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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 20, 1997 Commission File No. 33-61232
LA PETITE ACADEMY, INC.
Formerly known as La Petite Holdings Corp.
(exact name of registrant as specified in its charter)
Delaware 43-1243221
(state or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
8717 WEST 110TH STREET, SUITE 300
OVERLAND PARK, KANSAS 66210
(address of principal executive office and zip code)
(913) 345-1250
(registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No___ (2) Yes X No ___
As of January 30, 1998, La Petite Academy, Inc. had 100 shares of common stock
outstanding.
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LA PETITE ACADEMY, INC.
INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED): PAGE
----
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 9
ITEM 2. CHANGES IN SECURITIES 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 5. OTHER INFORMATION 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURE 10
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
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LA PETITE ACADEMY, INC.
CONSOLIDATED BALANCE SHEETS
16 WEEKS ENDED DECEMBER 20, 1997
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
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ASSETS DECEMBER 20, AUGUST 30,
1997 1997
Current assets:
Cash and cash equivalents $ 27,642 $ 23,971
Restricted cash investments 2,275 2,312
Accounts and notes receivable, net 4,867 5,068
Prepaid food and supplies 5,693 5,954
Other prepaid expenses 2,929 3,645
Refundable income taxes 374 559
Current deferred income taxes 1,335 1,024
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Total current assets 45,115 42,533
Property and equipment, at cost:
Land 6,808 6,927
Buildings and leasehold improvements 66,110 64,811
Equipment 24,008 22,529
Facilities under construction 617 317
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97,543 94,584
Less accumulated depreciation and amortization 37,461 33,460
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Net property and equipment 60,082 61,124
Other assets (Note 3) 63,170 64,187
Deferred income taxes 4,015 3,408
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$172,382 $171,252
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Amounts due to banks, including overdrafts $ 2,408 $ 2,356
Accounts payable 5,034 6,224
Current capitalized lease obligations 408 122
Current reserve for closed academies 1,788 1,860
Accrued salaries, wages and other payroll costs 10,821 10,717
Accrued insurance liabilities 4,212 4,156
Accrued property and sales tax 3,430 4,128
Accrued interest payable 3,228 719
Other accrued liabilities 3,973 4,761
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Total current liabilities 35,302 35,043
Long-term debt and capitalized lease obligations (Note 4) 86,485 85,903
Other long-term liabilities (Note 5) 14,105 14,319
Commitments and contingencies (Note 6)
Redeemable preferred stock ($.01 par value per share;
2,000,000 shares authorized; 800,000 issued and outstanding
at aggregate liquidation preference; per
share liquidation preference of $42.361 and $40.836, respectively) 33,748 32,521
Stockholder's equity:
Common stock ($.01 par value per share; 1,000 shares
authorized; 100 shares issued and outstanding)
Additional paid-in capital 15,056 16,284
Accumulated deficit (12,314) (12,818)
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2,742 3,466
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$172,382 $171,252
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See notes to consolidated financial statements.
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LA PETITE ACADEMY, INC.
CONSOLIDATED STATEMENTS OF INCOME
16 WEEKS ENDED DECEMBER 20, 1997
(IN THOUSANDS OF DOLLARS)
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16 WEEKS ENDED
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DECEMBER 20, DECEMBER 21,
1997 1996
Operating revenue $95,890 $92,253
Operating expenses:
Salaries, wages and benefits 50,388 47,519
Facility lease payments 12,199 12,209
Depreciation 4,000 4,254
Amortization of goodwill and other intangibles 688 688
Other 24,608 24,092
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91,883 88,762
Operating income 4,007 3,491
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Interest expense 2,848 2,852
Interest income (335) (307)
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Net interest costs 2,513 2,545
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Income before income taxes 1,494 946
Provision for income taxes 989 687
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Net income $ 505 $ 259
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See notes to consolidated financial statements.
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LA PETITE ACADEMY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
16 WEEKS ENDED DECEMBER 20, 1997
(IN THOUSANDS OF DOLLARS)
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16 WEEKS ENDED
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DECEMBER 20, DECEMBER 21,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 505 $ 259
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 4,948 5,208
Deferred income taxes (918) (1,004)
Changes in current assets and liabilities:
Accounts and notes receivable 205 (659)
Prepaid expenses and supplies 978 518
Accrued property, sales and use taxes (699) (640)
Accrued interest payable 2,510 2,493
Other changes in assets and liabilities, net (1,642) (924)
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Net cash from operating activities 5,887 5,251
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CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures (2,442) (1,913)
Proceeds from sale of assets 202 28
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Net cash used for investing activities (2,240) (1,885)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Amounts due to banks, including overdrafts 52 (1,903)
Decrease in restricted cash investments 37 5,401
Repayment of long-term debt (65) (875)
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Net cash from financing activities 24 2,623
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NET INCREASE IN CASH AND CASH EQUIVALENTS 3,671 5,989
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23,971 12,791
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,642 $ 18,780
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 79 $ 93
Income taxes 1,105 2,094
Cash received during the period for:
Interest 333 216
Income taxes 198 1,141
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations of $929,000 were incurred during the 16 weeks ended
December 20, 1997, when the Company entered into leases for new computer
equipment.
See notes to consolidated financial statements.
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LA PETITE ACADEMY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. ORGANIZATION AND MERGER
La Petite Holdings Corp. ("Holdings") was formed in 1993 as a Delaware
corporation for the purpose of holding the capital stock of La Petite
Acquisition Corp. On July 23, 1993, Holdings acquired all of the
outstanding shares of common stock, par value $.01 (the "Common Stock"),
of La Petite Academy, Inc. ("Academy") for a total price of $104 million,
net of transaction costs, the intercompany note and assumed liabilities of
$59 million. The transaction was accounted for as a purchase and the
excess of purchase price over the net assets acquired of $67 million is
being amortized over 30 years. On June 1, 1997, Holdings was merged with
and into its wholly-owned subsidiary Academy, a Delaware corporation,
pursuant to the Agreement and Plan of Merger dated as of May 22, 1997 by
and between Holdings and Academy, with Academy as the surviving
corporation. Academy is referred to herein as "the Company".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL REPORTING - The financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Annual Report on Form 10-K for the fiscal year ended August 30, 1997.
The Company utilizes a 52-week fiscal year ending on the last Saturday in
August composed of 13 four-week periods. The first quarter contains four
such periods or 16 weeks and each remaining quarter contains three periods
or 12 weeks.
The information included in these interim financial statements reflect all
normal recurring adjustments which are, in the opinion of management,
necessary to fairly state the Company's financial position and the results
of its operations for the periods presented.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform with the current year presentation.
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3. OTHER ASSETS
(in thousands of dollars)
DECEMBER 20, AUGUST 30,
1997 1997
Intangible assets:
Excess purchase price over net assets acquired $64,277 $64,277
Curriculum 1,497 1,497
Workforce 3,248 3,248
Accumulated amortization (13,427) (12,714)
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55,595 56,308
Deferred financing costs 12,754 12,752
Accumulated amortization (8,784) (8,176)
Other assets 3,605 3,303
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$63,170 $64,187
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4. LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS
(in thousands of dollars)
DECEMBER 20, AUGUST 30,
1997 1997
Convertible Debentures, 6.5% payable through June 1, 2011 $ 850 $ 850
Senior Notes, 9.625% payable through August 1, 2001 85,000 85,000
Capital Lease Obligations 1,230 366
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Total long-term debt and capitalized lease obligations 87,080 86,216
Less unamortized discount (187) (191)
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86,893 86,025
Less current maturities of capitalized lease obligations (408) (122)
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$86,485 $85,903
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5. OTHER LONG-TERM LIABILITIES
(in thousands of dollars)
DECEMBER 20, AUGUST 30,
1997 1997
Unfavorable leases, net of accumulated amortization $ 5,705 $ 6,085
Non-current reserve for closed Academies 5,171 5,609
Long-term insurance liabilities 3,229 2,625
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$14,105 $14,319
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6. COMMITMENTS AND CONTINGENCIES
The Company has litigation pending which arose in the ordinary course of
business. Litigation is subject to many uncertainties and the outcome of
the individual matters is not presently determinable. It is management's
opinion that this litigation will not result in liabilities that would
have a material adverse effect on the Company's financial position or
results of operations.
******
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
The results of operations for La Petite Academy, Inc. (the "Company") for the
16 weeks ended December 20, 1997 are consistent and comparable with the 16
weeks ended December 21, 1996.
Historically, the Company's operating revenue has followed the seasonality of
the school year. The number of new children attending the Academies is highest
in September-October and January-February, generally referred to as the Fall
and Winter enrollment periods. Revenues tend to decline during the calendar
year-end holiday period and during the Summer. As a result of this
seasonality, results for one quarter are not necessarily indicative of results
for an entire year.
The Company is continuing its expansion into new and existing markets on a
selective basis. The Company also monitors under-performing Academies in
marginal locations which may result in the closure of certain Academies. Nine
Academies in operation at the end of the first quarter of fiscal year 1997 were
closed prior to the end of the first quarter of fiscal year 1998. Two new
Academies were opened during this same period. As a result, the Company
operated 744 Academies at the end of the first quarter of fiscal year 1998,
seven less than at the end of the same quarter of fiscal year 1997. The
closures were principally due to management decisions to not renew the leases
of certain Academies at lease expiration.
Operating revenue for the first quarter, excluding closed Academies from both
years, increased 4.8% during the 16 weeks ended December 20, 1997. Average
revenue per child for the first quarter, excluding closed Academies from both
years, increased 4.4%, and attendance was up 0.4% from the prior year. The
increase in average revenue per child was principally due to selective price
increases which were put into place in the second quarter of fiscal year 1997,
based on geographic market conditions and class capacity utilization.
Labor costs increased 6.0% from the first quarter of fiscal year 1997
reflecting the impact of the minimum wage increase which occurred on September
1, 1997. As a percentage of revenue, labor costs were 52.5% for the 16 weeks
ended December 20, 1997, compared to 51.5% during the same period in the prior
fiscal year. The increase in labor costs as a percent of revenue was
principally due to Staff merit increases effective January 1, 1997, increased
staff costs related to the minimum wage increase, and increased health care
benefit costs, which together exceeded the percentage increase in tuition
revenue.
Many of the Company's operating costs are relatively fixed and do not decline
or increase directly with small changes in attendance. Facility lease payments,
depreciation, amortization, and other operating costs all declined or remained
unchanged as a percentage of revenue during the first quarter of fiscal year
1998 as compared to the same quarter of fiscal year 1997.
As a result of the foregoing, operating income for the 16 weeks ended December
20, 1997 was up $0.5 million or 14.8% from the same period in the prior fiscal
year. Earnings before interest, taxes, depreciation, and amortization (EBITDA)
were $8.7 million in the first quarter of fiscal year 1998 as compared to $8.4
million in the first quarter of fiscal year 1997.
After factoring in nondeductible goodwill amortization, the effective income
tax rate for the first quarter of fiscal year 1998 was 40.0%, unchanged from
the first quarter of fiscal year 1997.
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LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $5.9 million through the first
quarter of fiscal year 1998 compared to cash flows of $5.3 million during the
same period of fiscal year 1997. The $0.6 million increase in cash flows from
operations was mainly due to increased net income, reductions in Academy and
other receivables, and reductions in prepaid insurance and health care costs,
offset by timing differences in the funding of field payroll costs.
Cash flows from financing activities were $0.02 million through the first
quarter of fiscal year 1998 compared to cash flows of $2.6 million during the
same period of fiscal year 1997. The $2.6 million decrease in cash flows from
financing activities through the first quarter of fiscal year 1998 as compared
to the same quarter of fiscal year 1997 was principally due to the fiscal year
1997 $5.4 million reduction of restricted cash requirements, offset by the
fiscal year 1997 $0.9 million retirement of long-term debt and a $1.9 million
increase in the cash flow impact of changes in amounts due banks, principally
overdrafts. Restricted cash investments represented cash deposited in escrow
accounts as collateral for the self-insured portion of the Company's workers'
compensation and automobile insurance coverage. The fiscal year 1997 change in
restricted cash requirements was mainly due to the issuance of a $5.0 million
Letter of Credit (LOC) in exchange for a return of restricted cash in the same
amount.
The LOC discussed above was issued under the Company's $15.0 million revolving
credit facility. There remains $10 million available for working capital and
other corporate purposes which, in the opinion of management, is adequate to
meet foreseeable needs.
The Senior Notes, Preferred Stock and the Credit Agreement (see Notes to
Consolidated Financial Statements of the Company's 1997 Form 10-K) contain
certain covenants that, among other things, set a maximum on the Company's
leverage ratio. At December 20, 1997, the Company was in compliance with all
of its debt covenants.
INFLATION AND GENERAL ECONOMIC CONDITIONS
The Company has historically been able to increase tuition to offset increases
in its costs. During the past two years, a period of low to moderate
inflation, the Company implemented selective increases in tuition rates, based
on geographic market conditions and class capacity utilization. The Company did
not experience a material decline in attendance as a result of these increases.
There continues to be, however, no assurance of the impact future
inflation-related tuition increases will have on attendance.
On September 1, 1997 the minimum wage increased from $4.75 to $5.15 per hour.
This increase has not materially impacted Company operations.
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PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS.
The Company has litigation pending which arose in the ordinary course of
business. In management's opinion, none of such litigation in which the
Company is currently involved will result in liabilities that will have a
material adverse effect on its financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits required by Item 601 of Regulation S-K:
1. Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K:
None
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SIGNATURE
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LA PETITE ACADEMY, INC.
Dated: January 30, 1998
/s/ Phillip M. Kane
---------------------------------------------------
By: Phillip M. Kane
Senior Vice-President, Chief Financial Officer and
duly authorized representative of the registrant
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