<PAGE> 1
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 July 19, 1996
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: 0-27656
CHILDTIME LEARNING CENTERS, INC.
(Exact Name Of Registrant As Specified In Its Charter)
<TABLE>
<S> <C>
MICHIGAN 38-3261854
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
38345 West Ten Mile Road, Suite 100
Farmington Hills, Michigan 48335
(Address of principal executive offices)
(810) 476-3200
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 of 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 required for the past 90 days. Yes[X] No [ ]
The number of shares of Registrant's Common Stock no par value per
share, outstanding at August 26, 1996 was 5,429,322.
Total number of pages included in Form 10-Q: 14
Index to Exhibits is located on page 10
1
<PAGE> 2
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
Index
Form 10-Q
For the Quarterly Period Ended July 19, 1996
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
A. Consolidated Balance Sheet 3
July 19, 1996 and March 29, 1996
B. Consolidated Statement of Income 4
Sixteen Weeks Ended July 19, 1996 and July 21, 1995
C. Consolidated Statement of Cash Flows 5
Sixteen Weeks Ended July 19, 1996 and July 21, 1995
D. Notes to Consolidated Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
Consolidated Balance Sheet
<TABLE>
<CAPTION>
July 19, March 29,
1996 1996
(Unaudited)
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,045,995 $ 2,313,469
Accounts receivable, less allowance for doubtful accounts of $125,000 1,699,807 1,728,682
Prepaid expenses and other 712,406 1,174,486
Deferred income taxes 670,000 620,000
----------- -----------
Total current assets 7,128,208 5,836,637
----------- -----------
Land, buildings and equipment:
Land 10,220,000 10,220,000
Buildings 19,394,859 19,392,528
Vehicles, furniture and equipment 6,582,833 6,251,095
Leasehold improvements 4,717,566 4,628,327
----------- -----------
40,915,258 40,491,950
Less accumulated depreciation and amortization 7,391,205 7,049,522
----------- -----------
33,524,053 33,442,428
Land held for disposal 739,600 739,600
----------- -----------
34,263,653 34,182,028
----------- -----------
Other noncurrent assets:
Intangible assets, net 4,362,966 4,187,242
Refundable deposits and other 530,892 482,257
----------- -----------
Total assets $46,285,719 $44,688,164
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 418,795 $ 426,353
Accounts payable 1,169,750 1,245,018
Accrued wages and payroll taxes 1,645,491 2,060,037
Accrued vacation 698,366 703,078
Income tax payable 461,000 77,864
Other current liabilities 2,125,103 1,841,610
----------- -----------
Total current liabilities 6,518,505 6,353,960
Long-term debt 728,301 809,364
Deferred income taxes 4,645,000 4,571,000
----------- -----------
Total liabilities 11,891,806 11,734,324
----------- -----------
Common stock purchase warrant 1,440,000 1,440,000
Commitments and contingencies - -
----------- -----------
Shareholders' equity:
Common stock, 10,000,000 shares authorized, no par value; 5,429,322
issued and outstanding at July 19, 1996 and March 29, 1996 29,363,816 29,363,816
Preferred stock, 1,000,000 shares authorized, no par value; no shares
issued or outstanding - -
Subscriptions receivable (10,462) (64,171)
Retained earnings 3,600,559 2,214,195
----------- -----------
Total shareholder's equity 32,953,913 31,513,840
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $46,285,719 $44,688,164
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
QUARTER-TO-DATE
SIXTEEN WEEKS ENDED
---------------------------
JULY 19, JULY 21,
1996 1995
--------- --------
<S> <C> <C>
Revenues $ 23,256,145 $ 19,342,974
Cost of revenues 19,091,526 15,557,381
------------ ------------
GROSS PROFIT 4,164,619 3,785,593
Marketing expenses 343,550 323,973
General and administrative expenses 1,701,846 1,595,003
------------ ------------
OPERATING INCOME 2,119,223 1,866,617
Interest expense 40,085 663,206
Amortization expense 2,974 18,182
Other expense (income), net (186,200) (125,548)
------------ ------------
INCOME BEFORE INCOME TAXES 2,262,364 1,310,777
Income tax provision 876,000 509,000
------------ ------------
NET INCOME $ 1,386,364 $ 801,777
============ ============
Weighted average shares outstanding 5,429,322 3,297,811
============ ============
Earnings per share $ 0.26 $ 0.23
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
YEAR-TO-DATE
SIXTEEN WEEKS ENDED
-----------------------------
JULY 19, JULY 21,
1996 1995
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,386,364 $ 801,777
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 520,166 436,193
Deferred income taxes 24,000 (22,000)
Interest expense on subordinated note -- 131,425
Losses (gains) and provisions for losses on land,
buildings, equipment and land held for disposal (2,500) 62,153
Lease subsidy income -- (123,076)
Changes in assets and liabilities providing (consuming) cash:
Accounts receivable 28,875 (373,090)
Prepaid expenses, refundable deposits and other assets 462,080 (74,913)
Accounts payable, accruals and other current liabilities 172,103 (315,692)
----------- ---------
Net cash provided by operating activities 2,591,088 522,777
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for land, buildings and equipment (469,443) (300,684)
Acquisition of intangible assets (252,904) --
Proceeds from sales of land, buildings and equipment 2,500 617,043
Payments for refundable deposits and other assets (48,636) (70,814)
----------- ---------
Net cash provided by (used in) investing activities (768,483) 245,545
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (143,788) (969,980)
Issuance of shares, net of subscriptions receivable 53,709 69,506
----------- ---------
Net cash used in financing activities (90,079) (900,474)
----------- ---------
Net increase (decrease) in cash and cash equivalents 1,732,526 (132,152)
Cash and cash equivalents, beginning of year 2,313,469 240,412
----------- ---------
Cash and cash equivalents, end of period $ 4,045,995 $ 108,260
=========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
The consolidated financial statements of Childtime Learning Centers,
Inc. (the "Company") are unaudited and, in the opinion of management, include
all adjustments necessary to fairly state the Company's financial condition,
results of operations and its cash flows, for the interim periods presented.
The results of operations for interim periods are not necessarily indicative of
the results to be expected for the full fiscal year. These statements should
be read in conjunction with the Company's annual report for the fiscal year
ended March 29, 1996.
(2) PRINCIPALS OF CONSOLIDATION AND CORPORATE ORGANIZATION
The consolidated financial statements as of July 19, 1996, July 21,
1995 and March 29, 1996 include the accounts of Childtime Learning Centers,
Inc. and its wholly owned subsidiary, Childtime Childcare, Inc. (together
referred to as the "Company").
On November 2, 1995, Childtime Learning Centers, Inc. was incorporated
with nominal authorized capital. Upon consummation of the merger and related
exchange of shares (the "Merger") of Childtime Learning Centers, Inc. and KD
Acquisition Corporation on January 26, 1996, 3,297,811 shares of Childtime
Learning Centers, Inc. common stock were exchanged for 13,191,244 of issued and
outstanding shares of KD Acquisition Corporation. As a result of such
exchange, the shareholders of Childtime Learning Centers, Inc., immediately
after the merger, owned all of its issued and outstanding shares of common
stock in the same proportion as their prior ownership of shares of KD
Acquisition Corporation. This transaction constituted a reorganization of
companies under common control and was accounted for in a manner similar to a
pooling of interests, and as a result there are no changes in the basis and
accountability of assets and liabilities. This structure was chosen to change
the state of incorporation while ensuring compliance with certain state
licensing requirements. There were minimal differences in the financial
statements before the Merger and after the Merger. All common share data
included in the consolidated financial statements and notes have been
retroactively adjusted to reflect the Merger.
On July 9, 1990, KD Acquisition Corporation acquired all of the common
stock of Gerber Children's Centers, Inc., a subsidiary of Gerber Products
Company (the "1990 Buyout"). Gerber Children's Centers, Inc. subsequently
changed its name to Childtime Childcare, Inc.
6
<PAGE> 7
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(3) FISCAL YEAR
The Company utilizes a 52-53 week fiscal year (comprised of 13
four-week periods), ending on the Friday closest to March 31. For both fiscal
years 1996 and 1997, the first quarter contains sixteen weeks, while each of
the remaining quarters contain twelve weeks. Both fiscal years 1996 and 1997
contain 52 weeks.
(4) INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between financial statement and
tax bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
(5) COMMON STOCK AND EARNINGS PER SHARE
Historical shares authorized and outstanding during the periods
presented have been adjusted to reflect the Merger. Earnings per share are
calculated in accordance with Emerging Issues Task Force Abstract 88-9, "Put
Warrants." Under this guidance, earnings per share is the most dilutive result
of two different methods of calculation. Until the earlier of January 5, 1996
or the effectiveness of the registration statement relating to the Company's
initial public offering of Common Stock, the warrant holder had the right to
put the common stock purchase warrant to the Company, under terms defined in
the agreement.
For the sixteen weeks ended July 19, 1996, earnings per share have been
calculated by dividing net income by the weighted average common shares
outstanding, including the common stock purchase warrant (201,511 shares). For
the sixteen weeks ended July 21, 1995, earnings per share have been calculated
by dividing net income by the weighted average common shares outstanding,
assuming exercise of the common stock purchase warrant.
7
<PAGE> 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL
During the first quarter (sixteen weeks) of the fiscal year ending March 28,
1997, the Company acquired four centers and opened three new centers. No
centers were sold. Accordingly, as of July 19, 1996 the Company operated 181
centers. The results of centers opened, acquired or disposed of are included
in the Company's financial statements from the date of opening, acquisition or
disposition, as applicable. Accordingly, comparisons of year over year results
could be influenced by the timing of such new openings, acquisitions or
dispositions.
RESULTS OF OPERATIONS
Revenues increased from $19,343,000 for the 16 weeks ended July 21, 1995 to
$23,256,000 for the fiscal 1996 period, a 20.2% increase.
Comparable center revenue growth (revenues from centers operating during all of
the 16 weeks ended July 19, 1996 and July 21, 1995) was 6.4% for the 16 weeks
ended July 19, 1996. The majority of the growth in comparable center revenues
is a result of increased tuition rates, while the balance is attributable to
increased center utilization. The remaining increase in revenue was attributed
to the results of a full year of revenues for centers opened or acquired in
fiscal 1996 and the opening or acquisition of 7 centers during the 16 weeks
ended July 19, 1996.
Gross profit increased from $3,786,000 for the 16 weeks ended July 21, 1995 to
$4,165,000 for the fiscal 1997 period, a 10.0% increase.
As a percentage of revenues, gross profit decreased from 19.6% for the 16 weeks
ended July 21, 1995 to 17.9% for the 16 weeks ended July 19, 1996. This
decrease was due to initial start-up and operating losses incurred with respect
to new build-to-suit and acquired centers aggregating $128,000 for the fiscal
1997 16-week period as compared to $39,000 for the comparable 16-week period of
the prior fiscal year. Additionally, the Company continues to add leased
centers, which typically have lower gross profit margins than the Company's
owned centers. The comparable centers' gross profit increase, as a percentage
of revenues, partially offset these decreases.
Marketing expenses increased from $324,000 for the 16 weeks ended July 21, 1995
to $344,000 for the 16 weeks ended July 19, 1996. This increase was primarily
due to the additional marketing expenses associated with the opening of new
centers during the fiscal 1996 and 1997 periods. However, as a percentage of
revenues, marketing expenses decreased from 1.7% of revenues for the 16 weeks
ended July 21, 1995 to 1.5% of revenues for the same period in fiscal year
1996.
General and administrative expenses increased from $1,595,000 for the
16 weeks ended July 21, 1995 to $1,702,000 for the 16 weeks ended July 19,
1996. As a percentage of revenues, general and administrative expenses
decreased from 8.2% of revenues for the 16 weeks ended July 21, 1995 to 7.3% of
revenues for the same period in fiscal year 1996, due to operating leverage
provided by higher revenues.
8
<PAGE> 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - CONTINUED
As a result of the foregoing changes, operating income increased from
$1,867,000 for the 16 weeks ended July 21, 1995 to $2,119,000 for the 16 weeks
ended July 19, 1996. The operating income increase of $252,000 represents an
increase of 13.5% over the 16 weeks ended January 6, 1995.
Interest expense decreased from $663,000 for the 16 weeks ended July 21, 1995
to $40,000 for the 16 weeks ended July 19, 1996. This decrease is due to the
retirement of approximately $17,400,000 of debt from the net proceeds of the
Company's initial public offering in February, 1996.
The provision for income tax increased from $509,000 (an effective tax rate of
38.8%) for the 16 weeks ended July 21, 1995 to $876,000 (an effective tax rate
of 38.7%) for the 16 weeks ended July 19, 1996.
As a result of the foregoing changes, the Company's net income increased from
$802,000, or 4.1% of revenues, for the 16 weeks ended July 21, 1995, to
$1,386,000, or 6.0% of revenues for the comparable fiscal 1997 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements have been new center expansion (through
development of build-to-suit centers, new leases and acquisitions), maintenance
of existing centers and the scheduled repayment of debt and interest thereon
incurred in connection with the 1990 Buyout. As a result of the Company's
initial public offering and receipt of $19,219,000 in net proceeds,
substantially all of the Company's debt has been repaid. Accordingly, the
Company's primary cash requirements will be its new center expansion program
and maintenance of existing centers. The Company believes that cash flow from
operations, together with amounts available under a $10 million unsecured
revolving line of credit facility entered into by the Company in February of
1996, will be sufficient to satisfy the Company's anticipated cash requirements
on both a long-term and short-term basis. The rate of interest payable under
the new agreement is, at the Company's option, based on the Floating Rate or
the Eurodollar Rate (both, as defined in the agreement). Accordingly, the new
line of credit will bear annual interest at approximately the prime rate.
Net cash provided by operations increased from $523,000 during the 16 week
period ended July 21, 1995, to $2,591,000 during the 16 weeks ended July
19, 1996. During the 16 weeks ended July 19, 1996, cash provided by
operations was principally used to add 7 centers, make capital improvements to
existing centers and add approximately $1,733,000 to existing cash balances.
Throughout the 16 weeks ended July 19, 1996, the Company did not utilize its
unsecured revolving line of credit.
9
<PAGE> 10
PART II
INDEX TO EXHIBITS AND OTHER INFORMATION
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
Item 6 Exhibits and Reports on Form 8-K
(a) Computation of Earnings Per Share
(b) Financial Data Schedule
(c) Reports on Form 8-K: None
10
<PAGE> 11
SIGNATURES
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
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.
CHILDTIME LEARNING CENTERS, INC.
(REGISTRANT)
/s/ Michael M. Yeager 8/30/96
--------------------------------------------------
Michael M. Yeager
Chief Financial Officer and Secretary-Treasurer
(Duly Authorized Officer and Principal Financial
Officer)
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
11 Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Sixteen Weeks Ended
--------------------------------
July 19, July 21,
1996 1995
------------ ----------
<S> <C> <C>
Net income $ 1,386,364 $ 801,777
Accretion to fair value of common stock
purchase warrant 0 0
----------- ----------
Net income available to common stock $ 1,386,364 801,777
=========== ==========
Weighted average shares outstanding 5,429,322 3,297,811
=========== ==========
Earnings per share $ 0.26 0.24
=========== ==========
Net income $ 801,777
==========
Weighted average shares outstanding 3,297,811
Shares applicable to common stock
purchase warrant 201,511
----------
Total 3,499,322
==========
Earnings per share $ 0.23
==========
Most dilutive result $ 0.26 $ 0.23
=========== ==========
</TABLE>
Note:
Pursuant to Emerging Task Force Abstract 88-9, "Put Warrants", earnings per
share is the most dilutive result of two different calculations provided in
the above table.
The first calculation above, calculates earnings per share by subtracting
the accretion to fair value for the common stock purchase warrant from net
income and dividing the result by the weighted average shares outstanding,
not considering the exercise of the common stock purchase warrant.
The second calculation above calculates earnings per share by dividing net
income by the weighted average shares outstanding, assuming exercise of the
common stock purchase warrant,. Until the earlier of January 5, 1996 or
the effectiveness of the registration statement relating to the Company's
initial public offering of Common Stock, the warrant holder had the right
to put the common stock purchase warrant to the Company under terms defined
in the agreement. Accordingly, after January 5, 1996, the second
calculation above is not applicable.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CHILDTIME LEARNING CENTERS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JULY
19,1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-28-1997
<PERIOD-START> MAR-30-1996
<PERIOD-END> JUL-19-1996
<CASH> 4,046
<SECURITIES> 0
<RECEIVABLES> 1,825
<ALLOWANCES> 125
<INVENTORY> 0
<CURRENT-ASSETS> 7,128
<PP&E> 40,915
<DEPRECIATION> 7,391
<TOTAL-ASSETS> 46,286
<CURRENT-LIABILITIES> 6,519
<BONDS> 0
0
0
<COMMON> 29,364
<OTHER-SE> (10)
<TOTAL-LIABILITY-AND-EQUITY> 46,286
<SALES> 0
<TOTAL-REVENUES> 23,256
<CGS> 0
<TOTAL-COSTS> 21,137
<OTHER-EXPENSES> (183)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 2,262
<INCOME-TAX> 876
<INCOME-CONTINUING> 1,386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,386
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
