<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 24, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________________ TO _____________________
COMMISSION FILE NUMBER: 0-27656
CHILDTIME LEARNING CENTERS, INC.
(Exact Name Of Registrant As Specified In Its Charter)
MICHIGAN 38-3261854
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
38345 West Ten Mile Road, Suite 100
Farmington Hills, Michigan 48335
(Address of principal executive offices)
(248) 476-3200
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing required for the past 90 days. Yes[X] No [ ]
The number of shares of Registrant's Common Stock, no par value per share,
outstanding at August 24, 1998 was 5,429,655.
Total number of pages included in Form 10-Q: 12
Index to Exhibits is located on page 11
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CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
Index
FORM 10-Q
For the Quarterly Period Ended July 24, 1998
<TABLE>
<CAPTION>
Page
Number
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PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
A. Consolidated Balance Sheet 3
July 24, 1998 and April 3, 1998
B. Consolidated Statement of Income 4
Sixteen Weeks Ended July 24, 1998 and July 18, 1997
C. Consolidated Statement of Cash Flows 5
Sixteen Weeks Ended July 24, 1998 and July 18, 1997
D. Notes to Consolidated Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 8-10
PART II. OTHER INFORMATION
ITEM 5. Other Information 11
ITEM 6. Exhibits, Reports on Form 8-K, Signatures 11
</TABLE>
2
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PART I
FINANCIAL INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JULY 24, APRIL 3,
1998 1998
(UNAUDITED)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,630,943 $ 5,541,122
Accounts receivable, net 2,650,247 2,485,811
Reimbursable construction costs 820,142 930,688
Prepaid expenses and other 2,336,851 1,853,812
Deferred income taxes 924,000 945,000
------------ ------------
Total current assets 11,362,183 11,756,433
------------ ------------
Land, buildings and equipment:
Land 10,220,000 10,220,000
Buildings 19,715,187 19,640,018
Vehicles, furniture and equipment 9,254,495 8,783,584
Leasehold improvements 5,920,339 5,674,308
------------ ------------
45,110,021 44,317,910
Less accumulated depreciation and amortization (9,850,225) (9,359,509)
------------ ------------
35,259,796 34,958,401
Land held for disposal 512,450 512,450
------------ ------------
35,772,246 35,470,851
------------ ------------
Other noncurrent assets:
Intangible assets, net 11,160,272 10,179,240
Refundable deposits and other 719,933 711,146
------------ ------------
TOTAL ASSETS $ 59,014,634 $ 58,117,670
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 874,980 $ 818,781
Accounts payable 1,479,970 1,535,590
Accrued wages and payroll taxes 2,444,777 3,492,206
Accrued vacation 891,102 913,835
Other current liabilities 3,412,309 3,108,890
------------ ------------
Total current liabilities 9,103,138 9,869,302
Long-term debt 2,234,319 2,242,790
Deferred rent liability 1,406,728 1,400,000
Deferred income taxes 3,337,000 3,319,000
------------ ------------
Total liabilities 16,081,185 16,831,092
------------ ------------
Commitments and contingencies -- --
------------ ------------
Shareholders' equity:
Common stock, 10,000,000 shares authorized, no par value; 5,429,655
issued and outstanding at July 24, 1998 and 5,429,322 at April 3, 1998 30,815,540 30,811,877
Preferred stock, 1,000,000 shares authorized, no par value; no shares
issued or outstanding -- --
Retained earnings 12,117,909 10,474,701
------------ ------------
Total shareholders' equity 42,933,449 41,286,578
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 59,014,634 $ 58,117,670
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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FINANCIAL INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER-TO-DATE
SIXTEEN WEEKS ENDED
------------------------------
JULY 24, JULY 18,
1998 1997
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<S> <C> <C>
Revenues $ 34,027,840 $ 28,543,276
Cost of revenues 28,882,534 24,103,667
------------ ------------
GROSS PROFIT 5,145,306 4,439,609
Marketing expenses 452,779 400,499
General and administrative expenses 2,106,782 1,816,778
------------ ------------
OPERATING INCOME 2,585,745 2,222,332
Interest expense 89,667 69,368
Interest income (94,745) (71,494)
Other income, net (49,385) (5,863)
------------ ------------
INCOME BEFORE INCOME TAXES 2,640,208 2,230,321
Income tax provision 997,000 861,000
------------ ------------
NET INCOME $ 1,643,208 $ 1,369,321
============ ============
Weighted average shares outstanding 5,429,473 5,429,322
============ ============
Earnings per share - basic and diluted $ 0.30 $ 0.25
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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FINANCIAL INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR-TO-DATE
SIXTEEN WEEKS ENDED
-----------------------------
JULY 24, JULY 18,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,643,208 $ 1,369,321
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 821,945 702,888
Deferred rent liability 6,728 123,077
Deferred income taxes 39,000 (73,000)
Loss (gain) on land, buildings and equipment 1,580 (231)
Changes in assets and liabilities providing (consuming) cash:
Accounts receivable (164,436) (143,235)
Prepaid expenses, refundable deposits and other assets (483,039) 265,083
Accounts payable, accruals and other current liabilities (822,363) 578,867
----------- -----------
Net cash provided by operating activities 1,042,623 2,822,770
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for land, buildings and equipment (808,329) (680,309)
Expenditures for reimbursable construction costs (739,508) (997,215)
Acquisition of intangible assets (860,782) (1,321,429)
Proceeds from sales of land, buildings and equipment 659 100,324
Payments for refundable deposits and other assets (8,787) (70,936)
----------- -----------
Net cash used in investing activities (2,416,747) (2,969,565)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (389,772) (222,801)
Repayments of reimbursable construction costs 850,054 --
Issuance of shares 3,663 1,349
----------- -----------
Net cash provided by (used in) financing activities 463,945 (221,452)
----------- -----------
Net decrease in cash and cash equivalents (910,179) (368,247)
Cash and cash equivalents, beginning of year 5,541,122 3,733,174
----------- -----------
Cash and cash equivalents, end of period $ 4,630,943 $ 3,364,927
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q
(1) GENERAL
The consolidated financial statements of Childtime Learning Centers,
Inc. (the "Company") are unaudited and, in the opinion of management, include
all adjustments necessary to fairly state the Company's financial condition,
results of operations and its cash flows, for the interim periods presented. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the full fiscal year. These statements should be read
in conjunction with the Company's annual report for the fiscal year ended April
3, 1998.
(2) PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of Childtime
Learning Centers, Inc. and its wholly owned subsidiary, Childtime Childcare,
Inc. (together referred to as the "Company"). All significant intercompany
transactions have been eliminated.
(3) FISCAL YEAR
The Company utilizes a 52-53 week fiscal year ending on the Friday
closest to March 31. Fiscal year 1999 will contain 52 weeks, while fiscal year
1998 contained 53 weeks. For both fiscal years 1998 and 1999, the first quarter
contained sixteen weeks.
(4) ACCOUNTS RECEIVABLE
Accounts receivable is presented net of an allowance for doubtful
accounts. At July 24, 1998 and April 3, 1998 the allowance for doubtful accounts
was $225,000.
(5) INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between financial statement and
tax bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
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CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -CONTINUED
FORM 10-Q
(6) EARNINGS PER SHARE
For the sixteen-week periods ended July 24, 1998 and July 18, 1997,
basic earnings per share have been calculated by dividing earnings available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share have been calculated by dividing
earnings available to common stockholders by the weighted average number of
common shares outstanding for the period and the assumed conversion of all
potentially dilutive stock options (47,763,shares for the sixteen weeks ended
July 24, 1998 and 824 shares for the sixteen weeks ended July 18, 1997).
(7) RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No.130, "Reporting Comprehensive
Income" and SFAS 131, "Disclosure about Segments of an Enterprise and Related
Information". The Company has adopted the provisions of these statements, as
required, for the year ended April 2, 1999. These statements had no impact on
the Company's financial position, results of operations or cash flows.
(8) SUPPLEMENTAL CASH FLOW INFORMATION
In connection with the acquisition of certain centers, the Company
incurred seller-financed debt of $438,000 during the sixteen weeks ended July
24, 1998 and $1,062,000 during the sixteen weeks ended July 18, 1997.
(9) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
presentation adopted in the current year.
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Management's Discussion and Analysis of
Financial Condition and Results of Operations
Form 10-Q
GENERAL
The information presented herein refers to the sixteen weeks ended July
24, 1998 ("first quarter 1999") compared to the sixteen weeks ended July 18,
1997 ("first quarter 1998").
During the first quarter 1999, the Company acquired 7 centers, and
opened 2 centers. Accordingly, as of July 24, 1998, the Company operated 251
centers. The results of centers opened, acquired or disposed of are included in
the Company's financial statements from the date of opening or acquisition and
through the date of disposition, as applicable. Accordingly, the timing of such
new openings, acquisitions or dispositions could influence comparisons of year
over year results.
RESULTS OF OPERATIONS
First quarter 1999 revenues increased to $34,028,000 from $28,543,000
for the first quarter 1998, a 19.2% increase. This increase was principally
attributable to increased revenues from centers opened or acquired in fiscal
1998 ($4,308,000, or 15.1%) and centers opened or acquired in fiscal 1999
($512,000, or 1.8%). The remaining increase for the first quarter 1999 was
principally attributable to the growth in comparable centers, partially offset
by centers closed during fiscal 1998.
Comparable center revenues (centers operating during all of year-to-date
1999 and year-to-date 1998) increased 3.3% ($930,000) for the first quarter
1999. The first quarter 1999 increase was principally the result of price
increases.
First quarter 1999 gross profit increased to $5,145,000 (15.1% of
revenues) from $4,440,000 (15.6% of revenues) for the first quarter 1998, a
16.0% increase. The increase in gross profit was principally from centers opened
or acquired in fiscal 1998 ($726,000) and to a lesser extent, comparable center
growth ($147,000). Gross operating losses from centers opened or acquired in
fiscal 1999 ($132,000) partially offset these increases.
Marketing expenses increased 13.1% to $453,000 for the first quarter
1999 from $400,000 for the first quarter 1998. This increase was primarily due
to additional expenses associated with the promotion and marketing activities
for 251 centers as of the end of the first quarter 1999, as compared to 228
centers at the end of the first quarter 1998. However, as a percentage of
revenues, marketing expenses decreased to 1.3% of revenues for the first quarter
1999 from 1.4% of revenues for the first quarter 1998, due primarily to
operating leverage provided by higher revenues.
General and administrative expenses increased 16.0% to $2,107,000 for
the first quarter 1999 from $1,817,000 for the first quarter 1998. However, as a
percentage of revenues, general and administrative expenses decreased to 6.2% of
revenues for the first quarter 1999 from 6.4% of revenues for the first quarter
1998, due primarily to operating leverage provided by higher revenues.
8
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Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
Form 10-Q
RESULTS OF OPERATIONS - CONTINUED
As a result of the foregoing changes, operating income increased to
$2,586,000 for the first quarter 1999 from $2,222,000 for the first quarter
1998. The operating income change of $364,000 represents an increase of 16.4%
over the first quarter 1998.
Interest expense increased to $90,000 for the first quarter 1999 from
$69,000 for the first quarter 1998. This increase was due to a net increase in
debt incurred with the acquisition of centers.
Other income increased to $49,000 for the first quarter 1999 from $6,000
for the first quarter 1998, principally due to a gain realized on the
extinguishment of certain acquisition indebtedness.
The provision for income taxes increased to $997,000 (an effective tax
rate of 37.8%) for the first quarter 1999 from $861,000 (an effective tax rate
of 38.6%) for the first quarter 1998. The decrease in effective tax rate is
principally due to anticipated savings, resulting from tax strategies
implemented during the current fiscal year.
As a result of the foregoing changes, net income increased to
$1,643,000, or 4.8% of revenues for the first quarter 1999, from $1,369,000, or
4.8% of revenues for the first quarter 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements currently consist of its new
center expansion program and maintenance of existing centers. The Company
believes that cash flow from operations, together with amounts available under a
$10 million unsecured revolving line of credit facility, 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 decreased to $1,043,000 for the first
quarter 1999, from $2,823,000 for the first quarter 1998. This decrease was
principally due to the timing of monthly prepaid and accrued expenses.
Year-to-date 1999 cash provided by operations, net repayments of reimbursable
construction costs of $110,000, and existing cash balances of $910,000 were
principally used to add 9 centers and make capital improvements to existing
centers aggregating $1,669,000, as well as to pay down debt of $390,000. The
Company has incurred additional seller-financed notes payable of approximately
$438,000 during the year-to-date 1999, related to the acquisition of centers,
and did not utilize its unsecured revolving line of credit.
9
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Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
Form 10-Q
YEAR 2000 DATE CONVERSION
Management has implemented measures to ensure that the Company's
information systems and applications will recognize and process information
pertaining to the Year 2000. The measures being conducted utilize both internal
and external resources and are directed at identifying systems and applications
effected, corrections or adjustments necessary to existing systems, acquisition
of new systems and applications, and testing of the systems and applications for
Year 2000 compliance.
Management does not expect that the cost of the measures necessary to
attain Year 2000 compliance will be material to the Company's business,
financial position or results of operations. Although the Company could be
effected by the systems of other companies with which it does business,
management does not believe that the Company's systems will be materially or
adversely effected by the Year 2000 compliance efforts of third parties.
Management expects that the Company will be Year 2000 compliant by the end of
1999.
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements included herein which are not historical facts, such as those
related to income tax strategies, anticipated cash requirements and compliance
with Year 2000 issues are forward-looking statements pursuant to the safe harbor
provisions of the Private / Securities Litigation Reform Act of 1995.
Forward-looking statements involve a number of risks and uncertainties,
including, but not limited to, identification and availability of quality
acquisition or new development targets, continuation of federal and state
assistance programs, demand for child care, the ability of the Company and key
suppliers and customers (including governmental agencies) to successfully comply
with Year 2000 issues, taxing authority legislation, as well as general economic
conditions, pricing and competition. Accordingly, actual results could differ
materially from those projected in such forward-looking statements.
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PART II
OTHER INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARY
Item 5 Other Information
The Company must receive notice of any proposals of shareholders that
are intended to be presented at the Company's 1999 Annual Meeting of
Shareholders, but that are not intended to be considered for inclusion in
the Company's Proxy Statement and Proxy related to that meeting, no later
than June 2, 1999 to be considered timely. Such proposals should be sent
to the Company's Secretary at the Company's principal executive offices,
38345 West Ten Mile Road, Suite 100, Farmington Hills, Michigan 48335, by
certified mail, return receipt requested. If the Company does not have
notice of the matter by that date, the Company's form of proxy in
connection with that meeting may confer discretionary authority to vote on
that matter, and the persons named in Company's form of proxy will vote
the shares represented by such proxies in accordance with their best
judgment.
Item 6 Exhibits and Reports on Form 8-K
(a)Index to Exhibits
Exhibit
Number Description
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27 Financial Data Schedule (For SEC use only)
(b)Reports on Form 8-K: None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHILDTIME LEARNING CENTERS, INC.
(REGISTRANT)
/s/ Michael M. Yeager 9/1/98
---------------------------------------------------
Michael M. Yeager
Chief Financial Officer and Secretary-Treasurer
(Duly Authorized Officer and Principal Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CHILDTIME LEARNING CENTERS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JULY
24, 1998. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> APR-02-1999
<PERIOD-START> APR-04-1998
<PERIOD-END> JUL-24-1998
<CASH> 4,631
<SECURITIES> 0
<RECEIVABLES> 2,875
<ALLOWANCES> 225
<INVENTORY> 0
<CURRENT-ASSETS> 11,362
<PP&E> 45,110
<DEPRECIATION> 9,850
<TOTAL-ASSETS> 59,015
<CURRENT-LIABILITIES> 9,103
<BONDS> 0
0
0
<COMMON> 30,816
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 59,015
<SALES> 0
<TOTAL-REVENUES> 34,028
<CGS> 0
<TOTAL-COSTS> 31,442
<OTHER-EXPENSES> (144)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90
<INCOME-PRETAX> 2,640
<INCOME-TAX> 997
<INCOME-CONTINUING> 1,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,643
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
