-----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, EwM/zyFf3i61xzPH0NLVC8d/k18VcWmbcPhU6EuKVEsd1eYkvJSBXPIQoEudEtcq EXZ1qfqywo6prQcgwSoeRw== 0000775820-96-000003.txt : 19961120 0000775820-96-000003.hdr.sgml : 19961120 ACCESSION NUMBER: 0000775820-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961115 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: 96667948 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 3RD QTR 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 September 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 November 13, 1996, the Registrant had outstanding 6,306,958 shares of Common Stock, $.01 par value, and 2,135 shares of Special Stock, denominated Series A Convertible Preferred Stock, $.01 par value, convertible into 388,182 shares of Common Stock. CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 INDEX Page PART I. FINANCIAL INFORMATION 3 ITEM 1. Condensed Consolidated Financial Statements (Unaudited) a) Condensed Consolidated Balance Sheets -- 4 September 30, 1996 and December 31, 1995 b) Condensed Consolidated Statements of 6 Operations -- Three-month and nine-month periods ended September 30, 1996 and 1995 c) Condensed Consolidated Statements of 7 Cash Flows -- Nine-months ended September 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 September 30, 1996, and the results of its operations for the three and nine month periods ended September 30, 1996 and 1995, have been included. ITEM 1. FINANCIAL STATEMENTS CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 ________________________________________________________________________________ (UNAUDITED)
September December 30, 31, 1996 1995 In thousands ASSETS CURRENT ASSETS: Cash and cash equivalents $5,669 $3,023 Short-term investments 5,351 7,891 Accounts receivable 2,755 2,537 Prepaid expenses and other current 2,389 2,371 assets Total Current Assets 16,164 15,822 PROPERTY, PLANT AND EQUIPMENT: Land 1,320 1,320 Buildings 6,201 6,024 Furniture, fixtures & equipment 10,561 9,177 Transportation equipment 2,222 1,825 Leasehold improvements 8,454 7,660 28,758 26,006 Less: Accumulated depreciation and (8,155) (6,389) amortization 20,603 19,617 INTANGIBLE ASSETS 35,999 36,326 OTHER 2,242 2,030 $75,008 $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 SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 __________________________________________________________________________________ (UNAUDITED)
September December 30, 31, 1996 1995 In thousands (except share data) LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES: Current portion of long-term debt $2,075 $ 2,421 Accounts payable 615 626 Payroll and related accruals 2,825 2,214 Other accrued liabilities 968 799 Total Current Liabilities 6,483 6,060 LONG-TERM DEBT: Net of current portion 17,187 17,535 ACCRUED STRAIGHT LINE RENT 1,046 877 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 52,740 52,723 Loans to officers (838) (783) Unrealized gain (loss) on short-term (3) 10 investments Accumulated deficit (1,739) (2,759) Total Stockholders' Equity 50,292 49,323 $75,008 $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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
Three-months Ended Nine-months Ended Sept. 30 Sept. 30 1996 1995 1996 1995 In thousands (except per share data) REVENUES FROM OPERATIONS: Child care fees $21,420 $19,056 $64,787 $56,732 Management fees 219 272 764 772 Total revenues from 21,639 19,328 65,551 57,504 operations OPERATING EXPENSES: Payroll & related costs 11,831 10,879 35,422 31,147 Direct costs 6,123 5,538 17,933 14,803 General & administrative 1,850 1,536 5,418 4,437 Depreciation and amortization 1,285 1,016 3,753 2,676 1,016 Advertising & promotion 191 243 682 634 Total operating expenses 21,280 19,212 63,208 53,697 Operating profit 359 116 2,343 3,807 OTHER EXPENSE, net 399 183 1,096 261 Income (loss) before provision for income taxes (40) (67) 1,247 3,546 PROVISION (BENEFIT) FOR INCOME TAXES (10) (106) 227 1,190 NET INCOME (LOSS) $ (30) $ 39 $ 1,020 $ 2,356 NET INCOME PER SHARE: $ 0.00 $ 0.01 $ 0.16 $ 0.34 AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES: 6,267 6,973 6,718 6,968 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 NINE-MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
Nine-months Ended September 30 1996 1995 In thousands CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,020 $ 2,356 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,766 1,404 Amortization 1,987 1,272 Changes in assets and liabilities: Accounts receivable (211) (1,453) Prepaid expenses and other current assets (11) (1,004) Accounts payable (11) 59 Payroll and related accruals 495 635 Accrued liabilities and other 338 (121) Net cash provided by operating 5,373 3,030 activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments (5,970) (14,538) Proceeds from sale of short-term 8,510 7,497 investments Payments for acquisitions of child care centers (925) (8,345) Payments for the start-up of centers (738) (225) Purchases of property, plant and equipment (2,052) (3,302) Other, net 68 (325) Net cash used in investing activities (1,107) (19,238) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 316 283 Proceeds from issuance of common stock, net -0- 1,318 Repayments of long-term debt (1,936) (3,943) Net cash used for financing activities (1,620) (2,342) Net increase(decrease) in cash and cash 2,646 (18,550) equivalents CASH AND CASH EQUIVALENTS: Beginning of period 3,023 21,558 End of period $5,669 $3,008 See accompanying notes which are an integral part of these statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS: continued Supplemental Disclosures of Cash Flow Information:
Cash paid during the three-months ended September 30 (in thousands) for: 1996 1995 Interest $ 1,277 $ 1,148 Income taxes 108 1,774
Supplemental Schedule of Noncash Investing and Financing Activities: The Company acquired 4 additional centers during the nine-months ended September 30,1996 and 38 additional centers during the nine- months ended September 30, 1995 (in thousands) 1996 1995 Cash payments $ 925 $8,345 Notes issued to sellers 981 6,343 Indebtedness and liabilities assumed 73 993 Total value of centers acquired $1,979 $15,681 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 presented 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 1996 and 1995 are affected by the net addition of a total of 46 centers in 1995 and 7 centers for the first nine-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, no impairment loss is required 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 nine months of 1996, the Company acquired or opened 11 centers and closed four 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 12% in the third quarter of 1996 to $21,639,000 and 14% in the first nine-months of 1996 to $65,551,000. The increase in revenues was mainly attributable to the increase in the number of centers. Revenues for those centers open for the nine-months and the quarter in both years increased from 1995 by approximately 4% for the quarter and 1% for the nine-months. For those centers open for the nine-months and quarter in both years the Company raised prices approximately 4.5%. Payroll and related costs increased by $952,000 or 9%, for the third quarter of 1996, and by $4,275,000 or 14% for the nine-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, decreased to 54.7% in the third quarter of 1996 from 56.3% in the third quarter of 1995, and for the nine-months of 1996 decreased to 54.0% from 54.2% in the nine-months of 1995. The decrease in payroll and related expenses as a percentage of revenue was due to the fact that the Company has been able to gradually lower the payroll and related expenses of those centers that it acquired in 1995 from their initial levels. Direct costs increased by $585,000 or 11%, for the third quarter of 1996, and by $3,130,000 or 21% for the nine-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 decreased to 28.3% in the third quarter of 1996 from 28.7% in the third quarter of 1995. For the nine-months of 1996, direct costs increased to 27.4% from 25.7% in the nine-months of 1995. The increase as a percentage of revenue for the nine-months was due to increases as a percentage of revenue in the Company's maintenance and repairs and occupancy expenses. The increase as a percentage of revenue was due mainly to the higher costs in the centers acquired in 1995 and partially to increased utility and occupancy costs in the company's older centers. The decrease in direct costs as a percentage of revenue for the third quarter was due to the fact that the Company has been able to gradually lower direct costs of those centers that it acquired in 1995 from their initial levels. Depreciation and amortization expense increased to $1,285,000 in the third quarter, and to $3,753,000 for the nine-months of 1996 as compared to $1,016,000 and $2,676,000 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 decreased to $191,000 in the third quarter, and increased to $682,000 for the nine-months of 1996 as compared to $243,000 and $634,000 in the corresponding time periods of 1995. The increase in the nine-months was due to the increase in new centers acquired during 1996 and 1995. Administrative expense as a percentage of total revenues increased to 8.5% for the third quarter and to 8.3% for the nine-months of 1996 from 7.9% and 7.7% 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 $216,000 for the third quarter and by $835,000 for the nine-months of 1996 as compared to the corresponding time periods of 1995. The increase was due mainly to lower interest income of $240,000 for the third quarter and $708,000 for the nine-months of 1996 due to lower cash balances and to lower interest expense of $24,000 for the third quarter and higher interest expense of $127,000 for the nine-months of 1996 associated with the Company's acquisitions. The effective tax rate decreased from 33.6% for the nine-months ended September 30, 1995 to 18.2% for the nine-months ended September 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 September 30, 1996, $13,903,000 in principal of such notes was outstanding, carrying a weighted average annual interest rate of 8.6% and remaining 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 nine-months of 1996, net cash provided by operations was $5,373,000. This internally generated cash funded all of the Company's cash needs for purchases of property, plant and equipment, scheduled debt repayments, and the Company's investment in new centers. During the nine-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 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 15, 1996 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: ______________________________ Richard A. Niglio Chief Executive Officer By: __________________________ Randall J. Truelove Vice-President, Finance Chief Accounting Officer Date: November 15, 1996 EX-27 2 FDS --
5 3rd Quarter 10-Q 0000775820 Children's Discovery Centers of America, Inc. 1,000 3-mos Dec-31-1996 Jul-01-1996 Sep-30-1996 5,669 5,531 2,755 0 0 16,164 28,758 (8,155) 75,008 6,483 0 0 0 132 50,160 75,008 21,639 21,639 21,280 21,280 399 0 0 (40) (10) (30) 0 0 0 (30) .00 .00
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