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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended March 28, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
__________.
COMMISSION FILE NUMBER 0-27656
CHILDTIME LEARNING CENTERS, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-3261854
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
38345 West 10 Mile Road, Suite 100, Farmington Hills, Michigan 48335
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 476-3200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, No
Par Value (Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X ] No [ ]
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. [X]
The aggregate market value of voting Common Stock held by non-affiliates of the
registrant as of June 9, 1997, computed by reference to the last sale price for
such stock on that date as reported on the NASDAQ National Market System, was
approximately $20,358,000.
At June 9, 1997, the number of shares outstanding of the registrant's Common
Stock, without par value, was 5,227,811.
Portions of the registrant's Proxy Statement for its 1997 Annual Meeting of
Shareholders have been incorporated by reference in Part III of this Annual
Report on Form 10-K.
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PART I
ITEM I. BUSINESS
GENERAL
Childtime Learning Centers, Inc. (the "Company") provides
for-profit child care through 211 child care centers as of March 28, 1997
located in 15 states and the District of Columbia. Center-based child care and
preschool educational services are provided five days a week throughout the
year to children between the ages of six weeks and twelve years. At March 28,
1997, the Company had nearly 23,000 children enrolled (full and part-time)
nationwide. Substantially all of the Company's child care centers are operated
under the "Childtime Children's Centers" name. The Company's centers are
primarily located on free-standing sites in suburban residential areas with
substantial preschool populations. Included among the Company's 211 child care
centers at March 28, 1997 were 37 "at-work" sites providing child care for
working parents at various business enterprises, office complexes, shopping
centers and hospitals.
The Company's strategy is to offer an independently developed,
nationally recognized educational curriculum within a stimulating environment
in order to provide high quality child care and to maximize development and
preparation of children for school. The Company places a great deal of
emphasis on the recruitment, selection and ongoing training of its child care
center directors. Within a framework of centralized financial and quality
controls, the Company grants significant authority over center operations to
its center directors and rewards its center directors on an incentive basis
tied to individual center performance.
The Company's operating subsidiary, Childtime Childcare, Inc. was
incorporated in Illinois in 1967. In 1973, it was acquired by Gerber Products
Company and commenced operating under the name Gerber Children's Centers, Inc.
("GCC"). On July 9, 1990, GCC was acquired by KD Acquisition Corporation in a
leveraged buyout, and, in connection with the buyout, GCC changed its name to
"Childtime Childcare, Inc." In connection with the initial public offering of
its common stock in February, 1996, KD Acquisition Corporation was merged into
Childtime Learning Centers, Inc., with Childtime Childcare, Inc. remaining as
its operating subsidiary. Unless the context otherwise requires, references in
this Report to the "Company" will be deemed references to Childtime Learning
Centers, Inc. and Childtime Childcare, Inc.
The Company utilizes a 52 to 53 week fiscal year (comprised of 13
four-week periods), ending on the Friday closest to March 31. Each of the
fiscal years ended March 31, 1995, March 29, 1996 and March 28, 1997 contained
52 weeks.
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BUSINESS STRATEGY
The Company's business strategy is to (i) develop and acquire new
centers in areas which meet its specific demographic requirements; (ii)
maintain and enhance profitability through a program of financial planning,
budgeting and cost control; (iii) continue to invest in its centers to maintain
and improve quality; (iv) emphasize its sales and marketing programs aimed at
increasing new enrollments and promoting customer loyalty; (v) offer programs
to better utilize its centers on year-round basis; and (vi) continue to improve
the quality of its staff through recruitment, training and incentive programs.
Set forth below are certain key elements of the Company's business
strategy:
Standardized Operations. The Company has a consistent overall
approach in providing child care services in its centers. Other than
at certain employer-sponsored sites, all centers operate under the
"Childtime Children's Centers" name in suburban communities or at-work
locations which have similar demographic characteristics. Each center
utilizes an independently developed, nationally recognized educational
curriculum. All center facilities are well-maintained, similarly
equipped and utilize the closed classroom concept. The company has
two prototype designs to be used in its build-to-suit centers.
Center Entrepreneurship. Within a framework of centralized
financial and quality controls, each center director is empowered to
customize the center's programs, dietary menus and other features to
adapt to local market requirements. Each director is also involved in
the budgeting and financial planning process with regard to his or her
center. The Company believes that its directors are given more
autonomy than are directors of other child care centers enabling them
to better market their center while meeting the child care objectives
of local customers. The Company trains its center directors to
fulfill these additional responsibilities through a series of
internally and externally prepared training programs designed to
enhance interpersonal and business skills, basic financial concepts
and marketing. Center directors are compensated, in part, through an
incentive program based on the performance of the center under their
supervision.
Balanced Growth Strategy. The Company's strategy for growth
consists of a combination of acquisitions of existing child care
centers and development of new build-to-suit centers. Other large
multi-unit operators often rely solely on acquisitions or,
alternatively, new center construction. In addition to acquiring or
building centers in residential areas, the Company also actively
pursues contracts with employers and office complex managers to
operate centers in at-work locations. The Company believes that its
ability to grow both through the acquisition of existing child care
centers and development of build-to-suit centers affords it greater
flexibility to sustain its controlled growth strategy in various
geographic markets. See "Growth Strategy" below.
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GROWTH STRATEGY
During mid-fiscal year 1994, management initiated a new strategy to
expand its business by as many as 20 centers per year, through a combination of
acquisitions and the development of new "build-to-suit" centers. The following
table sets forth the numbers of child care centers acquired or otherwise
opened, as well as closed, during the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
March 31, March 29, March 28,
1995 1996 1997
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NUMBER OF CENTERS:
Beginning of period.............................. 128 148 174
Additions during period:
Acquisitions and other........... 10 21 29
New builds and new leases............ 11 6 8
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Total additions................................ 21 27 37
Closings during period......................... (1) (1) 0
---------- ---------- ----------
End of period......................................... 148 174 211
========== ========== ==========
</TABLE>
The Company expects to add 27 to 32 new centers in fiscal 1998 through
a combination of residential sites and at-work sites. In making its expansion
decisions, the Company strives to add units in its existing markets in order to
increase market concentration and to leverage administrative and advertising
expenses. Entry into new markets is also considered, but only if these markets
can eventually support a minimum of ten centers. The Company's decision
whether to add a new center by acquisition or by opening a new location is
based on which alternative best meets its needs and objectives.
In choosing locations for new centers, the Company considers a number
of factors, emphasizing suburban neighborhoods with growing populations of
young families. Management looks for sites in proximity to newly developed or
developing residential areas on heavily traveled local streets. The Company
performs a detailed analysis of the demographics of the area surrounding the
proposed site and focuses on several site selection criteria: an above-average
concentration in the percentage of children under age six; a minimum population
density of 25,000 people within a three-mile radius surrounding a proposed
site, and an average household income in excess of $50,000. The Company also
analyzes the percentage of the population consisting of college-educated, dual
income families, as well as the average home value in the target area. The
Company believes that parents in more affluent areas are more willing to pay a
slight premium for higher quality child care services.
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In addition to acquiring or building centers in residential areas, the
Company also actively pursues contracts with employers and office complex
managers to operate centers in at-work locations. Historically, public
agencies and hospitals have been the principal employers providing or otherwise
arranging for child care services for their employees. A number of private
sector employers have begun to offer this benefit, as they recognize that
reduction of employee absenteeism due to a lack of reliable and available child
care can significantly offset the cost to employers in offering such benefits.
The Company expects to capitalize on this trend by actively pursuing contracts
with employers, as well as selectively acquiring existing at-work centers.
The Company's acquisition activity is limited to child care centers in
market areas showing strong growth potential and to sites which the Company
believes it can conform to its standard facility and educational format.
Historically, the Company has targeted its acquisition activities on less
profitable centers which meet its demographic criteria. The Company believes
that it can continue to acquire centers on terms which compare favorably with
the costs and risks of establishing new facilities. Management is continually
reviewing possible acquisition candidates (including, from time to time,
multi-unit child care operations consisting of more than ten centers), although
there are no assurances that the Company will be able to continue acquiring
acceptable centers. In addition, the Company has accelerated its development
activities over the past few years. In an effort to standardize its
build-to-suit centers, the Company has developed building prototypes which
accommodate 100 to 180 children. Although the Company engages in an active new
site selection process, there are no assurances that it will be able to
continue to acquire and develop new sites in an economic manner.
Educational Programs
The Company's educational programs stress the process of learning and
discovery. Staff are trained to support children in their active explorations
and to help them to become self-confident, independent and inquisitive
learners. The Company believes in fostering all aspects of a child's
development: social, emotional, physical and intellectual. The two primary
means of meeting this goal are the use in each center of a nationally recognized
educational curriculum developed by independent educators and the center's
ongoing dialogue with parents in providing a learning environment for their
children which meets or exceeds their expectations as customers.
In each center, the Company utilizes The Creative Curriculum(R) For
Early Childhood, a nationally recognized educational curriculum published by
Teaching Strategies, Inc. and written by Diane Trister Dodge (a member of the
Governing Board of the National Association for the Education of Young Children
from 1990 to 1994) and Laura J. Colker. The Company believes that its use of a
curriculum prepared by independent educators with expertise in the education of
young children enables it to take advantage of professional expertise that is
not otherwise available to it or other child care center operators. In
addition, an externally developed curriculum typically emphasizes educational
objectives over cost and other financial objectives. The
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Company trains its center directors and other caregivers to utilize The
Creative Curriculum(R).
Children enrolled at a center are placed into groups, according to
their emotional, physical, intellectual and social maturity, rather than merely
the child's age. Each care group has specific learning goals which enable the
staff to develop planning activities and daily programs and to assess each
child's growth and development. Although all centers utilize the same
educational curriculum, the staff at each center is responsible for developing
daily lesson plans and activities appropriate for each of its developmental
groups and for its locale. At designated times during the year, an informal
developmental assessment is prepared for each child and reviewed with the
child's parents.
The Company's classrooms are organized in seven levels following the
sequential process of growth and development, from infancy through school-age:
Infants (six weeks - twelve months)
A homelike environment and positive caregiver interactions
foster the infant's sense of trust and self-esteem. Daily routines
(feeding, diapering and rocking) and sensory experiences are used to
promote listening and language skills and to help infants learn about
the world around them. Play activities and interactions focus on the
development of large muscles for sitting, crawling, standing and
walking and small muscles for grasping, reaching, holding and picking
up objects.
Young Toddler (1 - 2 years)
Classroom space and materials are organized to support the
young toddler's need to physically explore and discover and to be
independent. Caregivers provide comforting words and lap time to help
toddlers deal with separation from parents. Toddlers are encouraged
to participate in daily routines to develop self-help skills and
self-esteem. Play activities provide repeated opportunities with
sensory experiences to help develop large and small muscles and
thinking skills, and to promote communication skills. Stories,
pictures and books are introduced to help toddlers experience reading
as a pleasurable activity. Caregivers reinforce positive behaviors,
set limits and are consistently available as a "homebase" to support
the toddler's conflicting need for independence and comfort.
Toddler (2 - 3 years)
Classroom space and material are organized to support the
older toddler's increased need for independence in making simple
decisions, engaging in pretend play and playing cooperatively with
other children. Toddlers are supported in their self-help skills
(dressing, feeding and toileting) and encouraged to help with daily
routines to become familiar with the sequence
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of routines and foster their self-esteem. Play activities provide
opportunities to practice skills, increase communication about sensory
experiences and promote listening and speaking skills. Indoor and
outdoor activities focus on helping toddlers strengthen small muscles,
develop eye-hand coordination and develop large muscles.
Preschool 1 (3 - 4 years)
Classroom space and materials are organized in distinct
interest centers to support young preschoolers' initiative to practice
and test their new skills and express their ideas and feelings. These
centers are set up to encourage preschoolers to select play
activities, engage in hands-on exploration and pretend play, and
develop the ability to play cooperatively. Small muscles and eye-hand
coordination continue to be strengthened through art activities, sand
and water play and work with manipulative toys and blocks. The daily
schedule includes many activities for large muscle development.
Stories and books are used daily to increase familiarity with the
meaning of letters and words (emergent literacy) and to foster reading
as a pleasurable activity.
Preschool 2 (4 - 5 years)
Classroom organization and the daily schedule provide
increased opportunities for independent and small group play in
interest centers. Such group play supports older preschoolers'
developing ability to organize their own play, assign roles and tasks,
and work towards a common goal. Activities provide hands-on
experiences. Caregiver interaction focuses on helping preschoolers
organize the information they gather, develop an understanding of
number concepts, reasoning and problem solving skills (matching,
classifying and sequencing), and expand listening and speaking skills.
Independent and group activities with books and stories promote
reading readiness. Caregivers create a print rich environment (signs,
labels and charts) and provide opportunities for children to draw,
paint and engage in writing activities. Children are increasingly
involved in helping to set limits for positive and caring behaviors.
Five Year Old or Kindergartner (5 - 6 years)
Classroom organization, materials and activities support the
five year-old's increased ability to understand written symbols
(letters, numbers and some words) and interest in writing. Educational
interest centers continue to provide opportunities for hands-on
exploration to sharpen observation skills, explore cause and effect,
share and play cooperatively with others, plan and carry out a task
and engage in independent or group play for an extended period of
time. Materials are provided to encourage representation and
symbolic play and to practice drawing and writing. Activities are
planned to help children learn to follow directions, recall and
sequence events, understand measurement,
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recognize how materials can change, think creatively to solve
problems, improve their coordination skills, and use their bodies in
challenging outdoor play tasks. Centers which offer a kindergarten
program for transitioning children into first grade, follow the school
district's specific goals and assessment requirements.
School-ages (6 - 12 years)
Classroom space, equipment and materials are organized to
support school-agers' sense of industry and competence and to
accommodate the wide range of interests and abilities of six to twelve
year-olds. The program provides opportunities for school-agers to
pursue their interest, perfect coordination of large and small muscles
and perceptual motor coordination, and to learn to work with others.
The environment is designed to engage children in activities (arts and
crafts, cooking, dramatize play, music, dance, games and sports) they
can pursue independently, with a friend, or as a group project.
Caregiver integration focuses on helping children set reasonable goals
and manageable tasks, guiding them to think about the consequences of
their words and actions so as to foster a sense of community.
Through parent surveys, the Company continually assesses the quality
of its education curriculum. These surveys provide the Company with feedback
on parent satisfaction with their child's developmental growth and with the
Company's curriculum, center director and overall quality of the center.
Center directors also conduct both formal and informal parent interviews in
order to ascertain parent satisfaction levels and address any concerns.
Information gained from these interviews is forwarded to the Company's
management for review. The Company also endeavors to provide an exit-survey to
parents who stop utilizing the Company's services.
In the fall of 1993, the Company participated in a research program
initiated by Dr. John R. Bergan and Dr. Jason K. Feld, of the University of
Arizona and founders of the A.T.I. Center for Child Development. The program
assessed approximately 2,500 children enrolled in the Company's centers on
various aspects of early child development and showed that the vast majority of
such children possessed the key capabilities needed to assure a successful
transition to elementary school. In February, 1996, Dr. Feld was appointed to
the Company's Board of Directors.
The Company continues to focus its efforts to accredit many of its
centers by the National Association for the Education of Young Children
("NAEYC") or the National Child Care Association ("NCCA"). The NAEYC and NCCA
are national organizations which have established comprehensive criteria for
providing quality child care. NAEYC and NCCA have developed and implemented a
child care center accreditation process through which child care providers can
receive formal, national recognition of their child care program. The Company
believes that the review process leading towards accreditation will assist the
Company in its efforts to continually improve its programs and facilities. The
Company further believes that accreditation by the NAEYC or NCCA
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of a significant number of its centers would provide the Company with a
marketing advantage.
Products and Services
General. The Company's child care operations consist of an Eastern
Region and a Western Region, each headed by a Regional Vice President. These
two regions are further divided into 17 areas, each of which is managed by an
area manager. Area managers are generally responsible for the operation and
performance of nine to sixteen centers. Each individual center has a dedicated
center director and a staff ranging from 15 to 30 persons. The centers operate
year round, five days per week, generally opening at 6:30 a.m. and remaining
open until 6:30 p.m. A child may be enrolled in any of a variety of program
schedules, from a full-time, five-day-per-week plan to as little as two or
three half-days a week. A child attending full-time typically spends
approximately 9 hours a day, five days per week, at a center.
The Company's current weekly tuition for full-day service typically
ranges from $79 to $145, depending on the location of the center and the age of
the child. Tuition is generally paid, in advance, on a weekly basis. In
addition, parents currently pay an annual registration fee ranging from $25 to
$55. The Company generally reviews its tuition rates at least once each year
to determine whether rates at a particular center should be changed in light of
that center's competitive environment and financial results.
Center Operations. Each center is managed by a director who is
supervised by an area manager. The Company places a great deal of emphasis on
the recruitment, selection and ongoing training of center directors. Center
directors are hired by their respective area manager from a pool of candidates
who have undergone an initial psychological profile screen, reference check and
criminal background check. All center directors are required by state law to
have some minimum level of training, which is typically in the form of credit
hours from a state approved training agency or an accredited educational
institution. The Company prefers that potential directors have a bachelor's
degree in early childhood education, child development or a health related
field plus a minimum of two years experience in licensed child care. Many
directors are recruited from within the Company and have served as caregivers
or assistant directors in one of the Company's centers. A center director has
overall responsibility for the operations of a center including: ensuring that
the center is operated in accordance with Company and state licensing standards
and operating procedures; providing an educational, caring and safe environment
for children and their parents; marketing the Company to parents and otherwise
promoting the positive image of the Company in the community. The center
directors receive a salary and bonus tied to the performance of their center.
Each center director is also responsible for hiring his or her staff, including
caregivers.
The center director assesses and collects tuition and fees. All funds
received by each center are deposited in an account established by the Company
in a local bank.
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All payroll and most other center expenses are paid directly by the Company's
corporate office. Basic supplies are purchased by the centers pursuant to
national vendor contracts negotiated by the corporate office to take advantage
of volume buying discounts and to retain financial controls. Direct
expenditures by the centers are limited to miscellaneous operating expenses.
Area Supervision. An area manager hires the director of each of his
or her centers and is supervised by one of the two Regional Vice Presidents.
Area managers also work very closely with other corporate staff members, such
as the Director of Real Estate, Vice President-Marketing or Director of Human
Resources, on such issues as center acquisition and marketing, personnel
actions and financial planning. Additional duties of area managers are to
facilitate communications between center directors and the corporate officers,
as well as among center directors, and to monitor cost control and revenue
generation efforts and licensing compliance. Area managers typically spend 80%
of their work time in the centers they supervise. The Company's area managers
have all served as center directors with the Company or within other segments
of the child care industry. Area managers receive a salary and bonus tied to
the performance of the centers under their supervision.
Training. The Company believes that the skills and expertise of the
director and staff at each center are among the most significant factors for
parents selecting center-based child care programs. In order to enhance the
quality of the staff at each center, the Company provides both externally and
internally developed training programs for its personnel. It has developed
training materials and manuals for its staff on such subjects as interpersonal
and business skills, basic financial concepts and marketing, and regularly
conducts seminars for its area managers and directors. All management
personnel (including area managers, center directors and assistant directors)
participate in periodic training programs or meetings and must comply with
applicable state and local licensing regulations. All center staff are
required to participate in orientation and training sessions. In addition, the
Company has developed and implements, on an ongoing basis, extensive training
programs to prepare and enhance the skills of its caregivers to meet the
Company's internal standards and applicable state licensing requirements.
Safety. The Company is committed to the care and safety of the
children enrolled in its centers. Each center has at least one staff member
trained in first-aid. Furthermore, all members of a center's staff are trained
to be protective of the security of each child. Precautions are taken to
ensure the safety and well-being of all children, and children must be signed
in or out of a center only by a parent or other guardian or by a person
authorized by the parents or other guardian. The Company has received isolated
allegations relating to child physical or sexual abuse by its employees.
State law requires the Company and its staff to report any allegation of abuse
to the appropriate authorities for investigation. The Company's policy is to
place any accused employee, if appropriate, on administrative leave pending
investigation of alleged misconduct. Although the Company's procedures are
designed to prevent incidents of
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child abuse, no assurances can be made that allegations of child abuse will not
occur in the future.
Financial Planning; Budgeting and Cost Control. The Company has
implemented a program of financial planning and cost control which seeks to
maximize operational profit without sacrificing quality child care. This goal
is accomplished by actively engaging the area manager and center director in
the formulation and implementation of the budget for each center. Under this
budgeting process, budgets are initially developed at the center level, with
center directors taking an active role in developing and submitting the budget
for their respective centers through their area manager and on to the Company's
corporate management for approval. Directors are then responsible for
implementing the approved budget and become primarily responsible for the
financial performance of the center. In order to encourage profitable
performance, the Company has implemented a financial incentive program for
meeting or exceeding pre-approved budget goals.
Facilities. Most of the Company's centers are free-standing
structures owned or leased by the Company. In 1994, the Company introduced two
new prototype designs which emphasize efficiency, lower maintenance costs and
enhanced appearance. Depending on the size of the site, these prototype
designs contain either 7,900 or 6,400 square feet in a one story,
air-conditioned building. The interiors primarily consist of closed classrooms
bordering on open area in the middle of the center. Such a design accommodates
the desire to allow children the freedom to explore their environment as well
as the staff's need to be able to monitor activities in the classroom. The
Company's centers contain classrooms, recreational areas, a kitchen and
bathroom facilities and are typically laid out to accommodate the grouping of
children by age or development. Room materials are chosen for their
educational value, quality and versatility. The infant/young toddler room
features separate, sanitary diaper changing areas. Each facility has a
playground designed to accommodate the full range of children attending the
center, including an area specifically for infants and toddlers. The whole
playground is fenced for security and organized to provide adequate supervision
for every age group. Each center is equipped with a variety of audio-visual
aids, educational supplies, games, toys and indoor and outdoor play equipment.
In addition, some of the centers are equipped with personal computers and
software which is specially designed for preschoolers. Virtually all of the
centers are also equipped with Company-owned or leased vehicles for the
transportation of children to and from elementary school and for field trips.
Licensed capacity for the same size building varies from state to
state because of different licensing requirements. A 6,400 square foot center
is typically licensed for 100 to 140 children, and a 7,900 square foot center
is typically licensed for 120 to 180 children. The aggregate licensed capacity
of the Company's centers (including those under management contracts) at March
28, 1997 was 24,905 children (or an average of 118 children per center).
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At-Work Sites. In addition to operating residential child care
centers, the Company also operated, at March 28, 1997, 37 child care centers
in at-work locations, making it one of the largest providers of at-work child
care services. Many of these centers, including those for Prudential Insurance
Company, Schering Plough (a division of the Schering Corporation), Blue Cross
Blue Shield of Michigan and Henry Ford Hospital, are located on or near the
premises of a specific employer and involve varying degrees of involvement from
the employer, such as ownership of the premises, minimum enrollment guarantees,
the assumption of financial responsibility for the ongoing operations of the
center, other management arrangements, or any combination of the above. Other
at-work centers are located in office complexes or shopping centers.
Historically, public agencies and hospitals have been the principal employers
providing or otherwise arranging for child care services for their employees.
A number of private sector employers have begun to offer this benefit, as they
recognize that reduction of employee absenteeism due to a lack of reliable and
available child care can significantly offset the cost to employers of offering
such benefits. The Company expects to capitalize on this trend by actively
pursuing contracts with employers, as well as acquiring centers that serve
particular employers.
MARKETING
The Company believes that the quality of a center's director and
staff, center location and consistent advertising and marketing are the key
components to a successful center. The Company relies heavily on
recommendations from current customers as a source of new enrollments. To
encourage recommendations, the Company offers a referral bonus to parents and
employees of the Company who successfully recommend the Company to others. In
addition, the Company advertises through a variety of database direct marketing
programs which target parents within a specified radius of each center. The
advertising budget is largely spent in the summer months in anticipation of the
back-to-school enrollment in new centers. The Company also advertises through
direct mail distribution of promotional material in residential areas
surrounding a center and through listings in the Yellow Pages. The Company
expects to continue to promote its safe and secure facilities, qualified staff
and respected curriculum through direct marketing campaigns timed around peak
enrollment periods or to support specified programs.
SEASONALITY
The Company's accounting periods are organized into 13 four-week
periods, with four four-week periods comprising the first fiscal quarter and
three four-week periods comprising each of the second, third and fourth fiscal
quarters. Consequently, the Company's quarterly revenues and gross profit
results for the first quarter are favorably impacted by the additional four
weeks included in such period.
In July and August of each year (the last month of the Company's first
fiscal quarter and the first month of the Company's second fiscal quarter), the
Company has historically experienced an enrollment decline. To offset this
decline, the Company has
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successfully implemented and marketed a summer camp program with a new theme
and focus each year. As a result of such programming and the timing of the
quarters, average weekly revenues by quarter during fiscal 1997 were very
consistent and not adversely impacted by the normal summer enrollment decline.
In addition, new enrollments are generally highest in September and January;
accordingly, August and December are traditionally the best months to open new
centers. However, with the exception of spring, the Company has shown its
ability to successfully open centers throughout the year because of enhanced
pre-opening marketing efforts. Finally, total enrollments (and, accordingly,
the Company's results) are typically the strongest in the fourth quarter (which
includes the months of January, February and March).
The following table shows certain unaudited financial information for
the Company for the interim periods indicated. Quarterly results may vary from
year to year depending on the timing and amount of revenues and costs
associated with new center development and acquisitions, as well as certain
other costs.
<TABLE>
<CAPTION>
QUARTERLY DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Fiscal 1997
------------------------------------------------------------------------
16 Weeks Ended 12 Weeks Ended 12 Weeks Ended 12 Weeks Ended
July 19, 1996 October 11, 1996 January 3, 1997 March 28, 1997
---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 23,256 $ 17,458 $ 17,622 $ 20,298
Gross profit $ 4,165 $ 2,496 $ 2,436 $ 3,425
Income before
extraordinary item $ 1,386 $ 714 $ 1,228 $ 1,187
Earnings per share
before extraordinary item $ 0.26 $ 0.13 $ 0.23 $ 0.21
Net income $ 1,386 $ 714 $ 1,228 $ 1,187
<CAPTION>
Fiscal 1996
------------------------------------------------------------------------
16 Weeks Ended 12 Weeks Ended 12 Weeks Ended 12 Weeks Ended
July 21, 1995 October 13, 1995 January 5, 1996 March 29, 1996
---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 19,343 $ 14,607 $ 15,052 $ 16,621
Gross profit $ 3,786 $ 2,420 $ 2,615 $ 3,076
Income (loss) before
extraordinary item $ 802 $ (1) $ 449 $ 1,012
Earnings per share before
extraordinary item $ 0.23 $ ----- $ 0.13 $ 0.24
Net income (loss) $ 802 $ (1) $ 449 $ 1,160
</TABLE>
Although the operations of the Company are influenced by general
economic conditions, the Company does not believe that inflation has had a
material effect on its results of operations during the past two years.
13
<PAGE> 14
COMPETITION
The child care and preschool education industry is highly fragmented
and competitive and has historically been dominated by small, local nursery
schools and child care centers. The Company's competition consists principally
of local nursery schools and child care centers (some of which are non-profit,
including church-affiliated centers), providers of services that operate out of
homes and other proprietary multi-unit child care center providers some of
which are larger and may have substantially greater financial resources than
the Company. The largest providers of for-profit child care and preschool
education are KinderCare Learning Centers, Inc. and La Petite Academy, Inc.
The Company believes it is able to compete favorably with these providers by
offering a higher quality level of child care services. This is especially
true in competing against local nursery schools, child care centers and
in-home providers where the Company is often at a price disadvantage, because
these providers generally charge less for their services than the Company
charges. Many church-affiliated and other non-profit child care centers have
lower rental costs, if any, than the Company and may receive donations or
other funding to cover operating expenses. Consequently, operators of such
centers often charge tuition rates that are less than the Company's rates. In
addition, fees for home-based care are normally lower than fees for
center-based care because providers of home care are not always required to
satisfy the same health, safety, insurance or operational regulations as the
Company's centers. The Company competes by hiring and training quality center
directors and by offering professionally-planned educational and recreational
programs, modern, well-equipped facilities, trained staff and supervisory
personnel, and a range of services, including infant and toddler care, drop in
service and the transportation of older children enrolled in the Company's
before and after school program between the Company's child care centers and
schools.
PERSONNEL
As of March 28, 1997, the Company employed approximately 4,000 persons
(including part-time and substitute caregivers), of whom 39 are employed at
corporate headquarters, 17 are area managers and the remainder are employed at
the Company's child care centers or as local field support personnel. Center
employees include center directors and assistant directors, regular full-time
and part-time caregivers, substitute caregivers and aides, and other staff,
including cooks and van drivers. All center directors and corporate
supervisory personnel are salaried; all other employees are paid on an hourly
basis. The Company does not have an agreement with any labor union and
believes that its relations with its employees are good.
The Company is also subject to the Fair Labor Standards Act, which
governs such matters as minimum wages overtime compensation and working
conditions. A portion of the Company's personnel (estimated to be less than 1%
as a percentage of total payroll expense) are paid at the Federal minimum wage.
14
<PAGE> 15
REGULATION
Child care centers are subject to numerous state and local regulations
and licensing requirements. Although these regulations vary from jurisdiction
to jurisdiction, government agencies generally review, among other things, the
adequacy of buildings and equipment, licensed capacity, the ratio of staff to
children, staff training, record keeping, the dietary program, the daily
curriculum and compliance with health and safety standards. In most
jurisdictions, these agencies conduct scheduled and unscheduled inspections of
centers, and licenses must be renewed periodically. In a few jurisdictions,
new legislation or regulations have been enacted or are being considered which
establish requirements for employee background checks or other clearance
procedures for new employees of child care centers. Repeated failures by a
center to comply with applicable regulations can subject it to state sanctions,
which might include fines, corrective orders, being placed on probation or, in
more serious cases, suspension or revocation of the center's license to
operate. Management believes the Company is in substantial compliance with all
material regulations applicable to its business.
For the fiscal year ended March 28, 1997, approximately 12% of the
Company's revenues were generated from federal child care assistance programs,
primarily the Child Care and Development Block Grant and At-Risk Programs.
These programs are typically designed to assist low-income families with child
care expenses and are administered through various state agencies. Although no
federal license is required at this time, there are minimum standards which
must be met to qualify for participation in certain federal programs. In
addition, the Company participates in the Georgia Prekindergarten Program which
provides services for eligible four-year-old children and their families. This
resulted in approximately $1,200,000 of revenue during the fiscal year ended
March 28, 1997. There is no assurance that funding for such federal and state
programs will continue at current levels and a significant reduction in such
funding may have an adverse impact on the Company.
There are certain tax incentives for parents utilizing child care
programs. Section 21 of the Internal Revenue Code provides a federal income
tax credit ranging from 20% to 30% of certain child care expenses for
"qualifying individuals" (as defined therein). The fees paid to the Company
for child care services by eligible taxpayers qualify for the tax credit,
subject to the limitations of Section 21. The amount of the qualifying child
care expenses is limited to $2,400 for one child and $4,800 for two or more
children and, therefore, the maximum credit ranges from $480 to $720 for one
child and from $960 to $1,440 for two or more children. Tax incentives
provided under the Internal Revenue Code are subject to change.
The Company must also comply with the Americans with Disabilities Act
("ADA") which prohibits discrimination on the basis of disability in public
accommodations and employment. Costs incurred to date by the Company to comply
with the ADA have not been significant. A determination that the Company is
not in compliance with the ADA,
15
<PAGE> 16
however, could result in the imposition of fines or an award of damages to
private litigants, and could require significant expenditures by the Company to
bring the Company's centers into compliance with the ADA.
INSURANCE
The Company's insurance program currently includes the following types
of policies: workers' compensation, commercial general liability and automobile
liability, property, excess "umbrella" liability, and a medical payment program
for accidents which provides secondary coverage for each child enrolled in a
Company center. The policies provide for a variety of coverages, are subject
to various limits, and, except for workers' compensation coverage, include
substantial deductibles or self-insured retention. For fiscal 1996, the
Company's policies for workers' compensation generally had a deductible of
$100,000 per accident. In fiscal 1997, the Company's workers' compensation
coverage generally had a deductible of $250,000 per accident. Property
insurance policy deductibles vary, depending upon the nature of the insured
event. The commercial general liability policy includes coverage for child
physical and sexual abuse claims, with an annual coverage of $2,000,000 per
location (including all general liability claims except product liability
claims) and $1,000,000 per occurrence. The Company also has excess "umbrella"
coverage, relating to general liabilities other than those related to child
physical and sexual abuse claims, in the amount of $20,000,000 per year.
Management believes that the Company's current insurance coverages are adequate
to meet its needs.
ITEM 2. PROPERTIES
The following table shows the locations of the Company's centers,
including those operated under management contracts, as of March 28, 1997 (the
numbers in the parentheses reflect the number of centers in that state):
Arizona (26) Mississippi (1)
California (25) New Jersey (6)
Florida (9) New York (29)
Georgia (13) Ohio (16)
Illinois (6) Oklahoma (10)
Maryland/DC (14) Pennsylvania (1)
Michigan (18) Texas (25)
Virginia (12)
As of March 28, 1997, the Company operated 211 centers, 151 of which
were leased, 54 of which were owned and 6 of which were operated under
management contracts. The leases have terms ranging from one to 25 years,
often with renewal options, with most leases having an initial term of five to
20 years. The leases typically require the Company to pay utilities,
maintenance, insurance and property taxes and
16
<PAGE> 17
some provide for contingent rentals if the center's revenues exceed a specified
base level.
As of March 28, 1997, the Company had leases with initial terms
(including renewal options) expiring as follows:
<TABLE>
<CAPTION>
NUMBER OF
FISCAL YEAR LEASES EXPIRING
<S> <C>
1998-1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2000-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2002-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2006 and later . . . . . . . . . . . . . . . . . . . . . . . . . . 78
</TABLE>
The Company also owns six undeveloped sites acquired prior to 1990
when the Company was owned by Gerber Products Company. These sites are carried
on the Company's books at an estimated realizable value aggregating $594,450.
Most of these properties no longer fit within the Company's long-term growth
strategy and will be disposed of over the next few years.
The Company currently leases approximately 7,420 square feet for its
corporate offices in Farmington Hills, Michigan.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in routine litigation
arising out of the ordinary course of its business, most of which is covered by
insurance. In management's opinion, none of the litigation in which the
Company is currently involved is material to its financial condition or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding executive officers of the Company contained
in Item 10 of this Report as it appears in Part III of this Report is
incorporated herein by reference.
17
<PAGE> 18
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is regularly quoted on the NASDAQ National
Market System under the symbol CTIM. The following table sets forth, for the
fiscal year ended March 28, 1997 and for the fourth quarter ended March 29,
1996 (the only quarter in fiscal year 1996 during which the Company's Common
Stock was publicly traded), the high and low closing sale prices for the
Company's Common Stock.
<TABLE>
<CAPTION>
Common Stock Sales Prices
High Low
-------------- ------------
<S> <C> <C>
Fiscal 1996:
4th Quarter $ 13.75 $ 8.50
Fiscal 1997:
1st Quarter $ 12.63 $ 6.25
2nd Quarter $ 13.00 $ 6.75
3rd Quarter $ 13.25 $ 8.50
4th Quarter $ 10.00 $ 8.38
</TABLE>
The Company has not paid dividends on shares of Common Stock and has
no intention of declaring or paying any such dividends in the foreseeable
future. The Company is not currently subject to any contractual restrictions
on its ability to pay dividends. Nonetheless, the Company intends to retain
its earnings, if any, to finance the growth and development of its business,
including future acquisitions.
As of June 9, 1997, there were approximately 1,015 holders of the
Company's Common Stock (including individual participants in security position
listings).
18
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
(Dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
March 31, April 1, March 31, March 29, March 28,
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Selected Income Statement Data:
Revenues $ 43,454 $ 48,068 $ 55,339 $ 65,623 $ 78,634
Cost of revenues 35,502 38,474 44,597 53,726 66,112
--------- --------- --------- --------- ---------
Gross profit 7,952 9,594 10,742 11,897 12,522
Marketing expenses 853 939 929 1,038 1,161
General and administrative
expenses 4,299 4,643 5,072 5,139 5,393
Revaluation of land held
for disposal ----- ----- ----- 612 -----
--------- --------- --------- --------- ---------
Operating income 2,800 4,012 4,741 5,108 5,968
Interest expense 2,214 1,888 2,135 1,800 160
Interest (income) (5) (2) ----- (39) (189)
Other (income), net (394) (368) (386) (331) (399)
--------- --------- --------- --------- ---------
Income before income taxes
and extraordinary item 985 2,494 2,992 3,678 6,396
Income tax provision (benefit) (123) 63 1,140 1,416 1,881
--------- --------- --------- --------- ---------
Net income before
extraordinary item 1,108 2,431 1,852 2,262 4,515
Extraordinary item, gain on
extinguishment of debt, net
of tax ----- ----- ----- 148 -----
--------- --------- --------- --------- ---------
Net income $ 1,108 $ 2,431 $ 1,852 $ 2,410 $ 4,515
========= ========= ========= ========= =========
Weighted average shares
outstanding (in thousands) 3,386 3,271 3,280 3,784 5,429
========= ========= ========= ========= =========
Earnings per share $ 0.33 $ 0.64 $ 0.48 $ 0.64 $ 0.83
========= ========= ========= ========= =========
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
March 31, April 1, March 31, March 29, March 28,
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Total assets $ 39,815 $ 40,037 $ 40,967 $ 44,688 $ 50,286
Total debt 24,386 21,910 19,424 1,236 2,272
Total shareholders' equity $ 5,837 $ 8,005 $ 9,799 $ 31,514 $ 36,089
Selected Operating Data:
Number of centers (at end
of period) 120 128 148 174 211
Center capacity (at end
of period) (1) 13,866 14,531 16,836 19,922 24,280
Average utilization (1) 63.2% 66.4% 67.2% 66.5% 63.4%
</TABLE>
(1) Average utilization is calculated by dividing total child days for a
period by the total capacity of the Company's centers (excluding the
capacity of those centers managed by the Company pursuant to
management contracts) at the end of such period. Child days are
calculated based upon the Company's standard hours by program (e.g.,
full-time, before and after, etc.).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Childtime Learning Centers, Inc. in February, 1996 became a publicly traded
company with its 1,930,000 share offering on the NASDAQ National Market System
(the "Offering"). Proceeds from the offering netted $19.2 million and exceeded
the amount required to pay off the Company's aggregate bank and subordinated
debt of approximately $17.4 million.
During the past three fiscal years, the Company has increased the number of
centers from 128, at the beginning of fiscal year 1995, to 211 at fiscal year
end 1997. The Company has achieved this growth through a combination of
acquisitions, "build-to-suit" centers, and leases. Additionally, the Company
has continued to increase the number of centers in both "at-work" and
residential locations.
Fiscal year 1997 growth consisted of 37 centers. The additions included 29
acquisitions and 8 "build-to-suit" or leased centers.
20
<PAGE> 21
Results of Operations
The following table sets forth, for the periods indicated, certain items
from "Selected Consolidated Financial Data" expressed as a percentage of
revenues and the percentage change in the dollar amounts of such items compared
to the prior period:
<TABLE>
<CAPTION>
Percentage Increase
Percentage of Revenue (Decrease)
Fiscal Year Ended ----------------------
------------------------------------- Fiscal 96 Fiscal 97
March 31, March 29, March 28, Over Over
1995 1996 1997 Fiscal 95 Fiscal 96
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 18.6% 19.8%
Cost of revenues 80.6% 81.9% 84.1% 20.5% 23.1%
--------- --------- ---------
Gross profit 19.4% 18.1% 15.9% 10.8% 5.3%
Marketing expenses 1.7% 1.6% 1.5% 11.7% 11.8%
General and administrative expenses 9.1% 7.8% 6.8% 1.3% 4.9%
Revaluation of land held for disposal ----- 0.9% ----- * *
--------- --------- ---------
Operating income 8.6% 7.8% 7.6% 7.7% 16.8%
Interest expense 3.9% 2.7% 0.2% -15.7% -91.1%
Interest income ----- ----- -0.2% * *
Other income, net -0.7% -0.5% -0.5% -14.2% 20.5%
--------- --------- ---------
Income before income taxes and
extraordinary item 5.4% 5.6% 8.1% 22.9% 73.9%
Income tax provision 2.0% 2.1% 2.4% 24.2% 32.8%
--------- --------- ---------
Income before extraordinary item 3.4% 3.5% 5.7% 22.1% 99.6%
Extraordinary item: gain, net of tax ----- 0.2% ----- * *
--------- --------- ---------
Net income 3.4% 3.7% 5.7% 30.1% 87.3%
========= ========= =========
</TABLE>
* percentage increase (decrease) is
not meaningful information
Fiscal 1997 Compared to Fiscal 1996. Revenues increased from $65.6 million in
fiscal 1996 to $78.6 million in fiscal 1997, a 19.8% increase. Of that
increase, 17.7% came from new center revenue growth and from the full year
impact of centers opened in fiscal 1996. The remaining 2.1% came
from comparable center revenue growth (revenues from centers operating during
all of fiscal 1996 and fiscal 1997). Comparable center revenue growth was 2.2%
or $1.4 million over last year's comparable center revenues. This growth in
comparable center revenues resulted primarily from increases in tuition rates
and was partially offset by lower center utilization attributable to the impact
of the softer than expected fall enrollments in certain regional markets. The
remaining increase in the
21
<PAGE> 22
Company's revenues was attributable to the inclusion in the fiscal 1997 results
of a full year of revenues for centers opened or acquired in fiscal 1996 and
the acquisition or opening of 37 centers during fiscal 1997.
Gross profit increased from $11.9 million in fiscal 1996 to $12.5 million
in fiscal 1997, an increase of 5.3%. As a percentage of revenues, gross profit
decreased from 18.1% in fiscal 1996 to 15.9% in fiscal 1997. This decrease in
margin was primarily due to the Company continuing to add new centers, which
early in their operations will experience initial start up costs, operating
losses and/or low margins, and to a lessor extent, a slight decrease in the
continuing centers' margins due to the impact of the soft fall enrollments in
certain regional markets. Also, the Company continues to add exclusively
leased facilities which typically produce lower margins than the Company's
owned facilities due to the additional rent expense.
Marketing expenses increased from $1,038,000 in fiscal 1996 to $1,161,000
in fiscal 1997, a 11.8% increase. The increase was primarily due to the
additional marketing expenses relating to the opening or acquisition of 37 new
centers in fiscal 1997 as well as a full year of expense for the 27 new centers
opened or acquired in fiscal 1996. As a percentage of revenues, however,
marketing expenses decreased from 1.6% in fiscal 1996 to 1.5% in fiscal 1997.
General and administrative expenses increased from $5.1 million in fiscal
1996, to $5.4 million in 1997, a 4.9% increase. As a percentage of revenues,
however, general and administrative expenses decreased from 7.8% in fiscal 1996
to 6.8% in fiscal 1997, due primarily to operating leverage provided by higher
revenues.
Interest expense decreased from $1.8 million in fiscal 1996 to $0.2 million
in fiscal 1997. This decrease was due to repayment in February and March 1996
of approximately $17.4 million of the Company's outstanding indebtedness with
net proceeds from the Offering, partially offset by new indebtedness incurred
with the acquisition of centers. As a percentage of revenues, interest expense
decreased from 2.7% in fiscal 1996 to 0.2% in fiscal 1997.
The provision for income tax increased from $1.4 million (an effective rate
of 38.5%) in fiscal 1996 to $1.9 million (an effective rate of 29.4%) in fiscal
1997. The decrease in the effective tax rate was principally due to the
$600,000 tax credit (a 9.4% impact) realized in the third quarter of fiscal
1997 as a result of the settlement with the IRS regarding the deductibility of
certain acquisition costs. See Note 7 of the Notes to the Consolidated
Financial Statements included as part of Item 8 of this Report.
As a result of the foregoing changes, the Company's net income increased
from $2.4 million, or 3.7% of revenues, in fiscal 1996 to $4.5 million, or 5.7%
of revenues, in fiscal 1997.
22
<PAGE> 23
FISCAL 1996 COMPARED TO FISCAL 1995. Revenues increased from $55.3 million in
fiscal 1995 to $65.6 million in fiscal 1996, an 18.6% increase. Of that
increase, 14.8% came from new center revenue growth and from the full year
impact of centers opened in fiscal 1995. The remaining 3.8% came
from comparable center revenue growth (revenues from centers operating during
all of fiscal 1995 and fiscal 1996). Comparable center revenue growth was 4.1%,
or $2.1 million over last year's comparable center revenues. This growth in
comparable center revenues resulted primarily from increases in tuition rates
and to a lesser extent center utilization rates. The remaining increase in
the Company's revenues was attributable to the inclusion in the fiscal 1996
results of a full year of revenues for centers opened or acquired in fiscal
1995 and the acquisition or opening of 27 new centers during fiscal 1996.
Gross profit increased from $10.7 million in fiscal 1995 to $11.9 million
in fiscal 1996, an increase of 10.8%. As a percentage of revenues, gross
profit decreased from 19.4% in fiscal 1995 to 18.1% in fiscal 1996. This
decrease was primarily due to initial start-up costs and operating losses
incurred with respect to all new build-to-suit centers and acquired centers
aggregating $753,000 in fiscal 1996 (relating to 27 centers) as compared to
$441,000 in fiscal 1995 (relating to 20 centers). Also, the Company continues
to add exclusively leased facilities which typically produce lower margins than
the Company's owned facilities due to the additional rent expense.
Marketing expenses increased from $929,000, or 1.7% of revenues, in fiscal
1995 to $1,038,000, or 1.6% of revenues, in fiscal 1996. This increase was
primarily due to the additional marketing expenses relating to the opening or
acquisition of 27 new centers in fiscal 1996 as well as a full year of expense
for the 21 new centers opened or acquired in fiscal 1995.
General and administrative expenses remained flat at $5.1 million in both
fiscal 1995 and 1996. As a percentage of revenues, however, general and
administrative expenses decreased from 9.1% in fiscal 1995 to 7.8% in fiscal
1996, due primarily to operating leverage provided by higher revenues.
Revaluation of land held for disposal represents a $612,000 charge required
in fiscal 1996 to reduce the carrying value of the land held for disposal to
its estimated net realizable value. See Note 5 of the Notes to the
Consolidated Financial Statements included as part of Item 8 of this Report.
Interest expense decreased from $2.1 million in fiscal 1995 to $1.8 million
in fiscal 1996. This decrease was due to repayment of approximately $17.4
million of the Company's outstanding indebtedness with net proceeds from the
Offering, partially offset by new indebtedness incurred with the acquisition of
centers, as well as increasing interest rates. As a percentage of revenues,
interest expense decreased from 3.9% in fiscal 1995 to 2.7% in fiscal 1996.
The provision for income tax increased from $1.1 million (an effective rate
of 38.1%) in fiscal 1995 to $1.4 million (an effective rate of 38.5%) in fiscal
1996.
23
<PAGE> 24
For fiscal 1996, the Company recorded an extraordinary item of $148,000
(net of income taxes of $93,000), which primarily represents a gain realized
upon the retirement of the Company's subordinated debt in connection with the
Offering.
As a result of the foregoing changes, the Company's net income increased
from $1.9 million, or 3.4% of revenues, in fiscal 1995 to $2.4 million, or 3.7%
of revenues, in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements during fiscal 1996 and 1997 were
new center expansion (through development of build-to-suit centers, new leases
and acquisitions), maintenance of existing centers and the repayment of debt
and related interest. Prior to the Offering, these requirements were generally
satisfied out of operating cash flows and borrowings available under the
Company's secured $2.6 million revolving line of credit, which bore interest at
prime plus 2%. Subsequent to the Offering, the Company's bank loans and
subordinated debt were repaid in full. Accordingly, the Company's primary cash
requirements for fiscal 1998 will be its new center expansion program and
maintenance of existing centers. The Company believes that operating cash
flows, together with amounts available under a $10 million unsecured revolving
line of credit facility will be sufficient to satisfy the Company's anticipated
cash requirements on both a long-term and short-term basis. The line of credit
bears annual interest at either the prime rate or an adjusted Eurodollar based
rate, at the Company's option.
Net cash provided by operations was $5.6 million during fiscal 1997 and
$4.1 million during fiscal 1996. During the fiscal 1997 period, cash provided
by operations, together with proceeds from the sale of assets ($0.2 million),
was principally used to add 37 centers and to make capital improvements to
existing centers (aggregating $3.8 million), to repay current installments due
on acquisition debt ($0.6 million), and to increase cash balances ($1.4
million). During fiscal 1997, and at March 28, 1997, no borrowings were
incurred under the Company's line of credit.
During fiscal 1997, the Company opened or acquired 37 centers, consisting
of 8 build-to-suit centers or new leases, with the balance coming from
acquisitions. The cash required to open a build-to-suit center, consisting of
capital expenditures for lease improvements and initial start-up costs, was
approximately $90,000 for fiscal 1997, with each center typically experiencing
additional cash requirements of $40,000 to $70,000 during its first six to nine
months of operation. The costs for the Company's acquisitions vary
considerably depending, in part, upon the profitability and maturity of the
centers to be acquired, as well as their size and number. The Company has
historically targeted an acquisition price ranging from $100,000 to $250,000
per center and provides for cash down payments generally ranging from 30% to
70% of the acquisition price. On occasion, the Company has been required to
invest an additional $10,000 to $50,000 to bring certain acquired centers up to
the Company's standards.
24
<PAGE> 25
During fiscal year 1998, the Company estimates opening or acquiring 27 to
32 centers. While the financial impact of acquired centers will vary with the
economic impact and size of each transaction, the Company's build-to-suit cash
requirements per center should not change substantially from prior years. The
Company's estimated total cash requirements for center expansion and ongoing
maintenance of existing centers should approximate $4.6 million in fiscal 1998.
An acquisition of a larger multi-unit operator could increase these cash
requirements.
EFFECT ON INFLATION
The Company does not believe that inflation has had a material effect on
the results of its operations in the past three fiscal years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item
are included in the Consolidated Financial Statements set forth on pages F-1
through F-18, attached hereto and found following the signature page of this
Report.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
25
<PAGE> 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to the executive officers
of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Harold A. Lewis 51 President and Chief Executive Officer
Michael M. Yeager 38 Vice President, Chief Financial Officer,
Secretary and Treasurer
Deborah D. Ludwig 43 Vice President - Eastern Region
Taylor V. Ward 43 Vice President - Western Region
William H. Van Huis 40 Vice President - Marketing
</TABLE>
Each of the executive officers of the Company have held the positions
with the Company set forth above since the Company's incorporation in November
1995. In addition, each has served in the following positions:
Harold A. Lewis has been the President and Chief Executive Officer and
a director of Childtime Childcare, Inc. since August 1991. From 1990 to 1991,
he was Chief Operating Officer International Operations of U.S. Travel Systems,
Inc., a national, multi-unit travel company headquartered in Rockville,
Maryland. From 1989 to 1990, Mr. Lewis was Chief Operating Officer of U.S.
Travel Systems, Inc. Mr. Lewis' previous experience includes 14 years with The
Dun & Bradstreet Corporation in New York, most recently as President of one of
its subsidiaries, Thomas Cook Travel USA, a national multi-unit travel company.
Mr. Lewis holds an M.B.A. from New York University.
Michael M. Yeager has served as Chief Financial Officer, Secretary and
Treasurer of Childtime Childcare, Inc. since April 1991. From 1987 until he
joined the Company, Mr. Yeager held various executive level positions,
including Chief Financial Officer and Director of International Operations and
Regional Controller, for Domino's Pizza Distribution Corporation, located in
Ann Arbor, Michigan, a multi-unit food manufacturer and distributor. Mr.
Yeager, a certified public accountant, has a B.A. from Albion College.
26
<PAGE> 27
Deborah D. Ludwig has been the Vice President-Eastern Region of
Childtime Childcare, Inc. since June 1992 and served as Executive Vice
President and General Manager of Childtime Childcare, Inc. from July 1990 to
June 1992. Ms. Ludwig also served as a director of Childtime Childcare, Inc.
from July 1990 until November 1995. She has a 22-year career in child care, 17
of which are with the Company and its predecessor, GCC. Ms. Ludwig has an
Associates Degree from Mott Community College in Early Childhood Development
and a B.A. from the University of Michigan.
Taylor V. Ward has been the Vice President-Western Region of Childtime
Childcare, Inc. since June 1992. From 1982 until joining the Company, Ms. Ward
served as a District Manager for KinderCare Learning Centers in the Texas,
California and Nevada areas. Ms. Ward holds degrees in Accounting from Wichita
State University and in Early Childhood Development from Southwest Texas State
University, and she has substantially completed her course work for a Masters
of Science in Communications from Southwest Texas State University.
William H. Van Huis has been the Vice President of Marketing of
Childtime Childcare, Inc. since November 1990. In addition to supervising the
marketing and advertising of the Company's centers, Mr. Van Huis is also
responsible for developing employer-sponsored child care locations. From 1986
to 1990, Mr. Van Huis was National Marketing Manager for Ziebart International
Corporation/TKD North America, an automotive aftermarket firm located in Troy,
Michigan. He holds a B.A. from Michigan State University.
Additional information required by this Item will be contained in the
1997 Proxy Statement of the Company under the caption, "Election of Directors,"
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item will be contained in the 1997 Proxy
Statement of the Company under the captions, "Executive Compensation,"
"Compensation Committee Interlocks and Insider Participation," "Committees of
the Board of Directors" and "Director Compensation," and is incorporated herein
by reference.
27
<PAGE> 28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item will be contained in the 1997 Proxy
Statement of the Company under the captions, "Election of Directors" and
"Principal Shareholders," and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be contained in the 1997 Proxy
Statement under the caption, "Certain Transactions," and is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULE,
AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The financial statements filed with this Report are
listed on page F-1.
2. FINANCIAL STATEMENTS SCHEDULES
The financial statement schedule filed with this Report
is listed on page F-1. Other financial statement
schedules, for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission, are not required under the related
instructions or are inapplicable and, therefore, have
been omitted.
3. EXHIBITS
The exhibits filed with this Report are listed on the
"Exhibit Index" on pages E-1 through E-2.
(b) REPORTS ON FORM 8-K
No current Reports on Form 8-K were filed by the Company during
the last quarter of the fiscal year ended March 28, 1997.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, on June 16, 1997.
CHILDTIME LEARNING CENTERS, INC.
By: /s/ Harold A. Lewis
-------------------------------------
Harold A. Lewis,
President 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
registrant and in the capacities and on the dates indicated on June 16, 1997.
<TABLE>
<CAPTION>
SIGNATURE
---------
TITLE
-----
<S> <C>
/s/ Harold A. Lewis President, Chief Executive Officer and Director
- --------------------------- (Principal Executive Officer)
Harold A. Lewis
/s/ Michael M. Yeager Vice President and Chief Financial Officer
- --------------------------- (Principal Financial and Accounting Officer)
Michael M. Yeager
/s/ Milton H. Dresner Director
- ---------------------------
Milton H. Dresner
/s/ James W. Geisz Director
- ---------------------------
James W. Geisz
/s/ George A. Kellner Director
- ---------------------------
George A. Kellner
/s/ Leonard C. Tylka Director
- ---------------------------
Leonard C. Tylka
/s/ Jason K. Feld Director
- ---------------------------
Jason K. Feld
/s/ Benjamin R. Jacobson Director
- ---------------------------
Benjamin R. Jacobson
</TABLE>
29
<PAGE> 30
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of Childtime Learning Centers,
Inc. are referred to in Item 8:
<TABLE>
<CAPTION>
PAGES
<S> <C>
Report of Independent Accountants ........................... F-2
Financial Statements:
Consolidated Balance Sheet ................................ F-3
Consolidated Statement of Income .......................... F-4
Consolidated Statement of Changes in Common
Stock Purchase Warrant and Shareholders' Equity ....... F-5
Consolidated Statement of Cash Flows ...................... F-6
Notes to Consolidated Financial Statements ................ F-7 - F-18
</TABLE>
The following consolidated financial statement schedule of Childtime Learning
Centers, Inc. is included herein:
Schedule II - Valuation and qualifying accounts ...... S-1
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
F-1
<PAGE> 31
REPORT OF INDEPENDENT A CCOUNTANTS
To the Board of Directors and Shareholders of
Childtime Learning Centers, Inc. and Subsidiary:
We have audited the consolidated financial statements and financial statement
schedule of Childtime Learning Centers, Inc. and Subsidiary listed in the index
on page F-1 of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule 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 consolidated financial position of Childtime
Learning Centers, Inc. and Subsidiary as of March 29, 1996 and March 28, 1997,
and the consolidated results of their operations and their cash flows for each
of the three fiscal years in the period ended March 28, 1997 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P
Detroit, Michigan
May 27, 1997
F-2
<PAGE> 32
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
ASSETS 1996 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,313,469 $ 3,733,174
Accounts receivable, less allowance for doubtful accounts of $125,000 and $185,000, respectively 1,728,682 1,956,105
Prepaid expenses and other 1,174,486 1,412,273
Deferred income taxes 620,000 904,000
----------- -----------
Total current assets 5,836,637 8,005,552
----------- -----------
Land, buildings and equipment:
Land 10,220,000 10,220,000
Buildings 19,392,528 19,504,681
Vehicles, furniture and equipment 6,251,095 7,161,356
Leasehold improvements 4,628,327 5,296,298
----------- -----------
40,491,950 42,182,335
Less accumulated depreciation and amortization (7,049,522) (8,125,974)
----------- -----------
33,442,428 34,056,361
Land held for disposal 739,600 594,450
----------- -----------
34,182,028 34,650,811
----------- -----------
Other noncurrent assets:
Intangible assets, net 4,187,242 7,039,602
Refundable deposits and other 482,257 590,472
----------- -----------
Total assets $44,688,164 $50,286,437
=========== ===========
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 426,353 $ 686,453
Accounts payable 1,245,018 1,271,001
Accrued wages and payroll taxes 2,060,037 1,940,409
Accrued vacation 703,078 807,729
Other current liabilities 1,919,474 2,568,012
----------- -----------
Total current liabilities 6,353,960 7,273,604
Long-term debt 809,364 1,585,599
Deferred income taxes 4,571,000 3,898,000
----------- -----------
Total liabilities 11,734,324 12,757,203
----------- -----------
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; 5,227,811 issued and outstanding 29,363,816 29,363,816
Preferred stock, 1,000,000 shares authorized, no par value; no shares issued or outstanding - -
Subscriptions receivable (64,171) (3,441)
Retained earnings 2,214,195 6,728,859
----------- -----------
Total shareholders' equity 31,513,840 36,089,234
----------- -----------
Total liabilities and shareholders' equity $44,688,164 $50,286,437
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 33
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
------------ ----------- ------------
<S> <C> <C> <C>
Revenues $55,338,967 $65,623,027 $78,633,673
Cost of revenues 44,596,505 53,726,106 66,111,784
----------- ----------- -----------
Gross profit 10,742,462 11,896,921 12,521,889
Marketing expenses 928,746 1,037,449 1,161,049
General and administrative expenses 5,072,847 5,139,408 5,392,966
Revaluation of land held for disposal - 611,568 -
----------- ----------- -----------
Operating income 4,740,869 5,108,496 5,967,874
Interest expense 2,134,692 1,800,116 159,927
Interest income (170) (38,669) (188,564)
Other income, net (385,735) (331,223) (399,153)
----------- ----------- -----------
Income before income taxes and extraordinary item 2,992,082 3,678,272 6,395,664
Income tax provision 1,140,000 1,416,000 1,881,000
----------- ----------- -----------
Income before extraordinary item 1,852,082 2,262,272 4,514,664
Extraordinary item, net gain on early retirement of debt,
net of income taxes of $93,000 - 148,000 -
----------- ----------- -----------
Net income $ 1,852,082 $ 2,410,272 $ 4,514,664
=========== =========== ===========
Weighted average shares outstanding 3,280,486 3,783,855 5,429,322
=========== =========== ===========
Earnings per share before extraordinary item $ 0.48 $ 0.60 $ 0.83
Extraordinary item - 0.04 -
----------- ----------- -----------
Earnings per share after extraordinary item $ 0.48 $ 0.64 $ 0.83
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 34
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCK PURCHASE WARRANT AND
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
-----------------------------------------------------------------------
COMMON RETAINED
STOCK EARNINGS
PURCHASE COMMON STOCK SUBSCRIPTIONS (ACCUMULATED
WARRANT SHARES AMOUNT RECEIVABLE DEFICIT) TOTAL
----------- ------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, April 1, 1994 $ 1,160,000 3,270,936 $ 10,262,916 $ (209,548) $(2,048,159) $ 8,005,209
Issuance of shares - 29,375 169,200 - - 169,200
Collection of subscriptions
receivable - - - 59,388 - 59,388
Purchase of common shares - (2,500) (7,200) - - (7,200)
Net income - - - - 1,852,082 1,852,082
Accretion to fair value 280,000 - (280,000) - - (280,000)
----------- --------- ------------ ---------- ----------- -----------
Balances, March 31, 1995 1,440,000 3,297,811 10,144,916 (150,160) (196,077) 9,798,679
Issuance of shares - 1,930,000 19,218,900 - - 19,218,900
Collection of subscriptions
receivable - - - 85,989 - 85,989
Net income - - - - 2,410,272 2,410,272
----------- --------- ------------ ---------- ----------- -----------
Balances, March 29, 1996 1,440,000 5,227,811 29,363,816 (64,171) 2,214,195 31,513,840
Collection of subscriptions
receivable 60,730 60,730
Net income 4,514,664 4,514,664
----------- --------- ------------ ---------- ----------- -----------
Balances, March 28, 1997 $ 1,440,000 5,227,811 $ 29,363,816 $ (3,441) $ 6,728,859 $36,089,234
=========== ========= ============ ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 35
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,852,082 $ 2,410,272 $ 4,514,664
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,410,377 1,575,769 1,855,533
Deferred income taxes 288,000 (145,000) (957,000)
Interest expense on subordinated note 390,652 200,000 -
Losses and provisions for losses on land, buildings, equipment and land
held for disposal 139,014 601,255 8,048
Lease subsidy income (400,000) (200,000) -
Changes in assets and liabilities providing (consuming) cash:
Accounts receivable (699,541) (68,430) (227,423)
Prepaid expenses and other assets 194,738 (557,696) (237,787)
Accounts payable, accruals, and other current liabilities 1,094,663 234,858 659,544
----------- ------------ -----------
Net cash provided by operating activities 4,269,985 4,051,028 5,615,579
----------- ------------ -----------
Cash flows from investing activities:
Expenditures for land, buildings and equipment (1,189,828) (2,211,405) (1,968,524)
Acquisition of intangible assets (691,487) (1,899,990) (1,767,621)
Proceeds from sales of land, buildings and equipment 233,675 1,247,700 173,076
Payments for refundable deposits and other assets (64,746) (210,290) (108,215)
----------- ------------ -----------
Net cash used in investing activities (1,712,386) (3,073,985) (3,671,284)
----------- ------------ -----------
Cash flows from financing activities:
Payments on revolving line of credit, net (419,506) - -
Payments on long-term debt (2,359,044) (18,188,211) (583,098)
Deferred financing costs - (20,664) (2,222)
Issuance of shares, net of subscriptions receivable 228,588 19,304,889 60,730
Purchase of common stock (7,200) - -
----------- ------------ -----------
Net cash provided by (used in) financing activities (2,557,162) 1,096,014 (524,590)
----------- ------------ -----------
Net increase in cash and cash equivalents 437 2,073,057 1,419,705
Cash and cash equivalents, beginning of year 239,975 240,412 2,313,469
----------- ------------ -----------
Cash and cash equivalents, end of year $ 240,412 $ 2,313,469 $ 3,733,174
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 36
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION AND CORPORATE ORGANIZATION:
The consolidated financial statements as of March 29, 1996 and March 28,
1997, include the accounts of Childtime Learning Centers, Inc. and its
wholly owned subsidiary, Childtime Childcare, Inc. ("Childtime") (together
referred to as the "Company"). All significant intercompany items have
been eliminated.
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, 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 then current shareholders of Childtime Learning Centers, Inc.
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 are 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. Gerber Children's Centers subsequently changed its name to
Childtime Childcare, Inc.
As of March 28, 1997, the Company provides for-profit child care through
211 child care centers located in 15 states and the District of Columbia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. 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. The fiscal years ended March 31, 1995, March 29, 1996
and March 28, 1997 all contained 52 weeks.
F-7
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
b. LAND, BUILDINGS AND EQUIPMENT: Land, buildings and equipment are
recorded at cost. Depreciation is provided on a straight-line basis
over the estimated useful lives of the assets (generally 40 years for
buildings and between 3 and 15 years for vehicles, furniture and
equipment). Leasehold improvements are recorded at cost and amortized
on a straight-line basis over the lesser of the estimated useful life
of the leasehold improvement or the life of the lease. Gains and
losses on sales and retirements are included in the determination of
the results of operations. Maintenance and repair costs and
preopening costs for new centers are charged to operating expense in
the period incurred.
c. DEFERRED FINANCING COSTS: Costs related to the issuance of debt
are deferred and amortized over the life of the underlying
indebtedness. Accumulated amortization at March 29, 1996 and March
28, 1997 was $641 and $11,563, respectively.
d. INTANGIBLE ASSETS: Intangible assets represent principally the
unamortized excess of the cost of acquiring Childtime and other
acquisitions of existing child care facilities over the fair values of
the companies' net tangible assets at the dates of acquisition. The
intangible assets are being amortized using a straight-line method
over various periods up to 20 years with such amortization expense
included in cost of revenues. Accumulated amortization at March 29,
1996 and March 28, 1997 was $844,385 and $1,336,843, respectively.
e. INCOME TAXES: The Company provides for income taxes for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. 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.
f. CASH AND CASH EQUIVALENTS: The Company considers all temporary
investments with original maturities of three months or less at time
of purchase to be cash equivalents.
g. RISK CONCENTRATION: Accounts receivable is the principal
financial instrument which subjects the Company to concentration of
credit risk. Concentration of credit risk is somewhat limited due to
the Company's large number, diversity and dispersion of customers.
The Company maintains an allowance for doubtful accounts based upon
the expected collectibility of accounts receivable.
h. COMMON STOCK PURCHASE WARRANT: The common stock purchase warrant
was initially recorded at its estimated fair value at the date of
issuance, July 9, 1990. The Company's policy was to record changes
in the estimated fair value of the common stock purchase warrant only
to the extent it exceeded the carrying value for the periods in which
the lender had the right to put the common stock purchase warrant to
the Company. The right to put the common stock purchase warrant
expired on February 2, 1996.
F-8
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
i. COMMON STOCK AND EARNINGS PER SHARE: For the fiscal years ended
March 29, 1996 and March 28, 1997, earnings per share has been
calculated by dividing net income by the weighted average common
shares outstanding, assuming exercise of the common stock purchase
warrant.
Earnings per share for the year ended March 31, 1995 are calculated in
accordance with Emerging Issues Task Force Abstract 88-9, "Put
Warrants." Under this guidance, earnings per share presented is the
most dilutive result of two different methods of calculation.
Stock options outstanding are anti-dilutive and have been excluded
from weighted average shares outstanding.
j. REVENUE RECOGNITION: Substantially, all of the Company's
revenues are derived from providing child care services, for which
revenues are recognized as the services are provided. Revenues for
child care services provided under management contract arrangements
with employers are also recognized as the services are provided.
k. PRE-OPENING COSTS: Pre-opening costs are expensed as incurred.
l. ADVERTISING EXPENSES: Yellow pages advertising is paid in
advance and recorded as a prepaid expense which is amortized over the
one year publication period. Direct mailing costs are incurred at
various times during the fiscal year and are expensed over the period
in which revenues are generated and recognized (generally measured in
months and less than one year). All other marketing costs are treated
as period expenses and, accordingly, are directly expensed in the
period incurred.
m. USE OF ESTIMATES: The preparation of 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.
F-9
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
n. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS: In March 1997,
the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 superseded APB 15, "Earnings Per Share," and
simplified the computation of earnings per share ("EPS") by replacing
the "primary" EPS requirements of APB 15 with a "basic" EPS
computation based upon weighted shares outstanding. The new standard
requires presentation of both basic and diluted EPS. Diluted EPS is
similar to "fully diluted" EPS required under APB 15. The Company
will adopt the provisions of this statement, as required, in fiscal
1998. The adoption of this statement is not expected to have a
material effect on EPS.
o. RECLASSIFICATIONS: Certain amounts for the fiscal years ended
March 31, 1995 and March 29, 1996 have been reclassified to conform
to presentation adopted in fiscal 1997.
3. INITIAL PUBLIC OFFERING:
On February 2, 1996 and March 1, 1996, the Company sold 1,700,000 shares
and 230,000 shares, respectively, of common stock, no par value, for $11.00
per share to the public and received net proceeds aggregating $19,218,900
after deducting underwriting discounts and commissions, and offering
expenses. Approximately $17,400,000 of the net proceeds were used to
retire debt.
During the 1996 fiscal year, in connection with the retirement of this
indebtedness, the Company negotiated a $300,000 reduction in the
subordinated note payable and wrote-off $59,000 of unamortized deferred
financing costs. The $148,000 gain, net of income taxes of $93,000, is
reflected as an extraordinary item in the accompanying consolidated
statement of income.
4. OTHER CURRENT ASSETS AND LIABILITIES:
Included in prepaid expenses and other current assets are prepaid rental
expense and prepaid property tax expense of $462,330 and $219,505 at March
29, 1996 and $610,728 and $249,902 at March 28, 1997, respectively.
Included in other current liabilities are unearned revenue and accrued
workers' compensation expense of $363,170 and $341,614 at March 29, 1996
and $440,298 and $731,740 at March 28, 1997, respectively.
F-10
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. LAND HELD FOR DISPOSAL:
From July 9, 1990 to March 31, 1995, land held for disposal was carried
at its estimated fair market value which was based on the carrying values
provided by the seller. In fiscal 1996, the carrying value of land held
for disposal was determined on a parcel-by-parcel basis based upon
independent appraisals. As a result, a $611,568 loss is included in the
accompanying consolidated statement of income as revaluation of the
property to its appraised value.
The estimated fair market value of land held for disposal in subsequent
periods is evaluated on a parcel-by-parcel basis using estimates of real
estate price changes and other factors considered by the 1996 appraisals.
Declines in estimated net realizable value are recorded in the period they
are known.
6. FINANCING ARRANGEMENTS:
Financing arrangements consist of the following:
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
----------- -----------
<S> <C> <C>
Notes payable to a corporation, interest at prime plus 1 percent,
quarterly principal payments of $34,000, plus interest, remaining
principal balance payable October 2001 - $ 612,000
Notes payable to a corporation, interest at 8 percent per year,
quarterly principal payments of $16,752, plus interest, remaining
principal balance payable January 2004 - 452,303
Notes payable to various corporations, interest at various fixed rates
ranging from 7.9 to 10.95 percent and variable rates ranging
from prime to prime plus 1 percent, various payment terms with
original maturities ranging from two to six years $ 1,235,717 1,207,749
----------- -----------
1,235,717 2,272,052
Less current maturities of long-term debt 426,353 686,453
----------- -----------
$ 809,364 $ 1,585,599
=========== ===========
</TABLE>
F-11
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. FINANCING ARRANGEMENTS, CONTINUED:
At March 28, 1997, aggregate principal payments due on the long-term debt
over the next five years are as follows:
<TABLE>
<S> <C>
1998 $ 686,453
1999 534,991
2000 396,047
2001 313,277
2002 and thereafter 341,284
----------
$2,272,052
==========
</TABLE>
At March 28, 1997, the Company's revolving line of credit is unsecured and
provides for borrowings up to $10,000,000, with interest payable monthly at
a variable rate, at the Company's option, based on either the prime rate or
the Eurodollar rate. There were no outstanding borrowings under the line
of credit at March 29, 1996 or March 28, 1997. The availability under
the line of credit was reduced by an outstanding letter of credit in the
amount of $400,000 at March 29, 1996 and $900,000 at March 28, 1997.
Under this agreement, the Company is required to maintain certain financial
ratios (as defined) and other financial conditions, the most restrictive of
which requires the Company to maintain certain debt-to-equity ratios, a
minimum fixed charge coverage and a minimum amount of tangible net worth.
In addition, there are restrictions on the incurrence of additional
indebtedness, disposition of assets and transactions with affiliates.
In connection with obtaining original acquisition financing in 1990, the
Company issued a common stock purchase warrant to the former lender which
entitled the former lender to purchase 201,511 shares of common stock. A
fair value of $806,044 was originally ascribed to 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, on February 2, 1996, the former lender had the right to put
the common stock purchase warrant to the Company at a price equal to the
fair value or book value of the common stock purchase warrant as defined in
the Agreement. The Company had the right to call the common stock purchase
warrant under similar terms. Subsequent to February 2, 1996 the former
lender has the right to require the Company to register the shares issuable
upon exercise of the warrant.
F-12
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES:
The income tax provision on income before income taxes and extraordinary
item reflected in the consolidated statement of income consists of the
following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 643,000 $ 1,270,000 $ 2,395,000
State and local 209,000 291,000 443,000
----------- ----------- -----------
852,000 1,561,000 2,838,000
----------- ----------- -----------
Deferred:
Federal 245,000 (123,000) (813,000)
State and local 43,000 (22,000) (144,000)
----------- ----------- -----------
288,000 (145,000) (957,000)
----------- ----------- -----------
$ 1,140,000 $ 1,416,000 $ 1,881,000
=========== =========== ===========
</TABLE>
Differences between the income tax provision on income before income taxes
and extraordinary item reflected in the statement of income and that
computed by applying the statutory federal income tax rate are attributable
to the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income tax provision at the statutory federal rate $ 1,017,000 $ 1,251,000 $ 2,175,000
State and local taxes, net of federal tax benefit 166,000 174,000 197,000
Internal Revenue Service settlement - - (600,000)
Other (43,000) (9,000) 109,000
----------- ----------- -----------
$ 1,140,000 $ 1,416,000 $ 1,881,000
=========== =========== ===========
</TABLE>
As previously disclosed, the Internal Revenue Service ("IRS") had
challenged the deductibility of certain costs incurred by KD Acquisition
Corporation in connection with its acquisition of the Company and had
issued a Statutory Notice of Deficiency for the tax years 1991 - 1994.
Accordingly, prior to March 29, 1996, the Company had not recognized for
financial statement purposes the income tax benefit of approximately
$900,000 associated with these deductions.
F-13
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES, CONTINUED:
During fiscal 1997, legislation was enacted by Congress which clarified
certain provisions of the Internal Revenue Code related to the
deductibility of such expenses. As a result of the enacted legislation,
the Company and the IRS reached an agreement which resulted in a settlement
at an amount substantially below that originally claimed. Accordingly, the
accompanying consolidated statement of income includes a $600,000 credit in
the income tax provision to reflect the settlement of this issue with the
IRS.
Temporary differences and carryforwards which give rise to deferred tax
assets and (liabilities) are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
------------------------------------------
DEFERRED DEFERRED DEFERRED
ASSET ASSET ASSET
(LIABILITY) (LIABILITY) (LIABILITY)
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
------------- ------------ -------------
<S> <C> <C> <C>
Basis and depreciation differences of property $ (3,712,000) $ (3,671,000) $ (3,898,000)
Provision for estimated expenses 516,000 620,000 904,000
Other (900,000) (900,000) -
------------ ------------ ------------
$ (4,096,000) $ (3,951,000) $ (2,994,000)
============ ============ ============
</TABLE>
8. LEASES:
The Company leases certain land and buildings, primarily children's centers
and vehicles, under noncancelable operating leases with original terms
ranging from 1 to 25 years. Certain leases contain purchase and renewal
options, impose restrictions upon making certain payments and incurring
additional debt, and may provide for contingent rents based upon a
specified percentage of the gross revenues derived from operating a
business at the lease facility. Rental expense for the years ended March
31, 1995, March 29, 1996 and March 28, 1997 was $4,910,788, $6,420,140
and $8,293,895 respectively. These amounts included contingent rental
expense of $213,630, $277,966 and $304,209 for the years ended March 31,
1995, March 29, 1996 and March 28, 1997, respectively.
F-14
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. LEASES, CONTINUED:
Future minimum rental commitments at March 28, 1997 for all noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
1998 $ 9,431,189
1999 9,026,078
2000 8,516,945
2001 7,871,522
2002 7,524,663
Thereafter 61,840,292
</TABLE>
The Company is party to a lease subsidy agreement with Gerber Products
Company, which requires semiannual payments of $200,000 to be made to the
Company through March 31, 1997. Through October 1, 1995, the payments
were in the form of dollar-for-dollar non cash reductions of the amounts
owed by the Company to Gerber. Subsequent payments were paid directly to
the Company. The payments are contingent upon the Company meeting certain
conditions as set forth in the subsidy agreement. These conditions were
met and $400,000 has been reflected as other income in the statement of
income, for each of the three fiscal years during the three-year period
ended March 28, 1997.
9. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) Savings and Retirement Plan (the "Plan") covering
substantially all of its full-time employees. The Company matches 25
percent of employee contributions up to 4 percent of compensation.
Employees may contribute up to 15 percent of compensation to the Plan.
Amounts expensed for the years ended March 31, 1995, March 29, 1996 and
March 28, 1997 were $56,694, $59,824 and $71,795, respectively.
F-15
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTIONS:
In November, 1995, the Company adopted the 1995 Stock Incentive Plan for
Key Employees (the "Stock Option Plan"). The Stock Option Plan became
effective, February 2, 1996, concurrent with the effectiveness of the
registration statement relating to the Company's initial public offering of
Common Stock. The aggregate number of shares which may be issued pursuant
to the Stock Option Plan, is 300,000 shares. Options may be granted, or
restricted stock awarded at the discretion of the Company's compensation
committee from time to time at a range of 75 percent to 110 percent of the
market value of the stock on the date on which such option is granted as
defined in the Stock Option Plan. Each option granted under the plan shall
expire in five to ten years from the date of grant, as defined in the Stock
Option Plan. Restrictions on sale or transfer of stock awarded under the
Stock Option Plan, if any, range from six months to five years. Vesting
requirements are determined by the committee at the time of the grant,
provided, however, no stock option may be exercisable prior to the
expiration of six months from the date of grant, unless the Participant
dies or becomes disabled prior thereto. The 65,000 options granted during
fiscal 1996 vest evenly over a three year period.
In addition, the Company adopted the Director Stock Option Plan, effective
February 2, 1996, providing for annual grants of stock options to
non-employee directors to purchase common stock at fair value as of the
date of such grant. The aggregate number of shares which may be issued
pursuant to the Director Stock Option Plan, is 75,000 shares. Each option
grant under the plan shall expire in five years from the date of grant.
Options vest in full on the first anniversary of the date of grant. During
fiscal 1996, 15,000 options were granted under the plan.
The Company has adopted the disclosure only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation," but applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting
for its Plans. If the Company had elected to recognize compensation cost
of the Plans based on the fair value at the grant dates for awards under
the plan, consistent with the method prescribed by SFAS No. 123, net income
and earnings per share would have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAR. 29, 1996 MAR. 28, 1997
------------- -------------
<S> <C> <C> <C>
Net income:
Before extraordinary item As reported $ 2,262,272 $ 4,514,664
Pro forma $ 2,250,196 $ 4,391,884
After extraordinary item As reported $ 2,410,242 $ 4,514,664
Pro forma $ 2,398,196 $ 4,391,884
Earnings per share:
Before extraordinary item As reported $ 0.60 $ 0.83
Pro forma $ 0.59 $ 0.81
After extraordinary item As reported $ 0.64 $ 0.83
Pro forma $ 0.63 $ 0.81
</TABLE>
F-16
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. STOCK OPTIONS, CONTINUED:
The fair value of the options used to compute pro forma net income and
earnings per share disclosures is the estimated present value at grant date
using the "Black-Scholes" option-pricing model with the following weighted
average assumptions for 1997 and 1996: no dividend yield; expected
volatility of 64.7 percent; a risk free interest rate of 5.2 percent and an
expected holding period of four years. Presented below is a summary of the
status of the stock options held by employees of the Company as of March
28, 1997 and March 29, 1996:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAR. 29, 1996 MAR. 28, 1997
---------------- -----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE
- ------------------------------------------ ------ -------- ------ --------
<S> <C> <C> <C> <C>
Options outstanding at beginning of period - - 80,000 $ 11.00
Granted 80,000 $ 11.00 - -
Exercised - - - -
Forfeited/expired - - 750 11.00
------ ------- ------ -------
Options outstanding at end of period 80,000 $ 11.00 79,250 $ 11.00
====== ======= ====== =======
Options exercisable - - 36,418 $ 11.00
====== ======= ====== =======
</TABLE>
Fair value of options granted was equal to the exercise price on the date
of grant. The weighted average remaining contractual life of obligations
outstanding at March 28, 1997 is 4.6 years.
11. RELATED PARTY TRANSACTIONS:
During fiscal 1995 and 1996, the Company incurred, pursuant to agreements
which terminated on February 2, 1996, $250,000 per year for financial
consulting and business management services provided by certain
shareholders of the Company.
F-17
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. CONTINGENCIES:
Various legal actions and other claims are pending or could be asserted
against the Company. Litigation is subject to many uncertainties; the
outcome of individual litigated matters is not predictable with assurance,
and it is reasonably possible that some of these matters may be decided
unfavorably to the Company. It is the opinion of management that the
ultimate liability, if any, with respect to these matters will not
materially affect the financial position of the Company.
13. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
MARCH 31, MARCH 29, MARCH 28,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash payments during the year for:
Interest $ 1,508,471 $ 1,532,441 $ 164,469
Income taxes 664,937 1,770,342 $ 2,633,380
</TABLE>
In connection with the acquisition of certain assets, the Company incurred
debt of $301,400, $1,085,000 and $1,619,433 in 1995, 1996 and 1997,
respectively.
F-18
<PAGE> 48
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
ADDITIONS CHARGED TO
---------------------
Balance at Balance at
Beginning Cost and Other End
Description of Period Expenses Accounts Deductions of Period
- ----------------------------------------- --------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal year ended March 31, 1995, reserve
for doubtful accounts and claims $ 86 $ 106 $ 0 $ (93) $ 99
========= ========= ========= ========= =========
Fiscal year ended March 29, 1996, reserve
for doubtful accounts and claims $ 99 $ 264 $ 0 $ (238) $ 125
========= ========= ========= ========= =========
Fiscal year ended March 28, 1997, reserve
for doubtful accounts and claims $ 125 $ 325 $ 0 $ (265) $ 185
========= ========= ========= ========= =========
</TABLE>
S-1
<PAGE> 49
INDEX TO EXHIBITS
Exhibit
Number
- -------
2 -- Merger Agreement between KD Acquisition Corporation
("Acquisition") and the Registrant, filed as Exhibit 2 to
the Registrant's Form S-1 Registration Statement
(Registration No. 33-99596), is incorporated herein
by reference.
3.1 -- Restated Articles of Incorporation of the Registrant, filed
as Exhibit 3.2 to the Registrant's Form S-1 Registration
Statement (Registration No. 33-99596), are incorporated
herein by reference.
3.2 -- Restated Bylaws of the Registrant, filed as Exhibit 3.4 to
the Registrant's Form S-1 Registration Statement
(Registration No. 33-99596), are incorporated herein by
reference.
4.1 -- Common Stock Purchase Warrant between Security Pacific
Business Credit Inc. ("SPBC") and Acquisition, filed as
Exhibit 4.1 to the Registrant's Form S-1 Registration
Statement (Registration No. 33-99596), is incorporated
herein by reference.
4.2 -- Credit Agreement between Childtime Childcare, Inc.
("Childtime") and NBD Bank dated as of February 1, 1996,
filed as Exhibit 4 to the Registrant's Form 10-Q for the
quarter ended January 5, 1996, is incorporated herein by
reference.
4.3 -- Shareholders Agreement between the Company, Childcare
Associates, KD Partners II, GCC Partners, Ltd., Lenard B.
Tessler and James W. Geisz dated as of July 9, 1990,
together with amendments thereto dated January 4, 1993 and
as of July 7, 1995, filed as Exhibit 4.3 to the
Registrant's Form S-1 Registration Statement (Registration
No. 33-99596), is incorporated herein by reference.
4.4 -- First Amendment to Common Stock Purchase Warrant between
SPBC and Acquisition dated as of December 28, 1995, filed
as Exhibit 4.4 to the Registrant's Form S-1 Registration
Statement (Registration No. 33-99596), is incorporated
herein by reference.
9 -- Voting Agreement between Harold A. Lewis and George A.
Kellner dated January 8, 1996, filed as Exhibit 9 to
the Registrant's Form S-1 Registration Statement
(Registration No. 33-99596), is incorporated herein by
reference.
E-1
<PAGE> 50
10.1 -- Director Stock Option Plan, filed as Exhibit 10.1 to the
Registrant's Form S-1 Registration Statement
(Registration No. 33-99596), is incorporated herein by
reference.
10.2 -- 1995 Stock Incentive Plan for Key Employees, filed as
Exhibit 10.2 to the Registrant's Form S-1 Registration
Statement (Registration No. 33-99596), is incorporated
herein by reference.
10.3 -- Senior Management Subscription Agreement between
Acquisition and Harold A. Lewis dated as of September 30,
1992, filed as Exhibit 10.3 to the Registrant's Form S-1
Registration Statement (Registration No. 33-99596), is
incorporated herein by reference.
10.4 -- Representative form of Senior Management Subscription
Agreement between Acquisition and each of Deborah D.
Ludwig, William H. Van Huis, Taylor Ward and Michael M.
Yeager entered into in 1991 and 1992, filed as Exhibit 10.4
to the Registrant's Form S-1 Registration Statement
(Registration No. 33-99596), is incorporated herein by
reference.
10.5 -- Representative form of Senior Management Subscription
Agreement between Acquisition and each of Deborah D.
Ludwig, William H. Van Huis, Taylor Ward and Michael M.
Yeager dated as of November 18, 1994, filed as Exhibit 10.5
to the Registrant's Form S-1 Registration Statement
(Registration No. 33-99596), is incorporated herein by
reference.
10.6 -- Consulting Agreements dated July 9, 1990, between Childtime
and each of KD Equities and TG Partners, together with
Termination Agreements dated as of November 18, 1995, filed
as Exhibit 10.6 to the Registrant's Form S-1 Registration
Statement (Registration No. 33-99596), is incorporated
herein by reference.
10.7 -- Employment Agreement between Childtime and Harold A. Lewis
dated January 8, 1996, filed as Exhibit 10.8 to the
Registrant's Form S-1 Registration Statement (Registration
No. 33-99596), is incorporated herein by reference.
11 -- Computation of per share earnings
21 -- List of Subsidiaries, filed as Exhibit 21 to the
Registrant's Form S-1 Registration Statement (Registration
No. 33-99596), is incorporated herein by reference.
27 -- Financial Data Schedule
E-2
<PAGE> 1
EXHIBIT 11
CHILDTIME LEARNING CENTERS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------------------
March 31, March 29, March 28,
1995 1996 1997
----------------------------------------------------
<S> <C> <C> <C>
Net income $ 1,852,082 $ 2,410,272 $ 4,514,664
Accretion to fair value of common
stock purchase warrant 280,000 ----- -----
------------- ------------- -------------
Net income available to common stock $ 1,572,082 $ 2,410,272 $ 4,514,664
============= ============= =============
Weighted average shares outstanding 3,280,486 3,783,855 5,429,322
Earnings per share $ 0.48 $ 0.64 $ 0.83
============= ============= =============
Net income $ 1,852,082 $ 2,410,272 $ 4,514,664
============= ============= =============
Weighted average shares outstanding 3,280,486 3,783,855 5,429,322
Shares applicable to common stock
purchase warrant 201,511 ----- -----
------------- ------------- -------------
Total 3,481,997 3,783,855 5,429,322
============= ============= =============
Earnings per share $ 0.53 $ 0.64 $ 0.83
============= ============= =============
Most dilutive result $ 0.48 $ 0.64 $ 0.83
============= ============= =============
</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 fiscal 1995 earnings per share is calculated 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 fiscal 1996 and 1997 earnings per share are calculated 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CHILDTIME LEARNING CENTERS, INC. FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 28,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-28-1997
<PERIOD-START> MAR-30-1996
<PERIOD-END> MAR-28-1997
<CASH> 3,733
<SECURITIES> 0
<RECEIVABLES> 2,141
<ALLOWANCES> 185
<INVENTORY> 0
<CURRENT-ASSETS> 8,006
<PP&E> 42,182
<DEPRECIATION> 8,126
<TOTAL-ASSETS> 50,286
<CURRENT-LIABILITIES> 7,274
<BONDS> 0
0
0
<COMMON> 29,364
<OTHER-SE> (3)
<TOTAL-LIABILITY-AND-EQUITY> 50,286
<SALES> 0
<TOTAL-REVENUES> 78,634
<CGS> 0
<TOTAL-COSTS> 72,666
<OTHER-EXPENSES> (588)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160
<INCOME-PRETAX> 6,396
<INCOME-TAX> 1,881
<INCOME-CONTINUING> 4,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,515
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
