-----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, A6AQIoYilnI89cX3BKmUryv4CGLeT+x4ByZzd+pRM+n3uzdQry6XYsB+C0/tLvRz YY/ToVTcDzo7Dy0q5BG8Kw== 0000775820-96-000001.txt : 19960716 0000775820-96-000001.hdr.sgml : 19960716 ACCESSION NUMBER: 0000775820-96-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 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: 96564661 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 March 31, 1996. 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 061097006 State or other jurisdiction of (I.R.S.Employer incorporation or organization) 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 851 Irwin Street, Suite 200, San Rafael, California 94901 (Registrant's former address, if changed since last report) 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 May 8, 1996, the Registrant had outstanding 6,266,958 shares of Common Stock, $.01 par value, and 2,355 shares of Special Stock, denominated Series A Convertible Preferred Stock, $.01 par value, convertible into 428,182 shares of Common Stock. CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 INDEX Page PART I. FINANCIAL INFORMATION 3 ITEM 1. Condensed Consolidated Financial Statements a) Condensed Consolidated Balance Sheets -- 4 March 31, 1996 and December 31, 1995 b) Condensed Consolidated Statements of 6 Operations -- Three months ended March 31, 1996 and 1995 c) Condensed Consolidated Statements of 7 Cash Flows -- Three months ended March 31, 1996 and 1995 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, 1995. 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 March 31, 1996, and the results of its operations for the three months ended March 31, 1996 and 1995, have been included. PART I ITEM 1. FINANCIAL STATEMENTS CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995
March 31, December 31, 1996 1995 In thousands (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $3,006 $3,023 Short-term investments 8,197 7,891 Accounts receivable, net 2,466 2,537 Prepaid expenses and other current assets 3,162 2,371 -------- -------- Total current assets 16,831 15,822 ------- ------- PROPERTY, PLANT AND EQUIPMENT: Land 1,320 1,320 Buildings 6,067 6,024 Furniture, fixtures & equipment 9,434 9,177 Transportation equipment 1,957 1,825 Leasehold improvements 7,845 7,660 ------- ------ 26,623 26,006 Less: Accumulated depreciation and amortization (6,926) (6,389) 19,697 19,617 -------- ------- INTANGIBLE ASSETS, net 35,709 36,326 OTHER: 1,992 2,030 --------- ------- $74,229 $73,795 ======== ======= See accompanying notes which are an integral part of these statements.
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995
March 31, December 31, 1996 1995 In thousands (except share and per share data) (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 2,087 $ 2,421 Accounts payable 522 626 Payroll and related accruals 2,653 2,214 Other accrued liabilities 856 799 ---------- --------- Total current liabilities 6,118 6,060 ------ ------ LONG-TERM DEBT, Net of current portion 17,323 17,535 -------- ------- ACCRUED STRAIGHT LINE RENT 1,009 877 ------- -------- STOCKHOLDERS' EQUITY: Special Stock: Authorized 5,000,000 shares; outstanding: Series A Convertible Preferred, par value $.01 per share, liquidation value $2,700 and $2,700 in 1996 and 1995; 2,700 and 2,700 shares outstanding in 1996 and 1995. -0- -0- Common Stock, Par Value $.01 per share Authorized 20,000,000 shares outstanding; 6,204,231 in 1996 and 1995. 132 132 Treasury Stock (7,200,844 shares) - - Paid-in capital in excess of par 52,733 52,723 Loans to officers (793) (783) Unrealized loss on short-term investment 0 10 Accumulated deficit (2,293) (2,759) ------- ------ Total Stockholders' Equity 49,779 49,323 ------- ------ $74,229 $73,795 ======= ======= See accompanying notes which are an integral part of these statements.
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Three Months Three Months Ended Ended March 31,1996 March 31,1995 In thousands (except per share data) (Unaudited) (Unaudited) REVENUES FROM OPERATIONS: Child care fees $20,907 $18,033 Managemnt fees 271 246 ------- ------- Total revenues from operations 21,178 18,279 OPERATING EXPENSES: Payroll and related costs 11,342 9,674 Other center operating expenses 5,700 4,466 Administrative expenses 1,763 1,458 Depreciation and amortization 1,225 770 Advertising and promotion 227 178 ------- ------- Total operating expenses 20,257 16,546 Income from operations 921 1,733 OTHER EXPENSE, net 335 14 ------- ------ Income before provision for income taxes 586 1,719 PROVISION FOR INCOME TAXES 120 632 ------ ------ NET INCOME $466 $1,087 ======= ======== NET INCOME PER SHARE: $0.07 $0.16 WEIGHTED AVERAGE COMMON SHARES: 6,701 6,938 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 THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Three Months Three Months Ended Ended March 31, 1996 March 31, 1995 In thousands (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 466 $ 1,087 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 537 444 Amortization 688 326 Changes in assets and liabilities: Accounts receivable 71 (425) Prepaid expenses and other current assets (616) (307) Accounts payable (104) (192) Payroll and related accruals 311 346 Accrued liabilities and other 189 752 ------ ------ Net cash provided by operating activities 1,542 2,031 ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments (4,970) (4,508) Proceeds from sale of short-term investments 4,654 1,300 Payments for acquisitions of child care centers (58) (3,326) Payments for the start-up of centers (97) 0 Purchases of property, plant and equipment (510) (435) Other, net 4 (177) ---------- -------- Net cash used in investing activities (977) (7,146) ---------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 66 0 Proceeds from issuance of common stock, net 0 1,304 Repayments of long-term debt (648) (2,114) --------- -------- Net cash used for financing activities (582) (810) --------- -------- Net decrease in cash and cash equivalents (17) (5,925) --------- -------- CASH AND CASH EQUIVALENTS: Beginning of period 3,023 21,558 --------- ------- End of period $ 3,006 $15,633 ======== ======= See accompanying notes which are an integral part of these statements.
Supplemental Disclosures of Cash Flow Information:
Cash paid during the three months ended March 31 (in thousands) for: 1996 1995 ---- ---- Interest $ 420 $ 378 Income taxes 46 150
Supplemental Schedule of Noncash Investing and Financing Activities: The Company acquired and opened 2 additional centers during the three months ended March 31 (in thousands) 1996 1995 ---- ---- Cash payments $ 58 $3,326 Notes issued to sellers 164 2,846 Indebtedness and liabilities assumed 0 588 -------- -------- Total value of centers acquired $222 $6,760 See accompanying notes which are an integral part of these statements.
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 first quarter of 1996 and 1995 are affected by the net addition of a total of 48 centers in 1995 and the first quarter of 1996 (see "Management's Discussions 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, 1995, 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 1995 financial statements to conform to the 1996 presentation. The preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting Changes: Effective January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. 121 (SFAS 121) on accounting for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to assets to be held and used. Based on a review, the Company did not recognize any impairment loss as a result of applying the provisions of SFAS 121 to its assets held for use. 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." Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General During the first three months of 1996, the Company acquired or opened 2 centers. During the year ended December 31, 1995, the Company acquired or opened 52 centers and closed six centers. The results of acquired or disposed of centers are included in the Company's financial statements from the date of acquisition or until the date of disposition. 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 16% to $21,178,000 in the first quarter of 1996, as compared to $18,279,000 in the first quarter of 1995. The increase in revenues was totally attrituable to the increase in the number of centers. Revenues for those centers open for the quarter in both years decreased from 1995 by slightly less than 1% for the quarter. During the quarter revenues went from a decrease of approximately 3% in January, due to the extreme winter weather, to an increase of approximately 1% in March as the winter weather returned to a more normal pattern. For those centers open for the quarter in both years the Company raised prices slightly less than 5%. Payroll and related costs increased by $1,668,000 or 17% , for the first quarter of 1996 as compared to the first quarter of 1995 due mainly to the increase in the number of centers operated. Payroll and related costs as a percentage of revenues, however, increased to 53.6% in the first quarter of 1996 from 52.9% in the first quarter of 1996. The increase in payroll and related expenses as a percentage of revenue was due to the fact that the new centers added in 1995 and 1996 had higher payroll and related expenses as a percentage of revenue than the Company's older centers. Other center operating expenses increased by $1,234,000 or 28%, for the first quarter of 1996 as compared to the corresponding time period in 1995, due mainly to the increase in the number of centers operated. As a percentage of revenue, however, Other center operating expenses increased to 26.9% in the first quarter of 1996 from 24.4% in the first quarter of 1995. The increase as a percentage of revenue were due to increases as a percentage of revenue in the Company's maintenance and repairs, utilities and occupancy expenses. The increase in utilities and maintenance and repairs was due to the severe winter weather experienced by the Company's centers in the midwest and east coast. The increase in occupancy expense as a percentage of revenue was due to the higher occupancy costs in the centers acquired in 1995 and to the weather related decline in revenues on a same center basis. Depreciation and amortization expense increased to $1,225,000 in 1996 from $770,000 in 1995 for the first quarter. This increase was due mainly to the increase in new centers acquired during 1996 and 1995. Advertising and promotion expense increased to $227,000 in 1996 from $178,000 in 1995 for the first quarter. This increase was due to the increase in new centers acquired during 1996 and 1995. Administrative expense as a percentage of total revenues increased to 8.3% for the first quarter of 1996 from 8.0% in the first quarter of 1995. The increase as a percentage of revenue is due to the weather related decline in revenues and to increased resources being utilized to manage the Company's growth in the employer market. Other expense increased by $321,000 for the first quarter of 1996 as compared to the first quarter of 1995. The increase was due to lower interest income of $269,000 due to lower cash balances and higher interest expense of $52,000 associated with the Company's acquisitions. 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 March 31, 1996, $14,039,000 in principal of such notes was outstanding, carrying a weighted average annual interest rate of 8.7% and term of 8.1 years. 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. 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 $1,304,000 in January of 1995 on final completion of the offering During 1995, net cash provided by operations was $4,682,000. This internally generated cash along with the issuance of $1,483,000 in debt for the acquisition of property, plant and equipment funded all of the Company's needs for purchases of property, plant, and equipment, and $1,213,000 of debt repayments. During the first three months of 1996, net cash provided by operations was $1,542,000. This internally generated cash funded all of the Company's needs for purchases of property, plant and equipment, scheduled debt repayments, and $155,000 that the Company invested in new centers. During the three months, the Company issued or assumed a total of approximately $164,000 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 and the development of additional employer sponsored centers. The Company also has available to it up to $1,000,000 under an unsecured line of credit furnished by Wells Fargo Bank. 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, 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: May 15, 1996 EX-27 2 FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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