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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JULY 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 333-56239-01
LPA HOLDING CORP.
(exact name of registrant as specified in its charter)
SEE TABLE OF ADDITIONAL REGISTRANTS
Delaware 48-1144353
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
8717 WEST 110TH STREET, SUITE 300
OVERLAND PARK, KS 66210
(Address of principal executive office and zip code)
(913) 345-1250
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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
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There are no shares of voting stock of La Petite Academy, Inc. held by
non-affiliates.
As of September 29, 2000, LPA Holding Corp. had outstanding 564,985 shares of
Class A Common Stock (par value, $.01 per share) and 20,000 shares of Class B
Common Stock (par value, $.01 per share). As of September 29, 2000, each of the
additional registrants had the number of outstanding shares, which is shown on
the following table.
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ADDITIONAL REGISTRANTS
Number of Shares
Jurisdiction of Commission IRS Employer of Common
Name Incorporation File Number Identification No. Stock Outstanding
- ---- --------------- ----------- ------------------ ------------------
La Petite Academy, Inc. Delaware 333-56239 43-1243221 100 shares of Common Stock
(par value, $.01 per share)
LPA Services, Inc. Delaware 333-56239-02 74-2849053 1,000 shares of Common Stock
(par value, $.01 per share)
Bright Start, Inc. Minnesota 333-56239-03 41-1694581 100 shares of Common Stock
(par value, $.01 per share)
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LPA HOLDING CORP.
INDEX
PART I.
PAGE
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Item 1. Business 4
Item 2. Properties 11
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 41
PART III.
Item 10. Directors and Executive Officers of the Registrant 42
Item 11. Executive Compensation 46
Item 12. Security Ownership of Certain Beneficial Owners and Management 49
Item 13. Certain Relationships and Related Transactions 50
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 51
SIGNATURES 59
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PART I.
ITEM 1. BUSINESS
ORGANIZATION
Vestar/LPA Investment Corp. (Parent), a privately-held Delaware corporation, was
formed in 1993 for the purpose of holding the capital stock of La Petite
Holdings Corp. (Holdings), a Delaware corporation. Holdings, which has no assets
or operations, was formed in 1993 for the purpose of holding the capital stock
of La Petite Acquisition Corp. (Acquisition). On July 23, 1993, as a result of a
series of transactions, Holdings acquired all the outstanding shares of common
stock, par value $.01 (the Common Stock), of La Petite Academy, Inc., a Delaware
corporation (La Petite). The transaction was accounted for as a purchase and the
excess of purchase price over the net assets acquired is being amortized over 30
years. On May 31, 1997, Holdings was merged with and into La Petite with La
Petite as the surviving corporation. On August 28, 1997, LPA Services, Inc.
(Services), a wholly owned subsidiary of La Petite, was incorporated. Services
provides third party administrative services on insurance claims to La Petite.
On March 17, 1998, LPA Investment LLC (LPA), a Delaware limited liability
company owned by an affiliate of Chase Capital Partners (CCP) and by an entity
controlled by Robert E. King, a director of La Petite, and Parent, which was
renamed LPA Holding Corp., entered into an Agreement and Plan of Merger pursuant
to which a wholly owned subsidiary of LPA was merged into Parent (the
Recapitalization). In the Recapitalization, all of the then outstanding shares
of preferred stock and common stock of Parent (other than the shares of common
stock retained by Vestar/LPT Limited Partnership and management of La Petite)
owned by the existing stockholders of Parent (the Existing Stockholders) were
converted into cash. As part of the Recapitalization, LPA purchased $72.5
million (less the value of options retained by management) of common stock of
the Parent and $30 million of redeemable preferred stock of Parent
(collectively, the Equity Investment). In addition, in connection with the
purchase of preferred stock of Parent, LPA received warrants to purchase up to
6.0% of Parent's common stock on a fully diluted basis. The Recapitalization was
completed May 11, 1998.
On July 21, 1999, La Petite acquired all the outstanding shares of Bright Start,
Inc. ("Bright Start"). See Note 12 to the consolidated financial statements.
On December 15, 1999, LPA acquired an additional $15.0 million of Parent's
redeemable preferred stock and received warrants to purchase an additional 3% of
Parent's common stock on a fully-diluted basis. The $15.0 million proceeds
received by Parent was contributed to La Petite as common equity. As a result of
the recapitalization and additional purchase of preferred stock and warrants,
LPA beneficially owns 81.3% of the common stock of Parent on a fully diluted
basis and $45 million of redeemable preferred stock of Parent. An affiliate of
CCP owns a majority of the economic interests of LPA and an entity controlled by
Robert E. King owns a majority of the voting interests of LPA.
Parent, consolidated with La Petite, Bright Start and Services, is referred to
herein as the Company.
BUSINESS DESCRIPTION
The following discussion refers to the Company, and includes a discussion of La
Petite prior to the 1993 acquisition:
La Petite, founded in 1968, is the largest privately held and one of the leading
for-profit preschool educational facilities (commonly referred to as Academies)
in the United States based on the number of centers operated. The Company
provides center-based educational services and child care to
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children between the ages of six weeks and 12 years. Management believes the
Company differentiates itself through its superior educational programs, which
were developed and are regularly enhanced by its Curriculum Department. The
Company's focus on quality educational services allows it to capitalize on the
increased awareness of the benefits of premium educational instruction for
preschool and elementary school age children. At its residential and
employer-based Academies, the Company utilizes its proprietary Journey(R)
curriculum with the intent of maximizing a child's cognitive and social
development. The Company also operates Montessori schools that employ the
Montessori method of teaching, a classical approach that features the
programming of tasks with materials presented in a sequence dictated by each
child's capabilities.
As of July 1, 2000, the Company operated 752 Academies including 696 residential
Academies, 23 employer-based Academies and 33 Montessori schools located in 35
states and the District of Columbia. Subsequent to the end of the fiscal year,
the Company closed four residential Academies in connection with the
restructuring plan implemented in the third quarter of fiscal year 2000. By the
end of fiscal year 2001, management plans to address the closing of the
remaining six schools included in the restructuring plan (see Note 13 of the
consolidated financial statement). For the 52 weeks ended July 1, 2000, the
Company had an average attendance of approximately 83,000 full and part-time
children.
CURRICULUM
Residential and Employer-Based Academies. In 1991, La Petite, with the
assistance of outside educational experts, designed and developed the Journey(R)
curriculum to not only maximize children's cognitive development but also to
provide a positive learning experience for the children. The Company believes
the Journey(R) curriculum is unsurpassed by the educational materials of any of
the major child care providers or our other competitors, many of whom purchase
educational materials from third party vendors.
Journey is an integrated approach to learning, giving children opportunities to
learn through all of their senses while stimulating development and learning in
all areas. Children progress at their own pace, building skills and abilities in
a logical pattern. The Journey(R) curriculum covers children of all ages that La
Petite Academy serves. Each level of the curriculum includes a parent component,
built-in training, carefully selected age appropriate materials, equipment and
activities, and a well planned and developed environment.
For infants and toddlers, Journey provides activities for a variety of
developmental areas such as listening and talking, physical development,
creativity and learning from the world around them. As infants become toddlers,
more activities focus on nurturing their need for independence and practicing
small motor skills that help them learn to feed themselves, walk and communicate
with others. Journey provides songs, fingerplay, art ideas, storytelling tips,
building activities and many activities to develop the bodies of toddlers
through climbing, pushing and pulling. These activities also build the
foundation for social skills such as how to get along with others and how to
share.
The Journey preschool program includes a balance of teacher-directed and
child-directed activities that address both the physical and intellectual
development of preschool children. Physical activities are designed to increase
physical and mental dexterity, specifically hand-eye and large and small muscle
coordination. Preschool children also engage in creative and expressive
activities such as painting, crafts and music. Intellectual activities are
designed to promote language development, pre-reading, writing and thinking
skills, imagination through role playing, pretending and problem solving. In
addition, Journey enables the children to experience the world around them
through geography, Spanish, mathematics and sensorial activities.
The Journey(R) curriculum for SuperStars, children ages 5 through 12, consists
of providing quiet, private space for them to do homework; social interaction
with children of their own age; participation in enrichment programs such as
arts and crafts and fitness activities, and transportation to and from their
elementary schools.
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Montessori Schools. Montessori is a non-traditional method of education in that
children work and learn in a highly individualized environment. Montessori
materials, combined with our certified Montessori instructors, create a learning
environment in which children become energized to explore, investigate and
learn. Children work in mixed age group classrooms with attractive,
state-of-the-art Montessori materials that have been designed to stimulate each
child's interest in reading, mathematics, geography and science. In addition to
the Montessori method, Montessori schools provide enrolled children foreign
language and computer learning.
ACADEMY NETWORK
The Company operates three types of child care centers: residential Academies,
employer-based Academies and Montessori schools. Academies generally operate
year round, five days a week and typically are open from 6:30 AM to 6:30 PM. A
child may be enrolled in any of a variety of program schedules from a full-time,
five-day-per-week plan to as little as two or three half-days a week. A child
attending full-time typically spends approximately nine hours a day, five days
per week, at an Academy. The SuperStars program for children ages five to 12
provides extended child care before and after the elementary school day and
transportation to and from the elementary school.
Academy employees include Academy Directors, Assistant Directors (who are
generally teachers), full-time and part-time teachers, temporary and substitute
teachers, teachers' aides, and non-teaching staff. On average, there are 15 to
20 employees per Academy. Each Academy is managed by an Academy Director. An
Academy Director implements company policies and procedures, but has the
autonomy to individualize local operations. Responsibilities of Academy
Directors include curriculum implementation, the establishment of daily, weekly
and monthly operating schedules, staffing, marketing to develop and increase
enrollment and control of operating expenses. Personnel involved in operations
as Academy Director and above are compensated in part on the basis of the
profitability and level of parent and employee satisfaction of each Academy for
which they have managerial responsibility.
Academy Directors are supervised by a Managing Director. Managing Directors have
an average of 11 years of experience with the Company, typically are responsible
for six to 30 Academies and report to one of three Divisional Vice Presidents.
Managing Directors visit their Academies regularly and are in frequent contact
to help make decisions and improvements to program quality and profitability.
The Divisional Vice Presidents average in excess of 18 years of experience with
the Company.
Residential Academies. As of July 1, 2000, the Company operated 696 residential
Academies. Residential Academies are typically located in residential, middle
income neighborhoods, and are usually one-story, air-conditioned buildings
located on three-quarters of an acre to one acre of land. A typical Academy also
has an adjacent playground designed to accommodate the full age range of
children attending the school. Newly built Academies are approximately 9,500
square feet, built on sites of approximately one acre, have an operating
capacity of approximately 175 children and incorporate a closed classroom
concept. The Company continues to improve, modernize and renovate existing
residential Academies to improve efficiency and operations, to better compete,
to respond to the requests of parents and to support the Journey(R) curriculum.
Residential Academies generally have programs to care for children from toddlers
to 12 years old arranged in five age groups. In addition, over half of the
Academies offer child care for infants, as young as six weeks old.
Teacher-student ratios vary depending on state requirements but generally
decrease with the older child groups.
Employer-Based Academies. As of July 1, 2000, the Company operated 23
employer-based Academies, which are similar to residential Academies, but are
designed to offer businesses, including government employers and hospitals,
on-site employer-sponsored child care. So far, the Company's
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focus has been principally on developing on-site centers, operating employers'
on-site centers through management contracts and providing consulting services
for developing and managing centers. At most employer-based Academies, tuition
is collected from our students in the same way as at residential Academies. At
some employer-based Academies, additional payments or support services from the
sponsoring employer are received. At other employer-based Academies, a fee in
addition to tuition may be received.
Montessori Schools. As of July 1, 2000, the Company operated 33 Montessori
schools. Montessori schools are typically located in upper-middle income areas
and feature brick facades and closed classrooms. The Montessori schools
typically have lower staff turnover, and their lead teachers are certified
Montessori instructors, many of whom are certified through the Company's
internal training program. In addition, unlike students at residential
Academies, Montessori students are enrolled for an entire school year, pay
tuition monthly in advance and pay higher tuition rates.
SEASONALITY
Historically, the Company's operating revenue has followed the seasonality of a
school year, declining during the summer months and the year-end holiday period.
The number of new children enrolling at the Academies is generally highest in
September-October and January-February; therefore, the Company attempts to
concentrate its marketing efforts immediately preceding these high enrollment
periods. Several Academies in certain geographic markets have a backlog of
children waiting to attend; however, this backlog is not material to the overall
attendance throughout the system.
NEW ACADEMY DEVELOPMENT
The Company intends to expand within existing markets and enter new markets with
Academies and Montessori schools concentrated in clusters. In existing markets,
management believes it has developed an effective selection process to identify
attractive markets for prospective Academy sites. In evaluating the suitability
of a particular location, the Company concentrates on the demographics of its
target customer within a two mile radius for residential Academies and a six
mile radius for Montessori schools. The Company targets Metropolitan Statistical
Area's with benchmark demographics which indicate parent education levels and
family incomes combined with high child population growth, and considers the
labor supply, cost of marketing and the likely speed and ease of development of
Academies in the area.
Newly constructed Academies are generally able to open approximately 36 weeks
after the real estate contract is signed. Because a location's early performance
is critical in establishing its ongoing reputation, the Academy staff is
supported with a variety of special programs to help achieve quick enrollment
gains and development of a positive reputation. These programs include special
compensation for the Academy Director who opens the new site and investment in
local marketing prior to the opening. Historically, new Academies have been
profitable within their second year of operation and reached maturity within
three years.
During fiscal year 2000, the Company opened nine new Journey based Academies,
one of which was being developed by Bright Start, and seven new Montessori
Schools. Also in July 1999, the Company acquired Bright Start, Inc., an operator
of 43 center-based preschools and childcare facilities.
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TUITION
Academy tuition depends upon a number of factors including, but not limited to,
location of an Academy, age of the child, full or part-time attendance and
competition. The Company also provides various tuition discounts primarily
consisting of sibling, staff, Corporate Referral Program and Parent's Partner
Plan. The Company adjusts tuition for Academy programs by child age-group and
program schedule within each Academy on an annual basis each September. Parents
also pay an annual registration fee, which is reduced for families with more
than one child attending an Academy. Tuition and fees are payable weekly and in
advance for most residential and employer-based Academies and monthly and in
advance for Montessori schools. Management estimates that state governments pay
the tuition for approximately 15% of the children under its care.
MARKETING AND ADVERTISING
In 2000, the Company embarked on a branding and marketing initiative that the
Company believes will enhance the value of the La Petite Academy name. A series
of focus groups were conducted to study different graphical elements of parent
communications and a new logo design. The Company introduced a new logo and
identity package. The new Apple design retains a previous theme but adds a
contemporary feel. The new logo brings an attractive design element yet retains
the brand equity found in the previous Apple style. The new logo and other
graphic elements were used to develop a complete package of parent
communications, print advertising, and other collateral material. The design
elements are now being incorporated into other branding efforts including
signage and additional advertising mediums.
The Company continues to focus on retention as the greatest asset to business
stability and growth. In July 2000, the Company introduced an innovative
employee cash incentive bonus program. This program rewards Academy employees
for achieving utilization targets and in-turn, providing high levels of customer
service. The Company believes that the program is viewed by parents as a highly
positive means of improving teacher retention and adding value to the Company.
A heavy emphasis has been placed on expanding corporate partner relationships
and growing the Preferred Employer Program. This Program allows the Company to
build quality relationships with large corporations by providing preferred
pricing for their employees who enroll their children at the Company's
Academies.
INFORMATION SYSTEMS
The Company's financial and management reporting systems are connected through a
Virtual Private Network (VPN) that connects all Academies, field management and
Support Center employees. Through the use of the Company's point of sale
software product, called ADMIN, and the implementation of the VPN, information
such as financial reporting, enrollments, pricing, labor, receivables, and
attendance are available at all levels of the organization.
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The Company continues to review its management information systems to ensure it
reports on meaningful, specific and measurable performance indicators as well as
provide consistent access.
As of July 1, 2000, all schools purchased in the Bright Start acquisition have
adopted our technology and management systems, which included significant
training, time and investment.
To improve the management of the Company's labor and human resources, it is
implementing a new Payroll and Human Resource system that focuses on employee
self-service and analytic capabilities. The Company anticipates significant
savings with the automation of payroll collection and with the ability to manage
our human resources for the first time with automated capabilities.
Due to the relative newness (1997 and newer) of the technology at the Company,
Year 2000 compliant modifications were minor and January 1, 2000 passed without
any issues.
COMPETITION
The United States preschool education and child care industry is highly
fragmented and competitive. The Company's competition consists principally of
local nursery schools and child care centers, some of which are non-profit
(including religious-affiliated centers), providers of services that operate out
of their homes and other for profit companies which may operate a number of
centers. Local nursery schools and child care centers generally charge less for
their services. Many religious-affiliated and other non-profit child care
centers have no or lower rental costs than the Company, may receive donations or
other funding to cover operating expenses and may utilize volunteers for
staffing. Consequently, tuition rates at these facilities are commonly lower
than our rates. Additionally, fees for home-based care are normally lower than
fees for center-based care because providers of home care are not always
required to satisfy the same health, safety or operational regulations as our
Academies. The competition also consists of other large, national, for profit
child care companies that may have more aggressive tuition discounting and other
pricing policies than La Petite. The Company competes principally by offering
trained and qualified personnel, professionally planned educational and
recreational programs, well-equipped facilities and additional services such as
transportation. In addition, the Company offers a challenging and sophisticated
program that emphasizes the individual development of the child. Based on focus
group research conducted in early 2000, the majority of parent's rank the
qualities of staff as the most important deciding factor in choosing a child
care facility. Following teacher qualification were such items as safety,
cleanliness, programs, and curriculum. Price typically played a minimal
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role in the decision process, assuming price was within a reasonable variance.
For some potential customers, the non-profit status of certain competitors may
be a significant factor in choosing a child care provider.
REGULATION AND GOVERNMENT INVOLVEMENT
Child care centers are subject to numerous state and local regulations and
licensing requirements, and the Company has policies and procedures in place in
order to comply with such regulations and requirements. Although state and local
regulations vary greatly from jurisdiction to jurisdiction, government agencies
generally review the ratio of staff to enrolled children, the safety, fitness
and adequacy of the buildings and equipment, the dietary program, the daily
curriculum, staff training, record keeping and compliance with health and safety
standards. In certain jurisdictions, new legislation or regulations have been
enacted or are being considered which establish requirements for employee
background checks or other clearance procedures for new employees of child care
centers. In most jurisdictions, governmental agencies conduct scheduled and
unscheduled inspections of child care centers, and licenses must be renewed
periodically. Failure by an Academy to comply with applicable regulations can
subject it to state sanctions, which might include the Academy being placed on
probation or, in more serious cases, suspension or revocation of the Academy's
license to operate and could also lead to sanctions against our other Academies
located in the same jurisdiction. In addition, this type of action could lead to
negative publicity extending beyond that jurisdiction.
Management believes the Company is in substantial compliance with all material
regulations and licensing requirements applicable to our businesses. However,
there is no assurance that a licensing authority will not determine a particular
Academy to be in violation of applicable regulations and take action against
that Academy. In addition, there may be unforeseen changes in regulations and
licensing requirements, such as changes in the required ratio of child center
staff personnel to enrolled children that could have material adverse effect on
our operations.
Certain tax incentives exist for child care programs. Section 21 of the Code
provides a federal income tax credit ranging from 20% to 30% of certain child
care expenses for "qualifying individuals" (as defined in the Code). The fees
paid to the Company for child care services by eligible taxpayers qualify for
the tax credit, subject to the limitations of Section 21 of the Code. In
addition to the federal tax credits, various state programs provide child care
assistance to low income families. Management estimates approximately 15% of
operating revenue is generated from such, federal and state programs. Although
no federal license is required at this time, there are minimum standards that
must be met to qualify for participation in certain federal subsidy programs.
Government, at both the federal and state levels, is actively involved in
expanding the availability of child care services. Federal support is delivered
at the state level through government-operated educational and financial
assistance programs. Child care services offered directly by states include
training for child care providers and resource and referral systems for parents
seeking child care. In addition, the state of Georgia has an extensive
government-paid private sector preschool program in which the Company
participates.
The Federal Americans with Disabilities Act (the "Disabilities Act") prohibits
discrimination on the basis of disability in public accommodations and
employment. The Disabilities Act became effective as to public accommodations in
January 1992 and as to employment in July 1992. Since effectiveness of the
Disabilities Act, the Company has not experienced any material adverse impact as
a result of the legislation.
In September of 1998, the National Highway Transportation Safety Administration
(NHTSA) issued interpretative letters that modified its interpretation of
regulations governing the sale by automobile dealers of vehicles intended to be
used for the transportation of children to and from school. These letters
indicate that dealers may no longer sell fifteen-passenger vans for this use,
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and that any vehicle designed to transport eleven persons or more must meet
federal school bus standards if it is likely to be "used significantly" to
transport children to and from school or school-related events. The Company
currently maintains a fleet of approximately 1,300 fifteen-passenger vans and
100 school buses for use in transportation of children which management believes
are safe and effective vehicles for that purpose. The Company's current fleet
meets all necessary federal, state, and local safety requirements. In accordance
with the new NHTSA requirements, all new fleet additions or replacements will
meet school bus standards.
COMPLIANCE WITH ENVIRONMENTAL PROTECTION PROVISIONS
Compliance with federal, state and local laws and regulations governing
pollution and protection of the environment is not expected to have any material
effect upon the financial condition or results of operations of the Company.
TRADEMARKS
The Company has various registered trademarks covering the name La Petite
Academy, its logos, and a number of other names, slogans and designs, including,
but not limited to: La Petite Journey, Parent's Partner, SuperStars and
Montessori Unlimited(R). A federally registered trademark in the United States
is effective for ten years subject only to a required filing and the continued
use of the mark by the registrant. A federally registered trademark provides the
presumption of ownership of the mark by the registrant in connection with its
goods or services and constitutes constructive notice throughout the United
States of such ownership. In addition the Company has registered various
trademarks in Japan, Taiwan and the Peoples Republic of China. Management
believes that the Company's name and logos are important to its operations and
intends to continue to renew the trademark registrations thereof.
INSURANCE AND CLAIMS ADMINISTRATION
The Company maintains insurance covering comprehensive general liability,
automotive liability, workers' compensation, property and casualty, crime and
directors and officers insurance. The policies provide for a variety of
coverage, are subject to various limits, and include substantial deductibles or
self-insured retention. There is no assurance that claims in excess of, or not
included within, coverage will not be asserted, the effect of which could have
an adverse effect on the Company.
EMPLOYEES
As of July 1, 2000, the Company employed approximately 13,000 persons. The
Company's employees are not represented by any organized labor unions or
employee organizations and management believes relations with employees are
good.
ITEM 2. PROPERTIES
As of July 1, 2000, the Company operated 752 Academies, 688 of which were leased
under operating leases, 52 of which were owned and 12 of which were operated in
employer-owned centers. Most of these Academy leases have 15-year terms, some
have 20-year terms, many have renewal options, and most require the Company to
pay utilities, maintenance, insurance and property taxes. In addition, some of
the leases provide for contingent rentals, if the Academy's operating revenue
exceeds certain base levels.
Because of different licensing requirements and design features, Academies vary
in size and licensed capacity. Academies typically contain 5,400, 6,700, 7,800
or 9,500 square feet in a one-story, air-conditioned building typically located
on three-quarters of an acre to one acre of land.
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Each Academy has an adjacent playground designed to accommodate the full age
range of children attending the Academy. Licensed capacity for the same size
building varies from state to state because of different licensing requirements.
In 1998 the Company designed new prototypes for residential Academies and
Montessori schools, both of which are 9,500 square foot facilities built on one
acre or more of commercially zoned property. The 14 new residential Academy
facilities opened in fiscal 1999 and 2000 have an operating capacity for
approximately 175 children and are closed classroom designs that reflects a
preschool environment and supports the latest curriculum improvements. The 14
new Montessori schools opened in 1999 and 2000 are divided into six to eight
equal-sized classrooms that support 20 to 25 children, resulting in an operating
capacity for approximately 150 to 160 children. Management believes the new
facilities afford the Company more flexibility to better suit varying site plans
and future changes as residential neighborhoods evolve. The new exterior design
was developed to enhance the appearance and image of the Academies. In opening a
new Academy, the Company historically acquires the land, constructs the facility
and then seeks long-term financing through a sale (at cost) and operating
leaseback transaction.
The following table summarizes Academy openings and closings for the indicated
periods.
FISCAL YEAR 2000 1999 1998 1997 1996
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Academies:
Open at Beginning of Period 743 736 745 751 786
Opened During Period 59 13 1 3 11
Closed During Period (50) (6) (10) (9) (46)
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Open at End of Period 752 743 736 745 751
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During fiscal year 2000, the Company opened nine Residential Academies, seven
Montessori schools and acquired 43 schools through the acquisition of Bright
Start. During that same period, the Company closed 50 schools. During fiscal
year 2000, 39 of the closures resulted from management's decision to close
certain schools located in areas where the demographic conditions no longer
supported and economically viable operations, and the remaining 11 closures were
due to management's decision not to renew the leases or contracts of certain
schools. Subsequent to the end of the fiscal year, the Company closed four
residential Academies in connection with the restructuring plan implemented in
the third quarter of fiscal year 2000. By the end of fiscal year 2001,
management plans to address the closing of the remaining six schools included in
the restructuring plan (see Note 13 of the consolidated financial statement).
The following table shows the number of locations operated by the Company as of
July 1, 2000:
Alabama (14) Indiana (16) Nebraska (10) South Carolina (22)
Arizona (26) Iowa (7) Nevada (17) Tennessee (26)
Arkansas (6) Kansas (24) New Jersey (2) Texas (113)
California (54) Kentucky (4) New Mexico (20) Utah (4)
Colorado (24) Louisiana (1) North Carolina (29) Virginia (36)
Delaware (1) Maryland (15) Ohio (17) Washington, D C (1)
Florida (92) Minnesota (8) Oklahoma (22) Washington (14)
Georgia (44) Mississippi (3) Oregon (7) Wisconsin (14)
Illinois (23) Missouri (30) Pennsylvania (5) Wyoming (1)
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The leases have initial terms expiring as follows:
YEARS INITIAL LEASE TERMS EXPIRE NUMBER OF ACADEMIES
2001 123
2002 106
2003 86
2004 123
2005 65
2006 and later 185
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688
---
The Company currently leases 688 Academies from approximately 425 lessors. The
Company has generally been successful when it has sought to renew expiring
Academy leases.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Parent is not publicly traded. As of September 29, 2000,
LPA owned 89.6% of the Parent's common stock, Vestar/LPT Limited Partnership
owned 3.6%, management owned 1.9% and former management owned 4.9%.
No cash dividends were declared or paid on the Parent's common stock during
fiscal year 2000 and 1999. The Company's Senior Notes and preferred stock (see
Note 3 and Note 7, respectively, to the consolidated financial statements)
contain certain covenants that, among other things, do not permit La Petite to
pay cash dividends on its common or preferred stock now or in the immediate
future.
As of July 1, 2000, there were 13 holders of record of Parent's common stock.
13
14
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS OF DOLLARS)
52 WEEKS 44 WEEKS 52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED ENDED ENDED
JULY 1, JULY 3, AUGUST 29, AUGUST 30, AUGUST 31,
2000 1999 (a) 1998 1997 1996
--------- ----------- ----------- ---------- ----------
INCOME STATEMENT DATA
Operating revenue $ 371,037 $ 281,072 $ 314,933 $302,766 $300,277
Operating expenses:
Salaries, wages and benefits 205,665 150,052 166,501 159,236 155,046
Facility lease expense 46,573 33,670 38,403 38,094 38,349
Depreciation 13,500 10,911 13,892 13,825 13,680
Amortization of goodwill
and other intangibles 2,835 1,972 3,122 3,474 4,012
Recapitalization costs (b) 8,724
Restructuring charge (c) 7,500
Other 89,879 68,277 76,258 74,111 78,310
---------- ----------- --------- -------- --------
Total operating expenses 365,952 264,882 306,900 288,740 289,397
---------- ----------- --------- -------- --------
Operating income 5,085 16,190 8,033 14,026 10,880
Interest expense (d) 20,880 16,145 14,126 9,245 10,256
Minority interest in net
income of subsidiary 2,849 3,693 3,561
Interest income (163) (153) (885) (959) (903)
---------- ----------- --------- -------- --------
Income (loss) before income taxes
and extraordinary item (15,632) 198 (8,057) 2,047 (2,034)
Provision (benefit) for income
taxes (5,085) 995 (254) 3,264 1,518
---------- ----------- --------- -------- --------
Loss before extraordinary item (10,547) (797) (7,803) (1,217) (3,552)
Extraordinary loss on early
retirement of debt (e) (5,525) (819)
---------- ----------- --------- -------- --------
Net loss $ (10,547) $ (797) $ (13,328) $ (1,217) $ (4,371)
========== =========== ========= ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD)
Total assets $ 165,647 $ 169,468 $ 160,791 $ 171,160 $ 177,133
Subordinated debt 903 1,590
Total long-term debt 182,319 187,999 185,727 85,903 86,590
Redeemable preferred stock 47,314 29,310 25,625 32,521 28,827
Stockholders' equity (deficit) (123,653) (110,183) $(105,701) 3,374 4,787
OTHER DATA
EBITDA (f) $ 28,920 $ 29,073 $ 33,771 $ 31,325 $ 28,572
Cash flows from operating activities 5,597 10,320 7,224 14,886 15,208
Cash flows from investing activities (10,341) (19,204) (11,005) (6,848) (6,045)
Cash flows from financing activites 4,180 6,588 (13,322) 3,142 (12,671)
Depreciation and amortization (g) 17,387 13,712 17,859 18,149 18,942
Capital expenditures 23,412 31,666 13,637 7,300 8,570
Ratio of earnings to fixed charges (h) (h) 1.0x (h) 1.1x (h)
Proceeds from sale of assets 23,432 12,462 2,632 452 2,525
Academies at end of period 752 743 736 745 751
FTE utilization during the period (i) 63% 65% 65% 66% 64%
14
15
a) On June 10, 1999, the Company changed its fiscal year to be the period
starting on the first Saturday in July and ending on the first Saturday
of July of the subsequent year, resulting in a 44 week year for fiscal
1999 (see Note 1 in the consolidated financial statements).
b) Recapitalization costs consist principally of transaction bonuses of
$1.5 million and payments for the cancellation of options of $7.2
million, both of which were inclusive of payroll taxes.
c) In the third quarter of 2000, management committed to a plan to close
certain Academies located in areas where the demographic conditions no
longer support an economically viable operation and to restructure its
operating management to better serve the remaining Academies.
Accordingly, the Company recorded a $7.5 million restructuring charge
($4.5 million after tax) to provide for costs associated with the
Academy closures and restructuring of 49 Academies. The charge consists
principally of $5.9 million for the present value of rent, real estate
taxes, common area maintenance charges, and utilities, net of
anticipated sublease income, and $1.1 million for the write-down of
fixed assets to fair market value. At July 1, 2000, the Company had an
accrual for the closing of these Academies of $6.2 million. During
fiscal year 2000, 39 schools were closed. Subsequent to the end of the
fiscal year, an additional four schools have closed in connection with
the restructuring plan. By the end of fiscal year 2001, management
plans to address the closing of the remaining six schools.
d) Interest expense includes $1.1 million, $0.8 million, $0.8 million,
$0.9 million, and $1.3 million of amortization of deferred financing
costs for fiscal years 2000, 1999, 1998, 1997, and 1996, respectively.
e) On May 11, 1998, the Company incurred a $5.5 million extraordinary loss
related to (i) the retirement of all the outstanding $85.0 million
principal amount of 9 5/8% Senior Notes due on 2001, (ii) the exchange
of all outstanding shares of La Petite's Class A Preferred Stock for
$34.7 million in aggregate principal amount of La Petite's 12 1/8%
Subordinated Exchange Debentures due 2003, and (iii) the retirement of
all the 12 1/8% Subordinated Exchange Debentures and the 6.5%
Convertible Debentures. The loss principally reflects the write off of
premiums and related deferred financing costs, net of applicable income
tax benefit.
f) EBITDA is defined herein as net income before non-cash restructuring
charges, extraordinary items, net interest cost, taxes, depreciation
and amortization and is presented because it is generally accepted as
providing useful information regarding a company's ability to service
and/or incur debt. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and
other consolidated income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a
measure of the Company's profitability or liquidity.
g) Depreciation and amortization includes amortization of deferred
financing costs and accretion of discount on the 6.5% Convertible
Debentures that is presented as interest expense on the statements of
income.
h) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes and extraordinary
items, plus fixed charges. Fixed charges consists of interest expense
on all indebtedness, amortization of deferred financing costs, and
one-third of rental expense on operating leases representing that
portion of rental expense that the Company deemed to be attributable to
interest. For the 52-weeks ended July 1, 2000, and August 29, 1998, and
the 53 weeks ended August 31, 1996, earnings were inadequate to cover
fixed charges by $15.6 million, $8.1 million and $2.0 million,
respectively.
i) FTE Utilization is the ratio of full-time equivalent (FTE) students to
the total operating capacity for all of the Company's Academies. FTE
attendance is not a measure of the absolute number of students
attending the Company's Academies; rather, it is an approximation of
the full-time equivalent number of students based on Company estimates
and weighted averages. For example, a student attending full-time is
equivalent to one FTE, while a student attending one-half of each day
is equivalent to 0.5 FTE.
15
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and the related notes thereto included elsewhere in this
document.
On June 10, 1999, the Company changed its fiscal year to be the period starting
on the first Sunday in July and ending on the first Saturday in July in the
subsequent year (See Note 1 of the consolidated financial statements). For
comparative purposes, the table below presents the results of the 52 weeks ended
July 1, 2000 and the results of the 52 weeks ended July 3, 1999 (herein referred
to as the 2000 year and the 1999 year). The subsequent discussion of results is
based on the 52 week comparison. The selected data for the 52 weeks ended July
3, 1999 is unaudited but reflects all adjustments, consisting of normal
recurring accruals, which in the opinion of management are necessary to fairly
present the Company's results of operations for the unaudited period. The
selected data for the 52 weeks ended July 1, 2000 includes the results of Bright
Start from July 21, 1999, the date of acquisition.
The Company's operating results for the 2000 year are consistent and comparable
with the 1999 year, except for operating losses associated with new educational
facilities (New Academies) and the acquisition of the 43 Bright Start Academies.
The Company considers an Academy as new if it opened within the current or
previous fiscal year. These schools typically generate operating losses during
the first few months of operation until the Academies achieve normalized
occupancies. Included in operating income and EBIDTA were New Academy operating
losses of $1.9 million and $0.7 million for the 2000 year and 1999 year,
respectively. Bright Start contributed $2.1 million and $1.5 million to
operating income and EBITDA for the 2000 year.
Full-time equivalent (FTE) attendance, as defined by the Company, is not a
measure of the absolute number of students attending the Company's Academies,
but rather is an approximation of the full-time equivalent number of students
based on Company estimates and weighted averages. For example, a student
attending full-time is equivalent to one FTE, while a student attending only
one-half of each day is equivalent to 0.5 FTE.
2000 COMPARED TO 1999 RESULTS (IN THOUSANDS OF DOLLARS)
52 WEEKS ENDED 52 WEEKS ENDED
----------------------------- -----------------------------
July 1, Percent of July 3, Percent of
2000 Revenue 1999 Revenue
Operating revenue $ 371,037 100.0% $ 328,763 100.0%
Operating expenses:
Salaries, wages and benefits 205,665 55.4 175,563 53.4
Facility lease payments 46,573 12.6 39,539 12.0
Depreciation 13,500 3.6 13,034 4.0
Amortization of goodwill
and other intangibles 2,835 0.8 2,330 0.7
Restructuring Costs 7,500 2.0
Other 89,879 24.2 79,914 24.3
----------- --------- ----------- ---------
Total operating expenses 365,952 98.6 310,380 94.5
----------- --------- ----------- ---------
Operating income $ 5,085 1.4% $ 18,383 5.5%
----------- --------- ----------- ---------
EBITDA $ 28,920 7.8% $ 33,747 10.3%
----------- --------- ----------- ---------
16
17
During the 2000 year, the Company opened 16 new schools and acquired 43 schools
through the acquisition of Bright Start. During that same period, the Company
closed 50 schools. As a result, the Company operated 752 schools on July 1,
2000. During fiscal year 2000, 39 of the closures resulted from management's
decision to close certain schools located in areas where the demographic
conditions no longer supported an economically viable operation, and the
remaining 11 closures were due to management's decision not to renew the leases
or contracts of certain schools.
Operating revenue. Operating revenue increased $42.3 million or 12.9% during the
2000 year as compared to the 1999 year. The increase in operating revenue
includes $24.0 million from the acquired Bright Start schools, $13.9 million of
incremental revenue from established schools, $10.9 million of incremental
revenue from the new schools, most of which were opened late in the 1999 year or
early in the 2000 year, offset by $6.5 million of reduced revenue from closed
schools. Tuition revenue increased 13.2% during the 2000 year as compared to the
1999 year. The increase in tuition revenue reflects an increase in full time
equivalent (FTE) attendance of 7.1% and an increase of the average weekly FTE
tuition rates of 5.7%.
The increase in FTE attendance is due to the addition of the Bright Start
schools and the new schools offset by a 1.2% decline at our established schools
(schools which were open prior to the 1999 year). The increase in average weekly
tuition per FTE was principally due to selective price increases which were put
into place in February of fiscal years 1999 and 2000, based on geographic market
conditions and class capacity utilization.
Salaries, wages and benefits. Salaries, wages and benefits increased $30.1
million or 17.1% during the 2000 year as compared to the 1999 year. As a
percentage of revenue, labor costs were 55.4% for the 2000 year as compared to
53.4% during the 1999 year. The increase in salaries, wages and benefits
includes incremental labor costs at established schools of $12.3 million, Bright
Start labor costs of $13.1 million, incremental labor costs at new schools of
$6.1 million, increased field management and corporate administration labor
costs of $0.9 million, increased benefit costs of $1.6 million, offset by
reduced incremental labor costs at closed schools of $3.9 million. The increase
in labor costs at established schools was mainly due to a 7.0% increase in
average hourly wage rates and a 1.3% increase in labor hours. New schools
experience higher labor costs relative to revenue as compared to the established
schools.
Facility lease expense. Facility lease expense increased $7.0 million or 17.8%
during the 2000 year as compared the 1999 year. The increase in facility lease
expense was mainly due to higher relative lease costs associated with the Bright
Start schools and the 28 new schools opened in late fiscal 1999 and early fiscal
year 2000, offset by the closures late in fiscal year 2000.
Depreciation. Depreciation expense increased $0.5 million or 3.6% during the
2000 year as compared to the 1999 year. The increase in depreciation was due to
the addition of the Bright Start schools.
Amortization of goodwill and other intangibles. The amortization of goodwill and
other intangibles increased $0.5 million or 21.7% for the 2000 year as compared
the 1999 year. This increase is due to the amortization of goodwill associated
with the Bright Start acquisition.
Restructuring charge. In the third quarter of 2000, management committed to a
plan to close certain schools located in areas where the demographic conditions
no longer support an economically viable operation and to restructure its
operating management to better serve the remaining schools. Accordingly, the
Company recorded a $7.5 million restructuring charge ($4.5 million after tax) to
provide for costs associated with the school closures and restructuring 49
schools. The charge consists principally of $5.9 million for the present value
of rent, real estate taxes, common area maintenance charges, and utilities, net
of anticipated sublease income, and $1.1 million for the write-down of fixed
assets to fair market value. At July 1, 2000, the Company had an accrual for the
closing of these Academies of $6.2 million. During fiscal year 2000, 39 schools
were closed. Subsequent to the end of the fiscal
17
18
year, an additional four schools have closed in connection with the
restructuring plan. By the end of fiscal year 2001, management plans to address
the closing of the remaining six schools.
Other operating costs. Other operating costs increased $10.0 million or 12.5%
during the 2000 year as compared to the 1999 year. Other operating costs include
repair and maintenance, utilities, insurance, marketing, real estate taxes,
food, supplies and transportation. The increase was due primarily to higher
expenses in repairs and maintenance, utilities, real estate taxes, food and
supplies. As a percentage of revenue, other operating costs decreased to 24.2%
in the 2000 year from 24.3% in the 1999 year.
Operating income and EBITDA. As a result of the foregoing, operating income was
$5.1 million for the 2000 year as compared to $18.4 million during the 1999
year. The decline in operating income is principally due to higher costs and the
restructuring charge offsetting the increased revenue. EBITDA is defined as net
income before non-cash restructuring charges, extraordinary items, net interest
cost, taxes, depreciation and amortization. EBITDA was $28.9 million and $33.7
million for 2000 year and 1999 year, respectively. The decline in EBITDA is
attributed to higher costs offsetting increased revenue.
Interest expense. Net interest expense for the 2000 year increased $1.7 million
from the 1999 year. The increase is mainly a result of additional interest paid
on the Senior Notes due to interest rate swap arrangement, higher average
borrowings under the Revolving Credit facility resulting from the acquisition of
Bright Start, and reduced capitalized interest associated with constructing new
schools.
Income tax rate. After adding back the permanent differences to pretax income,
the effective income tax rate for the 2000 year was approximately 40% as
compared to approximately 49% for the 1999 year. The 1999 year effective income
tax rate was impacted by the resolution of issues raised by the IRS regarding
the Company's benefit plan (see Note 8 to the consolidated financial
statements).
18
19
1999 COMPARED TO 1998 RESULTS (IN THOUSANDS OF DOLLARS)
On June 10, 1999, the Company changed its fiscal year to be the period starting
on the first Sunday in July and ending on the first Saturday in July in the
subsequent year (See Note 1 of the Notes to consolidated financial statements).
For comparative purposes the table below presents the results of the 44 weeks
ended July 3, 2000 and the results of the 44 weeks ended July 4, 1998. The
subsequent discussion of results is based on the 44 week comparison. The
selected data for the 44 weeks ended July 4, 1998 is unaudited but reflects all
adjustments, consisting of normal recurring accruals, which in the opinion of
management are necessary to fairly present the Company's results of operations
for the unaudited period.
44 WEEKS ENDED 44 WEEKS ENDED
----------------------------- -----------------------------
July 3, Percent of July 4, Percent of
1999 Revenue 1998 Revenue
Operating revenue $ 281,072 100.0% $ 267,242 100.0%
Operating expenses:
Salaries, wages and benefits 150,052 53.4 140,991 52.8
Facility lease payments 33,670 12.0 32,534 12.2
Depreciation 10,911 3.9 11,769 4.4
Amortization of goodwill
and other intangibles 1,972 0.7 2,763 1.0
Recapitalization costs 8,724 3.3
Other 68,277 24.3 64,621 24.2
------------- -------------- -------------- -------------
Total operating expenses 264,882 94.3 261,402 97.9
------------- -------------- -------------- -------------
Operating income $ 16,190 5.7% $ 5,840 2.1%
------------- -------------- -------------- -------------
EBITDA $ 29,073 10.3% $ 29,096 10.9%
------------- -------------- -------------- -------------
Fifteen Academies in operation on July 4, 1998 were closed and thirteen new
Academies were opened prior to July 3, 1999. As a result, the Company operated
743 Academies on July 3, 1999. The closures resulted principally from management
decisions not to renew the leases or contracts of certain Academies.
Operating revenue. Operating revenue increased 5.2% during the 44 weeks ended
July 3, 1999, as compared to the 44 weeks ended July 4, 1998. Excluding closed
and new Academies from both years, operating revenue increased 5.5%, full time
equivalent (FTE) attendance decreased 1.4%, and average weekly FTE tuition
increased 6.9% during the 44 weeks ended July 3, 1999, as compared to the 44
weeks ended July 4, 1998. The decline in FTE's occurred principally in the
infant, toddler and school age programs as the Company is concentrating its
focus on enhancing and expanding its pre-school program. Prior to the start of
fiscal year 1999, 238 Academies received modification to enhance the preschool
environment. The modifications included new room arrangements and added
preschool furniture and equipment which enhanced the pre-school appearance of
the Academies. As a result of this effort, attendance of pre-school aged
children increased 1,407 in the eight weeks ended June 5, 1999, (end of the
school term) as compared to the same period in 1998. This gain, however, was
offset by declines in infants, toddlers, and school age children. During fiscal
year 1999, additional Academies received the pre-school enhancements and by
year-end, 550 Academies had been impacted.
19
20
The increase in average weekly tuition per FTE was principally due to: (i)
selective price increases which were put into place in February of fiscal years
1998 and 1999, based on geographic market conditions and class capacity
utilization and (ii) changes in various tuition rate discount policies which
took place in fiscal year 1999 and (iii) the change in enrollment mix resulting
in fewer children in the lower priced school age before and after program and
more children in the higher priced preschool program, offset somewhat by the
decline of children in the higher price infant and toddler programs.
Salaries, wages and benefits. Salaries, wages and benefits increased $9.1
million or 6.4% during the 44 weeks ended July 3, 1999, as compared to the 44
weeks ended July 4, 1998. The increase was principally due to a 7.0% increase in
average hourly wage rates, and higher health care costs resulting from benefit
plan enhancements. These increases were offset by a small decline in hours
worked. As a percentage of revenue, labor costs were 53.4% for the 44 weeks
ended July 3, 1999, as compared to 52.8% during the 44 weeks ended July 4, 1998.
Amortization of goodwill and other intangibles. Amortization of goodwill and
other intangibles decreased 28.7% during the 44 weeks ended July 3, 1999, as
compared to the 44 weeks ended July 4, 1998, as certain intangible assets became
fully amortized at the end of the third quarter of fiscal year 1998.
Recapitalization costs. Recapitalization costs consist principally of
transaction bonuses of $1.5 million and payments for the cancellation of stock
options of $7.2 million, both of which were inclusive of payroll taxes.
All other operating costs. Many of the Company's operating costs are relatively
fixed and do not decline or increase directly with small changes in attendance.
Facility lease expense, depreciation, amortization and other operating costs,
which includes repair and maintenance, utilities, insurance, marketing, real
estate taxes, food, supplies and transportation, excluding pre-opening costs all
declined or remained unchanged as a percentage of revenue during the 44 weeks
ended July 3, 1999, as compared to the 44 weeks ended July 4, 1998.
Operating income and EBITDA. As a result of the foregoing, operating income was
$16.2 million for the 44 weeks ended July 3, 1999, as compared to $5.8 million
during the 44 weeks ended July 4, 1998. Excluding Recapitalization Costs, this
reflects gains in operating income of 11.2% for the 44 weeks ended July 3, 1999,
as compared to the 44 weeks ended July 4, 1998. EBITDA is defined herein as net
income before non-cash restructuring charges, extraordinary items, net interest
cost, taxes, depreciation and amortization. EBITDA was $29.1 million for 44
weeks ended July 3, 1999, and for the 44 weeks ended July 4, 1998. Excluding
pre-opening costs and new Academy operating losses, EBIDTA would have been $30.3
million for 44 weeks ended July 3, 1999, as compared to $29.2 million for the 44
weeks ended July 4, 1998.
Interest expense. Net interest expense for the 44 weeks ended July 3, 1999,
increased $2.9 million from the 44 weeks ended July 4, 1998. The increase was
mainly due to increased interest payments related to the issuance of $145.0
million of 10% Senior Notes and a $40.0 million term loan facility under the
Credit Agreement which occurred as part of the Recapitalization (see notes to
the consolidated financial statements).
Loss on retirement of debt. On May 11, 1998, the Company incurred a $5.5 million
extraordinary loss related to (i) the retirement of all the outstanding $85.0
million principal amount of 9 5/8% Senior Notes due on 2001, (ii) the exchange
of all outstanding shares of La Petite's Class A Preferred Stock for $34.7
million in aggregate principal amount of La Petite's 12 1/8% Subordinated
Exchange Debentures due 2003 and (iii) the retirement of all the 12 1/8%
Exchange Debentures and the 6.5% Convertible Debentures. The loss principally
reflects the write off of premiums and related deferred financing costs, net of
applicable income tax benefit.
20
21
Income tax rate. After adding back the permanent differences to pretax income,
the effective income tax rate for the 44 weeks ended July 3, 1999, was
approximately 47%, as compared to approximately 33% for the 44 weeks ended July
4, 1998. The 1999 fiscal year effective income tax rate was impacted by the
resolution of issues raised by the IRS regarding the Company's benefit plan
(See Note 8 to the consolidated financial statements).
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are from cash flows generated by
operations, borrowings on the revolving credit facility under the Credit
Agreement, and sale and leaseback financing for newly constructed schools. The
Company's principal uses of liquidity are to meet its debt service requirements,
finance its capital expenditures and provide working capital. The Company
incurred substantial indebtedness in connection with the Recapitalization.
Parent and La Petite have entered into the Credit Agreement, as amended,
consisting of the $40 million Term Loan Facility and the $25 million Revolving
Credit Facility. Parent and La Petite borrowed the entire $40 million available
under the Term Loan Facility in connection with the Recapitalization. The
borrowings under the Credit Agreement, together with the proceeds from the sale
of the Senior Notes and the Equity Investment, were used to consummate the
Recapitalization and to pay the related fees and expenses.
The Credit Agreement will terminate on May 11, 2005. The term loan amortizes in
an amount equal to $1.0 million per year in fiscal years 2000 through 2003, $7.8
million in fiscal year 2004, and $27.5 million in fiscal year 2005. The term
loan is also subject to mandatory prepayment in the event of certain equity or
debt issuances or asset sales by the Company or any of its subsidiaries and in
amounts equal to specified percentages of excess cash flow (as defined). On July
1, 2000, there was $38.3 million outstanding on the term loan and nothing
outstanding on the Revolving Credit Facility. La Petite had outstanding letters
of credit in an aggregate amount equal to $4.2 million, and $20.8 million was
available for working capital purposes under the Revolving Credit Facility. The
Company's Credit Agreement, senior notes and preferred stock contain certain
covenants that limit the ability of the Company to incur additional
indebtedness, pay cash dividends or make certain other restricted payments. As
of July 1, 2000 the Company was in compliance with the foregoing covenants.
On July 21, 1999, the Company acquired all the outstanding shares of Bright
Start for $9.3 million in cash and assumed approximately $2.0 million in debt.
Bright Start operated 43 preschools in the states of Minnesota, Wisconsin,
Nevada, and New Mexico (see Note 12 to the consolidated financial statements).
On December 15, 1999, LPA acquired an additional $15.0 million of redeemable
preferred stock in the Parent and received warrants to purchase an additional
3.0% of the Parent's outstanding common stock on a fully diluted basis. The
proceeds of that investment were contributed to La Petite as common equity. In
connection with such purchase and contribution, the banks waived their right
under the Credit Agreement to require that such proceeds be used to repay
amounts outstanding under the Credit Agreement. The proceeds of such equity
contribution were used to repay borrowings under the revolving credit facility
that were incurred to finance the Bright Start acquisition.
Cash flows from operating activities were $5.6 million during the 52 weeks ended
July 1, 2000, (2000 year) as compared to cash flows from operating activities of
$19.3 million during the 52 weeks ended July 3, 1999, (1999 year). The $13.7
million decrease in cash flows from operations was mainly due to a $9.1 million
increase in net loss, a $6.0 million change in deferred income taxes, a $11.3
million change in short term sale leaseback construction funding, offset by the
non-cash restructuring charge of $7.5 million, and by a $5.2 million of timing
differences in supplies, prepaid advertising and accrued salaries.
21
22
Cash flows used for investing activities were $10.3 million during the 2000 year
as compared to cash flows used of $23.0 million during the 1999 year. The $12.6
million decrease in cash flows used for investing activities was principally due
to a $10.5 million increase in proceeds from new school sale lease-backs, a
$13.9 million decrease in new school development, offset by a $10.4 million used
for the Bright Start acquisition and a $1.6 million increase in maintenance
capital expenditures.
Cash flows from financing activities were $4.2 million during the 2000 year
compared to cash flows from financing activities of $3.5 million during the 1999
year. The $0.7 million increase in cash flows from financing activities was
principally due to the $15.0 million issuance of preferred stock and warrants, a
$0.7 million decrease in debt issuance and stock offering costs, a $0.7 million
net decrease in restricted cash requirements, offset by an $10.4 million
decrease in net borrowings and a $5.3 million decrease in bank overdrafts
related to the timing of monthly expense payments. Restricted cash investments
represent cash deposited in escrow accounts as collateral for the self-insured
portion of the Company's workers compensation insurance coverage.
The Company opened 16 new schools during the 2000 year. The cost to open a new
school ranges from $1.0 million to $1.5 million of which approximately 85% is
typically financed through a sale and leaseback transaction. Alternatively, the
school may be constructed on a build to suit basis, which reduces the working
capital requirements during the construction process. In addition, the Company
intends to explore other efficient real estate financing transactions in the
future. As of July 1, 2000 the Company had $2.0 million invested in new school
development in excess of amounts received from sale and leaseback transactions.
Purchasers of schools in sale and leaseback transactions have included insurance
companies, bank trust departments, pension funds, real estate investment trusts
and individuals. The leases are operating leases and generally have terms of 15
to 20 years with one or two five-year renewal options. Most of these
transactions are structured with an annual rental designed to provide the
owner/lessor with a fixed cash return on their capitalized cost over the term of
the lease. In addition, many of the Company's leases provide for contingent
rentals if the school's operating revenue exceeds certain levels. Although the
Company expects sale and leaseback transactions to continue to finance its
expansion, no assurance can be given that such funding will always be available.
Total capital expenditures for the 52 weeks ended July 1, 2000 and July 3, 1999,
exclusive of the Bright Start acquisition, were $23.4 million and $35.6 million,
respectively. The Company views all capital expenditures, other than those
incurred in connection with the development of new schools, to be maintenance
capital expenditures. Maintenance capital expenditures for the 52 weeks ended
July 1, 2000 and July 3, 1999 were $10.4 million and $8.8 million, respectively.
For fiscal year 2001, the Company expects total maintenance capital expenditures
to be approximately $13.0 million.
In addition to maintenance capital expenditures, the Company expends additional
funds to ensure that its facilities are in good working condition. Such funds
are expensed in the periods in which they are incurred. The amounts of such
expenses for the 52 weeks ended July 1, 2000 and July 3, 1999 were $11.9 million
and $10.6 million, respectively.
INFLATION AND GENERAL ECONOMIC CONDITION
During the past three years (a period of low inflation) the Company implemented
selective increases in tuition rates based on geographic market conditions and
class capacity utilization. During the 52 weeks ended July 1, 2000 the Company
experienced inflationary pressures on average wage rates, as hourly rates
increased approximately 7%. Management believes this is occurring industry wide
and there is no assurance that such wage rate increases can be recovered through
future increases in tuition. A sustained recession with high unemployment may
have a material adverse effect on the Company's operations.
22
23
OTHER INFORMATION
None.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Current indebtedness consists of senior notes in the aggregate principal amount
of $145 million, the term loan under the credit agreement in the aggregate
principal amount of $38.3 million at July 1, 2000 and the revolving credit
facility under the credit agreement providing for revolving loans to the Company
in an aggregate principal amount (including swingline loans and the aggregate
stated amount of letters of credit) of $25 million. Borrowings under the Senior
Notes bear interest at 10% per annum. Borrowings under the Credit Agreement bear
interest at a rate per annum equal (at the Company's option) to: (a) an adjusted
London inter-bank offered rate ("LIBOR") plus a percentage based on the
Company's financial performance; or (b) a rate equal to the higher of The Chase
Manhattan Bank's published prime rate, a certificate of deposit rate plus 1% or
the federal funds effective rate plus 1/2 of 1% plus, in each case, a percentage
based on the Company's financial performance. The borrowing margins applicable
to the Credit Agreement are currently 3.25% for LIBOR loans and 2.25% for ABR
loans. The Senior Notes will mature in May 2008 and the Credit Agreement will
mature in May 2005. The term loan amortizes in an amount equal to $1.0 million
in fiscal year 2001 through 2003, $7.8 million in fiscal year 2004 and $27.5
million in fiscal year 2005. The term loan is also subject to mandatory
prepayment in the event of certain equity or debt issuances or asset sales by
the Company or any of its subsidiaries an in accounts equal to specified
percentage of excess cash flow (as defined).
To reduce the impact of interest rate changes on the term loan, the Company
entered into interest rate collar agreements during the second quarter of fiscal
year 1999. The collar agreements cover the LIBOR interest rate portion of the
term loan, effectively setting maximum and minimum interest rates of 9.5% and
7.9%.
To reduce interest expense on the $145 million Senior Notes, the Company entered
into an interest rate swap transaction with an imbedded collar during the third
quarter of fiscal year 1999. The effect of this transaction is that the fixed
rate debt was essentially exchanged for a variable rate arrangement based on
LIBOR plus a fixed percentage. The imbedded collar covers the LIBOR portion of
variable rate swap, effectively setting maximum and minimum interest rates of
10.9% and 9.2%.
There were no initial costs associated with either the swap or the interest rate
collar agreements as the floor and ceiling cap rates were priced to offset each
other. Any differential paid or received based on the swap/collar agreements is
recognized as an adjustment to interest expense. As of July 1, 2000 the notional
value of such derivatives was $183.3 million with an unrealized loss of $2.6
million. A 1% increase in the applicable index rate, after giving effect to the
interest rate collars and swap agreement, would have no impact on annual
earnings as a result of the Company currently paying the maximum rates in the
agreements.
23
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of July 1, 2000 and July 3, 1999
Consolidated Statements of Income for the 52 weeks ended July 1, 2000,
44 weeks ended July 3, 1999, and 52 weeks ended August 29, 1998
Consolidated Statements of Stockholders' Equity (Deficit) for the 52
weeks ended July 1, 2000, 44 weeks ended July 3, 1999, and 52 weeks
ended August 29, 1998
Consolidated Statements of Cash Flows for the 52 weeks ended July 1,
2000, 44 weeks ended July 3, 1999, and 52 weeks ended August 29, 1998
Notes to Consolidated Financial Statements
24
25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
LPA Holding Corp.
Overland Park, Kansas
We have audited the accompanying consolidated balance sheets of LPA Holding
Corp. and subsidiaries (the "Company") as of July 1, 2000 and July 3, 1999, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for the 52 weeks ended July 1, 2000, the 44 weeks ended July 3, 1999,
and the 52 weeks ended August 29, 1998. Our audits also included the financial
statement schedules listed in the Index at Item 14. These financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of LPA Holding Corp. and subsidiaries
as of July 1, 2000 and July 3, 1999, and the results of their operations and
their cash flows for the 52 weeks ended July 1, 2000, the 44 weeks ended July 3,
1999, and the 52 weeks ended August 29, 1998, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Kansas City, Missouri
August 25, 2000
25
26
LPA HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
JULY 1, JULY 3,
ASSETS 2000 1999
------------- -------------
Current assets:
Cash and cash equivalents $ 4,008 $ 4,572
Restricted cash investments (Note 1) 837 1,218
Accounts and notes receivable, (net of allowance for
doubtful accounts of $406 and $306) 7,462 8,077
Prepaid food and supplies 7,127 7,884
Other prepaid expenses 5,324 6,143
Refundable income taxes (Note 5) 109 192
Deferred income taxes (Note 5) 950
------------- -------------
Total current assets 25,817 28,086
Property and equipment, at cost:
Land 5,886 6,120
Buildings and leasehold improvements 79,568 77,197
Equipment 23,780 20,451
Facilities under construction 2,041 15,261
------------- -------------
111,275 119,029
Less accumulated depreciation 54,842 48,310
------------- -------------
Net property and equipment 56,433 70,719
Other assets (Note 2) 69,159 61,780
Deferred income taxes (Note 5) 14,238 8,883
------------- -------------
$ 165,647 $ 169,468
------------- -------------
(continued)
26
27
LPA HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
JULY 1, JULY 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------- -------------
Current liabilities:
Overdrafts due banks $ 4,756 $ 7,450
Accounts payable 8,273 7,972
Current reserve for closed academies 3,268 1,366
Current maturities of long-term debt and capital lease obligations 1,897 2,187
Accrued salaries, wages and other payroll costs 14,212 11,903
Accrued insurance liabilities 2,586 2,682
Accrued property and sales taxes 3,490 3,749
Accrued interest payable 2,568 2,388
Other current liabilities 5,556 11,199
Deferred income taxes (Note 5) 361
------------- -------------
Total current liabilities 46,606 51,257
Long-term debt and capital lease obligations (Note 3) 182,319 187,999
Other long-term liabilities (Note 4) 13,061 11,085
Series A 12% redeemable preferred stock ($.01 par value per share); 47,314 29,310
45,000 shares authorized, issued and outstanding at July 1, 2000
at aggregate liquidation preference of $1,211.291 as of July 1,
2000 and $1,143.444 as of July 3, 1999 (Note 7)
Stockholders' deficit:
Class A common stock ($.01 par value per share); 950,000 shares 6 6
authorized and 564,985 and 560,026 shares issued and outstanding
as of July 1, 2000 and July 3, 1999
Class B common stock ($.01 par value per share); 20,000 shares
authorized, issued and outstanding as of July 1, 2000 and July 3,
1999
Common stock warrants 8,596 5,645
Accumulated deficit (132,255) (115,834)
------------- -------------
Total stockholders' deficit (123,653) (110,183)
------------- -------------
$ 165,647 $ 169,468
------------- -------------
See notes to consolidated financial statements.
(Concluded)
27
28
LPA HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
52 WEEKS 44 WEEKS 52 WEEKS
ENDED ENDED ENDED
JULY 1, JULY 3, AUGUST 29,
2000 1999 1998
----------------- ------------- -------------
Operating revenue $ 371,037 $ 281,072 $ 314,933
Operating expenses:
Salaries, wages and benefits 205,665 150,052 166,501
Facility lease expense 46,573 33,670 38,403
Depreciation 13,500 10,911 13,892
Amortization of goodwill and other
intangibles 2,835 1,972 3,122
Recapitalization costs (Note 1) 8,724
Restructuring costs (Note 13) 7,500
Other 89,879 68,277 76,258
----------------- ------------- -------------
Total operating expenses 365,952 264,882 306,900
----------------- ------------- -------------
Operating income 5,085 16,190 8,033
Interest expense 20,880 16,145 14,126
Minority interest in net income of subsidiary 2,849
Interest income (163) (153) (885)
----------------- ------------- -------------
Net interest costs 20,717 15,992 16,090
----------------- ------------- -------------
Income (loss) before income taxes
and extraordinary item (15,632) 198 (8,057)
Provision (benefit) for income taxes (5,085) 995 (254)
----------------- ------------- -------------
Loss before extraordinary item (10,547) (797) (7,803)
----------------- ------------- -------------
Extraordinary loss on early retirement of
debt, net of applicable income taxes
of $3,776 (Note 10) (5,525)
----------------- ------------- -------------
Net loss $ (10,547) $ (797) $ (13,328)
----------------- ------------- -------------
See notes to consolidated financial statements.
28
29
LPA HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS)
COMMON STOCK PREFERRED
-------------------- ----------------- TOTAL
NUMBER PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
OF SHARES AMOUNT STOCK WARRANTS CAPITAL DEFICIT STOCK EQUITY(DEFICIT)
----------- -------- ------- --------- -------- -------------- --------- ------------
Balance, August 30, 1997 852,160 $ 9 $ 3 $ $ 34,234 $ (30,573) $ (299) $ 3,374
10% Cumulative Non 848 (848)
Convertible Preferred
Dividend
Issuance of common stock 523,985 5 70,120 70,125
Repurchase of common stock (41) (41)
Redemption of preferred
stock (3) (59,271) (59,274)
Redemption of common (769,859) (8) (45,931) (57,092) (103,031)
stock
Issuance of warrants 5,645 5,645
Equity issuance costs (7,901) (7,901)
Cancellation of treasury (26,260) (340) 340
stock
Preferred stock (1,270) (1,270)
dividend (Note 7)
Net loss (13,328) (13,328)
----------- -------- ------- --------- -------- -------------- --------- ------------
Balance, August 29, 1998 580,026 6 5,645 (111,352) (105,701)
Preferred stock dividend
(Note 7) (3,685) (3,685)
Net loss (797) (797)
----------- -------- ------- --------- -------- -------------- --------- ------------
Balance, July 3, 1999 580,026 6 5,645 (115,834) (110,183)
Exercise of stock options 4,959 89 89
Issuance of warrants 2,951 2,951
Preferred stock dividend
(Note 7) (5,963) (5,963)
Net loss (10,547) (10,547)
----------- -------- ------- --------- -------- -------------- --------- ------------
Balance, July 1, 2000 584,985 $ 6 $ $ 8,596 $ $ (132,255) $ $ (123,653)
----------- -------- ------- --------- -------- -------------- --------- ------------
See notes to consolidated financial statements.
29
30
LPA HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
52 WEEKS 44 WEEKS 52 WEEKS
ENDED ENDED ENDED
JULY 1, 2000 JULY 3, 1999 AUGUST 29, 1998
------------ ------------ ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,547) $ (797) $ (13,328)
Adjustments to reconcile net loss to net cash from
operating activities
Noncash portion of extraordinary loss on retirement 3,209
of debt
Restructuring costs 7,500
Depreciation and amortization 17,387 13,712 17,859
Deferred income taxes (4,831) 708 (4,799)
Minority interest in net income of La Petite Academy, 2,849
Inc.
Changes in assets and liabilities:
Accounts and notes receivable 1,199 (1,014) (1,924)
Prepaid expenses and supplies 2,187 (5,488) 1,353
Accrued property and sales taxes (302) (354) (26)
Accrued interest payable 180 (2,383) 4,052
Other changes in assets and liabilities, net (7,176) 5,936 (2,021)
------------ ------------ --------------
Net cash provided by operating activities 5,597 10,320 7,224
------------ ------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Bright Start, net of cash acquired (10,361)
Capital expenditures (23,412) (31,666) (13,637)
Proceeds from sale of assets 23,432 12,462 2,632
------------ ------------ --------------
Net cash used for investing activities (10,341) (19,204) (11,005)
------------ ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt and capital lease obligations (8,242) (1,692) (121,726)
Net borrowings under the Revolving Credit Agreement 4,000
Exercise of stock options 89
Additions to long-term debt 185,000
Deferred financing costs (346) (818) (7,605)
Retirement of old equity (162,304)
Proceeds from issuance of common stock, net of expenses 62,224
Proceeds from issuance of redeemable preferred stock and
warrants, net of expenses 14,992 30,000
Increase (reduction) in bank overdrafts (2,694) 4,560 533
Decrease (increase) in restricted cash investments 381 538 556
------------ ------------ --------------
Net cash provided by (used for) financing 4,180 6,588 (13,322)
activities ------------ ------------ --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (564) (2,296) (17,103)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,572 6,868 23,971
------------ ------------ --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,008 $ 4,572 $ 6,868
------------ ------------ --------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 19,694 $ 17,699 $ 9,229
Income taxes 86 275 2,084
Cash received during the period for:
Interest $ 156 $ 152 $ 1,000
Income taxes (88) 2,122 207
Non-cash investing and financing activities:
Capital lease obligations of $34, $29, and $3,170 were
incurred during the 52 weeks ended July 1, 2000, the
44 weeks ended July 3, 1999 and the 52 weeks ended
August 29, 1998, respectively, when the Company
entered into leases for new computer equipment.
See notes to consolidated financial statements.
30
31
LPA HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Vestar/LPA Investment Corp. (Parent), a privately-held Delaware
corporation, was formed in 1993 for the purpose of holding the capital
stock of La Petite Holdings Corp. (Holdings), a Delaware corporation.
Holdings, which has no independent assets or operations, was formed in
1993 for the purpose of holding the capital stock of La Petite
Acquisition Corp. (Acquisition). On July 23, 1993, as a result of a
series of transactions, Holdings acquired all the outstanding shares of
common stock, par value $.01 (the Common Stock), of La Petite Academy,
Inc., a Delaware corporation (La Petite). The transaction was accounted
for as a purchase and the excess of purchase price over the net assets
acquired is being amortized over 30 years. On May 31, 1997, Holdings
was merged with and into La Petite with La Petite as the surviving
corporation. On August 28, 1997 LPA Services, Inc. (Services), a wholly
owned subsidiary of La Petite, was incorporated. Services provides
third party administrative services on insurance claims to La Petite.
On March 17, 1998, LPA Investment LLC (LPA), a Delaware limited
liability company owned by an affiliate of Chase Capital Partners (CCP)
and by an entity controlled by Robert E. King, a director of La Petite,
and Parent, which was renamed LPA Holding Corp., entered into an
Agreement and Plan of Merger pursuant to which a wholly owned
subsidiary of LPA was merged into Parent (the Recapitalization). In the
Recapitalization, all of the then outstanding shares of preferred stock
and common stock of Parent (other than the shares of common stock
retained by Vestar/LPT Limited Partnership and management of La Petite)
owned by the existing stockholders of Parent (the Existing
Stockholders) were converted into cash. As part of the
Recapitalization, LPA purchased $72.5 million (less the value of
options retained by management) of common stock of the Parent and $30
million of redeemable preferred stock of Parent (collectively, the
Equity Investment). In addition, in connection with the purchase of
preferred stock of Parent, LPA received warrants to purchase up to 6.0%
of Parent's common stock on a fully diluted basis. Transaction expenses
included in operating expenses under the caption "Recapitalization
Costs" for this period include approximately $1.5 million in
transaction bonuses and $7.2 million for the cancellation of stock
options and related taxes. The Recapitalization was completed May 11,
1998.
On July 21, 1999, La Petite acquired all the outstanding shares of
Bright Start, Inc. ("Bright Start"). See Note 12 to the consolidated
financial statements.
On December 15, 1999, LPA acquired an additional $15.0 million of
Parent's redeemable preferred stock and received warrants to purchase
an additional 3% of Parent's common stock on a fully-diluted basis. The
$15.0 million proceeds received by Parent was contributed to La Petite
as common equity. As a result of the recapitalization and additional
purchase of preferred stock and warrants, LPA beneficially owns 81.3%
of the common stock of Parent on a fully diluted basis and $45 million
of redeemable preferred stock of Parent. An affiliate of CCP owns a
majority of the economic interests of LPA and an entity controlled by
Robert E. King owns a majority of the voting interests of LPA.
Parent, consolidated with La Petite, Bright Start and Services, is
referred to herein as the Company.
31
32
The Company offers educational, developmental and child care programs
that are available on a full-time or part-time basis, for children
between six weeks and twelve years old. The Company's schools are
located in 35 states and the District of Columbia, primarily in the
southern, Atlantic coastal, mid-western and western regions of the
United States.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Parent and its wholly-owned subsidiary, La
Petite and its wholly-owned subsidiaries, Bright Start and Services,
after elimination of all significant inter-company accounts and
transactions. FISCAL YEAR END - On June 10, 1999, the Company changed
its fiscal year to be the 52 or 53 week period ending on the first
Saturday in July. Prior to this change, the Company utilized a fiscal
year consisting of the 52 or 53 week period ending on the last Saturday
in August. The report covering the transition period is presented
herein.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECOGNITION OF REVENUES AND PRE-OPENING EXPENSES - The Company operates
preschool education and child care Academies. Revenue is recognized as
the services are performed. Expenses associated with opening new
Academies are charged to expense as incurred.
DEPRECIATION AND AMORTIZATION - Buildings, leasehold improvements,
furniture and equipment are depreciated over the estimated useful lives
of the assets using the straight-line method. For financial reporting
purposes, buildings are generally depreciated over 29 to 40 years,
furniture and equipment over three to 10 years and leasehold
improvements over five to 15 years.
Maintenance and repairs are charged to expense as incurred. The cost of
additions and improvements is capitalized and depreciated over the
remaining useful lives of the assets. The cost and accumulated
depreciation of assets sold or retired are removed from the accounts,
and any gain or loss is recognized in the year of disposal, except
gains and losses on property and equipment that have been sold and
leased back, which are recognized over the terms of the related lease
agreements.
EXCESS OF PURCHASE PRICE OVER THE NET ASSETS ACQUIRED - The excess of
the purchase price over the fair value of assets and liabilities
acquired related to the acquisition of La Petite and Bright Start is
being amortized over a period of 30 years and 20 years, respectively,
on the straight-line method.
OTHER ASSETS - Other assets include real estate property held for sale,
the loss on real estate sale-leaseback transactions, deposits for rent
and utilities, and the fair value of identifiable intangible assets
acquired in connection with the acquisition of La Petite. The loss on
sale-leaseback transactions is being amortized over the lease life, and
the intangible assets are being amortized over periods ranging from 2
to 10 years on the straight-line method.
DEFERRED FINANCING COSTS - The costs of obtaining financing are
included in other assets and are being amortized over the life of the
related debt.
CASH EQUIVALENTS - The Company's cash equivalents consist of commercial
paper and money market funds with original maturities of three months
or less.
32
33
RESTRICTED CASH INVESTMENTS - The restricted cash investment balance
represents cash deposited in an escrow account as security for the
self-insured portion of the Company's workers compensation and
automobile insurance coverage.
INCOME TAXES -The Company establishes deferred tax assets and
liabilities, as appropriate, for all temporary differences, and adjusts
deferred tax balances to reflect changes in tax rates expected to be in
effect during the periods the temporary differences reverse. Management
has evaluated the recoverability of the deferred income tax asset
balances and has determined that the deferred balances will be realized
based on future taxable income.
DISCLOSURES REGARDING FINANCIAL INSTRUMENTS - The carrying values of
the Company's financial instruments, with the exception of the
Company's Senior Notes, preferred stock, and financial derivatives,
approximate fair value. The estimated fair values of Senior Notes and
preferred stock at July 1, 2000 were $85.6 million and $54.5 million,
respectively. The estimated fair values of Senior Notes and preferred
stock at July 3, 1999 were $137.7 million and $34.3 million,
respectively. The combined estimated fair value of the Company's
interest rate contracts at July 1, 2000 was a liability of $2.6
million.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews long-lived assets
and certain identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
STOCK-BASED COMPENSATION - The Company accounts for stock compensation
awards under Accounting Principles Board ("APB") Opinion No. 25 that
requires compensation cost to be recognized based on the excess, if
any, between the market price of the stock at the date of grant and the
amount an employee must pay to acquire the stock. The Company has
disclosed the pro forma net income (loss) determined on the fair value
method in Note 11.
DERIVATIVE FINANCIAL INSTRUMENTS - The Company utilizes swap and collar
agreements to manage interest rate risks. The Company has established a
control environment that includes policies and procedures for risk
assessment and the approval, reporting, and monitoring of derivative
financial instrument activities. Company policy prohibits holding or
issuing derivative financial instruments for trading purposes. Any
differential paid or received based on the swap/collar agreements is
recognized as an adjustment to interest expense. Amounts receivable or
payable under derivative financial instrument contracts, when
recognized, are reported on the Consolidated Balance Sheet as both
current and long term receivables or liabilities. Gains and losses on
terminations of hedge contracts are recognized as other operating
expense when terminated in conjunction with the termination of the
hedged position, or to the extent that such position remains
outstanding, deferred as prepaid expenses or other liabilities and
amortized to interest expense over the remaining life of the position.
SEGMENT REPORTING -The Company has determined that it currently
operates entirely in one segment.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - Statement of Financial
Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (as amended by SFAS 137 and 138),
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. This Statement requires that an
entity recognize all derivatives as either assets or liabilities and
measure those instruments at fair value. The new Standard becomes
effective for the Company's fiscal year 2001. Management has determined
that the impact of adopting this Statement will result in a net
cumulative
33
34
transition loss of $2.6 million, which will be recorded as a cumulative
effect of change in accounting principle as of July 2, 2000.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, " Revenue Recognition in Financial
Statements," which will be adopted by the Company during the fourth
quarter of the Company's fiscal year 2001. The adoption of this
Statement is not expected to have a material impact on the Company's
consolidated financial statements.
RECLASSIFICATIONS - Certain reclassifications to prior year amounts
have been made in order to conform to the current year presentation.
2. OTHER ASSETS
(in thousands of dollars)
JULY 1, JULY 3,
2000 1999
-------------- ---------------
Intangible assets:
Excess purchase price over net assets acquired $ 74,221 $ 64,277
Curriculum 1,497 1,497
Accumulated amortization (16,533) (13,746)
-------------- ---------------
59,185 52,028
Deferred financing costs 8,769 8,423
Accumulated amortization (2,141) (1,088)
Other assets 3,346 2,417
-------------- ---------------
$ 69,159 $ 61,780
-------------- ---------------
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
(in thousands of dollars)
JULY 1, JULY 3,
2000 1999
-------------- ---------------
Senior Notes, 10.0% due May 15, 2008 (a) $ 145,000 $ 145,000
Borrowings under credit agreement (b) 38,250 43,250
Capital lease obligations 966 1,936
-------------- ---------------
184,216 190,186
Less current maturities of long-term debt and capital
lease obligations (1,897) (2,187)
-------------- ---------------
$ 182,319 $ 187,999
-------------- ---------------
a) The Senior Notes mature on May 15, 2008. Interest is payable
semi-annually on May 15 and November 15 of each year.
Commencing May 15, 2003, the Senior Notes are redeemable at
various redemption prices at Parent and La Petite's option.
The Senior Notes are joint and several obligations of Parent
and its 100% owned subsidiary La Petite, and are fully and
unconditionally guaranteed on a joint and several basis by La
Petite's 100% owned subsidiaries, Bright Start and Services.
There does not exist restrictions on the ability of Parent or
La Petite to obtain funds from its subsidiaries. The Senior
Notes contain certain covenants that, among other things,
limit Parent and La Petite's ability to incur additional debt,
transfer or sell assets, and pay cash dividends.
34
35
To reduce interest expense on the $145 million Senior Notes,
the Company entered into an interest rate swap transaction
with an imbedded collar during the third quarter of fiscal
year 1999. The effect of this transaction was that the fixed
rate debt was essentially exchanged for a variable rate
arrangement based on LIBOR plus a fixed percentage. The
imbedded collar covers the LIBOR portion of variable rate
swap, effectively setting maximum and minimum interest rates
of 10.9% and 9.2%. The notional value of this derivative is
$145 million.
b) On May 11, 1998 the Company entered into an agreement (the
Credit Agreement) providing for a term loan facility in the
amount of $40.0 million and a revolving credit agreement for
working capital and other general corporate purposes in the
amount of $25 million. Borrowings under the Credit Agreement
are secured by substantially all of the assets of the
Parent, La Petite and its subsidiaries. Loans under the
Credit Agreement bear an interest rate per annum equal to
(at the Company's option): (i) an adjusted London inter-bank
offered rate (LIBOR) plus a percentage based on the
Company's financial performance or (ii) a rate equal to the
higher of Chase's prime rate, a certificate of deposit rate
plus 1%, or the Federal Funds rate plus1/2of 1% plus in each
case a percentage based on the Company's financial
performance. The Company is required to pay fees of 0.5% per
annum of the unused portion of the Credit Agreement plus
letter of credit fees, annual administration fees and agent
arrangement fees. The Credit Agreement will mature in May
2005. The term loan amortizes in an amount equal to $1.0
million in fiscal year 2001 through 2003, $7.8 million in
fiscal year 2004, and $27.5 million in fiscal year 2005. The
term loan is also subject to mandatory prepayment in the
event of certain equity or debt issuances or asset sales by
the Company or any of its subsidiaries and in amounts equal
to specified percentage of excess cash flow (as defined). At
July 1, 2000 there were no amounts outstanding on the
revolver.
To reduce the impact of interest rate changes on the term
loan, the Company entered into interest rate collar agreements
during the second quarter of fiscal year 1999. The collar
agreements cover the LIBOR interest rate portion of the term
loan, effectively setting maximum and minimum interest rates
of 9.5% and 7.9%. As of July 1, 2000 the notional value of the
interest rate collar agreements was $38.3 million.
Scheduled maturities and mandatory prepayments of long-term debt and
capital lease obligations during the five years subsequent to July 1,
2000 are as follows (in thousands of dollars):
2001 $ 1,897
2002 1,051
2003 1,010
2004 7,757
2005 27,500
2006 and thereafter 145,000
---------------
$ 184,216
---------------
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4. OTHER LONG-TERM LIABILITIES
(in thousands of dollars)
JULY 1, JULY 3,
2000 1999
--------------- --------------
Unfavorable lease, net of accumulated amortization $ 3,973 $ 3,800
Non-current reserve for closed academies 5,295 2,682
Long-term insurance liabilities 3,793 4,603
--------------- --------------
$ 13,061 $ 11,085
--------------- --------------
In connection with the acquisition of La Petite and Bright Start, an
intangible liability for unfavorable operating leases was recorded and
is being amortized over the average remaining life of the leases.
The reserve for closed academies includes the long-term liability
related primarily to leases for Academies that were closed and are no
longer operated by the Company.
5. INCOME TAXES
The provisions for income taxes recorded in the Consolidated Statements
of Operations consisted of the following (in thousands of dollars):
52 WEEKS 44 WEEKS 52 WEEKS
ENDED ENDED ENDED
JULY 1, JULY 3, AUGUST 29,
2000 1999 1998
-------------- ------------ --------------
Refundable (Payable) Currently:
Federal $ (8,304) $ 1,426 $ (4,231)
State (1,612) 277 (822)
-------------- ------------ --------------
Total (9,916) 1,703 (5,053)
----------------------------- --------------
Deferred:
Federal 4,046 (593) 4,019
State 785 (115) 780
----------------------------- --------------
Total 4,831 (708) 4,799
-------------- ------------ --------------
$ (5,085) $ 995 $ (254)
-------------- ------------ --------------
The difference between the provision for income taxes, as reported in
the Consolidated Statements of Operations, and the provision computed
at the statutory Federal rate of 34 percent is due primarily to state
income taxes and nondeductible amortization of the excess of purchase
price over the net assets acquired of $2.6 million, $1.8 million, and
$2.1 million in the 52 weeks ended July 1, 2000, the 44 weeks ended
July 3, 1999, and the 52 weeks ended August 29, 1998, respectively. In
addition, the 1999 fiscal year provision was impacted by the resolution
of issues raised by the IRS regarding the Company's benefit plan (see
Note 8 to the consolidated financial statements).
Deferred income taxes result from differences between the financial
reporting and tax basis of the Company's assets and liabilities. The
sources of these differences and their
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cumulative tax effects at July 1, 2000 and July 3, 1999 are estimated
as follows (in thousands of dollars):
JULY 1, JULY 3,
2000 1999
------------ --------------
Current deferred taxes:
Accruals not currently deductible $ 3,788 $ 2,969
Supplies (2,985) (3,180)
Prepaids and other 147 (150)
------------ --------------
Net current deferred tax assets (liabilities) $ 950 $ (361)
------------ --------------
Noncurrent deferred taxes:
Unfavorable leases $ 1,613 $ 1,543
Insurance reserves 1,540 1,869
Reserve for closed academies 2,150 1,089
Carryforward of net operating loss 3,847 2,003
Property and equipment 4,448 2,262
Intangible assets 349 (172)
Other 291 289
------------ --------------
Net noncurrent deferred tax assets $ 14,238 $ 8,883
------------ --------------
The Company has federal net operating loss carry-forwards to offset
future taxable income through the tax year 2012 and 2018. Management
believes that the deferred tax assets recorded on the balance sheet are
recoverable and no reserve is required. As of July 1, 2000, only the
income tax returns for tax years 1996 and beyond are open to
examination.
6. LEASES
Academy facilities are leased for terms ranging from 15 to 20 years.
The leases provide renewal options and require the Company to pay
utilities, maintenance, insurance and property taxes. Some leases
provide for annual increases in the rental payment and many leases
require the payment of additional rentals if operating revenue exceeds
stated amounts. These additional rentals range from 2% to 10% of
operating revenue in excess of the stated amounts and are recorded as
rental expense. Vehicles are also rented under various lease
agreements, most of which are cancelable within 30 days after a
one-year lease obligation. Substantially, all Academy and vehicle
leases are operating leases. Rental expense for these leases were $52.3
million, $39.1 million, and $46.5 million, for the 52 weeks ended July
1, 2000, and 44 weeks ended July 3, 1999, and 52 weeks ended August 29,
1998, respectively. Contingent rental expense of $1.9 million, $1.4
million, and $1.4 million were included in rental expense for the 52
weeks ended July 1, 2000, the 44 weeks ended July 3, 1999, and the 52
weeks ended August 29, 1998.
Aggregate minimum future rentals payable under facility leases as of
July 1, 2000 were as follows (in thousands of dollars):
Fiscal year ending:
2001 $ 41,426
2002 36,005
2003 31,280
2004 25,399
2005 19,527
2006 and thereafter 73,171
------------
$226,808
------------
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7. REDEEMABLE PREFERRED STOCK & STOCKHOLDERS' EQUITY
The authorized stock of Parent as of July 1, 2000 consists of:
(i) 45,000 shares of Series A Redeemable Preferred Stock, $.01 par
value, (the preferred stock) all of which were issued and
outstanding. The carrying value of the preferred stock is
being accreted to its redemption value of $45.0 million on
May 11, 2008. The preferred stock is non-voting and
mandatorily redeemable on May 11, 2008. Dividends at the
rate of 12.0% per annum are cumulative and if not paid on
the June 30 or December 31 semi-annual preferred stock
dividend dates are added to the liquidation value. The
liquidation value per share was $1,211.291 as of July 1,
2000 and $1,143.444 as of July 3, 1999. The preferred stock
may be exchanged for 12.0% Subordinated Exchange Debentures
due 2008, at Parent's option, subject to certain conditions,
in whole, but not in part, on any scheduled dividend payment
date. The preferred stock contains certain restrictive
provisions that limit the ability of Parent to pay cash
dividends.
(ii) 950,000 shares of Class A Common Stock, $.01 par value, (the
Class A Common Stock) of which 564,985 shares were issued and
outstanding as of July 1, 2000.
(iii) 20,000 shares of Class B Common Stock, $.01 par value, (the
Class B Common Stock) of which 20,000 shares were issued and
outstanding as of July 1, 2000. The Class B Common Stock votes
together with the Class A Common Stock as a single class, with
the holder of each share of common stock entitled to cast one
vote. The holders of the Class B Common Stock have the
exclusive right, voting separately as a class, to elect one
member to the Board of Directors of Parent. Each share of the
Class B Common Stock is convertible at the option of the
holder, at any time, into one share of Class A Common Stock.
(iv) Warrants to purchase 64,231 shares of Class A Common Stock at a
purchase price of $.01 per share any time on or before May 11,
2008. The Warrants were issued in connection with the sale of
Series A Redeemable Preferred Stock; the Company recognized
discounts on the preferred stock by allocating $8,596,000 to
the Warrants representing the fair value of the Warrants when
issued.
8. BENEFIT PLAN
The Company sponsored a defined contribution plan (the "Plan") for
substantially all employees. Until January 1, 1998 eligible
participants could make contributions to the Plan from 1% to 20% of
their compensation (as defined). The Company also made contributions at
the discretion of the Board of Directors. Contribution and plan
administration cost expense attributable to this Plan was $0.3 million,
$0.3 million, and $0 million for the 52 weeks ended July 1, 2000, the
44 weeks ended July 3, 1999, and for the 52 weeks ended August 29,
1998, respectively.
The Plan was under audit by the Internal Revenue Service ("IRS") which
raised several issues concerning the Plan's operation. All issues
raised by the IRS have been satisfactorily resolved and the impact was
not material. However, recognizing some inherit deficiencies in the
Plan's design, the Company petitioned the IRS for the right to
terminate the plan effective May 31, 1999, and on January 13, 2000 the
Company received a favorable determination from the IRS and terminated
the plan effective May 31, 1999.
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9. 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.
10. EXTRAORDINARY LOSS
On May 11, 1998 the Company incurred a $5.5 million extraordinary loss
related (i) to the retirement of all the outstanding $85.0 million
principal amount of 9 5/8% Senior Notes due on 2001, (ii) the exchange
of all outstanding shares of La Petite's Class A Preferred Stock for
$34.7 million in aggregate principal amount of La Petite's 12 1/8%
Subordinated Exchange Debentures due 2003, and (iii) the retirement of
all the 12 1/8 Exchange Debentures and the 6.5% Convertible Debentures.
The loss principally reflects the write-off of premiums and related
deferred financing costs, net of applicable income tax benefit.
11. STOCK-BASED COMPENSATION
On August 27, 1995, the Board of Directors of Parent adopted the
"Non-Qualified Stock Option Agreement" (1995 Plan). Under the terms of
the 1995 Plan, the Board of Directors in their sole discretion granted
non-qualified stock options, with respect to the common stock of
Parent, to key executives of the Company. Options were granted pursuant
to an agreement at the time of grant, and typically become exercisable
in equal cumulative installments over a five-year period beginning one
year after the date of grant. All such options granted expire on the
tenth anniversary of the grant date. No market existed for the common
stock of Parent, but options were granted at prices that, in the
opinion of the Board of Directors, were equal to or greater than the
fair value of the stock at the time of grant.
Effective May 11, 1998, the Board of Directors of Parent adopted the
"1998 Stock Option Plan" (1998 Plan). The 1998 Plan provides for the
granting of Tranche A and Tranche B options to purchase up to 60,074
shares of the Parent's common stock. Tranche A options were granted at
prices, which approximated the fair value of a share of common stock of
the Parent at the date of grant. These options expire ten years from
the date of grant and become exercisable ratably over 48 months.
Tranche B options were granted at $133.83 per share, expire ten years
from the date of grant and are exercisable only in the event of a
change in control or a registered public offering of common stock which
provides certain minimum returns (as defined).
On August 19, 1999, Parent adopted the 1999 Stock Option Plan for
Non-Employee Directors (1999 Plan). Under the terms of the 1999 Plan,
10,000 shares of Parent's common stock are reserved for issuance to
non-employee directors at prices that approximate the fair value of a
share of Parent's common stock at the date of issuance. Options vest
ratably on the last day of each month over four years following the
date of grant, if the person is a director on that day.
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Stock option transactions during the past three years have been as follows:
1998 PLAN 1998 PLAN
1995 PLAN TRANCHE A TRANCHE B 1999 PLAN
-------------------- ------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVG. PRICE OPTIONS AVG. PRICE OPTIONS AVG. PRICE OPTIONS AVG. PRICE
Options
outstanding
at August 29,
1998 20,717 $19.19 38,850 $66.92 13,205 $133.83
------- ------------ -------- ---------- -------- ---------- ------- -----------
Granted 4,500 $66.92 1,200 $133.83
Exercised
Canceled
------- ------------ -------- ---------- -------- ---------- ------- -----------
Options
outstanding
at July 3,
1999 20,717 $19.19 43,350 $66.92 14,405 $133.83
------- ------------ -------- ---------- -------- ---------- ------- -----------
Granted 4,400 $66.92
Exercised 4,959 $18.00
Canceled 11,795 $19.01 33,900 $66.92 9,605 $133.83
------- ------------ -------- ---------- -------- ---------- ------- -----------
Options
outstanding
at July 1,
2000 3,963 $21.22 9,450 $66.92 4,800 $133.83 4,400 $66.92
======= ============ ======== ========== ======== ========== ======= ===========
Options
exercisable
at July 1, 3,963 4,922 1,008
2000 ======= ======== ======== =======
Options
available for
grant at July 1,
2000 35,608 10,216 5,600
======= ======== ======== =======
Options Outstanding Options Exercisable
------------------------------------ -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
----------------------------------------------------------------------------------------
1995 Plan:
$ 18.00 3,213 5.2 years $ 18.00 3,213 $ 18.00
$ 35.00 750 6.4 years $ 35.00 750 $ 35.00
----------------------------------------------------------------------------------------
$ 18.00 to $ 35.00 3,963 5.4 years $ 21.22 3,963 $ 21.22
========================================================================================
1998 Tranche A:
$ 66.92 9,450 7.9 years $ 66.92 4,922 $ 66.92
========================================================================================
1998 Tranche B
$ 133.83 4,800 7.9 years $ 133.83
========================================================================================
1999 Plan
$ 66.92 4,400 9.1 years $ 66.92 1,008 $ 66.92
========================================================================================
The Company accounts for all options in accordance with APB Opinion No.
25, which requires compensation cost to be recognized only on the
excess, if any, between the fair value of the stock at the date of
grant and the amount an employee must pay to acquire the stock. Under
this method, no compensation cost has been recognized for stock options
granted.
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Had compensation cost for these options been recognized as prescribed
by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss would have been increased by (in thousands) $14 in
2000, $37 in 1999, and $58 in 1998. The Company is privately owned and
there is no market for its stock. The estimated compensation element is
based on the time value of money at the U.S. Treasury rates assuming
that the value of the stock will be at least equal to the grant price
when fully exercisable. The estimated compensation expense above is
assumed to be amortized over the vesting period.
12. ACQUISITION
On July 21, 1999, the Company acquired all the outstanding shares of
Bright Start for $9.3 million in cash and assumed approximately $2.0
million in debt. At the time of the acquisition, Bright Start operated
43 preschools in the states of Minnesota, Wisconsin, Nevada, and New
Mexico with one new school under construction. For the year ended
August 31, 1998, Bright Start had operating revenue of $22.2 million
and at August 31, 1998 total assets were $5.1 million. The acquisition
was accounted for as a purchase and, accordingly, the purchase price
has been allocated to the fair value of net assets acquired and
resulted in an allocation of goodwill of $10.1 million which is being
amortized on a straight-line basis over 20 years. The Company's
financial statements reflect the results of operations of Bright Start
during the period subsequent to July 21, 1999. On an unaudited pro
forma basis, assuming the acquisition had occurred on July 4, 1998, the
Company's operating revenue and net loss for the 52 weeks ended July 3,
1999 would have been $352.0 million and $1.2 million, respectively.
13. RESTRUCTURING CHARGE
In the third quarter of 2000, management committed to a plan to close
certain Academies located in areas where the demographic conditions no
longer support an economically viable operation and to restructure its
operating management to better serve the remaining Academies.
Accordingly, the Company recorded a $7.5 million restructuring charge
($4.5 million after tax) to provide for costs associated with the
Academy closures and restructuring of 49 Academies. The charge consists
principally of $5.9 million for the present value of rent, real estate
taxes, common area maintenance charges, and utilities, net of
anticipated sublease income, and $1.1 million for the write-down of
fixed assets to fair market value. At July 1, 2000, the Company had an
accrual for the closing of these Academies of $6.2 million. During
fiscal year 2000, 39 schools were closed. Subsequent to the end of the
fiscal year, an additional four schools have closed in connection with
the restructuring plan. By the end of fiscal year 2001, management
plans to address the closing of the remaining six schools.
Restructuring activity for fiscal year 2000 was as follows (in
thousands of dollars):
Facilities Other
Related Assets Costs Total
-------------- ----- -------
Reserves recorded in fiscal year 2000 $ 6,989 $ 511 $ 7,500
Amount utilized in fiscal year 2000 (1,234) (149) (1,383)
------- ----- -------
Balance at July 1, 2000 $ 5,755 $ 362 $ 6,117
*********
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and current position held by the
persons who are the directors and executive officers of the Company:
Name Age Position
- ---- --- --------
Stephen P. Murray ..........................................37 Chairman of the Board and Director
Judith A. Rogala............................................59 Chief Executive Officer, President and Director
Mitchell J. Blutt, M.D .....................................43 Director
Terry D. Byers .............................................46 Director
Barbara S. Feigin ..........................................62 Director
Robert E. King .............................................64 Director
Brian J. Richmand ..........................................46 Director
Ronald L. Taylor ...........................................56 Director
James E. Blount ............................................33 Vice President, Corporate Service
Damaris M. Campbell ........................................47 Vice President, Eastern Region
Jeffrey J. Fletcher ........................................48 Chief Financial Officer
Brian J. Huesers ...........................................39 Chief Information Officer
Lisa J. Miskimins ..........................................40 Vice President, Central Region
Rebecca L. Perry ...........................................45 Vice President Operations
Phyllis L. Stevens .........................................51 Vice President, Western Region
Linda Wishard .............................................49 Vice President, Organizational Services
The business experience during the last five years and other information
relating to each executive officer and director of the Company is set forth
below.
Stephen P. Murray became the Chairman of the Board in January 2000 and has been
a Director of the Company since May 1998. Mr. Murray has been a General Partner
of CCP since 1994. From 1988 to 1994 Mr. Murray was a Principal at CCP. Prior
thereto, he was a Vice President with the Middle-Market Lending Division of
Manufacturers Hanover. Mr. Murray has a BA from Boston College and a MBA from
Columbia Business School. He also serves as director of The Vitamin Shoppe,
Vitamin Shoppe.com, Starbelly, Inc., Home Products, Inc., Futurecall
Telemarketing, American Floral Services, The Cornerstone Group, Medical Arts
Press and Regent Lighting Corporation.
Judith A. Rogala became a director and the Chief Executive Officer and President
of the Company in January 2000. From 1997 to 1999 Ms. Rogala was President of
ARAMARK Uniform Services. She was an Executive Vice President of Office Depot
from 1994 to 1997. From 1992 to 1994 she was President and Chief Executive
Officer of EQ (the Environmental Quality Company) and from 1990 to 1992 Ms.
Rogala was President and Chief Executive Officer of Flagship Express. From 1980
to 1990 she was a Senior Vice President at Federal Express. Ms. Rogala has a BS
from Roosevelt University and a MBA from the University of New Mexico.
Mitchell J. Blutt, M.D. has been a Director of the Company since May 1998. Dr.
Blutt has served as an Executive Partner of CCP since 1992. From 1988 to 1992 he
was a General Partner of CCP. Dr. Blutt has a BA and a MD from the University of
Pennsylvania and a MBA from The Wharton School of the University of
Pennsylvania. He is an Adjunct Professor of Medicine at the New York
Hospital/Cornell Medical School. Dr. Blutt is a director of the Hanger
Orthopedic Group, Senior
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Psychology Services Corporation, Fisher Scientific Corporation, DonJoy LLC,
Medsite.com, Palm Entertainment Corporation, and on the Advisory Boards of the
DS Polaris Fund, Dubilier & Co., The Tinicum Fund and the Global Academy for the
Human Genome Human Being. He is a member of the Board of Trustees of the
University of Pennsylvania and a member of the Board of Overseers of the
University of Pennsylvania's School of Arts and Sciences. Dr. Blutt also serves
on the International Board of Governors of the Peres Center for Peace.
Terry D. Byers has been a Director of the Company since December 1998. Ms. Byers
has more than 17 years experience in information technology ranging from
hands-on systems design and development to executive management. She has
extensive experience in designing and architecting enterprise-level IT
infra-structures, developing and integrating business information systems,
implementing large ERP applications, and developing and deploying
technology-based solutions to clients. Since 1996, Ms Byers has been a Senior
Vice President and the Chief Technology Officer for American Floral Services,
Inc. located in Oklahoma City. She holds a Bachelors of Business Administration
degree in Computer Science from the University of Central Oklahoma.
Barbara S. Feigin has been a Director of the Company since August 1999.
Ms. Feigin is a consultant specializing in strategic marketing and branding. She
served as Executive Vice President and Worldwide Director of Strategic Services
and was a member of the Agency Policy Council for Grey Advertising, Inc. from
1983 until her retirement in 1999. Ms. Feigin is a director of Circuit City
Stores, Inc., VF Corporation, Vitamin Shoppe.com, and eYada.com. Ms. Feigin is a
graduate of Whitman College where she has served as a member of the Board of
Overseers and of the Harvard Radcliffe Program in Business Administration.
Robert E. King has been a Director of the Company since May 1998. Mr. King is
Chairman of Salt Creek Ventures, LLC, a private equity company he founded in
1994. Salt Creek Ventures, LLC is an organization specializing in equity
investments in technology companies. Mr. King has been involved over the past 33
years as a corporate executive and entrepreneur in technology-based companies.
From 1983 to 1994, he was President and Chief Executive Officer of The Newtrend
Group. Mr. King has participated as a founding investor in five companies.
Mr. King has a B.A. from Northwestern University. He serves on the Board of
Directors of DeVry, Inc., American Floral Services, Inc., COLLEGIS, Inc.,
Premier Systems Integrators, Inc. and eduprise.com, inc.
Brian J. Richmand has been a Director of the Company since May 1998.
Mr. Richmand became a Special Partner of CCP in January 2000. He was a General
Partner of CCP from 1993 to 2000. From 1986 to August 1993 Mr. Richmand was a
partner with the law firm of Kirkland & Ellis. He has a BS from The Wharton
School of the University of Pennsylvania and a JD from Stanford Law School.
Mr. Richmand is a director of Transtar Metals, L.L.C., Riverwood International
Corp., Reiman Publishing, L.L.C., and American Media, Inc.
Ronald L. Taylor has been a Director of the Company since April 1999. Mr. Taylor
has been President and Chief Operating Officer of DeVry, Inc since 1987. He is
Chairman of the Proprietary Schools Advisory Committee for the Illinois Board of
Higher Education; a member of the Institutional Action Committee for the North
Central Association of Colleges and Schools; a Commissioner for the Commission
on Adult Learning and Educational Credentials, American Council on Education; a
mentor for the Next Generation Leadership Institute at Loyola University
Chicago; a member of the Board of Directors of the Illinois State Chamber of
Commerce. He also serves on the Board of Directors of DeVry, Inc. and the Better
Business Bureau of Chicago & Northern Illinois, Inc. Mr. Taylor has a BA from
Harvard University and received his MBA from Stanford University.
James E. Blount became the Vice President of Corporate Service of the Company in
May 2000. From 1999 to 2000 Mr. Blount was the Regional Vice President for State
National Companies, responsible for managing sales and growth strategy. From
1993 to 1999 he held a series of increasingly senior positions at ARAMARK
Uniform Services, from District Manager to Director of National Accounts. From
1989 to 1992 he served as Area Manager for Nutri/System Weight
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Loss Centers. Mr. Blount has a B.B.A. from Augusta State University.
Damaris M. Campbell became the Vice President of the Eastern Region for the
Company in June 2000. She is responsible for the supervision of 14 states. From
1997 to 2000 Ms. Campbell was an Area Vice President with supervisory
responsibility for the operations of the Company in five states. She was a
Divisional Director of 54 schools in three states from 1993 to 1997. From 1983
to 1993 she supervised 13 academies in the Charlotte, NC Region. She began her
career with the Company in 1980 as a teacher.
Jeffrey J. Fletcher became Chief Financial Officer of the Company in June 2000.
From 1998 to 2000, Mr. Fletcher was Chief Financial Officer for Hirsh
Industries, Inc. From 1995 to 1998, he provided strategic, finance and
operations consulting services to a variety of businesses including
manufacturers, Internet start-ups, medical services and retailers. Mr. Fletcher
served as Chief Financial Officer of the Environmental Quality Company from 1992
to 1995. Prior to 1992, Mr. Fletcher served in various financial capacities at
Gaylord Container. Mr. Fletcher began his career with Coopers & Lybrand and
Deloitte & Touche. Mr. Fletcher has a B.S. from the University of Iowa and a
M.M. from the Kellogg Graduate School of Management at Northwestern University.
Brian J. Huesers became Chief Information Officer of the Company in June 2000.
From 1999 to 2000 Mr. Huesers was the Chief Information Officer for the Kansas
City, Missouri School District. Mr. Huesers was the Assistant Vice President for
Technical Services at H&R Block, Inc. from 1997 to 1999. From 1984 to 1996 Mr.
Hueser's held various positions at H&R Block Tax Services. Mr. Huesers has a BA
from Washburn University.
Lisa J. Miskimins became the Vice President of the Central Region of the Company
on June 2000. She is responsible for the supervision of 13 states. From 1997 to
2000 Ms. Miskimins was an Area Vice President with supervisory responsibility
for the operations of the Company in eight midwestern states. She was a
Divisional Director of 50 schools in three states from 1994 to 1997. She began
her career with the Company in 1983 as a Preschool Teacher. Ms. Miskimins has a
BA in Elementary Education and English.
Rebecca L. Perry became the Vice President of Operations in April 2000. She was
the Executive Vice President of Operations from 1997 to 2000. From 1993 to 1997
Ms. Perry was a Senior Vice President and Eastern Operating Officer. From 1988
to 1993 she was Assistant Vice President of Operations with supervisory
responsibility for the operations of the Company in 14 southern and midwestern
states. From 1985 to 1988 she served as Divisional Director of Florida and from
1981 to 1985 she served as Regional Director of Tampa.
Phyllis L. Stevens became the Vice President of the Western Region for the
Company in June 2000. She is responsible for the supervision of nine states as
well as all Montessori schools. From 1997 to 2000 Ms. Stevens was an Area Vice
President with supervisory responsibility for the operations
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of the Company in seven states as well as all Montessori schools. From 1992 to
1997 Ms. Stevens was Divisional Director of six northeast states. She began her
career with the Company in 1982 as a Center Director. Ms. Stevens has a BS from
Drexel University.
Linda Wishard became Vice President of Organization Services of the Company in
September 2000. From 1995 to 2000 Ms. Wishard was Vice President, Human
Resources for Taco Cabana. She was Director of Corporate Benefits for H.E. Butt
Grocery Company from 1991 to 1995 and served various other positons for the
company from 1985 to 1991. Ms Wishard has a BS from the University of Texas and
a MA from the University of Southern California.
BOARD COMMITTEES AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
The Board of Directors has an Audit Committee consisting of Robert E. King and
Stephen P. Murray, and a Compensation Committee consisting of Stephen P. Murray
and Brian J. Richmand. The Audit Committee reviews the scope and results of
audits and internal accounting controls and all other tasks performed by our
independent public accountants. The Compensation Committee determines
compensation for the executive officers and will administer the New Option Plan.
None of the Company's executive officers have served as a director or member of
the compensation committee (or other committee forming an equivalent function)
of any other entity, whose executive officers served as a director of or member
of the Compensation Committee of the Company's Board of Directors.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The members of the Board of Directors are reimbursed for out-of-pocket expenses
related to their service on the Board of Directors or any committee thereof. In
addition, members of the Board of Directors who are neither officers of the
Company nor employed by CCP or any of its partners are entitled to receive an
attendance fee of $1,000 for each meeting attended.
On August 19, 1999, Parent adopted the LPA Holding Corp. 1999 Stock Option Plan
for Non-Employee Directors (1999 Plan). The purpose of the plan is to provide a
means for attracting, retaining, and incentivizing qualified directors. Under
the terms of the plan, 10,000 shares of Parent's common stock are reserved for
issuance to non-employee directors.
Non-employee directors may exercise their options to purchase shares of Parent's
common stock once those options have vested. One-forty eighth of the options
become vested on the last day of each month following the date of grant, if the
person is a director on that day. Each option entitles the director to purchase
one share of Parent's common stock. The exercise price will equal the fair
market value on the date of grant of the option to the non-employee director.
Vested options and shares of common stock may be repurchased from any
non-employee director who ceases to be a director for any reason. Any options
that have not vested at the time the non-employee director ceases to be a
director are forfeited. For the 52 weeks ended July 1, 2000, options to purchase
4,400 shares of common stock of Parent have been granted under the plan.
45
46
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning compensation
earned for the 52 weeks ended July 1, 2000 (2000), for the 44 weeks ended
July 3, 1999 (1999), and for the 52 weeks ended August 29, 1998 (1998), by the
Company's Chief Executive Officer, former Chief Executive Officer and the other
most highly compensated executive officers whose salary and bonus exceeded
$100,000 for the fiscal year:
SUMMARY COMPENSATION TABLE
COMPENSATION FOR THE PERIOD
ANNUAL LONG-TERM ALL OTHER
COMPENSATION COMPENSATION COMPENSATION
------------ ------------ ------------
NUMBER OF
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTION/SAR AWARDS
- --------------------------- ---- ------ ----- -----------------
Judith A. Rogala 2000 $180,385(4) $ 87,500
Chief Executive Officer & President
James R. Kahl, 2000 155,327 $ 6,000(5)
Former Chief Executive Officer & 1999 264,366
President(Separated from Company 1998 297,500 143,000 21,780 400,000(1)
on January 1, 2000) 1,152,556(2)
Susan Stanton, 2000 250,000
Former Chief Operating Officer 1999 120,192(3) 24,000 5,700
(Separated from Company
February 15, 2000)
Rebecca L. Perry, 2000 183,729
Vice President Operations 1999 155,490
1998 172,500 33,000 5,100 150,000(1)
Peggy A. Ford 2000 119,692
Vice President, Business Service 1999 90,512
Center, General Counsel 1998 100,770 7,200 450 50,000(1)
(Employment with the Company
terminates September 30, 2000)
Mary Jean Wolf 2000 163,986
Former Senior Vice President, 1999 134,083
Organization Services 1998 150,000 28,000 3,750 100,000(1)
(Separated from Company on
August 13, 1999)
[FN]
(1) Represents Recapitalization bonuses paid to certain members of management
by selling shareholders out of sales proceeds. Perquisites and other
personal benefits for the fiscal years 1999, 1998, and 1997 paid to the
named officers did not, as to any of them, exceed the lesser of $50,000 or
10 percent of the sum of their respective salary and bonus.
(2) Represents reimbursement for tax consequences on the exercise and sale of
stock options in accordance with Mr. Kahl's employment contract.
(3) 1999 compensation covers 25 weeks from January 11, 1999 through July 3,
1999.
</FN>
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47
[FN]
(4) 2000 compensation covers 27 weeks from December 21, 1999 through July 1,
2000.
(5) Represents payments made to Mr. Kahl subsequent to his termination
pursuant to his employment agreement.
</FN>
The following tables present information relating to grants to executive
officers of options to purchase common stock of Company:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY END (#) AT FY END (4)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- --------------- -------- -------------- -------------
Rebecca L. Perry, 0/0(1) 0/0
Vice President Operations 1,875/1,725(2) 0/0
0/1,500(3) 0/0
Peggy A. Ford, 750/0(1) 31,500/0
Vice President, Business Service Center, 234/216(2) 0/0
General Counsel
(Employment with the Company terminates
September 30, 2000)
[FN]
(1) Pursuant to the Recapitalization, certain key executives simultaneously
exercised options at various prices and sold the related shares at $133.83
per share (the transaction price). Those options not exercised were
retained by the key executives. All of these options became fully
exercisable as a result of the Recapitalization.
(2) Effective May 18, 1998 the Board of Directors granted to certain key
executives Tranche A options at $66.92 per share, an amount which
approximates the fair value of a share of common stock of the Company at
the date of the grant. These options become exercisable ratably over
forty-eight months and expire ten years from the date of grant.
(3) Effective May 18, 1998 the Board of Directors granted to certain key
executives Tranche B options at $133.83 per share. These options are
exercisable only in the event of a change in control or a registered public
offering of common stock, which provides certain minimum returns (as
defined) over the transaction price.
(4) The equity of the Company is not traded and there is no market for pricing
the value of the options. "In the Money" calculations are based on the
estimated enterprise value of the Company adjusted for debt, preferred
stock, common shares issued and retired, warrants and options and
adjustments for market liquidity and a control premium.
</FN>
The Company did not grant any options to the named executive officers during
fiscal 2000.
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EMPLOYMENT CONTRACTS
The Company has entered into an employment agreement with Judith A. Rogala. The
Employment Agreement provides for Ms. Rogala to receive a base salary, subject
to annual performance adjustments, of $350,000 plus a bonus of up to 150% of
base salary. Ms. Rogala is also entitled to receive a cash Interim Bonus with
respect to the Company's fiscal year ending in July 2000 equal to $87,500 and a
Signing Incentive of $1.5 million, vesting at 25% per year, payable on the
fourth anniversary date of employment. The term of the Employment Agreement is
three years subject to one year automatic renewals. The Employment Agreement
also provides that the executive is entitled to participate in the health and
welfare benefit plans available to the Company's other senior executives. The
Employement Agreement provides for severance in the case of termination without
'cause' or a resignation with 'good reason' in an amount equal to one year of
base salary plus a prorated bonus as described in the agreement and a cash lump
sum equal to (a) any compensation payments deferred by Ms. Rogala, together with
any applicable interest or other accruals; (b) any unpaid amounts, as of the
date of such termination, in respect of the Bonus for the fiscal year ending
before the fiscal year in which such termination occurs; (c) the Signing
Incentive Bonus (to the extent not already paid) and (d) the Pro Rata Bonus as
described in the agreement. Included in the severance in the case of termination
without 'cause' or resignation with 'good reason' is one year of coverage under
and participation in the Company's employee benefit program. The Employment
Agreement also contains customary non-disclosure, non-competition and
non-solicitation provision.
Previously, the Company had employment agreements with James R. Kahl, Susan
Stanton, and Rebecca L. Perry. Jim Kahl's employment with the Company terminated
on January 1, 2000. Susan Stanton's employment with the Company terminated on
February 15, 2000. The Employment Agreements provided for Mr. Kahl, Ms. Stanton,
and Ms. Perry to receive a base salary, subject to annual performance
adjustments, of $312,500, $250,000, and $181,000, respectively, plus a bonus of
up to 180%, 120%, and 75%, respectively, of base salary. The terms of the
Employment Agreement were as follows: for Mr. Kahl, four years from May 11,
1998, for Ms. Stanton, and Ms. Perry, one year, in each case subject to one year
automatic renewals. Ms. Perry's employment agreement was not renewed at August
28, 2000. Each Employment Agreement also provided that the executive is entitled
to participate in the health and welfare benefit plans available to the
Company's other senior executives. The Employment Agreements provided for
severance in the case of a termination without 'cause' or a resignation with
'good reason' (each as defined in the applicable Employment Agreement) in an
amount equal to the base salary plus bonus for Mr. Kahl, and in an amount equal
to the base salary for Ms. Stanton, and Ms. Perry. If Mr. Kahl terminated his
employment with good reason after a change of control, Mr. Kahl would be
entitled to two years' base salary and bonus. The Employment Agreements also
contain customary non-disclosure, non-competition and non-solicitation
provisions.
NEW OPTION PLAN
The Company adopted the 1998 Plan pursuant to which options, which currently
represents 8.3% of Parent's common stock, on a fully diluted basis, are
available to grant. The 1998 Plan provides for the granting of Tranche A and
Tranche B options to purchase up to 60,074 shares of Parent's common stock.
Options to purchase 14,250 shares of Parent's common stock have been granted.
The options will be allocated in amounts to be agreed upon between LPA and
Parent. Seventy-five percent of the options will vest over four years and
twenty-five percent of the options will vest if certain transactions are
consummated which generate certain minimum returns to LPA. The exercise price
for the time vesting options will be 50% of the per share price paid by LPA for
its common stock of Parent and the exercise price for the remaining options will
be 100% of the per share price paid by LPA for its common stock of Parent. The
options expire 10 years from the date of grant.
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49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of La Petite's common stock is held by LPA Holding Corp. (Parent). As of
July 1, 2000, LPA Investment LLC (LPA) owned approximately 89.6% of the
outstanding common stock of Parent (approximately 81.3% on a fully diluted
basis, including the warrants described below) and Vestar, the former principal
stockholder of the Company, and La Petite's current and former management own
approximately 3.6%, 1.9% and 4.9%, respectively, of the outstanding common stock
of Parent (approximately 2.9%, 3.9% and 4.1%, respectively, on a fully diluted
basis). In connection with the purchases of preferred stock of Parent, described
below, LPA received warrants to purchase shares of Parent's common stock that
currently represents the right to acquire 8.9% of Parent's common stock on a
fully diluted basis.
In connection with the recapitalization, LPA purchased redeemable preferred
stock of Parent and warrants to purchase shares of Parent's common stock on a
fully diluted basis for aggregate cash consideration of $30.0 million, the
proceeds of which were contributed by Parent to common equity. On December 15,
1999, LPA acquired an additional $15.0 million of Parent's redeemable preferred
stock and received warrants to purchase an additional 3.0% of Parent's common
stock on a fully diluted basis. The $15.0 million proceeds received by Parent
were contributed to common equity.
The preferred stock is not redeemable at the option of the holder prior to the
maturity of the notes and dividends are not payable in cash prior to the seventh
anniversary of the consummation of the transactions. Thereafter, Parent may pay
dividends in cash subject to any restrictions contained in our indebtedness,
including the Credit Agreement and the indenture.
Following the consummation of the recapitalization, Parent and its stockholders,
including all holders of options and warrants, entered into a Stockholders'
Agreement. The Stockholders' Agreement contains restriction on the
transferability of Parent common stock, subject to certain exceptions. The
Stockholder' Agreement also contains provisions regarding the designation of
members of the Board of Directors and other voting arrangements. The
Stockholders' Agreement will terminate at such time as Parent consummates a
qualified public offering.
The Stockholders' Agreement restricts transfers of common stock of Parent by,
among other things (i) granting rights to all stockholders to tag along on
certain sales of stock by LPA and management, (ii) granting rights to LPA to
force the other stockholders to sell their common stock on the same terms as
sales of common stock by LPA, and (iii) granting preemptive rights to all
holders of 2% or more of Parent's common stock in respect of sales by other
stockholders.
The Stockholder's Agreement provides that the Board of Directors of Parent shall
consist of 5 to 8 persons as determined pursuant to the Stockholders Agreement.
The Stockholder's Agreement further provides that LPA is entitled to designate
four of the directors, one of whom is entitled to three votes as a director.
Messrs. Murray, Blutt, Richmand and King have been elected as directors pursuant
to this provision with Mr. King being entitled to three votes as a director.
Certain management stockholders of Parent are entitled to elect one director,
currently Ms. Rogala. The Stockholder's Agreement further provides that the
ensuing directors of Parent shall be designated by mutual consent of LPA and the
management stockholders.
The Stockholders' Agreement also contains covenants in respect of the delivery
of certain financial information to Parent's stockholders and granting access to
Parent's records to holders of more than 2% of Parent's common stock.
A majority of the economic interests of LPA is owned by CB Capital Investors,
LLC (CBCI), an affiliate of CCP, and a majority of the voting interests of LPA
is owned by an entity controlled by Robert E. King, one of Parent's Directors.
However, pursuant to the LPA Operating Agreement, LPA has granted to CBCI the
right to elect a majority of the directors of LPA if certain triggering events
occur and LPA agreed not to take certain actions in respect of the common stock
of Parent
49
50
held by LPA without the consent of CBCI. Accordingly, if certain triggering
events occur, through its control of LPA, CBCI would be able to elect a majority
of the Board of Directors of Parent. As a licensed small business investment
company, or SBIC, CBCI is subject to certain restrictions imposed upon SBICs by
the regulations established and enforced by the United States Small Business
Administration. Among these restrictions are certain limitations on the extent
to which an SBIC may exercise control over companies in which it invests. As a
result of these restrictions, unless certain events described in the operating
agreement occur, CBCI may not own or control a majority of the outstanding
voting stock of LPA or designate a majority of the members of the Board of
Directors. Accordingly, while CBCI owns a majority of the economic interests of
LPA, CBCI owns less than a majority of LPA's voting stock.
In connection with the recapitalization, Parent and its stockholders following
consummation of the recapitalization entered into a Registration Rights
Agreement. The Registration Rights Agreement grants stockholders demand and
incidental registration rights with respect to shares of capital stock held by
them and contains customary terms and provisions with respect to such
registration rights.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Chase Securities Inc., or CSI, one of the initial purchasers of the old Notes,
is an affiliate of The Chase Manhattan Bank, an agent and a lender to La Petite
under the Credit Agreement of the old notes, LPA, an affiliate of CCP and CSI,
owns approximately 89.6% of the outstanding common stock of Parent
(approximately 81.3% on a fully diluted basis). LPA owns $45 million of
redeemable preferred stock of Parent and warrants to purchase 8.9% of the common
stock of Parent on a fully diluted basis. Certain partners of CCP are members of
La Petite's Board of Directors (see Item 10). In addition, CSI, Chase and their
affiliates perform various investment banking and commercial banking services on
a regular basis for our affiliates.
In connection with the recapitalization, CBCI entered into an Indemnification
Agreement with Robert E. King, one of Parents' Directors, pursuant to which CBCI
has agreed to indemnify Mr. King for any losses, damages or liabilities and all
expenses incurred or sustained by Mr. King in his capacity as a manager, officer
or director of LPA or any of its subsidiaries, including Parent and La Petite.
Banc of America Securities LLC, one of the initial purchasers of the old notes,
is an affiliate of Bank of America, an agent and lender under the Credit
Agreement.
50
51
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See pages 24 to 41 of this Annual Report on Form 10-K for financial
statements of LPA Holding Corp. as of July 1, 2000 and July 3, 1999
and for the 52 weeks ended July 1, 2000, for the 44 weeks ended July
3, 1999, and for the 52 weeks ended August 30, 1998.
(a) 2. Financial Statement Schedules
The following additional financial data should be read in conjunction
with the consolidated financial statements for the 52 weeks ended July
1, 2000, for the 44 weeks ended July 3, 1999 and for the 52 weeks
ended August 29, 1998. Other schedules not included with these
additional financial statement schedules have been omitted because
they are not applicable or the required information is contained in
the consolidated financial statements or notes thereto.
SCHEDULES
Schedule I - Condensed Financial Statements of Registrants
Schedule II - Valuation and Qualifying Accounts
(a) 3. Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1(i) Amended and Restated Certificate of Incorporation of LPA
Holding Corp.
3.2(i) Certificate of Designations, Preferences and Rights of
Series A Redeemable Preferred Stock of LPA Holding Corp.
3.3(i) Bylaws of LPA Holding Corp.
3.4(i) Amended and Restated Certificate of Incorporation of La
Petite Academy, Inc.
3.5(i) Bylaws of La Petite Academy, Inc.
3.6(vi) Certificate of Incorporation of LPA Services
3.7(vi) By-Laws of LPA Services
3.8(vi) Amended and Restated Articles of Incorporation of Bright
Start, Inc.
3.9(vi) By-Laws of Bright Start, Inc.
3.10(v) Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of LPA Holding Corp. filed on
December 13, 1999
3.11(v) Certificate of Amendment of the Certificate of
Designations, Preferences and Rights of Series A
Redeemable Preferred Stock of LPA Holdings Corp. filed on
December 13, 1999
4.1(i) Indenture among LPA Holding Corp., La Petite Academy,
Inc., LPA Services, Inc. and PNC Bank, National
Association dated as of May 11, 1998
4.2(iv) First Supplemental Indenture dated as of July 23, 1999,
among Bright Start, Inc., LPA Holding Corp., La Petite
Academy, Inc., and The Chase Manhattan Bank
10.1(i) Purchase Agreement among Vestar/LPA Investment Corp., La
Petite Academy, Inc., LPA Services, Inc., Chase Securities
Inc. and NationsBanc Montgomery Securities LLC dated
May 6, 1998
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52
EXHIBIT
NUMBER DESCRIPTION
------- ------------
10.2(i) Exchange and Registration Rights Agreement among La
Petite Academy, Inc., LPA Holding Corp., LPA Services,
Inc., Chases Securities Inc., NationsBanc Montgomery
Securities LLC dated May 11, 1998
10.3(i) Merger Agreement by and between LPA Investment LLC and
Vestar/LPA Investment Corp. dated as of March 17, 1998
10.5(i) Stockholders Agreement among LPA Holding Corp.,
Vestar/LPT Limited Partnership, LPA Investment LLC and the
management stockholders dated as of May 11, 1998
10.5a(v) Amendment #1 and Consent of the Stockholders Agreement
among LPA Holding Corp., Vestar/LPT Limited Partnership,
LPA Investment LLC and the management stockholders dated
as April 8, 1999.
10.6(i) 1998 Stock Option Plan and Stock Option Agreement for LPA
Holding Corp. dated as of May 18, 1998
10.7(i) Preferred Stock Registration Rights Agreement between LPA
Holding Corp. and LPA Investment LLC dated May 11, 1998
10.8(i) Registration Rights Agreement among LPA Holding Corp.,
Vestar/LPT Limited Partnership, the stockholders listed
therein and LPA Investment LLC, dated May 11, 1998
10.9(i) Employment Agreement among LPA Holding Corp., La Petite
Academy, Inc. and James R. Kahl
10.10(i) Employment Agreement among LPA Holding Corp., La
Petite Academy, Inc. and Rebecca Perry
10.11(i) Employment Agreement among LPA Holding Corp., La Petite
Academy, Inc. and Phillip Kane
10.12(i) Credit Agreement dated as of May 11, 1998 among La
Petite Academy, Inc., LPA Holding Corp., Nationsbank, N.A.,
and The Chase Manhattan Bank
10.13(i) Pledge Agreement among La Petite Academy, Inc., LPA
Holding Corp., Subsidiary Pledgors and Nationsbank, N.A.
dated as of May 11, 1998
10.14(i) Security Agreement among La Petite Academy, Inc., LPA
Holding Corp., Subsidiary Guarantors and Nationsbank, N.A.
dated as of May 11, 1998
10.15(i) Parent Company Guarantee Agreement among LPA Holding Corp.
and Nationsbank, N.A. dated as of May 11, 1998
10.16(i) Subsidiary Guarantee Agreement among Subsidiary
Guarantor of La Petite Academy, Inc., LPA Services, Inc.
and Nationsbank, N.A. dated as of May 11, 1998
10.17(i) Indemnity, Subrogation and Contribution Agreement among
La Petite Academy, Inc., LPA Services, Inc., as
Guarantor and Nationsbank, N.A. dated as of May 11, 1998
10.18(ii) James Kahl option agreement
10.20(v) 1999 Stock Option Plan for Non-Employee Directors
10.21(iii) Agreement and Plan of Merger By and Between La Petite
Academy, Inc., LPA Acquisition Co. Inc., and Bright
Start, Inc.
10.23(v) Amendment No. 1, Consent and Waiver dated as of December
13, 1999, to the Credit Agreement dated as of May 11,
1998 among LPA Holding Corp., La Petite Academy, Inc.,
Bank of America, N.A. (formerly known as NationsBank,
N.A.) as Administrative Agent, Documentation Agent and
Collateral Agent for the Lenders and The Chase Manhattan
Bank as Syndication Agent
10.24(v) Warrant No. 2 dated as of December 15, 1999, issued by
LPA Holding Corp. to LPA Investment LLC
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53
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.26(v) Amendment No. 1 to the LPA Holding Corp. 1999 Stock Option
Plan for Non-Employee Directors
10.27(vii) Employment Agreement among LPA Holding Corp., La Petite
Academy, Inc., and Judith A. Rogala
12.1* Statement regarding computation of ratios
21.1(vi) Subsidiaries of Registrant
27.1* Financial Data Schedule
(i) Incorporated by reference to the Exhibits to La Petite
Academy, Inc.'s Registration Statement on Form S-4,
Registration No. 333-56239, filed with the Securities and
Exchange Commission on June 5, 1998.
(ii) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 10-K for the Fiscal Year ended August 29, 1998,
filed with the Securities and Exchange Commission on
November 24, 1998
(iii) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 8-K, filed with the Securities and Exchange
Commission on December 7, 1999
(iv) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 10-Q/A for the 16 weeks ended October 23, 1999,
filed with the Securities and Exchange Commission on
December 16, 1999
(v) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 8-K, filed with the Securities and Exchange
Commission on December 21, 1999
(vi) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form S-4 Post Effective Amendment #1, filed with the
Securities and Exchange Commission on December 23, 1999
(vii) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 8-K, filed with the Securities and Exchange
Commission on February 16, 2000
(*) Filed herewith
(b) Reports on Form 8-K
None
(c) Supplemental information to be furnished with reports filed pursuant
to Section 15(d) of the Act by Registrants which have not registered
securities pursuant to Section 12 of the Act
Except for a copy of this Annual Report on Form 10-K, no
annual report to security holders covering the registrants'
last fiscal year or proxy materials will be sent to security
holders.
53
54
LPA HOLDING CORP.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
JULY 1, JULY 3,
BALANCE SHEETS 2000 1999
-------------- -------------
ASSETS:
Investment in La Petite Academy, Inc. $ (21,207) $ (10,659)
-------------- -------------
$ (21,207) $ (10,659)
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Payable to La Petite Academy, Inc. 55,132 70,214
-------------- -------------
Total current liabilities 55,132 70,214
Series A 12% redeemable preferred stock ($.01 par value per share); 47,314 29,310
45,000 shares authorized, issued and outstanding at July 1, 2000
at aggregate liquidation preference of $1,211.291 as of July 1,
2000 and $1,143.444 as of July 3, 1999 (Note 7)
Stockholders' deficit:
Class A common stock ($.01 par value per share); 950,000 shares 6 6
authorized and 564,985 and 560,026 shares issued and outstanding as
of July 1, 2000 and July 3, 1999
Class B common stock ($.01 par value per share); 20,000 shares
authorized, issued and outstanding as of July 1, 2000 and July 3,
1999
Common stock warrants 8,596 5,645
Accumulated deficit (132,255) (115,834)
-------------- -------------
Total stockholders' deficit (123,653) (110,183)
-------------- -------------
$ (21,207) $ (10,659)
============== =============
See notes to consolidated financial statements included in Part II of the Annual
Report on Form 10-K.
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55
LPA HOLDING CORP. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(IN THOUSANDS OF DOLLARS)
52 WEEKS 44 WEEKS 52 WEEKS ENDED
ENDED ENDED
JULY 1, JULY 3, AUGUST 29,
STATEMENTS OF OPERATIONS 2000 1999 1998
---------- ----------- --------------
Minority interest in net income of subsidiary $ $ $ 2,849
---------- ----------- --------------
Loss before equity in net income of subsidiary (2,849)
Equity in net loss of La Petite Academy, Inc. (10,547) (797) (10,479)
---------- ----------- --------------
Net loss $ (10,547) $ (797) $ (13,328)
---------- ----------- --------------
See Notes to Consolidated Financial Statements included in Part II of the Annual
Report on Form 10-K.
55
56
LPA HOLDING CORP.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(IN THOUSANDS OF DOLLARS)
52 WEEKS 44 WEEKS 52 WEEKS
ENDED ENDED ENDED
JULY 1, JULY 3, AUGUST 29,
STATEMENTS OF CASH FLOWS 2000 1999 1998
---------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,547) $ (797) $ (13,328)
Adjustments to reconcile net loss to net cash from
operating activities:
Minority interest in net income of La Petite Academy, Inc. 2,849
Equity in net loss of La Petite Academy, Inc. 10,547 797 10,479
---------- ---------- -----------
Net cash from operating activities $ 0 $ 0 $ 0
---------- ---------- -----------
See notes to consolidated financial statements included in Part II of the Annual
Report on Form 10-K.
56
57
LPA HOLDING CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
BALANCE AT CHARGED TO BALANCE AT
JULY 3, COSTS AND JULY 1,
DESCRIPTION 1999 EXPENSES WRITE-OFFS 2000
------------ ------------ ----------- ------------
Allowance for doubtful accounts $ 306 $ 2,958 $ 2,858 $ 406
------------ ------------ ----------- ------------
BALANCE AT CHARGED TO BALANCE AT
AUGUST 29, COSTS AND JULY 3,
DESCRIPTION 1998 EXPENSES WRITE-OFFS 1999
------------ ------------ ----------- ------------
Allowance for doubtful accounts $ 196 $ 1,397 1,287 $ 306
------------ ------------ ----------- ------------
BALANCE AT CHARGED TO BALANCE AT
AUGUST 30, COSTS AND AUGUST 29,
DESCRIPTION 1997 EXPENSES WRITE-OFFS 1998
------------ ------------ ----------- ------------
Allowance for doubtful accounts $ 83 $ 1,717 $ 1,604 $ 196
------------ ------------ ----------- ------------
(continued)
57
58
LPA HOLDING CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
RESERVE FOR CLOSED ACADEMIES
BALANCE AT CHARGED TO BALANCE AT
JULY 3, COSTS AND CHARGED TO JULY 1,
DESCRIPTION 1999 EXPENSES RESERVE 2000
------------ ------------ ----------- ------------
Reserve for Closed Academies $ 4,048 $ 7,500 $ 2,985 $ 8,563
------------ ------------ ----------- ------------
BALANCE AT CHARGED TO BALANCE AT
AUGUST 30, COSTS AND CHARGED TO JULY 3,
DESCRIPTION 1998 EXPENSES RESERVE 1999
------------ ------------ ----------- ------------
Reserve for Closed Academies $ 5,417 $ $ 1,369 $ 4,048
----------- ------------ ------------ ------------
BALANCE AT CHARGED TO BALANCE AT
AUGUST 30, COSTS AND CHARGED TO AUGUST 29,
DESCRIPTION 1997 EXPENSES RESERVE 1998
------------ ------------ ----------- ------------
Reserve for Closed Academies $ 7,469 $ $ 2,052 $ 5,417
----------- ------------ ------------ ------------
(concluded)
58
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on September 29, 2000.
LPA Holding Corp.
/s/ Jeffrey J. Fletcher
------------------------------------------------
By: Jeffrey J. Fletcher
Chief Financial Officer and duly authorized
representative of the registrant
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed by the following persons on
behalf of the registrant and in the capabilities indicated on September 29,
2000.
/s/ Judith A. Rogala /s/ Stephen P. Murray
- ------------------------------- ------------------------------------------
By: Judith A. Rogala By: Stephen P. Murray
Chief Executive Officer, Chairman of the Board and Director
President and Director
/s/ Mitchell J. Blutt, M.D. /s/ Brian J. Richmand
- ------------------------------- ------------------------------------------
By: Mitchell J. Blutt, M.D. By: Brian J. Richmand
Director Director
/s/ Robert E. King /s/ Terry D. Byers
- ------------------------------- ------------------------------------------
By: Robert E. King By: Terry D. Byers
Director Director
/s/ Ronald L. Taylor /s/ Barbara Feigin
- ------------------------------- ------------------------------------------
By: Ronald L. Taylor By: Barbara Feigin
Director Director
59
60
Pursuant to the requirements of Section 13 or 15 (d) 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, on September 29, 2000.
La Petite Academy, Inc.
/s/ Jeffrey J. Fletcher
-------------------------------------------------
By: Jeffrey J. Fletcher
Chief Financial Officer and duly authorized
representative of the registrant
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed by the following persons on
behalf of the registrant and in the capabilities indicated on September 29,
2000.
/s/ Judith A. Rogala /s/ Stephen P. Murray
- ------------------------------- ------------------------------------------
By: Judith A. Rogala By: Stephen P. Murray
Chief Executive Officer, President Chairman of the Board and Director
and Director
/s/ Mitchell J. Blutt, M.D. /s/ Brian J. Richmand
- ------------------------------- ------------------------------------------
By: Mitchell J. Blutt, M.D. By: Brian J. Richmand
Director Director
/s/ Robert E. King /s/ Terry D. Byers
- ------------------------------- ------------------------------------------
By: Robert E. King By: Terry D. Byers
Director Director
/s/ Ronald L. Taylor /s/ Barbara Feigin
- ------------------------------- ------------------------------------------
By: Ronald L. Taylor By: Barbara Feigin
Director Director
60
61
Pursuant to the requirements of Section 13 or 15 (d) 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, on September 29, 2000.
LPA Services, Inc.
/s/ Jeffrey J. Fletcher
-------------------------------------------------
By: Jeffrey J. Fletcher
Chief Financial Officer and duly authorized
representative of the registrant
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed by the following persons on
behalf of the registrant and in the capabilities indicated on September 29,
2000.
/s/ Judith A. Rogala /s/ Stephen P. Murray
- ------------------------------- ------------------------------------------
By: Judith A. Rogala By: Stephen P. Murray
Chief Executive Officer, Chairman of the Board and Director
President and Director
/s/ Mitchell J. Blutt, M.D. /s/ Brian J. Richmand
- ------------------------------- ------------------------------------------
By: Mitchell J. Blutt, M.D. By: Brian J. Richmand
Director Director
/s/ Robert E. King /s/ Terry D. Byers
- ------------------------------- ------------------------------------------
By: Robert E. King By: Terry D. Byers
Director Director
/s/ Ronald L. Taylor /s/ Barbara Feigin
- ------------------------------- ------------------------------------------
By: Ronald L. Taylor By: Barbara Feigin
Director Director
61
62
Pursuant to the requirements of Section 13 or 15 (d) 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, on September 29, 2000.
Bright Start, Inc.
/s/ Jeffrey J. Fletcher
-------------------------------------------------
By: Jeffrey J. Fletcher
Chief Financial Officer and duly authorized
representative of the registrant
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed by the following persons on
behalf of the registrant and in the capabilities indicated on September 29,
2000.
/s/ Judith A. Rogala /s/ Stephen P. Murray
- ------------------------------- ------------------------------------------
By: Judith A. Rogala By: Stephen P. Murray
Chief Executive Officer, Chairman of the Board and Director
President and Director
/s/ Mitchell J. Blutt, M.D. /s/ Brian J. Richmand
- ------------------------------- ------------------------------------------
By: Mitchell J. Blutt, M.D. By: Brian J. Richmand
Director Director
/s/ Robert E. King /s/ Terry D. Byers
- ------------------------------- ------------------------------------------
By: Robert E. King By: Terry D. Byers
Director Director
/s/ Ronald L. Taylor /s/ Barbara Feigin
- ------------------------------- ------------------------------------------
By: Ronald L. Taylor By: Barbara Feigin
Director Director
62