-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, nbvGUzocZ+v5ugbEsSSfmsLdQKdlO6IMNKUIwC5VaZXpIqcZOeVrFjLuH22q1aVa VOHEXrBiHrD9WEM5QmVdLQ== 0000950112-95-001325.txt : 19950530 0000950112-95-001325.hdr.sgml : 19950530 ACCESSION NUMBER: 0000950112-95-001325 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 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: 95539488 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 CHILDREN'S DISCOVERY CENTERS OF AMERICA 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, 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 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 -------------- N/A ----------------------------------------------- (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, 1995, the Registrant had outstanding 6,170,081 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. 1 CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995 INDEX Page PART I. FINANCIAL INFORMATION 3 ITEM 1. Condensed Consolidated Financial Statements a) Condensed Consolidated Balance Sheets -- 4 March 31, 1995 and December 31, 1994 b) Condensed Consolidated Statements of 6 Operations -- Three months ended March 31, 1995 and 1994 c) Condensed Consolidated Statements of 7 Cash Flows -- Three months ended March 31, 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 2 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 March 31, 1995, and the results of its operations for the three months ended March 31, 1995 and 1994, have been included. 3 PART I ITEM 1. FINANCIAL STATEMENTS CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1995 AND DECEMBER 31, 1994 March 31, December 31, 1995 1994 ---- ---- In thousands (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $15,633 $21,558 Short-term investments 4,508 1,300 Accounts receivable 2,071 1,646 Prepaid expenses and other current assets 1,485 1,178 ------- ------- Total current assets 23,697 25,682 ------- ------- PROPERTY, PLANT AND EQUIPMENT: Land 878 878 Buildings 4,723 4,705 Furniture, fixtures & equipment 7,422 7,007 Transportation equipment 1,339 1,259 Leasehold improvements 5,448 5,177 ------- ------- 19,810 19,026 Less: Accumulated depreciation and amortization (4,873) (4,429) ------- ------- 14,937 14,597 ------- ------- INTANGIBLE ASSETS 28,916 22,903 OTHER: 1,735 1,509 ------- ------- $69,285 $64,691 ------- ------- ------- ------- See accompanying notes which are an integral part of these statements. 4 CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1995 AND DECEMBER 31, 1994 March 31, December 31, 1995 1994 ---- ---- In thousands (ecept share and per share data) (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 1,931 $ 1,690 Accounts payable 606 798 Payroll and related accruals 1,809 1,463 Other accrued liabilities 1,222 482 ------- ------- Total current liabilities 5,568 4,433 ------- ------- LONG-TERM DEBT, Net of current portion 14,767 13,736 ------- ------- ACCRUED STRAIGHT LINE RENT 1,078 1,066 ------- ------- STOCKHOLDERS' EQUITY: Special Stock: Authorized 5,000,000 shares; outstanding: Series A Convertible Preferred, par value $.01 per share, liquidation value $2,838 and $3,250 in 1995 and 1994; 2,838 and 3,250 shares outstanding in 1995 and 1994. -0- -0- Common Stock, Par Value $.01 per share Authorized 20,000,000 shares outstanding; 6,145,081 in 1995, 5,931,604 in 1994. 132 130 Treasury Stock (7,200,844 shares) - - Paid-in capital in excess of par 52,693 51,391 Loans to officers (640) (640) Unrealized loss on short-term investment (6) (30) Accumulated deficit (4,307) (5,395) ------- ------- Total Stockholders' Equity 47,872 45,456 ------- ------- $69,285 $64,691 ------- ------- ------- ------- See accompanying notes which are an integral part of these statements. 5 CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 Three Months Three Months Ended Ended March 31, March 31, 1995 1994 ---- ---- In thousands (ecept share and per share data) (Unaudited) (Unaudited) REVENUES FROM OPERATIONS: Child care fees $18,033 $11,707 Managemnt fees 246 54 --- -- Total revenues from operations 18.279 11,761 OPERATING EXPENSES: Payroll and related costs 9,674 6,329 Other center operating expenses 4,466 2,906 Administrative expenses 1,458 971 Depreciation and amortization 770 489 Advertising and promotion 178 100 --- --- Total operating expenses 16,546 10,795 Income from operations 1,733 966 OTHER EXPENSE, net 14 100 --- --- Income before provision for income taxes 1,719 866 PROVISION FOR INCOME TAXES 632 225 ---- ---- NET INCOME $1,087 $641 ------- ------- ------- ------- NET INCOME PER SHARE: $.16 $.14 WEIGHTED AVERAGE COMMON SHARES: 6,938 4,731 See accompanying notes which are an integral part of these statements. 6 CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 Three Months Three Months Ended Ended March 31, March 31, 1995 1994 ---- ---- In thousands (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,087 $ 641 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 770 489 Changes in assets and liabilities: Accounts receivable (425) (372) Prepaid expenses and other current assets (307) (107) Accounts payable (192) 164 Payroll and related accruals 346 280 Accrued liabilities and other 752 (2) Gain on extinguishment of debt (83) 0 ---- -- Net cash provided by operating activities 1,948 1,093 ----- ----- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments (4,508) (5,761) Proceeds from sale of short-term investments 1,300 100 Payments for acquisitions of child care centers (3,326) (1,142) Payments for the start-up of centers 0 (33) Purchases of property, plant and equipment (435) (237) Other, net (177) (40) ----- ---- Net cash used in investing activities (7,146) (7,113) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from inssuance of long-term debt 0 48 Proceeds from issuance of common stock, net 1,304 0 Repayments of long-term debt (2,031) (798) ------- ----- Net cash used for financing activities (727) (750) ----- ----- Net decrease in cash and cash equivalents (5,925) (6,770) ------- ------- CASH AND CASH EQUIVALENTS: Beginning of period 21,558 10,662 ------ ------ End of period $ 15,663 $ 3,892 -------- ------- -------- ------- See accompanying notes which are an integral part of these statements. 7 Supplemental Disclosures of Cash Flow Information: Cash paid during the three months ended March 31 (in thousands) for: 1995 1994 ---- ---- Interest $ 378 $ 181 Income taxes 150 31 Supplemental Schedule of Noncash Investing and Financing Activities: The Company acquired and opened 25 additional centers during the three months ended March 31 (in thousands) 1995 1994 ---- ---- Cash payments $3,326 $1,142 Notes issued to sellers 2,846 1,797 Indebtedness and liabilities assumed 588 2.531 ----- ----- Total value of centers acquired $6,760 $5,570 See accompanying notes which are an integral part of these statements. 8 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 1995 and 1994 are affected by the addition of a total of 67centers in 1994 and the first quarter of 1995 (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, 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 reclass ifications have been made to the 1994financial 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." 9 Acquisitions In the first quarter of 1995 the Company acquired 24 centers for an aggregate price of $6,760,000. 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 quarters 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 (in thousands, except per share data). Three Months Three Months Ended March 31, Ended March 31, 1995 1994 (unaudited) (unaudited) --------------- --------------- Revenues from operations $19,111 $17,663 Net income $ 1,116 $ 680 Net income per share $ .16 $ .14 Weighted average common shares outstanding: 6,938 4,731 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General During the first three months of 1995, the Company acquired or opened 25 centers and closed one center. During the year ended December 31, 1994, the Company acquired or opened 42 centers and closed three 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 form Operations increased 55% to $18,279,000 in the first quarter of 1995, as compared to $11,761,000 in the first quarter of 1994. Revenues for those centers open in corresponding time period in both years increased over 1994 by approximately 8% for the quarter. The remainder of the increases was due to the net increase in centers.Approximately one-third of the increase on a same center basis was due to enrollment increases, with the remainder due to increases in prices. Payroll and related costs increased by $3,345,000 or 53% , for the first quarter of 1995 as compared to the first quarter of 1994 due to the increase in the number of centers operated. Payroll and related costs as a percentage of revenues, however, decreased to 52.9% in the first quarter of 1995 from 53.8% in the first quarter of 1994. The decrease in payroll and related expenses was due to increased enrollments, increased prices and improved scheduling of labor attributable to more efficient staffing. Other center operating expenses increased by $1,560,000 or 54%, for the first quarter of 1995 as compared to the corresponding time period in 1994, due to the increase in the number of centers operated. As a percentage of revenue other center operating expenses, however, decreased to 24.4% in the first quarter of 1995 from 24.7% in the first quarter of 1994. The decline as a percentage of revenue was due to an increase in average center revenues derived from higher enrollments and increased prices, which resulted in a decrease in the fixed costs of the Company's centers as a percentage of revenue. Depreciation and amortization expense increased to $770,000 in 1995 from $489,000 in 1994 for the first quarter. This increase was due mainly to the increase in new centers acquired during 1995 and 1994. 11 Advertising and promotion expense increased to $178,000 in 1995 from $100,000 in 1994 for the first quarter. This increase was due mainly to the increase in new centers acquired during 1995 and 1994. Administrative expense as a percentage of total revenues decreased to 8.0% for the first quarter of 1995 from 8.3% in the first quarter of 1994. The Company continues to focus on administrative expense containment during its acquisition process. Other expense decreased by $86,000 for the first quarter of 1995 as compared to the first quarter of 1994. The decrease was due to higher interest income of $200,000 due to higher cash balances because of the $19,600,000, net proceeds, raised in a public offering in December 1994 and January 1995 (see "Liquidity and Capital Resources" below), a gain of $83,000 from the repurchase of some of the Company's existing debt at a discount, and offset by higher interest expense of $197,000 associated with the Company's acquisitions. The combination of increased revenues from acquisitions, increased prices, and new enrollments in existing centers, and the reduction of direct operating costs (i.e., payroll expense, other center operating expenses and advertising and promotion expenses) as a percentage of revenues, resulted in an increase in net profit for the first quarter of 1995 compared to the first quarter of 1994 of $446,000. 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, with notes generally representing approximately two-thirds of the total acquisition price. These notes are payable generally over ten years. As of March 31, 1995, $11,940,000 in principal of such notes was outstanding, carrying a weighted average annual interest rate of 8.8%. 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, 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 1994, net cash provided by operations was $4,495,000. This internally generated cash funded all of the Company's needs for purchases of property, plant, and equipment, and debt repayments, including a $600,000 repayment of notes issued in the 1991 acquisition of Magic Years. During the first three months of 1995, net cash provided by operations was $1,948,000. This internally 12 generated cash funded all of the Company's needs for purchases of property, plant and equipment, scheduled debt repayments, and $600,000 of the $3,326,000 that the Company invested in new centers. Approximately $2,726,000 of the Company's existing cash balances were used for the acquisition or opening of new centers during the first three months of 1995 and $1,300,000 was used in the repurchase of existing debt. During the three months, the Company issued or assumed a total of approximately $3,390,000 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. The Company also has available to it up to $750,000 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, 1995. 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. 13 PART II - OTHER INFORMATION Item 6. (b) The Company filed a Report on Form 8-K/A during the quarter: 1. Form 8-K/A dated March 15, 1995, as Amendment No. 2 to Current Report on Form 8-K, was filed to report the closing of the acquisition previously reported in the Current Report on Form 8-K filed on November 29, 1994 as amended by Form 8-K/A filed on December 9, 1994. The previously reported acquisition closed on February 8, 1995. 14 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 11, 1995 -----END PRIVACY-ENHANCED MESSAGE-----