-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WDejWt1IA0YhkKE7uVRILrb1a1UQVF3i+tJoTQuM3hNHIaJfk7NP6RpZXmZSKIyb dTfgZxIbYtHA15eKzAB6ow== 0000775820-95-000004.txt : 19951218 0000775820-95-000004.hdr.sgml : 19951218 ACCESSION NUMBER: 0000775820-95-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHILDRENS DISCOVERY CENTERS OF AMERICA INC CENTRAL INDEX KEY: 0000775820 STANDARD INDUSTRIAL CLASSIFICATION: 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: 95591287 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 September 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 November 7, 1995, the Registrant had outstanding 6,204,231 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 SEPTEMBER 30, 1995 INDEX Page PART I. FINANCIAL INFORMATION 3 ITEM 1. Condensed Consolidated Financial Statements a) Condensed Consolidated Balance Sheets -- 4 September 30, 1995 and December 31, 1994 b) Condensed Consolidated Statements of 6 Operations -- Three months and Nine months ended September 30, 1995 and 1994 c) Condensed Consolidated Statements of 7 Cash Flows -- Nine months ended September 30, 1995 and 1994 d) Notes to Condensed Consolidated Financial 9 Statements ITEM 2. Management's Discussion and Analysis 11 of Financial Condition and Results of Operations PART II. OTHER INFORMATION 13 Signatures 14 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 September 30, 1995, and the results of its operations for the three months and nine months ended September 30, 1995 and 1994, have been included. ITEM 1. FINANCIAL STATEMENTS CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
September 30, December 31, 1995 1994 In thousands (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $3,008 $21,558 Short-term investments 8,348 1,300 Accounts receivable 3,099 1,646 Prepaid expenses and other current assets 2,182 1,178 Total Current Assets 16,637 25,682 PROPERTY, PLANT AND EQUIPMENT: Land 935 878 Buildings 4,954 4,705 Furniture, fixtures & equipment 8,648 7,007 Transportation equipment 1,705 1,259 Leashold improvements 7,122 5,177 23,364 19,026 Less: Accumulated depreciation and amortization (5,833) (4,429) 17,531 14,597 INTANGIBLE ASSETS 36,205 22,903 OTHER 1,800 1,509 $72,173 $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 SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
September 30, December 31, 1995 1994 In thousands (except share data) (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $2,070 $1,690 Accounts payable 739 798 Payroll and related accruals 2,098 1,463 Other accrued liabilities 199 482 Total current liabilities 5,106 4,433 LONG-TERM DEBT, Net of current portion 16,672 13,736 ACCRUED STRAIGHT LINE RENT 1,228 1,066 STOCKHOLDERS' EQUITY: Special Stock: Authorized 5,000,000 shares; 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 6,204,231 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 7 (30) Accumulated deficit (3,039) (5,395) Total Stockholders' Equity 49,167 45,456 $72,173 $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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
3 Months Ended 9 Months Ended September 30 September 30 1995 1994 1995 1994 (Unaudited) (Unaudited) (Unaudited) (Unaudited) In thousands (except per share data) REVENUES FROM OPERATIONS: Child care fees $19,056 $13,686 $56,732 $39,236 Management fees 272 70 772 180 Total revenue from operations 19,328 13,756 57,504 39,416 OPERATING EXPENSES: Payroll & related costs 10,879 7,676 31,147 21,514 Direct costs 5,538 3,589 14,803 9,840 General & administrative 1,536 1,083 4,437 3,166 Depreciation and amortization 1,016 620 2,676 1,686 Advertising & promotion 243 134 634 377 Total operating expenses 19,212 13,102 53,697 36,583 Operating income 116 654 3,807 2,833 OTHER EXPENSE,net 183 219 261 498 Income (loss) before pro- vision for income taxes (67) 435 3,546 2,335 PROVISION FOR INCOME TAXES (106) 122 1,190 641 NET INCOME (LOSS) $39 $313 $2,356 $1,694 NET INCOME (LOSS) PER SHARE: $0.01 $0.07 $0.34 $0.36 AVERAGE NUMBER OF SHARES: 6,973 4,772 6,968 4,751 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 NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Nine Months Nine Months Ended Ended September 30, 1995 September 30, 1994 In thousands (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $2,356 $1,694 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,676 1,686 Changes in assets and liabilities: Accounts receivable (1,453) (543) Prepaid expenses and other current assets (1,004) (401) Accounts payable (59) (134) Payroll and related accruals 635 347 Accrued liabilities and other (121) (118) Net cash provided by operating activities 3,030 2,531 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments (14,538) (5,771) Proceeds from sale of short-term investments 7,497 2,592 Payments for acquisitions of child care centers (8,345) (3,341) Payments for the start-up of centers (225) (553) Purchases of property, plant and equipment (3,302) (1,471) Other, net (325) (651) Net cash used in investing activities (19,238) (9,195) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 283 152 Proceeds from issuance of common stock,net 1,318 0 Repayments of long-term debt (3,943) (1,575) Net cash provided (used) by financing activities (2,342) (1,423) Net increase (decrease) in cash and cash equivalents (18,550) (8,087) CASH AND CASH EQUIVALENTS: Beginning of period 21,558 10,662 End of period $3,008 $2,575 See accompanying notes which are an integral part of these statements.
Supplemental Disclosures of Cash Flow Information:
Cash paid during the six months ended September 30 (in thousands) for: 1995 1994 Interest $1,148 $697 Income taxes 1,774 819
Supplemental Schedule of Noncash Investing and Financing Activities:
For the nine months ended September 30, the Company purchased 38 centers in 1995 and 25 centers in 1994 (in thousands) 1995 1994 Cash payments $8,345 $3,341 Notes issued to sellers 6,343 4,391 Liabilities assumed 993 2,531 Total value of centers acquired $15,681 $10,263
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 nine month periods of 1995 and 1994 are affected by the acquisition or start-up of a total of 87 centers in 1994 and the first nine 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 nine months of 1995, the Company purchased 38 centers for an aggregate price of $15,681,000. 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 nine 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. Nine Months Nine Months Ended September 30, Ended September 30, 1995 1994 (unaudited) (unaudited) In thousands except share data Revenues from operations $61,464 $59,230 Net income 2,466 1,943 Net income per share: 0.35 0.41 Weighted average common shares outstanding: 6,968 4,751
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General During the first nine months of 1995, the Company acquired 38 centers and opened 7 new centers and closed 4 centers. During the year ended December 31, 1994, the Company acquired or opened 42 centers and closed 3 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 41% in the third quarter of 1995 to $19,328,000 and 46% in the first nine months of 1995 to $57,504,000. New centers accounted for 89% of the increase for the nine months and 93% of the increase for the three months. Increases in same center revenue, defined as those centers open in the same month in both years accounted for the remainder of the increase. Revenue for same centers increased by 5.2% for the nine months and 3.6% for the three months over the corresponding periods in the prior year. Price increases accounted for approximately 95% of the increase for the nine months and all of the increase for the three months. Payroll and related costs increased by $3,203,000 or 42%, for the third quarter of 1995, and by $9,633,000 or 45%, for the nine 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 increased to 56.3% in the third quarter of 1995 from 55.8% in the third quarter of 1994, but for the nine months in 1995 it decreased to 54.2% from 54.6% for the nine months of 1994. This increase as a percentage of revenue for the three months was due to lower enrollments for July and August this year on a same center basis and to higher costs associated with the Company's summer programs. The decrease in payroll as a percentage of revenue for the nine months was due to increased prices offset somewhat by increased wage rates. Direct costs increased by $1,949,000 or 54%, for the third quarter, and by $4,963,000 or 50%, for the nine months of 1995 as compared to the corresponding time periods in 1994. As a percentage of revenue, direct costs increased to 28.7% for the third quarter of 1995 from 26.1% for 1994, and increased to 25.7% for the nine months of 1995 from 25.0% for the nine months of 1994. This increase was due to an increase in occupancy and other semi-fixed costs as a percentage of revenue. Administrative expense as a percentage of total revenues declined to 7.7% for the nine months of 1995 from 8.0% in the same period of 1994, and for the third quarter it was 7.9% for both years. The Company continues to focus on administrative expense containment during its acquisition process. Depreciation and amortization expense increased to $1,016,000 in the third quarter of 1995 from $620,000 in the third quarter of 1994, and to $2,676,000 for the nine months of 1995 from $1,686,000 for the nine months of 1994. This was a 64% increase for the third quarter and a 59% increase for the nine months over the same time period in the prior year. This increase was due mainly to the new centers acquired in 1994 and 1995. Advertising and promotion increased by 81% for the third quarter of 1995 over the third quarter of 1994, and by 68% for the nine months of 1995 over the nine months of 1994. This increase was due to the increase in the number of centers and to additional marketing for the summer and fall enrollment periods. Other expense decreased by $36,000 for the third quarter of 1995, as compared to the third quarter of 1994, and decreased by $237,000 for the first nine months of 1995, as compared with the similar period in 1994. Interest expense increased by $450,000 for the nine months and by $138,000 for the third 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 $431,000 for the nine months and by $75,000 for the third 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 higher operating expenses as a percentage of revenues during the third quarter resulted in a decline of $502,000 in income before income taxes for the third quarter over the same period in the prior year. However, higher revenues, offset by slightly higher operating expenses as a percentage of revenues for the nine months resulted in a $1,211,000 or 52% increase in income before income taxes for the nine month period over the same period in the prior year. 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 September 30, 1995, $13,963,000 in principal of such notes was outstanding, carrying a weighted average annual interest rate of 8.6%. Since many sellers of centers 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, 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 the first nine months of 1995, net cash provided by operations was $3,030,000. This was an increase of $499,000 over the net cash provided by operations for the nine months of 1994. Approximately $8,570,000 of the Company's existing cash balances were used for the acquisition or opening of new centers during the first nine months of 1995 and $2,300,000 was used in the repurchase of existing debt. During the nine months, the Company issued or assumed a total of approximately $6,898,000 of indebtedness related to acquisitions. The Company's management believes that the Company's internally generated cash will cover its cash requirements for the forseeable 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 NONE 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: November 13, 1995 EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 3RD 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 September 30, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1995 JAN-1-1995 SEPTEMBER-30-1995 3,008 8,348 3,099 0 0 16,637 23,364 5,833 72,173 5,106 0 132 0 0 0 72,173 0 57,504 0 53,697 261 0 0 3,546 1,190 0 0 0 0 2,356 .34 .34
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