<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark one) FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF l934
For the transition period from to
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Commission File Number 0-16162
CHILDREN'S COMPREHENSIVE SERVICES, INC.
---------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Tennessee 62-1240866
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
805 South Church Street, Murfreesboro, Tennessee 37130
- ------------------------------------------------ ----------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (615) 896-3100
----------------------
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 periods 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
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common Stock, $ .01 Par Value, outstanding at October 31, 1995 - 10,757,532
- ---------------------------------------------------------------------------
shares.
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Page 1 of 18
<PAGE> 2
INDEX
CHILDREN'S COMPREHENSIVE SERVICES, INC.
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--September 30, 1995
(Unaudited) and March 31, 1995. . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations--
Three months ended September 30, 1995 and 1994;
Six months ended September 30, 1995 and 1994. . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows--
Six months ended September 30, 1995 and 1994. . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements--
September 30, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and
Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . .14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . .14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . .15
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 700,000 $ 69,000
Accounts receivable, net of allowance
for doubtful accounts of $124,000 at
September 30 and $133,000 at March 31 3,214,000 3,432,000
Prepaid expenses 263,000 266,000
Other current assets 239,000 134,000
----------- -----------
TOTAL CURRENT ASSETS 4,416,000 3,901,000
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $4,439,000 at September 30
and $4,088,000 at March 31 14,564,000 14,866,000
PROPERTY HELD FOR SALE -0- 165,000
NOTE RECEIVABLE 217,000 -0-
NON-COMPETITION AGREEMENTS, net of accumulated
amortization of $1,875,000 at September 30
and $1,750,000 at March 31 125,000 250,000
OTHER ASSETS AND DEFERRED CHARGES, at cost,
net of accumulated amortization of
$305,000 at September 30 and $259,000 at
March 31 168,000 267,000
----------- -----------
TOTAL ASSETS $19,490,000 $19,449,000
</TABLE> =========== ===========
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<PAGE> 4
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------ ---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 393,000 $ 658,000
Current maturities--long term debt:
Related party -0- 59,000
Other 187,000 177,000
Accrued employee compensation 855,000 716,000
Income taxes payable (21,000) 69,000
Accrued other expenses 712,000 673,000
Deferred revenue 296,000 127,000
----------- -----------
TOTAL CURRENT LIABILITIES 2,422,000 2,479,000
LONG TERM DEBT:
Related party -0- 672,000
Other 6,158,000 6,252,000
DEFERRED TAXES PAYABLE 125,000 125,000
OTHER LIABILITIES 465,000 465,000
----------- -----------
TOTAL LIABILITIES 9,170,000 9,993,000
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per
share--10,000,000 shares authorized -0- -0-
Common stock, par value $ .01 per share
--20,000,000 shares authorized; issued
and outstanding 10,756,782 shares at
September 30 and 10,711,782 shares at
March 31 108,000 107,000
Additional paid-in capital 25,371,000 25,317,000
Accumulated (deficit) (15,159,000) (15,968,000)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 10,320,000 9,456,000
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $19,490,000 $19,449,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE> 5
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
1995 1994 l995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Operating revenues $ 5,322,000 $ 4,562,000 $10,840,000 $ 9,829,000
Management fee income 248,000 47,000 354,000 80,000
Other revenue 1,000 14,000 3,000 15,000
----------- ----------- ----------- -----------
TOTAL REVENUES 5,571,000 4,623,000 11,197,000 9,924,000
Expenses:
Employee compensation
and benefits 3,421,000 2,894,000 6,836,000 5,972,000
Purchased services and
other expenses 1,213,000 889,000 2,299,000 1,925,000
Depreciation and amortization 257,000 266,000 521,000 531,000
Interest:
Banks and other 208,000 255,000 419,000 519,000
Related parties 20,000 40,000 49,000 147,000
Provision for bad debts -0- 27,000 -0- 37,000
Related party rent 26,000 26,000 51,000 51,000
----------- ----------- ----------- -----------
TOTAL EXPENSES 5,145,000 4,397,000 10,175,000 9,182,000
----------- ----------- ----------- -----------
Income before income taxes and
extraordinary item 426,000 226,000 1,022,000 742,000
Provision for income taxes 70,000 6,000 159,000 25,000
----------- ----------- ----------- -----------
Income before extraordinary item 356,000 220,000 863,000 717,000
Extraordinary item:
Loss on early extinguishment of
debt, net of income tax benefit
of $11,000 54,000 -0- 54,000 -0-
----------- ----------- ----------- -----------
NET INCOME $ 302,000 $ 220,000 $ 809,000 $ 717,000
=========== =========== =========== ===========
Earnings per common share:
Income before extraordinary item $ .03 $ .02 $ .08 $ .07
Extraordinary item -0- -0- (.01) -0-
----------- ----------- ----------- -----------
NET INCOME $ .03 $ .02 $ .07 $ .07
=========== =========== =========== ===========
Earnings per common share--
assuming full dilution:
Income before extraordinary item $ .03 $ .02 $ .08 $ .07
Extraordinary item -0- -0- (.01) -0-
----------- ----------- ----------- -----------
NET INCOME $ .03 $ .02 $ .07 $ .07
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 6
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
--------------------------
1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 809,000 $ 717,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 396,000 406,000
Amortization 125,000 125,000
Amortization of deferred loan costs 47,000 114,000
Provision for bad debts -0- 37,000
Loss on early extinguishment of debt 65,000 -0-
Other 20,000 (14,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable 218,000 728,000
Decrease in prepaid expenses 3,000 68,000
(Increase) in other current assets (105,000) (198,000)
(Decrease) in accounts payable (265,000) (473,000)
Increase (decrease) in accrued employee
compensation 139,000 (329,000)
Increase (decrease) in accrued expenses 39,000 (307,000)
Increase (decrease) in deferred revenue 113,000 (96,000)
Increase (decrease) in income taxes payable (90,000) 24,000
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,514,000 802,000
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (131,000) (242,000)
Proceeds from sale of property and equipment 36,000 14,000
(Increase) in other assets (12,000) (215,000)
----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES $ (107,000) $ (443,000)
----------- -----------
</TABLE>
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<PAGE> 7
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
----------------------------
1995 1994
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<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from revolving lines of credit
and long-term borrowings $ 1,855,000 $10,942,000
Principal payments on revolving lines of
credit, long-term borrowings and
capital lease obligations (1,939,000) (10,548,000)
Principal payments on notes payable and
long-term borrowings--related parties (731,000) (928,000)
Principal payments on mortgage notes
payable -0- (1,300,000)
Proceeds from issuance of Common Stock 62,000 1,848,000
Stock issuance/registration costs (23,000) -0-
----------- -----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (776,000) 14,000
----------- -----------
INCREASE IN CASH AND CASH
EQUIVALENTS 631,000 373,000
Cash and cash equivalents at
beginning of period 69,000 178,000
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 700,000 $ 551,000
=========== ===========
SUPPLEMENTAL INFORMATION
Income taxes paid $ 239,000 $ -0-
Interest paid 432,000 599,000
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE> 8
CHILDREN'S COMPREHENSIVE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1995
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Certain reclassifications have been made in
the consolidated financial statements for the three and six month periods ended
September 30, 1994, to conform to the presentation of the financial statements
for the three and six month periods ended September 30, 1995. Operating
results for the three and six month periods ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 1996. For further information, refer to the financial statements and
footnotes thereto for the year ended March 31, 1995.
NOTE B -- EARNINGS PER COMMON SHARE
Net income per share has been computed on the basis of the weighted average
number of shares outstanding and common stock equivalents, consisting of
dilutive stock options and warrants.
NOTE C -- PROPERTY HELD FOR SALE
Property held for sale at March 31, 1995 consisted of the estimated net
realizable value of an idle residential treatment center owned by the Company
in Ramona, California. On September 29, 1995, the Company sold this property
for $255,000, receiving a cash down payment of $38,000 and a note receivable of
$217,000. The note receivable bears interest at 7% per annum, and is due
September 29, 1998. The Company realized a gain of $67,000 on the sale of this
property. Of this amount, $10,000 was recognized as income during the period
ended September 30, 1995. The balance, $57,000, will be recognized as income
upon collection of the underlying note receivable.
NOTE D -- CONTINGENCIES
On October 27, 1995, a civil action was filed in the Circuit Court of Colbert
County, Alabama against the Company and certain of the Company's employees in
connection with the circumstances surrounding the alleged wrongful death of a
juvenile enrolled at the Company's wilderness program in Jasper, Alabama. The
complaint, among other things, alleges negligence and civil rights violations
on the part of the Company and seeks an unspecified amount of damages. The
Company intends to file a petition to remove the action from the Circuit Court
of Colbert County to the United States District Court for the Northern District
of Alabama, Northwestern Division. While management believes the allegations
are without merit and intends to defend the litigation vigorously, management
is unable at this time to estimate the effect of any settlement or adverse
judgment on the results of operations or financial condition of the Company.
-8-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated,
operating revenues from youth services and the amounts and percentage
of certain items relative to total revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------------------- -----------------------------------------
1995 1994 1995 1994
------------------ ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $5,322,000 95.5% $ 4,562,000 98.7% $10,840,000 96.8% $ 9,829,000 99.0%
========== ==== =========== ==== =========== ==== =========== ====
Management fee income $ 248,000 4.5% $ 47,000 1.0% $ 354,000 3.2% $ 80,000 .8%
========== ==== =========== ==== =========== ==== =========== ====
Employee compensation and
benefits $3,421,000 61.4% $ 2,894,000 62.6% $ 6,836,000 61.1% $ 5,972,000 60.2%
========== ==== =========== ==== =========== ==== =========== ====
Purchased services and
other expenses $1,213,000 21.8% $ 889,000 19.2% $ 2,299,000 20.5% $ 1,925,000 19.4%
========== ==== =========== ==== =========== ==== =========== ====
Depreciation and amortization $ 257,000 4.6% $ 266,000 5.8% $ 521,000 4.7% $ 531,000 5.4%
========== ==== =========== ==== =========== ==== =========== ====
Interest $ 228,000 4.1% $ 295,000 6.4% $ 468,000 4.2% $ 666,000 6.7%
========== ==== =========== ==== =========== ==== =========== ====
</TABLE>
Results of Operations
Three Months Ended September 30, 1995 and September 30, 1994
Total operating revenues for the three months ended September 30,
1995 increased by $760,000 or 16.6% over the same period in the prior
fiscal year. The increase in operating revenues results primarily from
the impact of programs opened in Jasper and Eutaw, Alabama, Jacksonville,
Florida and Steele Canyon, California, and from census increases at the
Company's Chula Vista and Ramona, California campuses.
Management fee income under the Company's management contract with
Helicon, Incorporated increased from $47,000 for the three months ended
September 30, 1994 to $248,000 for the three months ended September 30,
1995. Additional management fee income of $69,000 and $254,000 for the
three months ended September 30, 1995 and 1994, respectively, was not
recognized by the Company due to the inability of Helicon Incorporated to
pay these amounts. Future payments, if any, of these amounts will be
recognized by the Company on the cash basis.
Employee compensation and benefits during the three months ended
September 30, 1995 totaled $3,421,000, as compared to $2,894,000 for the
three months ended September 30, 1994, an increase of 18.2%. When
expressed as a percentage of total revenues, employee compensation and
benefits decreased from 62.6% for the three months ended September 30,
1994 to 61.4% for the three months ended September 30, 1995. The
increase in employee compensation and benefits over the same period in
the prior year results primarily from the opening of new programs at
Jasper and Eutaw, Alabama, Jacksonville, Florida and Steele Canyon,
California, increased staffing requirements at certain other programs and
an increase in corporate personnel costs, principally incurred for
operations and business development.
-9-
<PAGE> 10
Purchased services and other expenses for the three months ended
September 30, 1995 totaled $1,213,000, as compared to $992,000 for the three
months ended September 30, 1994, an increase of 22.3%. When expressed as a
percentage of total revenues, purchased services and other expenses increased
from 19.2% for the three months ended September 30, 1994 to 21.8% for the three
months ended September 30, 1995. The increase in purchased services and other
expenses over the same period in the prior year is attributed primarily to the
opening of new programs at Jasper and Eutaw, Alabama, Jacksonville, Florida and
Steele Canyon, California, and increases in marketing and consulting fees and
audit, investor relations and legal expenses.
Depreciation and amortization decreased from $266,000 for the three months
ended September 30, 1994 to $257,000 for the three months ended September 30,
1995, a decrease of 3.4%.
Interest expense decreased from $295,000 for the three months ended
September 30, 1994 to $228,000 for the three months ended September 30, 1995, a
decrease of 22.7%. The decrease in interest expense over the same period in
the prior year is attributed principally to a reduction in the average balance
of debt outstanding and to a decrease in the amortization of deferred loan
costs.
Provision for income tax expense increased from $6,000 for the three
months ended September 30, 1994 to $70,000 for the three months ended September
30, 1995, an increase of $64,000. The Company's effective tax rate is
significantly less than the statutory tax rate because of the presence, at
March 31, 1995, of tax loss carryforwards of $7,030,000. The increase in the
Company's effective tax rate over the same period in the prior year results
from the presence of annual limitations on the utilization of the net operating
loss carryforwards pursuant to Internal Revenue Code Section 382.
The loss on the early extinguishment of debt of $65,000, before the
related income tax benefit of $11,000, resulted from the writeoff of deferred
loan costs associated with the Company's term loan with T. Rowe Price Strategic
Partners Fund II, L.P. (T. Rowe Price). This writeoff was required due to the
Company's retirement of the remaining principal balance of $708,000 outstanding
under the Company's loan with T. Rowe Price.
Six Months Ended September 30, 1995 and September 30, 1994
Total operating revenues for the six months ended September 30, 1995
increased by $1,011,000 or 10.3% over the same period in the prior fiscal
year. The increase in operating revenues results primarily from the impact of
programs opened in Jasper and Eutaw, Alabama, Jacksonville, Florida and Steele
Canyon, California, and from census increases at the Company's Chula Vista,
Ramona and Grand Terrace, California campuses, net of decreases at the
Company's San Bernardino, California campus due to a census decrease and at the
Company's Riverside, California campus due to a change in the mix between
special education and regular education students.
-10-
<PAGE> 11
Management fee income under the Company's management contract with
Helicon, Incorporated increased from $80,000 for the six months ended September
30, 1994 to $354,000 for the six months ended September 30, 1995, an increase
of $274,000. Additional management fee income of $286,000 and $421,000 for the
six months ended September 30, 1995 and 1994, respectively, was not recognized
by the Company due to the inability of Helicon, Incorporated to pay these
amounts. Future payments, if any, of these amounts will be recognized by the
Company on the cash basis.
Employee compensation and benefits during the six months ended September
30, 1995 totaled $6,836,000, as compared to $5,972,000 for the six months ended
September 30, 1994, an increase of 14.5%. When expressed as a percentage of
total revenues, employee compensation and benefits increased from 60.2% for the
six months ended September 30, 1994 to 61.1% for the six months ended September
30, 1995. The increase in employee compensation and benefits over the same
period in the prior year results primarily from the opening of new programs at
Jasper and Eutaw, Alabama, Jacksonville, Florida and Steele Canyon, California,
increased staffing requirements at certain other programs and an increase in
corporate personnel costs, primarily incurred for operations and business
development.
Purchased services and other expenses for the six months ended
September 30, 1995 totaled $2,299,000, as compared to $1,925,000 for the six
months ended September 30, 1994, an increase of 19.4%. When expressed as a
percentage of total revenues, purchased services and other expenses increased
from 19.4% for the six months ended September 30, 1994 to 20.5% for the six
months ended September 30, 1995. The increase in purchased services and other
expenses over the same period in the prior year is attributed primarily to the
opening of new programs at Jasper and Eutaw, Alabama, Jacksonville, Florida and
Steele Canyon, California, and increases in marketing and consulting fees, and
investor relations and legal expenses, net of a reduction in audit expense.
Depreciation and amortization decreased from $531,000 for the six months
ended September 30, 1994 to $521,000 for the six months ended September 30,
1995, a decrease of 1.9%.
Interest expense decreased from $666,000 for the six months ended
September 30, 1994 to $468,000 for the six months ended September 30, 1995, a
decrease of 29.7%. The decrease in interest expense is attributed principally
to a reduction in the average balance of debt outstanding and to a decrease in
the amortization of deferred loan costs.
Provision for income tax expense increased from $25,000 for the six months
ended September 30, 1994 to $159,000 for the six months ended September 30,
1995, an increase of $134,000. The Company's effective tax rate is
significantly less than the statutory tax rate because of the presence, at
March 31, 1995, of tax loss carryforwards of $7,030,000. The increase in the
Company's effective tax rate over the same period in the prior year results
from the presence of annual limitations on the utilization of the net operating
loss carryforwards pursuant to Internal Revenue Code Section 382.
-11-
<PAGE> 12
The loss on the early extinguishment of debt of $65,000 before the related
income tax benefit of $11,000 resulted from the writeoff of deferred loan costs
associated with the Company's term loan with T. Rowe Price. This writeoff was
required due to the Company's retirement of the remaining principal balance of
$708,000 outstanding under the Company's loan with T. Rowe Price.
Liquidity and Capital Resources
Cash provided by operating activities increased from $802,000 for the six
months ended September 30, 1994 on net income of $717,000 to $1,514,000 for the
six months ended September 30, 1995 on net income of $809,000. Working capital
at September 30, 1995 was $1,994,000, as compared to $1,422,000 at March 31,
1995.
Cash used by investing activities decreased from $443,000 for the six
months ended September 30, 1994 to $107,000 for the six months ended September
30, 1995, due primarily to a reduction in cash outlays for the purchase of
property and equipment and for the incurrence of deferred loan fees. Cash used
by financing activities was $776,000 for the six months ended September 30,
1995, as compared to cash provided of $14,000 for the six months ended
September 30, 1994, due primarily to a reduction in the proceeds from the
issuance of Common Stock.
In September 1994, the Company executed agreements with National Health
Investors, Inc. ("NHI"), T. Rowe Price and First American National Bank
("FANB"). Under the terms of these agreements, the Company refinanced all of
its existing short-term obligations through five-year term loans from NHI and
T. Rowe Price for $6.5 million (at 11.5% per annum) and $1.0 million (at 12%
per annum), respectively. During the period ended September 30, 1995, the
Company made unscheduled principal payments of approximately $708,000 towards
the T. Rowe Price term loan, resulting in the retirement of the remaining
obligation under that loan. The Company wrote off deferred loan costs of
approximately $65,000 in connection with the early retirement of the T. Rowe
Price loan.
The agreement with NHI gives NHI a 25% interest in any increases in the
equity of the Company's operations at the Helicon Youth Center in Riverside,
California and Grand Terrace School in Grand Terrace, California. Any amounts
due NHI under the provisions of the equity participation agreement will not be
payable until the repayment of the loan. At September 30, 1995, the amount due
under the equity participation agreement was $-0-.
The agreement with NHI also required the Company to provide a debt service
reserve equal to six months payments of principal and interest, an amount which
totals approximately $460,000. This reserve was established through the
execution of an irrevocable letter of credit through FANB. The NHI agreement
is secured primarily by a first priority lien on substantially all of the
Company's real estate, improvements and equipment.
-12-
<PAGE> 13
The Company also obtained through FANB a $2.5 million one-year revolving
line of credit in September 1994. This line of credit, which was renewed in
September 1995 for a term of one year, bears interest at prime + 3/4% (9.5% as
of September 30, 1995) and is secured primarily by a first priority lien on the
Company's accounts and notes receivable. There were no borrowings outstanding
under the line of credit at September 30, 1995. Availability under the line of
credit at September 30, 1995 was approximately $2,040,000, as the issuance of
the letter of credit of approximately $460,000 in favor of NHI for the debt
service reserve referred to above reduced the Company's available credit by a
like amount.
The credit agreement with NHI and the FANB line of credit require the
Company to comply with certain restrictive covenants with respect to its
business and operations and to maintain certain financial ratios that become
more stringent over time. The restrictive covenants under these agreements
prohibit the Company, without the prior consent of its lenders, from entering
into major corporate transactions, such as a merger, tender offer or sale of
its assets, incurring additional indebtedness, and, under the FANB line of
credit, declaring cash dividends.
The Company is obligated under no significant commitments. Capital
expenditures are expected to be minimal during fiscal 1996, limited to
replacement of existing capital assets as necessary. Current obligations,
typically due within thirty days or less, are expected to be funded with cash
flow from operations and borrowings under the Company's working capital line of
credit. Management believes that operations and amounts available under its
working capital line of credit will provide sufficient cash flow for the next
twelve months and that long-term liquidity requirements will be met from cash
flow from operations and outside financing sources.
Inflation
Inflation has not had a significant impact on the Company's results of
operation since inception. Certain of the Company's existing contracts
provide for annual price increases based upon changes in the Consumer Price
Index.
Impact of Accounting Changes
There are no pending accounting pronouncements that, when adopted, are
expected to have a material effect on the Company's results of operations or
its financial position.
-13-
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 27, 1995, a civil action was filed in the Circuit Court
of Colbert County, Alabama, against the Company and certain of the
Company's employees in connection with the circumstances surrounding
the alleged wrongful death of a juvenile enrolled at the Company's
wilderness program in Jasper, Alabama (the "Program"). The
Company's preliminary investigation indicates that the juvenile had
physical impairments prior to his enrollment in the Program, which
may have contributed to his death. The complaint, among other
things, alleges negligence and civil rights violations on the part
of the Company and certain of its employees, and seeks an
unspecified amount of damages. The Company intends to file a
petition to remove the action from the Circuit Court of Colbert
County to the United States District Court for the Northern District
of Alabama, Northwestern Division. While management believes the
allegations are without merit and intends to defend the litigation
vigorously, management is unable at this time to estimate the effect
of any settlement or adverse judgment on the results of operations
and/or financial condition of the Company. The Company has,
therefore, made no accrual for any such settlement, adverse
judgment, or costs of adjudication.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on
August 16, 1995.
(b) Election of Directors:
<TABLE>
<CAPTION>
Affirmative Negative
Votes Votes Abstentions
--------- -------- -----------
<S> <C> <C> <C>
William J Ballard 9,405,572 -0- 18,910
Amy S. Harrison 9,397,082 1,200 26,200
Martha A. Petrey, Ph.D. 9,397,172 700 26,610
Thomas B. Clark 9,404,082 -0- 20,400
Joseph A. Fernandez, Ed.D. 9,402,582 2,000 19,900
David L. Warnock 9,398,172 -0- 26,310
</TABLE>
There were no broker non-votes.
-14-
<PAGE> 15
PART II. OTHER INFORMATION (continued)
(c) Other matters voted upon:
(1) Amendment of the 1989 Stock Option Plan for
Non-Employee Directors to increase the annual stock
option grant made to non-employee directors from 5,000
shares to 7,500 shares and to comply with new rules
relating to qualified formula plans adopted by the
Securities and Exchange Commission.
Affirmative Votes: 9,180,516
Negative Votes: 214,055
Abstentions: 29,911
Broker non-votes: -0-
(2) Ratification of the selection of Ernst & Young as the
Company's independent auditors for the 1996 fiscal year.
Affirmative Votes: 9,397,572
Negative Votes: 13,100
Abstentions: 13,810
Broker non-votes: -0-
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(11) Statement re: computation of earnings per share.
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
There were no reports on Form 8-K for the three months ended
September 30, 1995.
-15-
<PAGE> 16
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.
CHILDREN'S COMPREHENSIVE SERVICES, INC.
---------------------------------------
(Registrant)
Date: November 13, 1995 /s/WILLIAM J BALLARD
---------------------------------------
William J Ballard
Chairman, Chief Executive Officer and
President (Principal Executive
Officer)
Date: November 13, 1995 /s/DONALD B. WHITFIELD
---------------------------------------
Donald B. Whitfield
Vice President of Finance, Secretary
and Treasurer (Principal Financial
and Accounting Officer)
-16-
<PAGE> 17
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Page
- ----------- ----
<S> <C>
11 Computation of Per Share Earnings 18
27 Financial Data Schedule (for SEC use only)
</TABLE>
-17-
<PAGE> 1
EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------ -------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 10,719,608 10,087,535 10,715,716 8,739,983
Net effect of dilutive stock
options and warrants--based
on the treasury stock method
using average market price 430,835 99,841 417,701 1,335,747
----------- ----------- ----------- -----------
TOTAL 11,150,443 10,187,376 11,133,417 10,075,730
=========== =========== =========== ===========
Net income $ 302,000 $ 220,000 $ 809,000 $ 717,000
=========== =========== =========== ===========
Per share amount $ .03 $ .02 $ .07 $ .07
=========== =========== =========== ===========
FULLY DILUTED:
Average shares outstanding 10,719,608 10,087,535 10,715,716 8,739,983
Net effect of dilutive stock
options and warrants--based
on the treasury stock method
using the higher of ending
or average market price 469,422 192,560 472,881 1,540,112
----------- ----------- ----------- -----------
TOTAL 11,189,030 10,280,095 11,188,597 10,280,095
=========== =========== =========== ===========
Net income $ 302,000 $ 220,000 $ 809,000 $ 717,000
=========== =========== =========== ===========
Per share amount $ .03 $ .02 $ .07 $ .07
=========== =========== =========== ===========
</TABLE>
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 700,000
<SECURITIES> 0
<RECEIVABLES> 3,555,000
<ALLOWANCES> 124,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,416,000
<PP&E> 19,003,000
<DEPRECIATION> 4,439,000
<TOTAL-ASSETS> 19,490,000
<CURRENT-LIABILITIES> 2,422,000
<BONDS> 6,158,000
<COMMON> 108,000
0
0
<OTHER-SE> 10,212,000
<TOTAL-LIABILITY-AND-EQUITY> 19,490,000
<SALES> 10,840,000
<TOTAL-REVENUES> 11,197,000
<CGS> 9,135,000
<TOTAL-COSTS> 9,135,000
<OTHER-EXPENSES> 572,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 468,000
<INCOME-PRETAX> 1,022,000
<INCOME-TAX> 159,000
<INCOME-CONTINUING> 863,000
<DISCONTINUED> 0
<EXTRAORDINARY> 54,000
<CHANGES> 0
<NET-INCOME> 809,000
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
