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Securities and Exchange CommissionWashington, D.C. 20549Form 10-Q

|          
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|(MARK ONE)

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|QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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|SECURITIES EXCHANGE ACT OF 1934                        

FOR THE QUARTERLY PERIOD ENDED JULY 20, 2001

OR

|                                                        
|--------------------------------------------------------
|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|                                                        
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|                                                        
|                                                        
|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
(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  No

The number of shares of Registrants Common Stock, no par value per share, outstanding
at August 23, 2001 was 5,225,772.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                                                             |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS                                                    
|                              |                                                                                               | A. CONSOLIDATED BALANCE SHEET JULY 20, 2001 AND MARCH 30, 2001                             
|                              |                                                                                               | B. CONSOLIDATED STATEMENT OF INCOME SIXTEEN WEEKS ENDED JULY 20, 2001 AND JULY 21, 2000    
|                              |                                                                                               | C. CONSOLIDATED STATEMENT OF CASH FLOWS SIXTEEN WEEKS ENDED JULY 20, 2001 AND JULY
21, 2000
|                              |                                                                                               | D. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                              
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                              | ITEM 6. EXHIBITS, REPORTS ON FORM 8-K                                                        
|SIGNATURES                   



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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES

Index

Form 10-Q

For the Quarterly Period Ended July 20, 2001

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|PART I. FINANCIAL INFORMATION
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|                              |  | ITEM 1. |  | Consolidated Financial Statements                                                    
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|                              |  |         |  |                                                                                       |  | A. Consolidated Balance Sheet                       |  | 3     
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|                              |  |         |  |                                                                                       |  | July 20, 2001 and March 30, 2001                   
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|                              |  |         |  |                                                                                       |  | B. Consolidated Statement of Income                 |  | 4     
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|                              |  |         |  |                                                                                       |  | C. Consolidated Statement of Cash Flows             |  | 5     
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|                              |  |         |  |                                                                                       |  | D. Notes to Consolidated Financial Statements       |  | 6-10  
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|                              |  | ITEM 2. |  | Managements Discussion and
Analysis of Financial Condition
and Results of Operations |  | 11-14                                              
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|PART II. OTHER INFORMATION   
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|                              |  | ITEM 1. |  | Legal Proceedings                                                                     |  | 15                                                 
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|                              |  | ITEM 4. |  | Submission of Matters to a Vote of
Security Holders                                   |  | 15                                                 
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|                              |  | ITEM 6. |  | Exhibits, Reports on Form 8-K                                                         |  | 15                                                 
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|SIGNATURES                    |  | 15     

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##### Table of Contents









PART I
FINANCIAL INFORMATION
FORM 10-Q




CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet

|                                                          |                                                                                                                     |  |                                                |        |                                       |         |        |           |   |         |  
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- | ------ | ------------------------------------- | ------- | ------ | --------- | - | ------- | -
|                                                          |                                                                                                                     |  |                                                |        | July 20,                              |         |        | March 30, |  
|                                                          |                                                                                                                     |  |                                                |        | 2001                                  |         |        | 2001      |  
|                                                          |                                                                                                                     |  |                                                |        | (Unaudited)                           |         |        |           |  
|                                                          |                                                                                                                     |  |                                                |        |                                       |         |        |           |  
|Assets                                                    |                                                                                                                     |  |                                                |        | (In thousands, except for share data) |        
|                                                          |                                                                                                                     |  |                                               
|Current assets:                                           |                                                                                                                     |  |                                                |        |                                       |         |        |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Cash and cash equivalents                                                                                           |  | $                                              | 2,336  |                                       |         | $      | 3,379     |  
|                                                         
|                                                         
|                                                         
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|                                                          | Accounts receivable, net                                                                                            |  |                                                | 5,455  |                                       |         |        | 4,697     |  
|                                                         
|                                                         
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|                                                          | Reimbursable construction costs                                                                                     |  |                                                | 1,734  |                                       |         |        | 1,065     |  
|                                                         
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|                                                          | Prepaid expenses and other                                                                                          |  |                                                | 1,475  |                                       |         |        | 2,773     |  
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Deferred income taxes                                                                                               |  |                                                | 2,662  |                                       |         |        | 3,342     |  
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
|                                                          |                                                                                                                     |  | Total current assets                           |        |                                       | 13,662  |        |           |   | 15,256  |  
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
|Land, buildings and equipment:                            |                                                                                                                     |  |                                                |        |                                       |         |        |          
|                                                         
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|                                                         
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|                                                          | Land                                                                                                                |  |                                                | 9,730  |                                       |         |        | 9,730     |  
|                                                         
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|                                                          | Buildings                                                                                                           |  |                                                | 19,251 |                                       |         |        | 19,161    |  
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|                                                          | Vehicles, furniture and equipment                                                                                   |  |                                                | 14,430 |                                       |         |        | 13,960    |  
|                                                         
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|                                                          | Leasehold improvements                                                                                              |  |                                                | 9,025  |                                       |         |        | 8,245     |  
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
|                                                          |                                                                                                                     |  | 52,436                                         |        |                                       |         | 51,096 |          
|                                                         
|                                                          |                                                                                                                     |  | Less accumulated depreciation and amortization |        |                                       | (15,082 | )      |           |   | (14,399 | )
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
|                                                          |                                                                                                                     |  | 37,354                                         |        |                                       |         | 36,697 |          
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
|Other noncurrent assets:                                  |                                                                                                                     |  |                                                |        |                                       |         |        |          
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|                                                          | Intangible assets, net                                                                                              |  |                                                | 20,502 |                                       |         |        | 21,079    |  
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|                                                          | Refundable deposits and other                                                                                       |  |                                                | 1,082  |                                       |         |        | 1,079     |  
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
|                                                          |                                                                                                                     |  | 21,584                                         |        |                                       |         | 22,158 |          
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
|                                                          |                                                                                                                     |  | Total assets                                   |        | $                                     | 72,600  |        |           | $ | 74,111  |  
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
|Liabilities and shareholders equity
Current liabilities: |                                                                                                                     |  |                                                |        |                                       |         |        |          
|                                                         
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|                                                          | Revolving line of credit                                                                                            |  | $                                              |       |                                       |         | $      |          |  
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|                                                          | Current maturities of long-term debt                                                                                |  |                                                | 1,295  |                                       |         |        | 1,321     |  
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|                                                          | Accounts payable                                                                                                    |  |                                                | 1,946  |                                       |         |        | 2,450     |  
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|                                                          | Book overdrafts                                                                                                     |  |                                                | 2,407  |                                       |         |        | 2,806     |  
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|                                                          | Accrued wages and payroll taxes                                                                                     |  |                                                | 3,358  |                                       |         |        | 3,516     |  
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|                                                          | Restructuring accrual                                                                                               |  |                                                | 1,869  |                                       |         |        | 2,410     |  
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|                                                          | Accrued vacation                                                                                                    |  |                                                | 1,216  |                                       |         |        | 1,241     |  
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|                                                          | Other current liabilities                                                                                           |  |                                                | 3,756  |                                       |         |        | 4,517     |  
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
|                                                          |                                                                                                                     |  | Total current liabilities                      |        |                                       | 15,847  |        |           |   | 18,261  |  
|                                                         
|Long-term debt                                            |                                                                                                                     |  | 3,966                                          |        |                                       |         | 4,224  |          
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|Deferred rent liability                                   |                                                                                                                     |  | 998                                            |        |                                       |         | 1,074  |          
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|Deferred income taxes                                     |                                                                                                                     |  | 3,125                                          |        |                                       |         | 3,316  |          
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
|                                                          |                                                                                                                     |  | Total liabilities                              |        |                                       | 23,936  |        |           |   | 26,875  |  
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
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|Commitments and contingencies                             |                                                                                                                     |  |                                               |        |                                       |         |       |          
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|Shareholders equity:                                     |                                                                                                                     |  |                                                |        |                                       |         |        |          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Common stock, 10,000,000 shares authorized, no par value; 5,225,772
outstanding at July 20, 2001 and March 30, 2001 |  |                                                | 30,926 |                                       |         |        | 30,902    |  
|                                                         
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|                                                          | Preferred stock, 1,000,000 shares authorized, no par value; no shares
issued or outstanding                         |  |                                                |       |                                       |         |        |          |  
|                                                         
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|                                                         
|                                                          | Retained earnings                                                                                                   |  |                                                | 17,738 |                                       |         |        | 16,334    |  
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
|                                                          |                                                                                                                     |  | Total shareholders equity                     |        |                                       | 48,664  |        |           |   | 47,236  |  
|                                                          |                                                                                                                     |  |                                                |        |                                       |        
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|                                                          | Total liabilities and shareholders equity                                                                          |  | $                                              | 72,600 |                                       |         | $      | 74,111    |  
|                                                          |                                                                                                                     |  |                                                |        |                                       |        

The accompanying notes are an integral part of the consolidated financial statements.

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##### Table of Contents



FINANCIAL INFORMATION
FORM 10-Q




CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statement of Income
(Unaudited)

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|------------------------------------------------------------------------- | ------------------------------------------------------------- | ---------- |  |  |  | - | ------ | ------------------------------------- | ---- |  |  |  |  | - | ------------- | ----- | ---- | 
|                                                                          |                                                               |            |  |  |  |   |        | Quarter-to-Date                       |     
|                                                                          |                                                               |            |  |  |  |   |        | Sixteen Weeks Ended                   |     
|                                                                          |                                                               |            |  |  |  |   |        | (in thousands, except per share data) |     
|                                                                          |                                                               |            |  |  |  |   |        |                                       |     
|                                                                          |                                                               |            |  |  |  |   |        | July 20,                              |      |  |  |  |  |   | July 21,      |      
|                                                                          |                                                               |            |  |  |  |   |        | 2001                                  |      |  |  |  |  |   | 2000          |      
|                                                                          |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |   | (as restated) |      
|                                                                          |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |   |               |      
|Revenues                                                                  |                                                               |            |  |  |  | $ | 46,730 |                                       |      |  |  |  |  | $ | 46,055        |      
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|Cost of revenues                                                          |                                                               |            |  |  |  |   | 40,811 |                                       |      |  |  |  |  |   | 40,165        |      
|                                                                          |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |  
|                                                                          | Gross profit                                                  |            |  |  |  |   |        | 5,919                                 |      |  |  |  |  |   |               | 5,890 |     
|                                                                         
|Marketing expenses                                                        |                                                               |            |  |  |  |   | 564    |                                       |      |  |  |  |  |   | 514           |      
|                                                                         
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|General and administrative expenses                                       |                                                               |            |  |  |  |   | 2,964  |                                       |      |  |  |  |  |   | 2,958         |      
|                                                                          |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |  
|                                                                          | Operating income                                              |            |  |  |  |   |        | 2,391                                 |      |  |  |  |  |   |               | 2,418 |     
|                                                                         
|Interest expense                                                          |                                                               |            |  |  |  |   | 173    |                                       |      |  |  |  |  |   | 278           |      
|                                                                         
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|Interest income                                                           |                                                               |            |  |  |  |   | (36    | )                                     |      |  |  |  |  |   | (11           | )    
|                                                                         
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|Other income, net                                                         |                                                               |            |  |  |  |   |       |                                       |      |  |  |  |  |   | (80           | )    
|                                                                          |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |  
|                                                                          | Income before income taxes and
change in accounting principle |            |  |  |  |   |        | 2,254                                 |      |  |  |  |  |   |               | 2,231 |     
|                                                                         
|Income tax provision                                                      |                                                               |            |  |  |  |   | 850    |                                       |      |  |  |  |  |   | 854           |      
|                                                                          |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |  
|                                                                          | Net income before change in
accounting principle              |            |  |  |  |   |        | 1,404                                 |      |  |  |  |  |   |               | 1,377 |     
|                                                                         
|Cumulative effect of change in accounting
principle (net of tax)          |                                                               |            |  |  |  |   |       |                                       |      |  |  |  |  |   | 275           |      
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|                                                                          |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |  
|                                                                          | Net income                                                    |            |  |  |  |   | $      | 1,404                                 |      |  |  |  |  |   | $             | 1,102 |     
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|Weighted average shares outstanding                                       |                                                               |            |  |  |  |   | 5,226  |                                       |      |  |  |  |  |   | 4,932         |      
|                                                                          |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |  
|Earnings per share:                                                       |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |   |               |      
|                                                                         
|Basic-income before cumulative effect of
change in accounting principle   |                                                               |            |  |  |  | $ | 0.27   |                                       |      |  |  |  |  | $ | 0.28          |      
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|Cumulative effect of change in accounting principle                       |                                                               |            |  |  |  |   |       |                                       |      |  |  |  |  |   | (0.06         | )    
|                                                                          |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |  
|                                                                          |                                                               | Net income |  |  |  |   |        | $                                     | 0.27 |  |  |  |  |   |               | $     | 0.22 | 
|                                                                          |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |  
|Diluted-income before cumulative effect of
change in accounting principle |                                                               |            |  |  |  | $ | 0.27   |                                       |      |  |  |  |  | $ | 0.28          |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cumulative effect of change in accounting principle                       |                                                               |            |  |  |  |   |       |                                       |      |  |  |  |  |   | (0.06         | )    
|                                                                          |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |  
|                                                                          |                                                               | Net Income |  |  |  |   |        | $                                     | 0.27 |  |  |  |  |   |               | $     | 0.22 | 
|                                                                          |                                                               |            |  |  |  |   |        |                                       |      |  |  |  |  |  

The accompanying notes are an integral part of the consolidated financial statements.

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##### Table of Contents






FINANCIAL INFORMATION
FORM 10-Q

CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIESConsolidated Statement of Cash Flows
(Unaudited)

|                                             |                                                                                   |                                       |                                                          |        |                     |        |       |               |        |       |  
|-------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------- | -------------------------------------------------------- | ------ | ------------------- | ------ | ----- | ------------- | ------ | ----- | -
|                                             |                                                                                   |                                       |                                                          |        | Year-to-Date        |       
|                                             |                                                                                   |                                       |                                                          |        | Sixteen Weeks Ended |       
|                                             |                                                                                   |                                       |                                                          |        | (In thousands)      |       
|                                             |                                                                                   |                                       |                                                          |        |                     |       
|                                             |                                                                                   |                                       |                                                          |        | July 20,            |        |       | July 21,      |       
|                                             |                                                                                   |                                       |                                                          |        | 2001                |        |       | 2000          |       
|                                             |                                                                                   |                                       |                                                          |        |                     |        |       | (as restated) |       
|                                             |                                                                                   |                                       |                                                          |        |                     |        |       |               |       
|Cash flows from operating activities:        |                                                                                   |                                       |                                                          |        |                     |        |       |              
|                                            
|                                            
|                                            
|                                            
|                                             | Net income                                                                        |                                       | $                                                        | 1,404  |                     |        | $     | 1,102         |       
|                                            
|                                            
|                                            
|                                            
|                                             | Adjustments to reconcile net income to net
cash provided by operating activities: |                                       |                                                          |        |                     |        |       |               |       
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                                   |                                       | Depreciation and amortization                            |        |                     | 1,378  |       |               |        | 1,345 |  
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                                   |                                       | Stock option compensation expense                        |        |                     | 24     |       |               |        | 298   |  
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                                   |                                       | Deferred rent liability                                  |        |                     | (108   | )     |               |        | (31   | )
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                                   |                                       | Deferred income taxes                                    |        |                     | 489    |       |               |        | (163  | )
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                                   |                                       | Loss on land, buildings and equipment                    |        |                     | 18     |       |               |        | 1     |  
|                                            
|                                            
|                                            
|                                            
|                                             | Changes in assets and liabilities providing (consuming) cash:                     |                                       |                                                          |        |                     |        |       |               |       
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                                   |                                       | Accounts receivable                                      |        |                     | (758   | )     |               |        | (570  | )
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                                   |                                       | Prepaid expenses, refundable deposits and other assets   |        |                     | 1,298  |       |               |        | (679  | )
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                                   |                                       | Restructuring accrual                                    |        |                     | (541   | )     |               |        |      |  
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                                   |                                       | Accounts payable, accruals and other current liabilities |        |                     | (1,416 | )     |               |        | 1,276 |  
|                                             |                                                                                   |                                       |                                                          |        |                     |       
|                                             | Net cash provided by operating activities                                         |                                       |                                                          | 1,788  |                     |        |       | 2,579         |       
|                                             |                                                                                   |                                       |                                                          |        |                     |       
|Cash flows from investing activities:        |                                                                                   |                                       |                                                          |        |                     |        |       |              
|                                            
|                                            
|                                            
|                                            
|                                             | Expenditures for land, buildings and equipment                                    |                                       |                                                          | (1,476 | )                   |        |       | (1,446        | )     
|                                            
|                                            
|                                            
|                                            
|                                             | Expenditures for reimbursable construction costs                                  |                                       |                                                          | (898   | )                   |        |       | (2,502        | )     
|                                            
|                                            
|                                            
|                                            
|                                             | Acquisition of intangible assets                                                  |                                       |                                                          |       |                     |        |       | (1,930        | )     
|                                            
|                                            
|                                            
|                                            
|                                             | Proceeds from sales of land, buildings and equipment                              |                                       |                                                          |       |                     |        |       | 2             |       
|                                            
|                                            
|                                            
|                                            
|                                             | Payments for refundable deposits and other assets                                 |                                       |                                                          | (3     | )                   |        |       | (88           | )     
|                                             |                                                                                   |                                       |                                                          |        |                     |       
|                                             |                                                                                   | Net cash used in investing activities |                                                          |        | (2,377              | )      |       |               | (5,964 | )    
|                                             |                                                                                   |                                       |                                                          |        |                     |       
|Cash flows from financing activities:        |                                                                                   |                                       |                                                          |        |                     |        |       |              
|                                            
|                                            
|                                            
|                                            
|                                             | Net borrowings on revolving line of credit                                        |                                       |                                                          |       |                     |        |       | 2,414         |       
|                                            
|                                            
|                                            
|                                            
|                                             | Changes in book overdraft                                                         |                                       |                                                          | (399   | )                   |        |       | 916           |       
|                                            
|                                            
|                                            
|                                            
|                                             | Payments on long-term debt                                                        |                                       |                                                          | (284   | )                   |        |       | (846          | )     
|                                            
|                                            
|                                            
|                                            
|                                             | Repayments of reimbursable construction                                           |                                       |                                                          | 229    |                     |        |       |              |       
|                                             |                                                                                   |                                       |                                                          |        |                     |       
|                                             | Net cash provided (used) by financing activities                                  |                                       |                                                          | (454   | )                   |        |       | 2,484         |       
|                                             |                                                                                   |                                       |                                                          |        |                     |       
|Net decrease in cash and cash equivalents    |                                                                                   |                                       | (1,043                                                   | )      |                     |        | (901  | )            
|                                            
|Cash and cash equivalents, beginning of year |                                                                                   |                                       | 3,379                                                    |        |                     |        | 2,704 |              
|                                             |                                                                                   |                                       |                                                          |        |                     |       
|Cash and cash equivalents, end of period     |                                                                                   | $                                     | 2,336                                                    |        |                     | $      | 1,803 |              
|                                             |                                                                                   |                                       |                                                          |        |                     |       

The accompanying notes are an integral part of the consolidated financial statements.

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##### Table of Contents



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
March 30, 2001.

(2)  PRINCIPLES 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 289 child care centers located in 23 states and the District of Columbia as of July
20, 2001.

(3)  FISCAL YEAR

The Company utilizes a 52-53 week fiscal year ending on the Friday closest to March 31. For fiscal
years 2001 and 2002, 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 20,
2001 and March 30, 2001, the allowance for doubtful accounts was $373,333 and $360,000, 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 20, 2001 and the year ended March 30, 2001, the Company financed
construction costs of
$898,000 and $6,990,000, respectively. Related repayments received under reimbursement agreements were $229,000
and $7,205,000, respectively.

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CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Form 10-Q

(6)  FINANCING ARRANGEMENTS

At July 20, 2001, the Companys unsecured revolving line of credit provides for borrowings up to
$10,000,000, with interest payable at a variable rate, at the Companys option, based on either the prime rate
(6.75 percent at July 20, 2001) or the Eurodollar rate. There were no outstanding borrowings at July 20, 2001 or
March 30, 2001.

(7)  OPTION GRANTS FOR CONSULTING SERVICES

The interim CEO was granted 60,000 options in January 2001. The options have a $7.00 exercise price,
vest at the rate of 10,000 per month and expire in January 2003. As a result of this stock option grant and
based on the Black Scholes option pricing model, the Company has recorded additional compensation expense of
$12,800 for the sixteen weeks ended July 20, 2001. At July 20, 2001, the options are fully vested, and
accordingly no further compensation expense will be recorded during the year.

The interim CFO was granted 10,000 options in March 2001. The options, which have a $7.98 exercise
price, vest evenly over 3 years and expire in March 2007. As a result of this stock option grant and based on
the Black Scholes option pricing model, the Company recorded additional compensation expense in the amount of
$11,600 for the sixteen weeks ended July 20, 2001. The Company will record compensation expense throughout the
vesting period of the options, but the majority of the expenses associated with these options will be recorded
during fiscal 2002.

In July of 2000, the Company 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 was 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 these stock option
grants and based on the Black Scholes option pricing model, the Company recorded additional compensation
expense of $297,950 for the sixteen weeks ended July 21, 2000. For the sixteen weeks ended July 20, 2001, the
Company has recorded $77,000 in consulting fees related to the Jacobson Partners agreement, compared to $10,000
for the sixteen weeks ended July 21, 2000.

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CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Form 10-Q

(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)  EARNINGS PER SHARE

For the sixteen week periods ended July 20, 2001 and July 21, 2000, 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. The calculation of basic and diluted shares is as follows:

|                                         |  |                                               |       |  |               |  |       | 
|---------------------------------------- |  | --------------------------------------------- | ----- |  | ------------- |  | ----- | 
|                                         |  | Calculation of Incremental Shares Outstanding |      
|                                         |  | Sixteen Weeks Ended                           |      
|                                         |  | (in thousands)                                |      
|                                         |  |                                              
|                                         |  | July 20, 2001                                 |       |  | July 21, 2000 | 
|                                         |  |                                               |       |  |               | 
|Basic shares (based on weighted average) |  |                                               | 5,226 |  |               |  | 4,932 | 
|                                        
|                                        
|                                        
|                                        
|Stock options                            |  |                                               | 9     |  |               |  | 0     | 
|                                         |  |                                               |       |  |               | 
|                                        
|                                        
|                                        
|                                        
|Diluted shares                           |  |                                               | 5,235 |  |               |  | 4,932 | 

(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. The Company has not incurred any seller-financed debt
during the first quarter of fiscal 2002.

(11)  BOOK OVERDRAFTS

Book overdrafts represent unfunded checks drawn on zero balance accounts that have not been presented
for funding to the Companys banks. The overdrafts are funded, without finance charges, as soon as they are
presented. At July 20, 2001 and March 30, 2001, the aggregate book overdrafts are $2,407,000 and $2,806,000,
respectively.

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##### Table of Contents



CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Form 10-Q

(12)  CONTINGENCIES

The Company is a defendant in a personal injury lawsuit in which plaintiffs allege their infant son
experienced respiratory and cardiac arrest while in daycare, resulting in brain damage and developmental
abnormality. Plaintiffs have not communicated any settlement demand and the Company intends to vigorously
contest liability. This case is still in the early stages of discovery and no estimate can be made at this time
as to the possible amount of loss, if any, that may result from this lawsuit. The Company believes that any
liability regarding this lawsuit will be covered under the Companys insurance policies.

In addition to the above matter, there are various legal actions and other claims pending or that could
be asserted against the Company. Litigation is subject to many uncertainties; the outcome of individual litigated
matters is not predictable with assurance, and it is reasonably possible that some of these matters may be
decided unfavorably to the Company. It is the opinion of management that the ultimate liability, if any, with
respect to these matters will not materially affect the financial position, results of operations or cash flows
of the Company.

(13)  RESTRUCTURING CHARGES

During the fourth quarter of fiscal 2001, the Company instituted a restructuring program which resulted
in a charge of $4,000,000 and established a restructuring reserve of $2,410,000. In this regard, the Company
closed all 10 of its Oxford Learning Centers during the fourth quarter of fiscal 2001 and identified 19
under-performing centers to be closed in fiscal 2002. As of July 20, 2001, all but 1 of the 19 under-performing
centers has been closed. During the sixteen weeks ended July 20, 2001, these 19 centers generated revenues of
$885,000 and incurred operating losses of $249,000 as compared to revenues of $1,922,000 and operating losses of
$134,000 during the sixteen weeks ended July 21, 2000. Additionally, Oxford Learning Centers generated no revenue
and did not incur operating losses during the first quarter of fiscal 2002 as compared to revenues of $115,000
and operating losses totaling $256,000 in the first quarter of fiscal 2001. A summary of the restructuring
reserve is as follows:

|                        |  |           |       |  |             |                                |     |          |  |   |         |   |          |   |       | 
|----------------------- |  | --------- | ----- |  | ----------- | ------------------------------ | --- | -------- |  | - | ------- | - | -------- | - | ----- | 
|                        |  |           |       |  |             | Restructuring Reserve Analysis |     |          |  |   |        
|                        |  |           |      
|                        |  | Beginning |       |  | Accrual     |                                |     | Cash     |  |   | Ending  |  
|                        |  | accrual   |       |  | adjustments |                                |     | payments |  |   | accrual |  
|                        |  | 03/30/01  |       |  |             |                                |     |          |  |   |         |   | 07/20/01 |  
|                        |  |           |       |  |             |                                |     |          |  |   |         |  
|Lease termination costs |  | $         | 1,958 |  |             | $                              | 73  |          |  | $ | (390    | ) |          | $ | 1,641 | 
|                       
|                       
|                       
|                       
|Severance costs         |  | $         | 452   |  |             | $                              | (73 | )        |  | $ | (151    | ) |          | $ | 228   | 
|                        |  |           |       |  |             |                                |     |          |  |   |         |  
|                       
|                       
|                       
|                       
|Total                   |  | $         | 2,410 |  |             | $                              | 0   |          |  | $ | (541    | ) |          | $ | 1,869 | 

Due to the higher than anticipated number of employees transferring to other centers within the Company,
the amount of severance paid to terminated employees was greatly reduced. However, the reduction in the severance
accrual will be offset by unanticipated capital improvements needed at certain closed centers in order to meet
landlord requirements.

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CHILDTIME LEARNING CENTERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Form 10-Q

(14)  NEW ACCOUNTING PRONOUNCEMENTS

Effective April 1, 2000, the Company changed its method of revenue recognition in accordance with SEC
Staff Accounting Bulletin 101, Revenue Recognition. Previously all registration and material fees had been
recorded when received. Under the accounting method adopted retroactive to April 1, 2000, the Company now
recognizes registration and material fees over the typical school year of September through August. The
cumulative effect of the change on prior years resulted in a charge to income (net of taxes) of $275,000 which
was recognized during the first quarter in fiscal 2001.

On March 31, 2001, the Company adopted Financial Accounting Standards Board No. 133, Accounting for
Derivative Instruments and Hedging Activities. The adoption of SFAS No. 133 did not have a material effect on
the Companys financial statements.

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for
fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance
with the statements. Other intangible assets will continue to be amortized over their useful lives. The Company
is currently reviewing the impact of SFAS Nos. 141 and 142 and will be performing a fair-value analysis at a
later date in connection with the adoption of SFAS No. 142 on April 1, 2002.

10



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##### Table of Contents









Managements 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 20, 2001 (first quarter 2002)
and the sixteen weeks ended July 21, 2000 (first quarter 2001).

During the first quarter 2002, the Company added 4 centers and closed 19. The closings were part of the
new senior management teams restructuring program to close under-performing centers in order to improve
productivity and reduce operating costs. The additions included 3 build-to-suit leased centers and 1 management
contract. This compares to the addition of 12 centers (10 acquisitions and 2 build-to-suit leased centers)
during the first quarter 2001. Accordingly, as of July 20, 2001, the Company operated 289 centers, as compared to
312 at July 21, 2000.

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

First quarter 2002 revenues increased to $46,730,000 from $46,055,000 for the first quarter 2001, a 1.5%
increase. This increase was principally attributable to increased revenues of $1,311,000 from centers opened
after the first quarter of fiscal 2001. Additionally, centers operating during the entire first quarter in both
fiscal years, resulted in an increase of $1,156,000, which is primarily due to price increases. However, these
increases were partially offset by the loss of revenue of $1,817,000 from centers closed during fiscal 2001 and
the first part of fiscal 2002.

Gross profit increased to $5,919,000 for the first quarter 2002 from $5,890,000 for the first quarter
2001. As a percentage of revenues, gross profit decreased slightly to 12.7% from 12.8% for last year. This is
attributed to higher occupancy expenses which were partially offset by lower personnel costs (expressed as a
percentage of revenues). Included in the prior year first quarter were operating losses of $256,000 from Oxford
Learning Centers, which closed down at the end of fiscal 2001. Losses for centers closed during
the first quarter of fiscal 2002 totaled $249,000 (see Note 13 in the Companys Notes to Consolidated Financial
Statements).

During the fourth quarter of fiscal 2001, the Company hired a new senior management team, who reviewed
the Companys operations and developed a new strategic direction. This review identified short and long term
profitability goals and identified areas designed to improve productivity and reduce operating costs. The Company
instituted a restructuring program and incurred a charge of $4,000,000 during the fourth quarter of fiscal 2001
related to lease termination costs and severance costs for closing all 10 of its Oxford Learning Centers and the

11



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##### Table of Contents



Managements Discussion and Analysis of
Financial Condition and Results of Operations
Form 10-Q

Results of Operations  Continued

planned closing of 19 under-performing centers in the first part of fiscal 2002. As of July 20,
2001, the Company has closed all but 1 of the under-performing centers.

Marketing expenses increased 9.7% to $564,000 for the first quarter 2002 from $514,000
for the first quarter 2001. As a percentage of revenues, marketing expenses increased to 1.2% of revenues at the
end of the first quarter 2002 from 1.1% of revenues for the first quarter 2001.

General and administrative expenses increased 0.2% to $2,964,000 for the first quarter 2002 from
$2,958,000 for the first quarter 2001. As a percentage of revenues, general and administrative expenses
decreased to 6.3% for the first quarter 2002 from 6.4% for the first
quarter 2001. Excluding the Jacobson Partners' option expense from
the prior year's quarter, general and administrative expenses would
have reflected an increase of $304,000 in the first quarter 2002
compared to the first quarter 2001. Of this increase, $156,000 is due to the
establishment of 4 new regional offices, $67,000 in additional consulting fees over the prior year and expenses
associated with the implementation of the new center-based revenue billing and payroll system.

As a result of the foregoing changes, operating income decreased to $2,391,000 for the first quarter
2002 from $2,418,000 for the first quarter 2001. The operating income change of $27,000 represents a decrease of
1.1% from the first quarter 2001.

Interest expense decreased to $173,000 for the first quarter 2002 from $278,000 for the first quarter
2001. The decrease is a result of having no borrowings against the Companys outstanding line of credit during
the first quarter 2002 and a reduction in the prime rate which is the rate used on certain other indebtedness.

Effective April 1, 2000, the Company changed its method of revenue recognition in accordance with SEC
Staff Accounting Bulletin 101, Revenue Recognition. Previously all registration and material fees had been
recorded when received. Under the accounting method adopted retroactive to April 1, 2000, the Company now
recognizes registration and material fees over the typical school year of September through August. The
cumulative effect of the change on prior years resulted in a charge to income (net of taxes) of $275,000 which
was recognized during the first quarter in fiscal 2001.

As a result of the foregoing changes, net income increased to $1,404,000, or 3.0% of revenues for the
first quarter 2002, from $1,102,000, or 2.4% of revenues for the first quarter 2001.

On March 31, 2001, the Company adopted Financial Accounting Standards Board No. 133, Accounting for
Derivative Instruments and Hedging Activities. The adoption of SFAS No. 133 did not have a material effect on
the Companys financial statements.

12



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##### Table of Contents



Managements Discussion and Analysis of
Financial Condition and Results of Operations
Form 10-Q

Results of Operations  Continued

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for
fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance
with the statements. Other intangible assets will continue to be amortized over their useful lives. The Company
is currently reviewing the impact of SFAS Nos. 141 and 142 and will be performing a fair-value analysis at a
later date in connection with the adoption of SFAS No. 142 on April 1, 2002.

Liquidity and Capital Resources

The Companys primary cash requirements currently consist of its maintenance of existing centers,
repayment of debt and related interest. The Company believes that cash flow from operations, together with
amounts available under a $10 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. Outstanding letters of
credit reduced the availability under the line of credit in the amount of $2,250,000 at July 20, 2001 and
$2,450,000 at March 30, 2001. 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.

Due to the impact of the Companys increased rental expense, the primary lender approved the appropriate
waiver to the Fixed Charge Coverage Ratio covenant of the February 1, 1996 credit agreement. This waiver, made
after the first quarter 2002 close, was effective July 20, 2001, concurrent with the end of the quarter and
expires on September 1, 2001.

Net cash provided by operations decreased to $1,788,000 for the first quarter 2002, from $2,579,000 for
first quarter 2001. First quarter 2002 cash provided by operations and a portion of the $3,379,000 of existing
cash balances were principally used to make capital improvements to existing centers totaling $1,476,000, funding
of reimbursable construction costs totaling 898,000 and repayments on long-term debt of $284,000.

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 foreseeable future. The Company decided during
fiscal 2001 to implement a new center-based revenue billing and payroll system in order to provide the centers
with the latest and most efficient technology.

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##### Table of Contents



Managements Discussion and Analysis of
Financial Condition and Results of Operations
Form 10-Q

Liquidity and Capital Resources  Continued

The new plan will require approximately $900,000 in expenditures related to hardware purchases, internet access
for each center, training costs for all directors and other key personnel on the new system and travel and
lodging costs. Implementation of the new system began in May 2001 and will be completed in December 2001, with
approximately 400 employees attending a 3 day training session at the Companys headquarters.

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 costs for completing the Companys 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.

14



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##### Table of Contents









PART IIOTHER INFORMATIONFORM 10-Q

CHILDTIME LEARNING CENTERS, INC. AND CONSOLIDATED SUBSIDIARIES







Item 1. LEGAL PROCEEDINGS

Information regarding this item is set forth in Note 12 to the Companys Notes to Consolidated Financial
Statements included in Part I, Item 1 of this Report.

Items 2, 3 and 5 are not applicable.







Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual meeting of shareholders was held on July 25, 2001 at which the shareholders voted upon the
election of directors. The following is a tabulation of the votes.

|                     |  |     |           |  |         |  |   |         |  |  |        | 
|-------------------- |  | --- | --------- |  | ------- |  | - | ------- |  |  | ------ | 
|                     |  | For |           |  | Against |  |   | Abstain | 
|                     |  |     |           |  |         |  |   |         | 
|Milton H. Dresner    |  |     | 4,308,596 |  |         |  | 0 |         |  |  | 9,017  | 
|                    
|                    
|                    
|                    
|Benjamin R. Jacobson |  |     | 4,306,934 |  |         |  | 0 |         |  |  | 10,679 | 
|                    
|                    
|                    
|                    
|George A. Kellner    |  |     | 4,306,890 |  |         |  | 0 |         |  |  | 10,723 | 







Item 6. EXHIBITS AND REPORTS OF FORM 8-K

|    |  |                                                                                                                                                                                                                                           |  |            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|(a) |  | Index to Exhibits:                                                                                                                                                                                                                       
|   
|   
|   
|   
|    |  | Exhibit                                                                                                                                                                                                                                  
|   
|   
|   
|   
|    |  | Number                                                                                                                                                                                                                                    |  | Description
|    |  |                                                                                                                                                                                                                                           |  |            
|   
|   
|   
|   
|    |  | None                                                                                                                                                                                                                                     
|   
|   
|   
|   
|(b) |  | Reports on Form 8-K: None. Subsequent to July 20, 2001, the Company filed a Current Report on Form 8-K to report the issuance of a press release announcing the appointment of its new Chief Executive Officer and Chairman of the Board.

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/ Leonard C. Tylka                   
               8/24/01
| |                                                               
|
|
|
|
| | Leonard C. Tylka                                              
|
|
|
|
| | Chief Financial Officer and Treasurer                         
|
|
|
|
| | (Duly Authorized Officer and Principal Financial Officer)     

15