for non-adjudicated youth. As of June 30, 1997, YSI
operated 14 juvenile justice programs and nine behavioral health programs. The
Company operates its programs through wholly-owned subsidiaries pursuant to
contracts directly with government agencies and third party payors or, in
certain instances, with unaffiliated not-for-profit entities that have
contracts with government agencies. In March 1997, the board of directors
approved, and management committed to, a plan to sell the nine programs which
comprise the behavioral health business. This plan of disposition resulted in
the recognition of a $27.0 million restructuring charge during the quarter ended
March 31, 1997 and a definitive agreement which was signed on July 22, 1997
for the sale of the behavioral health business. See "RECENT DEVELOPMENTS" for
further discussion.
The Company's programs are operated pursuant to fixed per diem
contracts based upon program occupancy and management contracts, including
management contracts with not-for-profit entities, as well as various third
party payor reimbursement contracts. The Company recognizes revenues under all
contracts as the services are performed. Under certain cost-based
reimbursement contracts, certain costs may be subject to audit and adjustment
as determined through negotiations with government or third party payor
representatives. Under these contracts, contract revenues are recorded at
amounts that are expected to be realized. In addition, the Company recognizes
revenue from its consulting and development services as they are performed.
The contribution from operations, in general, is lower in the initial
stages of a program's development primarily due to costs associated with the
hiring and training of staff required to obtain licensing prior to admitting
students into a program as well as costs incurred during the period prior to
the achievement of stable program occupancy. The Company's contribution from
operations as a percentage of revenue is greater under some of its contractual
arrangements with unaffiliated not-for-profit entities because the
not-for-profit entity is responsible for certain elements of operating the
program and incurs some of the costs. Therefore, in these instances, the
Company earns its margin on a lower base of revenues and expenses.
This Form 10-Q contains certain forward-looking statements which
involve known and unknown risks, uncertainties or other factors not under the
Company's control which may cause actual results, performance or achievements
of the Company to be materially different from the results, performance or
other expectations implied in these forward-looking statements.
RECENT DEVELOPMENTS
In June 1997, the Company was awarded a contract by the State of
Florida, Department of Juvenile Justice, to operate a 25-bed juvenile
corrections facility for adjudicated youth in Hillsborough County, Florida.
The Company commenced operations in July 1997.
In March 1997, the board of directors approved, and management
committed to, a plan to sell the nine programs that comprise the Company's
behavioral health business. As a result of this decision to dispose of the
behavioral health businesses, the Company recorded a restructuring charge in
the quarter ended March 31, 1997 of $27.0 million to reduce the carrying amount
of behavioral health assets to their estimated fair value less selling costs.
In July 1997, the Company entered into a definitive agreement to sell the
behavioral health business for approximately $21.7 million. The Company expects
to record a pre-tax gain of approximately $6.0 million from the sale. The
Company will continue to operate its behavioral health business until the
closing of the sale which is expected to occur on or before September 30, 1997.
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RESULTS OF OPERATIONS AND JUVENILE JUSTICE INFORMATION
The following table sets forth selected items from the Company's
consolidated financial statements expressed as a percentage of total revenues:
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
Program expense:
Direct operating 85.0 86.5 87.6 86.9
Start-up costs - - - 0.1
----- ---- ---- ----
Contribution from operations 15.0 13.5 12.4 13.0
Selling, general and administrative,
excluding development costs 7.3 5.1 7.7 4.7
Income (loss) from operations 6.9 5.4 (43.9) 6.4
Income (loss) before income taxes 4.9 2.5 (46.7) 3.5
Net income (loss) 3.1 1.3 (36.4) 1.9
The following table sets forth selected items from the Company's
consolidated financial statements of the juvenile justice businesses expressed
as a percentage of revenues:
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
------------ ------------
1997 1996 1997 1996
------ ------ ------ ------
Revenues 100.0% 100.0% 100.0% 100.0%
Program expense:
Direct operating 81.9 83.6 81.7 83.4
Start-up costs - - - 0.1
------ ------ ------ ------
Contribution from operations 18.1% 16.4% 18.3% 16.5%
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THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Juvenile Justice and Behavioral Health
Revenues. Revenues increased $1,012,000, or 3.6%, to $29,064,000 for
the three months ended June 30, 1997 from $28,052,000 for the three months
ended June 30, 1996 primarily as a result of the addition of new programs
operated by the Company during the 1997 period and the continued expansion at
existing facilities. Of the total increase in revenues, $2,201,000 was
attributable to the operations of five programs that were acquired or opened
after June 30, 1996 and $185,000 was attributable to the 18 programs that were
operated by the Company for both the full three months ended June 30, 1997 and
1996. This increase was partially offset by $1,374,000 of non-recurring
consulting revenue in the 1996 period. The average daily enrollment for all of
the Company's programs increased 16.7% to 2,486 youth for the three months
ended June 30, 1997 from 2,131 youth for the three months ended June 30, 1996,
including a 6.6% increase in average daily enrollment in the 18 programs that
the Company operated for both the full three months ended June 30, 1997 and
1996 to 2,271 youth from 2,131 youth. The Company reported an occupancy rate of
93.3% for the quarter ended June 30, 1997 compared to 93.8% for the quarter
ended June 30, 1996 based on an average daily licensed capacity of 2,664 beds
for the three months ended June 30, 1997 and 2,271 beds for the three months
ended June 30, 1996.
Program Direct Operating Expenses. Program direct operating expenses
increased $449,000, or 1.9%, to $24,711,000 for the three months ended June 30,
1997 from $24,262,000 for the three months ended June 30, 1996 primarily as a
result of the addition of new programs operated by the Company during the 1997
period. Of the total increase in expenses, $2,310,000 was attributable to
the operations of five programs that were acquired or opened after
June 30,1996. The increase in expenses was partially offset by a decrease
in expenses of $1,188,000 attributable to the 18 programs that were operated
by the Company in both the full three months ended June 30, 1997 and 1996
and $673,000 of expenses related to the non-recurring consulting revenue
in the 1996 period. Salaries and related employee benefits constituted
approximately 75.1% of program direct operating expenses for the three
months ended June 30, 1997 compared to 72.5% of program direct operating
expenses for the three months ended June 30, 1996.
Contribution from Operations. Contribution from operations for the
three months ended June 30, 1997 increased $563,000, or 14.9%, to $4,353,000
from $3,790,000 for the three months ended June 30, 1996. Contribution from
operations increased as a percentage of revenues to 15.0% for the three months
ended June 30, 1997 compared to 13.5% for the three months ended June 30, 1996.
This increase was primarily due to significant cost reduction measures
implemented during 1997. These cost reduction measures were partially offset by
the operating performance of the four juvenile justice programs and one
behavioral health program that were in the initial stages of development
during the 1997 quarter when contribution margin is typically lower than when
fully operational.
Selling, General and Administrative Expenses. For the three months
ended June 30, 1997, selling, general and administrative expenses, exclusive of
development costs, increased $687,000, or 47.7%, to $2,126,000 from $1,439,000
for the three months ended June 30, 1996. As a percentage of revenues,
selling, general, and administrative expenses, exclusive of development costs,
increased to 7.3% for the three months ended June 30, 1997 from 5.1% for the
three months ended June 30, 1996. This increase primarily resulted from
the Company's efforts to develop the infrastructure necessary to enhance
its current operations and continue its growth.
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Development Costs. Development costs for the three months ended
June 30, 1997, decreased $61,000, or 22.3%, to $213,000 from $274,000 for
the three months ended June 30, 1996. This decrease was primarily due to the
elimination of several behavioral health-related development positions in
connection with the Company's decision to dispose of the behavioral health
business.
Net Interest Expense. Net interest expense decreased $207,000, or
25.6%, to $602,000 for the three months ended June 30, 1997 from $809,000 for
the three months ended June 30, 1996. The decrease in interest expense resulted
from the repayment of debt subsequent to June 30, 1996 incurred in connection
with the acquisitions of Desert Hills of New Mexico and Introspect.
Income Taxes. The provision for income taxes was $525,000,
representing an effective tax rate of 37.2% for the three months ended June
30, 1997 as compared to income tax provision of $333,000, representing an
effective tax rate of 47.6% for the three months ended June 30, 1996. The
decrease in the effective tax rate was primarily attributable to the
significant amount of non-deductible expenses in the 1996 period attributable
to the behavioral health acquisitions.
Net Income. Net income was $887,000, or $0.09 per share, for the three
months ended June 30, 1997 compared to $366,000, or $.04 per share, for the
three months ended June 30, 1996.
Juvenile Justice Operations
During the quarter ended March 31, 1997, the Board of Directors approved,
and management committed to, a plan to sell the nine programs that comprise the
Company's behavioral health business. See "RECENT DEVELOPMENTS". To demonstrate
the operating performance of the Company excluding the behavioral health
business, the operating results derived from the Company's juvenile justice
programs for the quarter ended June 30, 1997 compared to the quarter ended June
30, 1996 were as set forth below.
Revenues. Revenues derived from juvenile justice programs increased
$3,447,000, or 23.6%, to $18,050,000 for the three months ended June 30, 1997
from $14,603,000 for the three months ended June 30, 1996 primarily as a result
of new programs operated by the Company during the 1997 period and the continued
expansion of existing facilities. Of the total increase in revenues, $1,969,000
was attributable to the four programs that were opened after the quarter ended
June 30, 1996, and $1,478,000 was attributable to the 10 programs that were
operated by the Company in both the three months ended June 30, 1997 and 1996.
The average daily enrollment for all of the Company's juvenile justice programs
increased 20.5% to 1,743 youth for the three months ended June 30, 1997 from
1,447 for the three months ended June 30, 1996, including a 7.8% increase in
average daily enrollment in the 10 programs that the Company operated for both
the three months ended June 30, 1997 and 1996 to 1,560 from 1,447. The Company
reported an average occupancy rate of 94.5% for the three months ended June
30, 1997 compared to 94.1% for the three months ended June 30, 1996 based on an
average daily licensed capacity of 1,845 beds for the three months ended June
30, 1997 and 1,537 for the three months ended June 30, 1996.
Program Direct Operating Expenses. Program direct operating expenses
incurred from juvenile justice programs increased $2,582,000, or 21.1%, to
$14,791,000 for the three months ended June 30, 1997 from $12,209,000 for the
three months ended June 30, 1996 primarily as a result of the addition of new
programs operated by the Company during the 1997 period and the continued
expansion of existing facilities. Of the total increase in expenses, $2,083,000
is attributable to the operations of four programs that were opened after the
quarter ended June 30, 1996 and $499,000 was attributable to the 10 programs
that were operated by the Company in both the full three months ended June 30,
1997 and 1996. Salaries and related benefits constituted approximately 72.8% of
program direct operating expenses for the three months ended June 30, 1997
compared to 72.2% of program direct operating expenses for the three months
ended June 30, 1996.
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Contribution from Operations. Contribution from operations derived
from juvenile justice programs for the three months ended June 30, 1997
increased $865,000, or 36.1%, to $3,259,000 from 2,394,000 for the three
months ended June 30, 1996. Contribution from operations increased as a
percentage of juvenile justice revenues to 18.1% for the three months ended
June 30, 1997compared to 16.4% for the three months ended June 30, 1996
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Juvenile Justice and Behavioral Health
Revenues. Revenues increased $2,953,000, or 5.5%, to $56,314,000 for
the six months ended June 30, 1997 from $53,361,000 for the six months ended
June 30, 1996 primarily as a result of the addition of new programs operated by
the Company during each period and the continued expansion of existing
facilities. Of the total increase in revenues, $555,000 was attributable to
the operations of one program acquired during the six months ended June 30,
1996; $3,091,000 was attributable to the operations of five programs that were
acquired or opened after June 30, 1996; and $1,263,000 was attributable to the
17 programs that were operated by the Company in both the full six months ended
June 30, 1997 and 1996. The increase in revenues was partially offset by a
decrease in revenues of $1,956,000 resulting from certain non-recurring
consulting revenues in the 1996 period. The average daily enrollment for all
of the Company's programs increased 19.4% to 2,415 youth for the six months
ended June 30, 1997 from 2,023 youth for the six months ended June 30, 1996,
including a 10.8% increase in average daily enrollment in the 17 programs that
the Company operated for both the six months ended June 30, 1997 and 1996 to
2,241 youth from 2,023 youth. The Company reported an occupancy rate of
92.9% for the six months ended June 30, 1997 compared to 92.3% for the six
months ended June 30, 1996 based on an average daily licensed capacity of 2,600
beds for the six months ended June 30, 1997 and 2,191 beds for the six months
ended June 30, 1996.
Program Direct Operating Expenses. Program direct operating expenses
increased $2,962,000, or 6.4%, to $49,333,000 for the six months ended June 30,
1997 from $46,371,000 for the six months ended June 30, 1996 primarily as a
result of the addition of new programs operated by the Company during each
period and the continued expansion of existing facilities. Of the total
increase in expenses, $283,000 was attributable to the operations of one
program acquired during the six months ended June 30, 1996; $3,603,000 was
attributable to the operations of five programs that were acquired or opened
after the quarter ended June 30, 1996 and $233,000 was attributable to the 17
programs that were operated by the Company in both the full six months ended
June 30, 1997 and 1996. The increase in expenses was partially offset by a
decrease in expenses of $1,157,000 resulting from the expenses related to the
1996 non-recurring consulting revenue. Salaries and related employee benefits
constituted approximately 72.2% of program direct operating expenses for the
six months ended June 30, 1997 compared to 72.3%.
Contribution from Operations. Contribution from operations for the
six months ended June 30,1997 increased $19,000, or 0.3%, to $6,981,000 from
$6,962,000 for the six months ended June 30, 1996. Contribution from operations
decreased as a percentage of revenues to 12.4% for the six months ended June
30, 1997 compared to 13.0% for the six months ended June 30, 1996. This
percentage decrease was mainly due to the continuing deterioration of the
operating performance of the behavioral health businesses in the six month
period ended June 30, 1997 compared to the six month period ended June 30, 1996
and the operating performance of four juvenile justice programs that were in
the initial stages of development during the six month period ended June 30,
1997.
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Selling, General and Administrative Expenses. For the six months
ended June 30, 1997, selling, general and administrative expenses, exclusive
of development costs, increased $1,823,000, or 72.9%, to $4,322,000 from
$2,499,000 for the six months ended June 30, 1996. As a percentage of
revenues, selling, general and administrative expenses, exclusive of
development costs, increased to 7.7% for the six months ended June 30, 1997
from 4.7% for the six months ended June 30, 1996. The most significant
components of these costs relate to the compensation expense and consulting
fees associated with business professionals necessary for the development
and oversight of the Company's operations. The increase as a percentage of
revenue for the six months ended June 30, 1997 as compared to the six months
ended June 30, 1996 is primarily attributable to the Company's efforts to
develop theinfrastructure necessary to enhance its current operations and
continue its growth.
Development Costs. Development costs for the six months ended
June 30, 1997, decreased $66,000, or 14.3%, to $394,000 from $460,000 for
the six months ended June 30, 1996. This decrease was primarily due to the
elimination of several behavioral health-related development positions in
connection with the Company's decision to dispose of the behavioral health
business.
Net Interest Expense. Net interest expense increased $36,000, or
2.3%, to $1,591,000 for the six months ended June 30, 1997 from $1,555,000 for
the six months ended June 30, 1996. The increase was primarily attributable to
an increase in the average line of credit balance from the 1996 period to the
1997 period.
Income Taxes. The benefit for income taxes was $5,850,000,
representing an effective tax rate of 22.2% for the six months ended June 30,
1997 as compared to an income tax provision of $878,000, representing an
effective tax rate of 46.7% for the six months ended June 30, 1996. The
decrease in the effective tax rate was primarily attributable to the Company's
inability to fully recognize the tax benefits associated with the $27,000,000
restructuring charge due to the non-deductibility of a large component of
goodwill which was written off and included in the restructuring charge.
Net (Loss) Income. Net loss was $20,476,000, or $2.07 per share, for
the six months ended June 30, 1997 compared to net income of $1,001,000, or
$.10 per share, for the six months ended June 30, 1996. Without the
restructuring charge, the Company would have reported net income of $433,000 or
$0.04 per share for the six month period ended June 30, 1997.
Juvenile Justice Operations
During the quarter ended March 31, 1997, the Board of Directors
approved, and management committed to, a plan to sell the nine programs that
comprise the Company's behavioral health business. See "RECENT DEVELOPMENTS".
To demonstrate the operating performance of the Company excluding the
behavioral health business, the Company's operating results derived from the
Company's juvenile justice programs for the six months ended June 30, 1997
compared to the six months ended June 30, 1996 were as set forth below.
Revenues. Revenues derived from juvenile justice programs increased
$5,538,000, or 19.1%, to $34,569,000 for the six months ended June 30, 1997
from $29,031,000 for the six months ended June 30, 1996 primarily as a result
of new programs operated by the Company during the 1997 period and the continued
expansion of existing facilities. Of the total increase in revenues, $2,687,000
was attributable to four programs that were opened after the quarter ended June
30, 1996 and $2,851,000 was attributable to the 10 programs that were operated
by the Company in both the full six months ended June 30, 1997 and 1996. The
average daily enrollment for all of the Company's juvenile justice programs
increased 19.7% to 1,686 youth for the six months ended June 30, 1997 from
1,408 for the six months ended June 30, 1996, including a 8.9% increase in
average daily enrollment in the 10 programs that the Company operated for both
the six months ended June 30, 1997 and 1996 to 1,533 from 1,408. The Company
reported an average occupancy rate of 94.4% for the six months ended June 30,
1997 compared to 93.2% for the six months ended June 30, 1996 based on an
average daily licensed capacity of 1,786 beds for the six months ended June 30,
1997 and 1,510 for the six months ended June 30, 1996.
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Program Direct Operating Expenses. Program direct operating expenses
incurred from juvenile justice programs increased $4,004,000, or 16.5%, to
$28,227,000 for the six months ended June 30, 1997 from $24,223,000 for the six
months ended June 30, 1996 primarily as a result of the addition of new
programs operated by the Company during each period and the continued expansion
of existing facilities. Of the total increase in expenses, $3,195,000 was
attributable to the operations of four programs that were opened after the
third quarter of fiscal 1996; and $809,000 was attributable to the 10 programs
that were operated by the Company in both the six months ended June 30, 1997
and 1996. Salaries and related benefits constituted approximately 74.3% of
program direct operating expenses for the six months ended June 30, 1997
compared to 72.7% of program direct operating expenses for the six months ended
June 30, 1996.
Contribution from Operations. Contribution from operations derived
from juvenile justice programs for the six months ended June 30, 1997 increased
$1,562,000, or 32.7%, to $6,342,000 from $4,780,000 for the six months ended
June 30, 1996. Contribution from operations increased as a percentage of
juvenile justice revenues to 18.3% for the six months ended June 30, 1997
compared to 16.5% for the six months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had $116,000 in cash and $13,993,000 of
working capital. Net cash provided by operating activities was $3,477,000 for
the six months ended June 30, 1997 compared to net cash used in operating
activities of $1,661,000 for the six months ended June 30, 1996. This increase
resulted primarily from the Company's favorable accounts receivable collection
experience between periods.
Net cash provided by investing activities was $2,029,000 for the six
months ended June 30, 1997, comprised primarily of proceeds from investment
sales of $5,101,000 offset by $628,000 used to fund acquisitions and $2,796,000
that was invested in capital expenditures.
Net cash used in financing activities was $8,798,000 for the six
months ended June 30, 1997 comprised primarily of repayments of short-term
borrowings and long-term debt of $11,334,000 offset by $2,536,000 of proceeds
from stock option exercises and employee stock purchases.
In December 1996, the Company amended its Revolving Line of Credit
agreement with a bank to increase the loan amount to the lesser of $20,000,000
or the sum of 85% of the eligible accounts receivable and 95% of the cash and
cash equivalents on deposit with the bank. Amounts drawn under this line of
credit bear interest at LIBOR plus 150 basis points and are payable on demand.
The Company believes that its current funds and funds available under
its amended 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. However, if the Company
should identify one or more acquisition targets or begin substantial "de novo"
programs, it may need to access additional capital.
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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 item is either inapplicable or
the answer is negative.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
------------- ----------------------------------------------
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) The Company filed the following reports on Form 8-K during
the quarter ended June 30, 1997:
1. Form 8-K dated May 12, 1997 to report the Company's change in
yearend from June 30 to December 31.
2. Form 8-K dated July 22, 1997 to report the Companys's signed agreement
for the disposition of its behavioral health business.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of1934, the registrant has duly caused this report to be signed on its behalf
bythe undersigned thereunto duly authorized.
YOUTH SERVICES
INTERNATIONAL, INC.
By: /s/WILLIAM P. MOONEY
--------------------------
William P. Mooney
Chief Financial Officer and
Treasurer
Date:August 14, 1997
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