-----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, QaKnl3dlnySkXCjEw7lX/qlqshgu/vTMXu2qEOdrYTojE8N8ps1CFI0W+927iPr0 2LpdKaw8EI8rnF9c3seJsA== 0000775820-97-000004.txt : 19971117 0000775820-97-000004.hdr.sgml : 19971117 ACCESSION NUMBER: 0000775820-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 000-14368 FILM NUMBER: 97720801 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 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 September 30, 1997. 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 October 15, 1997, 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, 1997 INDEX Page PART I. FINANCIAL INFORMATION 3 ITEM 1. Condensed Consolidated Financial Statements (Unaudited) a) Condensed Consolidated Balance Sheets -- 4 September 30, 1997 and December 31, 1996 b) Condensed Consolidated Statements of 6 Operations -- Three-month and nine-month periods ended September 30, 1997 and 1996 6 c) Condensed Consolidated Statements of 7 Cash Flows -- Nine-months ended September 30, 1997 and 1996 d) Notes to Condensed Consolidated Statement 9 of Operations ITEM 2. Management's Discussion and Analysis 11 of Financial Condition and Results of Operations ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 13 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, 1996. 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, 1997, and the results of its operations for the three and nine month periods ended September 30, 1997 and 1996, have been included. ITEM 1. FINANCIAL STATEMENTS
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 - -------------------------------------------------------------------------------- (UNAUDITED) September December 30, 31, 1997 1996 ---- ---- In thousands ASSETS CURRENT ASSETS: Cash and cash equivalents $2,997 $4,826 Short-term investments 10,843 6,914 Accounts receivable 1,740 2,584 Prepaid expenses and other current 1,120 1,624 ----- ----- assets Total Current Assets 16,700 15,948 PROPERTY, PLANT AND EQUIPMENT: Land 1,653 1,320 Buildings 7,268 6,179 Furniture, fixtures & equipment 10,957 11,015 Transportation equipment 2,366 2,233 Leasehold improvements 9,367 8,832 Construction in progress 3 750 ------- --- 31,614 30,329 Less: Accumulated depreciation and (9,335) (8,798) amortization ---------- ------ 22,279 21,531 INTANGIBLE ASSETS 34,201 35,381 OTHER 2,591 1,752 ----- ----- TOTAL ASSETS $75,771 $74,612 ======= ======= 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, 1997 AND DECEMBER 31, 1996 - -------------------------------------------------------------------------------- (UNAUDITED) September December 30, 31, 1997 1996 ---- ---- In thousands (except share data) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $2,222 $ 2,095 Accounts payable 638 501 Payroll and related accruals 2,919 3,005 Other accrued liabilities 1,903 1,092 ----- ----- Total Current Liabilities 7,682 6,693 ----- ----- LONG-TERM DEBT: Net of current portion 15,097 16,634 ACCRUED STRAIGHT LINE RENT 1,091 998 ----- --- TOTAL LIABILITIES 23,870 24,325 ====== ========== STOCKHOLDERS' EQUITY: Special Stock: Authorized 5,000,000 shares; outstanding: Series A Convertible Preferred, par value $.01 per share, liquidation value $2,135 in 1997 and 1996; 2,135 shares outstanding in 1997 and -0- -0- 1996. Common Stock, par value $.01 per share Authorized 20,000,000 shares; issued and outstanding 6,306,958 in 133 133 1997 and 1996. Treasury Stock (7,200,844 shares in 1997 -0- -0- and 1996) Paid-in capital in excess of par 52,722 52,722 Loans to stockholder officers (727) (710) Unrealized gain on short-term investments 10 0 Accumulated deficit (237) (1,858) ------ ------ Total Stockholders' Equity 51,901 50,287 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $75,771 $74,612 ======= ======= 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 AND NINE-MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) Three MonthsThree MonthsNine Months Nine Months Ended Ended Ended Ended September 30September 30September 30September 30 1997 1996 1997 1996 In thousands (except per share data) REVENUE FROM OPERATIONS: $22,825 $21,639 $69,661 $65,551 OPERATING EXPENSES: Payroll & related costs 12,318 11,831 36,981 35,422 Direct costs 6,437 6,123 18,621 17,933 General & administrative 1,958 1,850 5,937 5,418 Depreciation 811 629 2,306 1,766 Amortization 701 656 2,116 1,987 Advertising & promotion 138 191 610 682 --- --- --- --- Total operating expenses 22,363 21,280 66,571 63,208 ------- ------ ------ ------ Operating profit 462 359 3,090 2,343 OTHER EXPENSE, net 202 399 740 1,096 --- --- --- ----- Income (loss) before provision for income taxes 260 (40) 2,350 1,247 PROVISION(BENEFIT) FOR INCOME 81 (10) 729 227 -- ---- --- --- TAXES NET INCOME (LOSS) $ 179 $ (30) $1,621 $1,020 ====== ====== ====== ====== NET INCOME PER SHARE: $ 0.03 $ 0.00 $ 0.24 $ 0.15 ====== ====== ====== ====== AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES: 6,960 6,267 6,830 6,718 ===== ===== ===== ===== 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, 1997 AND 1996 (UNAUDITED) Nine Months Nine Months Ended Ended September September 30 30 1997 1996 In thousands CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,621 $1,020 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,306 1,766 Amortization 2,116 1,987 Changes in assets and liabilities: Accounts receivable 844 (211 ) Prepaid expenses and other current 504 ( 11 ) assets Accounts payable 137 ( 11 ) Payroll and related accruals ( 86 ) 495 Accrued liabilities and other 655 338 --- --- Net cash provided by operating activities 8,097 5,373 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments ( 3,919 ) ( 829 ) Proceeds from sale of short-term - 3,369 investments Payments for acquisitions of child care (683 ) (925 ) centers Payments for the start-up of centers (728 ) (738 ) Purchases of property, plant and ( 2,282 ) ( 2,052 ) equipment Other (424 ) 68 ------ -- Net cash used in investing activities ( 8,036 ) ( 1,107 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 375 316 Repayments of long-term debt (2,265 ) ( 1,936 ) -------- ------ Net cash used for financing activities (1,890) (1,620) --------- ------- Net increase(decrease) in cash and cash ( 1,829 ) 2,646 equivalents CASH AND CASH EQUIVALENTS: Beginning of period 4,826 3,023 ----- ----- End of period $2,997 $5,669 ====== ====== See accompanying notes which are an integral part of these statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED): continued
Supplemental Disclosures of Cash Flow Information: Cash paid during the nine-months ended September 30 (in thousands) for: 1997 1996 ---- ---- Interest $1,184 1,277 Income taxes 574 108
Supplemental Schedule of Noncash Investing and Financing Activities: The Company acquired 4 additional centers during the nine-months ended September 30,1997 and 4 additional centers during the nine-months ended September 30, 1996 (in thousands) 1997 1996 ---- ---- Cash payments $683 $925 Notes issued to sellers 480 981 Indebtedness and liabilities assumed - 73 ----- ---- Total value of centers acquired $1,163 $1,979 ====== ====== 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 SEPTEMBER 30, 1997 (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 nine month periods of 1997 and 1996 are affected by the net addition of a total of 9 centers in 1996 and 2 centers for the first nine-months of 1997 (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, 1996, 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 1996 financial statements to conform to the 1997 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. Recently Issued Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Standards No. 129 (SFAS No. 129), "Disclosure of Information about Capital Structure", which is effective for fiscal years ending after December 15, 1997. The Company will adopt SFAS No. 129 for its year ending December 31, 1997. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Standards No. 130 (SFAS No. 130), "Reporting Comprehensive Income", and No. 131 (SFAS No. 131), "Disclosures about Segments of an Enterprise and Related Information", which are effective for fiscal years beginning after December 15, 1997. The Company will adopt SFAS No. 130 and SFAS No. 131 for its year beginning January 1, 1998. These statements are not anticipated to have a material effect on the Company's financial position or results of operations.
Earnings per Share At the end of 1997, the Company will report its Earnings per Share (EPS) based upon Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings per Share". The pro forma effect of this accounting change on the quarter ended September 30 is: Three MonthsThree MonthsNine Months Nine Months Ended Ended Ended Ended September 30September 30September 30September 30 1997 1996 1997 1996 Primary EPS as reported $ .03 $ .00 $ .24 $ .15 Pro forma effect of SFAS No. $ .00 $ .00 $ .02 $ .01 ----- ----- ----- ----- 128 Basic EPS pro forma $ .03 $ .00 $ .26 $ .16 ===== ===== ===== ===== Fully diluted EPS $ .03 $ .00 $ .23 $ .15 Pro forma effect of SFAS No. $ .00 $ .00 $ .01 $ .00 ----- ----- ----- ----- 128 Diluted EPS pro forma $ .03 $ .00 $ .24 $ .15 ===== ===== ===== =====
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Since January 1, 1996, the Company acquired or opened nineteen centers and closed eight 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 period to period 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 5.5% to $22,825,000 in the third quarter and 6.3% to $69,661,000 for the nine months of 1997, as compared to $21,639,000 and $65,551,000 in the corresponding periods of 1996. The increase in revenues was attributable to the increase in the number of centers and to an increase in revenues in the Company's existing centers. Revenues for those centers open in both years increased from 1996 by approximately 4.1% for the quarter and 4.8% for the nine month period. Increased tuition rates are responsible for 3.5% of the revenue increase for the third quarter and nine month periods and increases in enrollments are responsible for the remaining 0.6% revenue increase in the third quarter and 1.3% for the nine month period. Payroll and related costs increased by $487,000 or 4.1% for the third quarter and by $1,559,000 or 4.4% for the nine months of 1997, as compared to the corresponding time periods of 1996 due to the increase in the number of centers operated and to the increased pay rates at its existing centers. Payroll and related costs as a percentage of revenues, however, decreased to 54.0% in the third quarter and to 53.1% for the nine month period of 1997 from 54.7% and 54.0% in the corresponding periods of 1996. The decrease in payroll and related expenses as a percentage of revenues was due to an increase in supervisory controls and procedures instituted during 1996 and to the Company having raised its tuition rates at a higher rate than its payroll rates. Direct costs increased by $314,000 or 5.1%, for the third quarter of 1997 and by 3.8% or $688,000 for the nine month period of 1997, as compared to the corresponding time periods of 1996. As a percentage of revenue, however, direct costs decreased to 28.2% in the third quarter and to 26.7% for the nine month period of 1997 as compared to 28.3% and 27.4% in the corresponding periods of 1996. The decrease as a percentage of revenue was due mainly to lower maintenance and repairs cost and lower utility cost. Depreciation and amortization expense increased to $1,512,000 in the third quarter and to $4,422,000 for the nine month period of 1997 as compared to $1,285,000 and $3,753,000 for the corresponding periods of 1996. This increase was due mainly to the increase in new centers acquired during 1996 and to the improvements made by the Company in its existing centers. Advertising and promotion expense as a percentage of revenues has remained constant at approximately 1% for all periods. General and administrative expense as a percentage of total revenues increased to 8.6% for the third quarter and to 8.5% for the nine month period of 1997 from 8.5% and 8.3% in the corresponding periods of 1996. The increase as a percentage of revenue is due to the addition of supervisory and financial personnel to enhance management and financial controls and to prepare for future growth in the number of new centers. Other expense, net decreased by $197,000 for the third quarter and by $356,000 for the nine month period of 1997 as compared to the corresponding time periods of 1996. The decrease was due mainly to higher interest income of $120,000 for the third quarter and $229,000 for the nine months of 1997 due to higher cash and short term investment balances, and to lower interest expense of $57,000 for the third quarter and $107,000 for the nine months of 1997 due to lower debt balances. The effective tax rate increased from 25% for the three month period and 18% for the nine month period ended September 30, 1996 to 31% for the three and nine month period ended September 30, 1997. The lesser impact of the Company's net operating loss carryforwards, tax exempt income and tax credits on the Company's higher pretax income resulted in the increase in the Company's effective tax rate. 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, 1997, $12,302,000 in principal of such notes was outstanding. 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 internally generated cash, private sales of the Company's securities at various times since inception and public offerings of Common Stock. During the first nine months of 1997, net cash provided by operations was $8,097,000. 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 month period ended September 30, 1997, the Company also issued or assumed a total of approximately $480,000 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 a $5,000,000 unsecured line of credit furnished by a commercial bank to be used for acquisitions. Amounts drawn down bear interest at the rate of 1.75% above the Bank's LIBOR rate, and will convert to a five year term loan on August 1, 1998. The Company currently has no commitments for capital expenditures, which might be deemed, either individually or in the aggregate, material to its business. PART I ITEM 3. Quantitative and Qualitative Disclosures about Market Risk None. PART II - OTHER INFORMATION 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: November 12, 1997 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 12, 1997 EX-27 2 FDS --
5 Children's Discovery Centers of America, Inc. 3rd Quarter 10-Q 0000775820 Children's Discovery Centers of America, Inc. 1,000 3-MOS Dec-31-1997 Jul-01-1997 Sep-30-1997 2,997 10,843 1,740 0 0 16,700 31,614 (9,335) 75,771 7,682 0 0 0 133 51,768 75,771 22,825 22,825 22,363 22,363 202 0 0 260 81 179 0 0 0 179 .03 .03
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