<PAGE> 1
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 March 15, 1997 Commission File No. 33-61232
LA PETITE HOLDINGS CORP.
(exact name of registrant as specified in its charter)
Delaware 84-1230203
(state or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
8717 WEST 110TH STREET, SUITE 300
OVERLAND PARK, KANSAS 66210
(address of principal executive office and zip code)
(913) 345-1250
(registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No___ (2) Yes X No ___
--- ---
As of April 28, 1997, La Petite Holdings Corp. had 100 shares of common stock
outstanding.
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LA PETITE HOLDINGS CORP.
INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED): PAGE
----
<S> <C>
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
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
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LA PETITE HOLDINGS CORP.
CONSOLIDATED BALANCE SHEETS
28 WEEKS ENDED MARCH 15, 1997
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
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MARCH 15, AUGUST 31,
ASSETS 1997 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,419 $ 12,791
Restricted cash investments 2,697 9,227
Accounts and notes receivable, net 4,278 3,615
Prepaid supplies 5,391 6,409
Other prepaid expenses 3,359 2,210
Refundable income taxes 273 1,405
Current deferred income taxes 2,296 1,719
-------------- --------------
Total current assets 34,713 37,376
Property and equipment, at cost:
Land 6,917 6,867
Buildings 26,536 26,199
Furniture, equipment and leasehold improvements 61,442 58,874
Facilities under construction 297 377
-------------- --------------
95,192 92,317
Less accumulated depreciation and amortization 31,913 24,497
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Net property and equipment 63,279 67,820
Other assets (Note 3) 66,728 69,001
Deferred income taxes 4,557 2,936
-------------- --------------
$ 169,277 $ 177,133
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Amounts due to banks, including overdrafts $ 3,436 $ 5,229
Accounts payable 2,818 3,109
Current reserve for closed academies 1,912 2,700
Accrued salaries, wages and other payroll costs 11,244 10,317
Accrued insurance liabilities 4,678 4,361
Accrued property, sales and use tax 3,138 4,254
Accrued interest payable 1,040 739
Other accrued liabilities 3,224 6,575
-------------- --------------
Total current liabilities 31,490 37,284
Long-term debt (Note 4) 85,653 86,590
Other long-term liabilities (Note 5) 18,360 19,749
Commitments and contingencies (Note 6)
Redeemable preferred stock ($.01 par value per share; 5,000,000 shares authorized;
800,000 issued and outstanding at aggregate liquidation preference; per share
liquidation preference of $38.652 and $35.581, respectively) 30,762 28,827
Stockholder's equity:
Common stock ($.01 par value per share; 1,000 shares authorized; 100
shares issued and outstanding)
Additional paid-in capital 18,042 19,977
Accumulated deficit (15,030) (15,294)
------------ --------------
3,012 4,683
------------ --------------
$ 169,277 $ 177,133
============ ==============
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
LA PETITE HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF INCOME
28 WEEKS ENDED MARCH 15, 1997
(IN THOUSANDS OF DOLLARS)
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12 WEEKS ENDED 28 WEEKS ENDED
----------------------------------------- -------------------------------------------
MARCH 15, MARCH 9, MARCH 15, MARCH 9,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating revenue $ 67,730 $ 65,671 $ 159,983 $ 156,809
Operating expenses:
Salaries, wages and
benefits 36,558 34,879 84,077 80,901
Facility lease payments 8,934 8,894 21,143 20,943
Depreciation 3,190 3,128 7,444 7,293
Amortization of goodwill
and other intangibles 516 657 1,204 1,742
Other 16,207 17,124 40,299 42,219
--------- --------- --------- ---------
65,405 64,682 154,167 153,098
--------- --------- --------- ---------
Operating income 2,325 989 5,816 3,711
--------- --------- --------- ---------
Interest expense 2,142 2,370 4,994 5,677
Interest income (186) (165) (493) (502)
--------- --------- --------- ---------
Net interest costs 1,956 2,205 4,501 5,175
--------- --------- --------- ---------
Income (loss) before income
taxes 369 (1,216) 1,315 (1,464)
Provision (benefit) for
income taxes 364 (286) 1,051 (88)
--------- --------- --------- ---------
Net income (loss) $ 5 $ (930) $ 264 $ (1,376)
========= ========= ========= =========
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
LA PETITE HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
28 WEEKS ENDED MARCH 15, 1997
(IN THOUSANDS OF DOLLARS)
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28 WEEKS ENDED
---------------------------------------------
MARCH 15, MARCH 9,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 264 $ (1,376)
Adjustments to reconcile net income (loss) to net cash from operating
activities:
Depreciation and amortization 9,109 9,802
Deferred income taxes (2,198) (108)
Changes in current assets and liabilities:
Accounts and notes receivable (628) (428)
Prepaid expenses and supplies (130) (2,768)
Accrued property, sales and use taxes (1,115) (1,359)
Accrued interest payable 301 316
Other changes in assets and liabilities, net (2,864) (3,730)
---------------- ----------------
Net cash from operating activities 2,739 349
---------------- ----------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures (3,061) (3,705)
Proceeds from sale of property and equipment 88 737
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Net cash used for investing activities (2,973) (2,968)
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CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Repayment of long-term debt (875) (6,471)
Amounts due to banks, including overdrafts (1,793) 1,097
Decrease (increase) in restricted cash investments 6,530 (731)
---------------- ----------------
Net cash from (used for) financing activities 3,862 (6,105)
---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,628 (8,724)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,791 16,299
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,419 $ 7,575
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 4,232 $ 4,595
Income taxes 4,375 332
Cash received during the period for:
Interest $ 470 $ 571
Income taxes 1,141 505
See notes to consolidated financial statements.
</TABLE>
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LA PETITE HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. ORGANIZATION AND MERGER
La Petite Holdings Corp. ("Holdings") is a privately held Delaware
corporation formed in 1993 for the purpose of holding the capital stock of
La Petite Acquisition Corp. ("Acquisition"). 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. ("La Petite") for a total
price of $104 million, net of transaction costs and the intercompany note.
The transaction was accounted for as a purchase and the excess of
purchase price over the net assets acquired of $67 million is being
amortized over 30 years. Holdings, consolidated with La Petite, is
referred to in these notes as the "Company".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL REPORTING - The consolidated 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 consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Holdings Annual Report on Form 10-K for the fiscal
year ended August 31, 1996.
The Company utilizes a 52-week fiscal year ending on the last Saturday in
August composed of 13 four-week periods. The first quarter contains four
such periods or 16 weeks and each remaining quarter contains 3 periods or
12 weeks. The fiscal year ending 1996 was a 53-week year and the fourth
quarter contained one extra week.
The information included in these interim consolidated 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)
<TABLE>
<CAPTION>
MARCH 15, AUGUST 31,
1997 1996
<S> <C> <C>
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 (11,644) (10,395)
---------- -----------
57,378 58,627
Deferred financing costs 12,743 12,854
Accumulated amortization (7,265) (6,271)
Other assets 3,872 3,791
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$ 66,728 $ 69,001
=========== ==========
</TABLE>
4. LONG-TERM DEBT
(in thousands of dollars)
<TABLE>
<CAPTION>
MARCH 15, AUGUST 31,
1997 1996
<S> <C> <C>
Convertible Debentures, 6.5% payable through June 1, 2011 $ 850 $ 2,100
Senior Notes, 9.625% payable through August 1, 2001 85,000 85,000
---------- ----------
Total debt 85,850 87,100
Less unamortized discount (197) (510)
---------- ----------
$ 85,653 $ 86,590
========== ==========
</TABLE>
5. OTHER LONG-TERM LIABILITIES
(in thousands of dollars)
<TABLE>
<CAPTION>
MARCH 15, AUGUST 31,
1997 1996
<S> <C> <C>
Unfavorable leases, net of accumulated amortization $ 6,656 $ 7,323
Non-current reserve for closed Academies 7,756 8,193
Long-term insurance liabilities 3,948 4,233
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$ 18,360 $ 19,749
========== ==========
</TABLE>
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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 Holdings Corp. and its consolidated
subsidiary La Petite Academy, Inc. (collectively, the "Company") for the 12 and
28 weeks ended March 15, 1997 are consistent and comparable with the 12 and 28
weeks ended March 9, 1996.
Historically, the Company's operating revenue has followed the seasonality of
the school year. The number of new children attending the Academies is highest
in September-October and January-February, generally referred to as the Fall
and Winter Enrollment periods. Revenues tend to decline during the calendar
year-end holiday period and during the Summer. As a result of this
seasonality, results for one quarter are not necessarily indicative of results
for an entire year.
The Company is continuing its expansion into new and existing markets on a very
selective basis and aggressively closing under-performing Academies in marginal
locations. Sixteen Academies in operation at the end of the second quarter of
fiscal year 1996 were closed prior to the end of the second quarter of fiscal
year 1997. Six new Academies were opened during this same period. As a result,
the Company operated ten fewer Academies at the end of the second quarter of
fiscal 1997 than at the end of the same quarter of fiscal year 1996. Eight of
the Academy closures were part of a plan announced by the Company at the end of
fiscal year 1995 to close under-performing Academies located in areas where the
demographics no longer supported an economically viable operation. The
remaining eight closures were principally due to management decisions to not
renew the leases of certain Academies at lease expiration.
Operating revenue, excluding closed Academies from both years, increased 4.6%
during the 12 weeks and 4.4% during the 28 weeks ended March 15, 1997.
Attendance, excluding closed Academies from both years, increased 0.9% during
the 12 weeks and 1.9% during the 28 weeks ended March 15, 1997, while average
revenue per child increased 3.7% and 2.4% respectively. Pricing actions in the
second quarter included selective increases in tuition rates, based on
geographic market conditions and class capacity utilization. These rate
increases went into effect five weeks prior to the end of the quarter.
Labor costs increased 4.8% during the 12 weeks and 3.9% during the 28 weeks
ended March 15, 1997. As a percentage of revenue, labor costs were 54.0% for
the 12 weeks and 52.6% for the 28 weeks ended March 15, 1997, as compared to
53.1% and 51.6% during the same periods last year. The increase in labor cost
as a percent of revenue was principally due to Staff merit increases effective
January 1, 1997, higher field bonuses due to increased operating income
performance at many Academies, and additional support staff.
Much of the Company's operating costs are relatively fixed and do not decline
or increase directly with small changes in attendance. Facility lease
payments, depreciation, amortization, and other operating costs all declined or
remained unchanged as a percentage of revenue during the second quarter of
fiscal year 1997 as compared to the same quarter of fiscal year 1996.
As a result of the foregoing, operating income for the 12 weeks ended March 15,
1997 was up $1.3 million or 135.0% from the same period last year. Operating
income for the 28 weeks ended March 15, 1997, was up $2.1 million or 56.7% from
the prior year. Earnings before interest, taxes, depreciation, and
amortization (EBITDA) was $6.0 million in the second quarter of fiscal 1997 as
compared to $4.8 million in the second quarter of fiscal 1996. EBITDA for the
28 weeks ended March 15, 1997, was $14.5 million as compared to $12.7 million
in the prior year.
After factoring in nondeductible goodwill amortization and other permanent
differences, the effective income tax rate for the 12 and 28 weeks ended March
15, 1997 was 40.6% as compared to 40.0% and 40.6% in the comparable periods
last year.
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LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $2.7 million through the second
quarter of fiscal year 1997 compared to cash flow of $0.3 million during the
same period last year. The increase in cash flow from operations of $2.4
million reflects increased net income of $1.6 million, decreases in prepaid
expenses and supplies of $2.6 million, an increase in accounts payable of $1.3
million, miscellaneous working capital reductions of $0.3 million, offset by
increases in net income tax payments of $3.4 million. Net cash (including
cash, short-term cash investments, restricted cash and net of overdrafts) was
$15.7 million at March 15, 1997, down $1.1 million from year end and up $4.3
million from the end of the second quarter of the prior year. The decrease in
cash from year end principally reflects the purchase of the 6 1/2% convertible
debentures discussed below.
The restricted cash investments of $9.2 million as of August 31,1996,
represented cash deposited in escrow accounts as collateral for the
self-insured portion of the Company's workers' compensation and automobile
insurance coverage. The Company has the option to replace these deposits with
a credit or surety bond at any time. During the first quarter of fiscal year
1997, a $5.0 million Letter of Credit (LOC) was issued in exchange for a return
of restricted cash in the same amount. Also during the first and second
quarters, the Company received, in aggregate, a $2.6 million return of
restricted cash due to a reduction of collateral requirements for 1996 and
prior years.
The LOC discussed above was issued under the Company's $15.0 million revolving
credit facility. There remains $10 million available for working capital and
other corporate purposes which, in the opinion of management, is adequate to
meet foreseeable needs.
On October 22, 1996, the Company redeemed $1.25 million of the Company's 6 1/2%
Convertible Debentures for 70% face value. The transaction was funded from
working capital.
The Senior Notes, Preferred Stock and the Credit Agreement (see Note 4 to
Consolidated Financial Statements) contain certain covenants that, among other
things, set a maximum on the Company's leverage ratio. At March 15, 1997, the
Company was in compliance with all of its debt covenants.
INFLATION AND GENERAL ECONOMIC CONDITIONS
The Company has historically been able to increase tuition to offset increases
in its costs. During the past two years, a period of low to moderate
inflation, the Company implemented selective increases in tuition rates, based
on geographic market conditions and class capacity utilization. The Company did
not experience a material decline in attendance as a result of these increases.
There continues to be, however, no assurance of the impact future inflation
related tuition increases will have on attendance.
The minimum wage increase of October 1, 1996 did not have a material impact on
the Company's operations. On September 1, 1997 the minimum wage will increase
from $4.75 to $5.15 per hour, and it is unclear at this time what impact this
increase will have on labor costs or availability.
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PART II - OTHER INFORMATIOIN
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ITEM 1. LEGAL PROCEEDINGS.
The Company has litigation pending which arose in the ordinary course of
business. In management*s opinion, none of such litigation in which the
Company is currently involved will result in liabilities that will have a
material adverse effect on its financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits required by Item 601 of Regulation S-K:
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K:
None.
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SIGNATURE
________________________________________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LA PETITE HOLDINGS CORP.
Dated: April 28, 1997 /s/ Phillip M. Kane
---------------------------------------
By: Phillip M. Kane
Senior Vice-President, Chief Financial
Officer and Treasurer and duly
authorized representative of the
registrant
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 15, 1997 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE 28 WEEKS ENDED MARCH 15, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> AUG-30-1997
<PERIOD-END> MAR-15-1997
<CASH> 16,419
<SECURITIES> 0
<RECEIVABLES> 4,278
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,713
<PP&E> 95,192
<DEPRECIATION> 31,913
<TOTAL-ASSETS> 169,277
<CURRENT-LIABILITIES> 31,490
<BONDS> 85,653
30,762
0
<COMMON> 0
<OTHER-SE> 3,012
<TOTAL-LIABILITY-AND-EQUITY> 169,277
<SALES> 0
<TOTAL-REVENUES> 159,983
<CGS> 0
<TOTAL-COSTS> 154,167
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,994
<INCOME-PRETAX> 1,315
<INCOME-TAX> 1,051
<INCOME-CONTINUING> 264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 264
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
