<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 26, 1997
COMMISSION FILE NUMBER: 0-22811
CORPORATEFAMILY SOLUTIONS, INC.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
TENNESSEE 62-1302117
- -------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
209 TENTH AVENUE SOUTH, SUITE 300
NASHVILLE, TENNESSEE 37203-4173
- ---------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
(615) 256-9915
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NONE
- -------------------------------------------------------------------------------
(Former name, address and fiscal year if changed since last report)
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 the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date.
Shares outstanding as of October 31, 1997:
4,469,014
Common Stock, no par value per share
<PAGE> 2
CORPORATEFAMILY SOLUTIONS, INC.
INDEX
<TABLE>
Page
Part I. FINANCIAL INFORMATION: Number
------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
September 26, 1997 (Unaudited) and December 27, 1996 ...................................................... 3
Consolidated Statements of Income
Three and Nine Months ended September 26, 1997
and September 27, 1996 (Unaudited) ......................................................................... 4
Consolidated Statements of Cash Flows
Nine Months ended September 26, 1997
and September 27, 1996 (Unaudited) ......................................................................... 5
Notes to Consolidated Financial Statements
(Unaudited) ................................................................................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................................................................ 9
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings .......................................................................................... 15
Item 2. Changes in Securities ...................................................................................... 15
Item 3. Default Upon Senior Securities ............................................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders ........................................................ 15
Item 5. Other Information .......................................................................................... 16
Item 6. Exhibits and Reports on Form 8-K ........................................................................... 16
Signatures ........................................................................................................... 17
</TABLE>
2
<PAGE> 3
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 26, December 27,
1997 1996
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,927,000 $ 2,913,000
Restricted cash 173,000 169,000
Accounts receivable, less allowance of $128,000 and
$123,000, respectively 6,094,000 5,305,000
Prepaid expenses 287,000 188,000
Current deferred tax asset 1,035,000 970,000
------------ -----------
Total current assets 18,516,000 9,545,000
Property and equipment, net 3,325,000 3,757,000
Intangible assets, net 5,455,000 5,753,000
Noncurrent deferred tax asset 233,000 1,012,000
Other assets 943,000 311,000
------------ -----------
Total Assets $ 28,472,000 $20,378,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ - $ 911,000
Trade accounts payable 454,000 1,289,000
Income tax payable - 138,000
Accrued expenses:
Payroll and related benefits 3,753,000 3,343,000
Other 967,000 1,257,000
Deferred revenue, current portion 168,000 332,000
Other current liabilities 415,000 337,000
Amounts held in escrow 173,000 169,000
------------ -----------
Total current liabilities 5,930,000 7,776,000
Long-term debt, net of current portion - 3,504,000
Deferred revenue, net of current portion 891,000 979,000
Other long-term liabilities 1,567,000 1,144,000
------------ -----------
Total liabilities 8,388,000 13,403,000
------------ -----------
SHAREHOLDERS' EQUITY:
Series A preferred stock, no par value; authorized, issued and
outstanding, none and 1,125,000 shares, respectively - 4,480,000
Preferred stock, no par value; authorized, 10,000,000 and
3,875,000 shares, respectively; issued and outstanding none - -
Common stock, no par value; authorized, 100,000,000 and
10,000,000 shares, respectively; issued and outstanding
4,468,234 shares and 1,896,913 shares, respectively 23,938,000 6,906,000
Accumulated deficit (3,854,000) (4,411,000)
------------ -----------
Total shareholders' equity 20,084,000 6,975,000
------------ -----------
Total liabilities and shareholders' equity $ 28,472,000 $20,378,000
============ ===========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
3
<PAGE> 4
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 26, September 27, September 26, September 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 19,755,000 $ 15,984,000 $ 56,134,000 $ 46,063,000
Expenses:
Operating 17,513,000 14,221,000 49,539,000 40,700,000
Selling, general and administrative 1,524,000 1,163,000 4,309,000 3,525,000
Special charge (See note 2) 297,000 - 297,000 -
Depreciation and amortization 194,000 183,000 591,000 564,000
------------ ------------ ------------ ------------
Operating income 227,000 417,000 1,398,000 1,274,000
Interest (income) expense, net (49,000) 77,000 76,000 271,000
------------ ------------- ------------- -------------
Income before income taxes 276,000 340,000 1,322,000 1,003,000
------------ ------------- ------------- -------------
Income tax expense (benefit):
Current (9,000) 22,000 31,000 49,000
Deferred 254,000 - 714,000 -
------------ ------------- ------------- -------------
245,000 22,000 745,000 49,000
------------ ------------- ------------- -------------
Net income $ 31,000 $ 318,000 $ 577,000 $ 954,000
============ ============= ============= =============
Earnings per share $ 0.01 $ 0.10 $ 0.18 $ 0.30
============ ============= ============= =============
Weighted average common
shares outstanding 4,531,000 4,158,000 4,252,000 4,153,000
============ ============= ============= =============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
4
<PAGE> 5
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
September 26, September 27,
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 577,000 $ 954,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 591,000 564,000
Other noncash expense 297,000 68,000
Deferred tax expense (benefit) 714,000 -
Loss on disposal of assets - 69,000
Changes in assets and liabilities:
Increase in accounts receivable (789,000) (646,000)
Decrease (increase) in prepaid expenses (99,000) 88,000
Increase (decrease) in accounts payable and accrued expenses (715,000) 679,000
Decrease in other income taxes payable (138,000) -
Increase in other current liabilities 78,000 116,000
Decrease in deferred revenue (252,000) (80,000)
Increase (decrease) in other long-term liabilities 423,000 (46,000)
Increase in other noncurrent assets (632,000) (78,000)
------------ ------------
Net cash provided by operating activities 55,000 1,688,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (132,000) (113,000)
Proceeds from sale of property and equipment, net 272,000 -
------------ -------------
Net cash provided by (used in) investing activities 140,000 (113,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 12,235,000 125,000
Payments on long-term debt (4,416,000) (453,000)
------------ ------------
Net cash provided by (used in) financing activities 7,819,000 (328,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,014,000 1,247,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,913,000 1,584,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,927,000 $ 2,831,000
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments of interest $ 312,000 $ 372,000
============ ============
Cash payments of income taxes $ 248,000 $ 33,000
============ ============
NONCASH FINANCING ACTIVITIES:
Issuance of options in exchange for consulting services $ - $ 100,000
============ ============
Conversion of 1,125,000 Series A preferred shares into
1,169,935 common shares $ 4,500,000 $ -
============ ============
Restriction removed on common stock $ 297,000 $ -
============ ============
Accretion of preferred stock $ 20,000 $ -
============ ============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
5
<PAGE> 6
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of September 26, 1997 and the
consolidated statements of income and cash flows for the three and nine
month periods ended September 26, 1997 and September 27, 1996 have been
prepared by the Company in accordance with the accounting policies
described in its annual financial statement for the year ended December 27,
1996, included in the Company's Registration Statement on Form S-1, as
amended (Registration Statement No. 333-29523), and should be read in
conjunction with the notes thereto.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flows at September 26, 1997 and
for all periods presented have been made. The results of operations for
the period ended September 26, 1997 are not necessarily indicative of the
operating results for the full year.
2. INITIAL PUBLIC OFFERING
In August 1997, the Company completed an initial public offering of
2,702,500 shares of its common stock, of which 1,401,386 shares were issued
and sold by the Company, at a public offering price of $10.00 per share
(the "Offering"). The Company received net proceeds of approximately
$12,085,000 (after deducting underwriting discounts and expenses).
Approximately $3,748,000 was used to repay all of the Company's then
outstanding bank borrowings. The Company intends to use the balance of the
net proceeds for working capital to further develop its services and
products and for other general corporate purposes, including possible
acquisitions of companies engaged in similar or complementary businesses.
In connection with the Offering, the Company effected a .65 to 1 reverse
stock split. Accordingly, all references in the accompanying financial
statements to common share or per common share information has been
restated to reflect the reverse stock split. Additionally, as a result of
the Offering, all 1,125,000 shares of the Company's issued and outstanding
Series A preferred stock were converted into 1,169,935 shares of common
stock.
Concurrent with the Offering, the Company removed the restrictions, set
forth in the restricted stock agreement, on 32,500 shares of common stock
held by the Company's Chief Financial Officer. As a result, the Company
recorded a non-recurring, non-cash stock compensation charge of $297,000,
or $0.07 per share (for which the Company received no tax deduction) in the
quarter ended September 26, 1997.
6
<PAGE> 7
3. EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during
the period, which includes the additional dilution related to conversion of
stock options granted prior to June 19, 1996, preferred stock and warrants
as computed under the modified treasury stock method. The additional
dilution related to stock options granted subsequent to June 18, 1996 has
been computed using the treasury stock method and has been included in
common equivalent shares outstanding for all periods presented.
The following table presents information necessary to calculate earnings
per share for the three and nine months ended September 26, 1997 and
September 27, 1996:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 26, September 27, September 26, September 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 31,000 $ 318,000 $ 577,000 $ 954,000
Plus earnings from common
stock equivalent shares (net
of income tax provision):
Reduction of interest expense 28,000 69,000 143,000 213,000
Increase in investment income 7,000 21,000 53,000 59,000
------------- ------------- ------------- -------------
Adjusted net income $ 66,000 $ 408,000 $ 773,000 $ 1,226,000
============= ============= ============= =============
Weighted average common
shares outstanding 3,067,000 1,908,000 2,296,000 1,902,000
Plus additional shares from
common stock equivalent shares:
Options and warrants 808,000 1,080,000 961,000 1,081,000
Preferred shares 656,000 1,170,000 995,000 1,170,000
------------- ------------- ------------- -------------
Adjusted weighted average
common shares outstanding 4,531,000 4,158,000 4,252,000 4,153,000
============= ============= ============= =============
</TABLE>
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), has been issued effective for fiscal periods ending after
December 15, 1997. SFAS 128 establishes standards for computing and
presenting earnings per share. The Company is required to adopt the
provisions of SFAS 128 in the fourth quarter of 1997. Under the standards
established by SFAS 128, earnings per share is measured at two levels: basic
earnings per share and diluted earnings per share. Basic earnings per share
is computed by dividing net income by the weighted average number of common
shares outstanding during the year. Diluted earnings per share is computed
by dividing net income by the weighted average number of common shares after
considering the additional dilution related to preferred stock, convertible
debt, options and warrants.
7
<PAGE> 8
The following pro forma amounts represent the basic earnings per share and
diluted earnings per share as if the Company had adopted SFAS 128 for the
three and nine month periods presented:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 26, September 27, September 26, September 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic earnings per share $ 0.01 $ 0.17 $ 0.25 $ 0.50
============= ============= ============= =============
Diluted earnings per share $ 0.01 $ 0.10 $ 0.16 $ 0.30
============= ============= ============= =============
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurances that
the forward-looking statements included herein will prove to be accurate.
There are many factors that may cause actual results to differ materially from
those indicated by the forward-looking statements, including the various risk
factors set forth in the Company's registration statement on Form S-1 as
filed with the Securities and Exchange Commission and declared effective in
August 1997. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of any such
information should not be regarded as a representation by the Company that the
objectives and plans of the Company will be achieved. The following discussion
and analysis should be read in conjunction with and is qualified in its
entirety by the unaudited consolidated financial statements including the notes
thereto.
GENERAL
The Company is a leading national provider of a broad range of management and
consulting services for employers seeking to create a "family friendly" work
environment by providing their employees with workplace child care, education
and other family support programs. The Company manages corporate-sponsored
Family Centers, built and equipped by an employer at or near its offices,
providing high quality services such as early childhood education, child care,
back-up child care, kindergartens, get-well care, summer camps, and parent
support services. In addition, the Company provides work/life consulting
services to help employers realize the benefits of work and family programs and
policies and to align work/life concerns of working families with business
strategies of employers. Consulting services provided by the Company include
feasibility studies, work/life strategic planning, return on investment
analyses and development of work/life programs and policies.
During the quarter ended September 26, 1997, the Company opened eight new
Family Centers. Four of the new Family Centers were for new corporate clients
and four were for additional locations for existing clients. Additionally, the
Company terminated a Family Center contract with a community hospital during
the quarter. Since December 28, 1996, the Company has opened 11 new Family
Centers and closed two Family Centers. As of September 26, 1997, the Company
represented 68 corporate clients, managing a total of 94 Family Centers and
had 14 Family Centers under development, seven for new corporate clients and
seven for existing clients.
The Company's revenue and results of operations fluctuate with the seasonal
demands for child care. The Company's revenue typically declines during the
third quarter as a result of decreased enrollments in its Family Centers as
parents withdraw their older children for entry into elementary schools. Since
a portion of the Company's costs are fixed costs, the Company's results are
affected by fluctuation in Family Center and program utilization. Quarterly
results of operations may also fluctuate based upon the number and timing of
Family Center openings and/or acquisitions, the performance of new and existing
Family Centers, the contractual arrangements under which Family Centers are
operated, the change in the mix of such contractual arrangements, the timing
and level of consulting and development fees, Family Center closings,
competitive factors and general economic conditions.
9
<PAGE> 10
The Company reports its quarterly results in 13 week increments (two four-week
periods and one five-week period) instead of calendar months. The 1997 fiscal
year will contain 53 weeks, and the fourth quarter of 1997 will contain 14
weeks.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial data
for the Company expressed as a percentage of revenue.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ----------------------------------
September 26, September 27, September 26, September 27,
1997 1996 1997 1996
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Operating expenses 88.7 89.0 88.3 88.4
Selling, general and
administrative expenses 7.7 7.3 7.7 7.6
Special charge 1.5 - 0.5 -
Depreciation and amortization 1.0 1.1 1.0 1.2
------ ------- ------- -------
Operating income 1.1 2.6 2.5 2.8
Interest expense, net (0.3) 0.5 0.1 0.6
------ ------- ------- -------
Income before income taxes 1.4 2.1 2.4 2.2
Income tax expense 1.2 0.1 1.4 0.1
------ ------- ------- -------
Net income 0.2% 2.0% 1.0% 2.1%
====== ======= ======= =======
Operating income
before special charge 2.7% 2.6% 3.0% 2.8%
====== ======= ======= =======
</TABLE>
REVENUE
Revenue increased $3.8 million, or 23.6%, to $19.8 million for the third
quarter ended September 26, 1997 from $16.0 million for the third quarter ended
September 27, 1996. The revenue increase was primarily the result of (i) the
operation of net 11 new Family Centers opened since the third quarter of 1996;
(ii) the operation of net eight new Family Centers opened during the first
three quarters of 1996; and (iii) internal growth generated at mature Family
Centers. Consulting revenue increased to $257,000 for the third quarter of
1997 from $130,000 for the comparable period of 1996. The increase in
consulting revenue resulted from the Company's expansion of its consulting
capabilities during the latter half of 1996.
Revenue increased $10.0 million, or 21.9%, to $56.1 million for the nine months
ended September 26, 1997 from $46.1 million for the nine months ended September
27, 1996. The revenue increase was primarily the result of (i) the operation
of net 19 new Family Centers opened since the beginning of 1996; and (ii)
internal growth generated at mature Family Centers. Consulting revenue
increased to $697,000 for the nine months ended September 26, 1997 from
$262,000 for the comparable period of 1996. The increase in consulting revenue
resulted from the Company's expansion of its consulting capabilities during the
latter half of 1996.
10
<PAGE> 11
OPERATING EXPENSES
Operating expenses increased $3.3 million, or 23.1%, to $17.5 million for the
third quarter ended September 26, 1997 from $14.2 million for the third quarter
ended September 27, 1996. Operating expenses as a percentage of revenue
declined to 88.7% in third quarter of 1997 from 89.0% for the comparable period
in 1996. This decrease was attributable to increased efficiencies experienced
at mature Family Centers.
Operating expenses increased $8.8 million, or 21.7%, to $49.5 million for the
nine months ended September 26, 1997 from $40.7 million for the nine months
ended September 27, 1996. Operating expenses as a percentage of revenue
declined slightly to 88.3% for the nine months ended September 27, 1997 from
88.4% for the comparable period in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $361,000, or 31.0%, to
$1.5 million for the third quarter ended September 26, 1997 from $1.1 million
for the third quarter ended September 27, 1996. Selling, general and
administrative expenses as a percentage of revenue increased to 7.7% in third
quarter of 1997 from 7.3% for the comparable period in 1996. This increase is
primarily the result of (i) the Company increasing its sales and marketing
personnel during the second and third quarters of 1997 in order to expand its
market penetration and enhance its responsiveness to client request and
proposals; and (ii) to a lesser extent, general and administrative expenses
necessary to open and support the net 11 new Family Centers opened since the
third quarter of 1996.
Selling, general and administrative expenses increased $784,000, or 22.2%, to
$4.3 million for the nine months ended September 26, 1997 from $3.5 million for
the nine months ended September 27, 1996. Selling, general and administrative
expenses as a percentage of revenue increased modestly to 7.7% for the nine
months ended September 27, 1997 from 7.6% for the comparable period in 1996.
Concurrent with its initial public offering, the Company removed the
restrictions, as set forth in the restricted stock agreement, on 32,500 shares
of common stock held by the Company's Chief Financial Officer. As a result,
the Company recorded a non-recurring, non-cash compensation charge of $297,000,
or $0.07 per share (for which the Company received no tax deduction) in the
quarter ended September 26, 1997. As a percentage of revenue this charge was
1.5% and 0.5%, respectively, for the quarter and nine month periods ended
September 26, 1997.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased $11,000 to $194,000 for the
third quarter ended September 26, 1997 from $183,000 for the third quarter
ended September 27, 1996. Depreciation and amortization expense increased
$27,000 to $591,000 for the nine months ended September 26, 1997 from $564,000
for the nine months ended September 27, 1996.
OPERATING INCOME
Operating income decreased $190,000, or 45.6%, to $227,000 for the third
quarter ended September 26, 1997 from $417,000 for the third quarter ended
September 27, 1996. The decrease in operating income is a result of the
$297,000 non-recurring charge as described previously in the selling, general
11
<PAGE> 12
and administrative section. Excluding this charge, operating income would have
increased $107,000, or 25.7%, to $524,000 for the third quarter ended September
26, 1997.
Operating income increased $124,000, or 9.7 %, to $1.4 million for the nine
months ended September 26, 1997 from $1.3 million for the nine months ended
September 27, 1996. Excluding the $297,000 non-recurring charge, operating
income would have increased $421,000, or 33.0%, to $1.7 million for the nine
months ended September 26, 1997.
NET INTEREST EXPENSE
For the third quarter ended September 26, 1997 the Company recorded net
interest income of $49,000 as compared to net interest expense of $77,000 for
the third quarter ended September 27, 1996. Net interest expense was $76,000
for the nine months ended September 26, 1997 as compared to $271,000 for the
nine months ended September 27, 1996. The increase in investment income and
decrease in interest expense, respectively, was primarily the result of (i) in
August 1997, the Company used approximately $3.7 million of the net proceeds
received from its initial public offering to repay all of its then outstanding
bank borrowings; and (ii) the remaining net proceeds, approximately $8.3
million were invested.
INCOME TAXES
The provision for income taxes was $245,000 and $745,000 for the third quarter
and nine months ended September 26, 1997, respectively, as compared to $22,000
and $49,000, respectively, for the comparable periods in 1996. The Company did
not incur any federal income tax expense during the quarter and nine month
period ended September 27, 1996 as a result of a reduction of valuation
allowances in order to utilize net operating loss carryforwards. The Company's
effective tax rate for nine month period ended September 26, 1997 was 56.4% due
to the non-deductibility of (i) approximately $243,000 of goodwill
amortization; and (ii) the special charge of $297,000 related to the removal of
restrictions on certain shares of common stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company primarily provides its services under management contracts which
require little or no capital investment by the Company for growth of its
operations. Corporate clients typically assume financial responsibility for
construction costs and ongoing facility expenses. Prior to August 1997, the
Company had financed its operating needs and acquisition from investments from
shareholders, funded debt and cashflow from operations.
In August 1997, the Company completed an initial public offering of 2,702,500
shares of its common stock, of which the 1,401,386 shares were issued and sold
by the Company, at a public offering price of $10.00 per share (the
"Offering"). The Company received net proceeds of approximately $12.1 million
(after deducting underwriting discounts and expenses), of which approximately
$3.7 million were used to repay all of the Company's then outstanding bank
borrowings. The Company intends to use the balance of the net proceeds for
working capital to further develop its services and products and for other
general corporate purposes, including possible acquisitions of companies
engaged in similar or complementary businesses. Additionally, as a result of
the Offering, all 1,125,000 shares of the Company's issued and outstanding
Series A preferred stock were converted into 1,169,935 shares of common stock.
12
<PAGE> 13
The Company had working capital of $12.6 million and $1.8 million as of
September 26, 1997 and December 27, 1996, respectively. During the nine months
ended September 26, 1997, net cash provided by operating activities was $55,000
as compared to $1.7 million for the comparable period in 1996. The decrease in
cash provided by operations was primarily the result of a decrease in accounts
payable and accrued expenses. Cash provided by investing activities during the
nine months ended September 26, 1997 totaled $140,000, as compared to cash used
in investing activities of $113,000 for the comparable period in 1996. Cash
provided from financing activities during the nine months ended September 26,
1997 totaled $7.8 million as compared to cash used in financing activities of
$328,000 for the comparable period in 1996. The increase in the cash provided
from financing activities in the nine months ended September 26, 1997 was due to
the net proceeds received from the Company's initial public offering completed
in August 1997 less the amount used to repay all of the Company's then
outstanding bank borrowings.
The Company has entered into a $5.0 million revolving credit facility to be
used for working capital and other general corporate purposes. Borrowings
under the credit facility will bear interest at the lender's prime rate and is
subject to renewal on an annual basis. No amounts were outstanding under this
credit facility at September 26, 1997.
Subsequent to the end of the third quarter, the Company entered into an
agreement to acquire certain assets of MAW Enterprises, Inc. d/b/a Schools at
Work for a total purchase price of $300,000. The acquisition will be accounted
for as a purchase. MAW Enterprises, Inc. d/b/a Schools at Work provides
consulting and facilitating services to organizations interested in educational
opportunities for employees and their children.
The Company believes that funds provided by operations, available borrowing
under the credit facility and the net proceeds from the initial public offering
will be sufficient to meet its needs for working capital, capital expenditures
and the Company's anticipated needs to fund future growth through the end of
1998. The Company does not anticipate material capital expenditures during
1997 or 1998. An element of the Company's strategy is to pursue strategic
acquisitions. The Company may be required to seek external financing sources
to pursue such acquisitions. There can be no assurance that the Company would
be able to obtain such financing on reasonable terms, if at all.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 128, "Earnings per Share" has been issued effective for years ending
after December 15, 1997. This Statement establishes standards for computing
and presenting earnings per share. The Company is required to adopt the
provisions of SFAS No. 128 in the fourth quarter of 1997 and does not expect
adoption thereof to have a material effect on the Company's financial position
or results of operations; however, the effect on net income per share is
disclosed in the financial statements set forth herein.
SFAS No. 129, "Disclosure of Information About Capital Structure" has been
issued effective for years ending after December 15, 1997. This statement
establishes standards for disclosing information about an entity's capital
structure. The Company will be required to adopt the provisions of SFAS No.
129 in the fourth quarter of 1997 and does not expect adoption thereof to have
a material impact on the Company's financial position, results of operations or
cash flows.
13
<PAGE> 14
APPLICATION OF OFFERING PROCEEDS FROM INITIAL PUBLIC OFFERING
Pursuant to the Registration Statement on Form S-1, as amended, (Registration
No. 333-29523) dated August 12, 1997, the Company completed an initial public
offering of 2,702,500 shares of its common stock, which included the sale of
1,401,386 new shares of common stock by the Company, at a public offering price
of $10.00 per share (the "Offering"). The Company received total proceeds of
approximately $14.0 million and incurred expenses of approximately $981,000
for underwriting discounts and approximately $948,000 in other expenses
associated with the Offering. None of such payments were made to the Company's
directors or officers or their affiliates or to any other affiliate of the
Company. Accordingly, the Company received net proceeds of approximately
$12.1 million of which approximately $3.7 million were used to repay all of the
Company's then outstanding bank borrowings. The Company intends to use the
balance of the net proceeds for working capital to further develop its services
and products and for other general corporate purposes, including possible
acquisitions of companies engaged in similar or complementary businesses. The
managing underwriters for the transaction were Montgomery Securities and J.C.
Bradford & Co.
14
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) A special meeting of the Shareholders of the Company was held on
July 17, 1997. Out of the 3,066,848 eligible votes, 2,718,966
were cast at the meeting either by proxies or by security holders
voting in person.
(b) The following individuals were elected as Directors with the
indicated votes:
<TABLE>
<CAPTION>
Votes Against
Individual Votes For or Withheld
-------------------- --------- --------------
<S> <C> <C>
Lamar Alexander 2,718,927 39
JoAnne Brandes 2,718,966 0
Jerry L. Calhoun 2,718,966 0
Thomas G. Cigarran 2,718,966 0
E. Townes Duncan 2,718,966 0
Joseph L. Guzzo 2,718,966 0
Robert D. Lurie 2,718,966 0
Marguerite W. Sallee 2,718,966 0
</TABLE>
(c) The matters considered at the July 17, 1997 Special Meeting of
Shareholders, other than the election of directors, were as
follow:
(i) Adoption of the Amended and Restated Charter was approved by
an affirmative vote of 2,718,966 to zero negative votes
with zero abstentions.
(ii) Adoption of the Amended and Restated Bylaws was approved by
an affirmative vote of 2,718,966 to zero negative votes
with zero abstentions.
(iii) Adoption of the 1997 Stock Incentive Plan was approved by an
affirmative vote of 2,718,966 to zero negative votes with
zero abstentions.
15
<PAGE> 16
(iv) Adoption of the 1997 Employee Stock Purchase Plan was
approved by an affirmative vote of 2,718,966 to zero
negative votes with zero abstentions.
(v) Adoption of the 1997 Outside Directors' Stock Incentive
Plan was approved by an affirmative vote of 2,710,841 to
zero negative votes with 8,125 abstentions.
(vi) The Form of Indemnification Agreements with the Company's
Directors and Executive Officers was approved by an
affirmative vote of 2,718,966 to zero negative votes with
zero abstentions.
(vii) An amendment to the Company's current Charter to provide
for automatic conversion of the Series A Preferred Stock
into Common Stock upon the closing of the initial public
offering was approved by an affirmative vote of 2,718,966
to zero negative votes with zero abstentions
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27 (for SEC use only)
B. Reports on Form 8-K
None
16
<PAGE> 17
SIGNATURES
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.
CORPORATEFAMILY SOLUTIONS, INC.
- -------------------------------
Registrant
11/6/97 /s/ Michael E. Hogrefe
- ------------------------------- -------------------------------------
(Date) Michael E. Hogrefe
Executive Vice President,
Chief Financial Officer and Secretary
17
<PAGE> 18
Exhibits
A. Exhibits
Exhibit 27 (for SEC use only)
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CORPORATEFAMILY SOLUTIONS, INC. FOR THE NINE MONTHS
ENDED SEPTEMBER 26, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-START> DEC-28-1996
<PERIOD-END> SEP-26-1997
<EXCHANGE-RATE> 1
<CASH> 10,927,000
<SECURITIES> 0
<RECEIVABLES> 6,222,000
<ALLOWANCES> 128,000
<INVENTORY> 0
<CURRENT-ASSETS> 18,516,000
<PP&E> 4,426,000
<DEPRECIATION> (1,101,000)
<TOTAL-ASSETS> 28,472,000
<CURRENT-LIABILITIES> 5,930,000
<BONDS> 0
0
0
<COMMON> 23,938,000
<OTHER-SE> (3,854,000)
<TOTAL-LIABILITY-AND-EQUITY> 28,472,000
<SALES> 0
<TOTAL-REVENUES> 56,134,000
<CGS> 0
<TOTAL-COSTS> 54,731,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,000
<INTEREST-EXPENSE> 76,000
<INCOME-PRETAX> 1,322,000
<INCOME-TAX> 745,000
<INCOME-CONTINUING> 577,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 577,000
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0
</TABLE>
