SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
F O R M 10 - K
[X] ANNUAL REPORT PURSUANT TO SECTION l3 OR l5(d) OF
THE SECURITIES EXCHANGE ACT OF l934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission file number 0-14368
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1097006
(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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
None Not Applicable
Securities registered pursuant to Section l2(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding l2 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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant on March 21, 1996 was approximately $21,494,629. On such date, the
last sale price of registrant's common stock was $5.25 per share. Solely for the
purposes of this calculation, shares beneficially owned by directors and
officers of registrant have been excluded, except shares with respect to which
such directors and officers disclaim beneficial ownership. Such exclusion should
not be deemed a determination or admission by registrant that such individuals
are, in fact, affiliates of registrant.
As of March 21, 1996 the Registrant had outstanding 6,204,231 shares of Common
Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of the Form 10-K into which
Document the Document is Incorporated
-------- --------------------------------
Definitive Proxy Statement to Stockholders Part III, Items 10, 11, 12
and 13
<PAGE>
PART I
Item 1. Business
(a) General Development of Business.
General
The Company is the fourth largest chain of child care centers in the United
States, operating as of December 31, 1995, 239 child care centers in 23 states
and the District of Columbia with an aggregate licensed capacity of
approximately 23,500 children. The Company provides child care and preschool
programs to children primarily between 2 1/2 and six years of age and, to a
lesser extent, after school programs for older children and infant care. The
Company's strategy is to acquire independent, community-based centers and
chains, to expand in the growing employer-sponsored center market and to operate
centers in states with strict regulatory guidelines. In pursuit of this
strategy, from the period from January 1, 1993 through December 31, 1995, the
Company acquired or opened a total of 108 centers (net of closings), including
46 centers (net of closings) in 1995. In addition, as of December 31, 1995, the
Company operated 60 centers in conjunction with employer-sponsors, either on a
management contract basis or with one or more types of employer subsidies, such
as tuition subsidies, free or reduced rent or provision of services. Also, as of
that date the Company operated elementary schools in seven of its centers,
leases for operation two free-standing private elementary schools and also
operates after school programs in nine other private schools (which are not
included within the total numbers of Company centers set forth above.
The Company's proprietary computerized system monitors the staff-to-child ratio
in all of its centers, enabling the Company to staff efficiently in response to
shifts in occupancy levels. The Company believes its "Piaget Discovery Preschool
Program" differentiates it from its competitors and appeals to both
employer-sponsors and parents.
The Company's principal executive offices are located at 851 Irwin Street, Suite
200, San Rafael, California 94901, and its telephone number is (415) 257-4200.
Expansion Strategy
Since the beginning of 1993, the Company has added 120 centers, including 52 in
1995, and closed twelve centers, including six in 1995. Of the centers added in
1995, 16 were purchased in 1995 through the acquisition of the business
conducted by Prodigy Consulting, Inc., and affiliated partnerships ("Prodigy").
The following table sets forth data regarding the number of child care centers
which the Company has operated from January 1, 1991 through December 31, 1995,
as well as the approximate center capacity at the end of each period and average
percentage occupancy for each period.
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Open at beginning of period 59 92 131 154 193
Opened during period(a) 34 40 26 42 52
Closed during period (1) (1) (3) (3) (6)
--- --- --- --- ---
Open at end of period 92 131 154 193 239
-- --- --- --- ---
Net increase (decrease) 33 39 23 39 46
-- -- -- -- --
Approximate center capacity
(at end of period) 8,100 11,200 13,000 17,500 23,500
Average percentage occupancy(b) 68% 69% 72% 73% 71%
See footnotes on next page
- - ----------------------
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(a) Includes centers acquired, new centers opened and employer-sponsored
centers which the Company commenced operating under management contracts.
Does not include centers acquired during the period that were operated by
the Company in prior periods under management contracts.
(b) Average percentage occupancy is calculated by dividing revenues from
operation of all of the Company's centers (other than centers operated on a
management fee basis) for the respective periods by the product of (i)
center capacity for all of the Company's centers (other than those operated
on a management fee basis) and (ii) the weighted average of the basic
tuition rate for full-time four-year old children at all such centers for
the respective periods. The Company uses the tuition rate for four-year
olds for purposes of this calculation because that rate has historically
represented the rate paid for more than 50% of the total children enrolled
in the Company's centers.
The Company intends to continue to expand its business by acquiring individual
centers and small chains and by pursuing opportunities in the employer-sponsored
market. In order to realize the benefits of consolidation, the Company generally
seeks either to acquire centers in areas close to the Company's existing centers
so that regional managers are able to supervise the newly-acquired centers, or
to acquire a chain which has a sufficient number of centers to justify the
employment of an additional regional manager. The Company generally seeks to
acquire centers in states with strict regulations in order to avoid unexpected
expense and market disruption that may be caused by compliance with new
regulations adopted in states that previously lacked such regulations. The
Company retains acquisition specialists who see and analyze acquisition
opportunities on a continuing basis.
The child care industry is highly fragmented, and a majority of existing
licensed child care centers are owned by small operators with limited resources.
The Company believes that generally these small operators have limited
opportunities to sell their centers, which enhances the Company's ability to
acquire these centers on terms favorable to the Company. However, during 1995
the Company experienced increased competition from a few larger child care
chains for the acquisition of small child care operators. As a result, the
Company has found that prices in some instances have exceeded the price the
Company was willing to pay. As a result, these more competitive conditions may
result in a somewhat slower growth rate for acquisitions in 1996 and beyond. The
Company attempts to leverage its acquisitions by paying approximately one-third
of the purchase price in cash and issuing long-term promissory notes for the
remainder. Because many sellers own the center's real estate facility, the
Company is often able to lease these facilities on a long-term basis through
exercise of successive options, while avoiding fixed long-term obligations.
In evaluating acquisition candidates, the Company considers, among other things,
the location of a center, the local regulatory environment, demographic trends,
competition, quality of programs and management, the center's existing community
image, adequacy of the facility and opportunities for increased utilization and
low-cost expansion. In addition, the Company analyzes the financial aspects of
an acquisition with respect to pricing policies, cost control and profit margins
in order to identify areas for immediate and long-term improvement. The Company
also seeks to increase the revenues, profitability and quality of centers it
acquires by instituting uniform financial and operation controls and by
introducing new and improved curricula and other services. The Company believes
that through this type of expansion it will achieve the operating efficiencies
of a national chain, while offering parents a high quality of child care that
reflects the character of each local community.
Employer Child Care Services
The number of employer-sponsored centers has grown substantially in recent
years. As of December 31, 1995, the Company operated 60 employer-sponsored
centers (compared to 39 as of December 31, 1994), of which 24 were operated for
hospitals or other health care facilities, thirteen for governmental units and
23 for private sector companies, including TRW Space and Electronics, Inc.,
Amgen, Inc., and an affiliate of Southern New England Telecommunications Corp.
Of the 60 employer-sponsored centers, fifteen are operated by the Company under
management contracts pursuant to which the Company receives a fixed
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fee, and the balance are operated with one or more types of employer subsidies,
generally in the form of tuition subsidies, free or reduced rent or the
provision of services. During 1995 the Company acquired the business of Prodigy
which managed, at the time of acquisition, nine employer sponsored centers.
In some cases, the Company has arrangements with employers who "reserve" a
certain number of enrollment spaces in particular centers for children of their
employees and pay for such spaces whether or not they are utilized. The Company
also has arrangements with a number of large national employers, including Bank
of America, Sears and K-mart to provide incentives for their employees to enroll
their children in CDC centers. The Company intends to continue to pursue
opportunities in the growing employer-sponsored child care market.
(b) Financial Information About Industry Segments.
Not applicable.
(c) Narrative Description of Business.
Company Operations
Licensed capacity of the Company's individual child care centers ranges from 30
to 380 children, although actual enrollments are generally higher because some
children are enrolled on a part-time basis. The average percentage occupancy of
the Company's centers, measured by actual center revenues as a percentage of
total revenue capacity of all Company centers (other than those operated for
employer-sponsors pursuant to management contracts), was approximately 71% for
the year ended December 31, 1995.
The Company's centers contain classroom and recreational areas and kitchen and
bathroom facilities. The centers usually accommodate the grouping of children by
age. The centers have outdoor playgrounds, often with separate areas designed
for infants and toddlers, with the exception of downtown urban centers that
often utilize nearby parks. Each center is equipped with a variety of audio and
visual aids, educational supplies, games, toys and indoor and outdoor play
equipment. In addition, some of the centers are equipped with personal computers
with programs specifically designed for preschoolers. A number of centers are
equipped with Company-owned or leased vehicles for the transportation of
children to and from elementary school and for field trips.
Each center is administered by a director who is responsible for the operation
and maintenance of the center. The duties of a center director include the
staffing and training of qualified teachers and assistants, record keeping,
regulatory compliance, tuition collection, parent relations, marketing and home
office reporting. Directors are trained and supervised by regional managers, who
generally supervise between eight and fourteen centers in geographical areas
sufficiently compact to permit the regional managers to visit the centers under
their supervision on a regular basis. Center directors and regional managers
receive incentive compensation, the amount of which depends upon the enrollment
and/or profitability of their respective centers.
Children are usually enrolled in the centers on a weekly basis for either
full-day or half-day sessions. Centers provide enrolled children with snacks,
and in some locations, meals. The Company's current weekly charge for full-day
service ranges from $59.00 to $282.00 per child, depending on the location of a
particular center and the age of the child. Charges customarily are payable in
advance on a weekly or monthly basis.
The Company's centers are generally open throughout the year, usually five days
a week, from 6:30 a.m. to 6:30 p.m. Six centers are operated in public or
private school facilities on a before and after school basis only. In addition,
one of the Company's subsidiaries operates after-school programs in nine schools
(which are not included within the total number of Company centers set forth
above). New enrollments are most often highest in September and January, with
the largest decrease in enrollment being generally
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during holiday periods and the summer months (mirroring the seasonality of the
school year end and traditional vacation times). To offset the seasonal decline
in enrollment, some centers offer summer day camp programs for children up to
the age of 12.
Operating Controls and Procedures
Center directors submit weekly financial and operations reports to the Company's
headquarters, which are reviewed by management. The Company has installed in
each of its centers a personal computer with customized software permitting
faster and more comprehensive reporting of operating information. These reports
include, among other things, labor costs, scheduling, utilization information,
enrollment and tuition data by age group, a statement of prepaid tuition and
receivables data, and a listing of all cash receipts. The Company uses such
reports in conjunction with its own records of cash receipts and disbursements
to prepare monthly operating statements for each center. Management reviews
these operating statements with the directors on a monthly basis. In addition,
regional managers visit centers on a regular basis to monitor all aspects of the
centers' operation.
All funds received by each center are deposited in an account established by the
Company in a local bank. All payroll and most other center expenses are paid by
the Company directly out of the Company's headquarters. The Company also
purchases certain supplies for the centers. Direct expenditures by the centers
themselves are limited to miscellaneous operating expenses for which the centers
are reimbursed by the Company by means of a petty cash system.
The Company is committed to an effective safety program, and its operating
procedures are designed to enhance the safety of the children. While the Company
is vigilant in its efforts to promote the safety of the children at its centers,
there can be no assurance that there will be no injuries to children, or
allegations thereof, in the future.
Marketing
The Company believes that it has benefited from a number of national demographic
trends including an increased birth rate through the early 1990's, an increase
in working mothers employed outside the home and a growing emphasis by employers
on making available on-site child care for employees. According to U.S.
government statistics, births in 1989 exceeded 4,000,000 for the first time
since 1964, and continued to exceed that number in each of 1990, 1991 and 1992.
Furthermore, the percentage of all American children under age six with mothers
in the labor force grew from 39% in 1975 to 58% in 1990, and the percentage of
children receiving center-based child care increased from 13% of the total
number of children receiving child care in 1977 to 28% in 1990. In addition, the
number of children who are ages six to twelve increased from approximately 25
million in 1990 to 26 million in 1993 and is projected to increase to in excess
of 28 million by 1999.
The Company believes that it can increase enrollment in its centers by
developing and introducing high quality curricula and programs that provide
parents with meaningful reasons to choose the Company's centers for their
children over other alternatives. The Company has designed educational and
recreational programs to develop a child's social, intellectual and physical
skills, and it has distributed curriculum manuals developed by it for each age
group to its individual centers. In addition, the Company is committed to
ongoing research to develop curricula appropriate to children's cognitive
development. The curriculum covered by the Company's "Piaget Discovery
Preschool" trademark was developed under the supervision of an outside
consultant with a Ph.D. in Educational Psychology.
The Company's primary source of new enrollments for centers is recommendations
from customers in the communities in which it operates. The Company markets its
services through display advertisements and listing in the Yellow Pages,
newspaper advertisements and distribution of fliers at schools and community
functions. The Company spends a large portion of its advertising budget in the
summer months in anticipation of the fall enrollment period, with continued
advertising throughout the year. The
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Company markets its services to employer-sponsored centers through relationships
with consultants, attendance at trade shows and industry publications.
The director of each center is responsible for marketing and promoting the
center. The director encourages parental involvement in the center through
monthly newsletters and reports to parents as well as parent-teacher conferences
and parental visits to and inspections of the center. Centers use promotional
activities such as "Grandparents' Day," holiday activities, graduation and open
houses as part of the total marketing program.
Competition
Based on data from trade publications, the Company is the fourth largest chain
of child care centers in the United States. The child care industry is highly
fragmented, with the 50 largest for-profit child care companies estimated by the
Company to account for no more than 10% of the industry's licensed capacity.
Competition within the child care industry is based largely upon location and
adequacy of facilities, quality of service and price. In most of the geographic
areas in which the Company operates, the Company competes with centers owned by
larger national chains such as Kinder-Care Learning Centers, Inc., and La Petite
Academy, Inc., as well as with centers owned by non-profit organizations that
may be supported by endowments and charitable contributions. During 1995 the
Company has noted an increase in the number of centers operated by larger
competitors in the Company's markets and their increased use of discounts and
other promotions. The Company also competes with individually-owned proprietary
child care centers, licensed child care homes, in-home individual child care
providers and corporations that provide child care for their employees
privately. Many non-profit child care centers have lower occupancy costs for
their facilities than does the Company and, consequently, charge less for their
services. Additionally, public schools are offering , on an increasing basis,
before and after school programs which compete with services offered by the
Company. Such programs have the built-in advantages of being able to use
existing, well-established facilities, having a ready source of enrollments from
their existing student population, and having very accessible funding available.
The Company competes principally by offering trained personnel, professionally
planned educational and recreational programs, well equipped facilities, and
additional services such as transportation.
Insurance
The Company maintains comprehensive general liability insurance, which provides
coverage for both bodily injury and property damage claims up to a total of $15
million. The primary general liability policy has a limit of $1 million per
occurrence and the Company maintains an excess umbrella liability policy that
provides coverage for an additional $14 million for a total liability insurance
of $15 million. The Company believes such insurance coverage is adequate. The
Company has procured limited coverage for child physical and sexual abuse
claims, subject to a $1,000,000 annual aggregate limitation. To date, the
Company has not incurred any liability with respect to any claims of abuse.
The Company has not experienced difficulty in obtaining insurance coverage, but
there can be no assurance that adequate insurance coverage will be available in
the future, or that the Company's current coverage will protect it against all
possible claims.
Government Regulation
Each center must be licensed under applicable state or local licensing laws and
is subject to a variety of state and local regulations. Although these
regulations vary greatly from jurisdiction to jurisdiction, governmental
agencies generally review the safety, fitness and adequacy of the buildings and
equipment, the ratio of staff to children, the dietary program, the daily
curriculum and compliance with health standards. In most jurisdictions, these
agencies conduct scheduled and unscheduled inspections of the centers, and
licenses must be renewed periodically. Repeated failures of a center to comply
with
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applicable regulations can subject it to sanctions that might include
probation or, in more serious cases, suspension or revocation of the center's
license to operate. The Company believes that each of its centers is in
substantial compliance with such requirements. The Company generally seeks to
operate centers in states with strict regulations in order to avoid unexpected
expense and market disruption that may be caused by compliance with regulations
adopted in states that previously lacked such regulations.
Federal regulations and licensing requirements require compliance with minimum
standards in order to qualify for participation in federal assistance programs.
Under the Social Security Act, the federal government provides assistance to
states that have an established plan for child-welfare services, including child
care services. As a result, state agencies have established minimum standards
for schools, based on the number of eligible children enrolled in each school,
in order for each school to receive financial assistance. The Company estimates
that approximately 11% of its revenue is derived from various state public
assistance programs.
In addition, the Company is subject to the Americans with Disabilities Act
("ADA"), which prohibits discrimination on the basis of disability in public
accommodations and employment. The ADA became effective as to public
accommodations in January 1992 and as to employment in July 1992. While the
Company believes that its centers are substantially in compliance with the
requirements of the ADA and has not received any complaints concerning
compliance with such requirements, because the statute has only been in effect
for a limited time, there still is significant uncertainty concerning the full
scope and impact of the statute. A determination that the Company is not in
compliance with the ADA could result in the imposition of fines or an award of
damages to private litigants, and it could require significant expenditures by
the Company to bring the Company's centers into compliance with the ADA.
The Internal Revenue Code of 1986, as amended (the "Code"), provides for an
income tax credit ranging from 20% to 30% of certain child care expenses subject
to certain maximum limitations. The fee paid to the Company for child care
services qualifies for the federal tax credit under the Code, provided that
various requirements under the Code are met.
The Company is also subject to the Fair Labor Standards Act, which governs such
matters as minimum wages, overtime compensation and working conditions. Less
than 2% of the Company's personnel are paid at rates equal to the federal
minimum wage and, accordingly, increases in the minimum wage will not materially
increase the Company's labor costs.
Income Tax
The net operating loss carryforwards of the Company and its subsidiaries are
subject to certain rules set forth in the Code that limit the ability of the
Company and its subsidiaries to use such net operating loss carryforwards to
reduce taxes.
Employees
The Company's centers are currently organized into regions, each of which is
under the management of a trained regional manager. Individual centers are
staffed with a director, teachers and teaching assistants and, depending on the
size of the school, an assistant director. All management personnel participate
in periodic training programs and are required to meet applicable state and
local regulatory standards. It is the Company's policy to comply with all state
regulations and guidelines pertaining to staff-to-child ratios. These ratios
vary from state to state and with the age group of the children under
supervision. In this regard, the Company employs, with respect to (i) infants
under the age of 13 months, one staff member for each three to four children;
(ii) toddlers between the ages of 12 and 36 months, one staff member for each
four to six children; and (iii) preschool children 3 to 5 years of age, one
staff member for each eight to twelve children. The Company maintains a
proprietary computerized system that monitors the staff-to-child ratio in all of
its centers, enabling the Company to staff efficiently in response to shifts in
occupancy levels.
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As of December 31, 1995, the company employed approximately 4,700 persons, of
whom approximately 40% are employed on a part-time basis. One center operated by
a Company subsidiary has employees that are represented by a union. The Company
believes that its relations with its employees are good. The Company experiences
significant turnover of its hourly employees, but not of its regional managers.
Item 2. Properties
As of December 31, 1995 the Company operated 239 centers in 23 states and the
District of Columbia, located as follows:
Location Number of Location Number of
Centers Centers
-------------------------------------- ------------------------------
Pennsylvania 48 Oregon 5
California 45 Nebraska 5
Connecticut 21 Kansas 5
New Jersey 20 Rhode Island 4
Indiana 11 Alabama 3
Illinois 11 Virginia 3
Massachusetts 10 Texas 2
New York 9 Michigan 2
Washington 9 Delaware 2
Wisconsin 8 Florida 1
Georgia 7 Iowa 1
Maryland 6 Washington D.C. 1
As of December 31, 1995, the Company owned 15 centers, leased 207 centers with
terms expiring on the leased properties on various dates between 1996 and 2010
and operated 17 centers pursuant to management contracts with employers. Six of
the centers are operated in public or private school facilities on a before and
after school basis only.
The Company's principal executive offices are currently located in San Rafael,
California in 6,900 square feet of space that the Company leases pursuant to the
terms of a lease agreement that expires in 1999. The lease calls for annual
lease payments ranging from approximately $150,000 in 1996 to approximately
$168,000 in the last year of the lease. The Company believes its properties are
adequate for its uses.
Item 3. Pending Legal Proceedings
The Company is not a party to any material legal proceedings. The Company is a
party to certain routine legal proceedings arising in the ordinary course of
business that are covered by insurance, and for which the insurer has accepted
the defense without a reservation of rights.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
The Common Stock has been included for quotation in the NASDAQ National
Market since May 20, 1986. Until February 9, 1994, the NASDAQ symbol for the
Common Stock was "CDCRA," at which
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time the symbol was changed to "CDCR." The following table sets forth for the
calendar quarters indicated the historical high and low last sales prices of the
Common Stock, as reported by NASDAQ.
High Low
1995 ---- ---
----
First Quarter $ 15.875 $ 11.00
Second Quarter $ 17.625 $ 15.00
Third Quarter $ 17.625 $ 11.75
Fourth Quarter $ 12.00 $ 4.00
1994
----
First Quarter $ 14.00 $ 8.50
Second Quarter $ 13.125 $ 11.50
Third Quarter $ 14.00 $ 11.50
Fourth Quarter $ 14.75 $ 9.875
At March 21, 1996, there were 313 record holders of the Common Stock.
The Company has never declared or paid any cash dividends or made any other cash
distribution on its Common Stock, and it is anticipated that in the foreseeable
future the Company will follow a policy of retaining earnings for use in its
business. Any future determination as to declaration and payment of dividends
will be made at the discretion of the Board of Directors of the Company.
Item 6. Selected Financial Data
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES (in thousands,
except per share data) (1)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Revenues from Operations $77,627 $55,323 $38,564 $25,658 $19,821
Operating Expenses 73,010 50,898 36,644 25,837 19,603
------- ------- ------- ------- -------
Income (Loss) from Operations 4,617 4,425 1,920 (179) 218
Other Income (Expense) (773) (744) (618) (382) (466)
------- ------- ------- ------- -------
Income (Loss) before
provision for income taxes 3,844 3,681 1,302 (561) (248)
Provision for Income Taxes 1,208 921 197 55 49
------- ------- ------- ------- -------
Net Income (Loss) $ 2,636 $ 2,760 $ 1,105 $ (616) $ (297)
------- ------- ------- ------- -------
Net Income (Loss) per share $ .38 $ .57 $ .35 $ (.33) $ (.28)
------- ------- ------- ------- -------
Long Term Obligations $17,535 $13,736 $ 6,896 $ 6,198 $ 4,701
------- ------- ------- ------- -------
Total Assets $73,795 $64,691 $36,093 $23,526 $18,845
------- ------- ------- ------- -------
(1) Certain reclassifications have been made to prior years financial statements
to conform to the 1995 presentation.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
During the period from January 1, 1993 through December 31, 1995, the number of
centers operated by the Company increased from 131 to 239 and center capacity
increased from approximately 11,200 to 23,500 children. The Company has achieved
such growth primarily by acquiring existing centers and also by opening new
centers and entering into contracts to manage centers sponsored by employers. In
1995, the Company acquired or opened a total of 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. During 1994, the Company acquired or opened 42 centers and closed
three centers. During 1993, the Company acquired or opened 28 centers (including
two which it previously operated under management contracts), and closed three
centers. Accordingly, year-to-year results may fluctuate depending upon the
timing of the Company's acquisition of existing centers and the opening of new
centers.
Historically, the Company's operating revenues have followed the seasonality of
a school year, declining during the summer months and the year-end holiday
period.
Results of Operations
Revenues from Operations
Revenues from operations increased 40% in 1995 to $77,627,000 from $55,323,000
in 1994. Revenues for those centers open in corresponding time periods in both
years increased approximately 3%, with the remainder due to acquisitions. All of
the increase on a same center basis was due to price increases, as these centers
experienced an enrollment decrease of less than 2%. Revenues increased by 43% in
1994 to $55,323,000 from $38,564,000 in 1993. Revenues for those centers open in
corresponding time periods in both years increased approximately 9%, with the
remainder due to acquisitions. Approximately 60% of the increase on a same
center basis was due to increases in prices, with the remainder due to
enrollment increases.
Operating Expenses
Payroll and related expenses as a percentage of total revenues were 54.4%,
54.2%, and 56.0% in 1995, 1994, and 1993, respectively. The increase in 1995
from 1994 was due to the higher percentage for those centers acquired in 1995.
The percentage for those centers that the Company operated prior to 1995 was
unchanged from 1994. The decrease in 1994 from 1993 was due to increased
enrollments and improved control of the scheduling of labor. Management
estimates that both factors were equally responsible for the decline.
Other operating expenses were 25.5% of revenues in 1995, 24.9% in 1994 and 25.4%
in 1993. Other operating expenses increased as a percentage of revenue in 1995
from 1994 versus a decline in 1994 due to the slower growth of the average
center's revenues in 1995 versus 1994. The main reason for the decline in 1994
from 1993 was an increase in average center revenues from higher enrollments and
increased prices, which resulted in a decrease in the fixed costs of the
Company's centers as a percentage of revenues.
Administrative expense as a percentage of total revenue was 8.1% in 1995, 7.6%
in 1994, and 8.2% in 1993. The increase in 1995 was due to fewer acquisitions
being completed than anticipated and to higher expenses associated with the
Company's strategy to increase emphasis on expanding its employer sponsored
business. The decrease in 1994 from 1993 was attributable to the increase in
revenues on a same center basis and to the increase in revenues attributable to
acquisitions being greater than the rate of increase in overhead expenses
associated with such acquisitions.
Depreciation and amortization expenses increased by 62% to $3,804,000 in 1995
from $2,355,000 in 1994. Depreciation and amortization expenses increased by 36%
to $2,355,000 in 1994 from $1,727,000 in 1993. This increase was due mainly to
the increase in new centers acquired in 1995 and 1994.
10
<PAGE>
Advertising and promotion expenses as a percentage of revenues has increased to
1.1% in 1995 from 1.0% in 1994 and 0.9% in 1993.
Other Expense
Interest income in 1995 compared to 1994 increased by $530,000, due to higher
cash balances offset somewhat by lower average interest rates in 1995. Interest
income in 1994 compared to 1993 increased by $220,000, due to higher cash
balances on average and offset somewhat by lower average interest rates in 1994.
Interest expense increased by $559,000 in 1995 from 1994 and by $346,000 in 1994
from 1993. The 1995 and 1994 increases were due to higher average debt
outstanding because of the debt issued by the Company in connection with its
acquisition of centers, offset somewhat by a lower average interest rate on the
Company's outstanding debt. The Company's average interest rate decreased in
both 1995 and 1994 due to the decline in variable rates charged on certain of
the Company's borrowings, the retirement of higher interest debt and the
issuance of new debt in connection with its acquisitions at a lower average
rate.
Income Taxes
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes," effective January 1, 1993. The cumulative effect
of adopting SFAS No. 109 was not material.
The net operating loss carryforwards of the Company and its subsidiaries are
subject to certain rules set forth in the Code that limit the ability of the
Company and its subsidiaries to use such net operating loss carryforwards to
reduce future tax. Due to these limitations the Company was unable to use
proportionately as much of the operating loss carryforward in 1995 as in 1994
and 1993. Therefore, the Company's effective tax rate has increased to 31.5% in
1995 from 25.0% in 1994 and 15.1% in 1993.
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 December 31, 1995, $14,515,000 principal amount of such notes
was outstanding, carrying a weighted average annual interest rate of 8.6% and a
weighted average maturity of 7.9 years. Furthermore, the Company seeks whenever
possible to lease the center 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 debt and equity securities as payment for
a substantial portion of the purchase price. In conjunction with the acquisition
of Magic Years in 1991, the Company issued approximately 180,000 shares of
Common Stock to the stockholders of Magic Years and an aggregate of $600,000
principal amount of 8% notes to certain noteholders of Magic Years. The notes
were repaid in full on January 31, 1994. In connection with the acquisition of
AFSC in November 1992, the Company issued to the stockholders of AFSC
approximately 138,000 shares of Common Stock, as well as shares of Preferred
Stock having a liquidation preference of $3,250,000 and which are convertible
into approximately 591,000 shares of Common Stock. In 1995, shares having a
liquidation preference of $550,000 were converted into 100,000 shares of Common
Stock. In 1995, The Company purchased the assets of its Prodigy, seven community
based centers and nine employer sponsored centers, in a transaction for
approximately $5,100,000. This purchase price consisted of approximately
$2,850,000 in cash and $2,250,000 in notes and assumed liabilities.
Capital resources for the cash portion of acquisitions have generally been
obtained through public and private sales of the Company's securities at various
times since inception. In December 1994 and January 1995, the Company obtained
net proceeds of approximately $19,550,000 from a public offering of 2,137,500
shares of Common Stock at a price of $10.25 per share. In December 1993, the
Company obtained net proceeds of approximately $7,610,000 from a public offering
of 1,050,000 shares of Common Stock at a price of $8.00 per share. In the
Company's most recent private placement conducted in May 1993, the Company
obtained net proceeds of approximately $2,130,000 from the sale of 910,000
shares of Common Stock at a price of $2.75 per share.
11
<PAGE>
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 payments. The Company
also used $3,115,000 of its cash balances to repay debt. Approximately
$9,550,000 of the proceeds from the 1994 stock offering was used for the
acquisition or opening of new centers. During 1995 the Company issued or assumed
$7,375,000 of indebtedness related to acquisitions. As of December 31, 1995, the
Company had cash and short-term investment balances of $11,914,000. 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 payments. During 1994 approximately $6,700,000 of the Company's
existing cash balances were used for the acquisition or opening of new centers,
and the Company issued or assumed a total of approximately $9,040,000 of
indebtedness related to acquisitions, including $2,500,000 in long term debt
associated with the purchase of land and buildings in connection with one
acquisition. During 1993 net cash provided by operations was $3,123,000. This
internally generated cash funded all of the Company's internal needs for
purchases of property, plant and equipment and debt repayments and approximately
one-third of the $1,839,000 invested by the Company in new centers.
The Company's management believes that its 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
$1,000,000 under an unsecured line of credit furnished by Wells Fargo Bank.
During 1995 the Company drew down the full amount available under the line of
credit, although at December 31, 1995 had no outstanding balance. Amounts drawn
down bear interest 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.
Item 8. Financial Statements
See Page F.
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Company
Information concerning directors required by this item is incorporated by
reference to the Company's definitive proxy statement to be filed pursuant to
Regulation 14A not later than April 29, 1996.
Executive Officers
The executive officers of the Company are as follows:
Name Age Position
- - ------------------------------------------------------------------------------
Richard A. Niglio 53 Chief Executive Officer and Chairman
Elanna S. Yalow 41 President, Chief Operating Officer
Randall J. Truelove 47 Vice President, Finance
Rebekah A. Renshaw 48 Executive Vice President, Operations
Jane Delaney 32 Vice President
Frank A. Devine 49 Secretary/General Counsel
12
<PAGE>
None of the above has any family relationship with any other person so named,
and there are no arrangements or understandings between any executive officer
and any other person pursuant to which any person was selected as an officer.
Officers are elected each year at the meeting of the Board of Directors
immediately following the annual meeting the stockholders.
The business experience, principal occupations and employment of each of the
executive officers of the Company during at least the past five years, together
with their periods of service as executive officers of the Company, are set
forth below.
Richard A. Niglio was appointed Chief Executive Officer of the Company in March
1987. From 1982 until joining CDC, he was President, Chief Executive Officer and
a director of Victoria Station Incorporation, a restaurant chain based in
Larkspur, California. Mr. Niglio is currently a director of Psychiatric
Management Resources, Inc., a manager of psychiatric partial hospitalization
services.
Elanna S. Yalow has been President of the Company since January 19, 1996 and
Vice President since April 1992. From July 1989 until April 1992, Dr. Yalow was
a self-employed consultant, and served as a consultant to the Company during
that period. From September 1987 until June 1989, Dr. Yalow attended Stanford
University, graduating with a Masters in Business Administration. Dr. Yalow has
a doctorate in Educational Psychology from the Stanford University School of
Education.
Randall J. Truelove has been Vice President, Finance of the Company since
December 1987. From 1982 until joining CDC, Mr. Truelove was Controller of
Victoria Station Incorporated.
Rebekah A. Renshaw has been a Vice President of the Company since 1985, and from
1983 to 1985 she was a Regional Director with the Company.
Jane Delaney has been a Vice President of the Company since June, 1995 and from
1991 to 1995 was a Regional Director with the Company.
Frank A. Devine has been Secretary and General Counsel of the Company since
October 1987. Prior to that time, Mr. Devine was Corporate Counsel of Victoria
Station Incorporated.
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the
Company's definitive proxy statement to be filed pursuant to Regulation
14A not later than April 29, 1996.
Item 12. Security Ownerships of Certain Beneficial Owners and Management
Information required by this item is incorporated by reference to the
Company's definitive proxy statement to be filed pursuant to Regulation
14A not later than April 29, 1996.
Item 13. Certain Relations and Related Transactions
Information required by this item is incorporated by reference to the
Company's definitive proxy statement to be filed pursuant to Regulation
14A not later than April 29, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements: Index to Financial Statements at page F.
13
<PAGE>
2. Financial Statement Schedules: None.
3. Exhibits.
Item Number (Exhibit Number referenced to Item 601 of Regulation S-K)
1. Underwriting Agreement: Not applicable
2. Plan of acquisition, reorganization, arrangement, liquidation or
succession: Not applicable.
3. Articles of Incorporation and By-Laws
A. Certificate of Incorporation, filed on December 23, 1983,
incorporated by reference to Exhibit 3(A) to Registrant's Form
10-K for fiscal year ended December 31, 1994.
B. Amendment to Certificate of Incorporation filed on July 12,
1984., incorporated by reference to Exhibit 3(B) to Registrant's
Form 10-K for fiscal year ended December 31, 1994.
C. Amendment to Certificate of Incorporation filed on January 29,
1985, incorporated by reference to Exhibit 3(C) to Registrant's
Form 10-K for fiscal year ended December 31, 1994.
D. Amendment to Certificate of Incorporation filed on August 19,
1985, incorporated by reference to Exhibit 3(D) to Registrant's
Form 10-K for fiscal year ended December 31, 1994.
E. Amendment to Certificate of Incorporation filed on May 27, 1987,
incorporated by reference to Exhibit 3(E) to Registrant's Form
10-K for fiscal year ended December 31, 1994.
F. Amendment to Certificate of Incorporation filed on June 2, 1988,
incorporated by reference to Exhibit 3(F) to Registrant's Form
10-K for fiscal year ended December 31, 1994.
G. Amendment to Certificate of Incorporation filed on March 18,
1991, incorporated by reference to Exhibit 3(G) to Registrant's
Form 10-K for fiscal year ended December 31, 1994.
H. Amendment to Certificate of Incorporation, filed on October 10,
1991, incorporated by reference to Exhibit (4)(A) to Form S-2
Registration Statement No. 33-92533.
I. Amendment to Certificate of Incorporation filed on July 29, 1992
(incorporated by reference to Exhibit 3(H) to Registrant's Form
10-K for the fiscal year ended December 31, 1992 ("1992 Form
10-K").
J. Certificate of Amendment to Certificate of Incorporation filed on
December 6, 1993, incorporated by reference to Exhibit 3(H) to
Registrant's Form 10-K for the fiscal year ended December 31,
1993.
K. By-Laws as amended, incorporated by reference to Exhibit 3(g) to
Registrant's Form 10-K for the fiscal year ended December 31,
1989 (the "1989 Form 10-K").
4. Instruments defining the rights of security holders, including
indentures:
A. Excerpts from Certificate of Incorporation, as amended,
incorporated by reference to Exhibit 4(A) to Form S-4
Registration Statement No. 33-38858.
B. Excerpts from By-Laws, as amended, incorporated by reference to
Exhibit 4(B) to Form S-4 Registration Statement No. 33-38858.
14
<PAGE>
C. Specimen Certificate for Common Stock par value $.01 per share,
incorporated by reference to Registrant's Form 10-K for fiscal
year ended December 31, 1993.
D. Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock, incorporated by reference to Exhibit
4(D) to Registrant's 1993 Form 10-K for fiscal year ended
December 31, 1992.
5. Opinion re legality: Not applicable.
6. Opinion re discount on capital shares: Not applicable.
7. Opinion re liquidation preference: Not applicable.
8. Opinion re tax matters: Not applicable.
9. Voting trust agreement: Not applicable.
10. Material Contracts:
A. CDC Stock Option Plan, as amended, incorporated by reference to
Exhibit 10(A) of S-2 Registration Statement No. 33-85878.
B. Employment Agreement between Registrant and Richard A. Niglio,
dated December 15, 1994, incorporated by reference to Exhibit
10(B) to Registrant's Form 10-K for fiscal year ended December
31, 1994.
C. Form of Stock Option Agreement dated as of June 16, 1992 between
the Registrant and each of its non-employee directors,
incorporated by reference to Exhibit 10(C) to Form 10-K for
fiscal year ended December 31, 1993.
D. Shareholders Agreement dated as of July 16, 1992 between the
Registrant, American Family Service Corporation, LN Investment
Capital Limited Partnership and Lepercq Capital Management,
Inc., incorporated by reference to Exhibit 10(L) of the
Registrant's 1992 Form 10-K.
E. Form of Stock Purchase Agreement dated March 22, 1993 and
Registration Rights Agreement attached as Exhibit A thereto,
incorporated by reference to Exhibit 10(H) to S-2 Registration
Statement No. 33-70360.
F. Promissory Note of Richard A. Niglio dated May 28, 1993 in the
principal amount of $200,200, and related Pledge Agreement
between the Registrant and Mr. Niglio, incorporated by reference
to Exhibit 10(I) to S-2 Registration Statement No. 33-70360.
G. Non-Employee Directors' Stock Option Plan, incorporated by
reference to Exhibit 10(J) to S-2 Registration Statement No.
33-70360.
H. Promissory Note of Richard A. Niglio dated December 16, 1994 in
the principal amount of $224,475, incorporated by reference to
Exhibit 10(I) to Registrant's Form 10-K for fiscal year ended
December 31, 1994.
11. Statements re computation of per share earnings is not required
because the relevant computations can be clearly determined from
the material contained in the financial information included
herein.
15
<PAGE>
12. Statements re computation of ratios: Not Applicable.
13. Annual Report to security holders, Form 10-Q or quarterly report
to security holders: Not Applicable.
14. Material foreign patents: Not Applicable.
15. Letter re unaudited interim financial information: Not
Applicable.
16. Letter re change in certifying accountants: Not Applicable.
17. Letter re director resignation: Not Applicable.
18. Letter re change in accounting principles: Not Applicable.
19. Previously unfiled documents: Not Applicable.
20. Report furnished to security holders: Not Applicable.
21. Other documents or statements to security holders: Not
Applicable.
22. Subsidiaries of the Registrant:
Name of Subsidiary State of Incorporation
------------------ ----------------------
Magic Years Child Care and Learning Pennsylvania
Centers, Inc.
Greentree Learning Center, Inc. New Jersey
Fox Day Schools, Inc. Illinois
Children's Discovery Centers of Illinois, Inc. Delaware
Children's Discovery Centers of Virginia, Inc. Delaware
Prodigy Consulting of Flint, Inc. Georgia
23. Consents of experts and counsel: Consent of Arthur Andersen LLP
24. Power of attorney: Not Applicable.
25. Statements of eligibility of trustees: Not Applicable.
26. Invitations for competitive bids: Not Applicable.
27. Additional exhibits: Not Applicable.
28. Information from reports furnished to state insurance regulatory
authorities: Not Applicable.
(b) Reports on Form 8-K.
None.
(c) Exhibits. Exhibits required by this item are not applicable.
(d) Additional Financial Statements or Schedules. None.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company 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/s Richard A. Niglio
Date: March 29, 1996 ------------------------------------------
----------------------- Richard A. Niglio
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
s/s Richard A. Niglio Chairman of the Board March 29, 1996
- - ---------------------------- of Directors, and --------------
Richard A. Niglio Chief Executive Officer,
(Principal Executive Officer)
s/s Randall J. Truelove Vice President, Finance March 29, 1996
- - ---------------------------- (Principal Financial and --------------
Randall J. Truelove Accounting Officer)
s/s Mark P. Clein Director March 29, 1996
- - ---------------------------- --------------
Mark P. Clein
s/s Michael J. Connelly Director March 29, 1996
- - ---------------------------- --------------
Michael J. Connelly
s/s Robert E. Kaufmann Director March 29, 1996
- - ---------------------------- --------------
Robert E. Kaufmann
s/s W. Wallace McDowell, Jr Director March 29, 1996
- - ---------------------------- --------------
W. Wallace McDowell, Jr.
s/s Myron A. Wick, III Director March 29, 1996
- - ---------------------------- --------------
Myron A. Wick, III
s/s Elanna S. Yalow Director March 29, 1996
- - ---------------------------- --------------
Elanna S. Yalow
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
Report of Independent Public Accountants F-1
Financial Statements:
Consolidated Balance Sheets F-2
December 31, 1995 and 1994
Consolidated Statements of Operations for the F-3
Years Ended December 31, 1995, 1994, and 1993
Consolidated Statements of Stockholders' Equity F-4
for the Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years F-5
Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements F-6
through F-14
All other schedules required by Regulation S-X have been omitted because they
are not applicable or because the required information is included in the
financial statements or notes thereto.
F
<PAGE>
ARTHUR ANDERSON LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Children's Discovery Centers of America, Inc.:
We have audited the accompanying consolidated balance sheets of Children's
Discovery Centers of America, Inc. (a Delaware corporation) and subsidiaries as
of December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Children's Discovery Centers of
America, Inc., and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSON LLP
Oakland, California,
February 23, 1996
F-1
<PAGE>
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1995 AND 1994
(In thousands except share information)
ASSETS 1995 1994
------ -------
CURRENT ASSETS:
Cash and cash equivalents $3,023 $21,558
Short-term investments 7,891 1,300
Accounts receivable, net of
allowance for doubtful accounts
of $246 and $121, respectively 2,537 1,646
Prepaid expenses and other 2,371 1,178
----- -----
Total current assets 15,822 25,682
------ ------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,320 878
Buildings 6,024 4,705
Furniture, fixtures and equipment 9,177 7,007
Transportation equipment 1,825 1,259
Leasehold improvements 7,660 5,177
----- -----
Less: Accumulated depreciation
and amortization (6,389) (4,429)
------- -------
19,617 14,597
------- -------
INTANGIBLE ASSETS, net 36,326 22,903
------ -------
OTHER ASSETS 2,030 1,509
----- -----
$73,795 $64,691
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
---- ----
CURRENT LIABILITIES:
Current portion of long-term debt $2,421 $1,690
Accounts payable 626 798
Payroll and related accruals 2,214 1,463
Accrued liabilities and other 799 482
--- ---
Total current liabilities 6,060 4,433
----- ------
LONG-TERM DEBT, net of current portion 17,535 13,736
------ ------
ACCRUED STRAIGHT- LINE RENT 877 1,066
--- -----
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Special Stock - authorized 5,000,000
shares; outstanding as:
Series A Convertible Preferred,
par value $.01 per share,
liquidation value $2,700; 2,700 shares
outstanding in 1995 and 3,250 shares
outstanding in 1994 -0- -0-
Common Stock, par value $.01 per share
Authorized 20,000,000 shares,
outstanding: 6,204,231 in 1995,
5,931,604 in 1994 132 130
Treasury Stock (7,200,844 in 1995 and 1994) -0- -0-
Paid-in Capital in Excess of Par 52,723 51,391
Unrealized Gain (Loss) on Short-Term
Investments 10 (30)
Loans to Shareholder Officers (783) (640)
Accumulated deficit (2,759) (5,395)
------- -------
Total stockholders' equity 49,323 45,456
------ ------
$73,795 $64,691
======= =======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-2
<PAGE>
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands, except per share data)
1995 1994 1993
---- ---- ----
REVENUE FROM OPERATIONS:
Child care fees $76,658 $55,064 $38,342
Management fees 969 259 222
------- ------- -------
Total revenue from operations 77,627 55,323 38,564
Payroll and related expenses 42,235 29,987 21,603
Other center operating expenses 19,811 13,766 9,800
Administrative expenses 6,317 4,227 3,175
Depreciation and amortization 3,804 2,355 1,727
Advertising and promotion 843 563 339
------- ------- -------
Total operating expenses 73,010 50,898 36,644
------- ------- ------
Income from operations 4,617 4,425 1,920
OTHER INCOME (EXPENSE):
Interest income 807 277 57
Interest expense (1,580) (1,021) (675)
------- ------- ----
Income before income taxes 3,844 3,681 1,302
PROVISION FOR INCOME TAXES 1,208 921 197
------- ------- ------
NET INCOME $2,636 $2,760 $1,105
======= ======= ======
NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE $0.38 $0.57 $0.35
======= ======= =======
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 6,929 4,831 3,175
======= ======= =======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-3
<PAGE>
<TABLE>
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
<CAPTION>
Series A Paid-In
Preferred Stock Common Stock Capital Loans to
Number Number in Excess Shareholder
of Shares Amount of Shares Amount of Par Officers
--------- ------ --------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 3 $- 1,972 $91 $22,738 $-
Private Offering (Net of expenses of $88) - - 910 9 2,405 (281)
Public Offering (Net of expenses of $284) - - 1,050 10 7,602 -
Net Income - - - - - -
----------------------------------------------------------------------------------------------
BALANCE, December 31, 1993 3 - 3,932 110 32,745 (281)
Public Offering (Net of expenses of $512) - - 2,000 20 18,646 (359)
Unrealized Loss on Short Term Investments - - - - - -
Net Income - - - - - -
----------------------------------------------------------------------------------------------
BALANCE, December 31, 1994 3 - 5,932 130 51,391 (640)
Public Offering (Net of expenses of $83) - - 138 1 1,242 -
Exercise of Options and Warrants - - 34 - 49 -
Preferred Stock Conversion - - 100 1 (1) -
Interest and Loans to Shareholder Officers - - - - 42 (143)
Unrealized Gain on Short Term Investments - - - - - -
Net Income - - - - - -
---------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 3 $- 6,204 $132 $52,723 $(783)
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on Total
Short Term Accumulated Stockholders'
Investment Deficit Equity
-------------- ----------- -------------
<S> <C> <C> <C>
BALANCE, December 31, 1992 $- $(9,260) $13,569
Private Offering (Net of expenses of $88) - - 2,133
Public Offering (Net of expenses of $284) - - 7,612
Net Income - 1,105 1,105
---------------------------------------------------------
BALANCE, December 31, 1993 - (8,155) 24,419
Public Offering (Net of expenses of $512) - - 18,307
Unrealized Loss on Short Term Investments (30) - (30)
Net Income - 2,760 2,760
---------------------------------------------------------
BALANCE, December 31, 1994 (30) (5,395) 45,456
Public Offering (Net of expenses of $83) - - 1,243
Exercise of Options and Warrants - - 49
Preferred Stock Conversion - - -
Interest and Loans to Shareholder Officers - - (101)
Unrealized Gain on Short Term Investments 40 - 40
Net Income - 2,636 2,636
---------------------------------------------------------
BALANCE, December 31, 1995 $10 $(2,759) $49,323
---------------------------------------------------------
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</FN>
</TABLE>
F-4
<PAGE>
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
<CAPTION>
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,636 $ 2,760 $ 1,105
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,960 1,371 1,083
Amortization 1,844 984 644
Changes in assets and liabilities
Acounts receivable (1,059) (478) (286)
Prepaid expenses and other (1,022) (486) (137)
Accounts payable (172) (7) 290
Payroll and related accruals 527 294 238
Accrued liabilities and other (32) 57 186
-------- -------- --------
Net cash provided by operating activities 4,682 4,495 3,123
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (21,150) (4,270) (100)
Proceeds from sale of short-term investments 14,599 3,070 --
Payments for acquisitions of child care centers (9,089) (6,055) (1,793)
Payments for the start-up of centers (475) (662) (46)
Purchases of property, plant and equipment, net (4,952) (2,368) (1,440)
Other, net (496) 202 10
-------- -------- --------
Net cash used for investing activities (21,563) (10,083) (3,369)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of issuance costs 1,191 18,307 9,745
Proceeds from issuance of long-term debt 1,483 218 210
Repayments of long-term debt (4,328) (2,041) (1,023)
-------- -------- --------
Net cash provided by (used for) financing activities (1,654) 16,484 8,932
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (18,535) 10,896 8,686
CASH AND CASH EQUIVALENTS, beginning of year 21,558 10,662 1,976
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 3,023 $ 21,558 $ 10,662
-------- -------- --------
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</FN>
</TABLE>
F-5
<PAGE>
CHILDREN'S DISCOVERY CENTERS OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations:
Children's Discovery Centers of America, Inc. and subsidiaries ("the Company")
provides preschool child care services at company-operated and
employer-sponsored child care centers. At December 31, 1995 the Company operated
239 centers located in 23 states and the District of Columbia with an aggegrate
licensed capacity of approximately 23,500 children (see Note 2 with respect to
the acquisition of centers). The Company provides child care and preschool
programs to children primarily between 2 1/2 and six years of age and to a
lesser extent, after school programs for older children and infant care.
Consolidation:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, including Magic Years Child Care and Learning
Centers, Inc. ("Magic Years") and Greentree Learning Centers, Inc.
("Greentree"). All material intercompany accounts and transactions have been
eliminated. Certain reclassifications have been made to the 1994 and 1993
financial statements to conform them to the 1995 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.
Property, plant and equipment:
Property, plant and equipment is stated at cost. Provision for depreciation is
made on a straight-line basis over the related estimated useful lives of the
assets or, in the case of leasehold improvements, the lesser of the term of the
related lease or the useful life of the improvement. A summary of useful lives
is as follows:
Buildings 40 years
Furniture, fixtures and equipment 3 - 10 years
Transportation equipment 3 - 5 years
Leasehold improvements 3 - 20 years
Depreciation of property, plant and equipment included in the accompanying
consolidated statements of operations was $1,960,000, $1,371,000, and
$1,083,000, for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company expenses repair and maintenance costs as incurred. Repair and
maintenance costs included in the accompanying statements of operations amounted
to $960,000, $775,000, and $598,000, for the years ended December 31, 1995, 1994
and 1993, respectively.
Revenue recognition:
The Company recognizes child care fees upon delivery of child care service. For
employer-sponsored centers, revenue is recognized ratably over contract terms as
child care service is provided.
F-6
<PAGE>
Short-term investments:
Effective January 1, 1994, the Company implemented the provisions of Statement
of Financial Accounting Standards (SFAS) 115, "Accounting for Certain Investment
in Debt and Equity Securities." Adoption of SFAS 115, a change in accounting
principle, had no material cumulative effect on retained earnings as of that
date.
The Company follows a policy of investing only in short-term marketable
securities and holding them to maturity; however, since the Company may sell
certain securities to meet cash requirements for center acquisitions, the
Company's short-term investments have been categorized as available-for-sale as
required by SFAS 115.
The aggregate fair values, amortized cost, gross unrealized holding gain, and
gross unrealized holding loss of the major types of debt securities at December
31, 1995, were as follows (in thousands):
Gross Unrealized Holding
------------------------
Fair Value Amortized Cost Gain Loss
---------- -------------- ---- ----
Municipal Bonds and Other $7,723 $7,713 $10 $-
The contractual maturities of the Company's debt securities as of December 31,
1995 were all less than two years. The net change in unrealized gain (loss) was
a $40,000 gain.
Income taxes:
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes."
Intangible assets:
Intangible assets include goodwill related to the acquisition of child care
centers, covenants not to compete, management contracts and the present value of
favorable leasehold rights acquired (calculated by comparing the market rate to
the negotiated rate over the lease term) as follows (in thousands):
1995 1994
---- ----
Goodwill $20,364 $11,370
Covenants not to compete 13,436 10,337
Other intangibles 7,244 4,070
------ -------
41,044 25,777
Accumulated amortization (4,718) (2,874)
------- -------
$36,326 $22,903
------- -------
These assets are being amortized over the following lives:
Goodwill from acquisitions of major chains 40 years
Goodwill from acquisitions of individual units 15 years
Covenants not to compete Life of agreement (3 - 15 years)
Present value of favorable leasehold rights
acquired Life of lease (15 - 20 years)
Intangibles with management contracts Life of contract (3 - 10 years)
Amortization of intangible assets charged to expense amounted to $1,844,000,
$984,000, and $644,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.
F-7
<PAGE>
Net income per share:
Per share data has been computed using the weighted average number of common and
common equivalent shares outstanding during each year. Shares issuable upon
exercise of outstanding stock options, warrants and convertible securities are
included in the computation using the treasury stock method.
Consolidated Statements of Cash Flows:
Cash and cash equivalents include deposits and short-term investments (at cost,
which approximates market) with original maturities of three months or less.
The Company paid interest and income taxes for the years ended December 31,
1995, 1994 and 1993, as follows (in thousands):
1995 1994 1993
---- ------ ----
Interest $1,580 $1,021 $675
Income taxes $1,654 $1,034 $ 89
Supplemental Schedule of Noncash Investing and Financing Activities:
The Company purchased centers during the years ended December 31 as follows (in
thousands):
1995 1994 1993
---- ---- -----
Cash payments and/or expenses $9,089 $ 6,055 $1,793
Notes issued to sellers 6,416 9,040 1,992
Liabilities assumed 1,503 183 113
------ ------- ------
Total value of centers acquired $17,008 $15,278 $3,898
======= ======= ======
Accounting Changes:
In March 1995, the Financial Accounting Standard Board issued Statement 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.
SFAS 121 also establishes accounting standards for long-lived assets and certain
identifiable intangibles to be disposed of. The Company is required to adopt
SFAS 121 no later than January 1, 1996. SFAS 121 is required to be applied
prospectively for assets to be held and used. The initial application of SFAS
121 to assets held for disposal is required to be reported as the cumulative
effect of a change in accounting principle. The Company plans to adopt SFAS 121
on January 1, 1996. Based on a preliminary review, the Company does not expect
to recognize any impairment loss as a result of applying the provisions of SFAS
121 to its assets held for use.
(2) ACQUISITIONS
The Company acquired or started fifty-two centers in 1995, forty-two centers
during 1994 and a total of twenty-four centers during 1993.
All acquisitions are accounted for as purchases. The cost in excess of the fair
value of the net tangible assets acquired was first assigned to certain
identifiable intangible assets including covenants not to compete, management
contracts and the present value of favorable leasehold rights acquired in the
transactions. Any portion of the purchase price remaining after these
allocations has been recorded as goodwill.
F-8
<PAGE>
Pro forma results -
The unaudited pro forma results of the Company's operations for the 1995 and
1994 acquisitions are summarized below for the years ended December 31, 1995 and
1994, 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
(in thousands, except for share amounts):
Year Ended Year Ended
December 31, December 31,
1995 1994
(unaudited) (unaudited)
----------- ------------
Revenues from operations $83,835 $81,498
Net income $ 2,808 $ 3,130
Net income per share $ 0.41 $ 0.65
Weighted average common and 6,929 4,831
common equivalent shares outstanding
(3) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 and 1994 (in
thousands):
1995 1994
---- ----
Long-term borrowings:
Notes payable to banks (a) $5,441 $2,406
Notes payable to sellers (b) 14,515 13,020
------ ------
19,956 15,426
Less- Current portion (2,421) (1,690)
------- -----
$17,535 $13,736
======= =======
(a) Consists of various secured and unsecured installment and term loans at
rates ranging from 4.5% to 15.9%, payable through 2010. The Company is
currently obligated under certain loan agreements to maintain minimum
balances with lenders of $25,000 in total cash.
(b) Consists of notes payable to previous owners of child care centers
acquired by the Company with interest rates ranging from 8% to 12% and
payable in installments of varying amounts through 2007.
A summary of the maturities of long-term debt is as follows for the years ending
December 31 (in thousands):
1996 $2,421
1997 1,973
1998 2,168
1999 1,928
2000 1,710
Thereafter 9,756
-----
$19,956
=======
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 of .75%
above the bank's prime rate, and will be due and payable in full on July 1,
1996. During 1995 the Company drew down the full amount available under the line
of credit, although at Decemer 31, 1995, no balance was outstanding.
F-9
<PAGE>
(4) LEASE OBLIGATIONS
The Company leases certain facilities under operating leases. Rental expense for
facilities under operating leases amounted to $9,342,000, $6,539,000, and
$4,568,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Future minimum payments under operating leases (not including options) are as
follows for the years ending December 31 (in thousands):
1996 $9,601
1997 9,345
1998 8,353
1999 6,905
2000 5,661
Thereafter 19,601
------
Total future minimum
lease payments $59,466
=======
Minimum lease payments for operating leases shown above do not include
contingent rentals which are based on the consumer price index increases and
percentages of revenues. Contingent rentals charged to expense under operating
leases amounted to approximately $45,000 in 1995, $368,000 in 1994, and $200,000
in 1993.
(5) COMMON STOCK
In January 1995, the Company issued an additional 138,477 shares of Common Stock
at $10.25 per share, associated with the December 1994 public offering for net
proceeds of $1,243,000.
During 1995, the Company issued 100,000 shares of Common Stock on the conversion
of 550 shares of its Series A Covertible Preferred Stock (see Note 6).
In December 1994, the Company completed a public offering of 2,000,000 shares of
its Common Stock at $10.25 per share, for net proceeds of $18,307,000, excluding
loans to officers of $359,000, offering expenses of $512,000, and underwriter's
discounts of $1,322,000.
In December 1993, the Company completed a public offering of 1,050,000 shares of
its Common Stock at $8.00 per share, in a public offering for net proceeds of
$7,612,000.
In May 1993, the Company completed a sale of 910,000 shares, at $2.75 per share,
of its Common Stock in a private offering for net proceeds of $2,414,000.
(6) PREFERRED STOCK
The Company's stockholders, at a special meeting in November 1992, authorized
Series A Convertible Preferred Stock. These shares are convertible into the
Company's Common Stock at an initial conversion price of $5.50 per share and
have a liquidation value of $1,000 per share. If 50% of these shares are not
redeemed or converted by November 5, 1997 and the remaining 50% by November 5,
1998, then the conversion price would reset at that time to 70% of the then
current market price. These shareholders will be entitled to share on a pro rata
basis in any dividends payable with respect to the Common Stock, based on the
number of shares of Common Stock into which each share of Series A Convertible
Preferred Stock is then convertible.
During 1995, holders of the Series A Convertible Preferred exchanged 550 shares
of the Series A Convertible Preferred for 100,000 shares of the Company's Common
Stock.
F-10
<PAGE>
(7) INCOME TAXES
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $6,500,000. The tax net operating loss carryforward is available
to offset future taxable income, if any. These carryforwards expire between the
years 2001 and 2006.
The Tax Reform Act of 1986 introduced a limitation on the amount of net
operating loss, capital loss and tax credit carryforwards that can be used
annually. This limitation applies following certain "changes in ownership". This
limitation was triggered in 1988 and again in 1991 pursuant to the public
offering of common stock by the Company . As a result, beginning in 1992 the net
operating loss and capital loss carryforwards that the Company may use to offset
future taxable income, if any, will be subject to an annual limitation of
approximately $350,000.
In addition, the Company's subsidiary, Magic Years, has for tax purposes
separate net operating loss carryforwards of approximately $1,100,000 available
which expire between the years 2001 and 2006. This net operating loss is subject
to the "change in ownership" limitation discussed above. The annual limitation
is approximately $100,000 per year.
The Company's subsidiary, Greentree, has for tax purposes separate net operating
loss carryforwards of approximately $1,400,000 available to offset future
taxable income of Greentree, if any, and expire between the years 2004 and 2006.
This net operating loss is subject to the "change in ownership" limitation
discussed above. The annual limitation is approximately $188,000.
Given the uncertainty relating to the Company's ability to ultimately benefit
from its net operating loss carryforwards due to the annual limitations and that
they have to be used by the individual corporations, the Company has provided a
reserve against the net deferred tax asset. The net change in the valuation
allowance for the year ended December 31, 1995 was $1,068,000. Approximately
$850,000 of the valuation allowance will be allocated to reduce goodwill or
acquired noncurrent assets if the net operating losses for Magic Years and
Greentree are subsequently recognized.
No deferred tax assets nor liabilities were recorded in the consolidated balance
sheets as of December 31, 1995. Deferred income taxes of $52,000 were recorded
in the consolidated balance sheets as accrued liabilities and other as of
December 31, 1994.
Deferred tax assets and liabilities as of December 31, 1995 and 1994 consisted
of the following:
1995 1994
---- ----
Deferred tax assets -
Net operating loss carryforward $ 2,227 $ 2,448
Straight-line rent 318 402
Other 400 803
------- -------
2,945 3,653
------- -------
Deferred tax liabilities
Depreciation (828) (536)
Other (64) (48)
------- -------
(892) (584)
------- -------
Deferred tax asset valuation
allowance (2,053) (3,121)
------- -------
Net deferred tax asset (liability) $ - $(52)
======= =======
F-11
<PAGE>
The difference between the statutory federal income tax rate on income before
income taxes and the Company's effective income tax rate is summarized as
follows:
Year Ended December 31
--------------------------------
1995 1994 1993
--------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 3.1 4.3 4.5
Meals and entertainment disallowance 0.3 0.2 0.4
Utilization of tax credits - (0.6) -
Change in valuation allowance (2.9) (12.9) (23.8)
Tax exempt interest (2.5) - -
Other (0.5) - -
--------------------------------
Effective income tax rate 31.5% 25.0% 15.1%
--------------------------------
Income tax expense consisted of the following:
Year Ended December 31
1995 1994 1993
----------------------------
Federal:
Current $1,386 $646 $ 108
Deferred - 36 -
State:
Current (178) 222 89
Deferred - 17 -
------ ---- ----
$1,208 $921 $197
====== ==== ====
(8) COMMITMENTS AND CONTINGENCIES
The Company maintains comprehensive general liability insurance which provides
coverage for both bodily injury and property damage claims up to a total of $15
million. Such coverage specifically excludes claims for child physical and
sexual abuse. The primary liability policy has a limit of $1 million and an
excess umbrella liability policy which provides coverage for an additional $14
million for a combined total liability insurance of $15 million. The Company
believes such insurance coverage is adequate. The Company has procured limited
coverage for child physical and sexual abuse claims, subject to a $1,000,000
annual aggregate limitation.
The Company has not experienced difficulty in obtaining insurance coverage, but
there can be no assurance that adequate insurance coverage will be available in
the future, or that the Company's current coverage will protect it against all
possible claims.
F-12
<PAGE>
(9) STOCK OPTIONS AND WARRANTS
As of December 31, 1995, a total of 648,338 shares of Common Stock have been
reserved for issuance upon the exercise of the options described below.
Options under plans:
Employee Stock Option Plan
The Company has a stock option plan pursuant to which options for the purchase
of up to 800,000 shares of its Common Stock may be granted to officers and
employees. The exercise price is required to be at least the fair market value
of the common stock on the date of grant, as determined by the Board of
Directors. The following table summarizes the activity in the Company's
qualified stock option plan during the three years ended December 31, 1995.
Exercise
Options Price
------- --------
Balance December 31, 1992 197,250 $3.63 - 32.00
Granted 180,000 $8.00
Exercised -- --
Terminated (375) $32.00
-----------------------------------
Balance December 31, 1993 376,875 $3.63 - $8.00
Granted 122,838 $10.25 - $12.00
Exercised -- --
Terminated -- --
-----------------------------------
Balance December 31, 1994 499,713 $3.63 - $12.00
------------------------------------
Granted -- --
Exercised -- --
Terminated -- --
------------------------------------
Balance December 31, 1995 499,713 $3.63 - $12.00
-----------------------------------
Exercisable December 31, 1995 334,877 $3.63 - $12.00
------------------------------------
F-13
<PAGE>
Non-Employee Director Stock Option Plan
During 1993, the Board of Directors adopted and the stockholders approved a
Non-Employee Director Stock Option Plan, pursuant to which non-qualified options
for a maximum of 180,000 shares may be granted to the Company's non-employee
directors under the plan. The following table summarizes the activity in the
Non-Employee Director Stock Option Plan during the three years ended December
31, 1995:
Exercise
Options Price
------- --------
Balance December 31, 1992 -- --
Granted 69,000 $8.00
Exercised -- --
Terminated -- --
-------------------------------
Balance December 31, 1993 69,000 $8.00
Granted -- --
Exercised -- --
Terminated (8,050) $8.00
-------------------------------
Balance December 31, 1994 60,950 $8.00
Granted 17,500 $16.38
Exercised (3,450) $8.00
Terminated -- --
-------------------------------
Balance December 31, 1995 75,000 $8.00 - $16.38
-------------------------------
Exercisable December 31, 1995 49,333 $8.00 - $16.38
-------------------------------
Options Not Issued Under Plans
During 1995, the Company terminated nonqualified options to buy 1,625 shares at
$8.00 to $10.25 per share and had nonqualified options exercised to buy 3,500
shares at $6.00. At December 31, 1995 there were 73,625 options outstanding not
issued under any plan.
In December 1994, the Company issued options for the purchase of 38,501 shares
of Common Stock to certain officers and other employees at an exercise price of
$10.25. At December 31, 1994 there were 130,700 options outstanding not issued
under any plan.
F-14
<PAGE>
EXHIBIT INDEX
Item No. Item Title Sequentially Numbered Page
- - -------- ---------- --------------------------
23 Consent of Arthur Andersen LLP 1
Dated: March 29, 1996
<PAGE>
EXHIBIT 23
Consent of Independent Public Accountants
<PAGE>
ARTHUR ANDERSON LLP
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 33-76954 and 33-59351.
s/s Arthur Anderson LLP
-------------------------------
ARTHUR ANDERSON LLP
Oakland, California
March 27, 1996
