W.James Hindman

Most CEOs know their way around a balance sheet, but few carry the same liabilities as Jim Hindman’s Youth Services International.

Publicly held YSI runs reform schools for troubled youths; most of them are privatized programs formerly administered by state governments.

Since it was launched in 1992, Owings Mills, MD-based YSI has placed more than one delinquent on the straight and narrow. But Hindman relates the story of a YSI graduate who won a scholarship to an Ohio college but chose a school in his former, inner-city neighborhood instead. A few weeks later, the teenager’s life ended with three bullet holes in his back.

“We have an epidemic on our hands,” says Hindman, himself a reform-school product and the founder of the Jiffy Lube automotive franchise. “We’d better address our children before the problems and burdens they have kill their future.”

YSI, with revenues expected to top $34 million in fiscal 1994, operates nine residential and community-based programs in Maryland, Iowa, South Dakota, Tennessee, and Utah. The programs, which accept both boys and girls, revolve around education, staff and peer support groups, recreation, and spiritual discipline. Some students are paid to work at the facility; the elbow grease helps YSI to keep its costs some 25 percent lower than those of state-run programs, which are hamstrung, Hindman says, by union rules demanding staffing ratios of more than twice that of YSI.

Thus far, the approach seems to be working. Net income for the nine months ended March 31 hit $1.4 million, compared with a loss of $1.5 million in the year-earlier period. Analysts expect strong growth to proceed, driven by the continuing privatization of youth facilities and ongoing problems with juvenile crime. Every 27 seconds in the U.S., a minor is arrested for a street crime. Between 1979 and 1990, funding for rehabilitation facilities jumped 146 percent, and the trend is expected to continue under the Clinton administration.

“For the past five years, we have been mining the investment area for opportunities in the privatization and outsourcing field, particularly with emphasis along the education vein,” says Jeffrey D. Saut, director of research at Baltimore-based brokerage Ferris, Baker Watts. “We rate YSI a buy.”

Hindman says the profit motive offers his managers an extra incentive to provide top-quality services. YSI offers stock options, and it is introducing an employee stock-ownership plan.

“With privatization, you bring to the marketplace the opportunity to be rewarded for a real contribution,” says Hindman, 57, a stocky man with brilliant, blue eyes, who seems to embody the tough-talking discipline of Knute Rockne and the compassion of Father Flannigan. “That’s something lacking in the public sector.”

Not that the rehabilitation business is without its difficulties and risks. When it comes to reform schools, communities often take a “not in my backyard” ap proach. And when dealing with cash-strapped state governments, there is always the possibility of a canceled contract. To offset the effects of any individual loss, Hindman is moving quickly to expand the number of facilities, partly through acquisitions.

Hindman made his first million in the early 1970s buying and selling nursing homes. Semiretired at 40, he landed the head football coaching job at Western Maryland College in 1976. One day, a player complained it was no longer possible for the average person to become a millionaire. Hindman set out to prove him wrong, launching Jiffy Lube and building it to 1,000 outlets within 11 years. In 1990, Pennzoil bought an 80 percent stake in publicly held Jiffy Lube for $35 million. Hindman, a devout Christian who credits his faith for part of his business success, used roughly half of his $2.3 million profit from the deal to launch YSI.

Hindman holds out hope that insurance companies may one day cover the services provided by rehabilitation centers, but he remains confident growth will proceed nonetheless.

“States need to stretch dollars,” he says flatly. “Our cost and time efficiencies are one way to do it.”