<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 December 31, 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)
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)
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 February 9, 1996 - 10,757,532
- ---------------------------------------------------------------------------
shares.
- -------
Index to Exhibits is on Page 16
<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--December 31, 1995
and March 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations--
Three months ended December 31, 1995 and 1994;
Nine months ended December 31, 1995 and 1994. . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows--
Nine months ended December 31, 1995 and 1994. . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements--
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and
Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . .14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . .14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
</TABLE>
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
------------ ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,496,000 $ 69,000
Accounts receivable, net of allowance
for doubtful accounts of $153,000 at
December 31 and $133,000 at March 31 3,367,000 3,432,000
Prepaid expenses 176,000 266,000
Other current assets 254,000 134,000
------------ -----------
TOTAL CURRENT ASSETS 5,293,000 3,901,000
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $4,614,000 at December 31
and $4,088,000 at March 31 14,452,000 14,866,000
PROPERTY HELD FOR SALE -0- 165,000
NOTE RECEIVABLE 217,000 -0-
NON-COMPETITION AGREEMENTS, net of accumulated
amortization of $1,937,000 at December 31
and $1,750,000 at March 31 63,000 250,000
OTHER ASSETS AND DEFERRED CHARGES, at cost,
net of accumulated amortization of
$319,000 at December 31 and $259,000
at March 31 161,000 267,000
------------ -----------
TOTAL ASSETS $ 20,186,000 $19,449,000
============ ===========
</TABLE>
-3-
<PAGE> 4
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
------------ ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 287,000 $ 658,000
Current maturities--long term debt:
Related party -0- 59,000
Other 193,000 177,000
Accrued employee compensation 1,001,000 716,000
Income taxes payable 112,000 69,000
Accrued other expenses 665,000 673,000
Deferred revenue 342,000 127,000
----------- -----------
TOTAL CURRENT LIABILITIES 2,600,000 2,479,000
LONG TERM DEBT:
Related party -0- 672,000
Other 6,107,000 6,252,000
DEFERRED TAXES PAYABLE 125,000 125,000
OTHER LIABILITIES 365,000 465,000
----------- -----------
TOTAL LIABILITIES 9,197,000 9,993,000
----------- -----------
STOCKHOLDERS' 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 10,757,532 shares at December 31
and 10,711,782 shares at March 31 108,000 107,000
Additional paid-in capital 25,372,000 25,317,000
Accumulated (deficit) (14,491,000) (15,968,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 10,989,000 9,456,000
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $20,186,000 $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 Nine Months Ended
December 31, December 31,
------------------------- -------------------------
1995 1994 l995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Operating revenues $ 5,831,000 $ 4,960,000 $16,671,000 $14,789,000
Management fee income 373,000 116,000 727,000 196,000
Other revenue 10,000 151,000 13,000 166,000
----------- ----------- ----------- -----------
TOTAL REVENUES 6,214,000 5,227,000 17,411,000 15,151,000
Expenses:
Employee compensation
and benefits 3,738,000 3,179,000 10,574,000 9,151,000
Purchased services and
other expenses 1,166,000 900,000 3,465,000 2,825,000
Depreciation and amortization 253,000 273,000 774,000 804,000
Interest:
Banks and other 202,000 234,000 621,000 753,000
Related parties -0- 38,000 49,000 185,000
Provision for bad debts 29,000 31,000 29,000 68,000
Related party rent 25,000 25,000 76,000 76,000
----------- ----------- ----------- -----------
TOTAL EXPENSES 5,413,000 4,680,000 15,588,000 13,862,000
----------- ----------- ----------- -----------
Income before income taxes and
extraordinary item 801,000 547,000 1,823,000 1,289,000
Provision for income taxes 133,000 19,000 292,000 44,000
----------- ----------- ----------- -----------
Income before extraordinary item 668,000 528,000 1,531,000 1,245,000
Extraordinary item:
Loss on early extinguishment of
debt, net of income tax benefit
of $11,000 -0- -0- 54,000 -0-
----------- ----------- ----------- -----------
NET INCOME $ 668,000 $ 528,000 $ 1,477,000 $ 1,245,000
=========== =========== =========== ===========
Earnings per common share:
Income before extraordinary item $ .06 $ .05 $ .14 $ .12
Extraordinary item -0- -0- (.01) -0-
----------- ----------- ----------- -----------
NET INCOME $ .06 $ .05 $ .13 $ .12
=========== =========== =========== ===========
Earnings per common share--
assuming full dilution:
Income before extraordinary item $ .06 $ .05 $ .14 $ .11
Extraordinary item -0- -0- (.01) -0-
----------- ----------- ----------- -----------
NET INCOME $ .06 $ .05 $ .13 $ .11
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 6
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,477,000 $ 1,245,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 587,000 615,000
Amortization 187,000 189,000
Amortization of deferred loan costs 60,000 139,000
Provision for bad debts 29,000 -0-
Loss on early extinguishment of debt 65,000 -0-
Other 19,000 (16,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable 36,000 333,000
Decrease in prepaid expenses 90,000 96,000
(Increase) in other current assets (120,000) (383,000)
(Decrease) in accounts payable (371,000) (235,000)
Increase (decrease) in accrued employee
compensation 285,000 (274,000)
(Decrease) in accrued expenses (8,000) (369,000)
Increase in deferred revenue 159,000 25,000
Increase in income taxes payable 43,000 43,000
Decrease in other liabilities (100,000) (100,000)
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,438,000 1,308,000
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (209,000) (311,000)
Proceeds from sale of property and equipment 37,000 15,000
(Increase) in other assets (19,000) (233,000)
----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES $ (191,000) $ (529,000)
----------- -----------
</TABLE>
-6-
<PAGE> 7
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from revolving lines of credit
and long-term borrowings $ 3,436,000 $12,465,000
Principal payments on revolving lines of
credit, long-term borrowings and
capital lease obligations (3,565,000) (12,716,000)
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 63,000 1,858,000
Stock issuance/registration costs (23,000) -0-
----------- -----------
NET CASH (USED) BY
FINANCING ACTIVITIES (820,000) (621,000)
----------- -----------
INCREASE IN CASH AND CASH
EQUIVALENTS 1,427,000 158,000
Cash and cash equivalents at
beginning of period 69,000 178,000
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,496,000 $ 336,000
=========== ===========
SUPPLEMENTAL INFORMATION
Income taxes paid $ 239,000 $ -0-
Interest paid 622,000 784,000
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE> 8
CHILDREN'S COMPREHENSIVE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 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. Operating results for the three and nine
month periods ended December 31, 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 -- 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
action has been removed 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 Nine Months Ended
December 31, December 31,
----------------------------------------- ------------------------------------------
1995 1994 1995 1994
------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 5,831,000 93.8% $ 4,960,000 94.9% $16,671,000 95.7% $14,789,000 97.6%
Management fee income 373,000 6.0 116,000 2.2 727,000 4.2 196,000 1.3
Other revenues 10,000 0.2 151,000 2.9 13,000 0.1 166,000 1.1
----------- ----- ----------- ----- ----------- ----- ----------- -----
Total revenues $ 6,214,000 100.0% $ 5,227,000 100.0% $17,411,000 100.0% $15,151,000 100.0%
=========== ===== =========== ===== =========== ===== =========== =====
Employee compensation and
benefits $ 3,738,000 60.2% $ 3,179,000 60.8% $10,574,000 60.7% $ 9,151,000 60.4%
=========== ===== =========== ===== =========== ===== =========== =====
Purchased services and
other expenses $ 1,166,000 18.8% $ 900,000 17.2% $ 3,465,000 19.9% $ 2,825,000 18.6%
=========== ===== =========== ===== =========== ===== =========== =====
Depreciation and amortization $ 253,000 4.1% $ 273,000 5.2% $ 774,000 4.4% $ 804,000 5.3%
=========== ===== =========== ===== =========== ===== =========== =====
Interest - banks and other $ 202,000 3.3% $ 272,000 5.2% $ 670,000 3.8% $ 938,000 6.2%
=========== ===== =========== ===== =========== ===== =========== =====
</TABLE>
Results of Operations
Three Months Ended December 31, 1995 and December 31, 1994
Total operating revenues for the three months ended December 31, 1995
increased by $871,000 or 17.6% over the same period in the prior fiscal year.
The increase in operating revenues results primarily from the impact of
programs opened in Eutaw, Alabama, Jacksonville, Florida and Steele Canyon,
California, and from census increases at the Company's Chula Vista, California
campus.
Management fee income under the Company's management contract with
Helicon, Inc. for the three months ended December 31, 1995 totaled $373,000, as
compared to $116,000 for the three months ended December 31, 1994. Additional
management fee income of $160,000 for the three months ended December 31, 1994
was not recognized by the Company due to the inability of Helicon, Inc. to pay
these amounts. Future payments, if any, of these amounts will be recognized by
the Company as income on the cash basis.
Other revenue during the three months ended December 31, 1995 totaled
$10,000, as compared to $151,000 for the three months ended December 31, 1994.
Other revenue for the three months ended December 31, 1994 consisted primarily
of $150,000 received by the Company pursuant to a settlement of certain workers
compensation litigation.
-9-
<PAGE> 10
Employee compensation and benefits for the three months ended December 31,
1995 totaled $3,738,000, as compared to $3,179,000 for the three months ended
December 31, 1994, an increase of 17.6%. When expressed as a percentage of
total revenues, employee compensation and benefits decreased from 60.8% for the
three months ended December 31, 1994 to 60.2% for the three months ended
December 31, 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 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.
Purchased services and other expenses for the three months ended December
31, 1995 totaled $1,166,000, as compared to $900,000 for the three months ended
December 31, 1994, an increase of 29.6%. When expressed as a percentage of
total revenues, purchased services and other expenses increased from 17.2% for
the three months ended December 31, 1994 to 18.8% for the three months ended
December 31, 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 Eutaw, Alabama, Jacksonville, Florida and Steele Canyon,
California, program expansion at the Company's Chula Vista, California campus,
and increases in consulting and marketing expenses, net of a reduction in audit
expense.
Depreciation and amortization decreased from $273,000 for the three months
ended December 31, 1994 to $253,000 for the three months ended December 31,
1995, a decrease of 7.3%.
Interest expense decreased from $272,000 for the three months ended
December 31, 1994 to $202,000 for the three months ended December 31, 1995, a
decrease of 25.7%. The decrease in interest expense over the same period in
the prior year is attributed primarily 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 $19,000 for the three
months ended December 31, 1994 to $133,000 for the three months ended December
31, 1995. 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.
Nine Months Ended December 31, 1995 and December 31, 1994
Total operating revenues for the nine months ended December 31, 1995
increased by $1,882,000 or 12.7% 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 and New Orleans, Louisiana campuses, net of a decrease at
the Company's San Bernardino, California campus due to a decrease in census.
-10-
<PAGE> 11
Management fee income under the Company's management contract with Helicon,
Inc. for the nine months ended December 31, 1995 totaled $727,000, as compared
to $196,000 for the nine months ended December 31, 1994. Additional management
fee income of $217,000 for the nine months ended December 31, 1995 and $581,000
for the nine months ended December 31, 1994 was not recognized by the Company
due to the inability of Helicon, Inc. to pay these amounts. Future payments,
if any, of these amounts will be recognized by the Company as income on the
cash basis.
Other revenue during the nine months ended December 31, 1995 totaled
$13,000, as compared to $166,000 for the nine months ended December 31, 1994.
Other revenue for the nine months ended December 31, 1994 consisted primarily
of $150,000 received by the Company pursuant to a settlement of certain workers
compensation litigation.
Employee compensation and benefits for the nine months ended December 31,
1995 totaled $10,574,000, as compared to $9,151,000 for the nine months ended
December 31, 1994, an increase of 15.6%. When expressed as a percentage of
total revenues, employee compensation and benefits increased from 60.4% for the
nine months ended December 31, 1994 to 60.7% for the nine months ended December
31, 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 nine months ended December
31, 1995 totaled $3,465,000, as compared to $2,825,000 for the nine months
ended December 31, 1994, an increase of 22.7%. When expressed as a percentage
of total revenues, purchased services and other expenses increased from 18.6%
for the nine months ended December 31, 1994 to 19.9% for the nine months ended
December 31, 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, program expansion at the Company's Chula Vista, California campus,
and increases in consulting, marketing, and legal expense, net of a reduction
in audit expense.
Depreciation and amortization decreased from $804,000 for the nine months
ended December 31, 1994 to $774,000 for the nine months ended December 31,
1995, a decrease of 3.7%.
Interest expense decreased from $938,000 for the nine months ended December
31, 1994 to $670,000 for the nine months ended December 31, 1995, a decrease of
28.6%. The decrease in interest expense over the same period in the prior year
is attributed primarily to a reduction in the average balance of debt
outstanding and to a decrease in the amortization of deferred loan costs.
-11-
<PAGE> 12
Provision for income tax expense increased from $44,000 for the nine months
ended December 31, 1994 to $292,000 for the nine months ended December 31,
1995. 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.
Liquidity and Capital Resources
Cash provided by operating activities increased from $1,308,000 for the
nine months ended December 31, 1994 on net income of $1,245,000 to $2,438,000
for the nine months ended December 31, 1995 on net income of $1,477,000.
Working capital at December 31, 1995 was $2,693,000, as compared to $1,422,000
at March 31, 1995.
Cash used by investing activities decreased from $529,000 for the nine
months ended December 31, 1994 to $191,000 for the nine months ended December
31, 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 increased from $621,000 for the nine months ended
December 31, 1994 to $820,000 for the nine months ended December 31, 1995.
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 December 31, 1995, the amount due
under the equity participation agreement was $-0-.
-12-
<PAGE> 13
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.
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% (9.25% as
of December 31, 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 December 31, 1995. Availability under the line of
credit at December 31, 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 5. Other Information
The Board of Directors of the Company has approved, subject to
shareholder approval, a proposal to approve an amendment to the
Company's Restated Charter which will reduce the number of authorized
shares of Common Stock from 20,000,000 to 10,000,000 shares (the
"Charter Amendment") and concurrently to effect a one-for-two reverse
stock split of the Common Stock (the "Reverse Stock Split"). Under
the Charter Amendment, the par value of the Common Stock will remain
$0.01 per share.
Shareholder approval of the Charter Amendment and the Reverse Stock
Split will be sought at a Special Meeting of Shareholders (the
"Special Meeting") to be held on March 21, 1996. All shareholders of
record as of February 1, 1996, are entitled to notice of and to vote
at the Special Meeting.
If the Charter Amendment and the Reverse Stock Split are approved by
the shareholders, each holder of record of Common Stock on the
effective date of the Charter Amendment (the "Effective Date") will
thereafter be deemed to hold one share of Common Stock for every two
presently issued and outstanding shares of Common Stock held on the
Effective Date. No fractional shares will be issued and, in lieu of
any fractional shares, shareholders who own shares which are not
evenly divisible by two shall receive an amount of cash based on the
closing sale price of the Common Stock as reported on the Nasdaq
National Market on the Effective Date for each fractional share of
Common Stock surrendered.
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 December
31, 1995.
-14-
<PAGE> 15
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: February 12, 1996 /s/WILLIAM J BALLARD
----------------------------------------
William J Ballard
Chairman, Chief Executive Officer and
President (Principal Executive
Officer)
Date: February 12, 1996 /s/DONALD B. WHITFIELD
----------------------------------------
Donald B. Whitfield
Vice President of Finance, Secretary
and Treasurer (Principal Financial
and Accounting Officer)
-15-
<PAGE> 16
Exhibit Index
Exhibit No.
11 Computation of Per Share Earnings
27 Financial Data Schedule (SEC use only)
-16-
<PAGE> 1
EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ --------------------------
1995 1994 l995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 10,757,508 10,708,412 10,729,697 9,398,512
Net effect of dilutive stock
options and warrants--based
on the treasury stock method
using average market price 253,552 385,923 403,690 1,345,462
----------- ----------- ----------- -----------
TOTAL 11,011,060 11,094,335 11,133,387 10,743,974
=========== =========== =========== ===========
Net income $ 668,000 $ 528,000 $ 1,477,000 $ 1,245,000
=========== =========== =========== ===========
Per share amount $ .06 $ .05 $ .13 $ .12
=========== =========== =========== ===========
FULLY DILUTED
Average shares outstanding 10,757,508 10,708,412 10,729,697 9,398,512
Net effect of dilutive stock
options and warrants--based
on the treasury stock method
using the higher of ending
or average market price 504,629 385,923 476,104 1,455,667
----------- ----------- ----------- -----------
TOTAL 11,262,136 11,094,335 11,205,801 10,854,179
=========== =========== =========== ===========
Net income $ 668,000 $ 528,000 $ 1,477,000 $ 1,245,000
=========== =========== =========== ===========
Per share amount $ .06 $ .05 $ .13 $ .11
=========== =========== =========== ===========
</TABLE>
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,496,000
<SECURITIES> 0
<RECEIVABLES> 3,737,000
<ALLOWANCES> 153,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,293,000
<PP&E> 19,066,000
<DEPRECIATION> 4,614,000
<TOTAL-ASSETS> 20,186,000
<CURRENT-LIABILITIES> 2,600,000
<BONDS> 6,107,000
0
0
<COMMON> 108,000
<OTHER-SE> 10,881,000
<TOTAL-LIABILITY-AND-EQUITY> 20,186,000
<SALES> 16,671,000
<TOTAL-REVENUES> 17,411,000
<CGS> 14,039,000
<TOTAL-COSTS> 14,039,000
<OTHER-EXPENSES> 850,000
<LOSS-PROVISION> 29,000
<INTEREST-EXPENSE> 670,000
<INCOME-PRETAX> 1,823,000
<INCOME-TAX> 292,000
<INCOME-CONTINUING> 1,531,000
<DISCONTINUED> 0
<EXTRAORDINARY> 54,000
<CHANGES> 0
<NET-INCOME> 1,477,000
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
