Ken, you started by indicating I am from Kansas, well here is some info about KIDS which is based of course in God's country " the great state of Tennessee"!
Coincidence??
I love you man! Can I have your Bud?
Expected Annual increase in operating earnings over next business cycle (3-5 years) is 35%. Not bad.
Strong buy recomendation from 4 brokers.
Shares outstanding 7.1 mill, and as competitors go, KIDS was among the top.
Business Description : CHILDRENS COMPREHENSIVE SERVICES INC Location:
805 S CHURCH ST
P O BOX 8
MURFREESBORO
TN
37133-0008 Ticker: KIDS
Exchange: NASDAQ
Telephone: 615-896-3100
SIC: 8200 Educational Service
Cusip: 16875K20
Operations
Children's Comprehensive Services, Inc., a Tennessee corporation formed in 1985, and subsidiaries (the "Company") is one of the largest for-profit providers of education, treatment and juvenile justice services for at risk and troubled youth in the United States. The Company's programs include a comprehensive continuum of services provided in both residential and non-residential settings for youth who have severe psychiatric disorders or who are emotionally disturbed, behaviorally disordered, developmentally delayed or learning disabled. The Company also provides a limited range of adult behavioral services at certain of its locations in response to community demand. The Company provides its services at facilities located in Alabama, Arkansas, California, Florida, Kentucky, Louisiana, Michigan, Montana, Tennessee, Texas and Utah. As of June 30, 1997, the Company was providing education, treatment and juvenile justice services, either directly or through its management contract with Helicon Incorporated ("Helicon"), to approximately 2,600 youth and 100 adults.
In June 1997, the Company acquired substantially all the assets of Vendell Healthcare, Inc. and its subsidiaries ("Vendell") for approximately $19,477,000 in cash ($18,768,000 of which was paid at closing and $709,000 of which was paid in September 1997) and the issuance of 642,978 shares of the Company's Common Stock valued at approximately $7,600,000. Pursuant to this acquisition, the Company acquired seven residential treatment facilities and 12 non-residential treatment facilities which the Company believes will enhance its continuum of youth services.
Annual Figures : CHILDRENS COMPREHENSIVE SERVICES INC
Balance Sheet Summary
Mgt Discussion : CHILDRENS COMPREHENSIVE SERVICES INC Mgt Disc SEP 1997 Mgt Disc MAR 1997 Mgt Disc DEC 1996
[Dated SEP 1997]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During June 1997, the Company completed the acquisition of substantially all the assets of Vendell Healthcare, Inc., and its subsidiaries ("Vendell acquisition"). The results for the comparable fiscal 1997 period do not include the results of this acquisition.
The following discussion and this Quarterly Report on Form 10-Q contain forward-looking statements and should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto included elsewhere herein. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth under "Business - Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997. The Company undertakes no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.
General
As of September 30, 1997, the Company was providing education, treatment and juvenile justice services to approximately 2,600 at risk and troubled youth and 100 adults either directly or through management contracts. It currently offers these services through the operation and management of nonresidential specialized education programs and day treatment programs and both open and secured residential treatment centers in 11 states. These services were provided directly or through the Company's management contract with Helicon, Incorporated ("Helicon"), a Section 501(c)(3) not-for-profit corporation. Revenues under these contracts are recognized as services are rendered. The Company's non-residential programs, which historically have generated higher operating margins than the Company's residential facilities, generally receive revenues based on per diem rates. The Company's residential facilities generally receive revenues under either fixed fee contracts, at per diem rates or on a cost reimbursed basis.
The Company receives management fee income from Helicon for consulting, management and marketing services rendered pursuant to a Consulting and Marketing Agreement, effective as of August 1992, by and between Helicon and the Company (the "Helicon agreement"). As of September 30, 1997, the Company was providing consulting, management and marketing services to Helicon at 12 programs. In addition, Helicon also leases three facilities owned by the Company to operate its programs. Pursuant to the Helicon Agreement, the Company is entitled to receive for these services management fee income in an amount equal to 6% of the monthly gross revenues of Helicon's programs. The payment of these management fees, however, is subordinated in right of payment to amounts payable by Helicon to fund its programs. During the periods reported herein, the Company recognized all of the management fee income to which it was entitled. However, for certain periods prior to fiscal 1997, the Company did not recognize all of the management fee income to which it was entitled due to the inability of Helicon to pay these amounts, and there can be no assurance that the Company will recognize any management fee income in the future. As of September 30, 1997, unpaid management fees, lease payments and advances, plus interest, due the Company from Helicon totaled approximately $7,282,000. Based on the current level of operations being maintained by Helicon, the Company does not anticipate collecting any of this amount. The Company has fully reserved this amount, and future payments received from Helicon on this amount, if any, will be recognized by the Company on the cash basis. The Helicon Agreement expires September 1, 1999. The Company has also guaranteed Helicon's
obligations under a bank line of credit in the amount of $1,000,000. No amounts are currently outstanding under this line of credit. See "--Liquidity and Capital Resources." The Company also receives management fee income from services provided to other health care providers for management of behavioral units or facilities pursuant to contracts.
Employee compensation and benefits include facility and program payrolls and related taxes, as well as employee benefits, including insurance and worker's compensation coverage. Employee compensation and benefits also includes general and administrative payroll and related benefit costs, including salaries and supplemental compensation of officers.
Purchased services and other expenses include all expenses not otherwise presented separately in the Company's statements of income. Significant components of these expenses at the operating level include items such as professional fees and contracted services, food, utilities, supplies, rent and insurance. Significant components of these expenses at the administrative level include legal, accounting, investor relations, marketing, consulting and travel expense.
The Company's effective tax rate for the quarter ended September 30, 1996 is less than the statutory tax rate primarily because of the utilization of tax net operating loss carryforwards for which no tax benefit had been recognized prior to the quarterly period ended December 31, 1996. At June 30, 1997, the Company's prior fiscal and tax year end, the Company had net operating loss carryforwards of $2,112,000, utilization of which is subject to annual limitations pursuant to the provisions of Internal Revenue Code Section 382.
The Company's quarterly results may fluctuate significantly as a result of a variety of factors, including the timing of the opening of new programs. When the Company opens a new program, the program may be unprofitable until the program population, and net revenues contributed by the program, approach intended levels, primarily because the Company staffs its programs in advance of achieving such levels. The Company's quarterly results may also be impacted by seasonality, as revenues generated by youth education and treatment services are generally seasonal in nature, fluctuating with the academic school year.
During the three month period ended September 30, 1997, the Company opened the following programs:
- A 30 bed residential program for seriously disturbed, adjudicated juvenile offenders located at its St. Johns, Michigan facility;
- Alternative education schools with an aggregate of 80 chairs in Little Rock, North Little Rock and Bryant, Arkansas;
- A 24 bed observation and assessment, short term residential program for adjudicated male juvenile offenders located at its West Jordan, Utah facility.
Results of Operations
The following table sets forth, for the periods indicated, the percentage relationship to the Company's total revenues of certain items in the Company's statements of income:
Three Months Ended September 30, 1997 1996 Operating revenues 96.8% 95.2% Management fee income 3.2 4.8 TOTAL REVENUES 100.0 100.0 Employee compensation and benefits 61.5 64.8 Purchased services and other expenses 30.5 21.1 Depreciation and amortization 2.4 3.2 Related party rent 0.1 0.4 TOTAL OPERATING EXPENSES 94.5 89.5 Income from operations 5.5 10.5 Other (income) expense: Interest expense 1.3 3.1 Interest income (0.9) (2.8) Other income -- (0.1) Provision for income taxes 2.0 2.8 NET INCOME 3.1% 7.5% ====== ======
Three Months Ended September 30, 1997 versus September 30, 1996
Operating revenues for the three months ended September 30, 1997 increased $13,568,000 or 221.0%, to $19,706,000 as compared to $6,138,000 for the three months ended September 30, 1996. Approximately $11,000,000 of the increase in operating revenues is attributable to the Vendell acquisition. The increase is also due to increased utilization in certain programs along with the opening of eight new programs during the current and preceding three quarters.
Management fee income increased $351,000 for the three months ended September 30, 1997 to $661,000 from $310,000 for the three month period ended September 30, 1996. Management fee income recognized under the Helicon Agreement for the three months ended September 30, 1997 increased $13,000 to $323,000 from $310,000 for the three months ended September 30, 1996. Other management fee income, attributable to the Vendell acquisition, accounted for the remainder of the increase.
Total revenues for the three months ended September 30, 1997 increased $13,919,000, or 215.9%, to $20,367,000 as compared to $6,448,000 for the three months ended September 30, 1996 as a result of the factors described above.
Employee compensation and benefits for the three months ended September 30, 1997 increased $8,354,000, or 200.1%, to $12,529,000, as compared to $4,175,000 for the three months ended September 30, 1996. As
a percentage of total revenues, employee compensation and benefits decreased from 64.8% for the three months ended September 30, 1996 to 61.5% for the three months ended September 30, 1997. The increase in employee compensation and benefits over the same period in the prior year results primarily from the Company's growth, including the Vendell acquisition. The decrease in employee compensation and benefits as a percent of revenue over the same period in the prior year results primarily from the effect of the Vendell acquisition.
Purchased services and other expenses for the three months ended September 30, 1997 increased $4,847,000, or 356.1%, to $6,208,000, as compared to $1,361,000 for the three months ended September 30, 1996. As a percentage of total revenues, purchased services and other expenses increased to 30.5% for the three months ended September 30, 1997 from 21.1% for the three months ended September 30, 1996. The increase in purchased services and other expenses over the same period in the prior year is attributed primarily to the Company's growth, including the Vendell acquisition. The increase in purchased services and other expenses as a percent of revenue over the same period in the prior year results primarily from the effect of the Vendell acquisition.
Depreciation and amortization for the three months ended September 30, 1997 increased $267,000, or 127.8%, to $476,000 as compared to $209,000 for the three months ended September 30, 1996. The increase in depreciation and amortization compared to the same period in the prior year is attributable to the Company's growth, including the Vendell acquisition.
Income from operations for the three months ended September 30, 1997 increased $451,000, or 66.5%, to $1,129,000 as compared to $678,000 for the three months ended September 30, 1996, and decreased as a percentage of total revenues to 5.5% for the three months ended September 30, 1997 from 10.5% for the three months ended September 30, 1996, as a result of the factors described above.
Interest expense for the three months ended September 30, 1997 increased $60,000, or 30.2%, to $259,000 as compared to $199,000 for the three months ended September 30, 1996. The increase in interest expense over the same period in the prior year is attributed principally to debt incurred as part of the Vendell acquisition offset by the prepayment of the Company's long-term debt on October 1, 1996 and the related elimination of deferred loan cost amortization.
Interest income decreased $5,000 to $176,000 for the three months ended September 30, 1997 as compared to $181,000 for the three months ended September 30, 1996. The decrease in interest income over the same period in the prior year is attributable primarily to the decrease in cash available for investment resulting from the Company's public offering completed in August 1996 following the June 1997 Vendell acquisition.
Provision for income tax expense for the three months ended September 30, 1997 increased $231,000 to $408,000 from $177,000 for the three months ended September 30, 1996. The increase in provision for income tax expense compared to the same period in the prior year results both from the increase in the Company's increase in taxable income and an increase in the Company's effective tax rate due to the reversal, during the period ended December 31, 1996, of a portion of the valuation allowance against the Company's deferred tax assets.
Liquidity and Capital Resources
Cash used by operating activities for the three months ended September 30, 1997 was $591,000 on net income of $638,000 as compared to cash provided of $865,000 on net income of $487,000 for the three months ended 12 13
September 30, 1996. Working capital at September 30, 1997 was $24,721,000, as compared to $23,952,000 at June 30, 1997, and the current ratio at September 30, 1997, was 5.1:1, as compared to 4.1:1, at June 30, 1997.
Cash used by investing activities was $1,313,000 for the three months ended September 30, 1997 as compared to $417,000 for the three months ended September 30, 1996, due primarily to an increase in cash outlays for the purchase of property and equipment and for the additional cash payment related to the purchase of Vendell's assets. Cash of $23,376,000 was provided by financing activities for the three months ended September 30, 1996, due primarily to the receipt of net proceeds of $23,359,000 from the issuance of shares of the Company's Common Stock in the public offering completed in August 1996. Cash of $35,000 was provided by financing activities for the three months ended September 30, 1997.
On November 8, 1996, the Company entered into a loan and security agreement with First American National Bank ("FANB"). Under the terms of this agreement, FANB has made available to the Company, for acquisition financing and working capital requirements, a revolving line of credit for up to $13,000,000. The initial term of the agreement extends through November 1, 1999. The credit facility bears interest at either (i) the one, two or three month LIBOR rate plus an applicable margin, which ranges between 1.35% and 2.10% and is dependent on the ratio of funded debt to operating earnings or (ii) FANB's index rate, at the Company's option. The line of credit is secured primarily by the Company's accounts receivable and equipment. At September 30, 1997, the outstanding balance under the line of credit was $11,450,000.
The Company's line of credit with FANB requires the Company to comply with certain restrictive covenants with respect to its business and operations and to maintain certain financial ratios. The restrictive covenants under this agreement prohibit the Company, without the prior consent of its lender, from entering into major corporate transactions, such as a merger, tender offer or sale of its assets, and from incurring additional indebtedness in excess of $1,000,000. The agreement also prohibits the Company from declaring dividends in excess of 25% of the Company's net income during any fiscal year.
Helicon has also entered into a $1 million line of credit with FANB. As a condition to this line of credit, the Company agreed to guarantee Helicon's performance under such line of credit. At September 30, 1997, there were no amounts outstanding under Helicon's line of credit.
Capital expenditures during fiscal 1998 are expected to include the replacement of existing capital assets as necessary, as well as the costs associated with the opening of new programs and facilities, including the possible purchase of certain real estate and improvements. The Company also may consider other possible strategic acquisitions, including acquisitions of existing programs and other companies engaged in youth services or related businesses.
Current obligations, typically due within thirty days or less, are expected to be funded with cash flows from operations and borrowings under the Company's line of credit. Management believes that operations, remaining proceeds from the August 1996 public offering, and amounts available under its line of credit will provide sufficient cash flow for the foreseeable future.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This information called for by Item 3 is not required for the fiscal quarter ended September 30, 1997 as the Company's market capitalization was less than $2.5 billion as of January 28, 1997.
Competitors : CHILDRENS COMPREHENSIVE SERVICES INC |
