0000775820-95-000002.txt : 19950815 0000775820-95-000002.hdr.sgml : 19950815 ACCESSION NUMBER: 0000775820-95-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHILDRENS DISCOVERY CENTERS OF AMERICA INC CENTRAL INDEX KEY: 0000775820 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CHILD DAY CARE SERVICES [8351] IRS NUMBER: 061097006 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14368 FILM NUMBER: 95563222 BUSINESS ADDRESS: STREET 1: 851 IRWIN ST STE 200 CITY: SAN RAFAEL STATE: CA ZIP: 94901 BUSINESS PHONE: 4152574200 MAIL ADDRESS: STREET 1: 851 IRWIN STREET STREET 2: SUITE 200 CITY: SAN RAFAEL STATE: CA ZIP: 94901 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995. TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File No. 0-14368 CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 061097006 (I.R.S. Employer Identification No.) 851 Irwin Street, Suite 200, San Rafael, California 94901 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 257-4200 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 ( ) As of August 7, 1995, the Registrant had outstanding 6,177,031 shares of Common Stock, $.01 par value, and 2,700 shares of Special Stock, denominated Series A Convertible Preferred Stock, $.01 par value, convertible into 490,909 shares of Common Stock. CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1995 INDEX Page PART I. FINANCIAL INFORMATION 3 ITEM 1. Condensed Consolidated Financial Statements a) Condensed Consolidated Balance Sheets -- 4 June 30, 1995 and December 31, 1994 b) Condensed Consolidated Statements of 6 Operations -- Three months and Six months ended June 30, 1995 and 1994 c) Condensed Consolidated Statements of 7 Cash Flows -- Six months ended June 30, 1995 and 1994 d) Notes to Condensed Consolidated Financial 9 Statements ITEM 2. Management's Discussion and Analysis 12 of Financial Condition and Results of Operations PART II. OTHER INFORMATION 16 Signatures 17 PART I - FINANCIAL INFORMATION The condensed consolidated financial statements included herein have been prepared by Children's Discovery Centers of America, Inc. (the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. While certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, the Company believes that the disclosures made herein are adequate to make the information presented not misleading. It is recommended that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1994. In the opinion of the Company, all adjustments consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company as of June 30, 1995, and the results of its operations for the three months and six months ended June 30, 1995 and 1994, have been included. ITEM 1. FINANCIAL STATEMENTS CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1995 AND DECEMBER 31, 1994
June 30, December 31, 1995 1994 In thousands (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $3,384 $21,558 Short-term investments 12,783 1,300 Accounts receivable 2,883 1,646 Prepaid expenses and other current assets 1,484 1,178 Total Current Assets 20,534 25,682 PROPERTY, PLANT AND EQUIPMENT: Land 878 878 Buildings 4,749 4,705 Furniture, fixtures & equipment 8,027 7,007 Transportation equipment 1,390 1,259 Leashold improvements 6,124 5,177 21,168 19,026 Less: Accumulated depreciation and amortization (5,331) (4,429) 15,837 14,597 INTANGIBLE ASSETS 34,625 22,903 OTHER 1,450 1,509 $72,446 $64,691 See accompanying notes which are an integral part of these statements.
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1995 AND DECEMBER 31, 1994
June 30, December 31, 1995 1994 In thousands (except share data) (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $2,015 $1,690 Accounts payable 938 798 Payroll and related accruals 2,382 1,463 Other accrued liabilities 180 482 Total current liabilities 5,515 4,433 LONG-TERM DEBT, Net of current portion 16,670 13,736 ACCRUED STRAIGHT LINE RENT 1,125 1,066 STOCKHOLDERS' EQUITY: Special Stock: Authorized 5,000,000 share; outstanding: Series A Convertible Preferred, par value $.01 per share, liquidation value $2,700 and $3,250 in 1995 and 1994; 2,700 and 3,250 shares outstanding in 1995 and 1994. -0- -0- Common Stock, Par Value $.01 per share Authorized 20,000,000 shares issued and outstanding 6,177,031 in 1995 and 5,931,604 in 1994. 132 130 Treasury Stock (7,200,844 shares) - - Paid-in capital in excess of par 52,707 51,391 Loans to officers (640) (640) Unrealized gain (loss) on short-term investments 15 (30) Accumulated deficit (3,078) (5,395) Total Stockholders' Equity 49,136 45,456 $72,446 $64,691 See accompanying notes which are an integral part of these statements.
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
3 Months Ended June 30 6 Months Ended June 30 1995 1994 1995 1994 (Unaudited) (Unaudited) (Unaudited) (Unaudited) In thousands (except per share data) REVENUES FROM OPERATIONS: Child care fees $19,643 $13,843 $37,676 $25,550 Management fees 254 56 500 110 Total revenue from operations 19,897 13,899 38,176 25,660 OPERATING EXPENSES: Payroll & related costs 10,594 7,502 20,268 13,838 Direct costs 4,799 3,352 9,265 6,251 General & administrative 1,443 1,112 2,901 2,083 Depreciation and amortization 890 577 1,660 1,066 Advertising & promotion 213 143 391 243 Total operating expenses 17,939 12,686 34,485 23,481 Operating profit 1,958 1,213 3,691 2,179 OTHER EXPENSE,net 64 179 78 279 Income before provision for income taxes 1,894 1,034 3,613 1,900 PROVISION FOR INCOME TAXES 664 294 1,296 519 NET INCOME $1,230 $740 $2,317 $1,381 NET INCOME PER SHARE: $0.18 $0.16 $0.33 $0.29 AVERAGE NUMBER OF SHARES: 7,013 4,731 6,983 4,739 See accompanying notes which are an integral part of these statements.
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Six Months Six Months Ended Ended June 30, 1995 June 30, 1994 In thousands (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $2,317 $1,381 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,660 1,066 Changes in assets and liabilities: Accounts receivable (1,237) (703) Prepaid expenses and other current assets (306) (68) Accounts payable 140 (69) Payroll and related accruals 919 301 Accrued liabilities and other (243) (230) Net cash provided by operating activities 3,250 1,678 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments (14,538) (5,771) Proceeds from sale of short-term investments 3,100 1,339 Payments for acquisitions of child care centers (7,361) (1,872) Payments for the start-up of centers (77) (33) Purchases of property, plant and equipment (1,487) (784) Other, net (113) (349) Net cash used in investing activities (20,476) (7,470) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 168 152 Proceeds from issuance of common stock,net 1,318 0 Repayments of long-term debt (2,434) (1,167) Net cash provided (used) by financing activities (948) (1,015) Net increase (decrease) in cash and cash equivalents (18,174) (6,807) CASH AND CASH EQUIVALENTS: Beginning of period 21,558 10,662 End of period $3,384 $3,855 See accompanying notes which are an integral part of these statements.
Supplemental Disclosures of Cash Flow Information:
Cash paid during the six months ended June 30 (in thousands) for: 1995 1994 Interest $742 $429 Income taxes 1,219 609
Supplemental Schedule of Noncash Investing and Financing Activities:
For the six months ended June 30, the Company purchased 33 centers in 1995 and 22 centers in 1994 (in thousands) 1995 1994 Cash payments $7,361 $1,872 Notes issued to sellers 5,151 2,385 Liabilities assumed 766 2,531 Total value of centers acquired $13,278 $6,788
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) General The accounting policies followed during the interim periods reported on are in conformity with generally accepted accounting principles and are consistent with those applied for annual periods. Operational comparisons between the three and six month periods of 1995 and 1994 are affected by the acquisition or start-up of a total of 76 centers in 1994 and the first six months of 1995 (see "Management's Discussion and Analysis of Financial Condition and Results of Operations" below). For a complete discussion of the Company's accounting policies, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, previously filed. Consolidation The consolidated financial statements include the accounts of Children's Discovery Centers of America, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to the 1994 financial statements to conform to the 1995 presentation. Income Taxes The Company records income taxes in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No.109, "Accounting for Income Taxes." Acquisitions In the first six months of 1995, the Company purchased 33 centers for an aggregate price of $13,278,000. For the year ended December 31, 1994, the Company acquired 38 centers for an aggregate price of $15,278,000. Pro forma results - The unaudited pro forma results of the Company's operations for the first six months of 1995 and 1994 are summarized below as though the acquisitions occurred at the beginning of 1994. The unaudited pro forma information presented does not purport to be indicative of the results which would have been obtained had the acquisitions actually been consummated as of the beginning of 1994, or which may be obtained in the future. The pro forma results are based on purchase accounting adjustments recognized in combining the companies (in thousands, except per share data). Six Months Six Months Ended June 30, Ended June 30, 1995 1994 (unaudited) (unaudited) Revenues from operations $40,787 $38,612 Net income 2,437 1,585 Net income per share: 0.35 0.33 Weighted average common shares outstanding: 6,983 4,739 ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General During the first six months of 1995, the Company acquired 33 centers and opened one new center. During the year ended December 31, 1994, the Company acquired or opened 42 centers and closed three centers. The results of centers acquired, opened, disposed of, or closed are included in the Company's financial statements from the date of acquisition, opening, or until the date of disposition or closing, as applicable. Accordingly, the year to year results may fluctuate depending upon the timing of the Company's acquisition or disposition of centers. Historically, the Company's operating revenue has followed the seasonality of a school year, declining during the summer months and the year-end holiday period. Results of Operations Revenues from Operations increased 43% in the second quarter of 1995 to $19,897,000 and 49% in the first six months of 1995 to $38,176,000. Revenues for those centers open in corresponding time periods in both years increased approximately 6% for the second quarter and 7% for the six months of 1995 over the corresponding time periods in 1994. Increased prices accounted for approximately 86% of the increase in same centers for the six months and all of the increase for the quarter. New centers accounted for approximately 87% of the increase for the quarter and six month periods. Payroll and related costs increased by $3,092,000 or 41%, for the second quarter of 1995, and by $6,430,000 or 47%, for the six months of 1995, as compared to the corresponding time periods in 1994 due mainly to the increase in the number of centers operated. Payroll and related costs as a percentage of revenues, however, decreased to 53.2% in the second quarter and to 53.1 % for the six months of 1995 from 54.0% and 53.9% in the corresponding time periods of 1994. This decrease was due to increased prices offset somewhat by increased wage rates. Direct costs increased by $1,447,000 or 43%, for the second quarter, and by $3,014,000 or 48%, for the six months of 1995 as compared to the corresponding time periods in 1994. As a percentage of revenue direct costs were 24.1% for the second quarter of both 1995 and 1994, and decreased to 24.3% for the six months of 1995 from 24.4% for the six months of 1994. This increase, in dollars, was due mainly to the increase in new centers acquired during 1995 and 1994. Administrative expense as a percentage of total revenues declined to 7.3% in the second quarter of 1995 from 8.0% in the second quarter of 1994, and to 7.6% for the six months of 1995 from 8.1% for the six months of 1994. The Company continues to focus on administrative expense containment during its acquisition process. Depreciation and amortization expense increased to $890,000 in the second quarter of 1995 from $577,000 in the second quarter of 1994, and to $1,660,000 for the six months of 1995 from $1,066,000 for the six months of 1994. This was a 55% increase for both periods over the prior year. This increase was due mainly to the new centers acquired in 1994 and 1995. Advertising and promotion increased by 49% for the second quarter of 1995 over the second quarter of 1994, and by 61% for the six months of 1995 over the six months of 1994. This increase was due mainly to the increase in the number of centers. Other expense decreased by $115,000 for the second quarter of 1995, as compared to the second quarter ended 1994, and decreased by $201,000 for the first six months of 1995, as compared with the similar period in 1994. Interest expense increased by $312,000 for the six months and by $115,000 for the second quarter of 1995 over the comparable periods in 1994. This increase was associated with the Company's acquisitions. This was offset by interest income increasing by $356,000 for the six months and by $156,000 for the second quarter of 1995 over the comparable periods in 1994. This increase was due to the higher cash balances because of the $19,625,000, net proceeds, raised in a public offering in December 1994 and January 1995 (see "Liquidity and Capital Resources" below).The remainder was other income. The combination of increased revenues from acquisitions and from the existing centers, and the reduction of payroll and related expenses and general and administrative expenses as a percentage of revenue resulted in an increase in net profit for the second quarter of 1995 compared to the second quarter of 1994 of $490,000 or 66%. Likewise, the Company also recorded an increase in net profit for the first six months of 1995 as compared to the first six months of 1994 of $936,000 or 68%. Liquidity and Capital Resources Since its inception, the Company has grown primarily through the acquisition of existing child care centers. For acquisitions of individual centers or small chains, it is the Company's general practice to acquire centers for a combination of cash and notes to sellers. These notes are payable generally over ten years. As of June 30, 1995, $13,667,000 in principal of such notes was outstanding, carrying a weighted average annual interest rate of 8.9%. Since many sellers of cent ers own the facilities in which the centers are operated, the Company is often able to lease these facilities on a long-term basis through the exercise of successive options, while avoiding long-term obligations. For transactions involving the acquisition of larger chains, the Company has relied principally on the issuance of new securities as payment for a substantial portion of the purchase price. Capital resources for the cash portion of acquisitions have generally been obtained through private sales of the Company's securities at various times since inception and public offerings of Common Stock in 1985, 1991, 1993 and 1994. During 1994, the Company raised $18,307,000 in a public offering in December, and an additional $1,318,000 in January of 1995 on final completion of the offering. During 1994, net cash provided by operations was $4,495,000. This internally generated cash funded all of the Company's needs for purchases of property, plant, and equipment, and debt repayments, including a $600,000 repayment of notes issued in the 1991 acquisition of Magic Years. During the first six months of 1995, net cash provided by operations was $3,250,000. This internally generated cash funded all of the Company's needs for purchases of property, plant and equipment, scheduled debt repayments, and $900,000 of the $7,438,000 that the Company invested in new centers. Approximately $6,538,000 of the Company's existing cash balances were used for the acquisition or opening of new centers during the first six months of 1995 and $1,550,000 was used in the repurchase of existing debt. During the three months, the Company issued or assumed a total of approximately $5,700,000 of indebtedness related to acquisitions. The Company's management believes that the Company's internally generated cash will cover its cash requirements for the foreseeable future and, along with its existing cash balances, will allow it to continue to grow through the acquisition of additional child care centers. The Company also has available to it up to $1,000,000 under an unsecured line of credit furnished by Wells Fargo Bank National Association. Amounts drawn down bear interest at the rate of .75% above the Bank's prime rate, and will be due and payable in full on July 1, 1996. The Company currently has no commitments for capital expenditures, except for the acquisition of child care centers, which might be deemed, either individually or in the aggregate, material to its business. PART II - OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders (a) An annual meeting of the stockholders of the Company was held on June 21, 1995. (b) The following individuals were elected as Directors with the indicated votes: Votes For Withheld Mark P. Clein 5,685,435 4,775 Michael J. Connelly 5,685,435 4,775 Robert E. Kaufmann 5,685,435 4,775 W. Wallace McDowell, Jr. 5,685,435 4,775 Richard A. Niglio 5,685,175 5,035 Myron A. Wick 5,685,435 4,775 (c) The matters considered at the June 21, 1995 Annual Meeting of Stockholders, other than the election of directors, were as stated below: (i) The following amendments to the Children's Discovery Centers of America, Inc. Stock Option Plan including: a) Increasing the number of shares of CDC Common Stock available for issuance thereunder by 300,000 to 800,000. This was approved by an affirmative vote of 4,523,893 to 848,665 negative votes with 127,768 abstentions. (ii) The ratification of the appointment of Arthur Andersen LLP. as the Company's independent auditors for the 1995 fiscal year, which was approved by an affirmative vote of 5,579,082 to 18,575 negative votes with 92,553 abstentions. ITEM 5. Exhibits and Reports on Form 8-K (a) Not applicable. (b) The Company filed on June 16, 1995, a report on Form 8-K, reporting the acquisition of five (5) pre- school and day care centers in West Chester and Montgomery Counties, Pennsylvania. 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 DISCOVERY CENTERS OF AMERICA, INC. By: ____/s/ Richard A. Niglio_____________________________________ Richard A. Niglio Chief Executive Officer By: ___/s/ Randall J. Truelove______________________________________ Randall J. Truelove Vice-President, Finance Chief Accounting Officer Date: August 11, 1995 EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 2ND QTR 10-Q WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This schedule contains summary financial information extracted from Children's Discovery Centers of America, Inc. Form 10-Q for the quarterly period ended June 30, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1995 JAN-1-1995 JUNE-30-1995 3,384 12,783 2,883 0 0 20,534 21,168 5,331 72,446 5,515 0 132 0 0 0 72,446 0 38,176 0 34,485 78 0 0 3,613 1,296 0 0 0 0 2,317 .33 .33