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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 333-56239-01
LPA HOLDING CORP.
(exact name of registrant as specified in its charter)
SEE TABLE OF ADDITIONAL REGISTRANTS
Delaware 48-1144353
(State or other jurisdiction of (IRS employer
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)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
$145,000,000 10% Senior Notes due May 15, 2008
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
--- --- --- ---
There are no shares of voting stock of La Petite Academy, Inc. held by
non-affiliates.
As of November 24, 1998, 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 November 24, 1998, each of the
additional registrants had the number of outstanding shares, which is shown on
the following table.
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ADDITIONAL REGISTRANTS
Number of Shares
Jurisdiction of Commission IRS Employer of Common
Name Incorporation File Number Identification No. Stock Outstanding
- ---- --------------- ----------- ------------------ -----------------
La Petite Academy, Inc. Delaware 333-56239 43-1243221 100 shares of Common
Stock (par value, $.01
per share)
LPA Services, Inc. Delaware 333-56239-02 74-2849053 1,000 shares of common
stock (par value, $.01
per share)
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LPA HOLDING CORP.
INDEX
- --------------------------------------------------------------------------------
PART I.
PAGE
----
Item 1. Business 4
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 16
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 31
PART III.
Item 10. Directors and Executive Officers of the Registrant 32
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners and Management 36
Item 13. Certain Relationships and Related Transactions 36
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 37
SIGNATURES 44
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PART I.
ITEM 1. BUSINESS
MERGER TRANSACTIONS
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). Vestar/LPT Limited Partnership retained common stock of Parent
having a value (based on the amount paid by the Investor for its common stock of
Parent) of $2.8 million (representing 3.0% of the outstanding common stock of
Parent on a fully diluted basis). Management retained common stock of Parent
having a value (based on the amount paid by the Investor for its common stock of
Parent) of $4.7 million (representing 5.0% of the common stock of Parent on a
fully diluted basis) and retained existing options to acquire 3.0% of Parent's
fully diluted common stock. In addition, Parent adopted a new stock option plan
covering 8.5% of its fully diluted common stock. Accordingly, management owns or
has the right to acquire, subject to certain performance requirements,
approximately 16.5% of the common stock of Parent on a fully diluted basis. The
Equity Investment was used, together with the proceeds of the offering of $145
million of 10% Senior Notes due 2008 and borrowings under a new credit
agreement, consisting of a term loan facility of $40 million and a revolving
credit facility providing loans of up to $25 million, to finance the
Recapitalization, to refinance substantially all of La Petite's outstanding
indebtedness and outstanding preferred stock (the Refinancing Transactions) and
to pay the fees and expenses relating to the foregoing. These transactions
closed on May 11, 1998. Transaction expenses included in operating expenses
under the caption "Recapitalization Costs" for this period include approximately
$1.5 million in transaction bonuses and $7.2 million for the cancellation of
stock options and related taxes.
Parent, consolidated with La Petite and Services, is referred to herein as the
Company.
BUSINESS DESCRIPTION
The following discussion refers to La Petite, and includes a discussion of La
Petite prior to the 1993 acquisition:
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La Petite Academy, founded in 1968, is the second largest operator of for-profit
preschool educational facilities in the United States. The Company provides
center-based educational and child care services five days a week throughout the
year to children between the ages of six weeks and 12 years. Management believes
the Company differentiates itself through its superior educational programs,
which were developed and are regularly enhanced by its curriculum department.
The Company's focus on quality educational services allows it to capitalize on
the increased awareness of the benefits of premium educational instruction for
preschool and elementary school age children. At its residential and
employer-based Academies, the Company utilizes its proprietary Journey(R)
curriculum with the intent of maximizing a child's cognitive and social
development. The Company also operates Montessori schools which employ the
Montessori method of learning, a classical approach that features the
programming of tasks with materials presented in a sequence dictated by each
individual child's capabilities.
As of August 29, 1998, the Company operated 736 educational facilities,
including 685 Journey Academies, 31 employer-based Academies and 20 Montessori
schools, located in 35 states and the District of Columbia, and had an
enrollment of approximately 83,000 full and part-time children. The Company's
Operating Capacity (as defined) as of August 29, 1998, was approximately 90,000
full-time children. For the 52 weeks ended August 29, 1998, estimated full-time
equivalent student (FTE) Utilization (as defined) was 65%.
Tuition for the programs varies depending upon the location of an Academy and is
proportionally higher for children attending part-time. In addition, parents
currently pay an annual registration fee, which is reduced for families with
more than one child attending an Academy.
Historically, the Company's operating revenue has followed the seasonality of a
school year, declining during the summer months and the year-end holiday period.
The number of new children enrolling at the Academies is generally highest in
September-October and January-February and, therefore, the Company attempts to
concentrate its marketing efforts and new Academy openings immediately preceding
these high enrollment periods. Several Academies in certain geographic markets
have a backlog of children waiting to attend; however, this backlog is not
material to the overall attendance throughout the system.
EMPLOYEES
As of August 29, 1998, the Company employed approximately 12,700 persons. The
Company's employees are not represented by any organized labor unions or
employee organizations, and management believes relations with employees are
good.
COMPETITION
Each Academy competes with other child care alternatives in a very localized
market. The preschool education and child care industry is highly fragmented and
has historically been dominated by small, local nursery and day care centers.
The Company is the second largest provider of for-profit preschool education and
child care in the United States based on the number of centers operated and
competes principally with local nursery and day care centers, some of which are
church-affiliated or non-profit, and individuals caring for a few children in
their homes. In addition, in recent years certain public school districts have
begun to offer after school programs which compete with the Company's SuperStar
Program. The Company competes principally by offering trained and qualified
personnel, professionally planned educational and recreational programs,
well-equipped facilities and additional services such as transportation. In
addition, the Company offers a challenging and sophisticated program that
emphasizes the individual development of the child. Management believes that the
quality of the staff and facilities and the unique programs offered are the
principal factors in parents' choice of the Company, although price and location
of the facility are also important. For some of the Company's potential
customers, the non-profit status of certain of the Company's competitors may be
a significant factor in choosing a child care provider.
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INSURANCE AND CLAIMS ADMINISTRATION
Since July 1989, the Company has maintained excess liability insurance covering
general liability and automotive liability, in addition to primary general
liability, automotive liability, workers compensation, property and casualty,
crime and directors' and officers' insurance. Management believes that the
coverage provided by these policies is adequate to meet the Company's needs.
Third-party administration and claims payments services for general liability
and auto liability are provided by LPA Services, Inc., a wholly owned subsidiary
of La Petite.
REGULATION AND GOVERNMENT INVOLVEMENT
Each Academy must be licensed under applicable state and local licensing laws
and is subject to a variety of state and local regulations. Although these state
and local regulations vary greatly from jurisdiction to jurisdiction,
governmental agencies generally review the safety, fitness and adequacy of the
buildings and equipment, the ratio of staff to children, the dietary program,
the daily curriculum and compliance with health standards. In a few
jurisdictions, new legislation or regulations have been enacted or are being
considered which establish requirements for employee background checks or other
clearance procedures for new employees of child care centers. For example, all
states in which the Company operates require criminal record checks for all
child care staff as part of licensing regulations and some require fingerprint
verification. Repeated failures by an Academy to comply with applicable
regulations can subject it to state sanctions, which might include being placed
on probation or, in more serious cases, suspension or revocation of the
Academy's license to operate. Management believes the Company is in substantial
compliance with all material regulations and licensing requirements applicable
to its businesses.
Although no federal license is required at this time, there are minimum
standards, which must be met to qualify for participation in certain federal
subsidy programs.
Government, at both the federal and state levels, is actively involved in
expanding the availability of child care services. Federal support is delivered
at the state level through government-operated educational and financial
assistance programs. Child care services offered directly by states include
training for child care providers and resource and referral systems for parents
seeking child care. In addition, the state of Georgia has an extensive
government-paid private sector preschool program in which the Company
participates.
In August and September of 1998, the National Highway Transportation Safety
Administration (NHTSA) issued interpretative letters that appear to modify its
interpretation of regulations governing the sale by automobile dealers of
vehicles intended to be used for the transportation of children to and from
school. These letters indicate that dealers may no longer sell 15-passenger vans
for this use, and that any vehicle designed to transport eleven persons or more
must meet federal school bus standards if it is likely to be "used
significantly" to transport children to and from school or school-related
events. These interpretations will affect the type of vehicle that may be
purchased by the Company in the future for use in transporting children between
schools and the Company's centers. The Company anticipates that NHTSA's recent
interpretation and potential related changes in state and federal transportation
regulations will increase the cost to the Company of transporting children,
because school buses are more expensive to purchase and maintain, and may
require drivers who have commercial licenses.
COMPLIANCE WITH ENVIRONMENTAL PROTECTION PROVISIONS
Compliance with federal, state and local laws and regulations governing
pollution and protection of the environment is not expected to have any material
effect upon the financial condition or results of operations of the Company.
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ITEM 2. PROPERTIES
Due to different licensing requirements and design features, Academies typically
contain 5,400, 6,700 or 7,800 square feet in a one-story, air-conditioned
building typically located on three-quarters of an acre to one acre of land.
Each Academy has an adjacent playground designed to accommodate the full age
range of children attending the Academy.
Licensed capacity for the same size building varies from state to state because
of different licensing requirements. In an open Academy design, a 5,400 square
foot Academy is typically licensed for 100 to 140 children, a 6,700 square foot
Academy is typically licensed for 130 to 170 children and a 7,800 square foot
Academy is typically licensed for 175 to 200 children.
The Company has recently designed new prototypes for residential Academies and
Montessori schools, both of which are 9,500 square foot facility prototypes to
be built on one acre or more of commercially zoned property. The new residential
Academy prototype will have an operating capacity for approximately 175 children
and is a closed classroom design, without infant rooms, that reflects a
preschool environment and supports the latest curriculum improvements. The
Montessori school prototype will be divided into six equal-sized classrooms
which will each support 25 children, resulting in an operating capacity for
approximately 150 children. Management believes the new prototypes afford the
Company more flexibility to better suit varying site plans and future changes as
residential neighborhoods evolve. The new exterior design was developed to
enhance the appearance and image of the Academies.
The following table shows the locations of the Company's open Academies as of
August 29, 1998:
Alabama (18) Indiana (17) Nebraska (10) South Carolina (25)
Arizona (24) Iowa (9) Nevada (9) Tennessee (26)
Arkansas (8) Kansas (22) New Jersey (2) Texas (117)
California (58) Kentucky (4) New Mexico (4) Utah (4)
Colorado (25) Louisiana (1) North Carolina (30) Virginia (36)
Delaware (1) Maryland (15) Ohio (17) Washington, D. C. (2)
Florida (97) Minnesota (1) Oklahoma (24) Washington (16)
Georgia (53) Mississippi (3) Oregon (3) Wisconsin (2)
Illinois (16) Missouri (30) Pennsylvania (6) Wyoming (1)
As of August 29, 1998, the Company operated 736 Academies, 662 of which were
leased under operating leases, 55 of which were owned and 19 of which were
operated in employer-owned centers. Most of these Academy leases have 15-year
terms, some have 20-year terms, many have renewal options, and most require the
Company to pay utilities, maintenance, insurance and property taxes. In
addition, some of the leases provide for contingent rentals, if the Academy's
operating revenue exceeds certain base levels.
In opening a new Academy, the Company historically acquires the land, constructs
the facility and then seeks long-term financing through a sale (at cost) and
operating leaseback transaction. The Company currently leases 662 Academies from
approximately 400 investors.
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The leases have initial terms expiring as follows:
YEARS INITIAL LEASE TERMS EXPIRE NUMBER OF ACADEMIES
1999 73
2000 55
2001-2006 451
2007 and later 83
---
662
---
The Company has generally been successful when it has sought to renew expiring
Academy leases.
In fiscal year 1998, the Company opened one Residential Academy.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is not publicly traded. As of November 24, 1998,
Investor owned 90.3% of the Company's common stock, management owned 6.1% and
Vestar/LPT Limited Partnership owned 3.6%.
No cash dividends were declared or paid on the common stock during fiscal year
1998 and 1997. The Company's Senior Notes and preferred stock (see Note 3 and
Note 7, respectively, to the Consolidated Financial Statements) contain certain
covenants that, among other things, do not permit La Petite to pay cash
dividends on its common or preferred stock now or in the immediate future.
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ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS OF DOLLARS)
52 Weeks 52 Weeks 53 Weeks 52 Weeks 52 Weeks
ENDED ENDED ENDED ENDED ENDED
AUGUST 29, AUGUST 30, AUGUST 31, AUGUST 26, AUGUST 27,
1998 1997 1996 1995 1994
INCOME STATEMENT DATA
Operating revenue $ 314,933 $ 302,766 $ 300,277 $ 279,806 $ 274,195
Operating expenses:
Salaries, wages and benefits 166,501 159,236 155,046 142,757 135,765
Facility lease payments 39,641 39,332 39,587 39,901 38,906
Depreciation 13,892 13,825 13,680 13,501 12,535
Amortization of goodwill and other
intangibles 1,884 2,236 2,774 3,712 3,492
Restructuring charge(a) 11,700
Recapitalization costs(b) 8,724
Other 76,258 74,111 78,310 75,981 72,190
--------- --------- --------- --------- ---------
Total operating expenses 306,900 288,740 289,397 287,552 262,888
--------- --------- --------- --------- ---------
Operating income(loss) 8,033 14,026 10,880 (7,746) 11,307
Interest expense(c) 14,126 9,245 10,256 11,110 12,665
Minority interest in net
income of subsidiary 2,849 3,693 3,561 2,824 2,452
Interest income (885) (959) (903) (1,063) (825)
--------- --------- --------- --------- ---------
Loss before income taxes
and extraordimary item (8,057) 2,047 (2,034) (20,617) (2,985)
Provision (benefit) for income
taxes (254) 3,264 1,518 (6,155) 642
--------- --------- --------- --------- ---------
Income (loss) before
extraordinary item (7,803) (1,217) (3,552) (14,462) (3,627)
Extraordinary item - loss on
early retirement of debt(d) (5,525) (819) (1,610)
--------- --------- --------- --------- ---------
Net loss $ (13,328) $ (1,217) $ (4,371) $ (14,462) $ (5,237)
========= ========= ========= ========= =========
BALANCE SHEET DATA (at end of period)
Total assets $ 160,791 $ 171,160 $ 177,133 $ 195,604 $ 204,885
Subordinated debt 903 1,590 1,555 1,521
Total debt 185,727 85,903 86,590 99,186 102,352
Redeemable preferred stock 25,625 32,521 28,827 25,266 22,442
Stockholders' equity (105,701) 3,374 4,787 9,175 23,658
OTHER DATA
EBITDA(e) $ 32,533 $ 30,087 $ 27,334 $ 21,167 $ 27,334
Depreciation and amortization(f) 16,621 16,911 17,704 18,638 18,118
Capital expenditures 13,637 7,300 8,570 9,101 8,496
Proceeds from sale of assets 2,632 452 2,525 6,145 3,399
Academies at end of period 736 745 751 786 787
FTE utilization during the period (g) 65% 66% 64% 59% 59%
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a) During fiscal year 1995, the Company approved a plan to close 39 Academies
located in areas where the demographic conditions no longer support an
economically viable operation and to restructure its operating management to
better serve the remaining Academies. Accordingly, the Company recorded an
$11.7 million restructuring charge ($7.0 million after tax) to provide for
costs associated with the Academy closures and restructuring. The charge
included approximately $10.0 million for the present value of rent and real
estate taxes for the remaining lease terms. The charge also included
restructuring and other costs related to the closures.
b) Recapitalization costs consist principally of transaction bonuses of $1.5
million and payments for the cancellation of options of $7.2 million, both
of which were inclusive of payroll taxes.
c) Interest expense includes $0.8 million, $0.9 million, $1.3 million, $1.4
million and $2.1 million of amortization of deferred financing costs and
accretion of the discount on the Convertible Debentures for fiscal years
1998, 1997, 1996, 1995 and 1994, respectively.
d) On May 11, 1998, the Company incurred a $5.5 million extraordinary loss
related (i) to the retirement of all the outstanding $85.0 million principal
amount of 9 5/8% Senior Notes due on 2001, (ii) the exchange of all
outstanding shares of La Petite's Class A Preferred Stock for $34.7 million
in aggregate principal amount of La Petite's 12 1/8% Subordinated Exchange
Debentures due 2003 and (iii) the retirement of all the then outstanding
exchange debentures. The loss principally reflects interest and the write
off of premiums, and related deferred financing costs, net of applicable
income tax benefit.
e) EBITDA is defined herein as net income before non-cash restructuring
charges, extraordinary items, net interest cost, taxes, depreciation and
amortization and is presented because it is generally accepted as providing
useful information regarding a company's ability to service and/or incur
debt. EBITDA should not be considered in isolation or as a substitute for
net income, cash flows from operating activities and other consolidated
income or cash flow statement data prepared in accordance with generally
accepted accounting principles or as a measure of the Company's
profitability or liquidity.
f) Depreciation and amortization includes amortization of deferred financing
costs and the accretion of the discount on the Convertible Debentures, which
are presented in interest expense on the statements of income.
g) FTE Utilization is the ratio of FTE students to the total operating capacity
for all of the Company's Academies. FTE attendance is not a measure of the
absolute number of students attending the Company's Academies; rather, it is
an approximation of the full-time equivalent number of students based on
Company estimates and weighted averages. For example, a student attending
full-time is equivalent to one FTE, while a student attending one-half of
each day is equivalent to 0.5 FTE.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and the related notes thereto included elsewhere in this
document.
Full-time equivalent (FTE) attendance, as defined by the Company, is not a
measure of the absolute number of students attending the Company's Academies,
but rather is an approximation of the full-time equivalent number of students
based on Company estimates and weighted averages. For example, a student
attending full-time is equivalent to one FTE, while a student attending only
one-half of each day is equivalent to 0.5 FTE.
1998 COMPARED TO 1997 RESULTS (IN THOUSANDS OF DOLLARS)
52 WEEKS ENDED 52 WEEKS ENDED
----------------------- -----------------------
August 29, Percent of August 30, Percent of
1998 Revenue 1997 Revenue
Operating revenue $314,933 100.0% $302,766 100.0%
Operating expenses:
Salaries, wages and benefits 166,501 52.9 159,236 52.6
Facility lease payments 39,641 12.6 39,332 13.0
Depreciation 13,892 4.4 13,825 4.6
Amortization of goodwill
and other intangibles 1,884 0.6 2,236 0.7
Recapitalization costs 8,724 2.8
Other 76,258 24.2 74,111 24.5
-------- ---- -------- ----
Total operating expenses 306,900 97.4 288,740 95.4
-------- ---- -------- ----
Operating income $ 8,033 2.6% $ 14,026 4.6%
======== ==== ======== ====
EBITDA $ 32,533 10.3% $ 30,087 9.9%
======== ==== ======== ====
Adjusted EBITDA $ 34,332 l0.9% $ 30,787 10.2%
======== ==== ======== ====
The results of operations for the Company for the 52 weeks ended August 29, 1998
are consistent and comparable with the 52 weeks ended August 30, 1997. Ten
Academies in operation at the end of the fiscal year 1997 were closed and one
new Academy was opened prior to the end of fiscal year 1998. As a result, the
Company operated 736 Academies at the end of fiscal year 1998, nine less than at
the end of fiscal year 1997. The closures resulted principally from management
decisions not to renew the leases or contracts of certain Academies.
Operating revenue. During the 52 weeks ended August 29, 1998 as compared to the
prior fiscal year, operating revenue increased 4.0%, FTE attendance declined
1.1% and Average Weekly FTE Tuition increased 5.2%. Excluding closed Academies
from both years, operating revenue increased 4.7%, FTE attendance declined 0.4%
and Average Weekly FTE Tuition increased 5.1%. The decline in FTE attendance
reflects, among other things, the Company's continuing focus on preschool-aged
children and a reduced emphasis on infant care. In addition, the strong economy
reportedly had the effect of increasing summer vacations, which in turn could
have negatively impacted Academy attendance. The increase in Average Weekly FTE
Tuition was principally due to selective price increases that were put into
place in the second quarter of fiscal 1998, based on geographic market
conditions and class capacity utilization.
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Salaries, wages and benefits. Salaries, wages and benefits increased $7.3
million or 4.6% during the 52 weeks ended August 29, 1998 as compared to the
same period in the prior year. The increase was principally due to increased
average hourly wage rates as staff hours worked in fiscal year 1998 declined
slightly from the prior year. As a percentage of revenue, labor costs were 52.9%
for the 52 weeks ended August 29, 1998 as compared to 52.6% during the same
period in the prior year.
Recapitalization costs. Recapitalization costs consist principally of
transaction bonuses of $1.5 million and payments for the cancellation of options
of $7.2 million, both of which were inclusive of payroll taxes.
All other operating costs. Many of the Company's operating costs are relatively
fixed and do not decline or increase directly with small changes in attendance.
Facility lease expense, depreciation, amortization and other operating costs all
declined or remained unchanged as a percentage of revenue during the 52 weeks
ended August 29, 1998, as compared to the same period in the prior year. In
September 1997, the Company held a special conference to which all Academy
Directors were invited at which the Company articulated its future business
strategy for the growth of the Company. Total operating expenses for the 52
weeks ended August 29, 1998 include $1.2 million related to this conference.
Operating income and EBITDA. As a result of the foregoing, operating income was
$8.0 million for the 52 weeks ended August 29, 1998, as compared to $14.0
million during the same period in the prior year. Earnings before
recapitalization costs, extraordinary items, interest, taxes, depreciation and
amortization (EBITDA) was $32.5 million for the 52 weeks ended August 29, 1998
as compared to $30.1 million for the same period of fiscal year 1997, an
increase of 8.1%. Adjusted EBITDA, defined as EBITDA exclusive of the special
conference and of Vestar management and board fees which ceased with the
recapitalization, was $34.1 million for the 52 weeks ended August 29, 1998 as
compared to $30.8 million for the same period of fiscal year 1997, an increase
of 10.7%.
Interest expense. Net interest expense for the 52 weeks ended August 29, 1998
increased $4.1 million from the same period of fiscal year 1997. The increase
was mainly due to $1.6 million in fees for bridge loan commitments related to
the new debt offerings and increased interest payments related to the 10% Senior
Notes and term loan under the Credit Agreement (see Notes to the Consolidated
Financial Statements).
Loss on retirement of debt. On May 11, 1998, the Company incurred a $5.5 million
extraordinary loss related (i) to the retirement of all the outstanding $85.0
million principal amount of 9 5/8% Senior Notes due on 2001, (ii) the exchange
of all outstanding shares of La Petite's Class A Preferred Stock for $34.7
million in aggregate principal amount of La Petite's 12 1/8% Subordinated
Exchange Debentures due 2003 and (iii) the retirement of all the then
outstanding exchange debentures. The loss principally reflects interest and the
write off of premiums, and related deferred financing costs, net of applicable
income tax benefit.
Income tax rate. After adding back the permanent differences to pretax income,
the effective income tax rate for the 52 weeks ended August 29, 1998 was
approximately 34%, as compared to approximately 40% for the 52 weeks ended
August 30, 1997.
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1997 COMPARED TO 1996 ACTUAL RESULTS (IN THOUSANDS OF DOLLARS)
52 WEEKS ENDED 52 WEEKS ENDED
---------------------- ------------------------
August 30, Percent of August 24, Percent of
1997 Revenue 1996 Revenue
Operating revenue $302,766 100.0% $294,836 100.0%
Operating expenses:
Salaries, wages and benefits 159,236 52.6 152,234 51.6
Facility lease payments 39,332 13.0 38,858 13.2
Depreciation 13,825 4.6 13,680 4.6
Amortization of goodwill
and other intangibles 2,236 0.7 2,773 0.9
Other 74,111 24.5 77,139 26.2
-------- ----- -------- -----
Total operating expenses 288,740 95.4 284,684 96.6
-------- ----- -------- -----
Operating income $ 14,026 4.6% $ 10,152 3.4%
======== ===== ======== =====
EBITDA $ 30,087 9.9% $ 26,605 9.0%
======== ===== ======== =====
Adjusted EBITDA $ 30,787 lO.2% $ 27,305 9.3%
======== ===== ======== =====
Operating results for fiscal 1996 contained a 'leap week,' or 53 weeks in the
year, to catch up with the calendar. The extra week in 1996 added $5.4 million
to revenue and $0.7 million to EBITDA and operating income. For comparative
purposes, the above table presents the results of the first 52 weeks of fiscal
1996. The following discussion of results is based on the 52 week comparison.
Operating revenue. During the 52 weeks ended August 30, 1997 as compared to the
prior fiscal year, operating revenue increased 2.7%, FTE attendance increased
1.6% and Average Weekly FTE Tuition increased 0.9%. Excluding closed Academies
from both years, operating revenue increased 4.6%, FTE attendance increased 3.2%
and Average Weekly FTE Tuition increased 1.4%. The increase in attendance during
fiscal 1997 over fiscal 1996 was attributable to a successful fall enrollment
period and retention of the children throughout the year. The increase in the
Average Weekly FTE Tuition was principally due to selective increases in tuition
rates which took place in the second quarter of fiscal 1996, offset in part by
increased discounts implemented at the beginning of fiscal 1997 in connection
with the Parent's Partner Plan.
The Company opened three new Academies and closed nine Academies during fiscal
1997. As a result, the Company operated six fewer Academies at the end of fiscal
1997 than at the end of fiscal 1996. Two of the closures were underperforming
employer-based centers, one closure was an underperforming residential Academy,
and the remaining six closures were due to management decisions not to renew the
leases of certain Academies at lease expiration.
Salaries, wages and benefits. Salaries, wages and benefits increased $7.0
million or 4.6% during the 52 weeks ended August 30, 1997, as compared to the
same period in the prior year. As a percentage of revenue, labor costs were
52.6% for the 52 weeks ended August 30, 1997 as compared to 51.6% during the
same period in the prior year. The increase in labor cost as a percentage of
revenue was principally due to staff merit increases effective January 1, 1997
and increased health care benefit costs.
Facility lease expense. Facility lease expense declined as a percentage of
revenue by 0.2% during the 52 weeks ended August 30, 1997 as compared to the
same period in the prior year. This decrease was primarily due to the closing of
46 Academies at various times during fiscal 1996.
Amortization of goodwill and other intangibles. Amortization of goodwill and
other intangibles decreased 19.4% during the 52 weeks ended August 30, 1997, as
the intangible asset for an in-place workforce became fully amortized during
fiscal 1996.
13
14
All other operating costs. Other operating expenses declined as a percentage of
revenue by 1.7% to 24.5% for fiscal 1997 as compared to the same period in the
prior year. The reduction was primarily due to new management cost controls
which reduced insurance, auto, and Academy food and supply costs.
Operating income and EBITDA. As a result of the foregoing, operating income was
$14.0 million for the 52 weeks ended August 30, 1997, an increase of $3.9
million or 38.2% from the same period in the prior year. EBITDA was $30.1
million for the 52 weeks ended August 30, 1997 as compared to $26.6 million for
the same period in the prior year. Adjusted EBITDA, defined as EBITDA exclusive
of Vestar management and board fees which ceased with the recapitalization, was
$30.8 million for the 52 weeks ended August 30, 1997 as compared to $27.3
million for the same period of fiscal year 1996, an increase of 12.8%.
Interest expense. Interest expense for the 52 weeks ended August 30, 1997
declined $0.9 million or 8.7% from the same period in the prior year due to
prepayment of a term loan facility in May 1996.
Income tax rate. The effective income tax rate, after adding back nondeductible
goodwill amortization to pre-tax income, was approximately 40% for both years.
State income taxes accounted for the difference between the effective rate and
the statutory federal rate.
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 for the Recapitalization. In
addition, La Petite has outstanding letters of credit in an aggregate amount
equal to $3.4 million and accordingly, $21.6 million remains available for
working capital purposes under the Revolving Credit Facility. The borrowings
under the Credit Agreement, together with the proceeds from the sale of the
Senior Notes and the Equity Investment, were used to consummate the
Recapitalization and to pay the related fees and expenses.
The 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 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 currently has eight new Academies under construction and expects to
open approximately 35 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 cash return on its capitalized cost over the term of the
lease. In addition, many of the Company's leases provide for either
14
15
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 and 1998 were $8.6 million,
$7.3 million and $13.6 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 and 1998 were $6.7 million, $7.0 million and
$9.2 million, respectively. Maintenance capital expenditures in 1998 included
$0.9 million for the installation of a national Academy Document and Management
Information Network (ADMIN) personal computer system. All of the ADMIN computers
are under 37 month capital leases which provide the Company the flexibility to
either purchase the PC's at lease expiration for the then market value or
replace the equipment with more modern technology.
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 and 1998 were $9.4 million, $9.2 million and $9.9
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.
The Company's ability to meet its debt and redeemable preferred stock
obligations is dependent on future earnings and cash flows. The Senior Notes and
preferred stock contain certain covenants that, among other things, limit the
ability of the Company to incur additional indebtedness or pay cash dividends or
certain other restricted payments. As of August 29, 1998, the Company, in
compliance with all of the covenants, is not permitted to pay cash dividends on
its common or preferred stock.
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.
On September 1, 1997, the Federal Minimum Wage increased from $4.75 to $5.15 per
hour. This increase did not materially impact the Company's operations.
A sustained recession with high unemployment may have a material adverse effect
on the Company's operations. The recession during 1990 and 1991 adversely
affected attendance.
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 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.
15
16
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.
OTHER INFORMATION
None.
ITEM 7A. 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.
The full amount of the Term Loan Facility was drawn on May 11, 1998. A 1% change
in an applicable index rate would result in an increase or decrease in interest
expense of $ 400,000 per year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of August 29, 1998 and August 30, 1997
Consolidated Statements of Income for the 52 weeks ended August 29,
1998, 52 weeks ended August 30, 1997 and 53 weeks ended August 31, 1996
Consolidated Statements of Stockholders' Equity for the 52 weeks ended
August 29, 1998, 52 weeks ended August 30, 1997, and 53 weeks ended
August 31, 1996
Consolidated Statements of Cash Flows for the 52 weeks ended August 29,
1998, 52 weeks ended August 30, 1997 and 53 weeks ended August 31, 1996
Notes to Consolidated Financial Statements
16
17
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
of LPA Holding Corp.
We have audited the accompanying consolidated balance sheets of LPA Holding
Corp. and its subsidiary (the Company) as of August 29, 1998 and August 30,
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for the 52 weeks ended August 29, 1998, the 52 weeks ended August
30, 1997, and the 53 weeks ended August 31, 1996. Our audits also included the
financial statement schedules listed in the Index at Item 14. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of LPA Holding Corp. and its
subsidiary as of August 29, 1998 and August 30, 1997, and the results of their
operations and their cash flows for the 52 weeks ended August 29, 1998, the 52
weeks ended August 30, 1997 and the 53 weeks ended August 31, 1996 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Kansas City, Missouri
October 5, 1998
17
18
LPA HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
AUGUST 29, AUGUST 30,
ASSETS 1998 1997
Current assets:
Cash and equivalents $ 6,868 $ 23,971
Restricted cash investments (Note 1) 1,756 2,312
Accounts and notes receivable, net 7,002 4,976
Prepaid food and supplies 5,987 5,954
Other prepaid expenses 2,259 3,645
Refundable income taxes (Note 5) 1,776 559
Current deferred income taxes (Note 5) 1,124 1,024
-------- --------
Total current assets 26,772 42,441
Property and equiment, at cost:
Land 6,120 6,927
Buildings and leasehold improvements 71,754 64,811
Equipment 18,695 22,529
Facilities under construction 2,264 317
-------- --------
98,833 94,584
Less accumulated depreciation 37,839 33,460
-------- --------
Net property and equipment 60,994 61,124
Other assets (Note 2) 64,919 64,187
Deferred income taxes (Note 5) 8,106 3,408
-------- --------
$160,791 $171,160
======== ========
18
19
LPA HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) (CONTINUED)
- --------------------------------------------------------------------------------
AUGUST 29, AUGUST 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
Current liabilities:
Overdrafts due banks $ 2,890 $ 2,356
Accounts payable 7,447 6,224
Current reserve for closed academies 1,595 1,860
Current maturities of long-term debt and capital lease obligations 2,121 122
Accrued salaries, wages and other payroll costs 10,937 10,717
Accrued insurance liabilities 4,043 4,156
Accrued property and sales taxes 4,103 4,128
Accrued interest payable 4,771 719
Other current liabilities 5,572 4,761
--------- ---------
Total current liabilities 43,479 35,043
Long-term debt and capital lease obligations (Note 3) 185,727 85,903
Other long-term liabilities (Note 4) 11,661 14,319
Minority interest - Series A 12 1/8% cumulative redeemable exchangeable preferred
stock ($.01 par value); 2,000,000 shares authorized as of August 30, 1997 and no shares
authorized as of August 29, 1998; 800,000 shares issued and outstanding at aggregate
liquidation preference of $40.836 as of August 30, 1997, and no shares outstanding as of
August 29, 1998 32,521
Series A 12% redeemable preferred stock (S.01 par value per share); 30,000 shares
authorized, issued and outstanding at aggregate liquidation preference as of
August 29, 1998 (per share liquidation preference of $1,036.558) 25,625
Stockholders' equity:
10% cumulative convertible preferred stock ($.01 par value per share); 80,000 shares
authorized, issued and outstanding as of August 30, 1997, and no shares authorized,
issued or outstanding as of August 29, 1998 1
10% nonconvertible preferred stock ($.01 per value per share); 150,000 shares
authorized as of August 30, 1997, and no shares authorized as of August 29, 1998;
40,036 shares issued and outstanding as of August 30, 1997, and no shares issued or
outstanding as of August 29, 1998
Junior preferred stock ($.01 per value per share); 650,000 authorized as of August 30, 1997,
and no shares authorized as of August 29, 1998; 213,750 shares issued and outstanding as of
August 30, 1997, and no shares issued or outstanding as of August 29, 1998 2
Class A common stock ($.01 par value per share); 1,500,000 shares authorized and 852,160
shares issued and outstanding as of August 30, 1997; and 950,000 shares authorized and
560,026 shares issued and outstanding as of August 29, 1998 6 9
Class B common stock ($.01 par value per share); 350,000 shares authorized and none issued
and outstanding as of August 30, 1997; 20,000 shares authorized, issued and outstanding as of
August 29, 1998
Common stock warrants 5,645
Additional paid-in capital 34,234
Accumulated deficit (111,352) (30,573)
Less cost of treasury shares (299)
--------- ---------
Total stockholders' equity: (105,701) 3,374
--------- ---------
$ 160,791 $ 171,160
========= =========
See notes to consolidated financial staternents
19
20
LPA HOLDING CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
AUGUST 29, 1998 AUGUST 30, 1997 AUGUST 31, 1996
Operating revenue $ 314,933 $ 302,766 $ 300,277
Operating expenses:
Salaries, wages and benefits 166,501 159,236 155,046
Facility lease expense 39,641 39,332 39,587
Depreciation 13,892 13,825 13,680
Amortization of goodwill and other intangibles 1,884 2,236 2,774
Recapitalization costs (Note 1) 8,724
Other 76,258 74,111 78,310
--------- --------- ---------
306,900 288,740 289,397
--------- --------- ---------
Operating income 8,033 14,026 10,880
--------- --------- ---------
Interest expense 14,126 9,245 1O,256
Minority interest in net income of subsidiary 2,849 3,693 3,561
Interest income (885) (959) (903)
--------- --------- ---------
Net interest costs 16,090 11,979 12,914
--------- --------- ---------
Income (loss) before income taxes
and extraordinaory item (8,057) 2,047 (2,034)
Provision (benefit) for income taxes (254) 3,264 1,518
--------- --------- ---------
Loss before extraordinary item (7,803) (1,217) (3,552)
--------- --------- ---------
Extraordinary loss on retirement of
debt, net of applicable income taxes
of $3,776 and $546 (Note 11) (5,525) (819)
--------- --------- ---------
Net loss $ (13,328) $ (1,217) $ (4,371)
========= ========= =========
See notes to consolidated financial statements.
20
21
LPA HOLDING CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
COMMON STOCK
---------------------
NUMBER PREFERRED
OF SHARES AMOUNT STOCK WARRANTS
Balance, August 26, 1995 852,160 $ 9 $ 3 $
Dividends on preferred stock
Repurchase of common stock
Net loss
--------- --------- --------- ---------
Balance, August 31, 1996 852,160 9 3
Dividends on preferred stock
Repurchase of common stock
Net loss
--------- --------- --------- ---------
Balance, August 30, 1997 852,160 9 3
10% Cumulative Non Convertible
Preferred Dividend
Issuance of common stock 523,985 5
Repurchase of common stock
Redemption of preferred stocks (3)
Redemption of common stock (769,859) (8)
Issuance of Warrants 5,645
Equity issuance costs
Cancellation of treasury stock (26,260)
Preferred stock dividend (Note 7)
Net loss
--------- --------- --------- ---------
Balance, August 29, 1998 580,026 $ 6 $ $ 5,645
========= ========= ========= =========
TOTAL
PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
CAPITAL DEFICIT STOCK EQUITY
Balance, August 26, 1995 $ 32,099 $ (22,850) $ (86) $ 9,175
Dividends on preferred stock 1,006 (1,006) 0
Repurchase of common stock (17) (17)
Net loss (4,371) (4,371)
--------- --------- --------- ---------
Balance, August 31, 1996 33,105 (28,227) (103) 4,787
Dividends on preferred stock 1,129 (1,129) 0
Repurchase of common stock (196) (196)
Net loss (1,217) (1,217)
--------- --------- --------- ---------
Balance, August 30, 1997 34,234 (30,573) (299) 3,374
10% Cumulative Non Convertible
Preferred Dividend 848 (848)
Issuance of common stock 70,120 70,125
Repurchase of common stock (41) (41)
Redemption of preferred stocks (59,271) (59,274)
Redemption of common stock (45,931) (57,092) (103,031)
Issuance of Warrants 5,645
Equity issuance costs (7,901) (7,901)
Cancellation of treasury stock (340) 340
Preferred stock dividend (Note 7) (1,270) (1,270)
Net loss (13,328) (13,328)
--------- --------- --------- ---------
Balance, August 29, 1998 $ 0 $(111,352) $ $(105,701)
========= ========= ========= =========
See notes to consolidated financial statements
21
22
LPA HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
AUGUST 29, AUGUST 30, AUGUST 31,
1998 1997 1996
CASH FLOWS FROM OPERATING ACIIVITIES:
Net loss $ (13,328) $ (1,217) $ (4,371)
Adjustments to reconcile net loss to net cash from operating
activities
Noncash portion of extraordinary loss on retirement of debt 3,209 1,365
Depreciation and amortization 16,621 16,911 17,704
Deferred income taxes (4,799) 223 225
Minority interest in net income of La Petite Academy, Inc. 2,849 3,693 3,561
Changes in assets and liabilities:
Accounts and notes receivable (1,924) (1,402) (72)
Prepaid expenses and supplies 1,353 (980) 253
Accrued property and sales taxes (26) (125) (699)
Accrued interest payable 4,052 (20) 81
Other changes in assets and liabilities, net (783) (2,197) (2,839)
--------- --------- ---------
Net cash from operating activities 7,224 14,886 15,208
--------- --------- ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Capital expenditures (13,637) (7,300) (8,570)
Proceeds from sale of assets 2,632 452 2,525
--------- --------- ---------
Net cash used for investing activities (11,005) (6,848) (6,045)
--------- --------- ---------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Repayment of long-term debt and capital lease obligations (121,726) (900) (12,631)
Additions to long-term debt 185,000
Deferred financing costs (7,605) (225)
Retirement of old equity (162,304)
Proceeds from issuance of common stock net of expenses 62,224
Proceeds from issuance of preferred stock and warrants 30,000
Increase (reduction) in bank overdrafts 533 (2,873) 1,126
Decrease (increase) in restricted cash investments 556 6,915 (941)
--------- --------- ---------
Net cash from (used for) financing activities (13,322) 3,142 (12,671)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (17,103) 11,180 (3,508)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23,971 12,791 16,299
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,868 $ 23,971 $ 12,791
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 9,229 $ 8,415 $ 8,926
Income taxes 2,084 5,470 1,031
Cash received during the period for:
Interest $ 1,000 $ 848 $ 903
Income taxes 207 1,154 650
Non cash investing and financing activities:
Capital lease obligations of $3,170, and $391 were
incurred during the 52 weeks ended August 29, 1998 and
August 30, 1997, respectively, when the Company entered
into leases for new computer equipment
See notes to consolidated financial statements.
22
23
LPA HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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). Vestar/LPT Limited
Partnership retained common stock of Parent having a value (based on the
amount paid by the Investor for its common stock of Parent) of $2.8 million
(representing 3.0% of the outstanding common stock of Parent on a fully
diluted basis). Management retained common stock of Parent having a value
(based on the amount paid by the Investor for its common stock of Parent)
of $4.7 million (representing 5.0% of the common stock of Parent on a fully
diluted basis) and retained existing options to acquire 3.0% of Parent's
fully diluted common stock. In addition, Parent adopted a new stock option
plan covering 8.5% of its fully diluted common stock. Accordingly,
management owns or has the right to acquire, subject to certain performance
requirements, approximately 16.5% of the common stock of Parent on a fully
diluted basis. The Equity Investment was used, together with the proceeds
of the offering of $145 million of 10% Senior Notes due 2008 and borrowings
under a new credit agreement, consisting of a term loan facility of $40
million and a revolving credit facility providing loans of up to $25
million, to finance the Recapitalization, to refinance substantially all of
La Petite's outstanding indebtedness and outstanding preferred stock (the
Refinancing Transactions) and to pay the fees and expenses relating to the
foregoing. These transactions closed on May 11, 1998. Transaction expenses
included in operating expenses under the caption "Recapitalization Cost"
for this period include approximately $1.5 million in transaction bonuses
and $7.2 million for the cancellation of stock options and related taxes.
Parent, consolidated with La Petite and Services, is referred to herein as
the Company.
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The Company offers educational, developmental and child care programs,
which are available on a full-time or part-time basis, for children between
six weeks and twelve years old. The La Petite Academy schools are located
in 35 states and the District of Columbia, primarily in the southern,
Atlantic coastal, mid-western and western regions of the United States.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Investment and its wholly-owned subsidiary, La Petite and
its wholly-owned subsidiary, Services, after elimination of all significant
inter-company accounts and transactions.
FISCAL YEAR END - The Company has a 52-53 week fiscal year which ends on
the last Saturday in August.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
RECOGNITION OF REVENUES AND PRE-OPENING EXPENSES - The Company operates
preschool education and child care Academies. Revenue is recognized as the
services are performed. Expenses associated with opening new Academies are
charged to expense as incurred.
DEPRECIATION AND AMORTIZATION - Buildings, furniture and equipment are
depreciated over the estimated useful lives of the assets using the
straight-line method. For financial reporting purposes, buildings are
generally depreciated over 29 to 40 years, furniture and equipment over
three to 10 years and leasehold improvements over the term of the related
lease or five to 10 years, whichever is less.
Maintenance and repairs are charged to expense as incurred. The cost of
additions and improvements is capitalized and depreciated over the
remaining useful lives of the assets. The cost and accumulated depreciation
of assets sold or retired are removed from the accounts, and any gain or
loss is recognized in the year of disposal, except gains and losses on
property and equipment which have been sold and leased back which are
recognized over the terms of the related lease agreements.
RESTRICTED CASH INVESTMENTS - The restricted cash investment balance
represents cash deposited in an escrow account as security for the
self-insured portion of the Company's workers compensation and automobile
insurance coverage.
EXCESS OF PURCHASE PRICE OVER THE NET ASSETS ACQUIRED - The excess of the
purchase price over the fair value of tangible and identifiable intangible
assets and liabilities acquired related to the acquisition of La Petite is
being amortized over a period of 30 years on the straight-line method.
DEFERRED FINANCING COSTS - The costs of obtaining financing are included in
other assets and are being amortized over the life of the related debt.
OTHER ASSETS - Other assets include the fair value of identifiable
intangible assets acquired in connection with the acquisition of La Petite
and are being amortized over periods ranging from two to 10 years on the
straight-line method.
CASH EQUIVALENTS - The Company's cash equivalents consist of commercial
paper and money market funds with original maturities of three months or
less.
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INCOME TAXES - The Company accounts for income taxes pursuant to Statement
of Financial Accounting Standards ("SFAS") No. 109, which requires the
Company to establish deferred tax assets and liabilities, as appropriate,
for all temporary differences, and to adjust deferred tax balances to
reflect changes in tax rates expected to be in effect during the periods
the temporary differences reverse. Management has evaluated the
recoverability of the deferred income tax asset balances and has determined
that the deferred balances will be realized based on future taxable income.
DISCLOSURES REGARDING FINANCIAL INSTRUMENTS - The carrying values of the
Company's financial instruments, with the exception of the Company's Senior
Notes and preferred stock, approximate fair value. The estimated fair
values of Senior Notes and preferred stock at August 29, 1998 were $140.1
million and $31.1 million, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," as of the beginning of its 1997 fiscal year.
SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain intangibles, and goodwill related to those
assets. The adoption of this Statement did not have an effect on the
Company's consolidated financial statements.
STOCK-BASED COMPENSATION - The Company has adopted the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." The
Statement encourages rather than requires companies to adopt a new method
that accounts for stock compensation awards based on their estimated fair
value at the date they are granted. Companies are permitted, however, to
continue accounting for stock compensation awards under Accounting
Principles Board ("APB") Opinion No. 25, which requires compensation cost
to be recognized based on the excess, if any, between the quoted market
price of the stock at the date of grant and the amount an employee must pay
to acquire the stock. The Company has elected to continue to apply APB
Opinion No. 25 and has disclosed the pro forma net income (loss),
determined as if the method under SFAS No. 123 had been applied, in Note
12.
RECLASSIFICATIONS - Certain reclassifications to prior year amounts have
been made in order to conform to the current year present.
2. OTHER ASSETS
AUGUST 29, AUGUST 30,
1998 1997
Intangible assets:
Excess purchase price over net assets acquired $ 64,277 $ 64,277
Curriculum 1,497 1,497
Workforce 3,248
Accumulated amortization (11,784) (12,714)
-------- --------
53,990 56,308
Deferred financing costs 7,605 12,752
Accumulated amortization (259) (8,176)
Other assets 3,583 3,303
-------- --------
$ 64,919 $ 64,187
======== ========
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3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
(IN THOUSANDS OF DOLLARS)
AUGUST 29, AUGUST 30,
1998 1997
Convertible Debentures, 6.5% payable through
June 1, 2011 (a) $ $ 850
Senior Notes, 9.625% payable through August 1, 2001 85,000
Senior Notes, 10.0% due May l5, 2008 (b) 145,000
Borrowings under credit agreement (c) 40,000
Capital lease obligations 2,848 366
--------- ---------
187,848 86,216
Less unamortized discount (191)
Less current maturities of long-term debt and capital
lease obligations (2,121) (122)
--------- ---------
$ 185,727 $ 85,903
========= =========
a) On June 23, 1998, the Convertible Debentures were called and retired at
face value.
b) The Senior Notes mature on May 15, 2008. Interest is payable
semi-annually on May 15 and November 15 of each year. Commencing May 15,
2003, the Senior Notes are redeemable at various redemption prices at
Parent and La Petite's option. The Senior Notes contain certain
covenants that, among other things, limit Parent and La Petite's ability
to incur additional debt, transfer or sell assets, and pay cash
dividends.
c) On May 11, 1998, Parent and La Petite entered into an agreement (the
Credit Agreement) providing for a term loan facility in the amount of
$40.0 million and a revolving credit agreement, for working capital and
other general corporate purposes through May 2005, in the amount of $25
million. Borrowings under the Credit Agreement are secured by
substantially all of the assets of the Parent, La Petite and its
subsidiaries. Loans under the Credit Agreement will bear an interest
rate per annum equal to (at Parent and La Petite's option): (i) a rate
equal to an adjusted London inter-bank offered rate (LIBOR) plus a
percentage based on La Petite's financial performance or (ii) a rate
equal to the higher of Chase's prime rate, a certificate of deposit rate
plus 1%, or the Federal Funds rate plus 1/2 of 1% plus in each case a
percentage based on La Petite's financial performance. Parent and La
Petite are required to pay fees of 0.5% per annum of the unused portion
of the Credit Agreement plus letter of credit fees, annual
administration fees, and agent arrangement fees. The Credit Agreement
will mature in May 2005. The term loan amortizes in an amount equal to
$1.0 million in each of the first five years, $10.0 million in the sixth
year and $25.0 million in the seventh year.
Scheduled maturities and mandatory prepayments of long-term debt and
capital lease obligations during the five years subsequent to August 29,
1998 are as follows (in thousands of dollars):
1999 $ 2,121
2000 2,170
2001 1,557
2002 1,000
2003 and thereafter 181,000
--------
$187,848
========
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4. OTHER LONG-TERM LIABILITIES
(in thousands of dollars)
AUGUST 29, AUGUST 30,
1998 1997
Unfavorable lease, net of accumulated amortization $ 4,848 $ 6,085
Non-current reserve for closed academies 3,822 5,609
Long-term insurance liabilities 2,991 2,625
-------- -------
$ 11,661 $14,319
======== =======
In connection with the acquisition of the Company, an intangible liability
for unfavorable operating leases was recorded, which is being amortized over
the average remaining life of the leases.
The reserve for closed academies includes the long-term liability related to
leases for Academies which were closed and are no longer operated by the
Company.
5. INCOME TAXES
The provisions for income taxes recorded in the Consolidated Statements of
Income consisted of the following (in thousands of dollars):
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
AUGUST 29, 1998 AUGUST 30, 1997 AUGUST 31, 1996
Payable Currently:
Federal $(4,231) $ 2,921 $ 1,481
State (821) 567 262
------- ------- -------
Total (5,052) 3,488 1,743
------- ------- -------
Deferred:
Federal 4,018 (187) (190)
State 780 (37) (35)
------- ------- -------
Total 4,798 (224) (225)
------- ------- -------
$ (254) $ 3,264 $ 1,518
======= ======= =======
The difference between the provision for income taxes, as reported in the
Consolidated Statements of Income, and the provision computed at the
statutory Federal rate of 34 percent is due primarily to state income taxes
and nondeductible amortization of the excess of purchase price over the net
assets acquired of $2.1 million, $2.1 million, and $2.1 million in the 52
weeks ended August 29, 1998, August 30, 1997, and the 53 weeks ended August
31, 1996, respectively.
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Deferred income taxes result from differences between the financial
reporting and tax basis of the Company's assets and liabilities. The sources
of these differences and their cumulative tax effects at August 29, 1998 and
August 30, 1997 are estimated as follows (in thousands of dollars):
AUGUST 29, 1998 AUGUST 30, 1997
Current deferred taxes:
Accruals not currently deductible $ 3,768 $ 3,817
Supplies (2,411) (2,386)
Prepaids and other (233) (407)
------- -------
Net current deferred tax assets $ 1,124 $ 1,024
======= =======
Noncurrent deferred taxes:
Unfavorable leases $ 1,968 $ 2,471
Insurance reserves 1,214 1,067
Reserve for closed academies 1,552 2,277
Other 301 342
Carryforward of net operating loss 2,166
Property and equipment 1,140 (1,534)
Long-term debt (78)
Intangible assets (235) (311)
Deferred financing costs and other (826)
------- -------
Net noncurrent deferred tax assets $ 8,106 $ 3,408
======= =======
The Company has federal net operating loss carryforwards to offset future
taxable income through the tax year 2012. As of August 29, 1998, only the
income tax returns for tax years subsequent to 1994 are open to examination.
6. LEASES
Academy facilities are leased for terms ranging from 15 to 20 years. The
leases provide renewal options and require the Company to pay utilities,
maintenance, insurance and property taxes. Some leases provide for annual
increases in the rental payment and many leases require the payment of
additional rentals if operating revenue exceeds stated amounts. These
additional rentals range from 2% to 10% of operating revenue in excess of
the stated amounts and are recorded as rental expense. Vehicles are also
rented under various lease agreements, most of which are cancelable within
30 days after a one-year lease obligation. Substantially all Academy and
vehicle leases are operating leases. Rental expense for these leases were
$46.5 million, $44.9 million, and $45.1 million, for the 52 weeks ended
August 29, 1998, 52 weeks ended August 30, 1997, and 53 weeks ended August
31, 1996, respectively. Contingent rental expense of $1.4 million, $1.5
million and $1.2 million were included in rental expense for the 52 weeks
ended August 29, 1998, 52 weeks ended August 30, 1997 and 53 weeks ended
August 31, 1996, respectively.
Aggregate minimum future rentals payable under facility leases as of August
29, 1998 were as follows (in thousands of dollars):
Fiscal year ending:
1999 $ 37,243
2000 34,572
2001 31,129
2002 25,777
2003 21,477
2004 and thereafter 48,672
----------
$ 198,870
==========
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7. REDEEMABLE PREFERRED STOCK & STOCKHOLDERS' EQUITY
As a result of the Recapitalization, the authorized stock of Parent, as of
August 29, 1998, consists of:
(i) 30,000 shares of Series A Redeemable Preferred Stock, $.01 par value,
(the preferred stock) all of which were issued and outstanding. The
carrying value of the preferred stock is being accreted to its
redemption value of $30.0 million on May 11, 2008. The preferred
stock is non-voting and mandatorily redeemable on May 11, 2008.
Dividends at 12.0% are cumulative and if not paid on the June 30 or
December 31 semi-annual preferred stock dividend dates are added to
the liquidation value. The liquidation value per share as of August
29, 1998 was $1,036.558. The preferred stock may be exchanged for
12.0% Subordinated Exchange Debentures due 2008, at Parent?s option,
subject to certain conditions, in whole, but not in part, on any
scheduled dividend payment date. The preferred stock contains certain
restrictive provisions that limit the ability of Parent to pay cash
dividends.
(ii) 950,000 shares of Class A Common Stock, $.01 par value, (the Class A
Common Stock) of which 560,026 shares were issued and outstanding as
of August 29, 1998.
(iii) 20,000 shares of Class B Common Stock, $.01 par value, (the Class B
Common Stock) of which 20,000 shares were issued and outstanding as
of August 29, 1998. The Class B Common Stock votes together with the
Class A Common Stock as a single class, with the holder of each share
of common stock entitled to cast one vote. The holders of the Class B
Common Stock have the exclusive right, voting separately as a class,
to elect one member to the Board of Directors of Parent. Each share
of the Class B Common Stock is convertible at the option of the
holder, at any time, into one share of Class A Common Stock.
(iv) Warrants to purchase 42,180 shares of Class A Common Stock at a
purchase price of $.01 per share any time on or before May 11, 2008.
The Warrants were issued in connection with the sale of Series A
Redeemable Preferred Stock; the Company recognized a discount on the
preferred stock by allocating $5,645,000 to the Warrants representing
the fair value of the Warrants when issued.
8. BENEFIT PLAN
The Company sponsors a defined contribution plan (the "Plan") for
substantially all employees. Until January 1, 1998 eligible participants
could make contributions to the Plan from 1% to 20% of their compensation
(as defined). The Company also made contributions at the discretion of the
Board of Directors. Contribution expense attributable to this Plan was $0.0
million, $0.4 million, and $0.4 million for the 52 weeks ended August 29,
1998, August 30, 1997, and the 53 weeks ended August 31, 1996.
The Plan is currently under audit by the Internal Revenue Service ("IRS")
which has raised several issues concerning the Plan's operation. The
Company believes the Plan, as amended, operated pursuant to IRS and
Department of Labor regulations, but is no longer accepting contributions.
9. RELATED PARTY TRANSACTIONS
MANAGEMENT CONSULTING AGREEMENT - The Company had entered into an agreement
for management consulting services (the "Management Consulting Agreement")
with Vestar Management Partners ("Vestar") pursuant to which Vestar made
available to the Company
29
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management consulting, corporate finance and investment advice for which
the Company paid an annual fee of $500,000. The agreement was terminated on
May 11, 1998.
TRANSACTIONS WITH CERTAIN FORMER INVESTORS - In 1992, the Company entered
into a joint venture with Benesse Corp. ("Benesse"), formerly known as
Fukutake Publishing Company, Ltd. The Company agreed in principle to grant
to Benesse exclusive rights to develop and operate La Petite Academies in
Japan. This agreement expired in March 1998 and was not renewed. The
Company was reimbursed for all of its out-of-pocket expenses associated
with assisting Benesse with the pilot program. Benesse was a stockholder of
Investment and certain former directors of the Company were affiliates of
Benesse until May 11, 1998.
10. 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.
11. EXTRAORDINARY LOSS
On May 11, 1998, the Company incurred a $5.4 million extraordinary loss
related (i) to the retirement of all the outstanding $85.0 million
principal amount of 9 5/8% Senior Notes due on 2001, (ii) the exchange of
all outstanding shares of La Petite's Class A Preferred Stock for $34.7
million in aggregate principal amount of La Petite's 12 1/8% Subordinated
Exchange Debentures due 2003 and (iii) the retirement of all the then
outstanding exchange debentures. The loss principally reflects interest and
the write-off of premiums and related deferred financing costs, net of
applicable income tax benefit.
12. STOCK-BASED COMPENSATION
From time to time, the Board of Directors of Investment in their sole
discretion, granted non-qualified stock options, with respect to the common
stock of Investment, to key executives of the Company. Options were granted
pursuant to an agreement at the time of grant, and typically become
exercisable in equal cumulative installments over a five-year period
beginning one year after the date of grant. All such options granted expire
on the tenth anniversary of the grant date. No market existed for the
common stock of Investment, but options were granted at prices that, in the
opinion of the Board of Directors, were equal to or greater than the fair
value of the stock at the time of grant.
Effective May 11, 1998, the Board of Directors of LPA Holding Corp adopted
the "1998 Stock Option Plan" and a separate "Stock Option Agreement" with
the Chief Executive Officer (together the "Plans"). The Plans provide for
the granting of Tranche A and Tranche B options to purchase up to 60,074
shares of the Company's common stock. Options to purchase 52,057 shares of
the Company's common stock have been granted. Tranche A options were
granted at $66.92 per share, which approximates the fair value of a share
of common stock of the Company at the date of grant. These options expire
ten years from the date of grant and become exercisable ratably over 48
months. Tranche B options were granted at $133.83 per share, expire ten
years from the date of grant and are exercisable only in the event of a
change in control or a registered public offering of common stock which
provides certain minimum returns (as defined).
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Stock option transactions during the past three years have been as follows:
1998 PLANS
STOCK OPTIONS ISSUED PRIOR --------------------------------------------------------------
TO RECAPITALIZATION TRANCHE A TRANCHE B
------------------------------ --------------------------------------------------------------
WEIGHTED AVG. WEIGHTED AVG. WEIGHTED AVG.
OPTIONS OPTION PRICE OPTIONS OPTION PRICE OPTIONS OPTION PRICE
------------------------------ ------------------------------ ---------------------------
OPTIONS OUTSTANDING AT
AUGUST 26, 1995 42,294 $ 16.11
GRANTED 34,000 $ 18.00
------ -------
OPTIONS OUTSTANDING AT
AUGUST 31, 1996 76,294 $ 16.95
GRANTED 11,500 $ 35.00
CANCELED 15,500 $ 18.00
------ -------
OPTIONS OUTSTANDING AT
AUGUST 30, 1997 72,294 $ 19.60
GRANTED 38,852 $ 66.92 13,205 $ 133.83
EXERCISED 51,577 $ 19.76
------ ------- ------ ------- ------ --------
OPTIONS OUTSTANDING AT
AUGUST 29, 1998 20,717 $ 19.19 38,852 $ 66.92 13,205 $ 133.83
====== ======= ====== ======= ====== ========
The Company accounts for all options in accordance with APB Opinion No. 25,
which requires compensation cost to be recognized only on the excess, if
any, between the fair value of the stock at the date of grant and the
amount an employee must pay to acquire the stock. Under this method, no
compensation cost has been recognized for stock options granted.
Had compensation cost for these options been recognized as prescribed by
SFAS No. 123, the Company's income (loss) would have been reduced by (in
thousands) $17 in 1998, $19 in 1997 and $17 in 1996. The Company is
privately owned and there is no market for its stock. The estimated
compensation element is based on the time value of money at the U.S.
Treasury rates assuming that the value of the stock will be at least equal
to the grant price when fully exercisable. The estimated compensation
expense above is assumed to be amortized over the vesting period.
* * * * * * * * *
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and current position held by the
persons who are the directors and executive officers of the Company:
Name Age Position
- ---- --- --------
James R. Kahl................................ 57 Chairman of the Board, Chief Executive Officer, President and Director
Rebecca L. Perry............................. 44 Executive Vice President, Operations
David J. Anglewicz........................... 51 Senior Vice President, Facility Services
Phillip M. Kane.............................. 51 Senior Vice President, Finance and Chief Financial Officer
Mary Jean Wolf............................... 61 Senior Vice President, Organizational Services
Mitchell J. Blutt, M.D....................... 41 Director
Robert E. King............................... 62 Director
Stephen P. Murray............................ 35 Director
Brian J. Richmand............................ 44 Director
The business experience during the last five years and other information
relating to each executive officer and director of the Company is set forth
below.
James R. Kahl became Chairman of the Board in May 1998. Mr. Kahl has been a
Director of the Company since September 1993, the Chief Executive Officer of the
Company since July 1993 and President since May 1997. Mr. Kahl was an Executive
Vice President at Knott's Berry Farm from 1991 to February 1993. From 1988 to
1991, Mr. Kahl was the Senior Vice President, Operations of the Contract Food
and Services Division, Health Care and Education Group at the Marriott
Corporation in Washington, D.C. From 1982 to 1988, Mr. Kahl held various other
executive positions with the Marriott Corporation. Prior to joining the Marriott
Corporation, Mr. Kahl held various positions with Arthur Andersen & Co. between
1964 and 1982, including Partner and Managing Partner. He has an M.B.A. from the
University of Wisconsin and is a Certified Public Accountant.
Rebecca L. Perry has been Executive Vice President of Operations since May 1997.
From July 1993 to May 1997, Ms. Perry was a Senior Vice President and Eastern
Operating Officer. From 1988 to June 1993, she was Assistant Vice President of
Operations with supervisory responsibility for the operations of the Company in
14 southern and Midwestern states. From 1985 to 1988, she served as Divisional
Director of Florida and from 1981 to 1985, she served as Regional Director of
Tampa.
David J. Anglewicz has been Senior Vice President, Facility Services since March
1997. From July 1993 to March 1997, Mr. Anglewicz was Executive Vice
President-Property Development and Chief Administrative Officer. Mr. Anglewicz
has been involved in the development of over 500 of the Academies throughout the
United States since he joined the Company in 1985. Mr. Anglewicz has an M.B.A.
from the University of Illinois and a B.S. from the Lawrence Technological
University.
Phillip M. Kane has been Senior Vice President, Finance and Chief Financial
Officer since 1994. From 1989 to 1993, Mr. Kane was the Chief Financial Officer
of the U.S. Department of Housing and Urban Development. From 1974 to 1989, Mr.
Kane held various financial management positions with Knight-Ridder, including
Vice President and Controller. Prior to joining Knight-Ridder, Mr. Kane was
associated with Arthur Andersen & Co. Mr. Kane has a B.A. from the University of
Miami (Fla.) and is a Certified Public Accountant.
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Mary Jean Wolf has been Senior Vice President, Organizational Services since
August 1997. From September 1991 to August 1997, Ms. Wolf was an independent
consultant specializing in executive transition and other human resources
issues. From July 1987 to June 1991, she was a Senior Vice President and Chief
Human Resource Officer with Dime Savings Bank of New York, and from September
1978 to December 1985, she was Vice President of Personnel with Trans World
Airlines. Ms. Wolf has a B.S. from Drexel University and an M.B.A. from New York
University Graduate School of Business.
Mitchell J. Blutt, M.D. has been a Director of the Company since May 1998. Dr.
Blutt has been an Executive Partner of CCP since December 1992. From December
1988 to November 1992 he was a General Partner of CCP. Dr. Blutt has a B.A. and
a M.D. from the University of Pennsylvania and an M.B.A. from The Wharton School
of the University of Pennsylvania. He is a director of the Hanger Orthopedic
Group, UtiliMed, Vista Healthcare Asia, Pte., Ltd., Senior Psychology Services
Management, Medical Arts Press and Fisher Scientific International, Inc., among
others.
Robert E. King has been a Director of the Company since May 1998. Mr. King is
Chairman of Salt Creek Ventures, LLC, a company he founded in 1994. Salt Creek
Ventures, LLC is an organization specializing in equity investments in software,
computer services, transaction processing and other information-based companies.
Mr. King has been involved over the past 33 years as a corporate executive and
entrepreneur in technology-based companies. From 1983 to 1994, he was President
and Chief Executive Officer of The Newtrend Group. Mr. King has participated as
a founding investor in five companies. Mr. King has a B.A. from Northwestern
University. He serves on the Board of Directors of DeVry, Inc., American Floral
Services, Inc., COLLEGIS, Inc. and Premier Systems Integrators, Inc.
Stephen P. Murray became a Director of the Company in May 1998. Mr. Murray has
been a General Partner of CCP since June 1994. From November 1988 to June 1994,
Mr. Murray was a Principal at CCP. Prior thereto, he was a Vice President with
the Middle-Market Lending Division of Manufacturers Hanover. Mr. Murray has a
B.A. from Boston College and an M.B.A. from Columbia Business School. He is a
director of The Vitamin Shoppe, Home Products, Inc., Futurecall Telemarketing,
American Floral Services, The Cornerstone Group, Medical Arts Press and Regent
Lighting Corporation.
Brian J. Richmand became a Director of the Company in May 1998. Mr. Richmand has
been a General Partner of CCP since August 1993. From 1986 to August 1993, Mr.
Richmand was a partner with the law firm of Kirkland & Ellis. He has a B.S. from
The Wharton School of the University of Pennsylvania and a J.D. from Stanford
Law School. Mr. Richmand is a director of Transtar Metals, L.L.C., Riverwood
International Corp., Qualitech Steel Corporation and Western Pork Production
Corporation.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The members of the Board of Directors do not receive compensation for their
service on the Board of Directors or any committee thereof but will be
reimbursed for their out-of-pocket expenses. The Company may, in the future,
have persons who are neither officers of the Company nor affiliated with CCP or
the Investor serve on its Board of Directors. Such persons may receive customary
compensation for services on the Board of Directors of the Company.
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ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning compensation
earned for the 52 weeks ended August 29, 1998 ("1998"), August 30, 1997
("1997"), and the 53 weeks ended August 31, 1996 ("1996") on behalf of the
Company's Chief Executive Officer and the other most highly compensated
executive officers whose salary and bonus exceeded $100,000 for the fiscal year:
SUMMARY COMPENSATION TABLE
COMPENSATION FOR THE PERIOD (1)
ANNUAL LONG-TERM ALL OTHER
COMPENSATION COMPENSATION COMPENSATION
------------ ------------ ------------
NUMBER OF
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTION/SAR AWARDS
James R. Kahl, 1998 $ 297,500 $ 143,000 21,780 $ 400,000(1)
Chief Executive Officer & President 1,152,556(2)
1997 280,000 125,000
1996 265,000 142,500 10,000
Rebecca L. Perry, 1998 172,500 33,000 5,100 150,000(1)
Executive Vice President, Operations 1997 130,000 60,000 1,000
1996 110,000 40,900 5,000
David J. Anglewicz, 1998 150,000 26,000 1,575 75,000(1)
Senior Vice President, 1997 150,000 15,000
Facility Services 1996 142,000 35,000
Phillip M. Kane, 1998 170,000 31,000 5,100 150,000(1)
Senior Vice President, Finance and 1997 160,000 28,000 1,000
Chief Financial Officer 1996 150,000 41,400 5,000
Mary Jean Wolf 1998 150,000 28,000 3,750 10,000(1)
Senior Vice President, 1997 8,654(3)
Organization Services
(1) Represents Recapitalization bonuses paid to certain members of management by
selling shareholders out of sales proceeds. Perquisites and other personal
benefits for the fiscal years 1998, 1997 and 1996 paid to the named officers
did not, as to any of them, exceed the lesser of $50,000 or 10 percent of
the sum of their respective salary and bonus.
(2) Represents reimbursement for tax consequences on the exercise and sale of
stock option in accordance with Mr. Kahl's employment contract.
(3) 1997 compensation covers 3 weeks from August 11, 1997 through August 30,
1997.
34
35
The following tables present information relating to grants to executive
officers of options to purchase common stock of Company:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY END (#) AT FY END (5)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE
---- --------------- -------- ------------- -------------
James R. Kahl, N/A (1) $3,137,000 10,295 / 0 (2) $433,300 / 0
CEO & President 1,127 / 16,898 (3) 0 / 0
0 / 3,755 (4) 0 / 0
Rebecca L. Perry, N/A (1) 678,000 0 / 0 (2) 0 / 0
EVP, Operations 225 / 3,375 (3) 0 / 0
0 / 1,500 (4) 0 / 0
David J. Anglewicz, 70 / 1,055 (3) 0 / 0
SVP, Facility Services 0 / 450 (4) 0 / 0
Phillip M. Kane, N/A (1) 868,100 4,959 / 0 (2) 208,300 / 0
SVP, Finance & CFO 225 / 3,375 (3) 0 / 0
0 / 1,500 (4) 0 / 0
Mary Jean Wolf 141 / 2,109 (3) 0 / 0
SVP, Org. Services 0 / 1,500 (4) 0 / 0
(1) Pursuant to the Recapitalization, certain key executives simultaneously
exercised options at various prices and sold the related shares at $133.83
per share (the transaction price).
(2) Also pursuant to the Recapitalization, those options not exercised were
retained by the key executives. All of these options became fully
exercisable as a result of the Recapitalization.
(3) Effective May 18, 1998 the Board of Directors granted to certain key
executives Tranche A options at $66.92 per share, an amount which
approximates the fair value of a share of common stock of the Company at the
date of the grant. These options become exercisable ratably over forty-eight
months and expire ten years from the date of grant.
(4) Effective May 18, 1998 the Board of Directors granted to certain key
executives Tranche B options at $133.83 per share. These options are
exercisable only in the event of a change in control or a registered public
offering of common stock, which provides certain minimum returns (as
defined) over the transaction price.
(5) The equity of the Company is not traded and there is no market for pricing
the value of the options. "In the Money" calculations are based on the
enterprise value from the May 11, 1998 Recapitalization adjusted for the new
debt, preferred stock, common shares issued and retired, warrants and
options and an adjustment for a control premium related to the
Recapitalization.
35
36
OPTIONS/SAR GRANTS
NUMBER OF POTENTIAL REALIZABLE
SECURITIES % OF TOTAL VALUE (3) AT ASSUMED ANNUAL
UNDERLYING OPTIONS/SAR'S EXERCISE OR RATES OF STOCK PRICE
OPTIONS/SAR'S GRANTED TO BASE PRICE EXPIRATION APPRECIATION FOR OPTION TERM
NAME GRANTED EMPLOYEES ($/SHARE) DATE 5%($) 10% ($)
---- ------------- ------------- ----------- ---------- -----------------------------
FISCAL YEAR 1998
James R. Kahl 18,025 (1) 46% $ 66.92 May 18, 2008 735,200 1,851,300
3,755 (2) 28% $133.83 May 18, 2008 134,400
Rebecca L. Perry 3,600 (1) 9% $ 66.92 May 18, 2008 146,800 369,800
1,500 (2) 11% $133.83 May 18, 2008 53,700
David J. Anglewicz 1,125 (1) 3% $ 66.92 May 18, 2008 45,900 115,500
450 (2) 3% $133.83 May 18, 2008 16,100
Phillip M. Kane 3,600 (1) 9% $ 66.92 May 18, 2008 146,800 369,800
1,500 (2) 11% $133.83 May 18, 2008 53,700
Mary Jean Wolf 2,250 (1) 6% $ 66.92 May 18, 2008 91,800 231,100
1,500 (2) 11% $133.83 May 18, 2008 53,700
(1) Tranche A options
(2) Tranche B options
(3) The potential realizable value of the options granted in fiscal year 1998
to each of these executive officers was calculated by multiplying those
options by the excess of (a) the assumed fair value of a share of common
stock at the end of the option's ten year term, based on a 5% or 10% annual
increase in value from the fair value at date of issue of $66.92 over (b)
the base price shown. This calculation does not take into account any taxes
or other expenses which might be owed. The assumed fair value at a 5%
assumed annual appreciation rate over the 10-year term is $107.71 and such
value at a 10% assumed annual appreciation rate over that term is $169.63.
The 5% and 10% appreciation rates are set forth in the Securities and
Exchange Commission rules and no representation is made that the common
stock will appreciate at these assumed rates or at all.
EMPLOYMENT CONTRACTS
The Company entered into employment agreements, each dated as of the date of the
closing of the Transactions (the 'Employment Agreements'), with James R. Kahl,
Rebecca L. Perry and Phillip M. Kane. The Employment Agreements provide for Mr.
Kahl, Ms. Perry and Mr. Kane to receive a base salary, subject to annual
performance adjustments, of $297,500, $172,500 and $170,000, respectively, plus
a bonus of up to 180%, 75% and 75%, respectively, of base salary. The terms of
the Employment Agreement are as follows: for Mr. Kahl, four years, for Ms.
Perry, one year and for Mr. Kane, one year, in each case subject to one year
automatic renewals. Each Employment Agreement also provides that the executive
is entitled to participate in the health and welfare benefit plans available to
the Company's other senior executives. The Employment Agreements provide for
severance in the case of a termination without 'cause' or a resignation with
'good reason' (each as defined in the applicable Employment Agreement) in an
amount equal to the base salary plus bonus for Mr. Kahl, and in an amount equal
to the base salary for Ms. Perry and Mr. Kane. If Mr. Kahl terminates his
employment with good reason after a change of control, Mr. Kahl would be
entitled to two years' base salary and bonus. The Employment Agreements also
contain customary non-disclosure, non-competition and non-solicitation
provisions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
36
37
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See pages 16 to 31 of this Annual Report on Form 10-K for financial
statements of LPA Holding Corp. as of August 29, 1998 and August 30,
1997 and for the 52 weeks ended August 29, 1998, and 52 weeks ended
August 30, 1997 and 53 weeks ended August 31, 1996.
(a) 2. Financial Statement Schedules
The following additional financial data should be read in conjunction
with the consolidated financial statements for the 52 weeks ended
August 29, 1998, and 52 weeks ended August 30, 1997 and 53 weeks ended
August 31, 1996. The condensed financial information of LPA Services,
Inc. is not presented do to its immateriality. Other schedules not
included with these additional financial statement schedules have been
omitted because they are not applicable or the required information is
contained in the consolidated financial statements or notes thereto.
SCHEDULES
Schedule I - Condensed Financial Statements of Registrants
Schedule II - Valuation and Qualifying Accounts
(a) 3. Exhibits
EXHIBIT
NUMBER DESCRIPTION
3.1* Amended and Restated Certificate of Incorporation of LPA
Holding Corp.
3.2* Certificate of Designations, Preferences and Rights of Series
A Redeemable Preferred Stock of LPA Holding Corp.
3.3* Bylaws of LPA Holding Corp.
3.4* Amended and Restated Certificate of Incorporation of La Petite
Academy, Inc.
3.5* Bylaws of La Petite Academy, Inc.
4.1* Indenture among LPA Holding Corp., La Petite Academy, Inc.,
LPA Services, Inc. and PNC Bank, National Association dated as
of May 11, 1998
10.1* Purchase Agreement among Vestar/LPA Investment Corp., La
Petite Academy, Inc., LPA Services, Inc., Chase Securities
Inc. and NationsBanc Montgomery Securities LLC dated May 6,
1998
10.2* Exchange and Registration Rights Agreement among La Petite
Academy, Inc., LPA Holding Corp., LPA Services, Inc., Chases
Securities Inc., NationsBanc Montgomery Securities LLC dated
May 11, 1998
10.3* Merger Agreement by and between LPA Investment LLC and
Vestar/LPA Investment Corp. dated as of March 17, 1998
10.5* Stockholders Agreement among LPA Holding Corp., Vestar/LPT
Limited Partnership, LPA Investment LLC and the management
stockholders dated as of May 11, 1998
10.6* 1998 Stock Option Plan and Stock Option Agreement for LPA
Holding Corp. dated as of May 18, 1998
10.7* Preferred Stock Registration Rights Agreement between LPA
Holding Corp. and LPA Investment LLC dated May 11, 1998
37
38
EXHIBIT
NUMBER DESCRIPTION
10.8* Registration Rights Agreement among LPA Holding Corp.,
Vestar/LPT Limited Partnership, the stockholders listed
therein and LPA Investment LLC, dated May 11, 1998
10.9* Employment Agreement among LPA Holding Corp., La Petite
Academy, Inc. and James R. Kahl
10.10* Employment Agreement among LPA Holding Corp., La Petite
Academy, Inc. and Rebecca Perry
10.11* Employment Agreement among LPA Holding Corp., La Petite
Academy, Inc. and Phillip Kane
10.12* Credit Agreement dated as of May 11, 1998 among La Petite
Academy, Inc., LPA Holding Corp., Nationsbank, N.A., and The
Chase Manhattan Bank
10.13* Pledge Agreement among La Petite Academy, Inc., LPA Holding
Corp., Subsidiary Pledgors and Nationsbank, N.A. dated as of
May 11, 1998
10.14* Security Agreement among La Petite Academy, Inc., LPA Holding
Corp., Subsidiary Guarantors and Nationsbank, N.A. dated as of
May 11, 1998
10.15* Parent Guarantee Agreement among LPA Holding Corp. and
Nationsbank, N.A. dated as of May 11, 1998
10.16* Subsidiary Guarantee Agreement among Subsidiary Guarantor of
La Petite Academy, Inc., LPA Services, Inc. and Nationsbank,
N.A. dated as of May 11, 1998
10.17* Indemnity, Subrogation and Contribution Agreement among La
Petite Academy, Inc., LPA Services, Inc., as Guarantor and
Nationsbank, N.A. dated as of May 11, 1998
10.18 James Kahl option agreement
10.19 1998 Stock Option Plan
12.1* Statement regarding computation of ratios
21.1* Subsidiaries of Registrant
23.2* Consent of Deloitte & Touche LLP
24.1* Powers of Attorney (included on the signature page)
27.1 Financial Data Schedule
* Incorporated by reference to the Exhibits to La Petite
Academy, Inc.'s Registration Statement on Form S-4,
Registration No. 333-56239, filed with the Securities and
Exchange Commission on June 5, 1998.
(b) Reports on Form 8-K
Current Report on Form 8-K filed on July 10, 1997 reporting the merger
on June 1, 1997 of La Petite Holdings Corp. with and into La Petite
Academy, Inc.
38
39
LPA HOLDING CORP.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
AUGUST 29, AUGUST 30,
BALANCE SHEETS 1998 1997
ASSETS:
Investment in La Petite Academy, Inc. $ (9,862) $ 3,466
-------- -------
$ (9,862) $ 3,466
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Payable to La Petite Academy, Inc. 70,214 92
-------- -------
Total current liabilities 70,214 92
Series A 12% redeemable preferred stock ($.01 par value per share);
30,000 shares authorized, issued and outstanding at aggregate liquidation
preference as of August 29, 1998 (per share liquidation preference of
$1,036.558) 25,625
Stockholders' equity:
10% cumulative convertible preferred stock (S.01 par value per share); 80,000
shares authorized, issued and outstanding as of August 30, 1997, and no shares
authorized, issued or outstanding as of August 29, 1998 1
10% nonconvertible preferred stock ($.01 par value per share); 150,000 shares
authorized as of August 30, 1997, and no shares authorized as of August 29,
1998; 40,036 shares issued and outstanding as of August 30, 1997, and no
shares issued or outstanding as of August 29, 1998
Junior preferred stock ($.01 par value per share); 650,000 authorized as of
August 30, 1997, and no shares authorized as of August 29, 1998; 213,750
shares issued and outstanding as of August 30, 1997, and no shares issued or
outstanding as of August 29, 1998 2
Class A common stock ($.01 par value per share); 1,500,000 shares authorized
and 852,160 shares issued and outstanding as of August 30, 1997; and 950,000
shares authorized and 560,026 shares issued and outstanding as of August 29,
1998 6 9
Class B common stock (S.01 par value per share); 350,000 shares authorized and
none issued and outstanding as of August 30, 1997; 20,000 shares authorized,
issued and outstanding as of August 29, 1998
Common stock warrants 5,645
Additional paid-in capital 34,234
Accumulated deficit (111,352) (30,573)
Less cost of treasury shares (299)
--------- --------
(105,701) 3,374
--------- --------
$ (9,862) $ 3,466
========= ========
See notes to consolidated financial statements included
in Part II of the Annual Report on Form 10-K.
39
40
LPA HOLDING CORP.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
STATEMENTS OF OPERATIONS AUGUST 29, 1998 AUGUST 30, 1997 AUGUST 31, 1996
Minority interest in net income of subsidiary $ 2,849 $ 3,693 $ 3,561
-------- -------- --------
Loss before equity in net incline of subsidiary (2,849) (3,693) (3,561)
Equity in net income (loss) of La Petite Academy, Inc (10,479) 2,476 (810)
-------- -------- --------
Net loss $(13,328) $ (1,217) $ (4,371)
======== ======== ========
See notes to consolidated financial statements included
in Part II of the Annual Report on Form 10-K
40
41
LPA HOLDING CORP.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(IN THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
AUGUST 29, AUGUST 30, AUGUST 31,
STATEMENTS OF CASH FLOWS 1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,328) $ (1,217) $ (4,371)
Adjustments to reconcile net loss to net cash from operating
activities:
Minority interest in net income of La Petite Academy, Inc. 2,849 3,693 3,561
Equity in net income (loss) of La Petite Academy, Inc 10,479 (2,476) 810
-------- -------- --------
Net cash from operating activities $ 0 $ 0 $ 0
======== ======== ========
See notes to consolidated financial statements included
in Part II of the Annual Report on Form 10-K
41
42
LPA HOLDING CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
BALANCE AT CHARGED TO BALANCE AT
AUGUST 30, COSTS AND AUGUST 29,
DESCRIPTION 1997 EXPENSES WRITE-OFFS 1998
Allowance for doubtful accounts $ 83 $ 1,717 $ 1,604 $ 196
----- ------- ------- -----
BALANCE AT CHARGED TO BALANCE AT
AUGUST 31, COSTS AND AUGUST 30,
DESCRIPTION 1996 EXPENSES WRITE-OFFS 1997
Allowance for doubtful accounts $ 82 $ 1,475 $ 1,474 $ 83
----- ------- ------- -----
BALANCE AT CHARGED TO BALANCE AT
AUGUST 26, COSTS AND AUGUST 31,
DESCRIPTION 1995 EXPENSES WRITE-OFFS 1996
Allowance for doubtful accounts (a) $ 722 $ 1,109 $ 1,749 $ 82
----- ------- ------- -----
(a) During the fourth quarter of fiscal 1996, the company performed an audit of
its third party receivable balances and wrote off substantially all of its
uncollectible accounts. In addition, the Company implemented new procedures
and controls to ensure write-offs are recorded on a timely basis.
(continued)
42
43
LPA HOLDING CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
RESERVE FOR CLOSED ACADEMIES
BALANCE AT CHARGED TO BALANCE AT
AUGUST 30, COSTS AND CHARGED TO AUGUST 29,
DESCRIPTION 1997 EXPENSES RESERVE 1998
Reserve for Closed Academies $ 7,469 $ $ 2,052 $ 5,417
-------- ------- ------- -------
BALANCE AT CHARGED TO BALANCE AT
AUGUST 31, COSTS AND CHARGED TO AUGUST 30,
DESCRIPTION 1996 EXPENSES RESERVE 1997
Reserve for Closed Academies $ 10,893 $ $ 3,424 $ 7,469
-------- ------- ------- -------
BALANCE AT CHARGED TO BALANCE AT
AUGUST 26, COSTS AND CHARGED TO AUGUST 31,
DESCRIPTION 1995 EXPENSES RESERVE 1996
Reserve for Closed Academies $ 13,711 $ $ 2,818 $10,893
-------- ------- ------- -------
(concluded)
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44
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on November 24, 1998.
LPA Holding Corp.
/s/ James R. Kahl
----------------------------------------
By: James R. Kahl
Chairman of the Board, Chief Executive
Officer, President and Director and
duly Authorized representative of the
registrant
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed by the following persons on
behalf of the registrant and in the capabilities indicated on November 24, 1998.
/s/ James R. Kahl /s/ Stephen P. Murray
- ----------------------------------------- --------------------------------
By: James R. Kahl By: Stephen P. Murray
Chairman of the Board, Chief Executive Director
Officer, President and Director
/s/ Mitchell J. Blutt, M.D. /s/ Brian J. Richmand
- ----------------------------------------- --------------------------------
By: Mitchell J. Blutt, M.D. By: Brian J. Richmand
Director Director
/s/ Robert E. King
- -----------------------------------------
By: Robert E. King
Director
44
45
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on November 24, 1998.
La Petite Academy, Inc.
/s/ Phillip M. Kane
---------------------------------------
By: Phillip M. Kane
Senior Vice President, Chief Financial
Officer and duly authorized
representative of the registrant
45
46
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on November 24, 1998.
LPA Services, Inc.
/s/ Phillip M. Kane
---------------------------------------
By: Phillip M. Kane
Vice President of Finance, Chief
Financial Officer and duly authorized
representative of the registrant
46