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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 7, 1997 Commission File No. 33-61232
LA PETITE ACADEMY, INC.
Formerly known as La Petite Holdings Corp.
(exact name of registrant as specified in its charter)
Delaware 43-1243221
(state or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
8717 WEST 110TH STREET, SUITE 300
OVERLAND PARK, KANSAS 66210
(address of principal executive office and zip code)
(913) 345-1250
(registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No___ (2) Yes X No ___
As of July 21, 1997, La Petite Academy, Inc. had 100 shares of common stock
outstanding.
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LA PETITE ACADEMY, INC.
INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED): PAGE
----
Balance Sheets 1
Statements of Income 2
Statements of Cash Flows 3
Notes to Financial Statements 4-6
ITEM 2. MANAGEMEN'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 9
ITEM 2. CHANGES IN SECURITIES 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 5. OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURE 10
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
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LA PETITE ACADEMY, INC.
BALANCE SHEETS
40 WEEKS ENDED JUNE 7, 1997
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
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JUNE 7, AUGUST 31,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents $ 21,758 $ 12,791
Restricted cash investments 2,102 9,227
Accounts and notes receivable, net 4,532 3,615
Prepaid supplies 5,671 6,409
Other prepaid expenses 6,703 2,210
Refundable income taxes 275 1,405
Current deferred income taxes 1,439 1,719
-------- --------
Total current assets 42,480 37,376
Property and equipment, at cost:
Land 6,917 6,867
Buildings 26,620 26,199
Furniture, equipment and leasehold improvements 62,602 58,874
Facilities under construction 194 377
-------- --------
96,333 92,317
Less accumulated depreciation and amortization 35,103 24,497
-------- --------
Net property and equipment 61,230 67,820
Other assets (Note 3) 65,448 69,001
Deferred income taxes 4,892 2,936
-------- --------
$174,050 $177,133
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Amounts due to banks, including overdrafts $ 3,535 $ 5,229
Accounts payable 3,488 3,109
Current reserve for closed academies 1,942 2,700
Accrued salaries, wages and other payroll costs 11,464 10,317
Accrued insurance liabilities 4,504 4,361
Accrued property, sales and use tax 3,516 4,254
Accrued interest payable 2,911 739
Other accrued liabilities 4,708 6,575
-------- --------
Total current liabilities 36,068 37,284
Long-term debt (Note 4) 85,716 86,590
Other long-term liabilities (Note 5) 16,030 19,749
Commitments and contingencies (Note 6)
Redeemable preferred stock ($.01 par value per share; 2,000,000 shares authorized; 800,000
issued and outstanding at aggregate liquidation preference; per share liquidation preference of
$39.729 and $35.581, respectively) 31,629 28,827
Stockholder's equity:
Common stock ($.01 par value per share; 1,000 shares authorized; 100
shares issued and outstanding)
Additional paid-in capital 17,175 19,977
Accumulated deficit (12,568) (15,294)
-------- --------
4,607 4,683
-------- --------
$174,050 $177,133
======== ========
See notes to financial statements.
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LA PETITE ACADEMY, INC.
STATEMENTS OF INCOME
40 WEEKS ENDED JUNE 7, 1997
(IN THOUSANDS OF DOLLARS)
================================================================================================================================
12 WEEKS ENDED 40 WEEKS ENDED
==================================== ===================================
JUNE 7, JUNE 1, JUNE 7, JUNE 1,
1997 1996 1997 1996
Operating revenue $74,508 $71,601 $234,491 $228,410
Operating expenses:
Salaries, wages and
benefits 38,486 37,306 122,563 118,207
Facility lease payments 9,062 9,079 30,205 30,022
Depreciation 3,190 3,154 10,634 10,447
Amortization of goodwill
and other intangibles 516 516 1,720 2,258
Other 16,834 17,061 57,133 59,280
------- ------- -------- --------
68,088 67,116 222,255 220,214
------- ------- -------- --------
Operating income 6,420 4,485 12,236 8,196
------- ------- -------- --------
Interest expense 2,124 2,317 7,118 7,994
Interest income (193) (190) (686) (692)
------- ------- -------- --------
Net interest costs 1,931 2,127 6,432 7,302
------- ------- -------- --------
Income before income taxes
and extraordinary item 4,489 2,358 5,804 894
Provision for income taxes 2,027 1,144 3,078 1,056
------- ------- -------- --------
Income (loss) before
extraordinary item 2,462 1,214 2,726 (162)
------- ------- -------- --------
Extraordinary loss on
retirement of debt, net of
applicable income taxes of
$546 819 819
------- ------- -------- --------
Net income (loss) $ 2,462 $ 395 $ 2,726 $ (981)
======= ======= ======== ========
See notes to financial statements.
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LA PETITE ACADEMY, INC.
STATEMENTS OF CASH FLOWS
40 WEEKS ENDED JUNE 7, 1997
(IN THOUSANDS OF DOLLARS)
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40 WEEKS ENDED
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JUNE 7, JUNE 1,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,726 $ (981)
Adjustments to reconcile net income (loss) to net cash from operating
activities:
Non-cash portion of extraordinary loss 1,365
Depreciation and amortization 13,010 13,755
Deferred and accrued income taxes (1,675) 124
Changes in current assets and liabilities:
Accounts and notes receivable (882) (857)
Prepaid expenses and supplies (3,755) (3,899)
Accrued property, sales and use taxes (737) (1,154)
Accrued interest payable 2,172 2,127
Other changes in assets and liabilities, net (2,701) (3,486)
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Net cash from operating activities 8,158 6,994
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CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures (4,306) (4,598)
Proceeds from sale of property and equipment 499 888
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Net cash used for investing activities (3,807) (3,710)
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CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Repayment of long-term debt (877) (12,631)
Proceeds from capital lease 62
Amounts due to banks, including overdrafts (1,694) 5,204
Decrease (increase) in restricted cash investments 7,125 (832)
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Net cash from (used for) financing activities 4,616 (8,259)
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NET INCREASE (DECREASE) IN CASH AND CASH 8,967 (4,975)
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,791 16,299
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,758 $ 11,324
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 4,291 $ 4,817
Income taxes 4,645 565
Cash received during the period from:
Interest $ 622 $ 756
Income taxes 1,141 663
See notes to financial statements.
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LA PETITE ACADEMY, INC.
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NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND MERGER
La Petite Holdings Corp. was formed in 1993 as a Delaware corporation for
the purpose of holding the capital stock of La Petite Acquisition Corp. On
July 23, 1993, Holdings acquired all of the outstanding shares of common
stock, par value $.01 (the "Common Stock"), of La Petite Academy, Inc.
("Academy") for a total price of $104 million, net of transaction costs
and the intercompany note. The transaction was accounted for as a
purchase and the excess of purchase price over the net assets acquired of
$67 million is being amortized over 30 years. On, June 1, 1997, Holdings
was merged with and into its wholly-owned subsidiary Academy, a Delaware
corporation, pursuant to the Agreement and Plan of Merger dated as of May
22, 1997 by and between Holdings and Academy, with Academy as the
surviving corporation. Academy is referred to in these notes as the
"Company".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL REPORTING - The financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Holdings Annual Report on Form 10-K for the fiscal year ended August 31,
1996.
The Company utilizes a 52-week fiscal year ending on the last Saturday in
August composed of 13 four-week periods. The first quarter contains four
such periods or 16 weeks and each remaining quarter contains 3 periods or
12 weeks. The fiscal year ending 1996 was a 53-week year and the fourth
quarter contained one extra week.
The information included in these interim financial statements reflect all
normal recurring adjustments which are, in the opinion of management,
necessary to fairly state the Company's financial position and the results
of its operations for the periods presented.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform with the current year presentation.
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3. OTHER ASSETS
(in thousands of dollars)
JUNE 7, AUGUST 31,
1997 1996
Intangible assets:
Excess purchase price over net assets acquired $64,277 $64,277
Curriculum 1,497 1,497
Workforce 3,248 3,248
Accumulated amortization (12,179) (10,395)
------- -------
56,843 58,627
Deferred financing costs 12,743 12,854
Accumulated amortization (7,721) (6,271)
Other assets 3,583 3,791
------- -------
$65,448 $69,001
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4. LONG-TERM DEBT
(in thousands of dollars)
JUNE 7, AUGUST 31,
1997 1996
Convertible Debentures, 6.5% payable through
June 1, 2011 $ 850 $ 2,100
Senior Notes, 9.625% payable through August 1, 2001 85,000 85,000
Capital Lease - Computer hardware 60 0
------- -------
Total debt 85,910 87,100
Less unamortized discount (194) (510)
------- -------
$85,716 $86,590
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5. OTHER LONG-TERM LIABILITIES
(in thousands of dollars)
JUNE 7, AUGUST 31,
1997 1996
Unfavorable leases, net of accumulated amortization $ 6,371 $ 7,323
Non-current reserve for closed Academies 6,820 8,193
Long-term insurance liabilities 2,839 4,233
------- -------
$16,030 $19,749
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6. COMMITMENTS AND CONTINGENCIES
The Company has litigation pending which arose in the ordinary course of
business. Litigation is subject to many uncertainties and the outcome of
the individual matters is not presently determinable. It is management's
opinion that this litigation will not result in liabilities that would
have a material adverse effect on the Company's financial position or
results of operations.
******
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
The results of operations for La Petite Academy, Inc. (the "Company") for the
12 and 40 weeks ended June 7, 1997 are consistent and comparable with the 12
and 40 weeks ended June 1, 1996.
Historically, the Company's operating revenue has followed the seasonality of
the school year. The number of new children attending the Academies is highest
in September-October and January-February, generally referred to as the Fall
and Winter Enrollment periods. Revenues tend to decline during the calendar
year-end holiday period and during the Summer. As a result of this
seasonality, results for one quarter are not necessarily indicative of results
for an entire year.
The Company is continuing its expansion into new and existing markets on a very
selective basis and aggressively closing under-performing Academies in marginal
locations. Nineteen Academies in operation at the end of the third quarter of
fiscal year 1996 were closed prior to the end of the third quarter of fiscal
year 1997. Seven new Academies were opened during this same period. As a
result, the Company operated 750 Academies at the end of the third quarter of
fiscal 1997, twelve fewer than at the end of the same quarter of fiscal year
1996.
Operating revenue, excluding closed Academies from both years, increased 5.4%
during the 12 weeks and 4.7% during the 40 weeks ended June 7, 1997.
Attendance, excluding closed Academies from both years, increased 0.2% during
the 12 weeks and 1.4% during the 40 weeks ended June 7, 1997, while average
revenue per child increased 5.2% and 3.2%, respectively. Selective increases
in tuition rates took place in the second quarter of both years.
Labor costs increased 3.2% during the 12 weeks and 3.7% during the 40 weeks
ended June 7, 1997. As a percentage of revenue, labor costs were 51.7% for the
12 weeks and 52.3% for the 40 weeks ended June 7, 1997, as compared to 52.1%
and 51.8% during the same periods last year. The increase in labor cost was
principally due to Staff merit increases effective January 1, 1997.
Much of the Company's operating costs are relatively fixed and do not decline
or increase directly with small changes in attendance. Facility lease
payments, depreciation, amortization, and other operating costs all declined or
remained unchanged as a percentage of revenue during the third quarter of
fiscal year 1997 as compared to the same quarter of fiscal year 1996.
As a result of the foregoing, operating income for the 12 weeks ended June 7,
1997 was up $1.9 million or 43.1% from the same period last year. Operating
income for the 40 weeks ended June 7, 1997, was up $4.0 million or 49.3% from
the prior year. Earnings before interest, taxes, depreciation, and
amortization (EBITDA) was $10.1 million in the third quarter of fiscal 1997 as
compared to $8.2 million in the third quarter of fiscal 1996. EBITDA for the
40 weeks ended June 7, 1997, was $24.6 million as compared to $20.9 million in
the prior year.
After factoring in nondeductible goodwill amortization and other permanent
differences, the effective income tax rate for the 12 and 40 weeks ended June
7, 1997 was 40.6%, as compared to 40.0% for the comparable periods last year.
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LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $8.2 million through the third
quarter of fiscal year 1997 compared to cash flow of $7.0 million during the
same period last year. The increase in cash flow from operations of $1.2
million reflects increased net income of $3.7 million, increases in
miscellaneous working capital needs of $3.7 million, offset by increased net
income tax payments of $3.6 million, the purchase of a $1.8 million annuity to
fund workers' compensation claims, and increased payments to the VEBA Employee
Health Care Trust of $0.8 million.
Cash flows from financing activities were $4.6 million through the third
quarter of fiscal year 1997 compared to a negative cash flow of $8.3 million
during the same period last year. The increase in cash flow from financing
activities of $12.9 million reflects reduced term loan payments of $11.8
million, and an $8.0 net decrease in restricted cash requirements, offset by a
$6.9 million increase in the cash flow impact of changes in amounts due banks,
principally overdrafts. The decrease in term loan payments was principally due
to the retirement of borrowing under the Company's old credit agreement in the
prior year. The restricted cash investment represents cash deposited in escrow
accounts as collateral for the self-insured portion of the Company's workers*
compensation and automobile insurance coverage. The Company has the option to
replace these deposits with a credit or surety bond at any time. During the
first quarter of fiscal year 1997, a $5.0 million Letter of Credit (LOC) was
issued in exchange for a return of restricted cash in the same amount.
Through the third quarter, the Company also received, in aggregate, a $3.4
million return of restricted cash due to a reduction of collateral
requirements. The outstanding checks during 1997 declined from $5.2 million to
$3.5 million generating $1.7 million of cash. During 1996, outstanding checks
increased from $4.1 million to $9.3 million, reducing cash by $5.2 million.
The LOC discussed above was issued under the Company's $15.0 million revolving
credit facility. There remains $10 million available for working capital and
other corporate purposes which, in the opinion of management, is adequate to
meet foreseeable needs.
On October 22, 1996, the Company redeemed $1.25 million of the Company's 6 1/2%
Convertible Debentures for 70% of face value. The transaction was funded from
working capital.
The Senior Notes, Preferred Stock and the Credit Agreement (see Note 4 to
Consolidated Financial Statements of Holdings Annual Report on Form 10-K)
contain certain covenants that, among other things, set a maximum on the
Company*s leverage ratio. At June 7, 1997, the Company was in compliance with
all of its debt covenants.
INFLATION AND GENERAL ECONOMIC CONDITIONS
The Company has historically been able to increase tuition to offset increases
in its costs. During the past two years, a period of low to moderate
inflation, the Company implemented selective increases in tuition rates, based
on geographic market conditions and class capacity utilization. The Company did
not experience a material decline in attendance as a result of these increases.
There continues to be, however, no assurance of the impact future inflation
related tuition increases will have on attendance.
The minimum wage increase of October 1, 1996 did not have a material impact on
the Company's operations. On September 1, 1997 the minimum wage will increase
from $4.75 to $5.15 per hour, and it is also not expected to materially impact
Company operations.
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PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS.
The Company has litigation pending which arose in the ordinary course of
business. In management's opinion, none of such litigation in which the
Company is currently involved will result in liabilities that will have a
material adverse effect on its financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits required by Item 601 of Regulation S-K:
Exhibit 3.3 - Restated Certificate of Incorporation of La Petite Academy,
Inc.
Exhibit 4.7 - First Supplemental Indenture dated as of May 19, 1997
between La Petite Holdings Corp., La Petite Academy, Inc. and Fleet
National Bank, as successor Trustee to Shawmut Bank Connecticut, with
respect to the Exchange Debentures.
Exhibit 4.8 - First Supplemental Indenture dated as of May 19, 1997
between La Petite Holdings Corp., La Petite Academy, Inc. and Fleet
National Bank, as successor Trustee to Shawmut Bank Connecticut, with
respect to the Senior Notes.
Exhibit 10.12 - First Amendment to Amended and Restated Credit
Agreement dated as of May 27, 1997, among La Petite Academy, Inc., La
Petite Holdings, Corp., various financial institutions, Bankers Trust
Company as Administrative Agent, and Mercantile Bank as Co-Agent.
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K:
Current Report on Form 8-K filed on July 10, 1997 reporting the merger on
June 1, 1997 of La Petite Holdings Corp. with and into La Petite Academy,
Inc.
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SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LA PETITE ACADEMY, INC.
Dated: July 21, 1997 /s/ Phillip M. Kane
--------------------------------------
By: Phillip M. Kane
Senior Vice-President, Chief Financial
Officer and Treasurer and duly
authorized representative of the
registrant
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