SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 15, 2004
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
LEARNING CARE GROUP, INC.
(Exact Name Of Registrant As Specified In Its Charter)
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MICHIGAN |
38-3261854 |
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(State or other jurisdiction of incorporation) |
(I.R.S. Employer Identification No.) |
21333 Haggerty Road, Suite 300
Novi, Michigan 48375
(Address of principal executive offices)
(248) 697-9000
(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 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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The number of shares of Registrant’s Common Stock, no par value per share, outstanding at November 10, 2004, was 19,816,510.
LEARNING CARE GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
For the Quarterly Period Ended October 15, 2004
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PART I. FINANCIAL INFORMATION |
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Condensed Consolidated Balance Sheets October 15, 2004 and April 2, 2004 |
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Condensed
Consolidated Statements of Cash Flows 28 weeks ended |
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6-12 | ||||
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Management’s
Discussion and Analysis of Financial Condition and Results of |
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PART II. OTHER INFORMATION |
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PART I – FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
LEARNING CARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| October 15, 2004 |
April 2, 2004 |
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| (Unaudited) | ||||||||
| (In thousands) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 203 | $ | 1,377 | ||||
| Accounts receivable, net | 9,937 | 9,379 | ||||||
| Prepaid expenses and other current assets | 4,646 | 5,435 | ||||||
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| Total current assets | 14,786 | 16,191 | ||||||
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| LAND, BUILDINGS AND EQUIPMENT: | ||||||||
| Land | 9,347 | 9,347 | ||||||
| Buildings | 20,520 | 20,443 | ||||||
| Leasehold improvements | 14,420 | 12,462 | ||||||
| Vehicles, furniture and equipment | 13,991 | 13,599 | ||||||
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| 58,278 | 55,851 | |||||||
| Less: accumulated depreciation and amortization | (20,688 | ) | (19,128 | ) | ||||
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| 37,590 | 36,723 | |||||||
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| OTHER NONCURRENT ASSETS: | ||||||||
| Intangible assets, net | 30,910 | 30,064 | ||||||
| Refundable deposits and other | 2,667 | 2,641 | ||||||
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| 33,577 | 32,705 | |||||||
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| TOTAL ASSETS | $ | 85,953 | $ | 85,619 | ||||
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| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts and drafts payable | $ | 5,858 | $ | 6,810 | ||||
| Accrued wages and benefits | 6,962 | 7,531 | ||||||
| Current portion of long-term debt | 9,405 | 3,328 | ||||||
| Exit and closure expense accrual | 214 | 448 | ||||||
| Other current liabilities | 9,830 | 10,016 | ||||||
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| Total current liabilities | 32,269 | 28,133 | ||||||
| LONG-TERM DEBT, NET OF CURRENT PORTION | 3,637 | 8,397 | ||||||
| DEFERRED RENT LIABILITY & MINORITY INTEREST | 2,445 | 1,945 | ||||||
| OBLIGATIONS UNDER SALE LEASEBACK TRANSACTIONS | 10,503 | 10,138 | ||||||
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| Total liabilities | 48,854 | 48,613 | ||||||
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| SHAREHOLDERS’ EQUITY | ||||||||
| Common Stock, 40,000,000 shares authorized, no par value; 19,809,010 | ||||||||
| issued and outstanding at October 15, 2004 and April 2, 2004 | 43,841 | 43,781 | ||||||
| Preferred Stock, 100,000 shares authorized, no par value; | ||||||||
| no shares issued or outstanding | — | — | ||||||
| Retained earnings (accumulated deficit) | (6,742 | ) | (6,775 | ) | ||||
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| Total shareholders’ equity | 37,099 | 37,006 | ||||||
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| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 85,953 | $ | 85,619 | ||||
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The accompanying footnotes are an integral part of the condensed consolidated financial statements.
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LEARNING CARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| 12 Weeks Ended |
28 Weeks Ended |
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| October 15, 2004 |
October 10, 2003 |
October 15, 2004 |
October 10, 2003 |
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| (In thousands, except per share data) | ||||||||||||||
| Revenue from Learning Center Operations | $ | 46,663 | $ | 43,405 | $ | 110,853 | $ | 103,842 | ||||||
| Revenue from Franchise Operations | 1,540 | 1,376 | 3,874 | 3,236 | ||||||||||
| Revenue, net | 48,203 | 44,781 | 114,727 | 107,078 | ||||||||||
| Operating expenses of Learning Centers | 42,992 | 40,597 | 100,114 | 94,882 | ||||||||||
| Gross profit | 5,211 | 4,184 | 14,613 | 12,196 | ||||||||||
| General and administrative expenses | 4,239 | 4,094 | 10,636 | 9,938 | ||||||||||
| Depreciation and amortization expenses | 946 | 858 | 2,270 | 2,095 | ||||||||||
| Gain on sale of centers and vacant land | (135 | ) | — | (684 | ) | — | ||||||||
| Provision for doubtful accounts | 559 | 244 | 838 | 534 | ||||||||||
| Exit and closure expenses | 21 | — | 61 | — | ||||||||||
| OPERATING INCOME (LOSS) | (419 | ) | (1,012 | ) | 1,492 | (371 | ) | |||||||
| Interest expense, net | 521 | 374 | 1,165 | 1,087 | ||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS | (940 | ) | (1,386 | ) | 327 | (1,458 | ) | |||||||
| Income tax provision | (50 | ) | — | 54 | — | |||||||||
| INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS | (890 | ) | (1,386 | ) | 273 | (1,458 | ) | |||||||
| Discontinued operations, net of taxes | (34 | ) | (167 | ) | (240 | ) | (365 | ) | ||||||
| NET INCOME (LOSS) | $ | (924 | ) | $ | (1,553 | ) | $ | 33 | $ | (1,823 | ) | |||
| INCOME (LOSS) PER SHARE - BASIC: | ||||||||||||||
| Income (loss) before discontinued operations | $ | (0.05 | ) | $ | (0.07 | ) | $ | 0.01 | $ | (0.09 | ) | |||
| Discontinued operations, net of taxes | (0.00 | ) | (0.01 | ) | (0.01 | ) | (0.02 | ) | ||||||
| Net income (loss) | $ | (0.05 | ) | $ | (0.08 | ) | $ | 0.00 | $ | (0.11 | ) | |||
| INCOME (LOSS) PER SHARE - DILUTED: | ||||||||||||||
| Income (loss) before discontinued operations | $ | (0.05 | ) | $ | (0.07 | ) | $ | 0.01 | $ | (0.09 | ) | |||
| Discontinued operations, net of taxes | (0.00 | ) | (0.01 | ) | (0.01 | ) | (0.02 | ) | ||||||
| Net income (loss) | $ | (0.05 | ) | $ | (0.08 | ) | $ | 0.00 | $ | (0.11 | ) | |||
| Weighted average shares outstanding | 19,812 | 19,708 | 19,810 | 16,074 | ||||||||||
The accompanying footnotes are an integral part of the condensed consolidated financial statements.
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LEARNING CARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| 28 Weeks Ended |
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| October 15, 2004 |
October 10, 2003 |
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| OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 33 | $ | (1,823 | ) | |||
| Adjustments to reconcile net income (loss) to cash | ||||||||
| provided (used) by operating activities: | ||||||||
| Depreciation and amortization | 2,233 | 2,136 | ||||||
| Provision for doubtful accounts | 838 | 583 | ||||||
| Stock option compensation expense | 44 | — | ||||||
| Deferred rent liability | 533 | 138 | ||||||
| Minority interest in variable interest entities | (33 | ) | — | |||||
| (Gain) loss on sale of assets | (593 | ) | 58 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,614 | ) | (2,670 | ) | ||||
| Prepaid expenses and other current assets | 151 | (1,445 | ) | |||||
| Accounts payable, accruals and other current liabilities | 640 | 1,595 | ||||||
| Exit and closure expense accrual | (234 | ) | (662 | ) | ||||
| Net cash provided (used) by operating activities | 1,998 | (2,090 | ) | |||||
| INVESTING ACTIVITIES: | ||||||||
| Acquisiton of centers, net of cash | (314 | ) | — | |||||
| Capital spending | (2,845 | ) | (2,327 | ) | ||||
| Proceeds from sale of assets | 761 | 1,054 | ||||||
| Payments for refundable deposits and other assets | (26 | ) | (43 | ) | ||||
| Net cash used in investing activities | (2,424 | ) | (1,316 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Net borrowings on revolving line of credit | 3,785 | 1,614 | ||||||
| Repayments under long-term debt | (2,507 | ) | (15,067 | ) | ||||
| Issuance of long-term debt | — | 3,500 | ||||||
| Changes in drafts payable | (2,042 | ) | 641 | |||||
| Issuance of common shares (net of issuance costs) | 16 | 12,094 | ||||||
| Net cash provided (used) by financing activities | (748 | ) | 2,782 | |||||
| Net decrease in cash and cash equivalents | (1,174 | ) | (624 | ) | ||||
| Cash and cash equivalents, beginning of year | 1,377 | 2,499 | ||||||
| Cash and cash equivalents, end of period | $ | 203 | $ | 1,875 | ||||
The accompanying footnotes are an integral part of the condensed consolidated financial statements.
5
LEARNING CARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – DESCRIPTION OF BUSINESS
Learning Care Group, Inc. conducts business through its wholly-owned subsidiary Childtime Childcare, Inc. and its other wholly-owned subsidiaries (collectively, the “Company”). The Company and its predecessors began operations in 1967. The Company operates in three business segments: Childtime Learning Centers, Tutor Time Learning Centers and Franchise Operations. The Company provides center-based educational services and child care to children between the ages of six weeks and 12 years under two distinct brand identities: Childtime Learning Centers (“Childtime”) and Tutor Time Childcare Learning Centers (“Tutor Time”). As of October 15, 2004, the Company operated or franchised a total of 466 centers system-wide under three major lines of business and had system-wide licensed capacity capable of serving over 70,000 children. The Company’s three lines of business are:
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Childtime Learning Centers: 267 centers operated by the Company, consisting of: |
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258 Childtime centers and |
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9 Childtime-branded centers operated for third parties; |
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Tutor Time Learning Centers: 69 Tutor Time centers | |||