<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 December 21, 1996 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
incorporation or organization) identification number)
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 31, 1997, La Petite Holdings Corp. had 100 shares of common stock
outstanding.
<PAGE> 2
LA PETITE HOLDINGS CORP.
INDEX
- --------------------------------------------------------------------------------
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
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
LA PETITE HOLDINGS CORP.
CONSOLIDATED BALANCE SHEETS
16 WEEKS ENDED DECEMBER 21, 1996
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 21, AUGUST 31,
ASSETS 1996 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,780 $ 12,791
Restricted cash investments 3,826 9,227
Accounts and notes receivable, net 4,309 3,615
Prepaid food and supplies 5,543 6,409
Other prepaid expenses 2,558 2,210
Refundable income taxes 273 1,405
Current deferred income taxes 2,037 1,719
-------- --------
Total current assets 37,326 37,376
Property and equipment, at cost:
Land 6,917 6,867
Buildings 26,473 26,199
Furniture, equipment and leasehold improvements 60,440 58,874
Facilities under construction 274 377
-------- --------
94,104 92,317
Less accumulated depreciation and amortization 28,722 24,497
-------- --------
Net property and equipment 65,382 67,820
Other assets (Note 3) 67,717 69,001
Deferred income taxes 3,623 2,936
-------- --------
$174,048 $177,133
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Amounts due to banks, including overdrafts $ 3,326 $ 5,229
Accounts payable 2,429 3,109
Current reserve for closed academies 2,367 2,700
Accrued salaries, wages and other payroll costs 11,364 10,317
Accrued insurance liabilities 4,497 4,361
Accrued property and sales tax 3,614 4,254
Accrued interest payable 3,232 739
Other accrued liabilities 4,862 6,575
-------- --------
Total current liabilities 35,691 37,284
Long-term debt (Note 4) 85,649 86,590
Other long-term liabilities (Note 5) 18,938 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 $37.604 and $35.581,
respectively) 29,918 28,827
Stockholder's equity:
Common stock ($.01 par value per share; 1,000 shares authorized; 100
shares issued and outstanding)
Additional paid-in capital 18,887 19,977
Accumulated deficit (15,035) (15,294)
-------- --------
3,852 4,683
-------- --------
$174,048 $177,133
======== ========
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE> 4
LA PETITE HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF INCOME
16 WEEKS ENDED DECEMBER 21, 1996
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
16 WEEKS ENDED
-----------------------------------
DECEMBER 21, DECEMBER 16,
1996 1995
<S> <C> <C>
Operating revenue $92,253 $91,138
Operating expenses:
Salaries, wages and benefits 47,519 46,022
Facility lease payments 12,209 12,049
Depreciation 4,254 4,165
Amortization of goodwill and other intangibles 688 1,084
Other 24,092 25,096
------- -------
88,762 88,416
------- -------
Operating income 3,491 2,722
------- -------
Interest expense 2,852 3,307
Interest income (307) (337)
------- -------
Net interest costs 2,545 2,970
------- -------
Income (loss) before income taxes 946 (248)
Provision (benefit) for income taxes 687 198
------- -------
Net income (loss) $ 259 $ (446)
======= =======
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE> 5
LA PETITE HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
16 WEEKS ENDED DECEMBER 21, 1996
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
16 WEEKS ENDED
-----------------------------------
DECEMBER 21, DECEMBER 16,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 259 $ (446)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation and amortization 5,208 5,687
Deferred income taxes (1,004) 465
Changes in current assets and liabilities:
Accounts and notes receivable (659) (710)
Prepaid expenses and supplies 518 (2,269)
Accrued property, sales and use taxes (640) (195)
Accrued interest payable 2,493 2,458
Other changes in assets and liabilities, net (924) (3,403)
------- -------
Net cash from operating activities 5,251 1,587
------- -------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures (1,913) (2,017)
Proceeds from sale of assets 28 285
------- -------
Net cash used for investing activities (1,885) (1,732)
------- -------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Repayment of long-term debt (875) (6,471)
Amounts due to banks, including overdrafts (1,903) 306
Decrease (increase) in restricted cash investments 5,401 (132)
------- -------
Net cash from (used for) financing activities 2,623 (6,297)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH 5,989 (6,442)
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,791 16,299
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $18,780 $ 9,857
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 93 $ 411
Income taxes 2,094 282
Cash received during the period for:
Interest 216 402
Income taxes 1,141 485
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 6
LA PETITE HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND MERGER
La Petite Holdings Corp. ("Holdings") is a privately held Delaware
corporation, which was formed in 1993 for the purpose of acquiring and
holding the capital stock of La Petite Academy, Inc. ("La Petite").
On July 23, 1993, as a result of a series of transactions, Holdings
acquired all of the outstanding common stock of La Petite. Holdings,
consolidated with La Petite, is referred to herein 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 three periods or 12 weeks.
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.
-4-
<PAGE> 7
3. OTHER ASSETS
(in thousands of dollars)
<TABLE>
<CAPTION>
DECEMBER 21, AUGUST 31,
1996 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 (11,109) (10,395)
-------- --------
57,913 58,627
Deferred financing costs 12,743 12,854
Accumulated amortization (6,810) (6,271)
Other assets 3,871 3,791
-------- --------
$ 67,717 $ 69,001
======== ========
4. LONG-TERM DEBT
(in thousands of dollars)
<CAPTION>
DECEMBER 21, AUGUST 31,
1996 1996
Convertible Debentures, 6.5% payable through June 1,
2011 $ 850 $ 2,100
Senior Notes, 9.625% payable through August 1, 2001 85,000 85,000
-------- --------
Total debt 85,850 87,100
Less unamortized discount (201) (510)
-------- --------
$ 85,649 $ 86,590
======== ========
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.
5. OTHER LONG-TERM LIABILITIES
(in thousands of dollars)
<CAPTION>
DECEMBER 21, AUGUST 31,
1996 1996
Unfavorable leases, net of accumulated amortization $ 6,942 $ 7,323
Non-current reserve for closed Academies 7,988 8,193
Long-term insurance liabilities 4,008 4,233
-------- --------
$ 18,938 $ 19,749
======== ========
</TABLE>
-5-
<PAGE> 8
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.
******
-6-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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 16
weeks ended December 21, 1996 are consistent and comparable with the 16 weeks
ended December 16, 1995.
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 only on a
very selective basis and aggressively closing under-performing Academies in
marginal locations. Twenty-three Academies in operation at the end of the
first quarter of fiscal year 1996 were closed prior to the end of the first
quarter of fiscal year 1997. Nine new Academies were opened during this same
period. As a result, the Company operated fourteen fewer Academies at the end
of the first quarter of fiscal 1997 than at the end of the same quarter of
fiscal year 1996. Thirteen 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 ten 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 4.2% during the 16 weeks December 21, 1996. Attendance for
the first quarter, excluding closed Academies from both years, increased 2.7%
over the prior year and average revenue per child increased 1.4%. The increase
in attendance during the first quarter of fiscal year 1997 reflects: (i) a
successful Fall Enrollment period and (ii) a continued management focus on
Customer Driven Service. 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 1996, based on geographic market conditions and
class capacity utilization.
Labor costs increased 3.3% from the first quarter of fiscal 1996. As a
percentage of revenue, labor costs were 51.5% for the 16 weeks ended December
21, 1996, compared to 50.5% during the same period last year. The increase in
labor cost as a percent of revenue was principally due to Staff merit increases
effective January 1, 1996 and higher labor costs associated with the hiring of
new employees in some markets.
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 first 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 16 weeks ended December
21, 1996 was $0.8 million higher than the operating income for the same period
of fiscal 1996. Earnings before interest, taxes, depreciation, and
amortization (EBITDA) were $8.4 million in the first quarter of fiscal 1997 as
compared to $8.0 million in the first quarter of fiscal 1996, an increase of
$0.4 million.
After factoring in nondeductible goodwill amortization, the effective income
tax rate for the first quarter of fiscal 1997 was 40.6% versus 40.0% in the
first quarter of fiscal 1996.
-7-
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities were $5.3 million through the first
quarter of fiscal year 1997 compared to cash flow of $1.6 million during the
same period last year. The increase in cash flows from operations was mainly
due to cost management and timing differences in payment of insurance premiums
and funding of field payroll costs. Net cash (including cash, short-term cash
investments, restricted cash and net of overdrafts,) was $19.3 million at
December 21, 1996, up $2.5 million from the year end and up $5.4 million from
the end of the first quarter of the prior year. The increase in cash reflects
increased earnings offset by working capital needs, capital expenditures and
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 quarter, the
Company received a $1.0 million return of restricted cash due to a reduction of
collateral requirements for 1996 and prior years. Subsequent to the close of
the first quarter, the Company received an additional $1.6 million return of
restricted cash due to continued reductions in collateral requirements.
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 December 21, 1996,
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. In 1995, the Company experienced some market resistance to its
rate increases and since then has implemented price increases on a more
selective basis. There continues to be no assurance of the impact future
inflation related tuition increases will have on attendance. It is unclear
what impact the recent increase in the minimum wage will have on labor costs or
availability.
-8-
<PAGE> 11
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
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 Regulation S-K:
1. 27 - Financial data schedule
b. Reports on Form 8-K:
None.
-9-
<PAGE> 12
SIGNATURE
- --------------------------------------------------------------------------------
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 HOLDINGS CORP.
Dated: January 31, 1997
By: /s/ Phillip M. Kane
--------------------------------------
Phillip M. Kane
Senior Vice-President, Chief
Financial Officer and Treasurer
and duly authorized representative of
the registrant
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 21, 1996 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE SIXTEEN WEEKS ENDED DECEMBER 21, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> AUG-30-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> DEC-21-1996
<CASH> 18,780
<SECURITIES> 0
<RECEIVABLES> 4,309
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,326
<PP&E> 94,104
<DEPRECIATION> 28,722
<TOTAL-ASSETS> 174,048
<CURRENT-LIABILITIES> 35,691
<BONDS> 85,649
29,918
0
<COMMON> 0
<OTHER-SE> 3,852
<TOTAL-LIABILITY-AND-EQUITY> 174,078
<SALES> 0
<TOTAL-REVENUES> 92,253
<CGS> 0
<TOTAL-COSTS> 88,762
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,852
<INCOME-PRETAX> 946
<INCOME-TAX> 687
<INCOME-CONTINUING> 259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 259
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
