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Abc learning-annual-report-2006
Abc learning-annual-report-2006
Abc learning-annual-report-2006
Abc learning-annual-report-2006
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Abc learning-annual-report-2006

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  • 1. A.B.C. Learning Centres Limited Annual Report 2006A.B.C. Learning Centres Limited ABN 93 079 736 664 Annual Report 2006
  • 2. Contents1 2006 Highlights2 Chairman’s Report4 CEO’s Report6 ABC’s four Building Blocks8 Review of Operations – Australia, New Zealand and United States – Education14 Board of Directors17 Financial Report Corporate Directory
  • 3. Another record year has seen ABC grow its business exponentially and provide an increased return to shareholders. Revenue $631.5m +149.9% Operating profit after tax $81.1m +86.4% Earnings per share 27.7c +20.4%Business Highlights Growth in Childcare Places 112,179 2004–2006January 2006Acquisition ofLearning CareGroup, Inc. inthe United States 46,164June 2006 22,969Acquisition of KidsCampus Limited 2004 2005 2006Financial Highlights 2006 2005 % Change (AIFRS) (AIFRS) 2005/2006Revenue $631.5m $252.7m 149.9Operating profit after tax $81.1m $43.5m 86.4Earnings per share – basic 27.7 cents 23.0 cents 20.4Final dividend – fully franked 8.0 cents 6.0 cents 33.3Full year dividend – fully franked 15.0 cents 11.0 cents 36.4 1
  • 4. Chairman’s Report The past 12 months have been a landmark year, a transforming year for the Company. With the acquisition of the US based Learning Care Group, Working closely with the existing Learning Care Group ABC became the world’s largest listed childcare provider. As and Children’s Courtyard senior management, ABC we stood on the threshold of this new stage of development can repeat its successful Australian and New Zealand this year, we took time to do what we have always done – formula of achieving high occupancy by lifting the standard pursue a program of well planned and well managed growth, of care and providing a world-class curriculum, quality staff underpinned by the highest quality of early childhood and a comprehensive program of renewal and renovation. education and care. Within Australia, the acquisition of Kids Campus in It was ABC’s foray into the US that gave us the most June 2006 further consolidated our position. ABC had exciting business headlines of the year. In November 2005, demonstrated its ability to integrate new centres with we announced our intention to acquire Learning Care, at a successful merger with the Peppercorn Management that time the third largest for-profit childcare provider in Group in 2004, and this continued with Kids Campus. North America. More recently, in August 2006, we agreed In July, we announced the acquisition of Hutchison’s to purchase Dallas-based Children’s Courtyard, the ninth Child Care Services. largest childcare provider in North America. Another exciting development this year was our expansion These acquisitions came out of our strong belief that the into corporate childcare, meaning parents have access to US provides exceptional opportunities for ABC. The US has centres either actually in or near their workplaces. I have a similar childcare market to Australia, with more mothers in visited two Westpac-ABC centres, a 75-place centre in the workforce and a greater demand for the highest quality Brisbane and a 50-place centre in Westpac’s new building education and care, but is served by a fragmented industry in Sydney, which have transformed those lucky families’ where no company holds more than three per cent of the lives. Arrangements with the Commonwealth Bank are also market. This has meant that the US industry has not yet underway, as part of the bank’s new staff wellbeing program. had the benefit of the capital injection we have achieved here. Corporate childcare has emerged as an important service We have always been aware that a move by an Australian that fits well into ABC’s strategy of managed growth. company into the US can be viewed as risky. But the Board and management have absolute confidence in our proven track record of good management and sound planning in a market that is similar to ours but 15 times larger.2
  • 5. Right from the beginning, we have understood the importance not only of our families but also of our communities.An important aspect of this strategy is our continual review Revenue this year was $631 million, an increase of 150 per centand revision of our educational and developmental programs on last year, and our operating profit after tax was $81 million,to ensure they capture the latest research and are in line with an increase of 86 per cent.our approach to lifelong learning. You can read about these The increase in revenue is being passed on to shareholdersimportant programs later in this report. as a final dividend of 8 cents per share, fully franked, makingRight from the beginning, we have understood the importance a full year dividend of 15 cents per ordinary share fully frankednot only of our families but also of our communities. We have for the year.always been involved with the communities, large and small, In conclusion, it has been a year of progress on all fronts.that have been home to our centres. And we have relished It is the progress ABC has consistently shown since itthe opportunity to champion a number of causes, particularly started its first centre less than 20 years ago and listed fivethose with an emphasis on children, families and education. years ago on the Australian Stock Exchange. There haveSo this year ABC introduced SIDS and Kids Safe Sleeping been many people on that journey and many people whokits into our centres right across Australia and New Zealand continue to make it successful. I would like to congratulateand helped our children fundraise on Red Nose Day. Our and thank them all.support has been as varied as the Australian Children’sMusic Foundation and the establishment of a Chair in Your Directors feel enormous confidence in the road ahead,Midwifery to be established by the Mater Mother’s Hospital and we thank you for joining us.and the Australian Catholic University.For you, our shareholders, the benefits of being part of adynamic, responsible company are equalled by our solidfinancial results. Sallyanne Atkinson AO Chairman 3
  • 6. CEO’s Report ABC is now an international childcare provider with an increasingly strong financial and shareholder focus. During the year, we have repaid debt and funded acquisitions and further growth opportunities. Consolidation and International Expansion ABC has consolidated its position in the giant US market In the last 12 months, ABC has evolved into a substantially with the recent acquisition of Children’s Courtyard in Texas, different company. We are a significantly larger company giving us a total of 417 owned centres and 108 franchised and now also an international organisation. centres in the US. During the year, we commenced our expansion into the US, Our expansion into the US has been measured, with a gaining a substantial part of the largest childcare market in deliberate focus on strategic integration into our existing the world. business, enabling us to deliver shareholder value through an immediate return on invested capital. We cemented our position as the leading childcare provider in the Australian market through our acquisitions of Kids We see greater potential in the US market for further Campus and Hutchison’s Child Care Services and are acquisitions in addition to building new centres and now Australia’s leading provider of childcare services. acquiring franchised businesses. Our financial position has been strengthened with an Australian Acquisitions additional capital raising underpinning our acquisitions We have continued to build our leadership position in the and funding our future growth opportunities. Australian market through further acquisitions. Building on our merger with the Peppercorn Group, we acquired These initiatives have positioned ABC at the forefront of Kids Campus Limited and announced the acquisition of the childcare industry, enabling us to continue to provide Hutchison’s Child Care Services Limited. the highest quality of care for children and families in our centres and strategically positioning us to capitalise on These acquisitions give us benefits of scale and importantly these investments over the longer term. provide ABC with the opportunity to provide an enhanced choice of centres for our corporate partners. Expansion into the US One of the major initiatives we have undertaken in the past With the Peppercorn merger, ABC has demonstrated its year has been our expansion into the US. Our acquisition ability to manage and integrate acquisitions to enhance of the Learning Care Group, Inc. in January, with 460 owned shareholder value without compromising quality of care and franchised centres, gave ABC a significant position in or education. the US market. The successful integration of operational and administrative The US expansion was a logical progression for the functions also enables centre staff to spend more time on company. Our previous merger with Peppercorn Group what they do best – providing an exciting and challenging meant we were of sufficient scale to warrant international early learning environment for the children in their care. expansion and the Learning Care Group was a natural, Realising the benefits of these acquisitions is not an easy strategic fit for the Company. undertaking and we are fortunate to have dedicated staff We were able to bring the benefit of our management who are committed to ensuring the success of this program. experience to an existing provider with two respected The amalgamation of the various offices into one corporate operating subsidiaries, Tutor Time and Childtime, subsequently office has been a significant achievement and I would like to expanding our operations further, with Tutor Time acquiring extend my appreciation to our staff for making this happen. an additional 17 centres in southern California.4
  • 7. Our expansion into the US has been measured, with a deliberate focus on strategic integration into our existing business, enabling us to deliver shareholder value through an immediate return on invested capital.Following the acquisition of the Hutchison centres, This has been the hallmark of our business successABC will have over 1000 centres in Australia and and continues to be the primary focus of management.New Zealand, or approximately 20 per cent of long day In the next financial year, as part of our commitment tocare centres nationally. raising standards across our industry, ABC will makeIn addition to growth by acquisition, we will continue to significant investments in centre staff training programs.selectively build new centres in the coming year. In addition, we will continue our corporate partnership program to develop childcare centres for entities suchCapital Management as the major banks.During the year, ABC has raised sufficient capital to repaydebt and fund acquisitions and further growth opportunities. In the past year, ABC has been transformed as we haveOur net debt position at the end of June was $29.3 million. significantly expanded the scope and size of our business,We can now feel comfortable in increasing the debt position while remaining true to our commitment to quality in allof the Company as we continue to grow. our centres.The breadth and scale of our operations now means that we The outlook for our business remains positive and we willhave also moved into the ASX Top 100 list of companies. The continue to selectively acquire and construct centres whereCompany and its operations are now attracting the attention they meet a community need and add to our business.of a new set of institutional shareholders and one of our We thank our dedicated staff for their help in building ABCpriorities is to engage with this market to build understanding into a prosperous international company.of our development strategy.Commitment to Training and QualityIn the past year the Company has experienced a significanttransformation in the size and composition of our businesswhile remaining firmly focused on the provision of qualityearly childhood care and education. Edmund S Groves CEO Operations (Global) 5
  • 8. ABC’s four Building Blocks The best foundation for a child’s future ABC Learning Centres is committed to ensuring each child is loved, nurtured, educated and given the best possible chance in life. That is why we have specifically created the ‘Four Building Blocks’. Each one of these building blocks is a pathway to a child’s overall wellbeing and future development. We recognise that in order for young children to reach their full potential in a learning environment, they must each be viewed as an individual. At ABC, we recognise that each child is uniquely different. Our tailored learning curriculum focuses on each child’s unique style of learning that allows them to gain the most from these experiences. Literacy, numeracy, and computer skills are key elements of this building block. We offer specialised and fun programs to nurture a child’s nutritional and physical development. Our aim is to ensure children begin and continue to make healthy choices, as well as developing and enhancing their gross and fine motor skills. The programs and the activities offered in this building block are based on the individual child. Each child is able to develop skills according to their own unique abilities and special interests.6
  • 9. ABC prides itself on the special learning environments it creates. Centre facilities are constantly upgraded, ensuring a safe and secure environment for all children. That’s why we have re-invested close to $100 million into our early learning centres over the last four years. Our extensive play and educational facilities are specifically designed with child safety and child development as the main priority. We are also the only company continuing to build centres in all areas where need exists across the country.ABC centre staff are early childhoodprofessionals, dedicated to the developmentof every individual child.All our staff training and assessment servicesare not only relevant to the real world but alsoincorporate holistic practices in child development.They undertake continuing levels of study toachieve their qualifications developed specificallyfor the care and education of children under sixyears of age. In Australia, centre staff qualificationsrange from Certificate level through to Diplomas,Advanced Diplomas and Bachelor of Education(Early Childhood). ABC centre staff are employedaccording to the Child Care Regulations andActs specific to each State/Territory. Real Mums. Real Stories.“My son attends an ABC childcare how to use a cup and baby eating centre one day a week, and has utensils and settling problems. done since 12 weeks of age. ABC staff and directors assisted It is on these days that we find me with post-natal depression, this he is most settled, he is happy assistance is given freely and is not when I arrive to pick him up. part of the school fees. This kind of He spends his days finger painting, care and attention to a little person, experiencing a myriad of toys that his growth and development no parent would be able to provide and his family’s overall wellbeing in such a variety or quantity. The is nothing short of a fantastic staff there assist parents in learning community service to all.” how best to cope with difficult moments, how to introduce solids, Mrs K Barry, ABC Grays Point 7
  • 10. Review of Operations Australia, New Zealand and United States It was a year of unprecedented expansion, with ABC achieving a growth rate of 41 per cent in its number of childcare centres, moving into the US and New Zealand and significantly expanding the corporate care division. Summary Another significant acquisition was the six childcare centres Operations grew significantly through the year. The total managed by the Universal group in metropolitan Sydney. number of centres increased from 660 to 933 (905 in This acquisition comprised 421 existing places with a further Australia, 28 in New Zealand), a growth of 41 per cent. 960 places to be developed. More than half of the places are to be for children under three years of age. The Company continued to acquire high quality groups and excellent sites and centres in outstanding locations. A further 192 centres were acquired through the year in small A strengthening of our operational structure has enabled groups or individually. us to focus on and measure our quantitative and qualitative Delivery of Services performance indicators more effectively. Systems have The main focus of the delivery of services to our continued to improve and have reduced the administrative children and families continued to be on our high quality burden for our centre staff, enabling them to spend educational curriculum. additional time with the children. Our Corporate Care division has progressed markedly, securing further major Staff training continued as a key focal point with organisations. Marketing has been enhanced this year, with curriculum training and our Rewards Success Program a number of major campaigns boosting occupancies. featuring strongly. Acquisitions The acquisition of Kids Campus Limited (KDS) for $127.9 million was the most significant new initiative during the financial year. KDS has added 75 centres and an existing pipeline of 21 centres to the group, with 8,000 places in strategic locations. The transaction also included a further 4,000 places to be provided over three years. Real Parents. Real Stories. “Our daughter who is now or updated, and the systems and 26 months old has been going procedures have improved. to a local (privately-run) day care Our daughter (who originally attended centre for just on two years. In July one day and now attends three last year it was turned into an ABC full days per week) has grown and Centre, a move which my husband flourished and turned into a happy and I, being small business owners, healthy toddler under their care. were originally ambivalent about. ABC is the best thing that could However, what we have noticed have happened to our centre.” since the changeover is that, parents are now better informed, Lana and Craig White, every toy and piece of equipment ABC Jerraboombah in the centre has been replaced8
  • 11. Northern Territory Queensland 15 335 Western Australia 78 Australian Capital Territory New South Wales 210 South Australia 8 Victoria 56 281 Tasmania New Zealand 11 28Our operational structure was strengthened by the addition Refurbishments were carried out at 212 centres throughof more than 40 area managers to the management team. the year and over 30,000 maintenance responsesThese managers were mostly senior Centre Directors were undertaken.promoted into the position but still retaining a strong Staff computers were provided to over 200 centresconnection to the centres. and there were over 6,000 IT&T responses in the year.Operations Central, a centralised support service staffed Systemsby senior early childhood personnel, was launched through Improved access by Centre Directors to centre relief staffthe year. Operations Central has provided centre staff and was achieved through our labour management system,families with much improved support and the Company Kronos. This system was also extended to our New Zealandwith essential feedback data on its operations. centres. We also commenced automated child attendancePerformance times in our New Zealand centres, improving our securityUnder the Commonwealth Quality Improvement and and management processes.Accreditation System, 213 of our centres were accredited A new rostering system was developed in our childcarethis year, 98 per cent achieving the highest level. centre systems as well as automatic direct debiting of feesAnd under our internal Quality Assurance Program, each and improved banking systems. These developments haveof our centres was visited once per quarter, resulting been instrumental in reducing office time for Centre Directors.in 1,856 centre visits and the issuing of 4,937 quality Substantial work was undertaken on our intranetassurance certificates in the areas of Industry Compliance, throughout the year. All centre policies and procedures andEarly Childhood Learning Environment, Centre Presentation other essential centre information is now at the fingertips ofand Administration. the Centre Director. Online ordering of toys and equipmentCentre staff turnover continued at the low rate of 8.3 per cent. as well as purchasing of supplies for the centres has beenMuch of the turnover was for family or travel reasons. further developed. 9
  • 12. Review of Operations Australia, New Zealand and United States Corporate Care Other campaigns through the year included the 2 Weeks The Corporate Care division commenced the management Free and “Guess Who” campaigns. New signage of the existing 19 Department of Defence childcare centres. turnaround times for acquired centres was also greatly A number of existing ABC centres were converted to reduced, enabling the centres to be identified with the Defence corporate care centres, increasing the total number ABC marketing campaigns. to 35 centres. Regional marketing information was amended to include the Other corporate partners who joined through the year local centre telephone number as well as the toll-free number included the Commonwealth Bank of Australia, Optus, (1800 222 543 in Australia, 0508 222 543 in New Zealand). Chisholm TAFE, Chandler Macleod and the Queensland Learning Care Group Institute of Medical Research. Joining the ABC Group has brought exciting opportunities Marketing for growth and development of the Learning Care Group It has always been ABC’s experience that word of mouth is in the US. Since the acquisition by ABC in January 2006, our best form of marketing. This year has been no different the Learning Care Group has made a strategic shift in in this regard and the constant stream of support letters its business strategy, which previously focused on growth that we receive from our excited families suggests that through the franchise market. the neighbourhood grapevine is hard at work. It is also a constant reminder that the Company must continually find improved ways to support and inspire those families. We bolstered our marketing efforts this year with a major re-enrolment campaign over the summer holiday period. The campaign included an extensive flyer distribution and TV advertisements which continued through the Commonwealth Games and local radio advertisements. Additional call centre staff were engaged and trained to respond to the huge influx of enquiries. Real Parents. Real Stories. “When I was pregnant with Miranda, for Miranda and not to worry about I struggled to find her an place in things, just enjoy the remainder childcare as all the places were of the pregnancy and impending full. My husband I and kept getting parenthood. This was very reassuring. knocked back. Originally, we The staff are all thrilled when we had avoided the larger corporate carry her in the door, and are centres such as ABC for fear of our genuinely concerned for her welfare. baby being treated as just another We are very thankful for the love customer. But we then phoned and care that our daughter has ABC and were surprised with the received, and would recommend response we got. We were invited ABC centres to any other parents.” to visit the centre and see how the kids enjoy their time there. We were Brad and Janelle McKenzie, told that a place would be found ABC Newtown10
  • 13. East Midwest 91 128 West125 South 138Today, the company is driving growth by: As a result of these acquisitions, the Learning Care Group(a) acquiring other regional early education providers operates in nearly 500 locations in the United States who are known for their exceptional quality; of America.(b) purchasing franchised Tutor Time centres; and We are currently undergoing an extensive remodelling program(c) developing new centres to increase concentration and have budgeted approximately US$40 million to undertake in select key markets. these refurbishments at more than 180 of the Childtime centres across the country. These enhancements include anIn the eight months since the ABC acquisition, the Learning updated classroom environment that supports our new TheCare Group has been highly successful in executing Empowered Child™ curriculum. Early indications of recentlythis shift in business strategy by acquiring 23 previously completed remodels show an improvement in enrolment,franchised Tutor Time centres and contracting to purchase which is anticipated for all the centres involved throughoutChildren’s Courtyard, which operates 46 schools (comprised this process.of 74 centres) in Texas.The Children’s Courtyard acquisition was an ideal fit underLearning Care Group’s umbrella of brands, as they havea strong commitment to high quality early education andcare. The synergies among both companies will allowfor continued growth in the marketplace and will positionLearning Care Group as a leading early education providerin Texas. 11
  • 14. Review of Operations Education Education is what we do. ABC’s National Institute of Early Childhood Education had steady growth through the year. Educational initiatives such as the ABC LifeSmart Curriculum have enhanced our programs for older children in our centres. College – Australia The ABC LifeSmart Curriculum provides children with The National Institute of Early Childhood Education (NIECE), the foundation learning skills they require to become has experienced steady yet significant growth over the confident lifelong learners. The curriculum gives children previous 12 months. the opportunities to explore and extend upon these skills through their participation in a wide range of experiences NIECE provides specialised training in Children’s Services in their early learning environment. qualifications to an average of 2,300 students at any given time, on a national basis. Over 1,000 students The experiences offered by the early learning environment, the have successfully graduated with Children’s Services daily routine and the interactions with educators all contribute qualifications in the previous year. to create a supportive, stimulating and challenging program. Trainers/assessors are based in nine locations around Within the environment a range of activities are offered Australia, delivering courses to full-time and external that actively engage children to enhance all areas of their students. NIECE’s unique delivery model allows external development, promote confidence and independence students to access regular workshops in metropolitan and and assist them in transitioning to their first year of regional locations as well as receive one-on-one mentoring. compulsory schooling. NIECE has been awarded DET-funded User Choice contracts The ABC LifeSmart Curriculum has a significant focus to deliver training services to trainees and apprentices in on literacy, numeracy and computer skills development. Queensland, New South Wales, Victoria, Tasmania, South It also includes: Australia, Western Australia and the Northern Territory. – Letterland – a phonemic awareness program to Trainees and apprentices equate to almost one-third of promote early literacy skills; enrolled students, the remainder being self-funded students who select NIECE as their provider of choice. – Broadlearn – a specialised program for children to develop computer skills using a digital library of over NIECE is firmly established as a nationally Recognised 300 learning activities; Training Organisation and is the largest private provider delivering the Certificate lll, Diploma and Advanced Diploma – Behavioural Learning – a special program for children in Children’s Services. to facilitate positive peer interactions and to assist children with self-regulation and behaviour management; ABC LifeSmart Curriculum – Australia/New Zealand This year, while experiencing exceptional growth both in the – Read for 10 – a reading program for families which has quantity and the types of early learning services we have been developed by the ABC Education Department in acquired, we have focused specific attention on improving conjunction with the Dymocks Literacy Foundation and our exciting and innovative programs and educational services. the National Institute of Early Childhood Education; and The introduction of the ABC LifeSmart Curriculum has been – Hold on Tight, Stay in Sight – a program developed by an educational initiative developed to further enhance the the ABC Education Department to encourage all children educational programs currently offered in the oldest age group and families to be conscious of car safety in driveways. classrooms at ABC Learning Centres. The curriculum meets and extends on the varying legislative requirements of each state and territory of Australia and the Te Whariki guidelines established by the New Zealand Ministry of Education.12
  • 15. To help support each of these exciting new initiatives, the – Biometric access systems – fingerprint identityABC Education Department has launched its own site verification to provide our families with an added senseon the ABC Learning Centre’s intranet. This site provides of security;additional support for centre personnel with each of these – Next Generation Application data solution – whichnew programs and offers additional advice for program gives both parents and centre staff the ability toplanning and implementation. seamlessly interact over the internet;Each and every one of these projects is very special. – PeopleSoft – designed to improve internal supportEach project has been specifically developed to extend systems and provide up-to-date human resourcesthe educational opportunities for children and to increase functions, as well as serving as a portal for company-their learning outcomes. wide information; andABC has been developing and providing early childhood – Galileo educational software – helping teaching staffprograms for the past 18 years. The launch of our new ABC tailor their educational program to the unique needs ofLifeSmart Curriculum is a further example of our dedication the classroom and individual students.to the ongoing development of educational programs for thechildren in our care. The proprietary curriculum at Learning Care Group is one of our key differentiators and strengths. The TutorEducation and Curriculum – United States Time LifeSmart™ and Childtime The Empowered Child™Learning Care Group is committed to providing our families educational offerings help inspire a lifelong love of learning.with the best care, staff and centres. To ensure we have We are currently in the process of providing all our teachingachieved all of these goals, we are taking steps that will staff with additional training on this curriculum, makinghelp our schools through the accreditation process, either this the first time that Learning Care Group has made theon a national or local level. These certifications may come financial commitment to bring teachers together from anfrom the National Association for the Education of Young entire area and train them using a professional resource.Children (NAEYC), the National Early Childhood ProgramAccreditation (NECPA) or other state governing agencies. Recently, we completed a pilot of the online lesson planning portion of our new Curriculum Embedded AssessmentThe government relations department at Learning Care System. The teachers were very receptive, reporting thatGroup has been very involved with the Early Care and lesson planning was more enjoyable and saved them time.Education Consortium, with one of our staff members Teachers will begin using this system company-wide inserving as the committee’s president. Our team continues December.to strengthen its legislative relationships and raise awarenesson the issues affecting early education providers, ensuring Through extensive market research, Learning Care GroupLearning Care Group has a strong voice in the field. has seen more and more parents turn to online/web-based resources when considering an early education providerTo be a leader in the early education field, it is imperative for their child. We will continue to explore e-marketingto utilise state-of-the-art technology and to streamline opportunities to ensure that Learning Care Group and itsprocesses. We are currently in the process of testing and brands are providing our target web-based audience withinstalling a variety of technology enhancements, including: the information they need in a user-friendly format. 13
  • 16. Board of Directors Mrs Sallyanne Atkinson AO Mr Edmund Groves Dr Le Neve Groves Mr Martin Kemp Chairman CEO Operations (Global) CEO Education Executive Director CEO Operations Sallyanne Atkinson is a Eddy Groves is co-founder Le Neve Groves is co- (Australia and former Lord Mayor of of ABC and was the founder of ABC, CEO of New Zealand) Brisbane, Australian Senior architect behind ABC’s Education and Principal Trade Commissioner to listing on the ASX in 2001. of the National Institute of Martin Kemp has 16 years’ Paris and Chairman of He is renowned as one Early Childhood Education experience in childcare and Queensland Tourism. of Australia’s business (formerly ABC Early has, in that time, co-founded She is a director of several leaders and brings over Childhood Training College). a number of childcare groups public companies and 18 years’ experience in the Le Neve holds several early including Premier Early associations, including childcare industry. Eddy childhood qualifications, Learning Centres. He has APN News & Media has primary responsibility including a Diploma of owned, managed, operated, Limited and The Australian for financial and operational Teaching Primary/Preschool, acquired or developed Ballet. She is chairman matters. He also provides Bachelor of Education, over 300 childcare centres of the Federal Ministerial industry acknowledged Master of Education and throughout Australia and Taskforce on Dementia skills in acquisition strategy, a PhD in Education. New Zealand. and of the Crawford Fund centre location and design, Le Neve assists in the Martin holds a Bachelor of (Qld). Sallyanne is also a business development and development of and Engineering (Hons) degree Special Representative for corporate strategic planning. oversees all early childhood and a Masters of Engineering Queensland, South East He is among Australia’s philosophies, policies and Science degree and is a Asia in the Queensland leading public speakers and practices in the ABC Group. member of the Institution State Government. regularly addresses a range Since the inception of ABC of Engineers Australia. of business and childcare Among Sallyanne’s many Developmental Learning He has extensive project industry forums and events. achievements, she has Centres, Le Neve has management experience in received several awards supported the design and multi-million dollar projects including Officer of the implementation of ABC’s around Australia. Order of Australia and high quality programs for Martin has been a member recently was awarded which we have received 17 of the Commonwealth Child an Honorary Doctorate industry awards. Le Neve Care Advisory Council, by the Australian Catholic is also the Chairman of President of the Queensland University. She is a Fellow ABC’s risk management Professional Child Care of the Australian Institute committee. Centres Association, of Management, Australian Le Neve, a member of President of the Australian Institute of Company the Stronger Families and Confederation of Child Care, Directors and Australian Communities Partnership President of the Queensland Institute of Planning. established in 2004 by Private Child Care Centres Sallyanne holds a Bachelor the Commonwealth Employers Organisation and of Arts degree from the Government, is also a Foundation Board Member University of Queensland. Queensland State Director of the Australian Childcare for Young Media Australia. Centres Association (federal employer organisation).14
  • 17. Mr William Bessemer Mr David Ryan AO The Hon. Lawrence AnthonyNon-Executive Director Non-Executive Director Non-Executive DirectorBill Bessemer is currently David Ryan is the Chairman Larry Anthony is currently aChairman of Austock Group of Tooth & Co and other board member of LearningLimited and Australia Pacific Residual Assco Group Care Group, Inc, MacquarieExchange Limited and is a Limited group companies. Media Group, Indue Ltddirector of public company He is also a non-executive and the National ChairmanTimbercorp Limited. director of Transurban for the Duke of Edinburgh’s Group and Lend Lease Awards Australia.He has extensive experience Corporation Limited, asand practical corporate Larry has vast experience well as a member of theskills covering debt and in government sectors Advisory Board of Virginequity raisings, financial and finance including roles Management Asia-Pacificstructuring, mergers, with Merrill Lynch and Pty Ltd and a memberacquisitions and business Potter Warburg. He is a of the Advisory Board ofrecoveries. former Federal Minister for Caliburn Partnership. Children and Youth Affairs,Bill holds a Bachelor of David has extensive Community Services andEconomics degree from the business experience the Parliamentary SecretaryUniversity of Queensland, through his current and for Trade. He is also involveda Master of Business former roles which include with various charitiesAdministration degree from holding senior executive across Australia.the University of Melbourne management positions inand is a Certified Practising Larry holds a Bachelor public companies and beingAccountant. of Commerce degree from a member of a number of the University of New South public company boards. Wales, a diploma from David is well credentialed the Australian Institute to provide support to of Company Directors, a the ABC board as a diploma of Applied Finance Non-Executive Director. and Investment and is a Member of the Banking and Securities Institute of Australia and Australian Institute of Company Directors. 15
  • 18. 16
  • 19. A.B.C. Learning Centres LimitedAnnual Financial Report for the year ended 30 June 200618 Corporate Governance Statement23 Directors’ Report36 Auditors’ Independence Declaration37 Independent Audit Report39 Directors’ Declaration40 Income Statements41 Balance Sheets42 Statement of Changes in Equity44 Cash Flow Statements45 Notes to the Financial Statements98 Additional Stock Exchange Information 17
  • 20. Corporate Governance Statement Corporate Governance 3. within the last three years has not been employed in an The Company is committed to implementing the highest executive capacity by the Company or another group standards of corporate governance. In determining what those member, or been a Director after ceasing to hold any such high standards should involve the Company has turned to the employment; ASX Corporate Governance Council’s Principles of Good 4. within the last three years has not been a principal of a Corporate Governance and Best Practice Recommendations. material professional adviser or a material consultant to the The Company is pleased to advise that the Company’s policies Company or another group member, or an employee are consistent with those ASX guidelines. materially associated with the service provided; Where the Company’s corporate governance practices do not 5. is not a material supplier or customer of the Company correlate with the practices recommended by the Council, the or another group member, or an officer of or otherwise Company is working towards compliance. associated directly or indirectly with a material supplier 1. Board of Directors or customer; 1.1 Role of the Board 6. has no material contractual relationship with the Company The Board’s role is to govern the Company rather than to or other group member other than as a Director of the manage it. In governing the Company, the Directors must act in Company; the best interests of the Company as a whole. It is the role of senior management to manage the Company in accordance 7. has not served on the Board for a period which could, or with the direction and delegations of the Board and the could reasonably be perceived to, materially interfere with responsibility of the Board to oversee the activities of the Director’s ability to act in the best interests of the management in carrying out these delegated duties. Company; and In carrying out its governance role, the main task of the Board is 8. is free from any interest and any business or other to drive the performance of the Company. The Board must also relationship which could, or could reasonably be perceived ensure that the Company complies with all of its contractual, to, materially interfere with the Director’s ability to act in the statutory and any other legal obligations, including the best interests of the Company. requirements of any regulatory body. The Board has the final A majority of the Board is not made up of independent responsibility for the successful operations of the Company. Directors. The Board currently has three independent Directors To assist the Board carry out its functions, it has a Code of and four non-independent Directors. Conduct to guide the Directors, the Chief Executive Officers, Mr William Bessemer is a Non-Executive Director of the the Chief Financial Officer and other key executives in the Company and is also the Chairman and shareholder of the performance of their roles. Austock Group Limited which owns the Company’s corporate 1.2 Composition of the Board advisors and as such does not meet the Company’s criteria for To add value to the Company the Board has been formed so independence. However, as one of the founding Directors of the that it has effective composition, size and commitment to Company, his experience and knowledge of the Company adequately discharge its responsibilities and duties. The names makes his contribution to the Board such that it is appropriate of the Directors and their qualifications and experience are for him to remain on the Board. stated on pages 25 to 27 along with the term of office held by As the Company is now a global operation, the Board needs to each of the Directors. Directors are appointed based on the carefully consider an appropriate and relevant Board structure specific governance skills required by the Company and on the for the future before it appoints further Directors. independence of their decision-making and judgement. 1.3 Responsibilities of the Board The Company recognises the importance of Non-Executive In general, the Board is responsible for, and has the authority Directors and the external perspective and advice that to determine, all matters relating to the policies, practices, Non-Executive Directors can offer. Mrs Sallyanne Atkinson management and operations of the Company. It is required to (Chairman), Mr William Bessemer, Mr David Ryan and the do all things that may be necessary to be done in order to carry Hon. Larry Anthony are all Non-Executive Directors. In addition out the objectives of the Company. to being Non-Executive Directors, Mrs Sallyanne Atkinson, Mr David Ryan and the Hon. Larry Anthony also meet the Without intending to limit this general role of the Board, the following criteria for independence adopted by the Company. principal functions and responsibilities of the Board include the following. An Independent Director: 1. Leadership of the Organisation: overseeing the Company 1. is a Non-Executive Director; and establishing codes that reflect the values of the 2. is not a substantial shareholder of the Company or an Company and guide the conduct of the Board, officer of, or otherwise associated directly with, a substantial management and employees. shareholder of the Company;18
  • 21. 2. Strategy Formulation: working with senior management to 1.4.2 Commitments set and review the overall strategy and goals for the Each member of the Board is committed to spending sufficient Company and ensuring that there are policies in place to time to enable them to carry out their duties as a Director of govern the operation of the Company. the Company.3. Overseeing Planning Activities: overseeing the development 1.4.3 Confidentiality of the Company’s strategic plan and approving that plan as In accordance with legal requirements and agreed ethical well as the annual and long-term budgets. standards, Directors and key executives of the Company have agreed to keep confidential, information received in the4. Shareholder Liaison: promoting effective communications course of the exercise of their duties and will not disclose with shareholders through an appropriate communications non-public information except where disclosure is authorised policy and promoting participation at general meetings of or legally mandated. the Company. 1.4.4 Continuous Disclosure5. Monitoring, Compliance and Risk Management: overseeing The Board has designated the Company Secretary as the the Company’s risk management, compliance, control and person responsible for overseeing and coordinating disclosure accountability systems and monitoring and directing the of information to the ASX as well as communicating with the financial and operational performance of the Company. ASX. In accordance with the ASX Listing Rules the Company6. Company Finances: approving expenses in excess of those immediately notifies the ASX of information: approved in the annual budget and approving and monitoring 1. concerning the Company that a reasonable person would acquisitions, divestitures and financial and other reporting. expect to have a material effect on the price or value of the7. Human Resources: appointing, and, where appropriate, Company’s securities; and removing the Chief Executive Officers (CEOs) and 2. that would, or would be likely to, influence persons who Chief Financial Officer (CFO) as well as reviewing the commonly invest in securities in deciding whether to acquire performance of the CEOs and monitoring the performance or dispose of the Company’s securities. of senior management in their implementation of the Company’s strategy. 1.4.5 Education and Induction New Directors undergo an induction process in which they are8. Ensuring the Health, Safety and Well-Being of Employees: given a full briefing on the Company. This includes meetings in conjunction with the senior management team, with key executives, tours of the premises, an induction developing, overseeing and reviewing the effectiveness of package and presentations. Information conveyed to new the Company’s occupational health and safety systems to Directors include: promote the well-being of all employees. – details of the roles and responsibilities of a Director with an9. Delegation of Authority: delegating appropriate powers to outline of the qualities required to be a successful Director; the CEOs to ensure the effective day-to-day management of the Company and establishing and determining the – formal policies on Director appointment as well as conduct powers and functions of the Committees of the Board. and contribution expectations;Full details of the Board’s role and responsibilities are contained – details of all relevant legal requirements;in the Board Charter, a copy of which is available upon request. – a copy of the Board Charter;1.4 Board Policies – guidelines on how the Board processes function;1.4.1 Conflicts of InterestDirectors must: – details of past, recent and likely future developments relating to the Board including anticipated regulatory changes;– disclose to the Board actual or potential conflicts of interest that may or might reasonably be thought to exist between – background information on and contact information for key the interests of the Director and the interests of any other people in the organisation including an outline of their roles parties in carrying out the activities of the Company; and and capabilities;– if requested by the Board, within seven days or such further – an analysis of the Company; period as may be permitted, take such necessary and – a synopsis of the current strategic direction of the Company reasonable steps to remove any conflict of interest. including a copy of the current strategic plan and annualIf a Director cannot or is unwilling to remove a conflict of budget; andinterest then the Director must, in accordance with the – a copy of the Constitution of the Company.Corporations Act, absent himself or herself from the room whendiscussion and/or voting occurs on matters about which theconflict relates. 19
  • 22. Corporate Governance Statement In order to achieve continuing improvement in Board In addition, consistent with the law, designated officers are performance, all Directors are encouraged to undergo continual prohibited from trading in the Company’s securities while in the professional development. Specifically, Directors are provided possession of unpublished price sensitive information concerning with the resources and training to address skills gaps where the Company. Unpublished price sensitive information is they are identified. information regarding the Company, of which the market is not 1.4.6 Independent Professional Advice aware, that a reasonable person would expect to have a material The Board collectively and each Director has the right to seek effect on the price or value of the Company’s securities. independent professional advice at the Company’s expense, up Notice of an intention to trade must be given prior to trading in to specified limits, to assist them to carry out their the Company’s securities as well as a confirmation that the responsibilities. person is not in possession of any unpublished price sensitive 1.4.7 Related Party Transactions information. The completion of any such trade by a Director Related party transactions include any financial transaction must also be notified to the Company Secretary who in turn between a Director and the Company and will be reported in advises the ASX. writing to each Board meeting. Unless there is an exemption 1.4.10 Performance Review/Evaluation under the Corporations Act from the requirement to obtain Generally, it is the policy of the Board to conduct an evaluation shareholder approval for the related party transaction, the Board of its performance annually. The Board’s performance will be cannot approve the transaction. measured against both qualitative and quantitative indicators. 1.4.8 Shareholder Communication The objective of this evaluation is to provide best practice The Company respects the rights of its shareholders and to corporate governance to the Company. facilitate the effective exercise of those rights the Company is The Board is currently undergoing an independent review of its committed to: performance by external management consultants. 1. communicating effectively with shareholders through 1.4.11 Attestations by CEO and CFO releases to the market via ASX, the Company’s website, In accordance with the Board’s policy, the CEO and the CFO information mailed to shareholders and the general made the attestations recommended by the ASX Corporate meetings of the Company; Governance Council as to the Company’s financial condition 2. giving shareholders ready access to balanced and prior to the Board signing this Annual Report. understandable information about the Company and 2. Board Committees corporate proposals; 2.1 Audit Committee 3. making it easy for shareholders to participate in general Below is a summary of the role, composition and responsibilities meetings of the Company; and of the Audit Committee. Further details are contained in the Audit Committee’s Charter. 4. requesting the external auditor to attend the annual general meeting and be available to answer shareholder questions 2.1.1 Role about the conduct of the audit and the preparation and The Audit Committee is responsible for reviewing the integrity of content of the auditor’s report. the Company’s financial reporting and overseeing the independence of the external auditors. The Company also makes available a telephone number and email address for shareholders to make enquiries of the 2.1.2 Composition Company. During the 2006 financial year, the Audit Committee consisted of three members. The Hon. Larry Anthony was appointed to the 1.4.9 Trading in Company Shares Audit Committee in August 2006. Members are appointed by The Company has a Share Trading Policy under which the Board from amongst the Non-Executive Directors, a majority Directors, members of senior management and other of whom are also independent. The current members of the employees likely to be in possession of unpublished price Audit Committee are Mr David Ryan (Chairman), Mrs Sallyanne sensitive information and their associates may not trade in the Atkinson, Mr William Bessemer and the Hon. Larry Anthony. All Company’s securities during the following “blackout periods” members can read and understand financial statements and are commencing: otherwise financially literate and Mr David Ryan, the Chairman, – 30 days prior to the release by the Company of its is a qualified accountant with experience in financial and half-yearly results to the ASX and concluding two days accounting matters. The details of the member’s qualifications after such release; and may be found in their Director Profiles on pages 25 to 27. – 30 days prior to the release by the Company of its The Audit Committee held two meetings throughout the year annual results to the ASX and concluding two days after and details of attendance of the members of the Audit such release. Committee are contained in the following table.20
  • 23. August 2005 February 2006 2.2.4 Criteria for selection of DirectorsMr David Ryan ✓ ✓ Directors are appointed based on the specific governance skillsMrs Sallyanne Atkinson ✓ ✓ required by the Company. Given the size of the Company andMr William Bessemer ✓ ✓ the business it operates, the Company aims at all times to have at least one Director with experience in the childcare industry.2.1.3 Responsibilities In addition, Directors should have the relevant blend of personalThe Audit Committee reviews the audited annual and half-yearly experience in:financial statements and any reports which accompany – accounting and financial management;published financial statements before submission to the Boardand recommends their approval. – legal skills; andThe Audit Committee also recommends to the Board the – CEO-level business experience.appointment of the external auditor and each year, reviews the 2.2.5 Responsibilities in respect of Remunerationappointment of the external auditor, their independence, the The responsibilities of the Committee include setting policies foraudit fee, and any questions of resignation or dismissal. senior officers’ remuneration, setting the terms and conditions2.2 Nomination and Remuneration Committee of employment for the Chief Executive Officers, reviewing andBelow is a summary of the role, composition and responsibilities making recommendations to the Board on the Company’sof the Nomination and Remuneration Committee. Further details incentive schemes and superannuation arrangements, reviewingare contained in the Nomination and Remuneration Committee’s the remuneration of both Executive and Non-ExecutiveCharter. Directors and making recommendations to the Board on any proposed changes and undertaking an annual review of the2.2.1 Role Chief Executive Officers’ performance, including, setting withThe role of the Nomination and Remuneration Committee is to the Chief Executive Officers goals for the coming year andhelp achieve a structured Board that adds value to the reviewing progress in achieving these goals.Company by ensuring an appropriate mix of skills are present inDirectors on the Board at all time and to assist the Board in 2.2.6 Remuneration Policyfulfilling its responsibilities in respect of establishing appropriate Details of the Board’s policy on remuneration are set out onremuneration levels and incentive policies for employees. pages 27 to 34 of the Directors’ Report which incorporates the Company’s remuneration report.2.2.2 CompositionMrs Sallyanne Atkinson (Chairman), Mr Edmund Groves and 2.3 Risk Management CommitteeMr David Ryan are the current members of the Nomination and Below is a summary of the role, composition and responsibilitiesRemuneration Committee the majority of whom are of the Risk Committee. Further details are contained in the Riskindependent Directors. Committee’s Charter.The Nomination and Remuneration Committee held two 2.3.1 Rolemeetings throughout the year and details of attendance of the The role of the Risk Management Committee is to ensure thatmembers of the Committee are contained in the following table. the Company is able to manage a diverse and complex range of significant risks. The committee is also responsible for September 2005 June 2006 establishing policies on risk oversight and management.Mrs Sallyanne Atkinson ✓ ✓Mr Edmund Groves ✓ ✓ 2.3.2 Composition The members of the Risk Management Committee are:Mr David Ryan ✓ ✓ – Dr Le Neve Groves (Chairman);2.2.3 Responsibilities in respect of NominationsThe responsibilities for nominations include devising criteria for – Mr William Bessemer; andBoard membership, reviewing the need for various skills and – Mr Martin Kemp.experience on the Board and where appropriate identifyingspecific individuals for nomination as Directors for review by the The Risk Management Committee held five meeting during theBoard. The Committee also oversees management succession year and details of attendance of the members of theplans, including the CEO’s and evaluates the Board’s Committee are contained in the following table.performance and makes recommendations for the appointmentand removal of Directors. 21
  • 24. Corporate Governance Statement September 2005 November 2005 February 2006 April 2006 June 2006 Dr Le Neve Groves ✓ ✓ ✓ ✓ ✓ Mr William Bessemer ✓ ✓ ✓ ✓ ✓ Mr Martin Kemp ✓ ✓ ✓ ✓ ✓ 2.3.3 Responsibilities for its part is committed to providing clients, customers and The duties and responsibilities of the Risk Management consumers with fair value. Committee include: Employment Practices (a) Assessing the internal processes for determining and The Company endeavours to provide a safe workplace in which managing key risk areas, particularly: there is equal opportunity for all employees at all levels of the (i) non-compliance with laws, regulations, standards and Company. The Company does not tolerate the offering or best practice guidelines, including environmental and acceptance of bribes or the misuse of Company assets or industrial relation laws; resources. (ii) litigation and claims; and Obligations Relative to Fair Trading and Dealing The Company aims to conduct its business fairly and to (iii) relevant business risks other than those that are dealt compete ethically and in accordance with relevant competition with by other specific Board committees. laws. The Company strives to deal fairly with the Company’s (b) Ensuring that the ABC Group has an effective risk customers, suppliers, competitors and other employees and management system and that major risks to the ABC Group encourages its employees to strive to do the same. are reported at least annually to the Board. Responsibilities to the Community (c) Receiving from management reports on all suspected and As part of the community the Company: actual frauds, thefts and breaches of laws. – is committed to conducting its business in accordance (d) Evaluating the process the ABC Group has in place for with applicable environmental laws and regulations and assessing and continuously improving internal controls, encourages all employees to have regard for the particularly those related to areas of significant risk. environment when carrying out their jobs; (e) Assessing whether management has controls in place for – encourages all employees to engage in activities beneficial unusual types of transactions and/or any potential to their local community; and transactions that may carry more than an acceptable – supports community charities. degree of risk. Responsibility to the Individual (f) Meeting periodically with key management, internal and The Company is committed to keeping private information from external auditors and compliance staff to understand and employees, clients, customers, consumers and investors discuss the ABC Group’s control environment. confidential and protected from uses other than those for which 3. Company Code of Conduct it was provided. As part of its commitment to recognising the legitimate interests Conflicts of Interest of stakeholders, the Company has a Code of Conduct to guide Employees and Directors must avoid conflicts as well as the compliance with legal and other obligations to legitimate appearance of conflicts between personal interests and the stakeholders. These stakeholders include shareholders, interests of the Company. employees, clients, customers, government authorities, creditors and the community as whole. The Code includes the following: How the Company Complies with Legislation Affecting its Operations Responsibilities to Shareholders and the Financial Within Australia, the Company strives to comply with the spirit Community Generally and the letter of all legislation affecting its operations. Outside The Company complies with the spirit as well as the letter of all Australia, the Company will abide by local laws in all countries in laws and regulations that govern shareholders’ rights. The which it operates. Where those laws are not as stringent as the Company has processes in place designed to ensure the Company’s operating policies, particularly in relation to the truthful and factual presentation of the Company’s financial environment, workplace practices, intellectual property and the position and prepares and maintains its accounts fairly and giving of “gifts”, Company policy will prevail. accurately in accordance with the generally accepted accounting and financial reporting standards. How the Company Monitors and Ensures Compliance with its Code Responsibilities to Clients, Customers and Consumers The Board, management and all employees of the Company Each employee has an obligation to use their best efforts to are committed to implementing this Code of Conduct and each deal in a fair and responsible manner with each of the individual is accountable for such compliance. Disciplinary Company’s clients, customers and consumers. The Company measures may be imposed for violating the Code.22
  • 25. Directors’ ReportYour Directors present their Annual Report on the Company and its controlled entities (referred to hereafter as the Group) for thefinancial year ended 30 June 2006.DirectorsThe names of the Directors in office at any time during the year and to the date of this report are:Mrs Sallyanne Atkinson AOMr Edmund S GrovesDr Le Neve A GrovesMr William E BessemerMr Martin Vincent KempMr David John Ryan AOHon. Lawrence James AnthonyDirectors have been in office since the start of the financial year until the date of this report unless otherwise stated.Principal ActivitiesThe principal activities of the Group during the financial year were the provision of childcare services and education.Operating ResultsThe consolidated profit of the Group for the financial year after providing for income tax amounted to $81,110,000(2005: $43,534,000 AIFRS).Dividends Paid or RecommendedThe Directors have declared a fully franked final dividend of 8 cents per share ($31,451,724). The dividends will be franked at a rateof 30%. The final dividend will be paid on 29 September 2006. Dividend Date paid Dividend per share Total dividend Ordinary Shares – 29 September 2005 6 cents $15,036,962 Final dividend for the year ended 30 June 2005 franked to 100% Preference Shares – 30 November 2005 16.9212 cents $2,030,543 Final dividend for the year ended 30 June 2005 franked to 100% Ordinary Shares – 31 March 2006 7 cents $18,417,078 Interim dividend for the year ended 30 June 2006 franked to 100% Preference Shares – 31 May 2006 16.8288 cents $2,019,457 Interim dividend for the year ended 30 June 2006 franked to 100%Review of OperationsA Review of the Operations of the Group during the year ended 30 June 2006 and up to the date of this report appears in theseparate section “Review of Operations” on pages 8 –13.Significant Changes in State of AffairsThe following significant changes in the state of affairs of the Group occurred during the year:(i) On 13 September 2005, the Company issued 10,000,000 ordinary shares at $6.00 per share to raise capital to reduce debt and to fund the Company’s ongoing acquisition program;(ii) On 15 December 2005, the Company issued 37,200,000 ordinary shares at $7.00 to raise funds for the acquisition of the Learning Care Group, Inc. and to fund the Company’s ongoing acquisition program;(iii) On 11 January 2006, the Company acquired the Learning Care Group, Inc. for US$159,100,000;(iv) On 9 May 2006, the Company issued 44,104,239 ordinary shares at an issue price of $7.30 each to a range of institutional and professional investors to refinance the Company’s balance sheet to place the Company in a strong position to take advantage of global acquisition opportunities;(v) In May 2006, the Company acquired Kids Campus Limited for $127,897,000; and(vi) On 14 June 2006, the Company issued 38,087,542 ordinary shares at an issue price of $7.30 each to a range of institutional and professional investors to refinance ABC’s balance sheet to place the Company in a strong position to take advantage of global acquisition opportunities. 23
  • 26. Directors’ Report Significant Events After Balance Date On 7 July 2006 the Company announced an off-market takeover bid of Hutchison’s Child Care Services Ltd for $1.50 per ordinary share. On 25 September 2006 the Company declared the takeover bid unconditional and commenced compulsory acquisition of the remaining shares. On 6 September 2006 the Company acquired 100% of The Children’s Courtyard LLP, the ninth largest childcare provider in the US for US$66 million. No other matter or circumstance has arisen since 30 June 2006 that has significantly affected, or may significantly affect: (a) the Group’s operations in future financial years; or (b) the results of those operations in future financial years; or (c) the Group’s state of affairs in future financial years. Future Developments The likely developments in the operations of the Group and the expected results of those operations in future financial year is the proposed acquisition of a number of childcare centres in locations throughout Australia, New Zealand and the United States of America. The Board expects that the above developments will provide a wider market penetration and enable the Group’s activities to be expanded. Environmental Issues The Group’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory. Options Sign-on options were granted over ordinary shares during the financial year by the Company to the Learning Care Group, Inc. executives in accordance with their employment agreements. The options granted under the employment agreements were: 1. 1,083,000 sign-on options granted to William Davis at an option premium of $0.00 per option and an exercise price of $7.35 per option; 2. 375,145 sign-on options granted to Frank Jerneycic at an option premium of $0.00 per option and an exercise price of $7.35 per option; 3. 334,807 sign-on options granted to Kathy Myers at an option premium of $0.00 per option and an exercise price of $7.35 per option; and 4. 119,239 sign-on options granted to Scott Smith at an option premium of $0.00 per option and an exercise price of $7.35 per option. The options granted will vest at a rate of 20% per annum on each anniversary or at the end of the executives’ compensation period (if the employment agreement is not renewed through to 2011). Option holders do not have any right, by virtue of the option, to participate in any share issue of the Company or any related body corporate or in the interest of any other registered scheme. During and since the end of the financial year no options have been exercised.24
  • 27. Information on DirectorsMrs Sallyanne Atkinson AO Chairman – Non-Executive.Appointed 3 October 2000.Qualifications Bachelor of Arts (University of Queensland), Fellow, Australian Institute of Management, Fellow, Australian Institute of Company Directors, Fellow, Australian Institute of Planning, Fellow, Australian Marketing Institute, Doctor of the University (Hon) Australian Catholic University.Experience Appointed Chairman in November 2000. Former Lord Mayor of Brisbane, Australian Senior Trade Commissioner to Paris and Chairman of Queensland Tourism. Director of several public companies and associations, including APN News & Media Limited and The Australian Ballet. She is chairman of Federal Ministerial Taskforce on Dementia and of the Crawford Fund (Qld). Currently, Special Representative for Queensland, South East Asia in the Queensland Government. Represented Australia on the International Olympic Committee, at major trade and business forums such as the OECD and the International Chamber of Commerce and has spoken at conferences in Europe, Asia and the United States.Interest in shares and options 695,000 ordinary shares.Special Responsibilities Member of the Audit Committee and Chairman of the Nomination and Remuneration Committee.Mr Edmund S Groves Chief Executive Officer – Operations (Global).Appointed 15 August 1997.Qualifications Member, Australian Institute of Company Directors.Experience Co-founder of ABC Developmental Learning Centres Pty Limited in 1988. Controls one of the largest milk distribution operations in Queensland.Interest in shares and options 16,797,500 ordinary shares.Special Responsibilities Primary responsibility for all financial and operational matters and liaising with government and regulatory bodies. Member of the Nomination and Remuneration Committee.Dr Le Neve A Groves Chief Executive Officer – Education.Appointed 15 August 1997.Qualifications Diploma of Teaching Primary/Preschool, Bachelor of Education (University of South Australia), Master of Education (University of South Australia), Doctor of Education (University of South Australia), Member, Australian Institute of Company Directors.Experience Co-founder of ABC Developmental Learning Centres Pty Limited in 1988. Principal of the National Institute of Early Childhood Education (formerly ABC Early Childhood Training College) since its inception in 1996. She is currently a member of the Stronger Families and Communities Partnership established in 2004 by the Commonwealth Government.Interest in shares and options 16,810,500 ordinary shares.Special Responsibilities Develops and oversees all early childhood philosophies, policies and practices of the Group. Designs and implements high quality educational programs for ABC’s Learning Centres. Chairman of the Risk Management Committee. 25
  • 28. Directors’ Report Mr William E Bessemer Non-Executive Director. Appointed 15 August 1997. Qualifications Bachelor of Economics (University of Queensland), Master of Business Administration (University of Melbourne), Certified Practising Accountant. Experience Currently Chairman of Austock Group Limited and Australia Pacific Exchange Limited. He is also a Director of Timbercorp Limited. He has extensive experience covering debt and equity raisings, financial structuring, mergers acquisitions and business recoveries. Interest in shares and options 105,000 ordinary shares. Special Responsibilities Member of the Audit Committee and Risk Management Committee. Mr Martin V Kemp Chief Executive Officer – Operations (Australia and New Zealand). Appointed 28 November 2001. Qualifications Bachelor of Engineering (Hons) (University of Queensland), Master of Engineering Science (University of Sydney), Member of Institution of Engineers, Australia. Experience Owner, operator, manager and developer of childcare centres for 16 years. Project manager for numerous multi-million dollar projects around Australia. He has been a member of the Commonwealth Child Care Advisory Council, President of the Queensland Professional Child Care Centres Association, President of the Australian Confederation of Child Care, President of the Queensland Private Child Care Centres Employers Organisation and a Foundation Board Member of the Australian Childcare Centres Association (federal employer organisation). Interest in shares and options 10,462,259 ordinary shares. 50,000 redeemable converting preference shares. Special Responsibilities Primary responsibility for all development and acquisitions by the Group. Member of the Risk Management Committee. Mr David J Ryan AO Non-Executive Director. Appointed 26 June 2003. Qualifications Bachelor of Business Studies (NSW University of Technology), Fellow, Australian Institute of Company Directors, Fellow, Certified Practising Accountant. Experience Chairman of Tooth & Co and other Residual Assco Group Ltd group companies, Non-Executive Director of Transurban Group and Lend Lease Corporation Limited, member of the Advisory Board of Virgin Management Asia-Pacific Pty Ltd and member of the Advisory Board of Caliburn Partnership. Extensive financial and operational experience through current and former roles including senior executive management positions in public companies and being a member of a number of public company boards. Interest in shares and options 239,595 ordinary shares. Special Responsibilities Chairman of the Audit Committee and a member of the Nomination and Remuneration Committee.26
  • 29. The Hon. Lawrence J Anthony Non-Executive Director.Appointed 16 March 2005Qualifications Bachelor of Commerce (University of New South Wales), Diploma of Applied Finance and Investment, Fellow, Australian Institute of Company Directors, Member, Banking and Securities Institute of Australia,Experience He is currently a Board Member of Learning Care Group, Inc., Macquarie Media Group, Indue Ltd, National Chairman for the Duke of Edinburgh’s Awards Australia and National Chairman of National Credit Union Assn Inc. He has vast experience in government sectors and finance including roles with Merrill Lynch and Potter Warburg. He is a former Federal Government Minister for Children and Youth Affairs, Community Services and Parliamentary Secretary for Trade. He is also involved with various charities across Australia.Interest in shares and options 106,622 ordinary shares.Special responsibilities Member of the Audit Committee.Information on Company SecretaryMs Jillian G Bannan Company Secretary.Appointed 8 March 2004Qualifications Bachelors of Law and Commerce from James Cook University, Queensland, Member of the Queensland Law Society, Affiliate of Chartered Secretaries Australia.Experience She commenced with the Group in February 2003. Prior to joining ABC, she worked as a solicitor in private practice principally in the commercial and corporate law fields.Remuneration ReportThe Directors of the Company present the Remuneration Report prepared in accordance with section 300A of the Corporations Actfor the Company and the consolidated entities for the year ended 30 June 2006.The Company’s remuneration strategy is designed to attract, retain and motivate appropriately qualified and experienced directorsand senior executives. Details of the Company’s remuneration strategy for the 2006 financial year are set out in this RemunerationReport. This Remuneration Report forms part of the Directors’ Report.Non-Executive DirectorsThe fees paid to Non-Executive Directors are set at levels which reflect both the responsibilities of, and the time commitmentsrequired from, each Non-Executive Director to discharge their duties. Fee levels are set having regard to independent professionaladvice and the fees paid by comparable companies. The fees paid to Non-Executive Directors are not linked to the performance ofthe Company.Executive Directors and Senior ExecutivesIn the 2005/2006 year, executive remuneration was comprised of a fixed cash component for Executive Directors and acombination of a fixed cash component and fixed share component for senior executives.In June 2006, shareholders approved a new remuneration structure for Executive Directors at an extraordinary general meeting.Executive Director remuneration under the new structure comprises both a fixed component and an at-risk component which isintended to remunerate executives for increasing shareholder value and for achieving financial targets and business strategies. It isalso designed to attract and retain high calibre executives.An overview of the elements of the 2005/2006 remuneration structure and the new remuneration structure are set out in Tables 1Aand 1B.A more detailed discussion of each element is contained in this Remuneration Report. 27
  • 30. Directors’ Report Table 1A – Overview of Elements of 2005/2006 Remuneration Structure 2005/2006 Australia Discussion in Directors Directors Senior US Senior Remuneration Elements of remuneration Non-Executive Executive Executives Executives Report Fixed remuneration Fees ✓ ✗ ✗ ✗ Pg 28 Salary ✗ ✓ ✓ ✓ Pg 31 Superannuation ✓ ✓ ✓ ✓ Pg 31 Other benefits ✓ ✓ ✓ ✓ Pg 31 At-risk remuneration Short-term incentive ✗ ✗ ✗ ✓ Pg 31 Long-term incentive ✗ ✗ ✗ ✓ Pg 31 Post-employment Notice periods and termination payments ✗ ✓ ✓ ✓ Pg 33 Table 1B – Overview of Elements of New Remuneration Structure 2006/2007 – New Remuneration Structure – Executive Directors Discussion in Directors Remuneration Elements of remuneration Executive Report Fixed remuneration Fees ✗ Pg 31 Salary ✓ Pg 31 Superannuation ✓ Pg 31 Other benefits ✓ Pg 31 At-risk remuneration Short-term incentive ✓ Pg 31 Long-term incentive ✓ Pg 31 Post-employment Notice periods and termination payments ✓ Pg 33 Section 1 – Non-Executive Directors’ Remuneration A. Board Policy on Remuneration – Attracting and retaining high calibre directors Non-Executive Directors’ fees, including committee fees, are set by the Board within the maximum aggregate amount of $400,000 approved by shareholders. This amount was approved in 2003. In order to maintain Non-Executive Directors’ independence and impartiality, their remuneration is not linked to the performance of the Company. In setting fee levels, the Nomination and Remuneration Committee, which makes recommendations to the Board, takes into account: – the Company’s existing remuneration policies; – fees paid by comparable companies; – the general time commitment required from Directors and the risks associated with discharging the duties attaching to the role of Director; and – the level of remuneration necessary to attract and retain Directors of a suitable calibre. Details of the membership of the Nomination and Remuneration Committee and its responsibilities are set out on page 21 of the Corporate Governance Statement. Fees For the 2005/2006 year, Non-Executive Directors received a fee of $40,000 per annum in relation to their services as Directors. The Chairman, taking into account the greater time commitment required, received a fee of $80,000. The Company does not pay additional fees for membership of the Board’s committees. In accordance with rule 7.3(f) of the Company’s Constitution, Directors are also permitted to be paid additional fees for special duties. Such fees are not included in the aggregate remuneration cap approved by shareholders. No such fees were paid during the year. Directors are also entitled to be reimbursed for all business related expenses, including travel on Company business, as may be incurred in the discharge of their duties.28
  • 31. Superannuation contributions are also made on behalf of the Non-Executive Directors in accordance with the Company’s statutorysuperannuation obligations.The Board will continue to review its approach to Non-Executive Director remuneration to ensure it remains in line with generalindustry practice and best practice principles of corporate governance.Retirement BenefitsIn the past, the Company has not paid retirement benefits to Non-Executive Directors. It is not the intention of the Board to initiatepayment of retirement benefits.B. Details of RemunerationDetails of Non-Executive Directors’ remuneration for the year ended 30 June 2006 are set out in the following table. All values are inAustralian dollars unless otherwise stated.Table 2 – Non-Executive Director Remuneration Superannuation Directors’ Fees Contributions1 Other2 Total $ $ $ $S Atkinson (Chairman) 79,999 7,200 – 87,199L J Anthony 39,998 3,600 – 43,598W E Bessemer – – 40,000 40,000D J Ryan 39,998 3,600 – 43,598Total 159,995 14,400 40,000 214,3951 Superannuation contributions made on behalf of Non-Executive Directors to satisfy the Company’s obligations under applicable Superannuation Guarantee legislation.2 Includes the cost of motor vehicles provided by the Company (inclusive of applicable fringe benefits tax).Section 2 – Executive Director and Senior Executive RemunerationThe disclosures in this section relate to the executives listed below, being the Executive Directors and the senior executives withauthority and responsibility for planning, directing and controlling the activities of the Company and the Group during the financialyear. This group of executives are the key management personnel as defined in AASB 124 “Related Party Disclosures” and includesthe five most highly remunerated Company and Group executives during the financial year.Table 3 – Executive Directors and Senior ExecutivesAustraliaExecutive Director/Senior Executive PositionE S Groves Chief Executive Officer – Operations (Global)L A Groves Chief Executive Officer – EducationM V Kemp Chief Executive Officer – Operations (Australia and New Zealand)J M Reynolds Chief Operating OfficerM P Loveday Chief Financial OfficerJ G Bannan Company Secretary and General CounselUnited States of AmericaExecutive Director/Senior Executive PositionW Davis President and Chief Executive OfficerF Jerneycic Chief Financial Officer and TreasurerK Myers Chief Operating OfficerS Smith Human Resources Vice PresidentBoard Policy on Remuneration – Rewarding individual and Company performanceThe remuneration of the Executive Directors and senior executives is designed to reward executives for increasing shareholder valueand for achieving financial targets and business strategies. It is also set to attract, retain and motivate appropriately qualified andexperienced executives. Accordingly, the Board considers it desirable for remuneration packages of Executive Directors and seniorexecutives to include both a fixed component and an at-risk or performance related component (comprising both short-term andlong-term incentives). The Board views the at-risk component as an essential driver of the Company’s high performance culture.Where the Company’s remuneration practices do not correlate with this policy, the Company is working towards compliance. 29
  • 32. Directors’ Report The Nomination and Remuneration Committee has recommended, and the Board has adopted, a policy that remuneration will: (a) reinforce the short, medium and long-term financial targets and business strategies of the Company as set out in the strategic business plans endorsed by the Board; (b) provide a common interest between executives and shareholders; and (c) be competitive in the markets in which the Company operates in order to attract, motivate and retain high calibre executives. Company Performance The benefits to the Company and its shareholders of the Board’s policy on Executive Director and senior executive remuneration are demonstrated by the Company’s growth and development over the last five years. Earnings The Company’s earnings for the five years to 30 June 2006 are summarised in Table 4. Table 4 – Earnings Year ended Year ended Year ended Year ended Year ended 30 June 06* 30 June 05 30 June 04 30 June 03 30 June 02 $’000 $’000 $’000 $’000 $’000 Revenue 631,450 292,700 96,421 40,911 23,838 EBITDA 157,900 68,127 27,727 17,088 9,800 NPAT 81,110 52,337 21,368 12,072 6,858 * 2006 stated under AIFRS. Previous years stated under AGAAP. Shareholder Wealth Table 5 shows the Company’s Total Shareholder Return, basic earnings per share, dividends per share and the share price from 2002 to 2006, all of which are measures of the consequences of Company performance on shareholder wealth. Table 5 – Shareholder Wealth Year ended Year ended Year ended Year ended Year ended 30 June 06 30 June 05 30 June 04 30 June 03 30 June 02* Share price** $6.40 $5.58 $3.70 $3.10 $2.64 Total dividends paid 15 cents 11 cents 10 cents 7 cents 5.6 cents Franked dividends 100% 100% 100% 100% 100% EPS 27.7 cents*** 25.7 cents 17.5 cents 14.0 cents 9.8 cents Total Shareholder Return 17.4% 53.8% 22.6% 20.1% 426.6% * Measures calculated to take into account 5:1 share split which occurred in November 2002. ** The amount disclosed is the closing price of the Company’s shares on the ASX on 30 June of the relevant year. *** 2006 EPS calculated under AIFRS. Previous years calculated under AGAAP. As can be seen from the results provided, the Company has experienced consistent growth in earnings per share of approximately 282% over the last five years, resulting in: – an increase in the Company’s share price; and – EPS average annual increase of 38%. Components of Remuneration Executive Directors As indicated above, the Executive Directors were paid a fixed cash remuneration package for the 2005/2006 year (refer to Table 1A). Each Executive Director currently maintains a shareholding in the Company which is not part of their remuneration package. For two out of the three Executive Directors, this shareholding amounts to over 4% of the issued capital of the Company. This indicates that the Executive Directors have an interest in the long-term outcome for the Company. As the Company has rapidly grown, the Board determined that it was prudent to put in place a more relevant and suitable remuneration structure. This new structure was approved by shareholders at an extraordinary general meeting held on 7 June 2006.30
  • 33. The new remuneration structure for Executive Directors has the following components (refer to Table 1B):1. Fixed remuneration; and2. Performance-based at-risk remuneration, comprising: – Short-Term Incentive (STI) – based on annual performance at an individual, business unit and Company level; and – Long-Term Incentive (LTI) – based on sustained creation of shareholder value over a three year period.The Board aims to achieve a balance between fixed and performance-related components of remuneration that reflect marketconditions at each job and seniority level.The relative proportion of Executive Directors’ total remuneration packages that is performance-based is set out in Table 6 below:Table 6 – Proportion of Fixed and At-Risk Remuneration % of Total Target Remuneration (Annualised) Performance-based Fixed Remuneration Remuneration STI* LTI**Executive Directors 50 25 25* The STIs are based on target.** The LTIs are based on target.The proportion of Total Target Remuneration is based on the various Executive Directors meeting their targeted rewards. Should thestretch rewards be met, the proportion of remuneration which is performance-based will be higher than stated above, in accordancewith the plan rules.Senior Executives (Australia)Remuneration for senior executives in the Australian operations has the following components:1. Fixed remuneration; and2. Fixed number of ordinary shares.This remuneration structure was introduced in 2003 and senior executives entered into five year service agreements on this basis.This structure includes an issue of shares that is not dependent upon the satisfaction of any performance conditions. The rationalebehind this was to encourage the alignment of personal and shareholder interests. The Company believes this policy to have beeneffective in increasing shareholder wealth over the past three years. It is the intention of the Company to introduce a remunerationstructure similar to the new structure in place for Executive Directors which includes short-term and long-term incentives on expiryof the service agreements.Senior Executives (United States of America)Remuneration for senior executives in the US operations has the following components:1. Fixed remuneration; and2. Performance-based at-risk remuneration, comprising: (a) cash bonus – based on annual performance at a Company level; The level of cash bonus payable to the senior executives will be based on a percentage of their salary for achieving percentages of the EBITDA budget goal (and prorated for levels in between) set by the Company at the beginning of the financial year. % of EBITDA Goal Achieved % of Salary 80% or less 0% 90% 25% 100% 50% 110% 75% 120% or more 100% This cash bonus was structured to focus the senior executives’ remuneration on achieving the financial results set by the Company. In assessing whether the senior executives have achieved these goals, the Company will calculate the percentage of EBITDA goal achieved from the Company’s audited financial report. 31
  • 34. Directors’ Report (b) performance share bonus – based on annual performance at a Company level; The performance share bonus is equal to at least 50% of the senior executives’ current fixed remuneration taken as ordinary shares. The price payable for the shares is the market share price on 1 July of the financial year to which the bonus accrues. The performance share bonus is based on the achievement of a percentage of EBITDA budget goal achieved (and prorated for levels in between): % of EBITDA Goal Achieved % of Award Vested 80% or less 0% 90% 50% 100% 100% The rationale behind the performance share bonus was to encourage the alignment of personal and shareholder interests. In assessing whether the senior executives have achieved these goals, the Company will calculate the percentage of EBITDA goal achieved from the Company’s audited financial report. The Board aims to achieve a balance between fixed and performance-related components of remuneration that reflect market conditions at each job and seniority level. The relative proportion of US senior executives’ total remuneration packages that is performance-based is set out in the table below: % of Total Target Remuneration (Annualised) Performance-based Fixed Remuneration Remuneration STI* LTI US Senior Executives 50 50 0 * The STIs are based on target performance. The proportion of total target remuneration is based on the various senior executives meeting their targeted rewards. Should the stretch rewards be met, the proportion of remuneration which is performance-based will be higher than stated above, in accordance with the executives’ employment agreements. Fixed Remuneration – All Executive Directors and Senior Executives The terms of employment for all Executive Directors and senior executives contain a fixed remuneration component. This is expressed as a dollar amount that the executive may take in a form agreed with the Company. Fixed remuneration is made up of base salary, exclusive of superannuation contributions and benefits, including fringe benefits tax. This amount of remuneration is not dependent upon performance and is set by reference to appropriate benchmark information for an individual’s responsibilities, performance, qualifications, experience and location. Service Agreements The remuneration and other terms of employment for Executive Directors and the senior executive team are formalised in their service agreements. Duration of Contract Under the terms of the service agreements: (a) the Executive Directors continue to be employed until their employment is terminated; (b) the senior executives (Australia) have a five year employment term; and (c) the senior executives (United States of America) have a three year employment term.32
  • 35. Notice Periods and Payments on TerminationThe service agreements provide for termination payments to be made in certain circumstances. In particular, the Company mayterminate the employment of:(a) the Executive Directors on six months’ notice; and(b) the Australian and US senior executives on three months’ notice.The Company may make a payment in lieu of notice.In general, a senior executive must give the Company at least 90 days’ notice of resignation. In certain circumstances, such as asubstantial diminution of responsibility, the Company may be deemed to have terminated the employment of the senior executiveand will be liable to make compensation payments.Termination payments payable to the senior executives if the Company terminates their contract of employment will not, in general,exceed 18 months’ fixed salary (except in relation to the US senior executives who, if terminated without cause are entitled to thebalance of their unpaid employment agreement). The Company makes provision for employee entitlements in accordance withapplicable Accounting Standards.Sign-on IncentivesAs part of the acquisition of the Learning Care Group, Inc, an issue of options valued at $5,403,302 (at date of issue) was madeto key US executives as part of their consideration for agreeing to hold office. Such payments were made by the Company tocompensate those US executives for bonuses they forfeited from their previous employer on agreeing to take up employment withthe Company.These options will vest at the rate of 20% per year on each anniversary, or upon earlier cessation of employment (the executives’service agreements have a three year employment term). Shares issued upon exercise of options will rank equally in all respects withexisting fully paid ordinary shares.Remuneration PaidDetails of the remuneration paid to Executive Directors and each of the named senior executives are set out in the following table. Post- Employment Short-Term Employment Benefits Benefits Share-based Payments Primary Incentive Non-Monetary Superannuation Equity (a), Sign-on Fixed Salary Payments Benefits Benefits (b) Share/Units Options Total $ $ $ $ $ $ $Australia (AU$)E S Groves 350,011 – 10,168 31,501 – – 391,680L A Groves 350,011 – 34,350 31,501 – – 415,862M V Kemp 299,988 – – 26,999 – – 326,987J M Reynolds 194,999 – 26,614 17,550 283,800 – 522,963M P Loveday 109,652 – – 9,869 258,000 – 377,521J G Bannan 153,404 – 25,599 9,306 154,800 – 343,109USA (US$)W Davis 186,954 98,000 4,292 3,656 – – 292,902*F Jerneycic 106,354 55,750 – 3,656 – – 165,760*K Myers 106,354 55,750 – – – – 162,104*S Smith 80,096 42,250 – 3,090 – – 125,436*USA (AU$)W Davis – – – – – 3,060,246 3,060,246F Jerneycic – – – – – 1,060,052 1,060,052K Myers – – – – – 946,068 946,068S Smith – – – – – 336,935 336,935* Remuneration accrued since 11 January 2006. 33
  • 36. Directors’ Report In accordance with the requirements of the Accounting Standards, remuneration includes a proportion of the notional value of equity compensation granted or outstanding during the year. The notional value of equity instruments which do not vest during the reporting period is determined as at the grant date and is progressively allocated over the vesting period. The amount included as remuneration is not related to or indicative of the benefit (if any) that individual executives may ultimately realise should the equity instruments vest. The notional value of options as at the date of their grant has been determined in accordance with AASB 2 applying the Black Scholes valuation method and is based on the following assumptions: Grant Date 27 January 2006 Expiry Date 27 January 2011 Price at grant date $7.61 Exercise Price $7.35 Number of options 1,912,191 Dividend Yield 1.84% Volatility 28.992% Risk Free Rate 5.31% Vesting Date 20% on 27 January 2007 20% on 27 January 2008 60% on 27 January 2009 It is the Company’s belief that all US executives will remain in employment with Learning Care Group Inc. for the duration of their contract, and as such, all options will vest according to the conditions of the options granted. Meetings of Directors During the financial year, 19 meetings of directors (including committees) were held. Attendances were: Committee Meetings Nomination and Risk Management Directors’ Meetings Audit Committee Remuneration Committee Committee Number Number Number Number eligible to Number eligible to Number eligible to Number eligible to Number attend attended attend attended attend attended attend attended Sallyanne Atkinson 10 10 2 2 2 2 – – Edmund S Groves 10 10 – – 2 2 – – Le Neve A Groves 10 10 – – – – 5 5 William E Bessemer 10 10 2 2 – – 5 5 Martin V Kemp 10 10 – – – – 5 5 David J Ryan 10 9 2 2 2 2 – – Lawrence J Anthony 10 9 – – – – – – Indemnifying Officers or Auditor During or since the end of the financial year the Company has paid or agreed to pay insurance premiums as follows: The Company has paid premiums to insure each of the Directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of Director of the Company, other than conduct involving a wilful breach of duty in relation to the Company. The policy prohibits the disclosure of the premium paid. The Company has entered into agreements to indemnify officers of the Company against any damages in relation to any act or omission of the officer in fulfilling his/her duties as an officeholder. The agreements provide for the Company to pay all damages and costs which may be awarded against the officer. The indemnity does not apply to the extent that any damages result from any wilful neglect, wilful default or dishonesty by the officer or to any claim by the Company against the officer. Proceedings on Behalf of the Company No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Auditor’s Declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 36.34
  • 37. Non-Audit ServicesThe Board of Directors in accordance with advice from the Audit Committee is satisfied that the provision of the non-audit servicesduring the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. TheDirectors are satisfied that the services disclosed below did not compromise the external auditor’s independence.Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor as outlined innote 5 to the financial statements.Rounding of AmountsThe Company is an entity to which ASIC Class Order 98/100 applies. Accordingly, amounts in the financial statements andDirectors’ Report have been rounded to the nearest thousand dollars.Signed in accordance with a resolution of the Board of Directors.Sallyanne Atkinson AOChairmanEdmund S GrovesDirectorSigned at Brisbane on the 28th day of September 2006 35
  • 38. Independence Declaration to the Directors of A.B.C. Learning Centres Limited AUDITOR’S INDEPENDENCE DECLARATION TO THE DIRECTORS OF A.B.C. LEARNING CENTRES LIMITED As lead engagement partner for the audit of A.B.C. Learning Centres Limited and its controlled entities for the year ended 30 June 2006, I declare that, to the best of my knowledge and belief in relation to the audit, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001; and (b) no contraventions of any applicable code of professional conduct. Pitcher Partners S A Green Partner Brisbane, 28 September 200636
  • 39. Independent Audit Reportto the Members of A.B.C. Learning Centres LimitedINDEPENDENT AUDIT REPORT TO THE MEMBERS OF A.B.C. LEARNING CENTRES LIMITEDScopeThe financial report, remuneration disclosures and directors’ responsibilityThe financial report comprises the income statements, balance sheets, statements of changes in equity, cash flow statementsand the directors’ declaration for both A.B.C. Learning Centres Limited (“the company”) and A.B.C. Learning Centres Limitedand its controlled entities (“the group”) for the year ended 30 June 2006. The group comprises both the company and the entitiesit controlled during that year.The company has disclosed information about the remuneration of key management personnel (“remuneration disclosures”),as required by Accounting Standard AASB 124 Related Party Disclosures under the heading “Remuneration Report” onpages 27–34 of the directors’ report, as permitted by the Corporations Regulations 2001.The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordancewith the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internalcontrols that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherentin the financial report. The directors are also responsible for the remuneration disclosures contained in the directors’ report.Audit approachWe conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted inaccordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the financial report is free ofmaterial misstatement and the remuneration disclosures comply with Accounting Standard AASB 124 and the CorporationsRegulations 2001. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, theinherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannotguarantee that all material misstatements have been detected.We performed procedures to assess whether in all material respects the financial report present fairly, in accordance with theCorporations Act 2001, including compliance with Accounting Standards and other mandatory financial reporting requirements inAustralia, a view which is consistent with our understanding of the company’s and the group’s financial position, and of theirperformance as represented by the results of their operations and cash flows and whether the remuneration disclosures comply withAccounting Standard AASB 124 and the Corporations Regulations 2001.We formed our audit opinion on the basis of these procedures, which included:• examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report and remuneration disclosures; and• assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.While we consider the effectiveness of managements’ internal controls over financial reporting when determining the nature andextent of our procedures, our audit was not designed to provide assurance on internal controls. 37
  • 40. Independent Audit Report to the Members of A.B.C. Learning Centres Limited INDEPENDENT AUDIT REPORT TO THE MEMBERS OF A.B.C. LEARNING CENTRES LIMITED (continued) Independence In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. Audit opinion In our opinion; (1) the financial report of the company and the group is in accordance with: (a) the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and the group’s financial position as at 30 June 2006 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and (b) other mandatory financial reporting requirements in Australia; and (2) the remuneration disclosures that are contained on pages 27–34 of the directors’ report comply with Accounting Standard AASB 124 and the Corporations Regulations 2001. Pitcher Partners S A Green Brisbane, 28 September 2006 Partner38
  • 41. Directors’ DeclarationIn the Directors’ opinion:(a) the financial statements and notes set out on pages 40 to 97 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the Company’s and Group’s financial position as at 30 June 2006 and of its performance, as represented by the results of their operations, changes in equity and their cash flows, for the financial year ended on that date; and(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;(c) the audited remuneration disclosures set out on pages 27 to 34 of the Directors’ Report comply with Accounting Standards AASB 124 “Related Party Disclosures” and the Corporations Regulations 2001.The Directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A ofthe Corporations Act 2001.This declaration is made in accordance with a resolution of the Directors.On behalf of the DirectorsSallyanne Atkinson AOChairmanEdmund S GrovesDirectorBrisbane28 September 2006 39
  • 42. Income Statements For the financial year ended 30 June 2006 Consolidated Company 2006 2005 2006 2005 Note $’000 $’000 $’000 $’000 Revenue 2(a) 592,176 230,621 – – Other income 2(b) 39,274 22,056 67,528 36,212 2 631,450 252,677 67,528 36,212 Changes in inventories of finished goods (14,731) (1,622) – – Employee benefits (240,586) (80,928) (7,631) (4,630) Depreciation and amortisation (15,073) (5,282) (48) (48) Impairment (11,346) (1,603) (1,000) – Finance costs (22,401) (10,022) (19,078) (8,206) Rental and other property expenses (114,631) (59,948) – – Children catering and consumables (27,016) (8,357) – – Advertising and promotions (8,754) (1,350) – – Insurances (6,126) (2,918) (259) (74) Communication (4,893) (2,451) – – Travel (6,867) (2,175) (6) (4) Other (38,608) (15,718) (1,219) (513) Profit before income tax expense 120,418 60,303 38,287 22,737 Income tax expense 3(a) (39,308) (16,769) (4,323) (2,316) Profit from continuing operations 81,110 43,534 33,964 20,421 Profit attributable to members of the parent entity 81,110 43,534 33,964 20,421 Earnings per share: Basic (cents per share) 21 27.7 23.0 Diluted (cents per share) 21 27.7 22.9 Notes to the financial statements are included on pages 45 to 97.40
  • 43. Balance SheetsAs at 30 June 2006 Consolidated Company 2006 2005 2006 2005 Note $’000 $’000 $’000 $’000Current assetsCash and cash equivalents 32 132,470 45,560 57,641 34,189Trade and other receivables 6 114,814 31,139 36,675 7,846Other financial assets 7 252 3,649 – 500Inventories 8 5,453 4,226 – –Other 9 26,160 17,304 1,179 491Total current assets 279,149 101,878 95,495 43,026Non-current assetsTrade and other receivables 6 558 414 55,754 51,544Other financial assets 7 78,367 31,093 1,765,887 807,367Property, plant and equipment 10 241,962 82,714 654 702Deferred tax assets 3 34,579 8,782 14,230 8,744Childcare licences 11 1,343,423 772,697 – –Goodwill 12 313,717 175,187 – –Other intangible assets 13 31,531 664 – –Total non-current assets 2,044,137 1,071,551 1,836,525 868,357Total assets 2,323,286 1,173,429 1,932,020 911,383Current liabilitiesTrade and other payables 14 121,601 52,214 11,444 129Short-term borrowings 15 8,067 4,456 – –Current tax payables 3 14,123 3,061 13,380 2,964Provisions 16 9,540 5,891 – –Other 17 999 – – –Total current liabilities 154,330 65,622 24,824 3,093Non-current liabilitiesLong-term borrowings 15 234,888 246,272 209,107 211,007Deferred tax liabilities 3 77,857 59,649 57,494 56,598Provisions 16 1,999 911 – –Other 17 16,480 5,723 – –Total non-current liabilities 331,224 312,555 266,601 267,605Total liabilities 485,554 378,177 291,425 270,698Net assets 1,837,732 795,252 1,640,595 640,685EquityIssued capital 18 1,635,028 636,145 1,635,028 636,145Reserves 19 109,977 114,033 597 79Retained earnings 20 92,727 45,074 4,970 4,461Total equity 1,837,732 795,252 1,640,595 640,685Notes to the financial statements are included on pages 45 to 97. 41
  • 44. Statement of Changes in Equity For the financial year ended 30 June 2006 Foreign Employee Available- Total Asset currency equity-settled for-sale attributable to Ordinary revaluation translation benefit revaluation Retained equity holders shares reserve reserve reserve reserve earnings of the entity $’000 $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 July 2005 636,145 114,002 31 – – 45,074 795,252 Gain/(loss) on revaluation of licences – (4,139) – – – – (4,139) Related income tax on revaluations – 100 – – 266 – 366 Gain/(loss) on available-for-sale investments – – – – (887) – (887) Translation of asset revaluation reserve – (1,008) – – – – (1,008) Exchange differences arising on translation of foreign operations – – 473 – – – 473 Net income recognised directly in equity – (5,047) 473 – (621) – (5,195) Net profit for the year – – – – – 81,110 81,110 Total recognised income and expense for the year – (5,047) 473 – (621) 81,110 75,915 Transactions with equity holders in their capacity as equity holders Recognition of share-based payments 6,492 – – – – – 6,492 Issue of shares – share placement 994,704 – – – – – 994,704 Issue of shares – dividend reinvestment 11,415 – – – – – 11,415 Transfer from employee equity-settled reserve – – – 1,139 – – 1,139 Share issue costs (19,560) – – – – – (19,560) Related income tax 5,832 – – – – – 5,832 Dividends – – – – – (33,457) (33,457) Total issue of shares 998,883 – – 1,139 – (33,457) 966,565 Balance at 30 June 2006 1,635,028 108,955 504 1,139 (621) 92,727 1,837,732 Notes to the financial statements are included on pages 45 to 97.42
  • 45. Statement of Changes in EquityFor the financial year ended 30 June 2005 Foreign Employee Available- Total Asset currency equity-settled for-sale attributable to Ordinary revaluation translation benefit revaluation Retained equity holders shares reserve reserve reserve reserve earnings of the entity $’000 $’000 $’000 $’000 $’000 $’000 $’000Balance at 1 July 2004 124,879 3,834 37 – – 20,447 149,197Gain/(loss) on revaluationof licences – 165,852 – – – – 165,852Related income tax onrevaluations – (55,684) – – – (55,684)Exchange differencesarising on translation offoreign operations – – (6) – – – (6)Net income recogniseddirectly in equity – 110,168 (6) – – – 110,162Net profit for the year – – – – – 43,534 43,534Total recognised incomeand expense for the year – 110,168 (6) – – 43,534 153,696Transactions with equityholders in their capacityas equity holdersIssue of shares –share placement 400,033 – – – – – 400,033Issue of shares –dividend reinvestment 1,154 – – – – – 1,154Issue of shares – onscheme of arrangement 108,120 – – – – – 108,120Issue of shares –exercise options 8,211 – – – – – 8,211Issue of shares –other (staff) 500 – – – – – 500Transfer from employeeequity-settled reserve – – – – – – –Recognition ofshare-based payments 4,038 – – – – – 4,038Share issue costs (15,090) – – – – – (15,090)Related income tax 4,300 – – – – – 4,300Dividends – – – – – (18,907) (18,907)Total issue of shares 511,266 – – – – (18,907) 492,359Balance at30 June 2005 636,145 114,002 31 – – 45,074 795,252Notes to the financial statements are included on pages 45 to 97. 43
  • 46. Cash Flow Statements For the financial year ended 30 June 2006 Consolidated Company 2006 2005 2006 2005 Note $’000 $’000 $’000 $’000 Cash flow from operating activities Receipts from customers 632,352 236,933 1,015 (162) Payment to suppliers and employees (500,598) (165,061) (1,966) (683) Interest received 4,961 2,354 4,394 1,910 Interest and other costs of finance paid (22,237) (10,022) (18,910) (8,206) Income tax paid (25,412) (21,030) (24,831) (6,152) Net cash provided by/(used in) operating activities 32(e) 89,066 43,174 (40,298) (13,293) Cash flows from investing activities Payment for investment securities (23,832) (3,020) (21,239) (2,737) Proceeds on sale of investment securities 9,601 44,485 – 862 Proceeds from repayment/(amounts advanced to) related party loans 8 9 (502,371) – Proceeds from repayment/(amounts advanced to) related parties 343 (13) – (155,810) Amounts advanced to other parties (24,470) (6,183) (23,987) (3,183) Payment for property, plant and equipment (133,967) (66,034) (937) – Proceeds from sale of property, plant and equipment 27,869 13,546 – – Payment for childcare licences (354,618) (193,066) (3,808) – Proceeds from sale of childcare licences 8,050 – – – Proceeds from/(payments for) other items (1,854) 199 – – Payment for businesses 28 (358,289) (243,888) (340,593) (247,994) Net cash used in investing activities (851,159) (453,965) (892,935) (408,862) Cash flows from financing activities Proceeds from issues of equity securities 994,697 408,742 994,702 408,742 Payment for share issue costs (19,560) (15,091) (19,560) (15,091) Proceeds from borrowings 5,545 114,490 5,483 79,900 Repayment of borrowings (108,532) (33,873) (1,900) – Dividends paid: members of the parent entity (22,041) (17,752) (22,040) (17,752) Net cash provided by financing activities 850,109 456,516 956,685 455,799 Net increase in cash and cash equivalents 88,016 45,725 23,452 33,644 Cash and cash equivalents at the beginning of the financial year 44,131 (1,588) 34,189 545 Effects of exchange rate changes on the balance of cash held in foreign currencies (430) (6) – – Cash and cash equivalents at the end of the financial year 32(a) 131,717 44,131 57,641 34,189 Notes to the financial statements are included on pages 45 to 97.44
  • 47. Notes for the Financial StatementsFor the financial year ended 30 June 2006Note Contents Page1 Summary of Accounting Policies 462 Profit from Operations 533 Income Taxes 544 Key Management Personnel 585 Remuneration of Auditors 626 Trade and Other Receivables 627 Other Financial Assets 638 Inventories 639 Other Current Assets 6310 Property, Plant and Equipment 6411 Childcare Licences 6612 Goodwill 6713 Other Intangible Assets 6814 Trade and Other Payables 6815 Borrowings 6916 Provisions 7017 Other Liabilities 7018 Issued Capital 7119 Reserves 7220 Retained Earnings 7321 Earnings per Share 7322 Dividends 7523 Commitments for Expenditure 7624 Contingent Liabilities and Contingent Assets 7625 Leases 7726 Economic Dependency 7727 Subsidiaries 7828 Acquisition of Businesses 7929 Segment Information 8230 Related Party Disclosures 8331 Subsequent Events 8532 Notes to the Cash Flow Statement 8533 Financial Instruments 8634 Impacts of the adoption of Australian equivalents to International Financial Reporting Standards 8935 Share-based Payments 9636 Additional Company Information 97 45
  • 48. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 1. Summary of Accounting Policies Reporting Standards”, with 1 July 2004 as the date of transition. Statement of compliance Reconciliations and descriptions of the effect of transition from The financial report is a general purpose financial report which previous AGAAP to AIFRS on the Group’s equity and its net has been prepared in accordance with the Corporations Act income are given in note 34. 2001, Accounting Standards and Urgent Issues Group Historical cost convention Interpretations, and complies with other requirements of the These financial statements have been prepared under the law. Accounting Standards include Australian equivalents to historical cost convention, as modified by the revaluation of International Financial Reporting Standards (“AIFRS”). available-for-sale financial assets, financial assets and liabilities Compliance with the AIFRS ensures that the consolidated (including derivative instruments) at fair value through profit or financial statements and notes of the consolidated entity loss, certain classes of property, plant and equipment and comply with International Financial Reporting Standards investment property. Cost is based on the fair values of the (“IFRS”). The parent entity financial statements and notes also consideration given in exchange for assets. comply with IFRS except for the disclosure requirements in IAS 32 “Financial Instruments: Disclosure and Presentation” (b) Principles of consolidation as the Australian equivalent Accounting Standard, AASB 132 A controlled entity is any entity controlled by A.B.C. Learning “Financial Instruments: Disclosure and Presentation” does not Centres Limited. Control exists where A.B.C. Learning Centres require such disclosures to be presented by the parent entity Limited has the capacity to dominate the decision-making in where its separate financial statements are presented together relation to the financial and operating policies of another entity with the consolidated financial statements of the consolidated so that the other entity operates to achieve the objectives of entity. A.B.C. Learning Centres Limited. (a) Basis of accounting The financial statements of the subsidiaries are prepared for the The principal accounting policies adopted in the preparation of same reporting period as the parent Company, using consistent the financial report are set out below. These policies have been accounting policies. consistently applied to all the periods presented, unless All inter-Company balances and transactions between entities in otherwise stated. the Group, including any unrealised profit or losses, have been In the application of AIFRS management is required to make eliminated on consolidation. Where controlled entities have judgements, estimates and assumptions about carrying values entered or left the Group during the year, their operating results of assets and liabilities that are not readily apparent from other have been included from the date control was obtained or until sources. The estimates and associated assumptions are based the date control ceased. on historical experience and various other factors that are (c) Foreign currency translation believed to be reasonable under the circumstance, the results (i) Functional and presentation currencies of which form the basis of making the judgements. Actual Items included in the financial statements of each of the Group’s results may differ from these estimates. The estimates and entities are measured using the currency of the primary underlying assumptions are reviewed on an ongoing basis. economic environment in which the entity operates (“the Revisions to accounting estimates are recognised in the period functional currency”). The consolidated financial statements are in which the estimate is revised if the revision affects only that presented in Australian dollars, which is A.B.C. Learning period, or in the period of the revision and future periods if the Centres Limited functional and presentation currency. revision affects both current and future periods. (ii) Transactions and balances Judgements made by management in the application of AIFRS Foreign currency transactions are translated into the functional that have significant effects on the financial statements and currency using the exchange rates prevailing at the dates of the estimates with a significant risk of material adjustments in the transactions. Foreign exchange gains and losses resulting from next year are disclosed, where applicable, in the relevant notes the settlement of such transactions and from the translation at to the financial statements. year-end exchange rates of monetary assets and liabilities Accounting policies are selected and applied in a manner denominated in foreign currencies are recognised in the income which ensures that the resulting financial information satisfies statement, except when deferred in equity as qualifying cash the concepts of relevance and reliability, thereby ensuring that flow hedges and qualifying net investment hedges. the substance of the underlying transactions or other events Translation differences on non-monetary items, such as equities is reported. held at fair value through profit or loss, are reported as part The Group changed its accounting policies on 1 July 2005 to of the fair value gain or loss. Translation differences on comply with AIFRS. The transition to AIFRS is accounted for in non-monetary items, such as equities classified as accordance with Accounting Standard AASB 1 “First-time available-for-sale financial assets, are included in the fair value Adoption of Australian Equivalents to International Financial reserve in equity.46
  • 49. (iii) Group companies Where an impairment loss subsequently reverses, the carryingThe results and financial position of all the Group entities (none amount of the asset (cash-generating unit) is increased to theof which has the currency of a hyperinflationary economy) that revised estimate of its recoverable amount, but only to thehave a functional currency different from the presentation extent that the increased carrying amount does not exceed thecurrency are translated into the presentation currency as follows: carrying amount that would have been determined had no– assets and liabilities for each balance sheet presented are impairment loss been recognised for the asset (cash-generating translated at the closing rate at the date of that balance sheet; unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately, unless the relevant– income and expenses for each income statement are asset is carried at fair value, in which case the reversal of the translated at average exchange rates (unless this is not a impairment loss is treated as a revaluation increase to the reasonable approximation of the cumulative effect of the extent of previous revaluation increments relating to that specific rates prevailing on the transaction dates, in which case asset. Impairment losses recognised for goodwill are not income and expenses are translated at the dates of the subsequently reversed. transactions); and (f) Provisions– all resulting exchange differences are recognised as a Provisions are recognised when the group has a present separate component of equity. obligation (legal or constructive) as a result of a past event, it isOn consolidation, exchange differences arising from the more likely than not that an outflow of resources embodyingtranslation of any net investment in foreign entities, and of economic benefits will be required to settle the obligation and aborrowings and other currency instruments are taken to reliable estimate can be made of the amount of obligation.shareholders’ equity. When a foreign operation is sold or The amount recognised as a provision is the best-estimate ofborrowings repaid, a proportionate share of such exchange the consideration required to settle the present obligation atdifferences are recognised in the income statement as part of reporting date, taking into account the risks and uncertaintiesthe gain or loss on sale. surrounding the obligation. Where a provision is measured usingGoodwill and fair value adjustments arising on the acquisition of the cash flows estimated to settle the present obligation, itsa foreign entity are treated as assets and liabilities of the foreign carrying amount is the present value of those cash flows.entity and translated at the closing rate. When some or all of the economic benefits required to settle a(d) Borrowing costs provision are expected to be recovered from a third party, theBorrowing costs incurred for the construction of any qualifying receivable is recognised as an asset if it is virtually certain thatasset are capitalised during the period of time that is required to recovery will be received and the amount of the receivable cancomplete and prepare the asset for its intended use or sale. be measured reliably.Other borrowing costs are expensed. Onerous lease contracts(e) Impairment of assets An onerous contract is considered to exist where the Group hasGoodwill, childcare licences and other intangible assets that a contract under which the unavoidable cost of meeting thehave an indefinite useful life are not subject to amortisation and contractual obligations exceed the economic benefits estimatedare tested annually for impairment, or more frequently if events to be received. Present obligations arising under onerousor changes in circumstances indicate that they might be contracts are recognised as a provision to the extent that theimpaired. Other assets are reviewed for impairment whenever present obligation exceeds the economic benefits estimated toevents or changes in circumstances indicate that the carrying be received.amount may not be recoverable. Impairment losses are Restructuringrecognised for the amount by which the asset’s carrying amount A provision for restructuring is recognised when the Group hasexceeds its recoverable amount. The recoverable amount is the developed a detailed formal plan for the restructuring and hashigher of an asset’s fair value less costs to sell and value in use. raised a valid expectation in those affected. It will carry out theFor the purposes of assessing impairment, assets are grouped restructuring by:at the lowest levels for which there are separately identifiablecash inflows which are largely independent of the cash inflows – starting to implement the plan; orfrom other assets or groups of assets (cash-generating units). – announcing its main features to those affected by it.If the recoverable amount of an asset (or cash-generating unit) (g) Segment reportingis estimated to be less than its carrying amount, the carrying A business segment is a group of assets and operationsamount of the asset (cash-generating unit) is reduced to its engaged in providing services that are subject to risks andrecoverable amount. An impairment loss is recognised in profit returns that are different to those of other business segments.or loss immediately, unless the relevant asset is carried at fair A geographical segment is engaged in providing services withinvalue, in which case the impairment loss is treated as a a particular economic environment and is subject to risks andrevaluation decrease to the extent of previous revaluation returns that are different from those of segments operating inincrements relating to that specific asset. other economic environments. 47
  • 50. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 1. Summary of Accounting Policies continued when collection of the full nominal amount is no longer (h) Income tax probable. Receivables are normally on 7 to 30 day terms. The income tax expense or revenue for the period is the tax (j) Property, plant and equipment payable on the current period’s taxable income based on the Land and buildings are measured at cost less accumulated national income tax rate for each jurisdiction adjusted by depreciation. Property improvements are depreciated over the changes in deferred tax assets and liabilities attributable to period of the lease or estimated useful life, whichever is the temporary differences between the tax bases of assets and shorter, using the straight-line method. Plant and equipment is liabilities and their carrying amounts in the financial statements, stated at cost less accumulated depreciation. Cost includes and to unused tax losses. expenditure that is directly attributable to the acquisition of Deferred tax assets and liabilities are recognised for temporary the items. differences at the tax rates expected to apply when the assets Subsequent costs are included in the asset’s carrying amount are recovered or liabilities are settled, based on those tax rates or recognised as a separate asset, as appropriate, only when it which are enacted or substantively enacted for each jurisdiction. is probable that future economic benefits associated with the The relevant tax rates are applied to the cumulative amounts of item will flow to the Group and the cost of the item can be deductible and taxable temporary differences to measure the measured reliably. All other repairs and maintenance are deferred tax asset or liability. Exception is made for certain charged to the income statement during the financial period in temporary differences arising from the initial recognition of an which they are incurred. asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a Land is not depreciated. Depreciation on other assets is transaction, other than a business combination, that at the time calculated using the straight-line method to allocate their of the transaction did not affect either accounting profit or cost, net of their residual values, over their estimated useful taxable profit or loss. lives as follows: Deferred tax assets are recognised for deductible temporary Buildings – over 20 years; differences and unused tax losses only if it is probable that Plant and equipment – over 2 to 15 years; future taxable amounts will be available to utilise those Property improvements – over 20 years; and temporary differences and losses. Motor vehicles under finance lease – over 10 years. Deferred tax liabilities and assets are not recognised for The assets’ residual values and useful lives are reviewed, and temporary differences between the carrying amount and tax adjusted if appropriate, at each balance sheet date. bases of investments in controlled entities where the parent An asset’s carrying amount is written down immediately to its entity is able to control the timing of the reversal of the recoverable amount if the asset’s carrying amount is greater temporary differences and it is probable that the differences than its estimated recoverable amount (note 1(e)). will not reverse in the foreseeable future. Gains and losses on disposals are determined by comparing Current and deferred tax balances attributable to amounts proceeds with carrying amount. These are included in the recognised in equity, consequently require the tax effect to also income statement. be recognised in equity. An item of property, plant and equipment is derecognised upon A.B.C. Learning Centres Limited is the head Company of a disposal or when no future economic benefits are expected to tax consolidated group under the Tax Consolidation Regime. arise from the continued use of the asset. All Australian wholly owned companies in the Group are part of the tax consolidated group and are therefore taxed as a single Revaluations entity. Consequently, A.B.C. Learning Centres Limited is Following initial recognition at cost, land and buildings are responsible for recognising the current and deferred tax assets carried at a revalued amount which is fair value at the date of and liabilities for the tax consolidated group. the revaluation less any subsequent accumulated depreciation on buildings and accumulated impairment losses. The Group has notified the Australian Tax Office that it has formed an income tax consolidated group to apply from Fair value is determined by reference to market-based 30 June 2004. The tax consolidated group has entered a tax evidence, which is the amount for which the assets could be sharing agreement whereby each Company in the group exchanged between a knowledgeable willing buyer and a contributes to the income tax payable in proportion to their knowledgeable willing seller in an arm’s length transaction as at contribution to the net profit before tax of the tax consolidated the valuation date. group. Such amounts are reflected in amounts receivable from Any revaluation surplus is credited to the asset revaluation or payable to other entities in the tax consolidated group. reserve included in the equity section of the balance sheet (i) Receivables unless it reverses a revaluation decrease of the same asset Receivables are carried at nominal amounts less any provision previously recognised in the income statement. for doubtful debts. A provision for doubtful debts is recognised48
  • 51. Any revaluation deficit is recognised in the income statement (ii) Loans and receivablesunless it directly offsets a previous surplus of the same asset in Loans and receivables are non-derivative financial assets withthe asset revaluation reserve. fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods orIn addition, any accumulated depreciation as at revaluation date services directly to a debtor with no intention of selling theis eliminated against the gross carrying amount of the asset and receivable and are normally on seven- to 30-day terms.the net amount is restated to the revalued amount of the asset. They are included in current assets, except for those withUpon disposal, any revaluation reserve relating to the particular maturities greater than 12 months after the balance sheet dateasset being sold is transferred to retained earnings. which are classified as non-current assets. Loans andIndependent valuations are performed with sufficient regularity receivables are included in receivables in the balance sheet.to ensure that the carrying amount does not differ materially (iii) Held-to-maturity investmentsfrom the asset’s fair value at the balance sheet date. Non-derivative financial assets with fixed or determinable(k) Leases payments and fixed maturity are classified as held-to-maturityLeases of property, plant and equipment, where the Group has when the Group has the positive intention and ability to hold tosubstantially all the risks and rewards of ownership are classified maturity. Investments intended to be held for an undefinedas finance leases. Finance leases are capitalised at the lease’s period are not included in this classification.inception at the lower of the fair value of the leased property (iv) Available-for-sale financial assetsand the present value of the minimum lease payments. The Available-for-sale financial assets, comprising principallycorresponding rental obligations, net of finance charges, are marketable equity securities, are non-derivatives that are eitherincluded in current and non-current borrowings as appropriate. designated in this category or not classified in any of the otherEach lease payment is allocated between the liability and categories. They are included in non-current assets unlessfinance charges so as to achieve a constant rate on the finance management intends to dispose of the investment withinbalance outstanding. The interest element of the finance cost is 12 months of the balance sheet date.charged to the income statement over the lease period so as toproduce a constant periodic rate of interest on the remaining Purchases and sale of financial assets that require delivery ofbalance of the liability for each period. The property, plant and assets within the time frame generally established by regulationequipment acquired under finance leases is depreciated over or convention in the market place are recognised on the tradethe shorter of the asset’s useful life and the lease term. date (i.e. the date that the Group commits to purchase the asset). Investments are initially recognised at fair value plusLeases in which a significant portion of the risks and rewards of transaction costs for all financial assets not carried at fair valueownership are retained by the lessor are classified as operating through profit or loss. Financial assets are derecognised whenleases. Payments made under operating leases are charged to the rights to receive cash flows from the financial assets havethe income statement on a straight-line basis over the period of expired or have been transferred and the Group has transferredthe lease. Amounts accrued in respect of rental increases substantially all the risks and rewards of ownership.payable under operating lease commitments in future periodsare classified as other liabilities. Available-for-sale financial assets and financial assets at fair value through profit and loss are subsequently carried at fair(l) Investments and other financial assets value. Loans and receivables and held-to-maturity investmentsThe Group classifies its investments in the following categories; are carried at amortised cost using the effective interestfinancial assets at fair value through profit or loss, loans and method. Realised and unrealised gains and losses arising fromreceivables, held-to-maturity investments and available-for-sale changes in the fair value of the “financial assets at fair valuefinancial assets. The classification depends on the purpose for through profit or loss” category are included in the incomewhich the investments were acquired. Management determines statement in the period in which they arise. Unrealised gainsthe classification of its investments at initial recognition and and losses arising from changes in the fair value ofre-evaluates this designation at each reporting date. non-monetary securities classified as available-for-sale are(i) Financial assets at fair value through profit or loss recognised in equity in the available-for-sale investmentsThis category has two sub-categories: financial assets held for revaluation reserve. When securities classified astrading, and those designated at fair value through profit or loss available-for-sale are sold or impaired, the accumulated fairon initial recognition. A financial asset is classified in this value adjustments are included in the income statement ascategory if acquired principally for the purpose of selling in the gains and losses from investment securities.short term or if so designated by management. The policy of For investments that are actively traded in organised financialmanagement is to designate a financial asset if there exists the markets, fair value is determined by reference to Stockpossibility it will be sold in the short term and the asset is Exchange quoted market bid prices at the close of business onsubject to frequent changes in fair value. Assets in this category the balance sheet date.are classified as current assets if they are either held for tradingor are expected to be realised within 12 months of the balancesheet date. 49
  • 52. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 1. Summary of Accounting Policies continued – the Employee Share Plan, which provides benefits to (m) Borrowings Australian head office employees; and Borrowings are initially recognised at fair value. Borrowings are – the Employee Share Option Plan, which provides benefits to subsequently measured at amortised cost. Any difference the Executives of the US operations. between the proceeds and the redemption amount is recognised in the income statement over the period of the The cost of the equity-settled transactions outlined above are borrowings using the effective interest method. measured by reference to the fair value of the equity instrument at the date at which they are granted. The fair value of share Redeemable converting preference shares are classified as options granted is measured by use of the Black Scholes liabilities. The dividends on these preference shares are model. The expected life used in the model has been adjusted, recognised in the income statement as interest expense. based on management’s best estimate, for the effects of Borrowings are classified as current liabilities unless the Group non-transferability, exercise restrictions and behavioural has an unconditional right to defer settlement of the liability for considerations. The fair value of shares granted is measured at least 12 months after the balance sheet date. using the market price at the date of grant. (n) Trade and other payables The cost of equity-settled transactions is recognised, together Liabilities are recognised for amounts to be paid in the future for with a corresponding increase in equity, over the period in which goods and services received, whether or not billed to the the performance and/or services conditions are fulfilled, ending Group. These liabilities are normally settled on 30 day terms. on the date on which the relevant employee/carer becomes fully (o) Inventories entitled to the award (vesting period). Inventories are measured at the lower of cost and net The dilutive effect, if any, of outstanding options is reflected as realisable value. additional share dilution in the computation of earnings per (p) Employee benefits share (see note 21). (i) Wages and salaries, annual leave and sick leave (q) Cash and cash equivalents Liabilities for wages and salaries, including non-monetary Cash and cash equivalents includes cash on hand, deposits benefits, annual leave and vesting sick leave expected to be held at call with financial institutions, other short-term, highly settled within 12 months of the reporting date are recognised liquid investments with original maturities of three months or in other payables and provisions in respect of employees’ less that are readily convertible to known amounts of cash and services up to the reporting date are measured at the amounts which are subject to an insignificant risk of changes in value, expected to be paid when the liabilities are settled. Liabilities for and bank overdrafts. Bank overdrafts are shown within non-vesting sick leave are recognised when the leave is taken borrowings in current liabilities on the balance sheet. and measured at the rates paid or payable. (r) Revenue recognition (ii) Long service leave Revenue from the rendering of a service is recognised upon The liability for long service leave is recognised in the provision delivery of the service to the customers. for employee benefits and measured as the present value of Interest revenue is recognised on a proportional basis taking expected future payments to be made in respect of services into account the interest rates applicable to the financial assets. provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience Dividend revenue is recognised when the right to receive a of employee departures and periods of service. Expected future dividend has been established. payments are discounted using market yields at the reporting Lease income from operating leases is recognised in income on date on national government bonds with terms to maturity and a straight-line basis over the term of the lease. currency that match, as closely as possible, the estimated future cash outflows. Royalty revenue is recognised when the right to receive the royalty has been established. (iii) Share-based payments The Group makes equity-settled share-based payments only. All revenue is stated net of the amount of goods and services The Group provides benefits to employees and carers in the tax (GST). form of share-based payments, whereby employees and carers (s) Goods and services tax (“GST”) render services in exchange for shares or rights over shares Revenues, expenses and assets are recognised net of the (equity-settled transactions). amount of GST, except where the amount of GST incurred There are currently three types of share-based payments is not recoverable from the taxation authority. In these provided by the Group; circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. – the Carers Share Plan, which provides benefits to the Receivables and payables in the statement of financial position employees of regional management companies; are shown inclusive of GST.50
  • 53. Cash flows are presented on a gross basis. The GST Goodwillcomponents of cash flows arising from investing or financing Goodwill represents the excess of the cost of an acquisitionactivities which are recoverable from, or payable to the taxation over the fair value of the Group’s share of the net identifiableauthority, are presented as operating cash flow. assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included as an(t) Rounding of amounts intangible asset. Goodwill acquired in business combinations isThe parent entity has applied the relief available to it under ASIC not amortised and instead is tested for impairment annually, orClass Order 98/0100 and accordingly, amounts in the financial more frequently if events or changes in circumstances indicatereport and Directors’ Report have been rounded off to the that it might be impaired, and is carried at cost lessnearest $1,000. accumulated impairment losses.(u) Acquisitions of assets For the purpose of impairment testing, goodwill acquired in aThe purchase method of accounting is used for all acquisitions business combination is, from the acquisition date, allocatedof assets (including business combinations) regardless of to each of the Group’s cash-generating units, or groups ofwhether equity instruments or other assets are acquired. Cost is cash-generating units, that are expected to benefit from themeasured as the fair value of the assets given, shares issued or synergies of the combination, irrespective of whether otherliabilities incurred or assumed at the date of exchange plus assets or liabilities of the Group are assigned to those unitscosts directly attributable to the acquisition. Where equity or group of units.instruments are issued in an acquisition, the value of theinstruments is their market price as at the date of exchange, Each unit or group of units to which goodwill is allocated:unless in rare circumstances, it can be demonstrated that the – represents the lowest level within the Group at whichpublished market price as at the date of exchange is an goodwill is monitored for internal management purposes;unreliable indicator of fair value and that other evidence and andvaluation methods provide a more reliable measure of fair value.Transaction costs arising on the issue of equity instruments are – is not larger than a segment based on either the Group’srecognised directly in equity. primary or the Group’s secondary reporting format determined in accordance with AASB 114 “SegmentWhere settlement of any part of cash consideration is deferred, Reporting”.the amounts payable in the future are discounted to theirpresent value as at the date of the acquisition. The discount Otherrate used is the entity’s incremental borrowing rate, being the Other intangible assets include financial, childcare, education,rate at which a similar borrowing could be obtained from an curriculum, trademarks and franchise agreements and areindependent financier under comparable terms and conditions. recorded at cost less amortisation and impairment. Amortisation of other intangible assets is calculated using the straight-lineIdentifiable assets acquired and liabilities and contingent method to allocate their cost over their estimated useful livesliabilities assumed in a business combination are measured as follows:initially at their fair values at the acquisition date, irrespective ofthe extent of any minority interest. The excess of the cost of – curriculum – over 15 yearsacquisition over the fair value of the Group’s share of the – trademarks – over 20 yearsidentifiable net assets acquired is recorded as goodwill. If thecost of acquisition is less than the fair value of the net assets of – franchise agreements – over 15 yearsthe subsidiary acquired, the difference is recognised directly in – financial systems – over 2.5 yearsthe income statement, but only after a reassessment of the (w) Earnings per shareidentification and measurement of the net assets acquired. Basic earnings per share(v) Intangible assets and expenditure carried forward Basic earnings per share is determined by dividing net profitChildcare licences after income tax attributable to members of the Company,Childcare licences are recorded at fair value less any excluding any costs of servicing equity other than ordinarysubsequent accumulated impairment losses. shares, by weighted average number of ordinary sharesChildcare licences are intangible assets and are initially recorded outstanding during the half-year, adjusted for bonus elements inat cost. Childcare licences are acquired and therefore are not ordinary shares issued during the year.internally generated. Subsequent to initial recognition licences are Diluted earnings per sharerecorded at their fair value with reference to an active market. Diluted earnings per share adjusts the figures used in theChildcare licences are also regarded as having an indefinite useful determination of basic earnings per share to take into accountlife as there is no foreseeable limit to the period over which the the finance costs with dilutive potential ordinary shares and theasset is expected to generate net cash inflows for the Group. weighted average number of shares assumed to have beenIntangible assets with an indefinite useful life are not amortised issued for no consideration in relation to dilutive potentialbut are tested for impairment in accordance with note 1(e). ordinary shares. 51
  • 54. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 1. Summary of Accounting Policies continued costs to sell. A gain is recognised for any subsequent increases (x) Contributed equity in fair value less costs to sell of an asset (or disposal group), but Ordinary shares are classified as equity. Preference shares are not in excess of any cumulative impairment loss previously classified as liabilities. recognised. A gain or loss not previously recognised by the date Incremental costs directly attributable to the issue of new shares of the sale of the non-current asset (or disposal group) is or options are shown in equity as a deduction, net of tax, from recognised at the date of derecognition. the proceeds. Incremental costs directly attributable to the issue Non-current assets (including those that are part of a disposal of new shares or options, or for the acquisition of a business, group) are not depreciated or amortised while they are classified are included in the cost of the acquisition as part of the as held for sale. Interest and other expenses attributable to the purchase consideration. liabilities of a disposal group classified as held for sale continue (y) Assets (or disposal groups) held for sale to be recognised. Assets (or disposal groups) are classified as held for sale and Non-current assets classified as held for sale and the assets of a stated at the lower of their carrying amount and fair value less disposal group classified as held for sale are presented separately costs to sell if their carrying amount will be recovered principally from the other assets in the balance sheet. The liabilities of a through a sale transaction rather than through continuing use. disposal group classified as held for sale are presented separately Impairment losses are recognised for any initial or subsequent from the other liabilities in the balance sheet. write down of the asset (or disposal group) to fair value less52
  • 55. Consolidated Company 2006 2005 2006 2005Note 2. Profit from Operations $’000 $’000 $’000 $’000(a) RevenueRevenue from continuing operations consistedof the following items:Revenue from the rendering of services 592,176 230,621 – – 592,176 230,621 – –(b) Other incomeRental revenue:Operating lease rental revenue 525 431 45 45Interest revenue:Bank deposits 4,510 2,354 3,942 1,910Interest-bearing loans 812 – 812 –Controlled entities – – 27,243 11,256 5,322 2,354 31,997 13,166Royalties 5,706 – – –Dividends:Subsidiaries – – 35,486 22,958Other entities 4,325 4 – – 4,325 4 35,486 22,958Other 1,364 – – 2Attributable to:Continuing operations 17,242 2,789 67,528 36,171Gain/(loss) on disposal of property, plant,and childcare licences 22,175 4,726 – 41Gain/(loss) on disposal of investments (143) 14,541 – –Gains attributable to continuing operations 22,032 19,267 – 41Total other income from continuing operations 39,274 22,056 67,528 36,212Total revenue and other income from continuing operations 631,450 252,677 67,528 36,212(c) Profit before income taxProfit/(loss) before income tax has been arrived at aftercharging the following expenses.Finance costs:Interest on loans 17,111 5,558 14,696 4,156Dividends on instruments classified as financial liabilities 4,050 4,050 4,050 4,050Other finance costs 1,240 414 332 –Total finance costs 22,401 10,022 19,078 8,206Net bad and doubtful debts arising from:Other entities 1,062 59 – –Impairment of investments 1,000 1,603 1,000 –Impairment of property, plant and equipment 1,922 – – –Impairment of childcare licences 8,424 – – –Total impairment 11,346 1,603 1,000 – 53
  • 56. Notes for the Financial Statements For the financial year ended 30 June 2006 Consolidated Company 2006 2005 2006 2005 Note 2. Profit from Operations continued $’000 $’000 $’000 $’000 Depreciation of non-current assets 14,233 5,282 48 48 Amortisation of non-current assets 926 – – – Amortisation of onerous contracts (86) – – – 15,073 5,282 48 48 Operating lease rental expenses 93,813 51,439 – – 93,813 51,439 – – Employee benefit expense: Share-based payments: Equity-settled share-based payments 6,492 4,038 6,492 4,038 Executive option plan 1,139 – 1,139 – 7,631 4,038 7,631 4,038 Termination benefits 277 – – – Other employee benefits 232,678 76,890 – 592 Total employee benefits 240,586 80,928 7,631 4,630 Consolidated Company 2006 2005 2006 2005 Note 3. Income Taxes $’000 $’000 $’000 $’000 (a) Income tax recognised in profit Tax expense/(income) comprises: Current tax expense/(income) 39,370 15,836 5,282 2,306 Adjustments recognised in the current year in relation to the current tax of prior years (284) – (144) – Deferred tax expense/(income) relating to the origination and reversal of temporary differences 222 933 (815) 10 Total tax expense/(income) 39,308 16,769 4,323 2,316 Attributable to: Continuing operations 39,308 16,769 4,323 2,316 The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows: Profit from continuing operations 120,418 60,303 38,287 22,737 Profit from operations 120,418 60,303 38,287 22,737 Income tax expense calculated at 30% 36,126 18,091 11,486 6,821 Equity-based payment expenses 2,290 1,211 2,289 1,135 Interest on redeemable converting preference shares 1,215 1,136 1,215 1,136 Dividends from related entities – – (10,646) (6,887) Non-assessable capital gains – (4,952) – – Other non-assessable/non-deductible items (520) 1,252 123 111 Effect on varying rates of tax on overseas income 481 31 – – 39,592 16,769 4,467 2,316 (Over)/under provision of income tax in previous year (284) – (144) – 39,308 16,769 4,323 2,31654
  • 57. The tax rates used in the reconciliations are the corporate tax rates of 30%, 33% and 36.64% payable by Australian, New Zealandand United States of America corporate entities, respectively, on taxable profits under tax laws in each jurisdiction. There has beenno change in Australian and New Zealand corporate tax when compared with previous reporting period. Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000(b) Income tax recognised directly in equityThe following current and deferred amounts were chargeddirectly to equity during the period:Current tax:Share – issue expenses (2,322) (1,155) (2,322) (1,155)Deferred tax:Childcare licence revaluations (100) 55,684 – –Revaluations of available-for-sale securities (266) – (266) –Share issue expenses deductible over five years (3,510) (3,145) (3,510) (3,145) (6,198) 51,384 (6,098) (4,300)(c) Current tax assets and liabilitiesCurrent tax assets:Tax refund receivable – – – – – – – –Current tax payables:Income tax payable attributable to:Parent entity 2,960 1,112 2,960 1,111Entities in the tax consolidated group 10,420 1,849 10,420 1,853Other 743 100 – – 14,123 3,061 13,380 2,964(d) Deferred tax balancesDeferred tax assets comprise:Tax losses – revenue 4,174 – – –Tax losses – capital – – – –Temporary differences 30,405 8,782 14,230 8,744 34,579 8,782 14,230 8,744Deferred tax liabilities comprise:Temporary differences 77,857 59,649 57,494 56,598 77,857 59,649 57,494 56,598 55
  • 58. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 3. Income Taxes continued Taxable and deductible temporary differences arise from the following: Consolidated Opening Charged Charged Acquisitions/ Closing balance to income to equity disposals Other balance 2006 $’000 $’000 $’000 $’000 $’000 $’000 Gross deferred tax liabilities: Licences (57,119) – 100 – – (57,019) Property, plant and equipment (2,110) (1,409) – (16,707) – (20,226) Other items (420) 283 – (475) – (612) (59,649) (1,126) 100 (17,182) – (77,857) Gross deferred tax assets: Share issue expenses 4,216 – 3,510 – – 7,726 Lease accrual 1,717 1,790 – 2,102 – 5,609 Employee provisions 1,919 (264) – 3,585 – 5,240 Property, plant and equipment (USA) – (31) – 7,519 – 7,488 Tax losses (USA) – (832) – 5,006 – 4,174 Other items 930 241 266 2,905 – 4,342 8,782 904 3,776 21,117 – 34,579 (50,867) (222) 3,876 3,935 – (43,278) Attributable to: Continuing operations (43,278) (43,278) Company Opening Charged Charged Acquisitions/ Closing balance to income to equity disposals Other balance 2006 $’000 $’000 $’000 $’000 $’000 $’000 Gross deferred tax liabilities: Licences – – – – – – Property, plant and equipment – – – – – – Other items – – – – – – – – – – – – Gross deferred tax assets: Share issue expenses 4,216 – 3,510 – – 7,726 Lease accrual – – – – – – Employee provisions – – – – – – Other items 5 815 266 – – 1,086 4,221 815 3,776 – – 8,812 4,221 815 3,776 – – 8,812 Add: Balances recognised in relation to entities in the tax consolidated group: Gross deferred tax assets 5,418 Gross deferred tax liabilities (57,494) (43,264)56
  • 59. Taxable and deductible temporary differences arise from the following: Consolidated Opening Charged Charged Acquisitions/ Closing balance to income to equity disposals Other balance2005 $’000 $’000 $’000 $’000 $’000 $’000Gross deferred tax liabilities:Licences (1,435) – (55,684) – – (57,119)Property, plant and equipment (1,292) (818) – – – (2,110)Other items (229) 992 – (1,183) – (420) (2,956) 174 (55,684) (1,183) – (59,649)Gross deferred tax assets:Share issue expenses 1,071 – 3,145 – – 4,216Lease accrual 647 1,070 – – – 1,717Employee provisions 95 521 – 1,303 – 1,919Property, plant and equipment (USA) – – – – – –Tax losses (USA) – – – – – –Other items 18 (2,698) – 3,610 – 930 1,831 (1,107) 3,145 4,913 – 8,782 (1,125) (933) (52,539) 3,730 – (50,867)Attributable to:Continuing operations (50,867) (50,867) Company Opening Charged Charged Acquisitions/ Closing balance to income to equity disposals Other balance2005 $’000 $’000 $’000 $’000 $’000 $’000Gross deferred tax liabilities:Licences – – – – – –Property, plant and equipment – – – – – –Other items – – – – – – – – – – – –Gross deferred tax assets:Share issue expenses 1,071 – 3,145 – – 4,216Lease accrual – – – – – –Employee provisions – – – – – –Other items 15 (10) – – – 5 1,086 (10) 3,145 – – 4,221 1,086 (10) 3,145 – – 4,221Add: Balances recognised in relation toentities in the tax consolidated group:Gross deferred tax assets 4,523Gross deferred tax liabilities (56,598) (47,855) 57
  • 60. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 4. Key Management Personnel Details of Key Management Personnel The Key Management Personnel of A.B.C. Learning Centres Limited during the year were: – Mrs S Atkinson AO (Chairman – Non-Executive) – Mr E S Groves (Chief Executive Officer – Operations (Global)) – Dr L A Groves (Chief Executive Officer – Education) – Mr W E Bessemer (Non-Executive Director) – Mr M V Kemp (Chief Executive Officer – Operations (Australia and New Zealand)) – Mr D J Ryan (Non-Executive Director) – Hon. L J Anthony (Non-Executive Director) – Ms J M Reynolds (Chief Operating Officer) – Mr M P Loveday (Chief Financial Officer) – Ms J G Bannan (Company Secretary and General Counsel) – Mr W Davis (President and Chief Executive Officer – Learning Care Group Inc.) – Mr F Jerneycic (Chief Financial Officer and Treasurer – Learning Care Group Inc.) – Mrs K Myers (Chief Operating Officer – Learning Care Group Inc.) – Mr S Smith (Human Resources Vice President – Learning Care Group Inc.) (a) Key Management Personnel compensation The aggregate compensation of the Key Management Personnel of the Group and the Company is set out below: Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Australia Short-term employee benefits 1,755 1,692 200 166 Post-employment benefits 141 148 14 15 Share-based payment 697 946 697 946 2,593 2,786 911 1,127 United States of America (AUD) Short-term employee benefits 999 – – – Post-employment benefits 14 – – – Share-based payment 5,403 – 5,403 – 6,416 – 5,403 – The Company has taken advantage of the relief provided by ASIC Class Order 06/50 and has transferred the detailed Key Management Personnel remuneration disclosures to the Directors’ Report. The relevant information can be found in remuneration report on pages 27 to 34. (b) Executive share options of A.B.C. Learning Centres Limited Balance Balance at Granted as Net other Balance at Vested at 1 July 2005 remuneration Exercised change 30 June 2006 30 June 2006 2006 No. No. No. No. No. No. W Davis – 1,083,000 – – 1,083,000 – F Jerneycic – 375,145 – – 375,145 – K Myers – 334,807 – – 334,807 – S Smith – 119,239 – – 119,239 – – 1,912,191 – – 1,912,191 –58
  • 61. Executive share options of A.B.C. Learning Centres Limited Balance Balance at Granted as Net other Balance at vested at 1 July 2004 remuneration Exercised change 30 June 2005 30 June 20052005 No. No. No. No. No. No.Nil – – – – – – – – – – – – – – – – – –An initial incentive award of options valued at $5,403,302 were provided to the senior executives of the Learning Care Group, Inc. inreturn for the execution of their employment agreements.These options will vest at the rate of 20% per year on each anniversary, or upon earlier cessation of employment. Shares issuedupon exercise of options will rank equally in all respects with existing fully paid ordinary shares.Further details on options provided as remuneration and shares issued on the exercise of such options, together with the terms andconditions of the options can be found in the remuneration report on pages 27 to 34 of the Directors’ Report.The following share-based payment arrangements were in existence during the period:Options series Number Grant date Expiry date Exercise price $1 1,912,191 27-Jan-06 27-Jan-11 7.35In accordance with the terms of the share-based payment arrangement, options issued on 27 January 2006 vest as detailed below:– 382,438 options vest on 27 January 2007– 382,438 options vest on 27 January 2008– 1,147,315 options vest on 27 January 2009For further detail on the policy for options granted refer to the remuneration report on pages 27 to 34 of the Directors’ Report.The weighted average fair value of the share options granted during the financial year is $5,403,302 (2005: nil). Options were pricedusing a Black Scholes Option Valuation Formula. Where relevant, the expected life used in the model has been adjusted based onthe details as follows:The model inputs for options granted during the year ended 30 June 2006 included:(a) Grant date share price: $7.61(b) Exercise price: $7.35(c) Expected volatility: 28.992%(d) Option life: 5.00274 years(e) Dividend yield: 1.84%(f) Risk-free interest rate: 5.31%The following reconciles the outstanding share options granted under the ABC Executive option plan at the beginning and end ofthe financial year: 2006 2005 Number of Weighted average Number of Weighted average options exercise price options exercise price No. $ No. $Balance at beginning of the financial year –Granted during the financial year 1,912,191 7.35 2,550,000 3.22Forfeited during the financial year – – –Exercised during the financial year (i) – – (2,550,000) –Expired during the financial year – – – –Balance at end of the financial year 1,912,191 –Exercisable at end of the financial year 1,912,191 – – – 59
  • 62. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 4. Key Management Personnel continued (b) Executive share options of A.B.C. Learning Centres Limited continued (i) Exercised during the financial year The following share options granted under the ABC Directors option plan were exercised during the financial year: 2006 Number exercised Exercise date Share price at exercise date Options series $ Nil – – – 2005 Number exercised Exercise date Share price at exercise date Options series $ S Atkinson 210,000 7-Jun-05 4.92 E S Groves 745,000 9-Mar-05 5.61 L A Groves 745,000 9-Mar-05 5.61 W E Bessemer 105,000 7-Jun-05 4.92 M V Kemp 640,000 9-Mar-05 5.61 D J Ryan 105,000 7-Jun-05 4.92 2,550,000 (c) Fully paid ordinary shares of A.B.C. Learning Centres Limited Balance at Granted as Received on Balance at 1 July 2005 remuneration exercise of options Net other change 30 June 2006 2006 No. No. No. No. No. Directors of A.B.C. Learning Centres Limited Ordinary shares S Atkinson 695,000 – – – 695,000 E S Groves 18,595,000 – – (1,797,500) 16,797,500 L A Groves 18,608,000 – – (1,797,500) 16,810,500 W E Bessemer 105,000 – – – 105,000 M V Kemp 9,099,545 – – 1,362,714 10,462,259 D J Ryan 235,000 – – 4,595 239,595 L J Anthony 25,000 – – 81,622 106,622 Other Key Management Personnel of the Group Ordinary shares J M Reynolds 112,035 55,000 – (66,200) 100,835 M P Loveday 50,000 50,000 – (100,000) – J G Bannan 30,000 30,000 – (33,000) 27,000 W Davis – – – 229,000 229,000 F Jerneycic – – – 20,000 20,000 K Myers – – – 20,000 20,000 S Smith – – – 15,000 15,00060
  • 63. Balance at Granted as Received on Balance at 1 July 2004 remuneration exercise of options Net other change 30 June 20052005 No. No. No. No. No.Directors of A.B.C. Learning CentresLimitedOrdinary sharesS Atkinson 500,000 – 210,000 (15,000) 695,000E S Groves 16,033,755 – 745,000 1,816,245 18,595,000L A Groves 17,861,715 – 745,000 1,285 18,608,000W E Bessemer 375,000 – 105,000 (375,000) 105,000M V Kemp 5,459,545 – 640,000 3,000,000 9,099,545D J Ryan 30,000 – 105,000 100,000 235,000L J Anthony – – – 25,000 25,000Other Key Management Personnel ofthe GroupOrdinary sharesJ M Reynolds 56,000 55,000 – 1,035 112,035M P Loveday – 50,000 – – 50,000J G Bannan – 30,000 – – 30,000(d) Redeemable converting preference shares of A.B.C. Learning Centres Limited Balance at Granted as Received on Balance at 1 July 2005 remuneration exercise of options Net other change 30 June 20062006 No. No. No. No. No.M V Kemp 50,000 – – – 50,000 50,000 – – – 50,000 Balance at Granted as Received on Balance at 1 July 2004 remuneration exercise of options Net other change 30 June 20052005 No. No. No. No. No.M V Kemp 50,000 – – – 50,000D J Ryan 40,000 – – (40,000) – 90,000 – – (40,000) 50,000(e) Loans to Key Management PersonnelThere are no loans made or outstanding with Directors and other Key Management Personnel of the Group, including any relatedparties at 30 June 2006 (2005: nil).(f) Other transactions with Key Management PersonnelDuring the year no loans were advanced by the Group to Key Management Personnel (2005: nil). 61
  • 64. Notes for the Financial Statements For the financial year ended 30 June 2006 Consolidated Company 2006 2005 2006 2005 Note 5. Remuneration of Auditors Note $’000 $’000 $’000 $’000 Auditor of the parent entity (i) Audit or review of the financial report 449 229 74 26 Taxation services – 5 – 5 Other assurance services 8 32 – 4 Due diligence – 63 – 63 457 329 74 98 Other auditors (ii) Auditing the financial report 164 – – – 621 329 74 98 (i) The auditor of A.B.C. Learning Centres Limited and Australian subsidiaries is Pitcher Partners, an independent member of Baker Tilly International. (ii) The auditor of Learning Care Group, Inc. is Rehmann Robson, an independent member of Baker Tilly International. Consolidated Company 2006 2005 2006 2005 Note 6. Trade and Other Receivables Note $’000 $’000 $’000 $’000 Current Trade receivables 77,582 14,368 4 – Allowance for doubtful debts (1,463) (188) – – 76,119 14,180 4 – Property settlements receivable 20,892 7,410 – – Deposits (cash under restrictions) (i) 2,069 432 – – Tax related receivable (ii) – – 35,860 7,804 Goods and services tax (GST) recoverable 620 2,313 451 (138) Other receivables 15,114 6,804 360 180 114,814 31,139 36,675 7,846 Non-current Trade receivables 105 – – – 105 – – – Rental bonds 453 414 – – Tax related receivable (ii) – – 55,754 51,544 558 414 55,754 51,544 (i) Security deposits held are classified as a receivable and represent cash held under restrictions. (ii) Tax related receivables relate to subsidiaries.62
  • 65. Consolidated Company 2006 2005 2006 2005Note 7. Other Financial Assets Note $’000 $’000 $’000 $’000CurrentNon-interest-bearing loans at call advanced to:Other entities 252 3,649 – 500Non-currentShares in controlled entities – – 726,568 386,547At fair valueAvailable-for-sale:Shares – Listed entities (i) 2,520 3,037 2,520 2,737Centre development costs 18,663 24,082 3,974 –Other investments (i) 27,847 1,212 25,534 – 46,510 25,294 29,508 –Interest-bearing loans advanced to:Other entities 21,211 – 20,971 –Non-interest-bearing loans advanced to:Subsidiaries – – 980,115 415,398Other entities 8,126 2,762 6,205 2,685 29,337 2,762 1,007,291 418,083 78,367 31,093 1,765,887 807,367(i) The Group holds shares in listed and non-listed entities. At 30 June 2006 and 30 June 2005, it does not consider any of the investments as investments in associates due to the Group not exerting significant influence over the entities and the share holdings being less than 20% of the voting or potential voting power of the investee. Consolidated Company 2006 2005 2006 2005Note 8. Inventories $’000 $’000 $’000 $’000Finished goods:At cost 5,453 4,226 – – 5,453 4,226 – – Consolidated Company 2006 2005 2006 2005Note 9. Other Current Assets $’000 $’000 $’000 $’000Prepayments 16,667 10,944 242 491Land and buildings held for on sale 9,493 6,360 937 – 26,160 17,304 1,179 491 63
  • 66. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 10. Property, Plant and Equipment Consolidated Property Plant and Motor vehicles Freehold Buildings improvements equipment under finance land at cost at cost at cost at cost lease at cost Total $’000 $’000 $’000 $’000 $’000 $’000 Gross carrying amount Balance at 1 July 2004 93 1,238 19,603 19,378 54 40,366 Additions 3 6 36,105 11,492 – 47,606 Disposals – – (1,989) (835) (54) (2,878) Acquisitions through business combinations – – 1,073 8,093 – 9,166 Transfers – (66) 66 – – – Balance at 1 July 2005 96 1,178 54,858 38,128 – 94,260 Additions – 201 75,780 30,495 – 106,476 Disposals (453) (9,180) (3,014) (2,737) – (15,384) Acquisitions through business combinations 15,385 41,892 14,258 12,678 – 84,213 Classified as held for sale (96) (213) – – – (309) Transfers – – 1,220 (1,220) – – Net foreign currency exchange differences 254 558 (121) (13) – 678 Balance at 30 June 2006 15,186 34,436 142,981 77,331 – 269,934 Accumulated depreciation/ amortisation and impairment Balance at 1 July 2004 – 223 1,142 3,207 32 4,604 Disposals – (5) (141) – (32) (178) Acquisitions through business combinations – – 117 1,721 – 1,838 Depreciation expense – 52 2,315 2,915 – 5,282 Balance at 1 July 2005 – 270 3,433 7,843 – 11,546 Disposals – (6) (2,169) (1,035) – (3,210) Acquisitions through business combinations – 2,073 362 1,046 – 3,481 Classified as held for sale – (8) – – – (8) Impairment losses charged to profit (i) – – 1,890 32 – 1,922 Depreciation expense – 496 5,703 8,034 – 14,233 Net foreign currency exchange differences – 38 – (30) – 8 Balance at 30 June 2006 – 2,863 9,219 15,890 – 27,972 Net book value As at 30 June 2005 96 908 51,425 30,285 – 82,714 As at 30 June 2006 15,186 31,573 133,762 61,441 – 241,96264
  • 67. Company Property Plant and Motor vehicles Freehold Buildings improvements equipment under finance land at cost at cost at cost at cost lease at cost Total $’000 $’000 $’000 $’000 $’000 $’000Gross carrying amountBalance at 1 July 2004 – 965 – – – 965Balance at 1 July 2005 – 965 – – – 965Additions – – – – – –Disposals – – – – – –Balance at 30 June 2006 – 965 – – – 965Accumulated depreciation/amortisation and impairmentBalance at 1 July 2004 – 214 – – – 214Depreciation expense – 49 – – – 49Balance at 1 July 2005 – 263 – – – 263Depreciation expense – 48 – – – 48Balance at 30 June 2006 – 311 – – – 311Net book valueAs at 30 June 2005 – 702 – – – 702As at 30 June 2006 – 654 – – – 654(i) Impairment losses are included in the line item impairment in the income statement. The impairment losses recognised during the period (2005: nil) relate to write downs of various items of property, plant or equipment that were held by childcare centres that were closed. Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000Aggregate depreciation allocated, whether recognisedas an expense or capitalised as part of the carryingamount of other assets during the year:Buildings 496 52 48 49Property improvements 5,703 2,315 – –Plant and equipment 8,034 2,915 – – 14,233 5,282 48 49On transition to the Australian equivalents to International Financial Reporting Standards (AIFRS) the Group has elected to measurebuildings previously recorded at valuation at the date of transition to AIFRS at its fair value and use that fair value as its deemed costat that date. 65
  • 68. Notes for the Financial Statements For the financial year ended 30 June 2006 Consolidated Company 2006 2006 Note 11. Childcare Licences $’000 $’000 Gross carrying amount Balance at 1 July 2004 235,746 – Additions 108,396 – Acquisitions through business combinations 267,223 – Disposals or classified as held for sale (4,519) – Net revaluation increments/(decrements) 165,851 – Balance at 1 July 2005 772,697 – Additions 359,708 – Acquisitions through business combinations 169,633 – Disposals or classified as held for sale (7,327) – Reclassified from goodwill 62,806 – Balance at 30 June 2006 1,357,517 – Impairment Net adjustment from revaluation increments/(decrements) 5,670 – Impairment losses charged to profit and loss 8,424 – Balance at 30 June 2006 14,094 – Net book value As at 30 June 2005 772,697 – As at 30 June 2006 1,343,423 – (a) Impairment charge The impairment charge relates to childcare centres that were closed during the financial year. (b) Allocation of childcare licences to cash-generating units The Group has identified an individual childcare licence as a cash-generating unit. The recoverable amount of the childcare licence cash-generating unit’s have been determined based on a value in use calculation using cash flow projections from financial budgets approved by management covering a five year period. The discount rate applied to the cash flow projections is 9.5% which reflects with the Group’s weighted average cost of capital (WACC). Applicable growth rates have been applied to the budgeted inflows and outflows for years one to five based on historical information and industry norms. As the life of a childcare licence is indefinite a terminal value has been included based upon the forecasted cash flows at year five. Whilst that each childcare licence is a CGU the note above has been disclosed on an aggregate basis.66
  • 69. Consolidated Company 2006 2005 2006 2005Note 12. Goodwill $’000 $’000 $’000 $’000Gross carrying amountBalance at beginning of financial year 175,187 – – –Additional amounts recognised from businesscombinations occurring during the period 194,052 175,187 – –Effects of foreign currency exchange differences 2,659 – – –Reclassified to childcare licences (62,806) – – –Other 4,625 – – –Balance at end of financial year 313,717 175,187 – –Accumulated impairment lossesBalance at beginning of financial year – – – –Impairment losses for the year – – – –Eliminated on disposal of a subsidiary – – – –Effect of foreign currency exchange differences – – – –Balance at end of financial year – – – –Net book value 313,717 175,187 – –Allocation of goodwill to cash-generating unitsThe Group has identified the following Cash-Generating Units (CGU) to which goodwill has been allocated:– An individual childcare licence– Training college (see note 13)– Wholesaling of education toys– US Childcare Operation– Rights to further acquisitions– Trademark (see note 13)All goodwill is allocated to a cash-generating units on the following basis: Consolidated Company 2006 2005 2006 2005 Note $’000 $’000 $’000 $’000Training college (a) 1,836 – – –Wholesale and education toys (b) 3,259 – – –US Childcare Operations (c) 173,468 – – –Rights to further acquisitions (d) 109,892 175,187 – –Unallocated (e) 25,262 – – –Total 313,717 175,187 – –(a) The recoverable amount of the training college cash-generating unit has been determined based on a value in use calculation using cash flow projections from financial budgets approved by management covering a five year period. For a conservative valuation no growth rate was applied during the five years. The discount rate applied to the cash flow projections was 9.5%.(b) The recoverable amount of the wholesale and education toys cash-generating unit has been determined based on a value in use calculation using cash flow projections from financial budgets approved by management covering a five year period. For a conservative valuation no growth rate was applied during the five years. The discount rate applied to the cash flow projections was 9.5%.(c) The recoverable amount of the US Childcare Operations cash-generating unit has been determined based on a value in use calculation using cash flow projections from financial budgets approved by management covering five years. The discount rate applied to the cash flow projections is 12%. Applicable growth rates have been applied to the budgeted inflows and outflows for years one to five based on historical data and industry norms.(d) The recoverable amount of the rights to further acquisitions cash-generating unit has been determined based on the number of places expected to be acquired over the next three years as a result of the business combination. A profit per place is then applied based on historical data and averages. The discount rate applied in the discounted cash flow calculation was 10.5% which reflects the risk associated with this cash-generating unit.(e) As Kids Campus Limited was acquired on 29 May 2006 a formal allocation of goodwill was not finalised prior to reporting date. 67
  • 70. Notes for the Financial Statements For the financial year ended 30 June 2006 Consolidated Company 2006 2006 Note 13. Other Intangible Assets Note $’000 $’000 Gross carrying amount Balance at 1 July 2004 1,078 – Additions (i) 38 – Acquisitions through business combinations – – Disposals or classified as held for sale – – Net revaluation increments/(decrements) – – Net foreign currency exchange differences – – Other (445) – Balance at 1 July 2005 671 – Additions (i) 2,464 Acquisitions through business combinations (ii) 29,726 – Disposals or classified as held for sale – – Net revaluation increments/(decrements) – – Net foreign currency exchange differences 274 – Reclassified to goodwill (671) – Balance at 30 June 2006 32,464 – Accumulated amortisation and impairment Balance at 1 July 2004 (7) – Amortisation expense – – Impairment losses charged to profit – – Reversals of impairment losses charged to profit – – Net foreign currency exchange differences – – Balance at 1 July 2005 (7) – Amortisation expense (926) – Impairment losses charged to profit – – Reversals of impairment losses charged to profit – – Net foreign currency exchange differences – – Balance at 30 June 2006 (933) – Net book value As at 30 June 2005 664 – As at 30 June 2006 31,531 – (i) Additional intangibles relate to financial, childcare and education systems. (ii) Intangibles acquired through business combination include curriculum, trademarks and franchise agreements. Consolidated Company 2006 2005 2006 2005 Note 14. Trade and Other Payables $’000 $’000 $’000 $’000 Trade payables 13,324 5,431 19 27 Sundry creditors and accrued expenses 108,277 46,783 11,425 102 121,601 52,214 11,444 12968
  • 71. Consolidated Company 2006 2005 2006 2005Note 15. Borrowings Note $’000 $’000 $’000 $’000CurrentSecured (i)At amortised cost (2005: cost):Bank overdrafts 753 1,429 – –Bank loans 87 1,000 – –Other loans (Hire purchase loans) 7,227 2,027 – – 8,067 4,456 – –Non-currentUnsecuredAt amortised cost (2005: cost):Redeemable converting preference shares (ii) 58,107 58,107 58,107 58,107Bank loans (i) 161,786 – 151,000 – 219,893 58,107 209,107 58,107Secured (i)At amortised cost (2005: cost):Bank loans – 184,020 – 152,900Finance lease liabilities 14,981 – – –Hire purchase loans 14 4,145 – – 14,995 188,165 – 152,900 234,888 246,272 209,107 211,007(i) In accordance with the security arrangements of liabilities, the carrying amounts of non-current assets pledged as security are as follows: Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000 First mortgage Freehold land and buildings – 1,004 – 702 Floating charge over assets – 1,058,360 – 860,514 – 1,059,364 – 861,216 The Company’s bankers have provided the Company’s financing facility on an unsecured basis. The Company holds releases for all securities previously held by the banks. These releases have being lodged with the relevant authorities. In the 2005 financial year, the bank borrowings were secured by registered mortgages over the parent entity and each of its controlled entities, and interlocking debt and interest guarantees between the parent entity and each of its controlled subsidiaries, and a registered first mortgage over certain freehold property of a controlled entity. Finance leases and hire purchases are secured by the assets under lease or under hire purchase respectively.(ii) During 2004 $60 million of redeemable converting preference shares were issued, with $7.5 million being initially classified as debt. Transaction costs of $1.893 million were also incurred and offset against the value of the equity portion of the preference shares. Upon transition to AIFRS the equity balance of the redeemable converting preference shares were reclassified from equity to debt and included above. 69
  • 72. Notes for the Financial Statements For the financial year ended 30 June 2006 Consolidated Company 2006 2005 2006 2005 Note 16. Provisions Note $’000 $’000 $’000 $’000 Current Employee benefits 9,071 4,907 – – Restructuring and termination costs (i) 277 984 – – Onerous lease contracts 25 192 – – – 9,540 5,891 – – Non-current Employee benefits 881 911 – – Onerous lease contracts 25 1,118 – – – 1,999 911 – – Consolidated Company Restructuring Restructuring and termination Onerous lease and termination Onerous lease costs(i) contracts costs(i) contracts $’000 $’000 $’000 $’000 Balance at 1 July 2005 984 – – – Additional provision through acquisition of business combinations 277 1,396 – – Reductions arising from payments/other sacrifices of future economic benefits (984) (86) – – Balance at 30 June 2006 277 1,310 – – Current 277 192 – – Non-current – 1,118 – 277 1,310 – – (i) The provision for restructuring and termination costs represents the present value of the directors’ best estimate of the costs directly and necessarily caused by the restructuring that are not associated with the ongoing activities of the entity, including termination benefits, and were an existing liability at date of acquisition. Consolidated Company 2006 2005 2006 2005 Note 17. Other Liabilities $’000 $’000 $’000 $’000 Current Operating lease liability 999 – – – 999 – – – Non-current Operating lease liability 16,480 5,723 – – 16,480 5,723 – –70
  • 73. Consolidated Company 2006 2005 2006 2005Note 18. Issued Capital $’000 $’000 $’000 $’000393,146,555 fully paid ordinary shares (2005: 250,344,916) 1,635,028 636,145 1,635,028 636,145 1,635,028 636,145 1,635,028 636,145 2006 2005 No. No. ’000 $’000 ’000 $’000Fully paid ordinary sharesBalance at beginning of financial year 250,345 636,145 116,428 124,879Issue of shares – Share placement 140,151 994,704 100,008 400,033Issue of shares – Scheme of arrangement – – 30,033 108,120Issue of shares – Dividend reinvestment 1,694 11,415 271 1,154Issue of shares – Carers incentive 625 4,716 406 2,038Issue of shares – Other (staff) 332 1,776 417 2,000Issue of shares – on settlement with vendors – – 231 500Issue of shares – exercise of options – – 2,550 8,211Transaction costs on share issue – (19,560) – (15,090)Tax effect on transaction costs – 5,832 – 4,300Balance at end of financial year 393,147 1,635,028 250,344 636,145Fully paid ordinary shares carry one vote per share and carry the right to dividends.Share optionsAs at 30 June 2006 there are 1,912,191 unvested options which were granted to the executives of Learning Care Group Inc. inaccordance with their employment agreements.During the year ended 30 June 2005 the Directors exercised their remuneration options, converting 2,550,000 ordinary shares at$3.22 per share. 71
  • 74. Notes for the Financial Statements For the financial year ended 30 June 2006 Consolidated Company 2006 2005 2006 2005 Note 19. Reserves $’000 $’000 $’000 $’000 Asset revaluation 108,955 114,002 79 79 Foreign currency translation 504 31 – – Employee equity-settled benefits 1,139 – 1,139 – Available-for-sale revaluation (621) – (621) – 109,977 114,033 597 79 Asset revaluation reserve Balance at beginning of financial year 114,002 3,834 79 79 Revaluation increments/(decrements) on childcare licences (4,139) 165,852 – – Foreign exchange translation (1,008) – – – Deferred tax liability arising on revaluation 100 (55,684) – – Balance at end of financial year 108,955 114,002 79 79 The asset revaluation reserve is used to record increases in the fair value of childcare licences and buildings and decreases to the extent that such decreases relate to an increase on the same asset previously recognised in equity. Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Foreign currency translation reserve Balance at beginning of financial year 31 37 – – Translation of foreign operations 473 (6) – – Balance at end of financial year 504 31 – – The foreign currency translation resulted from differences relating to the translation from US dollars and NZ dollars, being the functional currency of the Group’s foreign controlled entities in the United States of America and New Zealand, into Australian dollars that are brought to account by entries made directly to the foreign currency translation reserve. Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Employee equity-settled benefits reserve Balance at beginning of financial year – – – – Share-based payment 1,139 – 1,139 – Transfer to share capital – – – – Balance at end of financial year 1,139 – 1,139 – The employee equity-settled benefits reserve arises on the grant of share options to the executives under the executive share option plan. Amounts are transferred out of the reserve and into the issued capital when the options are exercised.72
  • 75. Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000Available-for-sale revaluation reserveBalance at beginning of financial year – – – –Restated balance at beginning of financial year – – – –Valuation gain/(loss) recognised (887) – (887) –Cumulative (gain)/loss transferred to the income statementon sale of financial assets – – – –Cumulative (gain)/loss transferred to the income statementon impairment of financial assets – – – –Deferred tax arising on revaluation 266 – 266 –Balance at end of financial year (621) – (621) –Changes in the fair value of investments, such as equities, classified as available-for-sale financial assets, are taken to theavailable-for-sale investments revaluation reserve, as described in note 1(m). Amounts are recognised in profit and loss when theassociated assets are sold or impaired. Consolidated Company 2006 2005 2006 2005Note 20. Retained Earnings Note $’000 $’000 $’000 $’000Balance at beginning of financial year 45,074 20,446 4,461 2,946Net profit attributable to members ofthe parent entity 81,110 43,534 33,964 20,421Dividends paid 22 (33,457) (18,906) (33,455) (18,906)Balance at end of financial year 92,727 45,074 4,970 4,461 Consolidated 2006 2005Note 21. Earnings per Share Cents per share Cents per shareBasic earnings per share:From continuing operations 27.7 23.0Total basic earnings per share 27.7 23.0Diluted earnings per share:From continuing operations 27.7 22.9Total diluted earnings per share 27.7 22.9Basic earnings per shareThe earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: 2006 2005 $’000 $’000Earnings from continuing operations (a) 81,110 43,534Total earnings (a) 81,110 43,534 2006 2005 No. ’000 No. ’000Weighted average number of ordinary shares for the purposes of basic earnings per share 292,937 189,436 73
  • 76. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 21. Earnings per Share continued (a) Earnings used in the calculation of basic earnings per share and total basic earnings per share from continuing operations reconciles to net profit in the income statement as follows: Consolidated 2006 2005 $’000 $’000 Net profit 81,110 43,534 Redeemable converting preference share dividend – – Earnings used in the calculation of basic EPS from continuing operations 81,110 43,534 Total earnings used in the calculation of basic EPS 81,110 43,534 Diluted earnings per share The earnings and weighted average number of ordinary shares used in the calculation of diluted earnings per share are as follows: 2006 2005 $’000 $’000 Earnings from continuing operations (a) 81,110 43,534 Total earnings (a) 81,110 43,534 2006 2005 No.’000 No.’000 Weighted average number of ordinary shares for the purposes of diluted earnings per share (b), (c), (d) 292,937 190,461 (a) Earnings used in the calculation of diluted earnings per share and total diluted earnings per share from continuing operations reconciles to net profit in the income statement as follows: 2006 2005 $’000 $’000 Net profit 81,110 43,534 Redeemable converting preference share dividend – – Earnings used in the calculation of diluted EPS from continuing operations 81,110 43,534 Total Earnings used in the calculation of diluted EPS 81,110 43,534 (b) The weighted average number of ordinary shares for basic earnings per share reconciles to the weighted average number of ordinary shares for the purposes of diluted earnings per share as follows: 2006 2005 No. ’000 No. ’000 Weighted average number of ordinary shares used in the calculation of basic EPS 292,937 189,436 Weighted average number of shares deemed to be issued for no consideration in respect of: Employee options – 1,025 Weighted average number of ordinary shares used in the calculation of diluted EPS 292,937 190,461 (c) The following potential ordinary shares are not dilutive and are therefore excluded from the weighted average number of ordinary shares for the purposes of diluted earnings per share: 2006 2005 No. ’000 No. ’000 Redeemable converting preference shares 12,000 12,000 Executive share option plan 1,912 – 13,912 12,000 (d) Weighted average number of converted, lapsed, or cancelled potential ordinary shares included in the calculation of diluted earnings per share: 2006 2005 No. ’000 No. ’000 Options to purchase ordinary shares pursuant to the executive share option plan – 1,02574
  • 77. Consolidated Company 2006 2005 2006 2005Note 22. Dividends $’000 $’000 $’000 $’000Recognised amountsFully paid ordinary shares2005 Final dividend:Fully franked to 30% (Prior Year fully franked to 30%) 15,037 6,427 15,037 6,4272006 Interim dividend:Fully franked to 30% (Prior Year fully franked to 30%) 18,419 12,479 18,418 12,479 33,456 18,906 33,455 18,906Unrecognised amountsFully paid ordinary shares2006 Final dividend:Fully franked to 30% (Prior Year fully franked to 30%) 31,452 15,037 31,452 15,037 Company 2006 2005 $’000 $’000Adjusted franking account balance 33,095 10,453Impact on franking account balance of dividends not recognised 13,479 6,444Income tax consequences of unrecognised dividends – – 75
  • 78. Notes for the Financial Statements For the financial year ended 30 June 2006 Consolidated Company 2006 2005 2006 2005 Note 23. Commitments for Expenditure $’000 $’000 $’000 $’000 (a) Capital expenditure commitments Plant and equipment Not longer than one year 3,822 – – – Longer than one year and not longer than five years – – – – Longer than five years – – – – 3,822 – – – Intangible assets Not longer than one year 39,475 – – – Longer than one year and not longer than five years – – – – Longer than five years – – – – 39,475 – – – (b) Lease commitments Finance lease liabilities and non-cancellable operating lease commitments are disclosed in note 25 to the financial statements. Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Hire purchase commitments Not longer than one year 7,373 2,027 – – Longer than one year and not longer than five years 14 4,145 – – Longer than five years – – – – 7,287 6,172 – – (c) Centre Development Costs Centre development costs of $206,462,000 have received Board approval but are subject to final contractual arrangements. Note 24. Contingent Liabilities and Contingent Assets The parent entity and Group had contingent liabilities at 30 June 2006 in respect of: (i) Guarantees Bank guarantees in Australia for specific commitments of the Group total $5.9 million. (ii) Guarantees in respect of franchisee lease commitments A subsidiary of the Company is primarily or contingently liable for many of the leases of Tutor Time’s franchisees. In an effort to build its franchisee network, Tutor Time either leased the prospective site for a franchisee, with a subsequent sublease of the site to the franchisee, or provided a lease guarantee to the landlord for the benefit of the franchisee in exchange for a monthly lease guarantee fee payable by the franchisee that is based upon the monthly rent expense of the guaranteed lease. The payments the Company could be required to pay related to leases and guarantees aggregates US$58.3 million and US$10.0 million, respectively, in case of default by the franchisee. Should the Company be required to make payments under these leases, it may assume obligations for operating the centre. Should the centre not be economically viable, the Company will make provision for the lease termination at that time. These guarantees may give rise to liabilities in the parent entity if the subsidiaries do not meet their obligations under the terms of the overdrafts, loans, leases or other liabilities subject to the guarantees. No material losses are anticipated in respect of any of the above contingent liabilities. (iii) Letter of Credit issued to JP Morgan Chase A letter of credit has been issued by the Company’s bankers for US$17 million to secure the Learning Care Group, Inc. bank facility with JP Morgan Chase.76
  • 79. Note 25. LeasesDisclosures for lesseesFinance leasesLeasing arrangementsFinance leases relate to sale and leaseback transactions relating to some childcare centres in the United States of America.Finance lease liabilities Minimum future lease payments Consolidated Company 2006 2005 2006 2005 Note $’000 $’000 $’000 $’000No later than one year 1,519 – – –Later than one year and not later than five years 6,440 – – –Later than five years 24,745 – – –Minimum lease payments (i) 32,704 – – –Less future finance charges 17,723 –Present value of minimum lease payments 15 14,981 – – –(i) Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual.Operating leasesLeasing arrangementsThe economic entity has non-cancellable property leases with varying terms of up to 23 years. All leases provide for additionaloption periods. Contingent rental provisions within the lease agreements provide for increases within the rental structure in line withconsumer price index and market value, subject to review with the landlord. Equipment rental agreements provide for a maximumrental period of three years. Consolidated Company 2006 2005 2006 2005 Note $’000 $’000 $’000 $’000Non-cancellable operating lease paymentsNot longer than one year 110,891 58,891 – –Longer than one year and not longer thanfive years 327,143 197,895 – –Longer than five years 770,919 159,125 – – 1,208,953 415,911 – –In respect of non-cancellable operating leasesthe following liabilities have been recognised:Current:Onerous lease contracts 16 192 – – –Non-currentOnerous lease contracts 16 1,118 – – – 1,310 – – –Note 26. Economic DependencyThe operation of childcare centres and training colleges benefit from the continued support by statutory authorities of the FederalGovernments as well as the Federal Government’s policies on the provision of subsidies to the childcare industry and benefitsprovided to parents of children attending childcare centres. 77
  • 80. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 27. Subsidiaries Ownership interest Name of entity Country of incorporation 2006 2005 % % Parent entity A.B.C. Learning Centres Limited Australia Subsidiaries A.B.C. Developmental Learning Centres Pty Ltd Australia 100 100 A.B.C. Early Childhood Training College Pty Ltd Australia 100 100 A.B.C. Corporate Care Pty Ltd Australia 100 100 Premier Early Learning Centres Pty Ltd Australia 100 100 A.C.N. 097 028 923 Pty Ltd Australia 100 100 ABC Developmental Learning Centres (NZ) Limited New Zealand 100 100 A.B.C. Education Services Pty Ltd Australia 100 100 A.B.C. Land Holdings Pty Ltd Australia 100 100 A.B.C. New Ideas Pty Ltd Australia 100 100 ABC Land Holdings (NZ) Limited New Zealand 100 100 DPPA Pty Ltd Australia 100 100 FutureOne Pty Ltd Australia 100 100 A.C.N. 089 836 180 Pty Ltd Australia 100 100 Brighter Future Family Services Pty Ltd (in administration) Australia 100 100 Interlink Education Systems Pty Ltd Australia 100 100 A.C.N. 084 147 446 Pty Ltd Australia 100 100 A.C.N. 084 147 393 Pty Ltd Australia 100 100 Child Care Centres Australia Ltd Australia 100 100 Highland Park Child Care Centre Pty Ltd Australia 100 100 Kiddies Place Childcare Pty Ltd Australia 100 100 Australian Montessori Education Pty Ltd Australia 100 100 Peppercorn Management Group Ltd Australia 100 100 PMG Corporate Pty Ltd Australia 100 100 Peppercorn Holdings No. 1 Pty Ltd Australia 100 100 Peppercorn Holdings No. 2 Pty Ltd Australia 100 100 Peppercorn Holdings No. 3 Pty Ltd Australia 100 100 Peppercorn Holdings No. 4 Pty Ltd Australia 100 100 Peppercorn Holdings No. 5 Pty Ltd Australia 100 100 Peppercorn Holdings No. 6 Pty Ltd Australia 100 100 Peppercorn Holdings No. 7 Pty Ltd Australia 100 100 Peppercorn Holdings No. 8 Pty Ltd Australia 100 100 Peppercorn Management Group (NZ) Limited New Zealand 100 100 Judius Pty Ltd Australia 100 100 Chosen Products Pty Ltd Australia 100 100 Judius (NZ) Limited New Zealand 100 100 Childcare Development Solutions Pty Ltd (note 28) Australia 100 – Childcare Development Solutions Unit Trust Australia 100 –78
  • 81. Ownership interestName of entity Country of incorporation 2006 2005 % %Learning Care Group, Inc. (note 28) United States 100 – Childtime Childcare, Inc. United States 100 – Tutor Time Learning Centers LLC United States 100 – Tutor Time Franchise LLC United States 100 – Tutor Time Learning Centers International, Inc. United States 100 –Kids Campus Limited (note 28) Australia 100 – Kids Campus Australia Pty Ltd Australia 100 – Kids Campus Holdings Pty Ltd Australia 100 – Kids Campus (W.A.) Pty Ltd Australia 100 –Note 28. Acquisition of Businesses Date of Proportion Cost ofNames of businesses acquired Principal activity acquisition acquired (%) acquisition $’000Childcare Development Solutions Unit Trust Provision of childcare 29 July 2005 100 12,530 servicesChildcare Development Solutions Pty Ltd Trustee for the Childcare 29 July 2005 100 – Development Solutions Unit TrustLearning Care Group, Inc. Provision of childcare and 11 January 2006 100 213,885 franchising servicesKids Campus Limited Provision of childcare 29 May 2006 100 127,897 servicesBalance at 30 June 2006 354,312 79
  • 82. Notes for the Financial Statements For the financial year ended 30 June 2006 Childcare Development Solutions Note 28. Acquisition of Businesses continued Pty Limited and Trust Fair value Fair value on Book value adjustment acquisition Net assets acquired $’000 $’000 $’000 Current assets: Cash and cash equivalents 36 – 36 Other debtors – – – Receivables (52) – (52) Inventories – – – Other – – – Non-current assets: Receivables – – – Other financial assets – – – Childcare licences 3,447 14,575 18,022 Property, plant and equipment 9,711 – 9,711 Intangible assets – – – Goodwill – – – Deferred tax assets – – – Current liabilities: Payables (247) – (247) Short-term borrowings (15,377) – (15,377) Current tax liabilities – – – Provisions (35) – (35) Non-current liabilities: Long-term borrowings – – – Deferred tax liabilities – – – Provisions – – – (2,517) 14,575 12,058 Goodwill on consolidation 472 Cash consideration 12,530 Goodwill on consolidation Goodwill from acquisitions Goodwill from business combinations Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Cash consideration 12,530 – – – Less: Cash acquired (36) – – – Outflow of cash 12,494 – – – From the date of acquisition Childcare Development Solutions Pty Ltd and Trust have contributed $2,923,000 to the profit after tax position of the Group. From the date of acquisition the Learning Care Group, Inc. have contributed $4,267,000 to the profit after tax position of the Group. From the date of acquisition Kids Campus Limited has contributed a loss of $43,000 to the profit after tax position of the Group. If the acquisition of Childcare Development Solutions Pty Ltd and Trust had taken place at the beginning of the year, the profit after tax for the ABC Group would have been $80,748,000 and revenue from continuing operations would have been $592,479,000.80
  • 83. Learning Care Group Inc. Kids Campus Limited Fair value Fair value on Fair value Fair value on Total fair value Book value adjustment acquisition Book value adjustment acquisition on acquisition $’000 $’000 $’000 $’000 $’000 $’000 $’000 1,654 – 1,654 (5,667) – (5,667) (3,977) 3,197 – 3,197 3,690 – 3,690 6,887 13,568 – 13,568 584 – 584 14,100 – – – – – – – 6,251 – 6,251 1,243 – 1,243 7,494 307 – 307 – – – 307 4,017 – 4,017 (726) – (726) 3,291 (464) – (464) 69,825 82,250 152,075 169,633 66,506 – 66,506 4,514 – 4,514 80,731 29,726 – 29,726 – – – 29,726 156,183 – 156,183 1,434 – 1,434 157,617 20,830 – 20,830 1,392 – 1,392 22,222 (47,434) – (47,434) (6,421) – (6,421) (54,102) (157) – (157) (649) – (649) (16,183) 368 – 368 (1,024) – (1,024) (656) (4,520) – (4,520) (2,325) – (2,325) (6,880) (24,923) – (24,923) (44,051) – (44,051) (68,974) (17,705) – (17,705) – – – (17,705) (5,653) – (5,653) – – – (5,653) 201,751 – 201,751 21,819 82,250 104,069 317,878 12,134 23,828 36,434 213,885 127,897 354,312 36,434 157,617 194,051 Consolidated Company Consolidated Company 2006 2005 2006 2005 2006 2005 2006 2005 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 213,885 – 212,782 – 127,897 – 127,811 – (1,654) – – – 5,667 – – – 212,231 – 212,782 – 133,564 – 127,811 –If the acquisition of the Learning Care Group, Inc. had taken place at the beginning of the year, the profit after tax for the ABC Groupwould have been $77,909,000 and revenue from continuing operations would have been $708,570,000.If the acquisition of Kids Campus Limited had taken place at the beginning of the year, the profit after tax for the ABC Group wouldhave been $71,835,000 and revenue from continuing operations would have been $643,642,000.Goodwill on consolidation on the acquisition of Kids Campus Limited of $25,262,000 has not been allocated to a cash-generatingunit as it was acquired on 29 May 2006 (note 12). 81
  • 84. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 29. Segment Information The Group is managed on a global basis and operates in one industry segment in three geographical areas. Australia The home country of the Group and the origin of the listed parent Company. The areas of operation include the provision of childcare services. United States of America As a result of the acquisition of the Learning Care Group, Inc. in January 2006, a new geographic segment has arisen. New Zealand The geographical segment of New Zealand forms part of the Group through the provision of childcare services. Segment revenues External sales Inter-segment (i) Other Total 2006 2005 2006 2005 2006 2005 2006 2005 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Australia 425,703 221,420 – – 33,370 22,052 459,073 243,472 United States of America 150,579 – – – 5,816 – 156,395 – New Zealand 15,894 9,225 – – 88 (20) 15,982 9,205 Total of all segments 631,450 252,677 Consolidated 631,450 252,677 Segment result 2006 2005 $’000 $’000 Continuing operations: Australia 111,585 58,990 United States of America 6,451 – New Zealand 2,382 1,313 Profit before income tax expense 120,418 60,303 Income tax expense (39,308) (16,769) Profit for the period from continuing operations 81,110 43,534 Segment assets and liabilities Assets Liabilities 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Australia 2,233,744 1,162,869 422,198 385,300 United States of America 307,358 – 101,051 – New Zealand 37,404 20,700 3,729 3,017 Total of all segments 2,578,506 1,183,569 526,978 388,317 Eliminations (255,220) (10,140) (41,424) (10,140) Consolidated 2,323,286 1,173,429 485,554 378,17782
  • 85. Other segment information Australia United States of America New Zealand Total 2006 2005 2006 2005 2006 2005 2006 2005 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000Acquisition of segment assets 98,751 418,725 5,087 – 2,638 6,933 106,476 425,658Impairment losses 11,346 1,603 – – – – 11,346 1,603Depreciation and amortisationof segment assets 11,112 5,144 3,647 – 314 138 15,073 5,282Straight-line lease 5,510 3,315 249 – 46 – 5,805 3,315Share-based payment expense 6,492 4,038 – – – – 6,492 4,038Rent 75,505 55,498 31,582 – 1,739 1,135 108,826 56,633Interest expense 21,403 9,992 950 – 48 30 22,401 10,022Employee benefits 141,652 72,752 85,569 – 6,873 4,138 234,094 76,890Gain/(Loss) on sale ofNon-Current Assets 22,126 19,267 (94) – – – 22,032 19,267Note 30. Related Party Disclosures(a) Equity interests in related partiesEquity interests in subsidiariesDetails of the percentage of ordinary shares held in subsidiaries are disclosed in note 27 to the financial statements.(b) Key Management Personnel remunerationDetails of Key Management Personnel remuneration are disclosed in note 4 to the financial statements.(c) Loans to Key Management PersonnelDetails of loans made to Key Management Personnel remuneration are disclosed in note 4 to the financial statements.(d) Key Management Personnel equity holdingsRefer to Key Management Personnel Compensation note 4 for full disclosure.(e) Other transactions with Key Management Personnel (and their related parties) of A.B.C. Learning Centres LimitedTransactions between related parties are on normal commercial terms and conditions no more favourable than those available toother parties unless otherwise stated. Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000Transactions with other related parties:(i) Mr W E Bessemer is a director of Austock Group Ltd (“Austock”). Transactions with Austock during the year were: – Acquisition & merger work for Peppercorn Group – 1,632 – 1,632 – Payment and commission on capital raising 24,533 13,453 24,533 13,453 – Management fees 13 39 13 39 – Underwriting fee 1,905 875 1,905 875 – Property rental 789 – – –(ii) Mr E S Groves holds a 4% (2005: 4.08%) shareholding in Austock at 30 June 2006. For details of transactions with Austock made during the current period refer above.(iii) Relatives of directors, E S & L A Groves, operate Queensland Maintenance Services (“QMS”), a company which provides maintenance and capital development services to the economic entity. – Maintenance services 5,783 1,631 – – – Capital development services 68,919 13,828 – – 83
  • 86. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 30. Related Party Disclosures continued (e) Other transactions with Key Management Personnel (and their related parties) of A.B.C. Learning Centres Limited continued Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000 (iv) Mr E S Groves operates the Brisbane Bullets basketball franchise. Transactions with the Brisbane Bullets involved the prepayment of advertising and other sponsorship costs. – Annual sponsorship 352 255 – – (v) Mr M V Kemp is also a director of Sheramere Pty Ltd (“Sheramere”), a company which entered into an agreement with the Group to sell certain childcare businesses and a childcare management business to the economic entity. Transactions with Sheramere during the year were: – Centre operating costs recoverable from Sheramere under this agreement – 164 – – (vi) Mr M V Kemp is also a director of Ezi Debit Australia Pty Ltd (“Ezi Debit”). Mr M & Mrs M Kemp and Mr E S & Dr L A Groves own indirectly 11.5% each (2005: 12.5%) of Ezi Debit. Ezi Debit has entered into an agreement with the Group to provide parent payment solutions. Transactions with Ezi Debit during the year were: 156 9 – – (f) Transactions with Key Management Personnel of A.B.C. Learning Centres Limited Refer to Key Management Personnel Compensation note 4 for full disclosure. (g) Transactions with other related parties No amounts were provided for doubtful debts relating to debts due from other related parties (2005: nil). Amounts receivable from and payable to these other related parties are disclosed in notes 7 and 15 to the financial statements. Any loans advanced to and payable to other related parties are unsecured and subordinate to other liabilities. Transactions involving the parent entity During the financial year, A.B.C. Learning Centres Limited recognised a net payable of $10.42 million (2005: $1.849 million) from its wholly-owned subsidiaries for their tax payable for the current period. Details of tax balances are disclosed in note 3 to the financial statements. During the financial year, A.B.C. Learning Centres Limited received dividends of $35.486 million (2005: $22.958 million) from its subsidiaries. Details of dividends received from related parties are disclosed in note 2 to the financial statements. (h) Parent entities The parent entity in the Group, the ultimate Australia parent entity and the ultimate parent entity is A.B.C. Learning Centres Limited.84
  • 87. Note 31. Subsequent EventsOn 7 July 2006 the Company announced an off-market takeover of Hutchison’s Child Care Services Ltd. The financial effect ofthe transaction can not be ascertained at the date of signing the Annual Report. On 25 September 2006, the Company declaredthe takeover bid unconditional and commenced compulsory acquisition of the remaining shares. The offer at the date of signingof the Directors’ Report is as follows:(a) Cash offer made at $1.50 per Hutchison’s Child Care Services Ltd ordinary share for all outstanding equity of 65.9 million shares on a fully diluted basis.(b) The off-market takeover which was unanimously recommended by the Hutchison’s Child Care Services Ltd board values Hutchison’s Child Care Services Ltd at $96.2 million.(c) ABC has agreed to divest seven long day care services as part of the acquisition in order to address Australian Competition and Consumer Commission competition concerns.On 25 September 2006 the Company declared the takeover bid unconditional.On 6 September 2006 the Company acquired 100% of The Children’s Courtyard LLP, the ninth largest childcare provider inthe United States of America for US$66 million. Due to the acquisition date of Children’s Courtyard being so close to the dateof the financial report, detailed disclosure has not been provided.No other matter or circumstance has arisen since 30 June 2006 that has significantly affected, or may significantly affect:(a) the Group’s operations in future financial years; or(b) the results of those operations in future financial years; or(c) the Group’s state of affairs in future financial years.Note 32. Notes to the Cash Flow Statements(a) Reconciliation of cash and cash equivalentsFor the purposes of the cash flow statement, cash and cash equivalents includes cash on hand, cash at bank and outstanding bankoverdrafts. Cash and cash equivalents at the end of the financial year as shown in the cash flow statement is reconciled to therelated items in the balance sheet as follows: Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000Cash and cash equivalents 132,470 45,560 57,641 34,189Bank overdrafts (753) (1,429) – – 131,717 44,131 57,641 34,189(b) Non-cash financing and investing activitiesDuring the year the Group did not acquire subsidiaries by way of equity issue (2005: $108.12 million). During the year the Companyoffered a dividend reinvestment plan. The value of the shares issued as a result of participation in the plan for the year was$11.415 million (2005: $1.154 million). Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000(c) Financing facilitiesUnsecured multi-option facility, reviewed annually andpayable at call:– amount used 181,699 – 181,140 –– amount unused 144,551 – 138,860 – 326,250 – 320,000 –Secured bank loan facilities– amount used – 197,361 – 152,975– amount unused – 32,134 – 25 – 229,495 – 153,000 85
  • 88. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 32. Notes to the Cash Flow Statements continued (d) Cash balances not available for use Refer note 6 for security deposits held. (e) Reconciliation of net profit for the period to net cash flows from operating activities Consolidated Company 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Profit for the period 81,110 43,534 33,964 20,421 (Gain)/loss on sale or disposal of non-current assets (22,032) (19,268) – (41) Depreciation and amortisation of non-current assets 15,073 5,282 48 48 Straight-line amortisation 5,808 3,315 – – Equity-settled share-based payment 7,631 4,038 7,631 4,038 Interest income received and receivable – – (27,243) (11,256) Dividends received and receivable – – (35,486) (22,958) Rent received from subsidiaries – – (45) (45) Impairment of non-current assets 11,346 1,603 1,000 – Increase/(decrease) in current tax liability 10,493 (425) (21,850) 1,321 Increase/(decrease) in deferred tax balances 3,455 (3,836) 1,342 (5,157) Changes in net assets and liabilities, net of effects from acquisition and disposal of businesses: (Increase)/decrease in assets: Current receivables (35,395) 5,882 (773) (164) Current inventories (1,227) – – – Other current assets 1,882 (2,376) 249 312 Increase/(decrease) in liabilities: Current payables 11,821 9,922 865 188 Current provisions (899) (4,497) – – Net cash from operating activities 89,066 43,174 (40,298) (13,293) Note 33. Financial Instruments (a) Financial risk management objectives The Group’s principal financial instruments comprise bank loans and overdraft, redeemable converting preference shares, finance leases and hire purchase contracts, and cash and short-term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. The Group also enters into derivative transactions, being forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of finance. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. (b) Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 1 to the financial statements. (c) Foreign currency risk management The consolidated group is exposed to foreign currency translation risk through its controlled operations in the United States of America and New Zealand. Foreign currency gains or losses arising from the translation of net assets of these operations are shown as a movement in the foreign currency translation reserve (note 19).86
  • 89. Maturity profile of financial instrumentsThe following table details the Group’s exposure to interest rate risk as at 30 June 2006: Fixed maturity dates Weighted average Variable Less Non- effective interest than 1-2 2-3 3-4 4-5 5+ interest interest rate rate one year years years years years years bearing Total2006 % $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000Financial assets:Cash and cash equivalents 5.4% 132,470 – – – – – – – 132,470Trade receivables – – – – – – – – 115,372 115,372Investments – – – – – – – – 45,056 45,056Loans 8% – 25,185 – – – – – 8,378 33,563 132,470 25,185 – – – – – 168,806 326,461Financial liabilities:Trade payables – – – – – – – – 121,601 121,601Bank overdraft 9.3% 753 – – – – – – – 753Bank loans 6.5% 161,786 – – – – – – 87 161,873Other loans (HP loans) 9% – 7,373 14 – – – – 7,387Finance lease liabilities 9.6% – 696 698 723 763 766 11,335 – 14,981Redeemable cumulativepreference shares – – – – – – – 58,107 – 58,107 162,539 8,069 712 723 763 766 69,442 121,688 364,702The following table details the Group’s exposure to interest rate risk as at 30 June 2005: Maturity dates Weighted average effective Variable Less than More than Non-interest interest rate interest rate one year 1-5 years five years bearing Total2005 % $’000 $’000 $’000 $’000 $’000 $’000Financial assets:Cash and cash equivalents – – – – – 45,560 45,560Trade and other receivables – – – – – 31,741 31,741Other receivables – – – – – 13,768 13,768 – – – – 91,069 91,069Financial liabilities:Trade payables – – – – – 52,214 52,214Bank overdraft 9.08% 1,429 – – – – 1,429Bank loans 5.72% – 1,000 184,020 – – 185,020Other loans 7.60% – 2,026 4,145 – – 6,171RCPS – – – 58,107 – – 58,107 1,429 3,026 246,272 – 52,214 302,941 87
  • 90. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 33. Financial Instruments continued (d) Credit risk management The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. There are no significant concentrations of credit risk within the Group. For transactions that are not denominated in the functional currency of the relevant operating unit, the Group does not offer credit terms without specific approval. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, available-for-sale financial assets and certain derivative instruments, the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these instruments. Since the Group trades only with recognised third parties, there is no requirement for collateral. (e) Fair value of financial instruments Except as detailed in the following table, the Directors consider that the carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their fair values (2005: net fair value). The fair values and net fair values of financial assets and financial liabilities are determined as follows: – The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; and – The fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis. Transaction costs are included in the determination of net fair value. The following tables detail the fair value (2005: net fair value) of financial assets and financial liabilities: Carrying amount Fair value 2006 $’000 $’000 Financial assets – – Financial liabilities Redeemable converting preference shares 58,107 79,200 58,107 79,200 Carrying amount Fair value 2005 $’000 $’000 Financial liabilities Redeemable converting preference shares 58,107 75,840 58,107 75,840 The financial statements include share holdings in unlisted companies (note 7). Fair value is estimated using a discounted cash flow model, which includes some assumptions that are not supportable by observable market prices or rates. Changes in these assumptions do not significantly change the fair value recognised. (f) Liquidity risk management The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.88
  • 91. Note 34. Impacts of the adoption of Australian equivalents to International Financial Reporting StandardsThe Group changed its accounting policies on 1 July 2005 to comply with Australian equivalents to International Financial ReportingStandards (“AIFRS”). The transition to AIFRS is accounted for in accordance with Accounting Standard AASB 1 “First-time Adoptionof Australian equivalents to International Financial Reporting Standards”, with 1 July 2004 as the date of transition.An explanation of how the transition from AGAAP policies to AIFRS has affected the Company and Group’s balance sheet, incomestatement and cash flows is set out in the following tables and the notes that accompany the tables.(a) At the date of transition to AIFRS – 1 July 2004 (Consolidated) Consolidated AGAAP Adjustment AIFRS Note $’000 $’000 $’000Current assetsCash and cash equivalents 2,313 – 2,313Trade and other receivables 13,555 – 13,555Other financial assets 983 – 983Inventories – – –Other (i) 22,572 (1,025) 21,547Total current assets 39,423 (1,025) 38,398Non-current assetsTrade and other receivables 267 – 267Other financial assets 1,670 – 1,670Property, plant and equipment 35,762 – 35,762Childcare licences 235,746 – 235,746Deferred tax assets (vi) 113 1,718 1,831Goodwill – – –Other intangible assets 1,072 – 1,072Total non-current assets 274,630 1,718 276,348Total assets 314,053 693 314,746Current liabilitiesTrade and other payables 4,605 – 4,605Short-term borrowings 19,671 – 19,671Current tax payables 1,954 – 1,954Provisions 246 – 246Other – – –Total current liabilities 26,476 – 26,476Non-current liabilitiesLong-term borrowings (iv) 83,353 50,607 133,960Deferred tax liabilities (vi) 1,664 1,292 2,956Provisions 1 – 1Other (vii) – 2,156 2,156Total non-current liabilities 85,018 54,055 139,073Total liabilities 111,494 54,055 165,549Net assets 202,559 (53,362) 149,197EquityIssued capital (iv), (vi) 174,009 (49,130) 124,879Reserves 3,871 – 3,871Retained earnings (i), (vi), (vii) 24,679 (4,232) 20,447Total equity 202,559 (53,362) 149,197 89
  • 92. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 34. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards continued (b) At the end of the last annual reporting period under AGAAP – 30 June 2005 (Consolidated) Consolidated AGAAP Adjustment AIFRS Note $’000 $’000 $’000 Current assets Cash and cash equivalents 45,560 – 45,560 Trade and other receivables 31,139 – 31,139 Other financial assets 3,649 – 3,649 Inventories 4,226 – 4,226 Other (i) 18,484 (1,180) 17,304 Total current assets 103,058 (1,180) 101,878 Non-current assets Trade and other receivables 414 – 414 Other financial assets (v) 32,696 (1,603) 31,093 Property, plant and equipment 82,714 – 82,714 Childcare licences 772,697 – 772,697 Deferred tax assets (vi), (vii) 2,849 5,933 8,782 Goodwill (iii), (vii) 170,193 4,994 175,187 Other intangible assets (iii) 650 14 664 Total non-current assets 1,062,213 9,338 1,071,551 Total assets 1,165,271 8,158 1,173,429 Current liabilities Trade and other payables 52,214 – 52,214 Short-term borrowings 4,456 – 4,456 Current tax payables 3,061 – 3,061 Provisions 5,891 – 5,891 Other – – – Total current liabilities 65,622 – 65,622 Non-current liabilities Long-term borrowings (iv) 195,665 50,607 246,272 Deferred tax liabilities (vi) 57,539 2,110 59,649 Provisions 911 – 911 Other (vii) – 5,723 5,723 Total non-current liabilities 254,115 58,440 312,555 Total liabilities 319,737 58,440 378,177 Net assets 845,534 (50,282) 795,252 Equity Issued capital (ii), (iv), (vi) 676,935 (40,790) 636,145 Reserves 114,033 – 114,033 Retained earnings (i), (ii), (iii), (iv), (v), (vi), (vii) 54,566 (9,492) 45,074 Total equity 845,534 (50,282) 795,25290
  • 93. Note 34. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards continued(c) Reconciliation of profit for the year ended 30 June 2005 (Consolidated) Consolidated AGAAP Adjustment AIFRS Note $’000 $’000 $’000Revenue 230,621 – 230,621Other income (viii) 62,079 (40,023) 22,056Changes in inventories of finished goods (1,622) – (1,622)Employee benefits (ii) (76,890) (4,038) (80,928)Depreciation and amortisation (iii) (10,114) 4,832 (5,282)Impairment (v) – (1,603) (1,603)Finance costs (iv) (6,478) (3,544) (10,022)Rental and other property expenses (vii) (56,633) (3,315) (59,948)Children catering and consumables (8,357) – (8,357)Advertising and promotions (1,350) – (1,350)Insurances (2,918) – (2,918)Communication (2,451) – (2,451)Travel (2,175) – (2,175)Cost of sales (viii) (40,023) 40,023 –Other (15,562) (156) (15,718)Profit before income tax expense 68,127 (7,824) 60,303Income tax expense (vi) (15,790) (979) (16,769)Profit from continuing operations 52,337 (8,803) 43,534Profit attributable to members of the parent entity 52,337 (8,803) 43,534No material impacts are expected to the net cash flows presented under AGAAP on adoption of AIFRS. 91
  • 94. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 34. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards continued (d) At the date of transition to AIFRS – 1 July 2004 (Company) Company AGAAP Adjustment AIFRS Note $’000 $’000 $’000 Current assets Cash and cash equivalents 696 – 696 Trade and other receivables 2,506 – 2,506 Other financial assets – – – Inventories – – – Other 803 – 803 Total current assets 4,005 – 4,005 Non-current assets Trade and other receivables – – – Other financial assets 256,583 – 256,583 Property, plant and equipment 751 – 751 Childcare licences – – – Deferred tax assets (vi) 95 1,071 1,166 Goodwill – – – Other intangible assets – – – Total non-current assets 257,429 1,071 258,500 Total assets 261,434 1,071 262,505 Current liabilities Trade and other payables 35 – 35 Short-term borrowings 151 – 151 Current tax payables 1,642 – 1,642 Provisions – – – Other – – – Total current liabilities 1,828 – 1,828 Non-current liabilities Long-term borrowings (iv) 80,500 50,607 131,107 Deferred tax liabilities 1,664 – 1,664 Provisions – – – Other – – – Total non-current liabilities 82,164 50,607 132,771 Total liabilities 83,992 50,607 134,599 Net assets 177,442 (49,536) 127,906 Equity Issued capital (iv), (vi) 174,009 (49,130) 124,879 Reserves 79 – 79 Retained earnings (vi) 3,354 (406) 2,948 Total equity 177,442 (49,536) 127,90692
  • 95. (e) At the end of the last annual reporting period under AGAAP – 30 June 2005 (Company) Company AGAAP Adjustment AIFRS Note $’000 $’000 $’000Current assetsCash and cash equivalents 34,189 – 34,189Trade and other receivables (vi) 7,454 392 7,846Other financial assets 500 – 500Inventories – – –Other 491 – 491Total current assets 42,634 392 43,026Non-current assetsTrade and other receivables 51,544 – 51,544Other financial assets (v) 808,970 (1,603) 807,367Property, plant and equipment 702 – 702Childcare licences – – –Deferred tax assets (vi) 2,811 5,933 8,744Goodwill – – –Other intangible assets – – –Total non-current assets 864,027 4,330 868,357Total assets 906,661 4,722 911,383Current liabilitiesTrade and other payables 129 – 129Short-term borrowings – – –Current tax payables 2,964 – 2,964Provisions – – –Other – – –Total current liabilities 3,093 – 3,093Non-current liabilitiesLong-term borrowings (iv) 160,400 50,607 211,007Deferred tax liabilities (vi) 54,489 2,109 56,598Provisions – – –Other – – –Total non-current liabilities 214,889 52,716 267,605Total liabilities 217,982 52,716 270,698Net assets 688,679 (47,994) 640,685EquityIssued capital (ii), (iv), (vi) 676,935 (40,790) 636,145Reserves (v) 1,682 (1,603) 79Retained earnings (ii), (iv), (vi) 10,062 (5,601) 4,461Total equity 688,679 (47,994) 640,685 93
  • 96. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 34. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards continued (f) Reconciliation of profit for the year ended 30 June 2005 (Company) Company AGAAP Adjustment AIFRS Note $’000 $’000 $’000 Revenue – – – Other income (viii) 37,121 (909) 36,212 Changes in inventories of finished goods – – – Employee benefits (ii) (592) (4,038) (4,630) Depreciation and amortisation (48) – (48) Impairment – – – Finance costs (iv) (4,662) (3,544) (8,206) Rental and other property expenses – – – Children catering and consumables – – – Advertising and promotions – – – Insurances (74) – (74) Communication – – – Travel (4) – (4) Cost of sales (viii) (909) 909 – Other (513) – (513) Profit before income tax expense 30,319 (7,582) 22,737 Income tax expense (vi) (1,161) (1,155) (2,316) Profit from continuing operations 29,158 (8,737) 20,421 Profit attributable to members of the parent entity 29,158 (8,737) 20,421 (i) The Group has impaired formation costs that have been carried as a current asset in the consolidated group’s balance sheet under AGAAP. The effect is as follows: At 1 July 2004: For the Group there has been a decrease in retained earnings of $1,024,967 and a decrease to other current assets of $1,024,967. At 30 June 2005: For the Group there has been a decrease in retained earnings of $1,180,305 and a decrease to other current assets of $1,180,305. (ii) Share-based payments are provided to selected employees, licensees and suppliers for nil consideration. The market value of the shares are expensed to the income statement when the shares are issued. A corresponding entry is made to increase issued capital. The effect is as follows: Group At 30 June 2005: For the Group there has been a decrease in retained earnings of $4,037,931 and an increase in issued capital of $4,037,931. Company At 30 June 2005: For the Company there has been a decrease in retained earnings of $4,037,931 and an increase in issued capital of $4,037,931. (iii) Under AASB 3 “Business Combinations” purchased goodwill is not permitted to be amortised but instead is subject to impairment testing on an annual basis or upon the occurrence of triggers which may indicate a potential impairment. As the goodwill has not been impaired, amortisation has been reversed. The effect is as follows: Group At 30 June 2005: For the Group, there has been an increase in retained earnings of $4,832,150 and an increase in goodwill and other intangible assets of $4,832,150.94
  • 97. (iv) The Company’s redeemable converting preference shares have been classified as debt. The effect is as follows: Group At 1 July 2004 and 30 June 2005: For the Group there has been an increase of long-term borrowings of $50,607,020 and a decrease to issued capital of $50,607,020. Company At 1 July 2004 and 30 June 2005: For the Company there has been an increase of long-term borrowings of $50,607,020 and a decrease to issued capital of $50,607,020. Group At 30 June 2005: For the Group there has been a decrease to retained earnings of $3,543,750 representing interest expense resulting from the reclassification of redeemable converting preference shares from equity to debt. A corresponding increase to retained earnings of $3,543,750 has also been processed which is a reversal of the dividend paid on these shares. Company At 30 June 2005: For the Company there has been a decrease to retained earnings of $3,543,750 representing interest expense resulting from the reclassification of redeemable converting preference shares from equity to debt. A corresponding increase to retained earnings of $3,543,750 has also been processed which is a reversal of the dividends paid on these shares. Group(v) Listed shares held by the Group at 30 June 2005 were revalued under AGAAP. The revaluation has been reversed under AIFRS and the impairment has resulted in a decrease to net profits at 30 June 2005 of $1,602,766 with a corresponding increase to reserves of $1,602,766. Listed shares held by the Group at 30 June 2005 were revalued under AGAAP. The revaluation has been reversed under AIFRS resulting in decrease to other financial assets of $1,603,125 and a decrease to reserves by $1,603,125 to reflect no revaluation amount. The net reduction to the reserves was $359. Company Listed shares held by the Company at 30 June 2005 were revalued under AGAAP. The revaluation has been reversed under AIFRS resulting in decrease to other financial assets of $1,603,125 and decrease to reserves by $1,603,125.(vi) Under AGAAP income tax expense was calculated by reference to accounting profit after allowing for permanent differences. Deferred tax asset was not recognised in relation to amounts recognised directly in equity such as costs associated with capital raising. A deferred tax liability is recognised for the difference between tax and accounting written-down value in respect of depreciating assets. Group At 1 July 2004: For the Group there has been an increase in deferred tax liability of $1,292,014 and a decrease to retained earnings of $1,292,014. At 30 June 2005: For the Group there has been an increase in deferred tax liability of $2,109,359 and a decrease to retained earnings of $2,109,359. Company At 30 June 2005: For the Company there has been an increase in deferred tax liability of $2,109,359 and an increase in receivables of $2,109,359 to subsidiary under tax sharing agreement. 95
  • 98. Notes for the Financial Statements For the financial year ended 30 June 2006 Note 34. Impacts of the adoption of Australian equivalents to International Financial Reporting Standards continued (f) Reconciliation of profit for the year ended 30 June 2005 (Company) continued Group A deferred tax asset arises in relation to capital raising costs recorded in equity that are deductible for taxation purposes over five years. At 1 July 2004: For the Group there has been an increase in deferred tax asset of $1,070,780 and an increase to equity of $1,477,101 and decrease to retained earnings of $406,321. At 30 June 2005: For the Group there has been an increase in deferred tax asset of $4,216,270 and an increase to equity of $5,778,237 and decrease to retained earnings of $1,561,967. In addition, a deferred tax asset arises where operating leases are recorded for accounting purposes on a straight-line basis, however for tax purposes are deductible when incurred. At 1 July 2004: For the Group there has been an increase in deferred tax asset of $646,882 and an increase to retained earnings of $646,882. At 30 June 2005: For the Group there has been an increase in deferred tax asset of $1,641,257 and an increase to retained earnings of $1,641,257. Company At 1 July 2004: For the Company there has been an increase in deferred tax asset of $1,070,780 and an increase in equity of $1,477,101 and decrease to retained earnings of $406,321. At 30 June 2005: For the Company, there has been an increase in deferred tax asset of $5,933,267 and increase in equity of $5,778,237, decrease to receivables of $1,716,997 and decrease to retained earnings of $1,561,967. (vii) The Company’s operating leases are required to be expensed on a straight-line basis. The effect is as follows: Group At 1 July 2004: For the Group there has been a decrease in retained earnings of $2,156,275 and an increase in other non-current liabilities of $2,156,275. At 30 June 2005: For the Group there has been a decrease in retained earnings of $5,470,854 and an increase in other non-current liabilities of $5,470,854. The Group purchased Child Care Centres Australia/Peppercorn Management Group Limited in December 2004. The net assets did not reflect straight-line lease liability. This resulted in an increase in goodwill of $176,729 and an increase of $75,741 in deferred tax asset and increase in other non-current liabilities of $252,470. (viii) Under AIFRS the Group and Company are required to show gains from the sale of assets on a net basis. This change does not affect the retained profits of the Company but requires a reclassification of $40,022,363 from expenses to revenue for the Group and $908,552 for the Company. Note 35. Share-based Payments (i) Employee Share Plan A scheme is in place where shares may be issued by the Company to employees for no cash consideration. All Australian resident permanent employees (excluding Executive Directors) who have been continuously employed by the Group for a period of at least one year are eligible to participate in the scheme. Employees may elect not to participate in the scheme. Under the scheme, eligible employees may be offered fully-paid ordinary shares in A.B.C. Learning Centres Limited annually for no cash consideration. The market value of shares issued under the scheme, measured as the average market price on the day of issue of the shares, is recognised in the Balance Sheet as share capital and as part of employee benefit costs in the period the shares are granted.96
  • 99. Consolidated Company 2006 2005 2006 2005 No. ’000 No. ’000 No. ’000 No. ’000Number of shares issued under the plan to participatingemployees during the financial year: 332 417 332 417 2006 2005 2006 2005 $’000 $’000 $’000 $’000Total expense arising from share-based payment transactions: 1,776 2,000 1,776 2,000(ii) Carers Share PlanA scheme is in place where shares may be issued by the Company to carers for no cash consideration.Under the scheme, eligible carers may be offered fully-paid ordinary shares in A.B.C. Learning Centres Limited annually for no cashconsideration. The market value of shares issued under the scheme, measured as the average market price on the day of issue of theshares, is recognised in the Balance Sheet as share capital and as part of employee benefit costs in the period the shares are granted. Consolidated Company 2006 2005 2006 2005 No. ’000 No. ’000 No. ’000 No. ’000Number of shares issued under the plan to participatingcarers during the financial year: 625 406 625 406 2006 2005 2006 2005 $’000 $’000 $’000 $’000Total expense arising from share-based payment transactions: 4,716 2,038 4,716 2,038(iii) OptionsOptions have been issued to the Key Management Personnel in the Learning Care Group, Inc. No other options have been granted.Details of these options are outlined in note 4. 2006 2005 2006 2005 $’000 $’000 $’000 $’000Total expense arising from share-based payment transactions: 1,139 – 1,139 –Note 36. Additional Company InformationA.B.C. Learning Centres Limited is a listed public company, incorporated in Australia. The Company operates in Australia,New Zealand and the United States of America.Registered office Principal place of business43 Metroplex Avenue 43 Metroplex AvenueMurarrie MurarrieQueensland, Australia 4172 Queensland, Australia 4172 97
  • 100. Additional Stock Exchange Information As at 15 September 2006 (a) Distribution of Holders of Equity Securities (i) Ordinary shares Number of holders Total ordinary shares Size of holding in each category in each category 1 – 1,000 10,303 5,909,970 1,001 – 5,000 13,861 33,601,402 5,001 – 10,000 2,184 15,731,106 10,001 – 100,000 1,139 27,105,933 100,001 and over 165 311,118,144 27,652 393,466,555 The number of security investors holding less than a marketable parcel of 81 securities ($6.18 on 15/09/2006) is 432 and they hold 18,245 securities. (ii) Redeemable converting preference shares Number of holders Total RCPS shares Size of holding in each category in each category 1 – 1,000 301 218,153 1,001 – 5,000 730 2,045,343 5,001 – 10,000 195 1,438,450 10,001 – 100,000 64 1,450,606 100,001 and over 11 6,847,448 1,301 12,000,000 The number of security investors holding less than a marketable parcel of 78 securities ($6.47 on 15/09/2006) is 5 and they hold 194 securities. (b) The Names of the Substantial Shareholders who Have Notified the Company in Accordance with section 671B of the Corporations Act 2001 as at 15 September 2006 Are: Fully Paid Ordinary shareholders Number National Australia Bank Limited Group 28,712,230 Ausbil Dexia Limited 21,598,180 Commonwealth Bank of Australia 21,432,147 Newton Investment Management Limited 19,887,583 91,630,140 (c) Voting Rights The voting rights attached to each class of equity securities are set out below: (i) Ordinary Shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.98
  • 101. (ii) Redeemable Converting Preference Shares A preference share does not entitle its holder to vote at any general meeting of the Company except in the following circumstances: (a) on a proposal: – to reduce the share capital of the Company; – that affects the rights attached to the preference share; – to wind up the Company; or – for the disposal of the whole of the property, business and undertaking of the Company; (b) on a resolution to approve the terms of a buy-back agreement; (c) during a period in which a dividend or part of dividend of a preference share is in arrears as set out in terms of issue; (d) during the winding up of the Company; or (e) in any other circumstances in which the Listing Rules required holders of preference shares to be entitled to vote.(iii) Options There are no voting rights attached to this class of equity.(d) Twenty Largest Holders of Quoted Equity Securities(i) Ordinary Shares Fully Paid Number Percentage1 National Nominees Limited 49,542,225 12.592 Westpac Custodian Nominees Limited 40,340,795 10.253 Citicorp Nominees Pty Limited 29,576,222 7.524 JP Morgan Nominees Australia Limited 21,393,583 5.445 ANZ Nominees Limited 18,295,474 4.656 Dr Le Neve Groves 16,810,500 4.277 Mr Edmund Groves 16,797,500 4.278 Cogent Nominees Pty Limited 13,656,418 3.479 RBC Dexia Investor Services Australia Nominees Pty Limited 6,995,820 1.7810 Warbont Nominees Pty Ltd 6,821,283 1.7311 Fleet Nominees Pty Limited 5,932,136 1.5112 Abned Nominees Pty Limited 4,590,057 1.1713 Woodross Nominees Pty Ltd 3,831,807 0.9714 ANZ Nominees Limited 3,800,188 0.9715 UBS Nominees Pty Ltd 3,573,166 0.9116 Suncorp Custodian Services Pty Limited 3,396,963 0.8617 Citicorp Nominees Pty Limited 3,234,825 0.8218 Jimm Pty Ltd 2,962,000 0.7519 Queensland Investment Corporation 2,544,657 0.6520 MLEQ Nominees Pty Limited 2,335,260 0.59 256,430,879 65.17Unquoted equity securities Number on issue Number of holders 1,912,191* 4Options issued as an initial incentive award to senior executives of the Learning Care Group, Inc. to take up ordinary shares.* Number of unissued ordinary shares under the options. 99
  • 102. Additional Stock Exchange Information As at 15 September 2006 (ii) Redeemable Converting Preference Shares Fully Paid Number Percentage 1 JP Morgan Nominees Australia Pty Limited 2,306,412 19.22 2 Brispot Nominees Pty Ltd 1,166,201 9.72 3 ANZ Nominees Limited 911,734 7.60 4 Irrewarra Investments Pty Ltd 889,000 7.41 5 Fortis Clearing Nominees Pty Limited 390,654 3.26 6 Sandhurst Trustees Ltd 303,718 2.53 7 Westpac Custodian Nominees Limited 270,274 2.25 8 National Nominees Limited 219,300 1.83 9 Trim Investments Pty Ltd 155,000 1.29 10 Medical Research Foundation for Women and Babies 120,000 1.00 11 Citicorp Nominees Pty Limited 115,155 0.96 12 RBC Dexia Investor Services Australia Nominees Pty Limited 72,387 0.60 13 Caergwrle Investments Pty Ltd 70,000 0.58 14 Mutual Trust Pty Ltd 50,000 0.42 15 Volbane Pty Ltd 50,000 0.42 16 UBS Nominees Pty Ltd 47,200 0.39 17 Bond Street Custodians Limited 45,000 0.38 18 Yarranilgie Pty Ltd 42,310 0.35 19 Asset Custodian Nominees (Aust) Pty Ltd 40,000 0.33 20 Contemplator Pty Ltd 40,000 0.33 7,304,345 60.87 Company Secretary Ms J G Bannan Registered Office 43 Metroplex Avenue Murarrie Queensland, Australia 4172 Share Registry Link Market Services Limited Level 12 300 Queen Street Brisbane QLD 4000100
  • 103. Corporate DirectoryDirectors Share RegistryChairman Link Market Services LimitedMrs Sallyanne Atkinson AO (Non-Executive) Level 12Executive Directors 300 Queen StreetMr Edmund S Groves Brisbane QLD 4000Chief Executive Officer – Global Operations Telephone: +61 2 8280 7454Dr Le Neve A Groves Facsimile: +61 2 9287 0309Chief Executive Officer – Education Email: registrars@linkmarketservices.com.au Website: www.linkmarketservices.com.auMr Martin V KempChief Executive Officer – Operations Financial and Accounting Advisors(Australia and New Zealand) Harris Black Chartered Accountants Level 2Non-Executive Directors 262 Adelaide StreetMr William E Bessemer Brisbane QLD 4000Mr David J Ryan AOThe Hon. Lawrence J Anthony Telephone: +61 7 3032 0200 Facsimile: +61 7 3032 0201Registered Office Email: info@harrisblack.com.au43 Metroplex Avenue Website: www.harrisblack.com.auMurarrie QLD 4172 Legal AdvisorsTelephone: +61 7 3906 2000 Freehills LawyersFacsimile: +61 7 3908 2577 Level 42Email: info@childcare.com.au 101 Collins StreetWebsite: www.childcare.com.au Melbourne VIC 3000Corporate Advisor Telephone: +61 3 9288 1234Austock Corporate Finance Limited Facsimile: +61 3 9288 1567Level 1 Email: business_enquiries@freehills.com350 Collins Street Website: www.freehills.comMelbourne VIC 3000 AuditorsTelephone: +61 3 8601 2000 Pitcher Partners Accountants, Auditors and AdvisorsFacsimile: +61 3 9670 1057 Level 21Email: corporate@austock.com.au 300 Queen StreetWebsite: www.austock.com.au Brisbane QLD 4000 Telephone: +61 7 3228 4000 Facsimile: +61 7 3221 6420 Email: partners@pitcherqld.com.au Website: www.pitcher.com.au This report is printed on Look!, an EMAS certified stock, and Sovereign Offset, a stock manufactured using theprecinct.com.au ISO 14001 Environmental Management System.

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