<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 OCTOBER 15, 1999
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 (I.R.S. Employer Identification No.)
of 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 November 8, 1999 was 5,181,655.
1
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CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARIES
Index
FORM 10-Q
For the Quarterly Period Ended October 15, 1999
<TABLE>
<CAPTION>
Page
Number
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PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
A. Consolidated Balance Sheet 3
October 15, 1999 and April 2, 1999
B. Consolidated Statement of Income 4
Twelve Weeks Ended October 15, 1999 and October 16, 1998
Twenty-Eight Weeks Ended October 15, 1999 and October 16, 1998
C. Consolidated Statement of Cash Flows 5
Twenty-Eight Weeks Ended October 15, 1999 and October 16, 1998
D. Notes to Consolidated Financial Statements 6-8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-14
PART II. OTHER INFORMATION
ITEM 6. Exhibits, Reports on Form 8-K, Signatures 15
SIGNATURES 15
</TABLE>
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 15, APRIL 2,
1999 1999
(UNAUDITED)
------------------ -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,140,141 $ 5,843,329
Accounts receivable, net 4,125,384 3,126,072
Reimbursable construction costs 1,807,700 158,249
Prepaid expenses and other 2,024,328 2,198,272
Deferred income taxes 1,362,000 1,100,000
------------------ -----------------
Total current assets 12,459,553 12,425,922
------------------ -----------------
Land, buildings and equipment:
Land 9,930,239 9,935,000
Buildings 19,061,472 19,010,848
Vehicles, furniture and equipment 11,312,787 10,379,719
Leasehold improvements 7,399,856 6,766,398
------------------ -----------------
47,704,354 46,091,965
Less accumulated depreciation and amortization (11,631,994) (10,718,523)
------------------ -----------------
36,072,360 35,373,442
Land held for disposal 65,600 512,450
------------------ -----------------
36,137,960 35,885,892
------------------ -----------------
Other noncurrent assets:
Intangible assets, net 15,054,628 13,350,826
Refundable deposits and other 961,735 948,067
------------------ -----------------
TOTAL ASSETS $ 64,613,876 $ 62,610,707
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 911,556 $ 746,502
Accounts payable 1,578,341 1,607,573
Accrued wages and payroll taxes 2,836,479 2,753,769
Accrued vacation 901,510 971,804
Other current liabilities 3,637,729 3,647,344
------------------ -----------------
Total current liabilities 9,865,615 9,726,992
Long-term debt 2,472,883 1,891,857
Deferred rent liability 1,107,844 1,178,617
Deferred income taxes 3,577,000 3,406,000
------------------ -----------------
Total liabilities 17,023,342 16,203,466
------------------ -----------------
Commitments and contingencies 0 0
------------------ -----------------
Shareholder's equity:
Common stock, 10,000,000 shares authorized, no par value; 5,316,955
issued and outstanding at October 15, 1999 and 5,431,655 at April 2, 1999 30,184,684 30,836,180
Preferred stock, 1,000,000 shares authorized, no par value; no shares
issued or outstanding 0 0
Retained earnings 17,405,850 15,571,061
------------------ -----------------
Total shareholders' equity 47,590,534 46,407,241
------------------ -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 64,613,876 $ 62,610,707
================== =================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 4
FINANCIAL INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER-TO-DATE YEAR-TO-DATE
TWELVE WEEKS ENDED TWENTY-EIGHT WEEKS ENDED
-------------------------------- -------------------------------
OCTOBER 15, OCTOBER 16, OCTOBER 15, OCTOBER 16,
1999 1998 1999 1998
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 28,763,222 $ 25,323,358 $ 67,507,032 $59,351,198
Cost of revenues 25,215,033 21,940,482 58,737,313 50,823,016
------------- ------------ ------------- -----------
GROSS PROFIT 3,548,189 3,382,876 8,769,719 8,528,182
Marketing expenses 385,846 347,697 898,508 800,476
General and administrative expenses 1,615,702 1,565,179 3,734,923 3,671,961
------------- ------------ ------------- -----------
OPERATING INCOME 1,546,641 1,470,000 4,136,288 4,055,745
Interest expense 59,349 72,280 126,238 161,947
Interest income (54,027) (62,393) (149,894) (157,138)
Other income, net (11,060) (6,867) (85,618) (56,252)
------------- ------------ ------------- -----------
INCOME BEFORE INCOME TAXES 1,552,379 1,466,980 4,245,562 4,107,188
Income tax provision 578,000 553,000 1,591,000 1,550,000
------------- ------------ ------------- -----------
NET INCOME $ 974,379 $ 913,980 $ 2,654,562 $ 2,557,188
============= ============ ============= ============
Weighted average shares outstanding 5,411,680 5,429,655 5,423,094 5,429,551
============= ============ ============= ============
Earnings per share - basic and diluted $ 0.18 $ 0.17 $ 0.49 $ 0.47
============= ============ ============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
FINANCIAL INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR-TO-DATE
TWENTY-EIGHT WEEKS ENDED
-----------------------------------------
OCTOBER 15, OCTOBER 16,
1999 1998
----------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,654,562 $ 2,557,188
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,716,157 1,469,629
Deferred rent liability (70,773) 11,798
Deferred income taxes (91,000) (135,000)
Loss (gain) on land, buildings and equipment (5,059) 8,744
Changes in assets and liabilities providing (consuming) cash:
Accounts receivable (999,312) (678,689)
Prepaid expenses, refundable deposits and other assets 173,944 (129,167)
Accounts payable, accruals and other current liabilities (26,430) (530,141)
---------------- -------------------
Net cash provided by operating activities 3,352,089 2,574,362
---------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for land, buildings and equipment (1,791,712) (1,440,501)
Expenditures for reimbursable construction costs (1,649,451) (1,902,446)
Acquisition of intangible assets (1,038,962) (2,139,162)
Proceeds from sales of land, buildings and equipment 577,123 2,429
Payments for refundable deposits and other assets (13,668) (21,008)
---------------- -------------------
Net cash used in investing activities (3,916,670) (5,500,688)
---------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (667,338) (628,604)
Repayments of reimbursable construction costs 0 2,422,757
Repurchase of common stock (1,471,269) 0
Issuance of shares, net of subscriptions receivable 0 3,663
---------------- -------------------
Net cash provided (used) by financing activities (2,138,607) 1,797,816
---------------- -------------------
Net decrease in cash and cash equivalents (2,703,188) (1,128,510)
Cash and cash equivalents, beginning of year 5,843,329 5,541,122
---------------- -------------------
Cash and cash equivalents, end of period $ 3,140,141 $ 4,412,612
================ ===================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
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 2,
1999.
(2) PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of Childtime
Learning Centers, Inc., and its wholly owned subsidiaries (together referred to
as the "Company"). All significant intercompany transactions have been
eliminated. The Company which began operations in 1967, completed its initial
public offering on February 2, 1996. The Company provides for-profit child care
through 274 child care centers located in 22 states and the District of Columbia
as of October 15, 1999.
(3) FISCAL YEAR
The Company utilizes a 52-53 week fiscal year ending on the Friday closest
to March 31. For fiscal years 1999 and 2000, the year-to-date period contained
twenty-eight weeks while the second quarter contained twelve weeks. Both fiscal
years contain 52 weeks.
(4) ACCOUNTS RECEIVABLE
Accounts receivable is presented net of an allowance for doubtful accounts.
At October 15, 1999 and April 2, 1999, the allowance for doubtful accounts was
$275,000 and $255,000, respectively.
(5) REIMBURSABLE CONSTRUCTION COSTS
In connection with certain build-to-suit centers to be leased, the
Company enters into arrangements, whereby the Company accumulates costs during
the construction process and is then reimbursed by the developer. The Company
has various legal remedies available pursuant to the construction agreements to
minimize the risk of nonreimbursement. For the twenty-eight weeks ended October
15, 1999 and the year ended April 2, 1999, the Company financed
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CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q
(5) REIMBURSABLE CONSTRUCTION COSTS-CONTINUED
construction costs of $1,807,700 and $4,663,361, respectively. There were no
related repayments received during the twenty-eight weeks ended October 15, 1999
and $5,435,800 of repayments during the fiscal year ended April 2, 1999.
(6) LAND HELD FOR SALE
Land held for disposal is carried at its estimated fair market value (which
is less than its original cost). Gains and losses on sales and retirements are
included in the determination of the results of operations. During the
twenty-eight weeks ended October 15, 1999, the company sold, at their
approximate carrying value, all but one remaining parcel of land.
(7) 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.
(8) COMMON STOCK
In June, 1999 the Company's board of directors authorized the repurchase of
up to 250,000 shares of the Company's common stock. As of October 15, 1999, the
company had repurchased 114,700 shares for a total cost of $1,471,269. The
Company's repurchase of shares is recorded as a charge against common stock in
an amount equal to the average paid in capital per share, multiplied by the
number of shares repurchased. The excess, if any, is charged against retained
earnings. As of October 15, 1999, $819,773 was charged against retained
earnings.
(9) EARNINGS PER SHARE
For the twelve week periods ended October 15, 1999 and October 16, 1998,
basic earnings per share has been calculated by dividing earnings available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per
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CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q
(9) EARNINGS PER SHARE - CONTINUTED
share has been calculated by dividing earnings available to common shareholders
by the weighted average number of common shares outstanding for the period and
the assumed conversion of all potentially dilutive stock options (27,507 shares
for the twelve weeks ended October 15, 1999; 28,819 shares for the twenty-eight
week period ended October 15, 1999; 54,682 shares for the twelve week period
ended October 16, 1998; and 58,423 shares for the twenty eight week period ended
October 16, 1998).
(10) SUPPLEMENTAL CASH FLOW INFORMATION
In connection with the acquisition of certain centers, the Company incurred
seller-financed debt of $1,413,000 during the twelve weeks ended October 15,
1999 and $963,000 during the twelve weeks ended October 16, 1998.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORM 10-Q
GENERAL
The information presented herein refers to the twelve weeks ("second
quarter 2000") and the twenty-eight weeks ("year-to-date 2000") ended October
15, 1999, compared to the twelve weeks ("second quarter 1999") and the
twenty-eight weeks ("year-to-date 1999") ended October 16, 1998.
During the second quarter 2000, the Company added 6 centers and closed 5.
The additions included 4 acquisitions and 2 new builds as compared to acquiring
6 centers, opening 1, and closing 1 during the second quarter 1999. During
year-to-date 2000, the Company has added 16 centers and closed 12. The additions
included 12 acquisitions, 3 openings, and 1 management contract. This compares
to the acquisition of 13 centers, opening of 3 centers and closing 1 center
during year-to-date 1999. The center closings were pursuant to management's
on-going plan to divest of operations that no longer fall within the company's
long-term growth strategy. Accordingly, as of October 15, 1999, the Company
operated 274 centers, as compared to 257 at October 16, 1998.
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. The timing of such new openings,
acquisitions or dispositions could influence comparisons of year over year
results.
RESULTS OF OPERATIONS
Second quarter 2000 revenues increased to $28,763,000 from $25,323,000 for
the second quarter 1999, a 13.6% increase. This increase was principally
attributable to increased revenues from centers opened or acquired in fiscal
1999 ($2,270,000, or 9.0%) and centers opened or acquired in fiscal 2000
($1,148,000, or 4.5%). Year-to-date 2000 revenues increased to $67,507,000 from
year-to-date 1999 revenues of $59,351,000. This increase was principally
attributable to increased revenues from centers opened or acquired in fiscal
1999 ($6,061,000, or 10.2%) and centers opened or acquired in fiscal 2000
($1,576,000, or 2.7%). The remaining increase for both the second quarter and
year-to-date 2000 was principally attributable to the growth in comparable
centers and management contract revenue, partially offset by centers closed
during fiscal 2000.
Comparable center revenues (centers operating during all of year-to-date
2000 and year-to-date 1999) increased 2.8% ($709,000) for the second quarter
2000. Year-to-date comparable center revenues increased 3.0% (1,771,000). The
second quarter and year-to-date 2000 increases were principally the result of
higher tuition rates, partially offset by the Company's mixed results for fall
enrollments.
Second quarter 2000 gross profit increased to $3,548,000 (12.3% of
revenues) from
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORM 10-Q
RESULTS OF OPERATIONS - CONTINUED
$3,383,000 (13.4% of revenues) for the second quarter 1999, a 4.9% increase. The
increase in gross profit was principally from centers opened or acquired in
fiscal 1999 ($172,000), comparable center growth ($118,000), and to a lesser
extent, growth in management contract revenue and the impact of closed centers.
These increases were partially offset by gross operating losses of centers
opened or acquired in fiscal 2000 ($170,000). Year-to-date 2000 gross profit
increased to $8,770,000 (13.0% of revenues) from $8,528,000 (14.4% of revenues),
a 2.8% increase. The year-to-date 2000 increase in gross profit was principally
from centers opened or acquired in fiscal 1999 ($446,000), comparable center
growth, and to a lesser extent, management contract revenues. Gross operating
losses from centers acquired in fiscal 2000 ($277,000) and closed centers
partially offset these increases.
Comparable center gross profit (centers operating during all of
year-to-date 2000 and year-to-date 1999) increased 3.5% ($118,000) for the
second quarter 2000. This increase was principally due to increases in tuition
rates, partially offset by the Company's mixed results for fall enrollments.
Year-to-date 2000 comparable center revenues increased 1.0% ($85,000). This
increase is a result of higher tuition rates partially offset by first quarter
discretionary spending for maintenance and betterment projects, and to a lesser
extent, higher utility expenses as a result of an unseasonably warm summer.
Marketing expenses increased 11.0% to $386,000 for the second quarter 2000
from $348,000 for the second quarter 1999. Year-to-date 2000 marketing expenses
increased 12.2% to $899,000 from $800,000. These increases were primarily due to
the additional expenses associated with the promotion and marketing activities
for 274 centers as of the end of the second quarter 2000, as compared to 257
centers at the end of the second quarter 1999. However, due to operating
leverage provided by higher revenues, marketing expenses as a percentage of
revenues, for both year-to-date and the second quarter decreased to 1.3% from
1.4% for last year.
General and administrative expenses increased 3.2% to $1,616,000 for the
second quarter 2000 from $1,565,000 for the second quarter 1999. Year-to-date
2000 general and administrative expenses increased 1.7% to $3,735,000 from
$3,672,000. However, as a percentage of revenues, general and administrative
expenses decreased to 5.6% for the second quarter 2000 from 6.2% for the second
quarter 1999. Year-to-date 2000 general and administrative expenses decreased to
5.5% from 6.2% for year-to-date 1999. These decreases are primarily due to a
reduction of certain accruals pursuant to the Company's management incentive
plan resulting from profitability being below expectations. To a lesser extent,
successful cost containment and operating leverage provided by higher revenues
are also attributable to the decrease.
As a result of the foregoing changes, operating income increased to
$1,547,000 for the second quarter 2000 from $1,470,000 for the second quarter
1999. The operating income change of $77,000 represents an increase of 5.2% over
the second quarter 1999. Year-to-date 2000
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORM 10-Q
RESULTS OF OPERATIONS - CONTINUED
operating income increased 2.0% to $4,136,000 from $4,056,000.
Interest expense decreased to $59,000 for the second quarter 2000 from
$72,000 for the second quarter 1999. Year-to-date 2000 interest expense
decreased to $126,000 from $162,000 for year-to-date 1999. The decrease is
primarily a result of early retirement of certain acquisition indebtedness,
offset in part by new acquisition debt.
Year-to-date 2000 other income increased to $86,000 from $56,000. This
increase was principally due to a gain realized on retirement of certain
acquisition indebtedness.
The provision for income taxes increased to $578,000 (an effective tax rate
of 37.2%) for the second quarter 2000 from $553,000 (an effective tax rate of
37.7%) for the second quarter 1999. Year-to-date provision for income taxes
increased to $1,591,000 (an effective tax rate of 37.5%) from $1,550,000 (an
effective tax rate of 37.7%).
As a result of the foregoing changes, net income increased to $974,000, or
3.4% of revenues for the second quarter 2000, from $914,000, or 3.6% of revenues
for the second quarter 1999. Year-to-date 2000 net income increased to
$2,655,000, or 3.9% of revenues, from $2,557,000, or 4.3% of revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements currently consist of its new center
expansion program and maintenance of existing centers. In addition and as
previously announced, the Company has been authorized by its Board of Directors
to repurchase up to 250,000 shares of the Company's common stock. As of the
quarter ended October 15, 1999 the Company had repurchased 114,700 shares for a
total cost of $1,471,000. By October 26, 1999, the Company purchased the balance
of the 250,000 shares authorized by the board of directors for an additional
$1,708,000.
The Company believes that cash flow from operations, together with
amounts available under a $5 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. The Company has not utilized its unsecured revolving
line of credit.
Net cash provided by operations increased to $3,352,000 for year-to-date
2000, from $2,574,000 for year-to-date 1999. Year-to-date net cash provided by
operations of $3,352,000, $2,703,000 of existing cash balances and $577,000 of
proceeds on sale of assets, primarily from the sale of land held for disposal,
were principally used for investment in capital expenditures totaling $2,831,000
(to add 16 centers, make capital improvements to existing centers, and upgrade
information technology systems), the funding of reimbursable construction costs
related to certain new build centers ($1,649,000), the repurchase of 114,700
shares of treasury stock ($1,471,000) and payments on long-term debt ($677,000).
Expenditures related to information technology systems were part of
management's five-year information system plan to
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORM 10-Q
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
accommodate the growth of the Company for the next five to ten years. In
connection with this plan, the Company purchased and capitalized financial
software upgrades and related hardware of approximately $144,000 during fiscal
1998, $163,000 during fiscal 1999, $125,000 during year-to-date 2000, and has
plans to spend approximately $50,000 -$75,000 to complete this plan during the
next nine months. The Company has incurred additional seller-financed notes
payable of approximately $1,413,000 during the year-to-date 2000, related to the
acquisition of centers.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs that were written
using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the Year 1900, rather than
the Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions.
The Company has evaluated its Year 2000 risks and compliance by identifying
three major components: information technology systems, non-information
technology systems, including internal embedded chip technology, and third party
risks.
INFORMATION TECHNOLOGY SYSTEMS. The Company has purchased and completed
implementation of its payroll, general ledger and accounts payable financial
software during fiscal 1998 and fiscal 1999, which has been represented as Year
2000 compliant by the software vendors. The Company has also purchased a center
information system, which has been certified as Year 2000 compliant from the
software vendor. The center information system is currently in the
implementation phase, with completion scheduled by the fall of 2000. Based on
Year 2000 compliance representations received from the Company's software
vendors and the successful testing of systems internally, management expects to
be Year 2000 compliant before the end of calendar 1999. However, if systems fail
to be Year 2000 compliant, it could have a material impact on the operations of
the Company. Management has developed contingency plans to address certain non
compliance issues and will continue to monitor the progress of other systems and
develop additional contingency plans as needed. Furthermore, the Company has
reviewed the existing center information system and made changes necessary to
comply with the Year 2000 requirements. Each of the above described information
technology systems was purchased pursuant to upgrades necessary to provide
adequate financial reporting and control directly connected to the growth of the
Company, rather than to address the Year 2000 Issue. Accordingly, no information
systems costs have been associated with the Year 2000 Issue. However, see
Liquidity and Capital Resources for costs associated with general upgrades.
NON-INFORMATION AND INTERNAL EMBEDDED CHIP TECHNOLOGY. The Company has
completed its assessment with regard to imbedded chip technology and the impact
of the Year 2000 Issue on its major non-financial systems. Inquiries have been
made to the providers of non-information
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORM 10-Q
IMPACT OF YEAR 2000 - CONTINUED
embedded chip systems installed at various locations. Written and verbal
confirmations have been received documenting that such systems are either Year
2000 compliant, or that the systems installed do not have any date driven
technology. Management believes that even if the Company is unable to achieve
Year 2000 compliance for its major non-financial systems, related Year 2000
Issues will not have a material impact on the operations of the Company.
Accordingly, the Company does not have a contingency plan in place for its
non-information and internal embedded chip technology risk.
THIRD PARTY RISKS. The Company has identified and contacted its
subsidy/funding providers, major vendors and financial service organizations to
determine the extent to which the Company's operations and interface systems
would be vulnerable to those third parties' failure to remedy their Year 2000
Issues. The Company has received positive compliance status from approximately
80 percent of identified major third party risks. Responses from certain
governmental agencies which administer tuition subsidy programs have been
limited or unreturned. Based on informal conversations with these agencies,
management believes that the most likely worst case scenario if such agencies
are not Year 2000 compliant, would be a delay in funding payments. The Company
currently estimates that up to 16% of its revenues are related to
subsidy/funding providers. In the event all third party subsidy/funding
providers fail to comply with Year 2000 requirements, the Company could
experience cash flow delays that could have a material impact on its operations.
Management believes that, while the Company could experience delays in
collecting receivables from such third parties, the collectibility of such
receivables would not be significantly impacted. The Company currently utilizes
contingency plans in order to resolve of any billing discrepancies that may
occur. These plans include storing all documentation related to agency
contracts, maintaining child authorizations from the providing agency, tracking
the daily use of child care, and monitoring all outstanding billings. In the
event of a discrepancy resulting from Year 2000 issues, the Company feels this
will prove to be an appropriate alternate. Additional contingency plans will be
developed and implemented based on management's continued monitoring of agency
communications. To the extent that the responses to Year 2000 readiness from
significant vendors are unsatisfactory, the Company intends to change vendors to
those who have demonstrated Year 2000 readiness. There are no assurances,
however, that the Company would be successful in finding such alternative
vendors.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORM 10-Q
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements included herein that are not historical facts, such as those
related to 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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<PAGE> 15
PART II
OTHER INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARIES
Item 6 Exhibits and Reports on Form 8-K
(a)Index to Exhibits
Exhibit
Number Description
------- -----------
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 11/16/99
--------------------------------
Michael M. Yeager
Chief Financial Officer and
Secretary-Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
15
<PAGE> 16
Index To Exhibits
-----------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data schedule (for SEC use only)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CHILDTIME LEARNING CENTERS, INC. FORM 10-Q FOR THE QUARTER ENDED OCTOBER 15,
1999 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-31-2000
<PERIOD-START> JUL-24-1999
<PERIOD-END> OCT-15-1999
<CASH> 3,140
<SECURITIES> 0
<RECEIVABLES> 4,400
<ALLOWANCES> 275
<INVENTORY> 0
<CURRENT-ASSETS> 12,460
<PP&E> 47,704
<DEPRECIATION> 11,632
<TOTAL-ASSETS> 64,614
<CURRENT-LIABILITIES> 9,866
<BONDS> 0
0
0
<COMMON> 30,185
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 64,614
<SALES> 0
<TOTAL-REVENUES> 28,763
<CGS> 0
<TOTAL-COSTS> 25,215
<OTHER-EXPENSES> (65)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59
<INCOME-PRETAX> 1,552
<INCOME-TAX> 578
<INCOME-CONTINUING> 974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 974
<EPS-BASIC> .18
<EPS-DILUTED> .18
</TABLE>
