<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 JANUARY 7, 2000
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 January 31, 2000 was 5,058,655.
1
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CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
Index
FORM 10-Q
For the Quarterly Period Ended January 7, 2000
<TABLE>
<CAPTION>
Page
Number
---------------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
A. Consolidated Balance Sheet 3
January 7, 2000 and April 2, 1999
B. Consolidated Statement of Income 4
Twelve Weeks Ended January 7, 2000 and January 8, 1999
Forty Weeks Ended January 7, 2000 and January 8, 1999
C. Consolidated Statement of Cash Flows 5
Forty Weeks Ended January 7, 2000 and January 8, 1999
D. Notes to Consolidated Financial Statements 6-8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-13
PART II. OTHER INFORMATION
ITEM 6. Exhibits, Reports on Form 8-K, Signatures 14
SIGNATURES 14
</TABLE>
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 7, APRIL 2,
2000 1999
(UNAUDITED)
------------------- -------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,341,160 $ 5,843,329
Accounts receivable, net 4,616,898 3,126,072
Reimbursable construction costs 651,622 158,249
Prepaid expenses and other 2,533,122 2,198,272
Deferred income taxes 1,362,000 1,100,000
------------------- -------------------
Total current assets 10,504,802 12,425,922
------------------- -------------------
Land, buildings and equipment:
Land 9,930,239 9,935,000
Buildings 19,110,753 19,010,848
Vehicles, furniture and equipment 11,694,930 10,379,719
Leasehold improvements 7,570,793 6,766,398
------------------- -------------------
48,306,715 46,091,965
Less accumulated depreciation and amortization (12,026,457) (10,718,523)
------------------- -------------------
36,280,258 35,373,442
Land held for disposal 65,600 512,450
------------------- -------------------
36,345,858 35,885,892
------------------- -------------------
Other noncurrent assets:
Intangible assets, net 18,858,271 13,350,826
Refundable deposits and other 984,453 948,067
------------------- -------------------
TOTAL ASSETS $ 66,693,384 $ 62,610,707
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit $ 2,486,000 $ 0
Current maturities of long-term debt 1,444,681 746,502
Accounts payable 1,481,343 1,607,573
Accrued wages and payroll taxes 2,691,744 2,753,769
Accrued vacation 895,101 971,804
Other current liabilities 3,977,752 3,647,344
------------------- -------------------
Total current liabilities 12,976,621 9,726,992
Long-term debt 4,268,900 1,891,857
Deferred rent liability 1,078,997 1,178,617
Deferred income taxes 3,577,000 3,406,000
------------------- -------------------
Total liabilities 21,901,518 16,203,466
------------------- -------------------
Commitments and contingencies - -
------------------- -------------------
Shareholders' equity:
Common stock, 10,000,000 shares authorized, no par value; 5,058,655
issued and outstanding at January 7, 2000 and 5,431,655 at April 2, 1999 28,717,540 30,836,180
Preferred stock, 1,000,000 shares authorized, no par value; no shares
issued or outstanding - -
Retained earnings 16,074,326 15,571,061
------------------- -------------------
Total shareholders' equity 44,791,866 46,407,241
------------------- -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 66,693,384 $ 62,610,707
=================== ===================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
FINANCIAL INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER-TO-DATE YEAR-TO-DATE
TWELVE WEEKS ENDED FORTY WEEKS ENDED
-------------------------------- --------------------------------
JANUARY 7, JANUARY 8, JANUARY 7, JANUARY 8,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 28,864,923 $ 25,524,318 $ 96,371,955 $ 84,875,516
Cost of revenues 25,827,302 22,031,446 84,564,615 72,854,462
------------ ------------ ------------ ------------
GROSS PROFIT 3,037,621 3,492,872 11,807,340 12,021,054
Marketing expenses 390,414 355,770 1,288,922 1,156,246
General and administrative expenses 1,728,815 1,607,578 5,463,738 5,279,539
------------ ------------ ------------ ------------
OPERATING INCOME 918,392 1,529,524 5,054,680 5,585,269
Interest expense 126,100 75,256 252,338 237,203
Interest income (4,403) (40,509) (154,297) (197,647)
Other income, net (14,799) (11,154) (100,417) (67,406)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 811,494 1,505,931 5,057,056 5,613,119
Income tax provision 304,000 567,000 1,895,000 2,117,000
------------ ------------ ------------ ------------
NET INCOME $ 507,494 $ 938,931 $ 3,162,056 $ 3,496,119
============ ============ ============ ============
Weighted average shares outstanding 5,107,891 5,429,655 5,328,533 5,429,582
============ ============ ============ ============
Earnings per share - basic and diluted $ 0.10 $ 0.17 $ 0.59 $ 0.64
============ ============ ============ ============
</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 SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR-TO-DATE
FORTY WEEKS ENDED
------------------------------------------
JANUARY 7, JANUARY 8,
2000 1999
-------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,162,056 $ 3,496,119
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,519,095 2,153,361
Deferred rent liability (99,620) (42,533)
Deferred income taxes (91,000) (75,000)
Loss on land, buildings and equipment 6,208 10,074
Impairment loss on long-lived assets 281,891 -
Changes in assets and liabilities providing (consuming) cash:
Accounts receivable (1,490,826) (568,218)
Prepaid expenses, refundable deposits and other assets (334,850) (480,179)
Accounts payable, accruals and other current liabilities 65,450 (768,747)
----------- -----------
Net cash provided by operating activities 4,018,404 3,724,877
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for land, buildings and equipment (2,552,550) (2,321,770)
Expenditures for reimbursable construction costs (2,032,128) (3,501,961)
Acquisition of intangible assets (1,849,448) (2,471,840)
Proceeds from sales of land, buildings and equipment 628,309 6,097
Payments for refundable deposits and other assets (36,386) (74,216)
----------- -----------
Net cash used in investing activities (5,842,203) (8,363,690)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving line of credit 2,486,000 -
Payments on long-term debt (1,925,694) (924,724)
Repayments of reimbursable construction costs 1,538,755 2,848,299
Repurchase of common stock (4,777,431) -
Issuance of shares, net of subscriptions receivable - 3,663
----------- -----------
Net cash provided (used) by financing activities (2,678,370) 1,927,238
----------- -----------
Net decrease in cash and cash equivalents (4,502,169) (2,711,575)
Cash and cash equivalents, beginning of year 5,843,329 5,541,122
----------- -----------
Cash and cash equivalents, end of period $ 1,341,160 $ 2,829,547
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
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 285 child care centers located in 22 states and the District of Columbia
as of January 7, 2000.
(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 forty weeks while the third 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 January 7, 2000 and April 2, 1999, the allowance for doubtful
accounts was $285,000 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. At January 7, 2000 and April 2, 1999,
reimbursable construction costs were $651,622 and $158,249, respectively.
6
<PAGE> 7
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q
(5) REIMBURSABLE CONSTRUCTION COSTS-CONTINUED
During the forty weeks ended January 7, 2000 and January 8, 1999, expenditures
under these arrangements were $2,032,128 and $3,501,961, respectively, while
repayments were $1,538,755 and $2,848,299.
(6) LAND HELD FOR DISPOSAL
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 forty weeks ended January 7, 2000, the company sold, at their
approximate carrying value, four parcels of land, leaving one remaining parcel.
(7) IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically assesses the recoverability of the unamortized
costs of acquired assets in excess of fair value based on a review of projected
undiscounted cash flows of the related centers. These cash flows are prepared
and reviewed by management in connection with the Company's annual long-range
planning process. The Company recorded an impairment loss of $231,007 for a loss
on intangible assets and $50,884 for a loss on tangible property. These
transactions resulted in a related income tax benefit of $106,000 during the
twelve weeks ended January 7, 2000. The loss is recorded under the Cost of
revenues caption in the Consolidated Statement of Income.
(8) 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.
(9) COMMON STOCK
In June, 1999 the Company's board of directors authorized the
repurchase of up to
7
<PAGE> 8
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q
(9) COMMON STOCK-CONTINUED
250,000 shares of the Company's common stock and in November, 1999 an additional
250,000 shares were authorized for repurchase. As of January 7, 2000, the
Company has purchased 373,000 shares at a cost of $4,777,431. 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, of aggregate repurchase price over the
amount charged against common stock, is charged against retained earnings. As of
January 7, 2000, $2,658,791 was charged against retained earnings.
(10) EARNINGS PER SHARE
For the twelve week periods ended January 7, 2000 and January 8, 1999,
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 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 (29,639 shares for the twelve weeks ended
January 7, 2000; 29,022 shares for the forty week period ended January 7, 2000;
38,379 shares for the twelve week period ended January 8, 1999; and 50,469
shares for the forty week period ended January 8, 1999).
(11) SUPPLEMENTAL CASH FLOW INFORMATION
In connection with the acquisition of certain centers, the Company
incurred seller-financed debt of $5,000,918 during the forty weeks ended January
7, 2000 and $1,493,000 during the twelve weeks ended January 8, 1999.
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 ("third
quarter 2000") and the forty weeks ("year-to-date 2000") ended January 7, 2000,
compared to the twelve weeks ("third quarter 1999") and the forty weeks
("year-to-date 1999") ended January 8, 1999.
During the third quarter 2000, the Company added 13 centers and closed
2. The additions include 12 acquisitions and 1 new build/new lease as compared
to 9 acquisitions and 2 new build/new leases during the third quarter 1999.
During year-to-date 2000, the Company has added 29 centers and closed 14. The
additions include 24 acquisitions, 4 new build/new leases, and 1 management
contract. This compares to 22 acquisitions, 5 new build/new leases and 1 center
closing during year-to-date 1999. The center closings were pursuant to
management's on-going plan to divest operations that no longer fall within the
company's long-term growth strategy. Accordingly, as of January 7, 2000, the
Company operated 285 centers, as compared to 268 at January 8, 1999.
The recently formed joint venture, Oxford Learning Centers of America
("OLCA"), in partnership with Oxford Learning Centres of Canada ("OLCC"), offers
individualized tutoring and enrichment programs for children ages 5 to 14,
tailored to each student's needs. OLCA has proven assessment, tutorial and
enrichment programs, developed over the past seventeen years by OLCC.
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
Third quarter 2000 revenues increased to $28,865,000 from $25,524,000
for the third quarter 1999, a 13.1% increase. This increase was principally
attributable to increased revenues from centers opened or acquired in fiscal
2000 ($2,329,000, or 9.1%) and centers opened or acquired in fiscal 1999
($1,386,000, or 5.4%). Year-to-date 2000 revenues increased to $96,372,000 from
year-to-date 1999 revenues of $84,876,000, an increase of 13.5%. This increase
was principally attributable to increased revenues from centers opened or
acquired in fiscal 1999 ($7,447,000, or 8.8%) and centers opened or acquired in
fiscal 2000 ($3,839,000, or 4.5%). The remaining increase for both the third
quarter and year-to-date 2000 was principally attributable to the growth in
comparable centers and, to a lesser extent, 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 1.0% ($245,000) for the third
quarter 2000. Year-to-date comparable
9
<PAGE> 10
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Form 10-Q
RESULTS OF OPERATIONS - CONTINUED
center revenues increased 1.5% (1,309,000). The third quarter and year-to-date
2000 increases were principally the result of higher tuition rates, partially
offset by the Company's mixed results for winter enrollments.
Third quarter 2000 gross profit decreased to $3,038,000 (10.5% of
revenues) from $3,493,000 (13.7% of revenues) for the third quarter 1999, a
13.0% decrease. The $455,000 decrease was principally the result of comparable
centers decrease in gross profit ($420,000), impairment losses (see Note 7 to
Consolidated Financial Statements, $282,000), and centers opened or acquired in
fiscal 2000 ($71,000). These losses were partially offset by gains in centers
opened or acquired in fiscal 1999 ($316,000) and an increase in management
contract revenue ($15,000).
Year-to-date 2000 gross profit decreased to $11,807,000 (12.3% of
revenues) from $12,021,000 (14.2% of revenues), a 1.8% decrease. The $214,000
decrease in gross profit was principally from comparable centers ($300,000),
impairment losses ($282,000), centers opened or acquired in fiscal 2000
($276,000), and closed centers ($150,000). Gross profit increases from centers
opened or acquired in fiscal 1999 ($761,000), and management contract revenues
($73,000), partially offset these decreases. As previously announced, for both
the third quarter and year-to-date, impairment losses as described in Note 7 in
the Consolidated Financial Statements, certain regional markets falling below
enrollment expectations, and cost of labor increases have put pressure on the
Company's operating margins.
Marketing expenses increased 9.7% to $390,000 for the third quarter
2000 from $356,000 for the third quarter 1999. Year-to-date 2000 marketing
expenses increased 11.5% to $1,289,000 from $1,156,000. These increases were
primarily due to the additional expenses associated with the promotion and
marketing activities for 285 centers as of the end of the third quarter 2000, as
compared to 268 centers at the end of the third quarter 1999. Marketing
expenses, as a percentage of revenues, for both the third quarter 2000 and the
third quarter 1999 remained at 1.4%. Year-to-date marketing expenses decreased
to 1.3% of revenues from 1.4% for last year, due to operating leverage provided
by higher revenues.
General and administrative expenses increased 7.5% to $1,729,000 for
the third quarter 2000 from $1,608,000 for the third quarter 1999. Year-to-date
2000 general and administrative expenses increased 3.5% to $5,464,000 from
$5,280,000. As a percentage of revenues, general and administrative expenses
decreased to 6.0% for the third quarter 2000 from 6.3% for the third quarter
1999. Year-to-date 2000 general and administrative expenses decreased to 5.7%
from 6.2% for year-to-date 1999. These percentage decreases are primarily due to
a reduction of certain accruals pursuant to the Company's management incentive
plan resulting from profitability being below expectations, and to a lesser
extent, successful cost containment and operating leverage provided by higher
revenues, partially offset by legal costs awarded by the court for fees
associated with a settled litigation matter during the quarter.
10
<PAGE> 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Form 10-Q
RESULTS OF OPERATIONS - CONTINUED
As a result of the foregoing changes, operating income decreased to
$918,000 for the third quarter 2000 from $1,530,000 for the third quarter 1999.
The operating income change of $612,000 represents a decrease of 40.0% from the
third quarter 1999. Year-to-date 2000 operating income decreased 9.5% to
$5,055,000 from $5,585,000.
Interest expense increased to $126,000 for the third quarter 2000 from
$75,000 for the third quarter 1999. Year-to-date 2000 interest expense increased
to $252,000 from $237,000 for year-to-date 1999. The increases are primarily a
result of interest paid on the revolving line of credit, which is being used to
finance a portion of the Company's stock repurchase plan. See Liquidity and
Capital Resources below for further explanation.
.
Year-to-date 2000 other income increased to $100,000 from $67,000. This
increase was principally due to a gain realized on retirement of certain
acquisition indebtedness.
The provision for income taxes decreased to $304,000 (an effective tax
rate of 37.5%) for the third quarter 2000 from $567,000 (an effective tax rate
of 37.7%) for the third quarter 1999. Year-to-date provision for income taxes
decreased to $1,895,000 (an effective tax rate of 37.5%) from $2,117,000 (an
effective tax rate of 37.7%).
As a result of the foregoing changes, net income decreased to $507,000,
or 1.8% of revenues for the third quarter 2000, from $939,000, or 3.7% of
revenues for the third quarter 1999. Year-to-date 2000 net income decreased to
$3,162,000, or 3.3% of revenues, from $3,496,000, or 4.1% of revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements currently consist of its new
center expansion program, maintenance of existing centers, stock repurchase
program and investment in new business opportunities such as the recent tutorial
venture with OLCC.
As previously announced, on June 10, 1999 the Company was authorized by
its Board of Directors to repurchase up to 250,000 shares of the Company's
common stock. On November 17, 1999, the Board authorized the repurchase of an
additional 250,000 shares. During the current quarter, the Company purchased
258,300 shares for a cost of $3,306,000. As of January 7, 2000, the Company has
repurchased a total of 373,000 shares for a cost of $4,777,000, with the
continuing authorization to purchase up to 127,000 additional shares in the
future.
The Company believes that cash flow from operations, together with
amounts available under a $7.5 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. At January 7, 2000, $2,486,000 was borrowed under this
arrangement.
11
<PAGE> 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Form 10-Q
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
Net cash provided by operations increased to $4,018,000 for
year-to-date 2000, from $3,725,000 for year-to-date 1999. Year-to-date net cash
provided by operations of $4,018,000, $5,843,000 of existing cash balances,
$2,486,000 of net borrowings on the line of credit, and $628,000 of proceeds on
the sale of assets, (primarily from the sale of land held for disposal), were
principally used for investment in capital expenditures totaling $4,402,000 (to
add 29 centers, make capital improvements to existing centers, and upgrade
information technology systems), the net funding of reimbursable construction
costs related to certain new build centers ($493,000), the repurchase of 373,300
shares of treasury stock ($4,777,000) and payments on long-term debt
($1,926,000).
Expenditures related to information technology systems were part of
management's five-year information system plan to 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 six months. The Company
has incurred additional seller-financed notes payable of approximately
$5,001,000 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 reviewed and tested all of its critical information
systems with embedded chip technology and, as of the date of this report, has
not experienced any problems relating to Year 2000 issue. The company will
continue to monitor all systems, should a problem arise in the future.
During 1999, the Company 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 if those third parties' failed to remedy their Year 2000 Issues. As
of the date of this report, the Company has not experienced any disruption to
the receipt of payments from the various subsidy/funding providers or any other
material Year 2000 Issues, but will continue to monitor these items for any
irregularities that may occur.
12
<PAGE> 13
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, the investment in joint ventures and
other potential business opportunities, and impact of 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, the ability to successfully implement new business opportunities such
as the Company's recent OLCA joint venture, continuation of federal and state
assistance programs, demand for child care, the ability of the Company, 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.
13
<PAGE> 14
PART II
OTHER INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
Item 6 Exhibits and Reports on Form 8-K
(a) Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
4.1 Second Amendment to Credit Agreement
4.2 Third Amendment to Credit Agreement
27 Financial Data Schedule (For SEC use only)
</TABLE>
(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 2/8/00
----------------------------------------------
Michael M. Yeager
Chief Financial Officer and Secretary-Treasurer
(Duly Authorized Officer and Principal Financial Officer)
14
<PAGE> 15
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
4.1 Second Amendment to Credit Agreement
4.2 Third Amendment to Credit Agreement
27 Financial Data Schedule (For SEC use only)
</TABLE>
<PAGE> 1
FIRST NBD Bank
CHICAGO 611 Woodward Avenue
NBD Mail Suite MI1-8074
Detroit, MI 48226
Telephone: (313) 225-2531
Fax: (313) 226-0855
Thomas A. Gamm
Vice President
EXHIBIT 4.1
SECOND AMENDMENT TO CREDIT AGREEMENT
April 1, 1999
Mr. Michael Yeager
Chief Financial Officer
Childtime Childcare, Inc.
38345 West 10 Mile Road
Suite 100
Farmington Hills, MI 48335
Dear Mike:
This letter serves to confirm that Childtime Childcare, Inc. has requested a
$5,000,000 reduction in the Revolving Credit that NBD Bank provides to Childtime
as described in the February 1, 1996 Credit Agreement. This reduction will
become effective on April 5, 1999 and will reduce the commitment amount to
$5,000,000. We will eliminate the unavailable tranche of the facility.
The $5,000,000 Revolving Credit will continue to include a sub-limit for letters
of credit in amounts not to exceed $1,275,000 in aggregate. The Revolving Credit
shall continue to have a maturity date of January 31, 2002.
If you have any questions, please do not hesitate to call me. Otherwise, please
acknowledge your agreement to the terms stated above by signing below and
returning this letter to my attention, first by fax and then by mail.
Sincerely,
/s/ Thomas A. Gamm
- ------------------------
Acknowledged and Agreed to this 2 day of April, 1999
CHILDTIME CHILDCARE, INC.
By: /s/ Michael M. Yeager
--------------------
Its: CFO
-------------------- E-1
<PAGE> 1
EXHIBIT 4.2
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of December 6, 1999
(this "Amendment"), is by and between CHILDTIME CHILDCARE, INC., an Illinois
corporation (the "Company"), and BANK ONE, MICHIGAN, a Michigan banking
corporation f/k/a NBD Bank (the "Bank").
INTRODUCTION
A. The Company and the Bank have entered into the Credit Agreement,
dated as of February 1, 1996, as amended by letter agreements dated April 1,
1999 and May 19, 1999 (as amended, the "Credit Agreement"), pursuant to which
the Bank provides to the Company a revolving credit facility in an aggregate
principal amount not to exceed $5,000,000 (subject to reduction from time to
time as therein provided).
B. The Company has requested the Bank to increase the aggregate
principal amount of such credit facility to $7,500,000 and otherwise to modify
the terms of the Credit Agreement in certain respects, and the Bank is willing
to so amend the Credit Agreement on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein and in the Credit Agreement contained, the parties hereto
agree as follows:
ARTICLE 1. AMENDMENTS TO CREDIT AGREEMENT
Effective upon the date (the "Amendment Date") that the conditions
precedent set forth in Article 3 of this Amendment are satisfied, the Credit
Agreement hereby is amended as follows:
1.1 The first paragraph after the heading "INTRODUCTION" on the
first page of the Credit Agreement is hereby restated in its entirety as
follows:
The Company desires to obtain a revolving credit facility,
including letters of credit, in the aggregate principal
amount of $7,500,000, in order to provide funds and other
financial accommodations for working capital and the
Company's other general corporate purposes, and the Bank is
willing to establish such a credit facility in favor of the
Company on the terms and conditions herein set forth.
1.2 Article I A of the Credit Agreement is hereby amended as
follows:
(a) The defined term "Activated Credit" and its definition are
hereby deleted in their entirety.
(b) The definition of "Commitment" is hereby amended by
deleting the dollar amount "$10,000,000" and inserting in its place the dollar
amount "$7,500,000".
E-2
<PAGE> 2
EXHIBIT 4.2
THIRD AMENDMENT TO CREDIT AGREEMENT
1.3 The first sentence of Section 2.1(b) is hereby amended and
restated in its entirety as follows:
Limitation on Amount of Advances. Notwithstanding anything in
this Agreement to the contrary, the aggregate principal
amount of the Advances made by the Bank at any time
outstanding shall not exceed the amount of Commitment.
1.4 Section 2.1(d) is hereby deleted in its entirety.
1.5 Exhibit B attached to the Credit Agreement is deleted in its
entirety and Exhibit B attached to this Amendment shall be deemed substituted in
place thereof. The Company shall execute and deliver to the Bank a Note in the
form of Exhibit B attached to this Amendment (the "Replacement Note") to be
exchanged for the existing Note issued by the Company to the Bank under the
Credit Agreement (the "Existing Note"). On the Amendment Date, the principal
balance of the Existing Note, as well as all other information which has been
endorsed on the books and records of the Bank with respect to the Existing Note,
shall be endorsed on the books and records of the Bank with respect to the
Replacement Note. The execution and delivery by the Company of the Replacement
Note shall not in any circumstances be deemed a novation or to have terminated,
extinguished or discharged the Company's indebtedness evidenced by the Existing
Note, all of which indebtedness shall continue under and be evidenced and
governed by the Replacement Note and the Credit Agreement, as amended, and the
Bank shall be entitled to all the benefits of the Loan Documents with respect to
the indebtedness evidenced by the Replacement Note.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Amendment, the
Company represents and warrants that:
2.1 The execution, delivery and performance by the Company of
this Amendment and the Replacement Note are within its corporate powers, have
been duly authorized by all necessary corporate action and are not in
contravention of any law, rule or regulation, or any judgment, decree, writ,
injunction, order or award of any arbitrator, court or governmental authority,
or of the terms of the Company's charter or by-laws, or of any contract or
undertaking to which the Company is a party or by which the Company or its
property is or may be bound or affected.
2.2 This Amendment is, and the Replacement Note when delivered
hereunder will be, legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms.
2.3 No consent, approval or authorization of or declaration,
registration or filing with any governmental authority or any nongovernmental
person or entity, including without limitation any creditor or stockholder of
the Company, is required on the part of the Company in
E-3
<PAGE> 3
EXHIBIT 4.2
THIRD AMENDMENT TO CREDIT AGREEMENT
connection with the execution, delivery and performance of this Amendment, the
Replacement Note or the transactions contemplated hereby or as a condition to
the legality, validity or enforceability of this Amendment or the Replacement
Note.
2.4 After giving effect to the amendments contained in Article 1
of this Amendment, the representations and warranties contained in Article V of
the Credit Agreement and in the Loan Documents are true on and as of the date
hereof with the same force and effect as if made on and as of the date hereof.
2.5 No Default or Unmatured Default has occurred and is
continuing, after giving effect to Article 1 of this Amendment.
ARTICLE 3. CONDITIONS PRECEDENT
As conditions precedent to the effectiveness of the amendments to
the Credit Agreement set forth in Article 1 of this Amendment, the Bank shall
receive the following documents and the following matters shall be completed,
all in form and substance satisfactory to the Bank:
3.1 The Replacement Note duly executed on behalf of the Company.
3.2 Certified copies of the resolutions of the board of
directors of the Company authorizing the Company's execution, delivery and
performance of this Amendment, the Replacement Note and the transactions
contemplated hereby.
3.3 Such other documents and agreements reasonably requested by
the Bank.
ARTICLE 4. MISCELLANEOUS
4.1 If the Company shall fail to perform or observe any term,
covenant or agreement in this Amendment, or any representation or warranty made
by the Company in this Amendment shall prove to have been incorrect in any
material respect when made, such occurrence shall be deemed to constitute a
Default.
4.2 All references to the Credit Agreement in any other
document, instrument or certificate referred to in the Credit Agreement or
delivered in connection therewith or pursuant thereto, hereafter shall be deemed
references to the Credit Agreement, as amended hereby. All references to the
Existing Note in the Credit Agreement or any other document, instrument or
certificate referred to in the Credit Agreement or delivered in connection
therewith or pursuant thereto, hereafter shall be deemed references to the
Replacement Note.
4.3 The Loan Documents and, subject to the amendments herein
provided, the Credit Agreement shall in all respects continue in full force and
effect.
E-4
<PAGE> 4
4.4 Capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Credit Agreement.
4.5 This Amendment shall be governed by and construed in
accordance with the laws of the State of Michigan.
4.6 The Company agrees to pay the reasonable fees and expenses of
Dickinson Wright PLLC, counsel for the Bank, in connection with the negotiation
and preparation of this Amendment and the consummation of the transactions
contemplated hereby, and in connection with advising the Bank as to its rights
and responsibilities with respect thereto.
4.7 This Amendment may be executed upon any number of
counterparts with the same effect as if the signatures thereto were upon the
same instrument.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK.]
E-5
<PAGE> 5
EXHIBIT 4.2
THIRD AMENDMENT TO CREDIT AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered as of the day and year first-above written.
CHILDTIME CHILDCARE, INC.
By: /s/ Michael M. Yeager
-------------------------------------
Its: CFO
----------------------------
BANK ONE, MICHIGAN
By: /s/ Thomas A. Gamm
------------------------------------
Its: Vice-President
----------------------------
E-6
<PAGE> 6
EXHIBIT 4.2
THIRD AMENDMENT TO CREDIT AGREEMENT
The undersigned hereby acknowledges that it has reviewed and fully
consents to the foregoing Third Amendment to Credit Agreement (the "Third
Amendment"), that the Irrevocable Guaranty Agreement dated as of February 1,
1996 made by the undersigned in favor of the Bank continues in full force and
effect to secure, among other things, all indebtedness, obligations and
liabilities of Childtime Childcare, Inc. under the Credit Agreement, as amended
by the Third Amendment, and acknowledges and agrees that it has no defenses,
counterclaims or offsets with respect thereof. All references to the Credit
Agreement in any Loan Document or any other document, instrument or certificate
referred to in the Credit Agreement or delivered in connection therewith or
pursuant thereto, hereafter shall be deemed references to the Credit Agreement,
as amended by the Third Amendment. All references to the Existing Note (as
defined in the Third Amendment) in any Loan Document or any other document,
instrument or certificate referred to therein or delivered in connection
therewith or pursuant thereto, hereafter shall be deemed references to the
Replacement Note (as defined in the Third Amendment). Except as otherwise
expressly set forth herein, capitalized terms used but not defined herein shall
have the respective meanings ascribed thereto in the First Amendment or the
Credit Agreement, as the case may be.
CHILDTIME LEARNING CENTERS, INC.
By: /s/ Michael M. Yeager
-----------------------------------------
Its: CFO
-----------------------------------
E-7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CHILDTIME LEARNING CENTERS, INC. FORM 10-Q FOR THE QUARTER ENDED JANUARY 7,
2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> OCT-16-1999
<PERIOD-END> JAN-07-2000
<CASH> 1,341
<SECURITIES> 0
<RECEIVABLES> 4,902
<ALLOWANCES> 285
<INVENTORY> 0
<CURRENT-ASSETS> 10,505
<PP&E> 48,307
<DEPRECIATION> 12,026
<TOTAL-ASSETS> 66,693
<CURRENT-LIABILITIES> 12,977
<BONDS> 0
0
0
<COMMON> 28,718
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 66,693
<SALES> 0
<TOTAL-REVENUES> 28,865
<CGS> 0
<TOTAL-COSTS> 25,827
<OTHER-EXPENSES> (19)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126
<INCOME-PRETAX> 811
<INCOME-TAX> 304
<INCOME-CONTINUING> 507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 507
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
