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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 21, 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 incorporation) | (I.R.S. Employer Identification No.) |
38345 West Ten Mile Road, Suite 100
Farmington Hills, Michigan 48335
(Address of principal executive offices)
(248) 476-3200
(Registrants 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 Registrants Common Stock, no par value per share, outstanding at August 14, 2000 was 4,931,655.
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
Index
Form 10-Q
For the Quarterly Period Ended July 21, 2000
Page | ||||||||
Number | ||||||||
PART I. FINANCIAL INFORMATION | ||||||||
ITEM 1. Consolidated Financial Statements | ||||||||
A. Consolidated Balance Sheet | 3 | |||||||
July 21, 2000 and March 31, 2000 | ||||||||
B. Consolidated Statement of Income | 4 | |||||||
Sixteen Weeks Ended July 21, 2000 and July 23, 1999 | ||||||||
C. Consolidated Statement of Cash Flows | 5 | |||||||
Sixteen Weeks Ended July 21, 2000 and July 23, 1999 | ||||||||
D. Notes to Consolidated Financial Statements | 6-8 | |||||||
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations | 9-12 | |||||||
PART II. OTHER INFORMATION | ||||||||
ITEM 6. Exhibits, Reports on Form 8-K | 13 | |||||||
SIGNATURES | 14 |
2
PART I
FINANCIAL INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
July 21, | March 31, | ||||||||||
2000 | 2000 | ||||||||||
(Unaudited) | |||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 1,802,912 | $ | 2,704,465 | |||||||
Accounts receivable, net | 4,786,340 | 4,216,880 | |||||||||
Reimbursable construction costs | 3,781,652 | 1,279,348 | |||||||||
Prepaid expenses and other | 3,225,980 | 2,547,200 | |||||||||
Deferred income taxes | 1,597,000 | 1,437,000 | |||||||||
Total current assets | 15,193,884 | 12,184,893 | |||||||||
Land, buildings and equipment: | |||||||||||
Land | 10,023,715 | 9,930,239 | |||||||||
Buildings | 19,270,400 | 19,232,936 | |||||||||
Vehicles, furniture and equipment | 12,745,834 | 11,954,127 | |||||||||
Leasehold improvements | 8,566,908 | 8,072,998 | |||||||||
50,606,857 | 49,190,300 | ||||||||||
Less accumulated depreciation and amortization | (13,112,654) | (12,410,551) | |||||||||
37,494,203 | 36,779,749 | ||||||||||
Land held for disposal | 65,600 | 65,600 | |||||||||
37,559,803 | 36,845,349 | ||||||||||
Other noncurrent assets: | |||||||||||
Intangible assets, net | 24,178,120 | 21,131,029 | |||||||||
Refundable deposits and other | 1,100,101 | 1,012,254 | |||||||||
Total assets | $ | 78,031,908 | $ | 71,173,525 | |||||||
Liabilities and shareholders equity | |||||||||||
Current liabilities: | |||||||||||
Revolving line of credit | $ | 3,771,943 | $ | 1,357,800 | |||||||
Current maturities of long-term debt | 2,185,979 | 2,413,063 | |||||||||
Accounts payable | 6,654,517 | 5,220,182 | |||||||||
Accrued wages and payroll taxes | 3,697,029 | 3,477,878 | |||||||||
Accrued vacation | 1,239,539 | 1,214,755 | |||||||||
Other current liabilities | 3,838,912 | 3,473,891 | |||||||||
Total current liabilities | 21,387,919 | 17,157,569 | |||||||||
Long-term debt | 5,327,466 | 4,214,146 | |||||||||
Deferred rent liability | 1,097,779 | 1,129,153 | |||||||||
Deferred income taxes | 3,731,000 | 3,734,000 | |||||||||
Total liabilities | 31,544,164 | 26,234,868 | |||||||||
Commitments and contingencies | | | |||||||||
Shareholders equity: | |||||||||||
Common stock, 10,000,000 shares authorized, no par value; 4,931,655 outstanding at July 21, 2000 and March 31, 2000 | 28,294,130 | 27,996,180 | |||||||||
Preferred stock, 1,000,000 shares authorized, no par value; no shares issued or outstanding | | | |||||||||
Retained earnings | 18,193,614 | 16,942,477 | |||||||||
Total shareholders equity | 46,487,744 | 44,938,657 | |||||||||
Total liabilities and shareholders equity | $ | 78,031,908 | $ | 71,173,525 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
3
FINANCIAL INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statement of Income
(Unaudited)
Quarter-to-Date | ||||||||||
Sixteen Weeks Ended | ||||||||||
July 21, | July 23, | |||||||||
2000 | 1999 | |||||||||
Revenues | $ | 45,860,986 | $ | 38,743,810 | ||||||
Cost of revenues | 40,164,710 | 33,522,280 | ||||||||
Gross profit | 5,696,276 | 5,221,530 | ||||||||
Marketing expenses | 513,876 | 512,662 | ||||||||
General and administrative expenses | 2,958,356 | (1) | 2,119,221 | |||||||
Operating income | 2,224,044 | 2,589,647 | ||||||||
Interest expense | 278,151 | 66,889 | ||||||||
Interest income | (10,433) | (95,867) | ||||||||
Other income, net | (79,810) | (74,558) | ||||||||
Income before income taxes | 2,036,136 | 2,693,183 | ||||||||
Income tax provision | 785,000 | 1,013,000 | ||||||||
Net income | $ | 1,251,136 | $ | 1,680,183 | ||||||
Weighted average shares outstanding | 4,931,655 | 5,431,655 | ||||||||
Earnings per share basic | $ | 0.25 | $ | 0.31 | ||||||
Earnings per share diluted | $ | 0.25 | $ | 0.31 | ||||||
(1) | Includes $298,000 for a one-time compensation charge related to options granted and $10,000 in fees accrued in connection with the Jacobson Partners consulting agreement. (See Item 7 in the Companys Notes to Consolidated Financial Statements) |
The accompanying notes are an integral part of the consolidated financial statements.
4
FINANCIAL INFORMATION
FORM 10-Q
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
Year-to-Date | |||||||||||
Sixteen Weeks Ended | |||||||||||
July 21, | July 23, | ||||||||||
2000 | 1999 | ||||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 1,251,136 | $ | 1,680,183 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 1,344,625 | 966,180 | |||||||||
Stock option compensation expense | 297,950 | | |||||||||
Deferred rent liability | (31,374) | (41,928) | |||||||||
Deferred income taxes | (163,000) | (4,000) | |||||||||
Loss on land, buildings and equipment | 548 | 57,147 | |||||||||
Changes in assets and liabilities providing (consuming) cash: | |||||||||||
Accounts receivable | (569,460) | (757,206) | |||||||||
Prepaid expenses, refundable deposits and other assets | (678,780) | (354,237) | |||||||||
Accounts payable, accruals and other current liabilities | 1,127,368 | (61,563) | |||||||||
Net cash provided by operating activities | 2,579,013 | 1,484,576 | |||||||||
Cash flows from investing activities: | |||||||||||
Expenditures for land, buildings and equipment | (1,446,108) | (873,006) | |||||||||
Expenditures for reimbursable construction costs | (2,502,304) | (726,999) | |||||||||
Acquisition of intangible assets | (1,930,071) | (620,525) | |||||||||
Proceeds from sales of land, buildings and equipment | 1,960 | 49,735 | |||||||||
Payments for refundable deposits and other assets | (87,847) | (20,593) | |||||||||
Net cash used in investing activities | (5,964,370) | (2,191,388) | |||||||||
Cash flows from financing activities: | |||||||||||
Net borrowings on revolving line of credit | 2,414,143 | | |||||||||
Changes in book overdraft | 915,925 | | |||||||||
Payments on long-term debt | (846,264) | (286,257) | |||||||||
Net cash provided (used) by financing activities | 2,483,804 | (286,257) | |||||||||
Net decrease in cash and cash equivalents | (901,553) | (993,069) | |||||||||
Cash and cash equivalents, beginning of year | 2,704,465 | 5,843,329 | |||||||||
Cash and cash equivalents, end of period | $ | 1,802,912 | $ | 4,850,260 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
5
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 Companys 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 Companys annual report for the fiscal year ended March 31, 2000.
(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 began operations in 1967. Childtime Learning Centers, Inc. was incorporated on November 2, 1995 and completed its initial public offering on February 2, 1996. The Company provides for-profit child care through 304 child care centers located in 23 states and the District of Columbia as of July 21, 2000.
(3) FISCAL YEAR
The Company utilizes a 52-53 week fiscal year ending on the Friday closest to March 31. For fiscal years 2000 and 2001, the first quarter contained sixteen weeks, and the fiscal years contain 52 weeks.
(4) ACCOUNTS RECEIVABLE
Accounts receivable is presented net of an allowance for doubtful accounts. At July 21, 2000 and March 31, 2000, the allowance for doubtful accounts was $308,333 and $295,000, 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 quarter ended July 21, 2000 and the year ended March 31, 2000, the Company financed construction costs of $2,502,304 and $2,659,854, respectively. Related repayments received under reimbursement agreements were $0 and $1,538,755, respectively.
6
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Form 10-Q
(6) FINANCING ARRANGEMENTS
At July 21, 2000, the Companys unsecured revolving line of credit provides for borrowings up to $7,500,000, with interest payable at a variable rate, at the Companys option, based on either the prime rate (9.5 percent at July 21, 2000) or the Eurodollar rate. Under the line of credit, there were outstanding borrowings of $3,771,943 at July 21, 2000 and $1,357,800 at March 31, 2000. The increase in borrowing is primarily attributable to the acquisition of 10 centers, which required cash payments totaling $1,732,500.
In addition to the cash payments for the acquisition of 10 centers, the Company also incurred an additional $1,732,500 in notes payable for the sixteen weeks ended July 21, 2000. At July 21, 2000 and March 31, 2000, the total long-term debt was $5,327,466 and $4,214,146, respectively. The Company also made payments in the amount of $846,264 during the sixteen weeks ended July 21, 2000 to reduce portions of long-term debt.
(7) OPTION GRANTS FOR CONSULTING SERVICES
The Company has recently retained Jacobson Partners, of which Benjamin R. Jacobson, a director of the Company, is the managing general partner, to provide management and financial consulting services. As part of the consideration to be paid to, and to add further incentive for such services, Jacobson Partners has been granted stock options to purchase 557,275 shares. Additionally, Jacobson Partners will receive an annual fee in the amount of $250,000, plus reimbursement of reasonable out-of-pocket expenses. As a result of the stock option grants, the Company has recorded additional compensation expense of $297,950 . This transaction resulted in a related income tax benefit of approximately $114,000 for the sixteen weeks ended July 21, 2000.
(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.
7
CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Form 10-Q
(9) EARNINGS PER SHARE
For the sixteen week periods ended July 21, 2000 and July 23, 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 (no dilutive shares for the sixteen weeks ended July 21, 2000 and 29,635 shares for the sixteen weeks ended July 23, 1999).
(10) SUPPLEMENTAL CASH FLOW INFORMATION
In connection with the acquisition of certain centers, the Company incurred seller-financed debt of $1,732,500 during the sixteen weeks ended July 21, 2000 and $335,000 during the sixteen weeks ended July 23, 1999.
(11) BOOK OVERDRAFTS
Book overdrafts represent unfunded checks drawn on zero balance accounts that have not been presented for funding to the Companys banks. The overdrafts are funded, without finance charges, as soon as they are presented. At July 21, 2000 and March 31, 2000, the aggregate book overdrafts are $4,372,000 and $3,457,000, respectively.
8
Managements 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 21, 2000 (first quarter 2001) and the sixteen weeks ended July 23, 1999 (first quarter 2000).
During the first quarter 2001, the Company added 12 centers and closed 1. The additions included 10 acquisitions and 2 build-to-suit leased centers. This compares to the addition of 10 centers (8 acquisitions, 1 new lease and 1 management contract) during the first quarter 2000. Accordingly, as of July 21, 2000, the Company operated 304 centers, as compared to 273 at July 23, 1999. Additionally, the Company added 1 Oxford Learning Center for the sixteen weeks ended July 21, 2000. The Company now operates 8 Oxford Learning Centers, all located in the state of Michigan.
The results of centers opened, acquired or disposed of are included in the Companys 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
First quarter 2001 revenues increased to $45,861,000 from $38,744,000 for the first quarter 2000, an 18.4% increase. This increase was principally attributable to increased revenues from centers opened or acquired in fiscal 2000 ($5,876,000, or 15.2%) and centers opened or acquired in fiscal 2001 ($1,255,000, or 3.2%). However, these gains were partially offset by the loss of revenue from centers that were closed during fiscal 2000.
Comparable center revenues (centers operating during all of year-to-date 2001 and year-to-date 2000) increased 1.8% ($709,000) for the first quarter 2001. The first quarter 2001 increase was principally the result of price increases, partially offset by a decrease in the utilization percentage.
First quarter 2001 gross profit increased to $5,696,000 (12.4% of revenues) from $5,222,000 (13.5% of revenues) for the first quarter 2000, a 9.1% increase. The increase in gross profit was principally from centers opened or acquired in fiscal 2000 ($589,000), centers opened in fiscal 2001 ($116,000) and, to a lesser extent, growth in management contract revenue ($17,000). These increases were partially offset by gross operating losses from the newly opened Oxford Learning Centers of $238,000 and, to a lesser extent, losses from comparable centers totaling $182,000.
9
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Form 10-Q
Results of Operations Continued
Marketing expenses increased 0.2% to $514,000 for the first quarter 2001 from $513,000 for the first quarter 2000. As a percentage of revenues, marketing expenses decreased to 1.1% of revenues at the end of the first quarter 2001 from 1.3% of revenues at the end of the first quarter 2000. The decrease is attributable to successful cost containment and, to a lesser extent, operating leverage provided by higher revenues.
General and administrative expenses increased 39.6% to $2,958,000 for the first quarter 2001 from $2,119,000 for the first quarter 2000. As a percentage of revenues, general and administrative expenses increased to 6.5% for the first quarter 2001 from 5.5% for the first quarter 2000. The increase is due primarily to a charge of $308,000 for the Jacobson Partners options and related consulting fees, additional incentive accruals pursuant to the Company's management incentive plan, the addition of three new area offices and the additional expenses associated with the operation of 304 centers as of the end of the first quarter 2001, as compared to 273 centers at the end of the first quarter 2000.
As a result of the foregoing changes, operating income decreased to $2,224,000 for the first quarter 2001 from $2,590,000 for the first quarter 2000. The operating income change of $366,000 represents an decrease of 14.1% from the first quarter 2000.
Interest expense increased to $278,000 for the first quarter 2001 from $67,000 for the first quarter 2000. The increase is a result of interest paid on new acquisition debt, interest paid on funds borrowed to repurchase shares of the Companys common stock during fiscal 2000 and an increase in the prime rate. The prime rate is the interest rate used on certain indebtedness.
Other income increased to $80,000 for the first quarter 2001 from $75,000 for the first quarter 2000, principally due to a gain associated with the early retirement of debt.
As a result of the foregoing changes, net income decreased to $1,251,000, or 2.7% of revenues for the first quarter 2001, from $1,680,000, or 4.3% of revenues for the first quarter 2000.
10
Managements Discussion and Analysis of
Financial Condition and Results of Operations
Form 10-Q
Liquidity and Capital Resources
The Companys primary cash requirements currently consist of its maintenance of existing centers, repayment of debt and related interest, its new center expansion program including Oxford Learning Centers and other potential ventures. 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 Companys 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 Companys option. Under the line of credit at July 21, 2000 there were outstanding borrowings of $3,772,000 and borrowings of $1,358,000 at March 31, 2000. Outstanding letters of credit further reduced the availability under the line of credit in the amount of $2,556,000 at July 21, 2000 and $2,972,000 at March 31, 2000. Under this agreement, the Company is required to maintain certain financial ratios and other financial conditions, the most restrictive of which requires the Company to maintain certain debt-to-equity ratios, a minimum fixed charge coverage and a minimum amount of tangible net worth. In addition, there are restrictions on the incurrence of additional indebtedness, disposition of assets and transactions with affiliates.
Net cash provided by operations increased to $2,579,000 for year-to-date 2001, from $1,485,000 for year-to-date 2000. Year-to-date 2001 cash provided by operations, $2,704,000 of existing cash balances, $2,414,000 of net borrowings and an increase of $916,000 relating to the funding of zero balance checks (see Item 11 in the Companys Notes to Consolidated Financial Statements) were principally used for investment in capital expenditures totaling $3,376,000, to add 12 centers and make capital improvements to existing centers and for the funding of $2,502,000 of reimbursable construction costs related to certain new build centers. Additionally, $846,000 was used for repayments on long-term debt. The Company incurred additional seller-financed notes payable of approximately $1,732,500 during the year-to-date 2001, related to the acquisition of centers.
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 and $228,000 during fiscal 2000. As of March 31, 2000 the Company has completed the majority of the hardware and software purchases and future costs related to the information system plan will primarily consist of training costs, which are estimated to be approximately $100,000 and will be completed in the next 12 to 18 months.
11
Managements 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, funding sources and the estimated training costs for completing the Companys information technology system upgrade, 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, the continuation of federal and state assistance programs, demand for child care, 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.
12
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
13
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHILDTIME LEARNING CENTERS, INC. (REGISTRANT) |
/s/ Michael M. Yeager
8/25/2000 Michael M. Yeager Chief Financial Officer and Secretary-Treasurer (Duly Authorized Officer and Principal Financial Officer) |
14
Exhibit Index
Exhibit No. | Description | |
27 | Financial Data Schedule |
|