<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 SEPTEMBER 22, 1995
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 0-17098
KINDERCARE LEARNING CENTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0941966
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
2400 PRESIDENTS DRIVE
MONTGOMERY, ALABAMA 36116
(Address of principal executive offices)
(334) 277-5090
(Registrant's telephone number, including area code)
NONE
(Former name, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing required for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
--- ---
The number of shares of Registrant's Common Stock $.01 par value per
share, outstanding at October 27, 1995 was 19,454,152.
- --------------------------------------------------------------------------------
<PAGE> 2
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page Numbers
------------
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheets as of September 22, 1995 and
June 2, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations for the sixteen weeks
ended September 22, 1995 and September 23, 1994 . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
sixteen weeks ended September 22, 1995 and
September 23, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 22, JUNE 2,
ASSETS 1995 1995
----------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,471 $ 14,237
Accounts receivable:
Tuition (net of allowance for
doubtful accounts of $1,200 at
September 22, 1995 and $873
at June 2, 1995) 10,909 9,913
Other 1,052 1,156
Prepaid expenses and supplies 12,134 8,282
----------------- -----------------
Total current assets 34,566 33,588
Property and equipment 521,019 497,690
Less accumulated depreciation and
amortization 67,287 55,244
----------------- -----------------
Net property and equipment 453,732 442,446
----------------- -----------------
Investments 1,981 1,981
Other assets 21,729 23,263
----------------- -----------------
$ 512,008 $ 501,278
================= =================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE> 4
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND SEPTEMBER 22, JUNE 2,
SHAREHOLDERS' EQUITY 1995 1995
----------------- -----------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 11,108 $ 12,639
Bank overdrafts 18,166 7,021
Current portion of long-term debt 815 889
Accrued expenses and other liabilities 47,407 45,926
----------------- -------------
Total current liabilities 77,496 66,475
Long-term debt 153,197 159,505
Self-insured liabilities 18,853 17,927
Other noncurrent liabilities 16,656 13,133
----------------- -------------
Total liabilities 266,202 257,040
----------------- -------------
Shareholders' equity:
Preferred stock, $.01 par value; authorized
10,000,000 shares; none outstanding -- --
Common stock, $.01 par value; authorized
40,000,000 shares; issued and outstanding
20,125,444 and 20,119,818 shares at
September 22, 1995 and June 2, 1995,
respectively 200 200
Additional paid-in capital 204,431 203,890
Retained earnings 43,681 40,116
Cumulative foreign currency translation 160 32
Treasury stock, at cost (205,000 shares
at September 22, 1995) (2,666) --
----------------- -------------
Total shareholders' equity 245,806 244,238
----------------- -------------
$ 512,008 $ 501,278
================= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 5
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
--------------------------------------
SEPTEMBER 22, SEPTEMBER 23,
1995 1994
---------------- ----------------
<S> <C> <C>
Operating revenues $ 161,313 $ 151,502
---------------- ----------------
Salaries, wages and benefits 85,812 80,851
Depreciation 10,189 8,688
Rent expense 8,335 7,789
Provision for doubtful accounts 762 1,145
Other operating expenses 46,093 42,677
Litigation settlement and
restructuring costs, net (1,019) --
---------------- ----------------
Operating income 11,141 10,352
Interest expense, net 5,297 5,242
---------------- ----------------
Income before income taxes 5,844 5,110
Income tax expense 2,279 2,019
---------------- ----------------
Net income $ 3,565 $ 3,091
================ ================
Income per share $ .17 $ .15
================ ================
Weighted average common shares 20,517 21,004
================ ================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 6
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
-----------------------------------
SEPTEMBER 22, SEPTEMBER 23,
1995 1994
--------------- ---------------
<S> <C> <C>
Cash flows from operations:
Net income $ 3,565 $ 3,091
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 10,189 8,688
Writedown of KID'S CHOICE(TM)
property and equipment 5,312 --
Gains on sales of property and equipment (885) --
Cash flows from changes in operating
assets and liabilities:
Accounts receivable (892) 5,135
Prepaid expenses and supplies (4,386) (2,647)
Other assets (343) (2,154)
Accounts payable, accrued expenses and
other liabilities 2,387 7,081
Other, net (28) 141
----------- --------------
Net cash provided by operating activities $ 14,919 $ 19,335
----------- --------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE> 7
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
----------------------------------------
SEPTEMBER 22, SEPTEMBER 23,
1995 1994
---------------- -----------------
<S> <C> <C>
Cash flows from investing activities:
Purchases of property and equipment $ (24,964) $ (15,586)
Proceeds from sales of property and
equipment 2,158 2,084
Proceeds from collection of notes receivable 1,936 --
----------------- -----------------
Net cash used by investing activities (20,870) (13,502)
----------------- -----------------
Cash flows from financing activities:
Bank overdrafts 11,145 6,277
Purchases of Treasury stock (2,666) --
Payments on long-term borrowings (6,383) (10,132)
Warrants and options exercised 89 1,253
----------------- -----------------
Net cash provided (used) by financing activities 2,185 (2,602)
----------------- -----------------
Increase (decrease) in cash and cash equivalents (3,766) 3,231
Cash and cash equivalents, beginning of period 14,237 11,963
----------------- -----------------
Cash and cash equivalents, end of period $ 10,471 $ 15,194
================= =================
Supplemental cash flow information:
Interest paid $ 841 $ 955
================= =================
Income taxes paid $ 1,016 $ 46
================= =================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 8
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
The consolidated financial statements of KinderCare 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 and
results of operations for the interim period. The results of operations for
the sixteen weeks ended September 22, 1995 are not necessarily indicative of
the results to be expected for the full year. These statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended June 2, 1995.
Effective June 3, 1995, the Company adopted Statement of Financial
Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of (SFAS 121).
(2) FISCAL YEAR
The Company's fiscal year ends on the Friday closest to May 31. The
first quarter is 16 weeks long and the second, third, and fourth quarters are
each twelve weeks long. The 1996 and 1995 fiscal years are each 52 weeks long.
(3) BANK OVERDRAFTS
Bank Overdrafts represent checks not yet presented for payments to
vendors and for payroll.
(4) LITIGATION SETTLEMENT AND RESTRUCTURING, NET
On July 3, 1995, the Company received a cash distribution of $11.3
million from The Enstar Group, Inc., the Company's former parent, in connection
with a settlement of the Company's claim against Enstar in the U.S. Bankruptcy
Court in Montgomery.
On June 15, 1995, the Board of Directors appointed Dr. Sandra Scarr,
Chairman of the Board, to be Chief Executive Officer ("CEO"), replacing the
former CEO whose resignation was effective on the same date. Subsequent to
this appointment the Company made substantial changes to its field operations
management and support functions and systems in an effort to improve future
operating effectiveness and efficiencies as well as to improve the quality of
services. As a result of these changes, the Company has charged $4.0 million
of restructuring costs against fiscal 1996 earnings, primarily related to
severance agreements.
New management has limited KID'S CHOICE(TM) development to contracts
in process until the concept is more fully developed, and recorded an
impairment loss of $6.3 million, consisting of a writedown of $5.3 million for
the recoverability of long lived assets, primarily leasehold improvements, and
$1.0 million for anticipated KID'S CHOICE(TM) lease termination costs.
7
<PAGE> 9
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) COMPUTATION OF INCOME PER SHARE
Income per share amounts are computed based on the weighted average
number of shares actually outstanding for the sixteen weeks ended September 22,
1995, plus the shares that would be outstanding assuming the exercise of
dilutive stock options and warrants, all of which are considered common stock
equivalents. The number of shares that would be issued from the exercise of
the stock options and the warrants has been reduced by the number of shares
that could have been purchased from the proceeds at the average market price
(period end market price, if higher, for fully diluted computations) of the
Company's stock. A reconciliation of the actual weighted average shares to the
number of shares used in the computation of earnings per share for the periods
indicated is as follows (in thousands):
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
----------------------------------------
SEPTEMBER 22, 1995 SEPTEMBER 23, 1994
----------------------------------------
<S> <C> <C>
Weighted average shares outstanding 19,989 20,043
Dilutive effect of common stock equivalents 528 961
----------------------------------------
Primary shares outstanding 20,517 21,004
Fully dilutive effect of common stock equivalents 160 106
----------------------------------------
Fully diluted shares outstanding 20,677 21,110
========================================
</TABLE>
(6) SUBSEQUENT EVENTS
On September 29, 1995, the Company repurchased 540,883 shares of its
common stock for $7.3 million. This purchase completed the Company's $10.0
million stock buy-back program. A total of 745,883 shares were purchased at
$13.41 average cost per common share. Treasury stock purchased during this
buy-back program will be retired.
(7) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current presentation.
8
<PAGE> 10
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sixteen weeks ended September 22, 1995 ("first quarter 1996") compared
to the sixteen weeks ended September 23, 1994 ("first quarter 1995").
The Company's operating results for the comparative quarters were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Change
--------------------------
First First Percent Percent
Quarter Percent of Quarter of of
1996 Revenues 1995 Revenues Amount Revenues
--------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $161,313 100.0 $151,502 100.0 $ 9,811 --
-------- ----- -------- ----- --------- ----
Salaries, wages and benefits 85,812 53.2 80,851 53.4 4,961 (0.2)
Depreciation 10,189 6.3 8,688 5.8 1,501 0.5
Rent expense 8,335 5.2 7,789 5.1 546 --
Other operating expenses 46,855 29.0 43,822 28.9 3,033 0.1
Litigation settlement and
restructuring costs, net (1,019) (0.6) -- -- (1,019) --
-------- ----- -------- ----- --------- ----
Operating income $ 11,141 6.9 $ 10,352 6.8 $ 789 0.1
======== ===== ======== ===== ========= ====
Centers open at the end
of each quarter 1,141 1,145 (4)
======== ======== =========
</TABLE>
Operating revenues - Operating revenues increased $9.8 million, or 6.5% to
$161.3 million in the first quarter 1996. Operating revenues increased as a
result of both a tuition rate increase of 5% during the fall of 1994 (second
quarter 1995) and from revenues contributed by centers opened or acquired
during fiscal 1995 and the first quarter 1996. The increase in operating
revenues was partially offset by center closings during fiscal 1995 and the
first quarter 1996 and a slight decline in center occupancy during the first
quarter 1996 as compared to the first quarter 1995. Year-to-date total
occupancy for the first quarter 1996 decreased 1.0% to 76.0%. Same center
revenues, defined as revenues from centers in operation during both full
quarters, were up 4.5% over first quarter 1995. Same center occupancy for the
first quarter decreased 0.3% to 76.9.
During the first quarter 1996, the Company opened eight community
centers, four KINDERCARE AT WORK(R) centers, and seven KID'S CHOICE(TM)
centers; and closed 15 centers. During the first quarter 1995, the Company
opened 10 community centers, three KINDERCARE AT WORK(R) centers, and eight
KID'S CHOICE(TM) centers; and closed eight centers. These activities include
one conversion during the first quarter 1996 and two conversions during the
first quarter 1995 from a community center(s) to a KID'S CHOICE(TM) center(s).
New community centers opened in fiscal 1995 and first quarter 1996 have an
average building capacity of 155 children versus an average of 120 for existing
community centers. Total center capacity remained consistent at 138,000 for
the first quarter 1996 and 1995.
9
<PAGE> 11
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
Salaries, wages and benefits - Salaries, wages and benefits decreased, as a
percentage of operating revenues, to 53.2% from 53.4% in the first quarter 1996
versus 1995. This improved performance is due to the consolidation of field
operating management and the restructuring of certain center support functions.
Depreciation - Depreciation in the first quarter of 1996 increased 0.5%, as a
percentage of revenues, over the comparable quarter in 1995. Approximately
one-half of this increase was due to computers for children's educational
programs which were installed in centers during the last half of fiscal year
1995. The remaining increase was due to depreciation on new centers opened
after the first quarter 1995.
Rent Expense - Rent expense, as a percentage of operating revenues, increased
0.1% during the first quarter 1996 compared to the first quarter 1995 due to an
increase in rent on the Company's vehicle leases and rent incurred on new KID'S
CHOICE(TM) leases.
Other operating expenses - Other operating expenses increased slightly, as a
percentage of operating revenues, to 29.0% from 28.9% in the first quarter 1996
versus 1995 due primarily to an increase in new center opening costs and
increased summer and brand marketing efforts. Other operating expenses were
favorably impacted in the first quarter 1995 by gains on sales of property and
equipment of approximately $0.9 million.
Operating income -- For the first quarter 1996, operating income increased $0.8
million, or 0.1%, as a percentage of revenues, from the first quarter 1995.
Operating income before litigation settlement and restructuring costs decreased
$0.2 million for the first quarter 1996 as compared to the first quarter 1995.
As a percentage of revenues, first quarter 1996 operating margin before
litigation settlement and restructuring costs of 6.3% decreased by 0.5% from
the first quarter 1995.
EBITDA, defined as earnings before interest expense, taxes,
depreciation, and amortization, for the first quarter 1996 of $21.3 million was
$2.3 million above the first quarter 1995. As a percent of operating revenues,
EBITDA for the first quarter 1996 was 13.2% versus 12.6% during the same period
of the prior year. For the first quarter of 1996, EBITDA, before litigation
settlement and restructuring costs, was $20.3 million, a $1.3 million increase
over the first quarter of 1995. As a percentage of revenues, EBITDA, before
litigation settlement and restructuring costs, remained consistent at 12.6% for
the first quarters of 1996 and 1995. EBITDA does not necessarily indicate that
cash flow is sufficient to fund all of the Company's cash needs or represent
cash flow from operations as defined by generally accepted accounting
principles.
Interest expense, net - Net interest expense increased slightly to $5.3 million
from $5.2 million for the first quarter 1996 versus 1995 due to a reduction of
interest income on overnight investments to $111,000 from $174,000 for the
respective periods. The Company's weighted average interest rate on its
long-term debt, including debt cost amortization, was 10.78% for the first
quarter 1996 versus 10.32% for the first quarter 1995.
10
<PAGE> 12
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
Litigation Settlement and Restructuring, net
Litigation settlement - On July 3, 1995, the Company received a cash
distribution of $11.3 million from The Enstar Group, Inc., the Company's former
parent, in connection with a settlement of the Company's claim against Enstar
in U.S. Bankruptcy Court in Montgomery.
Restructuring - On June 15, 1995, the Board of Directors appointed Dr.
Sandra Scarr, Chairman of the Board, to be Chief Executive Officer ("CEO"),
replacing the former CEO whose resignation was effective on the same date.
Subsequent to this appointment, the Company made substantial changes to its
field operations management and support functions and is evaluating certain
other support functions and systems in an effort to improve future operating
effectiveness and efficiencies as well as to improve the quality of services.
As a result of these changes, the Company has charged $4.0 million of
restructuring costs, primarily severance agreements, against fiscal 1996
earnings.
New management has limited KID'S CHOICE(TM) development to contracts
in process until the concept is more fully developed, and recorded an
impairment loss of $6.3 million, consisting of a writedown of $5.3 million for
the recoverability of long lived assets, primarily leasehold improvements, and
$1.0 million for anticipated lease termination costs.
Income tax expense - Income tax expense for the first quarter 1996 and 1995 of
$2.3 million and $2.0 million, respectively, are in excess of amounts computed
by applying statutory Federal income tax rates to income before income taxes
due primarily to state income taxes. Any tax benefits recognized subsequent to
April 2, 1993, the effective date from which the Company emerged from
bankruptcy, relating to the valuation allowance for deferred taxes at April 2,
1993 are recorded as direct additions to additional paid-in capital.
Additional paid-in capital was increased by approximately $500 thousand for
recognized tax benefits in the first quarter 1996.
LIQUIDITY & CAPITAL RESOURCES
New enrollments are generally highest in September and January, with
attendance declining during July and August and the year-end holiday season.
To prepare centers for new, increased fall enrollments, the Company seeks
during the summer months to open new centers, accelerate renovations and
improvements to existing facilities, and accelerate purchases of equipment.
Consequently, the combination of decreased attendance and escalated capital
activity during the summer months and during the year-end holiday period may
result in decreased liquidity during these periods. The Company's consolidated
net cash flow from operations for the first quarter 1996 was $14.9 million,
compared to $19.3 million for the first quarter 1995. The ratio of current
assets to current liabilities was 44.6 to 1 at September 22, 1995 versus 50.5
to 1 at June 2, 1995. Management believes the cash provided from operations in
combination with funds available under the Company's revolving credit facility
will be adequate to meet the Company's working capital needs.
11
<PAGE> 13
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
On July 3, 1995, the Company received a cash distribution of $11.3
million from The Enstar Group, Inc., the Company's former parent, in connection
with a settlement of the Company's claim against Enstar in U.S. Bankruptcy
Court in Montgomery.
During the first quarter 1996, the Company repurchased 205,000 shares
of its common stock for $2.7 million. On September 29, 1995, the Company
repurchased an additional 540,883 shares of its common stock for $7.3 million.
This purchase completed the Company's $10.0 million stock buy-back program. A
total of 745,883 shares were repurchased at $13.41 average cost per common
share. Treasury stock purchased under the buy-back program was retired
subsequent to September 22, 1995.
During the first quarter 1996, the Company received $1.9 million in
cash from the repayments from notes receivable related to the sales of centers
in prior years. In addition, the Company also received $2.2 million in cash
from the sale of centers during the first quarter 1996.
Capital Expenditures
In connection with the reorganization, management is restructuring its
real estate and center development functions. As a result, management has
reduced its estimate for new openings for fiscal year 1996, and anticipates
opening between 35 and 40 new centers, consisting of 22 to 25 community
centers, four to five KINDERCARE AT WORK(R) centers, and 9 to 10 KID'S
CHOICE(TM) centers. The fiscal 1996 new center openings reflect a slow-down in
the development of the Company's KID'S CHOICE(TM) format as current management
does not believe the new format concept is meeting its full potential and needs
further refinement. The Company also is experiencing delays in acquiring and
permitting new community center locations. New community center development
typically takes 18 to 24 months and KID'S CHOICE(TM) centers typically require
four to nine months to develop. Frequently, new site negotiations are delayed
or canceled, or construction delayed for a variety of reasons, many outside the
control of management. No assurance can be given by management that it will be
able to successfully negotiate and acquire properties, or meet targeted
deadlines.
Management plans to continue to renovate, upgrade and improve existing
centers for such items as improved playgrounds, computers, educational
materials, and infant suites. At present, approximately 50% of the centers are
equipped with computers for children's educational programs.
Capital expenditures during the first quarter 1996, amounted to
approximately $25.0 million. Approximately $3.6 million was spent on
renovations and improvements to existing facilities, approximately $3.6 million
on equipment purchases and the remaining $17.8 million on new center
development. Capital expenditures during the first quarter 1995 amounted to
approximately $15.6 million. Approximately $2.6 was spent on renovations and
improvements to existing facilities, approximately $3.2 million on equipment
purchases and the remaining $9.8 million on new center development.
12
<PAGE> 14
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
Management believes that cash on hand, borrowings under the revolving
credit facility, cash provided by operating activities and funds from permitted
additional financing will adequately provide for its working capital and debt
service needs and will be sufficient to fund the Company's expected capital
expenditures over the next several years. Although no assurance can be given
that such sources will be sufficient, the capital expenditure program has
substantial flexibility and is subject to revision based on various factors,
including but not limited to, business conditions, changing time constraints,
cash flow requirements, debt covenants, competitive factors, and seasonality of
openings. If the Company experiences a lack of working capital, it is in a
position to cut back its capital expenditures. In the near term, if the
Company were to reduce substantially or postpone its capital expenditures,
management believes there would be no substantial impact on current operations
and it is likely that more cash would be available for working capital needs
and debt servicing. In the long term, if these expenditures were substantially
reduced, in management's opinion, its operating business and ultimately its
cash flow would be adversely impacted.
13
<PAGE> 15
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit 27 (Financial Data Schedule for SEC purposes only).
(b) Reports on Form 8-K
In a report filed on Form 8-K dated June 16, 1995, the Company
announced the appointment of a new Chief Executive Officer.
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
KINDERCARE LEARNING CENTERS, INC.
---------------------------------
(Registrant)
Date: October 31, 1995 /s/ Sandra W. Scarr
------------------------------------
Sandra W. Scarr
Chairman and Chief Executive Officer
Date: October 31, 1995 /s/ Philip L. Maslowe
--------------------------------------
Philip L. Maslowe
Executive Vice-President, Chief
Financial Officer, and Treasurer
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-04-1995
<PERIOD-END> SEP-22-1995
<EXCHANGE-RATE> 1
<CASH> 10,471
<SECURITIES> 0
<RECEIVABLES> 13,161
<ALLOWANCES> 1,200
<INVENTORY> 0
<CURRENT-ASSETS> 34,566
<PP&E> 521,019
<DEPRECIATION> 67,287
<TOTAL-ASSETS> 512,008
<CURRENT-LIABILITIES> 77,496
<BONDS> 153,197
<COMMON> 200
0
0
<OTHER-SE> 245,606
<TOTAL-LIABILITY-AND-EQUITY> 512,008
<SALES> 0
<TOTAL-REVENUES> 161,313
<CGS> 0
<TOTAL-COSTS> 150,429
<OTHER-EXPENSES> (1,019)
<LOSS-PROVISION> 762
<INTEREST-EXPENSE> 5,297
<INCOME-PRETAX> 5,844
<INCOME-TAX> 2,279
<INCOME-CONTINUING> 3,565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,565
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
