<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 19, 1998 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 (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.
Yes X No
----- -----
As of January 29, 1999, LPA Holding Corp. had outstanding 560,026 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 January 29, 1999, each of the
additional registrants had the number of outstanding shares which is shown on
the table below.
<PAGE> 2
ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
Number of Shares
Jurisdiction of Commission IRS Employer of Common
Name Incorporation File Number Identification No. Stock Outstanding
- ----------------------- --------------- ----------- ------------------ ----------------------
<S> <C> <C> <C> <C>
La Petite Academy, Inc. Delaware 333-56239 43-1243221 1,000 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)
</TABLE>
2
<PAGE> 3
LPA HOLDING CORP.
INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
PAGE
----
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Balance Sheets 4-5
Consolidated Statements of Income 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15-17
</TABLE>
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
LPA HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
16 WEEKS ENDED DECEMBER 19, 1998
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS DECEMBER 19, AUGUST 29,
1998 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,397 $ 6,868
Restricted cash investments 1,850 1,756
Accounts and notes receivable, net 6,085 7,002
Prepaid supplies 6,285 5,987
Other prepaid expenses 2,318 2,259
Refundable income taxes 24 1,776
Current deferred income taxes 794 1,124
-------- --------
Total current assets 22,753 26,772
Property and equipment, at cost:
Land 6,120 6,120
Buildings and leasehold improvements 72,385 71,754
Equipment 19,117 18,695
Facilities under construction 6,788 2,264
-------- --------
104,410 98,833
Less accumulated depreciation 41,930 37,839
-------- --------
Net property and equipment 62,480 60,994
Other assets (Note 3) 63,346 64,919
Deferred income taxes 8,927 8,106
-------- --------
$157,506 $160,791
======== ========
</TABLE>
4
<PAGE> 5
LPA HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
16 WEEKS ENDED DECEMBER 19, 1998
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY DECEMBER 19, AUGUST 29,
1998 1998
<S> <C> <C>
Current liabilities:
Overdrafts due banks $ 4,731 $ 2,890
Accounts payable 6,507 7,447
Current reserve for closed academies 1,557 1,595
Current maturities of long-term debt and capital lease obligations 6,121 2,121
Accrued salaries, wages and other payroll costs 11,642 10,937
Accrued insurance liabilities 4,110 4,043
Accrued property and sales taxes 3,530 4,103
Accrued interest payable 1,725 4,771
Other current liabilities 2,716 5,572
--------- ---------
Total current liabilities 42,639 43,479
Long-term debt and capital lease obligations (Note 4) 185,150 185,727
Other long-term liabilities (Note 5) 11,320 11,661
Series A 12% redeemable preferred stock ($.01 par value per share);
30,000 shares authorized, issued and outstanding at aggregate liquidation 26,913 25,625
preference of $1,036.558 as of August 29, 1998, and $1,073.688 as of December
19, 1998
Stockholders' equity:
Class A common stock ($.01 par value per share); 950,000 shares authorized 6 6
and 560,026 shares issued and outstanding as of August 29, 1998 and December
19, 1998
Class B common stock ($.01 par value per share); 20,000 shares authorized,
issued and outstanding as of August 29, 1998 and December 19, 1998
Common stock warrants 5,645 5,645
Accumulated deficit (114,167) (111,352)
--------- ---------
Total stockholders' equity: (108,516) (105,701)
--------- ---------
$ 157,506 $ 160,791
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
LPA HOLDING CORP.
CONSOLIDATED STATEMENTS OF INCOME
16 WEEKS ENDED DECEMBER 19, 1998
(IN THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------
16 WEEKS ENDED
==============================
DECEMBER 19, DECEMBER 20,
1998 1997
<S> <C> <C>
Operating revenue $98,789 $95,890
Operating expenses:
Salaries, wages and benefits 52,400 50,388
Facility lease expense 12,319 12,199
Depreciation 4,193 4,000
Amortization of goodwill and other
intangibles 336 688
Other 25,757 24,608
------- -------
95,005 91,883
------- -------
Operating income 3,784 4,007
------- -------
Interest expense 5,931 2,848
Minority interest in net income of subsidiary 1,228
Interest income (129) (335)
------- -------
Net interest costs 5,802 3,741
------- -------
Income (loss) before income taxes (2,018) 266
Provision (benefit) for income taxes (491) 989
------- -------
Net loss $(1,527) $ (723)
======= =======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
LPA HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
16 WEEKS ENDED DECEMBER 19, 1998
(IN THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 19, DECEMBER 20,
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
<S> <C> <C>
Net loss $(1,527) $ (723)
Adjustments to reconcile net loss to net
cash from (used for) operating activities
Depreciation and amortization 4,788 4,948
Deferred income taxes (491) (918)
Minority interest in net income of
La Petite Academy, Inc. 1,228
Changes in assets and liabilities:
Account and notes receivable 817 205
Prepaid expenses and supplies (358) 978
Accrued property and sales taxes (573) (699)
Accrued interest payable (3,046) 2,510
Other changes in assets and liabilities, net (1,265) (1,642)
------- -------
Net cash from (used for) operating
activities (1,655) 5,887
------- -------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Capital expenditures (8,009) (2,442)
Proceeds from sale of assets 3,022 202
------- -------
Net cash used for investing activities (4,987) (2,240)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt and capital
lease obligations (577) (65)
Borrowings under the Revolving Credit Agreement 4,000
Increase in bank overdrafts 1,842 52
Decrease (increase) in restricted
cash investments (94) 37
------- -------
Net cash from financing activities 5,171 24
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,471) 3,671
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,868 23,971
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,397 $27,642
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 8,718 $ 79
Income taxes 45 1,105
Cash received during the period for:
Interest $ 103 $ 333
Income taxes 1,756 198
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.
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
LPA HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND MERGER
Vestar/LPA Investment Corp. (Investment), 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 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 (the Investor), 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
Investment, which was renamed LPA Holding Corp. (Parent), entered into an
Agreement and Plan of Merger pursuant to which a wholly owned subsidiary of
the Investor was merged into Parent (the Recapitalization). In the
Recapitalization (i) all of the then outstanding shares of preferred stock
and common stock of Investment (other than the shares of common stock
retained by Vestar/LPT Limited Partnership and management of La Petite)
owned by the existing stockholders of Investment (the Existing Stockholders)
were converted into the right to receive cash and (ii) the Existing
Stockholders received the cash of La Petite as of the date of the closing of
the Recapitalization. As part of the Recapitalization, the Investor
purchased $72.5 million (less the value of options retained by management)
of common stock of the Parent (representing approximately 74.5% of the
common stock of Parent on a fully diluted basis) 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,
the Investor received warrants to purchase up to 6.0% of Parent's common
stock on a fully diluted basis (resulting in an aggregate fully diluted
ownership of 80.5% of the common stock of Parent). The Recapitalization was
completed May 11, 1998.
Parent, consolidated with La Petite and Services, 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
Annual Report of La Petite on Form 10-K for the fiscal year ended August 29,
1998.
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 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.
8
<PAGE> 9
<TABLE>
<CAPTION>
3. OTHER ASSETS
(in thousands of dollars)
DECEMBER 19, AUGUST 29,
1998 1998
<S> <C> <C>
Intangible assets:
Excess purchase price over net assets acquired $ 64,277 $ 64,277
Curriculum 1,497 1,497
Accumulated amortization (12,498) (11,784)
--------- ---------
53,276 53,990
Deferred financing costs 7,605 7,605
Accumulated amortization (518) (259)
Other assets 2,983 3,583
--------- ---------
$ 63,346 $ 64,919
========= =========
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
(in thousands of dollars)
DECEMBER 19, AUGUST 29,
1998 1998
<S> <C> <C>
Senior Notes, 10.0% due May 15, 2008 $ 145,000 $ 145,000
Borrowings under credit agreement 43,750 40,000
Capital lease obligations 2,521 2,848
========= =========
191,271 187,848
Less current maturities of long-term debt and capital
lease obligations (6,121) (2,121)
--------- ---------
$ 185,150 $ 185,727
========= =========
5. OTHER LONG-TERM LIABILITIES
(in thousands of dollars)
DECEMBER 19, AUGUST 29,
1998 1998
<S> <C> <C>
Unfavorable lease, net of accumulated amortization $ 4,467 $ 4,848
Non-current reserve for closed academies 3,252 3,822
Long-term insurance liabilities 3,601 2,991
--------- ---------
$11,320 $11,661
========= =========
</TABLE>
9
<PAGE> 10
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
operation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
================================================================================
RESULTS OF OPERATIONS
The Company's operating results for the comparative 16 weeks ended December 19,
1998 were as follows:
<TABLE>
<CAPTION>
16 WEEKS ENDED
===========================================================
(IN THOUSANDS OF DOLLARS)
DECEMBER 19, PERCENT OF DECEMBER 20, PERCENT OF
1998 REVENUE 1997 REVENUE
<S> <C> <C> <C> <C>
Operating revenue $98,789 100.0% $95,890 100.0%
Operating expenses:
Salaries, wages and benefits 52,400 53.0 50,388 52.5
Facility lease payments 12,319 12.5 12,199 12.7
Depreciation 4,193 4.2 4,000 4.2
Amortization of goodwill
and other intangibles 336 0.3 688 0.7
Other 25,757 26.1 24,608 25.7
------- ----- ------- -----
Total operating expenses 95,005 96.2 91,883 95.8
------- ----- ------- -----
Operating income $ 3,784 3.8% $ 4,007 4.2%
======= ===== ======= =====
EBITDA $ 8,313 8.4% $ 8,695 9.1%
======= ===== ======= =====
</TABLE>
The Company's operating results for the 16 weeks ended December 19, 1998 are
consistent and comparable with the 16 weeks ended December 20, 1997.
Historically, the Company's operating revenue has followed the seasonality of
the school year. The number of new children attending La Petite's educational
facilities (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.
Ten Academies in operation at the end of the first quarter of fiscal year 1998
were closed prior to the end of the first quarter of fiscal year 1999. Three
new Academies were opened during this same period. As a result, the Company
operated 737 Academies at the end of the first quarter of fiscal year 1999,
seven less than at the end of the same quarter of fiscal year 1998. The
closures resulted from management decisions to not renew the leases of certain
Academies at lease expiration.
10
<PAGE> 11
Operating revenue increased 3.0% during the 16 weeks ended December 19, 1998.
Excluding closed Academies from both years, operating revenue increased 3.8%,
full time equivalent (FTE) attendance decreased 0.5% and average weekly FTE
tuition increased 4.3% during the 16 weeks ended December 19, 1998. The
increase in average weekly FTE tuition was principally due to selective price
increases which were put into place in the second quarter of fiscal year 1998,
based on geographic market conditions and class capacity utilization.
Salaries, wages, and benefits increased $2.0 million or 4.0% during the 16
weeks ended December 19, 1998 as compared to the same periods of fiscal year
1998. The increase was principally due to increased average hourly wage rates
as staff hours worked was relatively unchanged from the same periods of fiscal
year 1998. As a percentage of revenue, labor costs were 53.0% for the 16 weeks
ended December 19, 1998 as compared to 52.5% during the same period of fiscal
year 1998.
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, and amortization all declined or remained unchanged as a
percentage of revenue during the 16 weeks ended December 19, 1998 as compared
to the same period of fiscal year 1998. The decrease in amortization of
goodwill and other intangible assets was due to a portion of the intangible
assets becoming fully amortized prior to the first quarter of fiscal year 1999.
The increase in other costs was principally due to $0.7 million in additional
spending for the fall marketing program, the benefits of which have not yet
been fully realized.
As a result of the foregoing, operating income for the 16 weeks ended December
19, 1998 was $3.8 million as compared to operating income of $4.0 million
during the same period of fiscal year 1998. Earnings before interest, taxes,
depreciation and amortization (EBITDA) was $8.3 million for the 16 weeks ended
December 19, 1998 as compared to $8.8 million for the same period of fiscal
year 1998.
Interest expense for the 16 weeks ended December 19, 1998 increased $2.1
million from the same period of fiscal year 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 term loan facility under the Credit Agreement which
occurred as part of the Recapitalization (see Notes to the Consolidated
Financial Statements).
After adding back to pre-tax income the permanent differences, the effective
income tax rate for the 16 weeks ended December 19, 1998 was approximately
40.0%, unchanged from the first quarter of fiscal year 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are from cash flow generated by
operations, borrowings under the revolving credit facility under the Credit
Agreement, and sale and leaseback financing for newly constructed Academies.
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. See Note 1 of the Notes to Consolidated Financial
Statements.
In connection with the Recapitalization, Parent and La Petite entered into the
Credit Agreement, 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 of 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. In addition, La
Petite has outstanding letters of credit in an aggregate amount equal to $3.4
million and $17.6 million remains available for working capital purposes under
the Revolving Credit Facility.
11
<PAGE> 12
The Term Loan Facility is 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 the Company's
excess cash flow. The Term Loan Facility will terminate on May 11, 2005. The
term loan amortizes in an amount equal to $1.0 million in each of the first
five years, $10.0 million in the sixth year and $25.0 million in the seventh
year. The Revolving Credit Facility will terminate on the same date.
The Company opened two Academies during the first quarter, has seven new
Academies under construction and expects to open approximately 32 new Academies
between now and the end of fiscal 1999 and 35 in fiscal 2000. The cost to open
a new Academy ranges from $1.0 million to $1.5 million, of which approximately
85% is typically financed through a sale and leaseback transaction.
Alternatively, the Academy 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.
Purchasers of Academies 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 its
capitalized cost over the term of the lease. In addition, many of the Company's
leases provide for either contingent rentals if the Academy's operating revenue
exceeds certain levels or a fixed percentage increase every five years.
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 fiscal 1996, 1997, 1998 and for the 16 weeks
ended December 19, 1998 were $8.6 million, $7.3 million, $13.6 million and $8.0
million, respectively. The Company views all capital expenditures, other than
those incurred in connection with the development of new Academies, to be
maintenance capital expenditures. Maintenance capital expenditures for fiscal
1996, 1997, 1998 and for the 16 weeks ended December 19, 1998 were $6.7
million, $7.0 million, $9.2 million and $1.2 million, respectively. For
fiscal 1999, the Company expects total maintenance capital expenditures to be
approximately $9.7 million.
As of December 19, 1998 the Company had $6.4 million invested in new Academy
development in excess of amounts received to date as proceeds from sale and
leaseback transactions. As of December 19, 1998 the Company had drawn $4.0
million on the Revolving Credit Facility to temporarily fund this investment.
At the end of the first quarter $17.6 million remained available under the
Revolving Credit Facility.
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 in fiscal 1996, 1997, 1998 and for the 16 weeks ended December 19,
1998 were $9.4 million, $9.2 million, $9.9 million and $3.2 million,
respectively. Over the past three fiscal years, total expenditures for the
maintenance and upkeep of the Company's Academies have averaged approximately
$23,000 per Academy each year.
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 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.
MANAGEMENT INFORMATION SYSTEMS AND THE YEAR 2000
The arrival of the year 2000 is not expected to have an adverse impact on the
Company's computerized information systems and the cost of compliance is
expected to be immaterial. The most important new system for the Company has
been the installation of its ADMIN system nationwide. ADMIN was written using
a calendar dating system that is not sensitive to the year 2000 issue. For
general ledger/financial reporting, accounts payable/disbursements, fixed
assets record keeping and purchase order accounting, the Company utilizes
software under licensing arrangements for systems that have already been
upgraded and are currently year 2000 compliant. The costs of the upgrades were
12
<PAGE> 13
included as part of the annual licensing fees. For payroll processing and
human resources information systems, the Company utilizes software under
licensing arrangements in which new year 2000 compliant releases are currently
available to the Company as part of the annual licensing fees, and are expected
to be installed during calendar year 1999. Also, during the spring of 1999,
the Company will test all of its smaller applications to insure that any year
2000 issues are corrected on a timely basis.
The Company has not assessed the year 2000 readiness of its major suppliers or
third-party funding agencies. Due to the general uncertainty inherent in
addressing year 2000 readiness, the most likely worst case year 2000 scenario
and the impact it may have on the Company is uncertain. In the event that
major suppliers of curriculum material are unable to fulfill purchase orders
for supplies, Academy Directors will need to buy necessary supplies from local
retailers. This could have adverse cost consequences to the Company, but on
the assumption that the banking system continues to function, should not have a
material impact on operations. The Company also provides preschool and
child-care services for children that are funded by various state and local
government agencies. In the event that any such agency were unable to timely
reimburse the Company for such services, it would have an adverse impact on the
Company's cash flow. Such impact is not expected to be material and the
Company generally has the option to discontinue providing such services for
nonpayment.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On May 11, 1998, the Company entered into a Credit Agreement providing for (a)
the Term Loan Facility in aggregate principal amount of $40 million and (b) the
Revolving Credit Facility 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 Credit
Agreement will 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 highest of The Chase Manhattan Bank's published prime rate, a certificate
of deposit rate plus 1% and the federal funds effective rate plus 1/2 of 1%,
known as the average banking rate (ABR) plus, in each case a percentage based
on the Company's financial performance. The borrowing margins applicable to
the Credit Agreement are initially 3.25% for LIBOR loans and 2.25% for ABR
loans.
As of December 19, 1998 borrowings under the Term Loan Facility were $ 39.8
million and borrowings under the Revolving Credit Facility were $4.0 million.
A 1% change in an applicable index rate would result in an increase or decrease
in interest expense of $0.4 million per year.
******
13
<PAGE> 14
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 AND USE OF PROCEEDS.
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
14
<PAGE> 15
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.
LPA HOLDING CORP.
Dated January 29, 1999 /s/ James R. Kahl
-------------------------------------------
By: James R. Kahl
President, Chief Executive Officer and duly
authorized representative of the registrant
15
<PAGE> 16
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 ACADEMY, INC.
Dated January 29, 1999 /s/ Phillip M. Kane
----------------------------------------------
By: Phillip M. Kane
Senior Vice President, Chief Financial Officer
and duly authorized representative of the
registrant
16
<PAGE> 17
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.
LPA SERVICES, INC.
Dated January 29, 1999 /s/ Phillip M. Kane
--------------------------------------------------
By: Phillip M. Kane
Vice President of Finance, Chief Financial Officer
and duly authorized representative of the
registrant
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 19, 1998, AND THE CONSOLIDATED
STATEMENTS OF INCOME FOR THE 16 WEEKS ENDED DECEMBER 19, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001062774
<NAME> LPA Holding Corp.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> AUG-28-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> DEC-19-1998
<CASH> 5,397
<SECURITIES> 0
<RECEIVABLES> 6,085
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,753
<PP&E> 104,410
<DEPRECIATION> 41,930
<TOTAL-ASSETS> 157,506
<CURRENT-LIABILITIES> 42,639
<BONDS> 185,150
26,913
0
<COMMON> 6
<OTHER-SE> (108,522)
<TOTAL-LIABILITY-AND-EQUITY> 157,506
<SALES> 0
<TOTAL-REVENUES> 98,789
<CGS> 0
<TOTAL-COSTS> 95,005
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,931
<INCOME-PRETAX> (2,018)
<INCOME-TAX> (491)
<INCOME-CONTINUING> (1,527)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,527)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
