-----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, N4MUQt2Ni4uWZHzxKp53c0vYH90Me8DT/JzIZtE0ZaQsG8sFHEdvLnu3CzQW2kg0 oZXgryKglPl3hNDJjJM+rg== 0000775820-96-000002.txt : 19960918 0000775820-96-000002.hdr.sgml : 19960918 ACCESSION NUMBER: 0000775820-96-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960815 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: 96615501 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 2ND QUARTER 10-Q 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, 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 August 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 JUNE 30, 1996 INDEX Page PART I. FINANCIAL INFORMATION 3 ITEM 1. Condensed Consolidated Financial Statements(Unaudited) a) Condensed Consolidated Balance Sheets -- 4 b) Condensed Consolidated Statements of 6 Operations -- Three month and six month periods ended June 30, 1996 and 1995 c) Condensed Consolidated Statements of 7 Cash Flows -- Six months ended June 30, 1996 and 1995 d) Notes to Condensed Consolidated Financial 9 Statements ITEM 2. Management's Discussion and Analysis 10 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 June 30, 1996, and the results of its operations for the three and six month periods ended June 30, 1996 and 1995, have been included. ITEM 1. FINANCIAL STATEMENTS CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 ________________________________________________________________________________ (UNAUDITED)
June 30, December 31, 1996 1995 In thousands ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,043 $ 3,023 Short-term investments 7,544 7,891 Accounts receivable 3,216 2,537 Prepaid expenses and other current assets 2,644 2,371 Total Current Assets 16,447 15,822 PROPERTY, PLANT AND EQUIPMENT: Land 1,320 1,320 Buildings 6,193 6,024 Furniture, fixtures & equipment 9,801 9,177 Transportation equipment 1,984 1,825 Leasehold improvements 8,044 7,660 27,342 26,006 Less: Accumulated depreciation (7,526) (6,389) and amortization 19,816 19,617 INTANGIBLE ASSETS 36,326 36,326 OTHER 2,500 2,030 $75,089 $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 JUNE 30, 1996 AND DECEMBER 31, 1995 ________________________________________________________________________________ (UNAUDITED)
June 30, December 31, 1996 1995 In thousands (except share data) LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 1,978 $ 2,421 Accounts payable 646 626 Payroll and related accruals 2,677 2,214 Other accrued liabilities 909 799 Total Current Liabilities 6,210 6,060 LONG-TERM DEBT: Net of current portion 17,553 17,535 ACCRUED STRAIGHT LINE RENT 1,000 877 STOCKHOLDERS' EQUITY: Special Stock: Authorized 5,000,000 shares; outstanding: Series A Convertible Preferred, par value $.01 per share, liquidation value $2,355 and $2,700 in 1996 and 1995; 2,355 and 2,700 shares outstanding in 1996 and 1995 -0- -0- Common Stock, par value $.01 per share Authorized 20,000,000 shares; issued and outstanding 6,266,958 in 1996 and 6,204,231 in 1995. 132 132 Treasury Stock (7,200,844 shares) -0- -0- Paid-in capital in excess of par 52,745 52,723 Loans to officers (833) (783) Unrealized gain (loss) on short-term investments (9) 10 Accumulated deficit (1,709) (2,759) Total Stockholders' Equity 50,326 49,323 $75,089 $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 INCOME FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
Three Months Ended Six Months Ended June 30 June 30 1996 1995 1996 1995 In thousands (except per share data) REVENUES FROM OPERATIONS: Child care fees $22,460 $19,643 $43,367 $37,676 Management fees 274 254 545 500 ------- ------- ------- ------- Total revenues from operations 22,734 19,897 43,912 38,176 OPERATING EXPENSES: Payroll & related costs 12,249 10,594 23,591 20,268 Direct costs 6,110 4,799 11,810 9,265 General & administrative 1,805 1,443 3,568 2,901 Depreciation and amortization 1,243 890 2,468 1,660 Advertising & promotion 264 213 491 391 ------ ------ ------ ------ Total operating expenses 21,671 17,939 41,928 34,485 Operating profit 1,063 1,958 1,984 3,691 OTHER EXPENSE, net 362 64 697 78 ------ ------ ------ ------ Income before provision for 701 1,894 1,287 3,613 income taxes PROVISION FOR INCOME TAXES 117 664 237 1,296 NET INCOME $ 584 $ 1,230 $ 1,050 $ 2,317 ====== ======= ======= ======= NET INCOME PER SHARE: $ 0.09 $ 0.18 $ 0.16 $ 0.33 AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES: 6,744 7,013 6,717 6,983 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 SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
Six Months Ended June 30 1996 1995 In thousands CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,050 $ 2,317 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,137 902 Amortization 1,331 758 Changes in assets and liabilities: Accounts receivable (670) (1,237) Prepaid expenses and other current assets (268) (306) Accounts payable 20 140 Payroll and related accruals 337 919 Accrued liabilities and other 296 (243) Net cash provided by operating activities 3,233 3,250 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments (5,970) (14,538) Proceeds from sale of short-term investments 6,317 3,100 Payments for acquisitions of child care centers (700) (7,361) Payments for the start-up of centers (103) (77) Purchases of property, plant and equipment (1,089) (1,487) Other, net (317) (113) Net cash used in investing activities (1,862) (20,476) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 89 168 Proceeds from issuance of common stock, net -0- 1,318 Repayments of long-term debt (1,440) (2,434) Net cash used for financing activities (1,351) (948) Net increase(decrease) in cash and cash 20 (18,174) equivalents CASH AND CASH EQUIVALENTS: Beginning of period 3,023 21,558 End of period $3,043 $3,384 See accompanying notes which are an integral part of these statements.
Supplemental Disclosures of Cash Flow Information:
Cash paid during the three months ended June 30 (in thousands) for: 1996 1995 Interest $ 843 $ 742 Income taxes 104 1,219
Supplemental Schedule of Noncash Investing and Financing Activities: The Company acquired 4 additional centers during the six months ended June 30,1996 and 33 additional centers during the six months ended June 30, 1995 (in thousands)
1996 1995 Cash payments $ 803 $7,361 Notes issued to sellers 981 5,151 Indebtedness and liabilities assumed 73 766 Total value of centers acquired $1,857 $13,278 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 (UNAUDITED) (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 1996 and 1995 are affected by the net addition of a total of 46 centers in 1995 and 7 centers for the first six months 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 periods. 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 management's 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 six months of 1996, the Company acquired or opened 7 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 14% in the second quarter of 1996 to $22,734,000 and 15% in the first six months of 1996 to $43,912,000. The increase in revenues was mainly attributable to the increase in the number of centers. Revenues for those centers open for the six months and the quarter in both years increased from 1995 by approximately 1.5% for the quarter and 0.5% for the six months. For those centers open for the six months and quarter in both years the Company raised prices approximately 4.5%. Payroll and related costs increased by $1,655,000 or 16% , for the second quarter of 1996, and by $3,323,000 or 16% for the six months of 1996, as compared to the corresponding time periods in 1995 due mainly to the increase in the number of centers operated. Payroll and related costs as a percentage of revenues, however, increased to 53.9% in the second quarter and to 53.7% for the six months of 1996 from 53.2% and 53.1% in the corresponding time periods of 1995. 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. Direct costs increased by $1,311,000 or 27%, for the second quarter of 1996, and by $2,545,000 or 28% for the six months of 1996, as compared to the corresponding time periods in 1995, due mainly to the increase in the number of centers operated. As a percentage of revenue, however, direct costs increased to 26.9% in both the second quarter and the six months of 1996, from 24.1% in the second quarter and 24.3% for the six months 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 expense as a percentage of revenue was due mainly to the higher costs in the centers acquired in 1995 and partially to increased repair, utility and occupancy costs in the company's older centers. Depreciation and amortization expense increased to $1,243,000 in the second quarter, and to $2,468,000 for the six months of 1996 as compared to $890,000 and $1,660,000 in the corresponding time periods of 1995. This increase was due mainly to the increase in new centers acquired during 1996 and 1995. Advertising and promotion expense increased to $264,000 in the second quarter, and to $491,000 for the six months of 1996 as compared to $213,000 and $391,000 in the corresponding time periods of 1995. This increase was due mainly to the increase in new centers acquired during 1996 and 1995. Administrative expense as a percentage of total revenues increased to 7.9% for the second quarter and to 8.1% for the six months of 1996 from 7.3% and 7.6% in the corresponding time periods of 1995. The increase as a percentage of revenue is due to increased resources being utilized to manage the Company's growth in the employer market and in its community based business. Other expense, net increased by $298,000 for the second quarter and by $619,000 for the six months of 1996 as compared to the corresponding time periods of 1995. The increase was due to lower interest income of $199,000 for the second quarter and $468,000 for the six months of 1996 due to lower cash balances and to higher interest expense of $99,000 for the second quarter and $151,000 for the six months of 1996 associated with the Company's acquisitions. The effective tax rate decreased from 35.9% for the six months ended June 30, 1995 to 18.4% for the six months ended June 30, 1996. This was due to a combination of the effects of the Company's net operating losses that can be utilized on an annual basis and the amount of tax free income that the Company earns on its investments representing a larger percentage of the Company's pre-tax income in 1996 than in 1995, and a reduction in the level for allowance for deferred tax assets associated with the partial recognition of past net operating loss carryforwards. 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, 1996, $14,276,000 in principal of such notes was outstanding, carrying a weighted average annual interest rate of 8.6% and remainig term of 8.0 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. During the first six months of 1996, net cash provided by operations was $3,233,000. This internally generated cash funded all of the Company's needs for purchases of property, plant and equipment, scheduled debt repayments, and approximately $400,000 that the Company invested in new centers. During the six months, the Company issued or assumed a total of approximately $1,054,000 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 $1,250,000 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, 1997. 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 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 19, 1996. (b) The following individuals were elected as Directors with the indicated votes: Votes For Votes Against Mark P. Clein 5,550,092 405,619 Michael J. Connelly 5,906,642 49,069 Robert E. Kaufmann 5,905,642 50,069 W. Wallace McDowell, Jr. 5,906,642 49,069 Richard A. Niglio 5,906,390 49,321 Dr. Elanna S. Yalow 5,906,542 49,169 Myron A. Wick 5,906,642 49,069 (c) The matters considered at the June 19, 1996 Annual Meeting of Stockholders other than the election of directors, were as stated below: (I) The ratification of the appointment of Arthur Andersen LLP as the Company's independent auditors for the 1996 fiscal year, was approved by an affirmative vote of 5,862,431 to 58,511 negative votes with 34,769 abstentions. ITEM 5. Exhibits and Reports on Form 8-K 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: August 14, 1996 EX-27 2 FDS --
5 0000775820 Children's Discovery Centers of America, Inc. 1,000 3-mos Dec-31-1996 Apr-01-1996 Jun-30-1996 3,043 7,544 3,216 0 0 16,447 27,342 7,526 75,089 6,210 17,553 0 0 132 50,194 75,089 22,734 22,734 21,671 21,671 362 0 0 701 117 584 0 0 0 584 0.09 0.09
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