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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 33-61232
LA PETITE ACADEMY, INC.
Formerly known as LaPetite Holdings Corp.
(Exact name of registrant as specified in its charter)
Delaware 43-1243221
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
8717 WEST 110TH STREET, SUITE 300
OVERLAND PARK, KANSAS 66210
(Address of principal executive office and zip code)
(913) 345-1250
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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 25, 1997, La Petite Academy, Inc. had 100 shares of common stock
outstanding.
2
LA PETITE ACADEMY, INC.
INDEX
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PAGE
PART I.
Item 1. Business 2
Item 2. Properties 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of
Security Holders 5
PART II.
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 29
PART III.
Item 10. Directors and Executive Officers of the Registrant 30
Item 11. Executive Compensation 35
Item 12. Security Ownership of Certain Beneficial
Owners and Management 37
Item 13. Certain Relationships and Related Transactions 37
PART IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 38
SIGNATURES 45
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PART I.
ITEM 1. BUSINESS
MERGER TRANSACTION
LaPetite Holdings Corp. ("Holdings") was formed in 1993 as a Delaware
corporation for the purpose of holding the capital stock of LaPetite
Acquisition Corp. On July 23, 1993, Holdings acquired all of the outstanding
shares of common stock, par value $.01 (the "Common Stock"), of LaPetite
Academy, Inc. ("Academy") for a total price of $104 million, net of transaction
costs, the intercompany note and assumed liabilities of $59 million. The
transaction was accounted for as a purchase and the excess of purchase price
over the net assets acquired of $67 million is being amortized over 30 years.
On June 1, 1997, Holdings was merged with and into its wholly-owned subsidiary
Academy, a Delaware corporation, pursuant to the Agreement and Plan of Merger
dated as of May 22, 1997 by and between Holdings and Academy, with Academy as
the surviving corporation. Academy is referred to herein as "the Company" or
"La Petite".
BUSINESS DESCRIPTION
The following discussion refers to La Petite, and includes a discussion of La
Petite prior to the 1993 acquisition.
La Petite is the second largest provider of for-profit preschool education and
child care in the United States based on the number of Academies it operates.
The first La Petite Academy was opened in Illinois in 1969, and, since the
latter half of the 1970's, La Petite has significantly expanded the number of
Academies it operates and the diversity of the markets it serves. During 1997,
the Company estimates that an average of 86,700 children attended 745 La Petite
Academy schools located in 35 states and the District of Columbia, primarily in
the southern, Atlantic coast, midwestern and western regions of the United
States. The Academies offer educational, developmental and child care
programs, which are available on a full-time or part-time basis, for children
between six weeks and 12 years old.
The Academies operate year round, five days per week, generally opening at 6:30
A.M. and remaining open until 6:30 P.M. A child may be enrolled in any of a
variety of program schedules from a full-time, five-day-per-week plan, to as
little as two or three half-days a week. A child attending full-time typically
spends approximately nine hours a day, five days per week, at an Academy.
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 of $40 per child, 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.
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EMPLOYEES
As of August 30, 1997, the Company employed approximately 14,200 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.
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
coverages provided by these policies are adequate to meet the Company's needs.
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.
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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.
On September 1, 1997, the Federal minimum wage increased from $4.75 to $5.15
per hour. Management does not expect this increase to materially impact the
Company's operations.
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.
ITEM 2. PROPERTIES
Approximately 500 Academies were constructed from 1978 through early 1987 and
are of a standard design and generally have a uniform exterior appearance. In
1987, the Company introduced a new design which emphasizes efficiency, lower
maintenance costs and enhanced appearance. 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. A 5,400 square foot Academy is typically
licensed for 100 to 150 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 225 children.
The following table shows the locations of the Company's open Academies as of
August 30, 1997:
Alabama (18) Indiana (17) Nebraska (10) South Carolina (25)
Arizona (24) Iowa (9) Nevada (9) Tennessee (27)
Arkansas (8) Kansas (22) New Jersey (2) Texas (119)
California (59) Kentucky (4) New Mexico (4) Utah (5)
Colorado (25) Louisiana (1) North Carolina (30) Virginia (36)
Delaware (1) Maryland (14) Ohio (17) Washington, D.C. (2)
Florida (99) Minnesota (1) Oklahoma (25) Washington (16)
Georgia (54) Mississippi (3) Oregon (4) Wisconsin (2)
Illinois (16) Missouri (30) Pennsylvania (6) Wyoming (1)
As of August 30, 1997, the Company operated 745 Academies, 676 of which were
leased under operating leases, 55 of which were owned and 14 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.
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6
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 676
Academies from approximately 400 investors.
The leases have initial terms expiring as follows:
YEARS INITIAL LEASE TERMS EXPIRE NUMBER OF
ACADEMIES
1998 54
1999 64
2000-2005 428
2006 and later 130
---------
676
=========
The Company has generally been successful when it has sought to renew expiring
Academy leases.
In fiscal year 1997, the Company opened 3 new Academies, two of which were
employer-based. Employer-based Academies are typically located on the property
of the employer/client, with the employer/client providing both the land and
building for the 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. The Company is wholly
owned by Investment.
No cash dividends were declared or paid on the Common Stock during fiscal year
1997 and 1996. 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.
-5-
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ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS OF DOLLARS)
LA PETITE ACADEMY, INC. (a)
(SUCCESSOR)
-----------------------------------------------------------------------------------
52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS FOR THE
ENDED ENDED ENDED ENDED PERIOD JULY 24
AUGUST 30, AUGUST 31, AUGUST 26, AUGUST 27, TO AUGUST 28,
1997 1996 1995 1994 1993
INCOME STATEMENT DATA
Operating revenue $ 302,766 $ 300,277 $ 279,806 $ 274,195 $ 24,763
Operating expenses:
Salaries, wages and 159,236 155,046 142,757 135,765 12,350
benefits
Facility lease payments 39,332 39,587 39,901 38,906 3,739
Depreciation 13,825 13,680 13,501 12,535 1,099
Restructuring charge (b) 11,700
Amortization of goodwill 2,236 2,774 3,712 3,492 431
and other intangibles
Other 74,111 78,310 75,981 72,190 6,018
Total operating expenses 288,740 289,397 287,552 262,888 23,637
Operating income (loss) 14,026 10,880 (7,746) 11,307 1,126
Interest expense (c) 9,245 10,256 11,110 12,665 1,119
Interest income (959) (903) (1,063) (825) (29)
Income (loss) before 2,476 9 (11,638) (1,175) (61)
extraordinary item
Extraordinary item - (819) (1,610)
gain (loss) on early
retirement of debt
Net income (loss) 2,476 (810) (11,638) (2,785) (61)
BALANCE SHEET DATA (AT
END OF PERIOD)
Total assets $ 171,252 $ 177,133 $ 195,604 $ 204,885 $216,000
Real estate mortgages
and related debt
Subordinated debt 659 1,590 1,555 1,521 23,787
Total debt 85,903 86,590 99,186 102,352 108,787
Redeemable preferred 32,521 28,827 25,266 22,442 19,990
stock
Common stockholders 3,466 4,683 9,054 23,516 28,753
equity
OTHER DATA
EBITDA (D) $ 30,087 $ 27,334 $ 21,167 $ 27,334 $ 2,656
Depreciation and 16,911 17,704 18,638 18,118 1,530
amortization (e)
Capital expenditures 7,691 8,570 9,101 8,496 1,755
Proceeds from sale of 452 2,525 6,145 3,399 370
assets
Academies at end of 745 751 786 787 788
period
Estimated revenue 69% 70% 64% 69% 67%
capacity utilization
during the period (f)
LA PETITE
ACADEMY, INC.
(PREDECESSOR)
-------------------------------------
FOR THE
PERIOD JANUARY 1
TO JULY 23, DECEMBER
1993 31, 1992
INCOME STATEMENT DATA
Operating revenue $ 150,254 $ 245,610
Operating expenses:
Salaries, wages and 74,173 120,803
benefits
Facility lease payments 21,573 35,538
Depreciation 5,484 9,177
Restructuring charge (b)
Amortization of goodwill
and other intangibles 81 88
Other 40,219 65,179
Total operating expenses 141,530 230,785
Operating income (loss) 8,724 14,825
Interest expense (c) 1,251 2,020
Interest income (551) (979)
Income (loss) before
extraordinary item 4,694 8,408
Extraordinary item -
gain (loss) on early
retirement of debt 705
Net income (loss) 4,694 9,113
BALANCE SHEET DATA (AT
END OF PERIOD)
Total assets N/A $ 143,616
Real estate mortgages
and related debt N/A 206
Subordinated debt N/A 33,900
Total debt N/A 34,106
Redeemable preferred
stock
Common stockholders
equity N/A 85,921
OTHER DATA
EBITDA (D) $ 14,289 $ 24,090
Depreciation and
amortization (e) 5,565 9,334
Capital expenditures 6,575 14,328
Proceeds from sale of
assets 10,929 15,439
Academies at end of
period 784 785
Estimated revenue
capacity utilization
during the period (f) 67% 65%
-6-
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N/A - Not applicable.
a) See Note 1 to the consolidated financial statements for a discussion of La
Petite.
b) 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 $11,700 restructuring charge ($7,000 after tax) to provide for
costs associated with the Academy closures and restructuring. The charge
included approximately $10,000 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.
c) Interest expense includes $850, $1,250 and $1,424 of amortization of
deferred financing costs and accretion of the discount on the Convertible
Debentures for fiscal years 1997, 1996 and 1995, respectively.
d) 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.
e) 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.
f) The Company calculates estimated revenue capacity utilization based on the
Company's utilization of total revenue capacity. Total revenue capacity is
defined as the aggregate of licensed capacity based on square feet of
space per child requirements for each Academy open during each week of the
applicable year multiplied by each Academy's respective preschool tuition
rate for a child attending the preschool program full-time.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Historically, the Company's operating revenue has followed the seasonality of
the school year. The number of new children attending the Academies is highest
in September-October and January-February, generally referred to as the fall
and winter enrollment periods. Enrollment and, therefore, revenues tend to
decline during the calendar year-end holiday period and during the Summer. As
a result of this seasonality, the Company concentrates it marketing efforts and
new Academy openings immediately preceding these highest enrollment periods.
The Company is continuing its expansion into new and existing markets on a
selective basis. The Company opened 3 new Academies during the 52 weeks ended
August 26, 1995, 11 new Academies during the 53 weeks ended August 31, 1996 and
3 new Academies during the 52 weeks ended August 30, 1997.
While most geographic regions of the Company's operation are profitable, there
are some individual Academy locations which are only marginally profitable or
are operating at a loss. These marginal locations are being monitored closely,
and certain facilities may be closed if improvements in profitability are not
made. During fiscal year 1997, nine under-performing Academies were closed.
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1997 COMPARED TO 1996 RESULTS (IN THOUSANDS OF DOLLARS)
52 WEEKS ENDED 52 WEEKS ENDED CHANGE
-------------------------- ------------------------- ----------------------
PERCENT PERCENT PERCENT
AUGUST 30, OF AUGUST 31, OF OF
1997 REVENUE 1996 REVENUE AMOUNT REVENUE
Operating revenue $ 302,766 100.0% $ 294,836 100.0% $ 7,930
Operating expenses:
Salaries, wages and
benefits 159,236 52.6 152,234 51.6 7,002 1.0%
Facility lease payments 39,332 13.0 38,858 13.2 474 (0.2)
Depreciation 13,825 4.6 13,680 4.7 145 (0.1)
Amortization of goodwill
and other intangibles 2,236 0.7 2,773 0.9 (537) (0.2)
Other 74,111 24.5 77,139 26.2 (3,028) (1.7)
--------- --------- --------- --------- --------- ---------
Total operating expenses 288,740 95.4 284,684 96.6 4,056 (1.2)
Operating income 14,026 4.6 10,152 3.4 3,874 1.2
Interest expense
(including $850 and
$1,250 of amortization
and accretion for 1997
and 1996, respectively) 9,245 3.0 10,126 3.4 (881) (0.4)
Interest income (959) (0.3) (884) (0.3) 75 0.0
--------- ------- --------- ------- -------- --------
Income before income
taxes and extraordinary
item 5,740 1.9 910 0.3 4,830 1.6
Provision for
income taxes 3,264 1.1 1,267 0.4 1,997 0.7
--------- --------- --------- --------- --------- ---------
Net income (loss) before
extraordinary item 2,476 0.8 (357) (0.1) 2,833 0.9
Extraordinary loss on
retirement of debt,
net of applicable
income taxes of $546 (819) (0.3) 819 0.3
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 2,476 0.8% $ (1,176) (0.4)% $ 3,652 1.2%
========= ========= ========= ========= ========= =========
EBITDA $ 30,087 9.9% $26,605 9.0% $ 3,482 0.9%
========= ========= ========= ========= ========= =========
The Company's fiscal year ends on the last Saturday in August. Operating
results for fiscal year 1996, as shown in the accompanying Consolidated
Statement of Income, 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 year 1996.
The following discussion of results is based on the 52 week comparison.
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Operating revenue increased 2.7% during the 52 weeks ended August 30, 1997.
Excluding closed Academies from both years, revenue increased 4.6%, attendance
grew 3.2% and average revenue per child increased 1.4%. The increase in
attendance during fiscal year 1997 over fiscal year 1996 was attributable to a
successful Fall enrollment period and retention of the children throughout the
year. The increase in the year-to-date average revenue per child was
principally due to selective increases in tuition rates which took place in the
second quarter offset somewhat by improvements in our Parent's Partner Plan
discount program.
The Company opened 3 new Academies and closed nine Academies during fiscal year
1997. As a result, the Company operated six fewer Academies at the end of
fiscal year 1997 than at the end of fiscal year 1996. Two of the closures were
under performing employer-based centers, one closure was an under-performing
residential Academy, and the remaining six closures were due to management
decisions not to renew the leases of certain under-performing Academies at
lease expiration.
Salaries, wages, and benefits increased 1.0% as a percent of revenue during the
52 weeks ended August 30, 1997 to 52.6%. The increase in labor cost as a
percent of revenue was principally due to staff merit increases effective
January 1, 1996, and increased health care benefit costs, which together
exceeded the percentage increase in tuition revenue.
Facility lease payments declined as a percent of revenue by 0.2% during the 52
weeks ended August 30, 1997. This decrease was primarily due to the 1996
fiscal year closing of 46 Academies which took place at various times during
the year.
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 year 1996.
Other operating expenses declined as a percent of revenue by 1.7% to 24.5% for
fiscal year 1997. The reduction was primarily due to decreases in insurance,
auto, food, and Academy supply costs.
Interest expense for the 52 weeks ended August 30, 1997 was down $0.9 million
or 8.7% from the prior year, due to prepayment of the term loan in May 1996. A
new $15 million credit facility (see Note 3 to the Consolidated Financial
Statements) was established in July 1996. No draws were made on the new credit
facility during the 1996 or 1997 fiscal years. During fiscal year 1997, the
Company issued $5.7 million in letters of credit (see Note 3 to the
Consolidated Financial Statements) as security for the self-insurance portion
of workers' compensation and auto liability insurance coverages.
The effective income tax rate, after adjusting for nondeductible goodwill
amortization, was 40% for both years. State income taxes accounted for the
other difference between the effective and statutory Federal rate.
As a result of the foregoing, operating income was $14.0 million for the 52
weeks ended August 30, 1997, up $3.9 million or 38.2% from the prior year.
Earnings before extraordinary items, interest, taxes, depreciation, and
amortization (EBITDA) were $30.1 million for the 52 weeks ended August 30, 1997
as compared to $26.6 million for the prior year.
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1996 COMPARED TO 1995 ACTUAL RESULTS (IN THOUSANDS OF DOLLARS)
52 WEEKS ENDED 52 WEEKS ENDED CHANGE
-------------------------- -------------------------- ------------------------
PERCENT PERCENT PERCENT
AUGUST 31, OF AUGUST 26, OF OF
1996 REVENUE 1995 REVENUE AMOUNT REVENUE
Operating revenue $ 294,836 100% $ 279,806 100.0% $ 15,030
Operating expenses:
Salaries, wages and benefits 152,234 51.6 142,757 51.0 9,477 0.6%
Facility lease payments 38,858 13.2 39,901 14.3 (1,043) (1.1)
Depreciation 13,680 4.7 13,501 4.8 179 (0.1)
Restructuring charge 11,700 4.2 (11,700) (4.2)
Amortization of goodwill
and other intangibles 2,773 0.9 3,712 1.3 (939) (0.4)
Other 77,139 26.2 75,981 27.2 1,158 (1.0)
--------- ----- --------- ----- ------- -----
Total operating expenses 284,684 96.6 287,552 102.8 (2,868) (6.2)
Operating income (loss) 10,152 3.4 (7,746) (2.8) 17,898 6.2
Interest expense
(including $1,250 and
$1,424 of amortization
and accretion for 1996
and 1995, respectively) 10,126 3.4 11,110 4.0 (984) (0.6)
Interest income (884) (0.3) (1,063) (0.4) (179) 0.1
--------- ----- --------- ----- ------- -----
Income (loss) before income
taxes and extraordinary
item 910 0.3 (17,793) (6.4) 18,703 6.7
Provision (benefit) for
income taxes 1,267 0.4 (6,155) (2.2) 7,422 2.6
--------- ----- --------- ----- ------- -----
Net income (loss) before
extraordinary item (357) (0.1) (11,638) (4.2) 11,281 4.1
Extraordinary loss on
retirement of debt,
net of applicable
income taxes of $546 (819) (0.3) (819) (0.3)
--------- ----- --------- ----- ------- -----
Net loss $ (1,176) (0.4)% $ (11,638) (4.2)% $ 10,462 3.8%
========= ==== ========== ===== ======== ====
EBITDA $ 26,605 9.0% $ 21,167 7.6% $ 5,438 1.4%
========= ==== ========== ===== ======== ====
The Company's fiscal year ends on the last Saturday in August. Operating
results for fiscal year 1996, as shown in the accompanying Consolidated
Statements of Income, 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 year 1996.
The following discussion of results is based on the 52 week comparison.
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13
Operating revenue increased 5.4% during the 52 weeks ended August 31, 1996.
Excluding closed Academies from both years, revenue increased 6.6%, attendance
grew 5.4% over the prior year, while average revenue per child grew by 1.2%.
The increase in attendance during fiscal year 1996 over fiscal year 1995 was
attributable to: (i) a successful Fall enrollment period and retention of the
children throughout the year, (ii) receipt of a grant in the State of Georgia
to provide pre-kindergarten education to approximately 2,000 children, and
(iii) increased management focus on enrollment and attendance. The increase in
the year-to-date average revenue per child was due to selective and limited
price increases in February 1995 offset somewhat by increased promotional
discounts.
The Company opened 11 new Academies and closed 46 Academies during fiscal year
1996. As a result, the Company operated 35 fewer Academies at the end of fiscal
year 1996 than at the end of fiscal year 1995. Thirty-three of the Academy
closures were part of a plan announced by the Company at the end of fiscal year
1995 to close 39 under-performing Academies located in areas where the
demographics no longer supported an economically viable operation. The
remaining 13 closures were principally due to management decisions not to renew
the leases of certain Academies at lease expiration.
Salaries, wages, and benefits increased 0.6% as a percent of revenue during the
52 weeks ended August 31, 1996 to 51.6%. The increase in labor cost as a
percent of revenue was principally due to staff merit increases effective
January 1, 1996, higher field level bonuses due to increased operating income
performance at many Academies and additional support staff.
Facility lease payments and depreciation expense declined as a percent of
revenue by 1.1% and 0.2%, respectively, during the 52 weeks ended August 31,
1996. Both decreases were primarily attributable to the closing of 46
Academies.
Amortization of goodwill and other intangibles decreased 25.3% during the 52
weeks ended August 31, 1996, as the intangible asset for an in-place workforce
became fully amortized in January 1996.
Other operating expenses declined as a percent of revenue by 1.0% to 26.2% for
fiscal year 1996. The reduction was primarily due to decreases in insurance and
repairs and maintenance costs.
Interest expense for the 52 weeks ended August 31, 1996 was down $1.0 million
or 8.9% from the prior year, due to prepayment of the term loan in May 1996. A
new $15 million credit facility was established in July 1996. No draws were
made on the new credit facility during the fiscal year.
The effective income tax rate, after adjusting for nondeductible goodwill
amortization, was 40% for both the 52 weeks ended August 31, 1996 and August
26, 1995. State income taxes accounted for the other difference between the
effective and statutory Federal rate.
On May 24, 1996, the Company retired the remaining balance under the term loan
facility of the Credit Agreement in the amount of $5.5 million. The Company
also terminated any remaining obligations on the term loan and closed the
facility. The transaction resulted in a $0.8 million extraordinary loss on
retirement of debt. The loss reflects the write off of related deferred
financing costs, net of applicable income tax benefit. The prepayment was
financed by available operating funds.
-12-
14
As a result of the foregoing, operating income was $10.2 million for the 52
weeks ended August 31, 1996, up $6.2 million from the prior year, excluding the
$11.7 million restructuring charge in 1995. Earnings before non-cash
restructuring charges, extraordinary items, interest, taxes, depreciation, and
amortization (EBITDA) were $26.6 million for the 52 weeks ended August 31, 1996
as compared to $21.2 million for the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to meet its debt and redeemable preferred stock
obligations is dependent on its 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
and certain other restricted payments. As of August 30, 1997, the Company is
not permitted to pay cash dividends on its common or preferred stock.
In opening a new Academy, the Company has historically acquired the land,
constructed the facility, and then sought long-term financing for the Academy
through a sale (at cost) and operating leaseback transaction. The Company
currently leases 676 Academies from approximately 400 investors. The Company
continues to be able to obtain financing through this technique and properties
of the Company continue to be in demand by investors. Management may utilize
sale and leaseback transactions, cash flow from operations and/or conventional
mortgage financing as the sources of financing capital expenditures.
On July 10, 1996, the Company entered into a Credit Facility (the "Credit
Facility") (see Note 3 to the Consolidated Financial Statements) providing for
a $15 million revolving credit facility for working capital and other general
corporate purposes through July 2000. Borrowings under the Credit Facility
will be secured by a pledge of substantially all the assets of the Company.
Loans under the Credit Facility will bear interest at 1% above prime rate or
2.25% above the Eurodollar rate, at the Company's option. The Company is
required to pay quarterly commitment fees of 0.5% per annum on the unused
revolving credit facility. No borrowings have been made under the Credit
Facility.
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. Management does not expect this increase to 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.
OTHER INFORMATION
None.
-13-
15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of August 30, 1997 and August 31, 1996
Consolidated Statements of Income for the 52 weeks ended August 30, 1997, 53
weeks ended August 31, 1996 and 52 weeks ended August 26, 1995.
Consolidated Statements of Stockholder's Equity for the 52 week ended August
30, 1997, 53 weeks ended August 31, 1996 and 52 weeks ended August 26, 1995.
Consolidated Statements of Cash Flows for the 52 weeks ended August 30,
1997, 53 weeks ended August 31, 1996 and 52 weeks ended August 26, 1995.
Notes to Consolidated Financial Statements
-14-
16
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
of La Petite Academy, Inc.:
We have audited the accompanying consolidated balance sheets of La Petite
Academy, Inc. and its subsidiary as of August 30, 1997 and August 31, 1996 and
the related consolidated statements of income, stockholder's equity and cash
flows for the 52 weeks ended August 30, 1997, 53 weeks ended August 31, 1996
and 52 weeks ended August 26, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements 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 La Petite Academy, Inc. and its
subsidiary as of August 30, 1997 and August 31, 1996 and the results of their
operations and their cash flows for the 52 weeks ended August 30, 1997, 53
weeks ended August 31, 1996 and 52 weeks ended August 26, 1995 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
October 3, 1997
-15-
17
This page intentionally blank.
-16-
18
LA PETITE ACADEMY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
====================================================================================================
AUGUST 30, 1997 AUGUST 31, 1996
ASSETS
Current assets:
Cash and cash equivalents $ 23,971 $ 12,791
Restricted cash investments (Note 1) 2,312 9,227
Accounts and notes receivable, net 5,068 3,615
Prepaid food and supplies 5,954 6,409
Other prepaid expenses 3,645 2,210
Refundable income taxes (Note 5) 559 1,405
Current deferred income taxes (Note 5) 1,024 1,719
----------- ----------
Total current assets 42,533 37,376
Property and equipment, at cost:
Land 6,927 6,867
Buildings and leasehold improvements 64,811 60,995
Equipment 22,529 24,078
Facilities under construction 317 377
----------- ----------
94,584 92,317
Less accumulated depreciation and amortization 33,460 24,497
----------- ----------
Net property and equipment 61,124 67,820
Other assets (Note 2) 64,187 69,001
Deferred income taxes (Note 5) 3,408 2,936
----------- -----------
$ 171,252 $ 177,133
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Amounts due to banks, including overdrafts $ 2,356 $ 5,229
Accounts payable 6,224 3,109
Current reserve for closed academies (Note 11) 1,860 2,700
Accrued salaries, wages and other payroll costs 10,717 10,317
Accrued insurance liabilities 4,156 4,361
Accrued property and sales taxes 4,128 4,254
Accrued interest payable 719 739
Other accrued liabilities 4,883 6,575
----------- ----------
Total current liabilities 35,043 37,284
Long-term debt (Note 3) 85,903 86,590
Other long-term liabilities (Notes 4 and 11) 14,319 19,749
Redeemable preferred stock ($.01 par value per share;
2,000,000 shares authorized; 800,000 issued and outstanding
at aggregate iquidation preference) (note 7) 32,521 28,827
Stockholder's equity:
Common stock ($.01 par value per share; 1,000 shares
authorized; 100 shares issued and outstanding)
Additional paid-in capital 16,284 19,977
Accumulated deficit (12,818) (15,294)
----------- ----------
3,466 4,683
----------- ----------
$ 171,252 $ 177,133
=========== ==========
See notes to consolidated financial statements.
-17-
19
LA PETITE ACADEMY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
===============================================================================================================
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
AUGUST 30, 1997 AUGUST 31, 1996 AUGUST 26, 1995
Operating revenue $ 302,766 $ 300,277 $ 279,806
Operating expenses:
Salaries, wages and benefits 159,236 155,046 142,757
Facility lease payments 39,332 39,587 39,901
Depreciation 13,825 13,680 13,501
Restructuring charge (Note 11) 11,700
Amortization of goodwill and other
intangibles 2,236 2,774 3,712
Other 74,111 78,310 75,981
------------ ----------- ----------
288,740 289,397 287,552
------------ ----------- ----------
Operating income (loss) 14,026 10,880 (7,746)
------------ ----------- ----------
Interest expense 9,245 10,256 11,110
Interest income (959) (903) (1,063)
------------ ----------- ----------
Net interest costs 8,286 9,353 10,047
------------ ----------- ----------
Income (loss) before income taxes and
extraordinary item 5,740 1,527 (17,793)
Provision (benefit) for income taxes
(Note 5) 3,264 1,518 (6,155)
------------ ----------- ----------
Income (loss) before extraordinary
item 2,476 9 (11,638)
Extraordinary loss on retirement of
debt, net of applicable income
taxes of $546 (819)
------------ ----------- ----------
Net income (loss) $ 2,476 $ (810) $ (11,638)
============ =========== ==========
See notes to consolidated financial statements.
-18-
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LA PETITE ACADEMY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS OF DOLLARS)
=============================================================================================
COMMON STOCK
--------------------
NUMBER AMOUNT PAID-IN ACCUMULATED
OF SHARES CAPITAL DEFICIT
Balance, August 27, 1994 100 $ 26,362 $ (2,846)
Net loss (11,638)
Dividends on preferred stock (2,824)
------ -------- -------- ----------
Balance, August 26, 1995 100 23,538 (14,484)
Net loss (810)
Dividends on preferred stock (3,561)
------ -------- -------- ----------
Balance, August 31, 1996 100 19,977 (15,294)
Net income 2,476
Dividends on preferred stock (3,693)
------ -------- -------- ----------
Balance, August 30, 1997 100 $ 16,284 $ (12,818)
====== ======== ======== ==========
See notes to consolidated financial statements
-19-
21
LA PETITE ACADEMY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
====================================================================================================================================
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
AUGUST 30, AUGUST 31, AUGUST 26,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,476 $ (810) $ (11,638)
Adjustments to reconcile net income
(loss) to net cash from operating activities:
Noncash portion of extraordinary loss on retirement of debt 1,365
Restructuring charge 11,700
Depreciation and amortization 16,911 17,704 18,638
Deferred income taxes 223 225 (7,225)
Changes in assets and liabilities:
Accounts and notes receivable (1,402) (72) (951)
Prepaid expenses and supplies (980) 253 2,955
Accrued property and sales taxes (125) (699) (94)
Accrued interest payable (20) 81 (261)
Other changes in assets and liabilities, net (2,197) (2,839) 4,016
--------- --------- ---------
Net cash from operating activities 14,886 15,208 17,140
--------- --------- ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures (7,691) (8,570) (9,101)
Proceeds from sale of assets 452 2,525 6,145
--------- --------- ---------
Net cash used for investing activities (7,239) (6,045) (2,956)
--------- --------- ---------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Repayment of long-term debt (900) (12,631) (3,200)
Deferred financing costs (225)
(Decrease) increase in amounts due to banks, including overdrafts (2,873) 1,126 (5,510)
Decrease (increase) in restricted cash investments 6,915 (941) (638)
Proceeds from capital lease 391
--------- --------- ---------
Net cash from (used for) financing activities 3,533 (12,671) (9,348)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,180 (3,508) 4,836
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,791 16,299 11,463
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,971 $ 12,791 $ 16,299
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 8,415 $ 8,926 $ 9,948
Income taxes 5,470 1,031 1,636
Cash received during the period for:
Interest 848 903 1,031
Income taxes 1,154 650 805
See notes to consolidated financial statements.
-20-
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LA PETITE ACADEMY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
La Petite Holdings Corp. ("Holdings"), a privately-held Delaware
corporation, 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. ("La Petite").
In order to finance the transactions, Holdings (a) sold (i) common stock of
Holdings to Vestar/LPA Investment Corp. ("Investment"), a Delaware
corporation, for approximately $30,000,000 (ii) sold to unaffiliated
investment firms $85,000,000 aggregate principal amount of 9 5/8% Senior
Secured Notes due August 1, 2001 (the "Senior Notes") and (iii) sold to
unaffiliated investment firms $19,750,000, net of discount, Series A
Cumulative Redeemable Exchangeable Preferred Stock, par value $.01 per
share (the "Preferred Stock"), (b) used $7,000,000 of cash and cash
equivalents of La Petite and (c) contributed to the capital of, or loaned
to, Acquisition the portion of the aggregate proceeds of such sales
necessary to fund the payments made by Acquisition in connection with the
acquisition of La Petite.
On May 31, 1997, Holdings was merged into La Petite in a tax-free
transaction with La Petite as the surviving entity. As a result of the
transaction all of the shares of La Petite were retired, with Holdings
shares being reissued in the name of La Petite Academy, Inc.
On August 28, 1997, LPA Services, Inc. ("Services"), a wholly owned
subsidiary of La Petite, was incorporated. Services will provide third
party administrative services on insurance claims to La Petite beginning in
fiscal year 1998. La Petite, consolidated with Services, is referred to in
these notes as the "Company".
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 coast, midwestern and western regions of the United States.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of La Petite and its wholly-owned subsidiary, Services, after
elimination of all significant intercompany 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.
-21-
23
RECOGNITION OF REVENUES AND PREOPENING 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
depreciated over 29 to 40 years, furniture and equipment over five 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.
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, Convertible Debentures and Preferred Stock, approximate fair value.
The estimated fair values of Senior Notes, Convertible Debentures and
Preferred Stock at August 30, 1997 were $86.9 million, $0.9 million and
$33.3 million, respectively. The estimated fair values of Senior Notes,
Convertible Debentures and Preferred Stock at August 31, 1996 were $80.0
million, $1.6 million and $27.1 million, respectively.
-22-
24
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 presentation.
2. OTHER ASSETS
(in thousands of dollars)
AUGUST 30, 1997 AUGUST 31, 1996
Intangible assets:
Excess purchase price over net assets acquired $ 64,277 $ 64,277
Curriculum 1,497 1,497
Workforce 3,248 3,248
Accumulated amortization (12,714) (10,395)
----------- -----------
56,308 58,627
Deferred financing costs 12,752 12,854
Accumulated amortization (8,176) (6,271)
Other assets 3,303 3,791
----------- -----------
$ 64,187 $ 69,001
=========== ===========
-23-
25
3. LONG-TERM DEBT
(in thousands of dollars)
AUGUST 30, AUGUST 31,
1997 1996
Convertible Debentures, 6.5% payable through June 1, 2011 $ 850 $ 2,100
Senior Notes, 9.625% payable through August 1, 2001 85,000 85,000
Capital Lease Obligations 244
---------- ----------
Total long-term debt and capital lease obligations 86,094 87,100
Less unamortized discount (191) (510)
---------- ----------
$ 85,903 $ 86,590
========== ==========
The Convertible Debentures, as a result of purchase accounting adjustments,
are shown net of a discount. The discount is being accreted on a
level-yield basis over the remaining life of the Convertible Debentures and
is reflected in interest expense in the Consolidated Statements of Income.
The holders of the Convertible Debentures have the right to receive, upon
conversion thereof, $10.00 in cash for each $19.50 of principal amount
converted.
The Senior Notes have a required redemption of $42.5 million in August 2000.
Interest is payable semi-annually in February and August. Commencing
August 1997, the Senior Notes are redeemable, at various redemption prices,
at the Company's option. The Senior Notes contain certain covenants that,
among other things, limit the ability of the Company to incur additional
indebtedness, transfer or sell assets and pay dividends. As of August 30,
1997, LaPetite would not be permitted to pay cash dividends on its common or
preferred stock. The stock of the Company is pledged as collateral for the
Senior Notes.
On July 10, 1996, La Petite entered into a Credit Facility (the "Credit
Facility") providing for a $15 million revolving credit facility for working
capital and other general corporate purposes through July 2000. Borrowings
under the Credit Facility will be secured by a pledge of substantially all
the assets of the Company. Loans under the Credit Facility will bear
interest at 1% above prime rate or 2.25% above the Eurodollar rate, at La
Petite's option. La Petite is required to pay quarterly commitment fees of
0.5% per annum on the unused revolving credit facility.
As of August 30, 1997, no amounts were outstanding under the Credit
facility; however, letters of credit issued under the facility in the amount
of $5.7 million were outstanding as of August 30, 1997. The letters of
credit were issued as security for the self-insured portion of the Company's
workers' compensation and automobile insurance coverages.
During fiscal year 1997, the Company entered into a master lease agreement
to provide computer equipment to the Company. The leases are recorded as a
capital lease at the time of delivery at a discount rate of 1.5% over the
interest rate of three year US Treasury notes.
-24-
26
Scheduled maturities and mandatory prepayments of long-term debt and capital
lease obligations during the five years subsequent to August 30, 1997 are as
follows (in thousands of dollars):
1999 $ 126
2000 42,618
2001 and thereafter 43,350
---------
$ 86,094
=========
4. OTHER LONG-TERM LIABILITIES
(in thousands of dollars)
AUGUST 30, AUGUST 31,
1997 1996
Unfavorable leases, net of accumulated amortization $ 6,085 $ 7,323
Non-current reserve for closed academies 5,609 8,193
Long-term insurance liabilities 2,625 4,233
--------- --------
$ 14,319 $ 19,749
========= ========
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
TAX SHARING AGREEMENT - The Company and Investment file a consolidated
Federal income tax return and have entered into a Tax Sharing Agreement,
pursuant to which the Company agreed to pay to Investment an amount equal to
the Federal and state income taxes the Company would have been required to
pay if the Company were not part of Investment's consolidated group for
income tax purposes.
-25-
27
The provisions for income taxes recorded in the Consolidated Statements of
Income consisted of the following (in thousands of dollars):
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
AUGUST 30, 1997 AUGUST 31, 1996 AUGUST 26, 1995
Payable currently:
Federal $ 2,921 $ 1,481 $ 910
State 567 262 160
----------- ---------- ---------
Total 3,488 1,743 1,070
----------- ---------- ---------
Deferred:
Federal (187) (190) (6,141)
State (37) (35) (1,084)
----------- ---------- ---------
Total (224) (225) (7,225)
----------- ---------- ---------
Income tax provision (benefit) $ 3,264 $ $1,518 $ (6,155)
=========== ========== =========
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 $2.2 million in the 52
weeks ended August 30, 1997, the 53 weeks ended August 31, 1996 and the 52
weeks ended August 26, 1995, respectively.
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 30,
1997 and August 31, 1996 are estimated as follows (in thousands of dollars):
AUGUST 30, 1997 AUGUST 31, 1996
Current deferred taxes:
Accruals not currently deductible $ 3,817 $ 4,576
Supplies (2,386) (2,596)
Prepaids and other (407) (261)
----------- ---------
Net current deferred tax assets $ 1,024 $ 1,719
Noncurrent deferred taxes: =========== =========
Unfavorable leases $ 2,471 $ 2,973
Insurance reserves 1,067 1,719
Reserve for closed academies 2,277 3,326
Other 342 361
Property and equipment (1,534) (3,528)
Long-term debt (78) (207)
Intangible assets (311) (385)
Deferred financing costs and other (826) (1,323)
----------- ---------
Net noncurrent deferred tax assets $ 3,408 $ 2,936
=========== =========
As of August 30, 1997, only the income tax returns for years subsequent
to 1992 are open to examination.
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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
$44.9 million, $45.1 million, and $44.8 million, for the 52 weeks ended
August 30, 1997, 53 weeks ended August 31, 1996, and 52 weeks ended August
26, 1995, respectively. Contingent rental expense of $1.5 million, $1.2
million and $0.9 million were included in rental expense for the 52 weeks
ended August 30, 1997, 53 weeks ended August 31, 1996 and 52 weeks ended
August 26, 1995, respectively.
Aggregate minimum future rentals payable under facility leases as of August
30, 1997 were (in thousands of dollars):
Fiscal Year Ending:
1998 $ 38,948
1999 36,783
2000 34,264
2001 30,445
2002 and thereafter 94,790
--------
$235,230
========
7. REDEEMABLE PREFERRED STOCK
The Company has outstanding 800,000 shares of Preferred Stock (see Note 1)
as of July 24, 1993. The carrying value of the Preferred Stock is being
accreted to its redemption value of $20.0 million on August 1, 2003. The
Preferred Stock is nonvoting and mandatorily redeemable in August 2003, with
La Petite having an option to redeem the Preferred Stock, in whole or in
part, on or after August 1, 1998. Dividends at 12.125% are cumulative and
if not paid upon quarterly declaration are added to the liquidation value.
The liquidation values per share as of August 30, 1997 and August 31, 1996
were $40.836 and $36.250, respectively. The Preferred Stock may be
exchanged for 12.125% Subordinated Exchange Debentures due 2003, at the
Company'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 the Company to incur additional indebtedness, pay cash dividends
or make certain other restricted payments, or merge or consolidate with or
sell all or substantially all of its assets.
8. BENEFIT PLAN
The Company sponsors a defined contribution plan (the "Plan") for
substantially all employees. Eligible participants may make contributions
to the Plan from 1% to 20% of their compensation (as defined). The
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Company may also make contributions at the discretion of the Board of
Directors. Contribution expense attributable to this Plan was $425,000,
$405,000, and $0, for the 52 weeks ended August 30, 1997, the 53 weeks ended
August 31, 1996, and the 52 weeks ended August 26, 1995.
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 that the Plan, as amended, continues to operate pursuant to
IRS and Department of Labor regulations.
9. RELATED PARTY TRANSACTIONS
MANAGEMENT CONSULTING AGREEMENT - The Company has entered into an agreement
for management consulting services (the "Management Consulting Agreement")
with Vestar Management Partners ("Vestar") pursuant to which Vestar will
make available to the Company management consulting, corporate finance and
investment advice for which the Company pays to Vestar an annual fee of
$500,000.
TRANSACTIONS WITH CERTAIN 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
certain Asian countries. Under the terms of the pilot program, Benesse
operates 10 La Petite Academies in Japan. The Company is reimbursed for all
of its out-of-pocket expenses associated with assisting Benesse with the
pilot program. Benesse is a stockholder of Investment and certain directors
of the Company are affiliates of Benesse.
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. RESTRUCTURING CHARGE
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
includes approximately $10.0 million for the present value of rent and real
estate taxes for the remaining lease terms. The charge also includes
restructuring and other costs related to the closures. As of August 30,
1997, $4.5 million of costs related to the closings and restructuring had
been charged against the restructuring reserve.
12. STOCK BASED COMPENSATION
From time to time, the Board of Directors of Investment in their sole
discretion, grant non-qualified stock options, with respect to the common
stock of Investment, to key executives of the Company. Options are 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. To date, all options granted
expire on the tenth anniversary of the grant date. No market exists for
the common stock
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of Investment, but options are granted at prices that, in the opinion of
the Board of Directors, are equal to or greater than the fair value of the
stock at the time of grant. Options on 62,794 shares have been granted
to employees through August 30, 1997, of which 36,315 were exercisable at
that date.
The Company accounts for the 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) $19 in 1997 and $17 in 1996. The Company is privately owned and
there is no market for the stock of Investment. The estimated compensation
element is based on the time value of money at the US Treasury rates
assuming that the value of the stock will be at least equal to the grant
price five years out when fully exercisable. The estimated compensation
expense above is assumed to be amortized over the vesting period. There is
no basis on which to assume that these stock options have any value at the
date of grant since future value is solely dependent on future events not
currently in evidence.
*********
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
current directors and executive officers of La Petite:
Name Age Position of Office
- - - ---- --- ------------------
James P. Kelley 43 Chairman of the Board of Directors and Director
James R. Kahl 56 Chief Executive Officer, President and Director
Barbara W. Bell Coleman 47 Director
Habib Gorgi 41 Director
Leonard Lieberman 69 Director
Patrick J. McNeela 47 Director
Arthur J. Nagle 59 Director
Agnes T. Richardson 67 Director
Naoto Sugiyama 39 Director
Robert T. Thompson 43 Director
Hiromasa Yokoi 58 Director
Rebecca L. Perry 43 Executive Vice President, Operations
David J. Anglewicz 50 Senior Vice President Facility Services
Phillip M. Kane 50 Senior Vice President Finance/Chief Financial Officer
Mary Jean Wolf 60 Senior Vice President, Organization Services
Robert A. Rodriguez 51 Senior Vice President, Education, Regulation and
Industry Affairs
The business experience during the last five years and other information
relating to each executive officer and director of La Petite is set forth
below:
James P. Kelley
Chairman of the Board and Director
Mr. Kelley has been Chairman of the Board and a Director of La Petite since
July 1993 and Chairman of the Board, Chief Executive Officer and a Director
of Investment since July 1993. Since 1988, Mr. Kelley has been a Managing
Director of Vestar Capital, a private investment firm which is affiliated
with the Company. Mr. Kelley is a director of Celestial Seasonings, Inc.
and The Westinghouse Air Brake Company.
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James R. Kahl
Chief Executive Officer, President and Director
Mr. Kahl has been a Director of La Petite since September 1993. Mr. Kahl
has been the Chief Executive Officer of La Petite 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 Marriott Corporation. Prior to joining Marriott, Mr. Kahl
held various positions with Arthur Andersen & Co. between 1964 and 1982,
including Partner and Managing Partner. He holds an M.B.A. from the
University of Wisconsin and is a Certified Public Accountant.
Barbara W. Bell Coleman
Director
Mrs. Coleman has been a Director of La Petite since October 1993. Until
recently, Mrs. Coleman served as President of the Amelior Foundation. Mrs.
Coleman serves as a corporate director of Blue Cross/Blue Shield of New
Jersey and City National Bank of New Jersey. She also serves on a number of
not-for-profit boards including the New Jersey Performing Arts Center, the
Newark Museum, the New Jersey Symphony Orchestra, the Community Movie Corp.,
and the National Urban League. She is a member of the Vestry of the Parish
of Trinity Church in New York City. Mrs. Coleman holds a BA from Rutgers
University, NCAS, a MPH from Columbia University, School of Public Health,
and an honorary doctorate from Bloomfield College.
Habib Y. Gorgi
Director
Mr. Gorgi has been a Director of La Petite since September 1993. Mr. Gorgi
is a nominee of the Vestar/LPT Limited Partnership, an affiliate of the
Company. Mr. Gorgi is a Managing Partner of Fleet Equity Partners, a
private equity fund, since January 1986. He is a Director of a number of
private companies including Rosina Food Products, Inc., Dines Industrial
Group, Inc., Simonds Industries, Inc., Savage Sports Corporation, and is
Chairman of the Board of Wain-Roy, Inc. Mr. Gorgi earned a B.A. from Brown
University and an MBA from Columbia University.
Leonard Lieberman
Director
Mr. Lieberman has been a Director of La Petite since September 1993. Mr.
Lieberman is a retired Chairman of the Board and CEO of Supermarkets General
Corporation. He is a director of numerous non-profit and private sector
organizations including: Boys' and Girls' Clubs of Newark, Inc., the New
Jersey Performing Arts Center, and the New Community Foundation. Mr.
Lieberman is the Chairman of the Fund for New Jersey and the Treasurer of
the New Jersey Performing Arts Center and the Center for Health Care
Strategies. He is a Director of Celestial Seasonings, Inc., Republic New
York Corporation, Russell Stanley Corporation, and Sonic Corp.
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Patrick J. McNeela
Director
Mr. McNeela has been a Director of La Petite since February 1996. Mr.
McNeela is Senior Vice President and Manager, Equity Capital Group - GE
Capital Corporation and has held various executive positions at GE Capital
for 15 years. He has been involved in making equity investments for GE
Capital for over 10 years, both domestically as well as in Asia. He has a
B.A. in Economics from Old Dominion University and an M.B.A. from the
University of Virginia.
Arthur J. Nagle
Director
Mr. Nagle has been a Director of La Petite since October 1993. Since 1988,
Mr. Nagle has been a Managing Director of Vestar and Chairman of Vestar
Resources, Inc., a management consulting firm, both of which are affiliates
of the Company. Mr. Nagle is a director of Chart House Enterprises, Inc.,
Aearo Corporation, Russell Stanley Corporation, Remington Products Company
and Clark-Schwebel, Inc.
Agnes T. Richardson
Director
Ms. Richardson has been a Director of La Petite since January 1994. Ms.
Richardson is the Executive Director of the Center for Educational
Innovation (CEI) at the Manhattan Institute. From 1975 to 1993, Ms.
Richardson was Editor-in-Chief of SEVENTEEN Magazine. Ms. Richardson is a
Life Trustee of International House and a director of the 1995 Special
Olympics World Summer Games.
Naoto Sugiyama
Director
Mr. Sugiyama has been a Director of La Petite since January 1997. Mr.
Sugiyama is in the Accounting Division of Benesse, formerly known as
Fukutake Publishing Company, Ltd.
Robert T. Thompson
Director
Mr. Thompson has been a Director of since September 1993. Since 1995, Mr.
Thompson has been General Partner of Ferrer Freeman Thompson and Company.
From 1989 to 1995, Mr. Thompson was Managing Director of GE Capital
Corporation. From 1983 to 1988, Mr. Thompson was a consultant with Bain and
Company and Bain Capital.
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Hiromosa Yokoi
Director
Mr. Yokoi has been a Director of La Petite since February 1996. Mr. Yokoi
was elected Vice Chairman of the Board and Chief Executive Officer of
Berlitz International, Inc. in February 1993 and additionally was elected
President effective August 1993. Mr. Yokoi has served as a Director of
Benesse, since June 1992 and Director for Berlitz and North American Sector
since April 1994. Prior to that, he served as General Manager of the
Overseas Operations Division (formerly the International Division) of
Benesse from October 1990 to March 1994. Mr. Yokoi has served as a Director
of Berlitz International, Inc. since January 1991 and is currently a member
of the Executive Committee.
Rebecca L. Perry
Executive Vice President, Operations
Ms. Perry began her employment with La Petite in 1981 as Regional Director
of Tampa. She was promoted in 1985 to Divisional Director of Florida. In
1988, she was made an officer of La Petite and promoted to Assistant Vice
President of Operations with supervisory responsibility for La Petite
operations in Florida, Georgia, North Carolina, South Carolina, Nebraska,
Iowa, Illinois, Missouri, Ohio, Kentucky, Minnesota, Arkansas, Virginia and
Tennessee. In July 1993, Ms. Perry was named a Senior Vice President and
Eastern Operating Officer and promoted to her current position as Executive
Vice President of Operations in May 1997.
David J. Anglewicz
Senior Vice President Facility Services
Mr. Anglewicz has been involved in the development of over 500 La Petite
Academies throughout the United States since his arrival in 1985. He is
currently Senior Vice President, Facility Services with prior
responsibilities as Executive Vice President - Property Development and Vice
President - Property Development. His main responsibilities include real
estate acquisitions, construction and maintenance of the Academies. Mr.
Anglewicz obtained an M.B.A. from the University of Illinois and holds a
B.S. in architecture from the Lawrence Institute of Technology.
Phillip M. Kane
Senior Vice President, Finance/Chief Financial Officer
Mr. Kane has been Senior Vice President, Chief Financial Officer since March
1994. Previously, 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 holds a Bachelors in
Business Administration from the University of Miami (Fla.) and is a
Certified Public Accountant.
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Mary Jean Wolf
Senior Vice President, Organization Services
Ms. Wolf joined La Petite Academy in August 1997, responsible for Human
Resources, Training, and Employee Communication and Recognition. Ms. Wolf
was previously a Senior Vice President and Chief Human Resource Officer with
Dime Savings Bank of New York, and 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.
Robert A. Rodriguez
Senior Vice President, Education, Regulation and Industry Affairs
Mr. Rodriguez joined La Petite in 1982 as Vice President. In 1983, he was
promoted to Vice President of Operations and in 1985 was promoted to
Executive Vice President. He became the President of La Petite in 1993 and
was appointed a Director. Mr. Rodriguez's current responsibilities include
Education, Regulation and Industry Affairs.
STOCKHOLDER'S AGREEMENT
Pursuant to a stockholder's agreement, each of Investment, Vestar/LPT Limited
Partnership, Benesse Holdings (America), Inc. ("Benesse Holdings"), and the
members of the Company's management (the "Management Investors") have agreed to
vote their shares of voting securities of Investment so as to elect and to
continue in office a Board of Directors of Investment and La Petite consisting
solely of (a) two designees of Benesse Holdings, (b) up to seven designees of
Vestar/LPT Limited Partnership, (c) two independent directors recommended by
Vestar/LPT Limited Partnership after consultation with representatives of the
Management Investors and (d) two designees of the Management Investors.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation Paid by La Petite
Compensation is paid to each member of the Board of Directors of the
Corporation who is not an officer of Vestar, a nominee of Benesse, nor an
employee of the Corporation. Each such member is entitled to receive an
Attendance Fee of $1,500 for each meeting the Director attends, a Quarterly
Retainer Fee of $2,500 per calendar quarter and a Committee Attendance Fee of
$750 for each meeting the Director attends.
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ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation earned for the 52 weeks ended August 30, 1997 ("1997"), 53 weeks
ended August 31, 1996 ("1996") and 52 weeks ended August 26, 1995 ("1995") on
behalf of the Company's Chief Executive Officer and the other most highly
compensated executive officers of the Company whose salary and bonus exceeded
$100,000 for the fiscal year:
SUMMARY COMPENSATION TABLE
COMPENSATION FOR THE PERIOD (1) ALL OTHER
----------------------------------- LONG-TERM COMPENSATION COMPENSATION (1)
NUMBER OF SECURITIES
UNDERLYING OPTION/SAR
AWARDS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
James R. Kahl, 1997 $ 280,000 $ 125,000
Chief Executive Officer & President 1996 265,000 142,500 10,000
1995 239,200 20,000
Rebecca L. Perry 1997 130,000 60,000 1,000
Executive Vice President, 1996 110,000 40,900 5,000
Operations 1995 90,000 9,000
David J. Anglewicz 1997 150,000 15,000
Senior Vice President, 1996 142,000 35,000
Facility Services 1995 135,000 7,000
Phillip M. Kane 1997 160,000 28,000 1,000
Senior Vice President, Finance and 1996 150,000 41,400 5,000
Chief Financial Officer 1995 125,000 9,500
Robert R. Rodriguez, 1997 165,000 20,000
Senior Vice President, Education, 1996 190,000 33,900
Regulation and Industry Affairs 1995 185,000 10,000
(1) Perquisites and other personal benefits for the fiscal
years 1997, 1996 and 1995 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.
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The following table presents information relating to grants to executive
officers of options to purchase common stock of Investment:
OPTION/SAR GRANTS
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATE OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS/SARS EXERCISE FOR OPTION TERM
OPTIONS/SAR GRANTED TO OR BASE
NAME GRANTED (1) EMPLOYEES PRICE EXPIRATION DATE 5% 10%
FISCAL YEAR 1997
Rebecca L. Perry 1,000 50% $35 December 1, 2006 $0 $0
Phillip M. Kane 1,000 50% $35 December 1, 2006 $0 $0
FISCAL YEAR 1996
James R. Kahl 10,000 29% $18 August 27, 2005 $0 $0
Phillip M. Kane 5,000 15% $18 August 27, 2005 $0 $0
Rebecca L. Perry 5,000 15% $18 August 27, 2005 $0 $0
FISCAL YEAR 1995 None
FISCAL YEAR 1994
Phillip M. Kane 6,600 42% $18 March 31, 2004 $0 $0
FISCAL YEAR 1993
James R. Kahl 26,694 100% $15 July 22, 2003 $0 $0
(1) Options generally become exercisable at the rate of 20% per year after
the date of grant. As of August 30, 1997, only 23,355 of Mr. Kahl's
options, 5,960 of Mr. Kane's options and 2,000 of Ms. Perry's options were
exercisable. As of August 26, 1996, only 18,016 of Mr. Kahl's options,
3,640 of Mr. Kane's options and 1,000 of Ms. Perry's options were
exercisable. As of August 27, 1995, only 10,678 shares of Mr. Kahl's
options and 1,320 of Mr. Kane's options were exercisable.
(2) No options have been exercised to date.
EMPLOYMENT CONTRACTS
La Petite and Mr. Kahl have entered into an employment agreement, dated July
23, 1993, pursuant to which Mr. Kahl is entitled to an initial minimum annual
base salary which was increased by 4% on January 1, 1994 and will be increased
on each succeeding January 1. Mr. Kahl also may receive a performance bonus
each year of up to 180% of his base salary. In addition, Mr. Kahl is entitled
to participate in the health and welfare
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benefit plans of La Petite and other plans which are available to La Petite's
senior executives. Mr. Kahl also received reimbursement of certain relocation
expenses in connection with his joining the Company. The employment agreement
provides for severance compensation equal to a year's base salary and bonus if
Mr. Kahl is terminated by La Petite without cause or Mr. Kahl resigns with "good
reason" (as defined in the employment agreement). In the event of a change of
control (as defined in Mr. Kahl's employment agreement), if any successor does
not specifically assume Mr. Kahl's employment contract or if he is terminated
without cause or if Mr. Kahl terminates his employment agreement with good
reason after a change of control, Mr. Kahl is entitled to two year's base salary
and bonus.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Investment owns 100% of the common stock of La Petite. The principal
stockholder of Investment is Vestar/LPT Limited Partnership, a Delaware limited
partnership (the "Partnership"), which owns 680,000 shares of common stock of
Investment or 68% of the total voting power of Investment on a fully diluted
basis. James P. Kelley and Arthur J. Nagle, each a director of the Company,
and Norman W. Alpert, Daniel S. O'Connell, Prakash A. Melwani and Robert L.
Rosner are the general partners of the Partnership. Such persons may be deemed
to share beneficial ownership of the shares owned by the Partnership and
disclaim beneficial ownership of any such shares. For a discussion of certain
voting arrangements with respect to the common stock of Investment, see
"Directors and Executive Officers of the Registrant."
All of the Common Stock of La Petite owned by Investment is pledged to secure
the obligations of Investments under the Senior Notes.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Consulting Agreement - The Company has entered into an agreement for
management consulting services with Vestar pursuant to which Vestar will make
available to the Company management consulting, corporate finance and
investment advice for which the Company pays to Vestar an annual fee of
$500,000.
Transactions with Certain Investors - In 1992, the Company entered into a joint
venture with Benesse Corp. ("Benesse"), formerly known as Fukutake Publishing
Company, Ltd. Benesse is a stockholder of Investment and certain directors of
the Company are affiliates of Benesse. The Company agreed in principle to
grant to Benesse exclusive rights to develop and operate La Petite Academies in
certain Asian countries. Under the terms of the pilot program, Benesse
operates 10 La Petite Academies in Japan. The Company is reimbursed for all of
its out-of-pocket expenses associated with assisting Benesse with the pilot
program.
Tax Sharing Agreement - The Company and Investment have entered into a Tax
Sharing Agreement, pursuant to which the Company agreed to pay to Investment an
amount equal to the Federal and state income taxes the Company would have been
required to pay if the Company were not part of Investment's consolidated group
for tax purposes.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See pages 14 to 29 of this Annual Report on Form 10-K for financial
statements of La Petite Academy, Inc. as of August 30, 1997 and August 31,
1996 and for the 52 weeks ended August 30, 1997, and 53 weeks ended August
31, 1996 and 52 weeks ended August 26, 1995.
(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 30,
1997, 53 weeks ended August 31, 1996 and 52 weeks ended August 26, 1995.
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
Independent Auditors' Report on Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
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(a) 3. Exhibits
EXHIBIT
NUMBER DESCRIPTION
3.1* Certificate of Incorporation of La Petite Academy, Inc.
3.2* By-laws of La Petite Academy, Inc.
3.3*** Restated Certificate of Incorporation of La Petite Academy, Inc.
4.1** Certificate of Designation of the Powers, Preferences and
Relative Participating, Optional and Other Special Rights of
La Petite Academy, Inc.'s Series A Cumulative Redeemable
Exchangeable Preferred Stock and Qualifications, Limitations
and Restrictions thereof.
4.2** Indenture, dated as of July 15, 1993, between La Petite
Academy, Inc. and Shawmut Bank Connecticut, National
Association, as Trustee, with respect to the Exchange
Debentures.
4.3** Form of Exchange Debenture. (Included as part of Exhibit 4.2
hereto).
4.4** Indenture, dated as of July 15, 1993, between La Petite
Academy, Inc. and Shawmut Bank Connecticut, National
Association, as Trustee, with respect to the Senior Notes.
4.5** Form of Senior Note. (Included as part of Exhibit 4.4 hereto).
4.6** Indenture, dated June 1, 1986, between La Petite Academy, Inc.
and United Missouri Bank of Kansas City, n.a., as Trustee,
with respect to the Convertible Debentures. (Incorporated by
reference to Exhibit 4 (c) to Post-Effective Amendment No. 3
to Registration Statement on Form S-8 (Sec. File No. 2-96117).)
4.7*** First Supplemental Indenture dated as of May 19, 1997 between La
Petite Holdings Corp., La Petite Academy, Inc and Fleet National
Bank, as successor Trustee to Shawmut Bank Connecticut, with
respect to Senior Notes.
4.8*** First Supplemental Indenture dated as of May 19, 1997 between
La Petite Holdings Corp., La Petite Academy, Inc., and Fleet
National Bank, as successor Trustee to Shawmut Bank
Connecticut, with respect to Senior Notes.
9.1** Stockholders' Agreement, dated as of July 23, 1993, among
Vestar/LPT Limited Partnership, Benesse Holdings (America),
Inc., Vestar/LPA Investment Corp., and the Management
Investors (as defined therein).
10.1** Amended and Restated Agreement, dated April 5, 1990, as to
Relationship and Services to be Provided between CenCor, Inc.,
La Petite Academy, Inc. and Concorde Career Colleges, Inc.
(Incorporated by reference to Exhibit 10(a) to the Annual
Report on Form 10-K of La Petite Academy, Inc. for the year
ended December 31, 1991.)
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EXHIBIT
NUMBER DESCRIPTION
10.2** La Petite Academy, Inc. Amended and Restated Employee
Incentive Stock Option Plan-I, covering 666,666 shares of
common stock. (Incorporated by reference to Exhibit 28(a)
to Post-Effective Amendment No. 3 to Registration Statement
on Form S-8 filed with the Securities and Exchange
Commission (Registration No. 33-25625).)
10.3** Intercompany Note, dated July 23, 1993, of La Petite
Acquisition Corp. in favor of La Petite Holdings Corp.
10.4** Collateral Agency Agreement, dated as of July 15, 1993,
between La Petite Academy, Inc. and Shawmut Bank
Connecticut, National Association, as Trustee and Shawmut
Bank Connecticut, National Association, as Collateral
Agent.
10.5** Securities Pledge Agreement, dated as of July 15, 1993,
among La Petite Academy, Inc., as pledgor, Shawmut Bank
Connecticut, National Association, as Trustee, and Shawmut
Bank Connecticut, National Association, as Collateral
Agent.
10.6** Credit Agreement, dated as of July 1, 1993, among La Petite
Academy, Inc., La Petite Acquisition Corp., Various Banks,
Bankers Trust Company as administrative agent and Banque
Paribas, as agents for the financial institutions party
thereto.
10.7** Management Consulting Agreement between La Petite Academy,
Inc. and Vestar Management Partners, dated as of July 23,
1993.
10.8** Employment Agreement, dated as of July 23, 1993, among La
Petite Academy Acquisition Corp., La Petite Academy, Inc.
and James R. Kahl.
10.9** Non-qualified Stock Option Agreement, dated as of July 22,
1993, between Vestar/LPA Investment Corp. and James R.
Kahl.
10.10** Tax Sharing Agreement, effective as of July 23, 1993, among
Vestar/LPA Investment Corp. and La Petite Academy, Inc.
10.11*** Credit Facility, effective July 10, 1996, among La Petite
Academy, Inc.,various Banks, Bankers Trust Company, as
Administrative Agent, and Mercantile Bank, as Co-Agent.
10.12*** First Amendment to Amended and Restated Credit Agreement
dated as of May 27, 1997, among La Petite Academy, Inc., La
Petite Holdings Corp., various financial institutions,
Bankers Trust Company as Administrative Agent, and
Mercantile Bank as Co-Agent.
27.0 Financial Data Schedule - filed only with the EDGAR version.
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* Incorporated by reference to the Exhibits to La Petite Holdings
Corp.'s Registration Statement on Form S-1, Registration No. 33-61232,
filed with the Securities and Exchange Commission on April 16, 1993.
** Incorporated by reference to the Exhibits to La Petite Holdings
Corp.'s Transition Report on Form 10-K for the period from January 1,
1993 to August 28, 1993.
*** Incorporated by reference to the Exhibits to the registrants's Quarterly
Report on Form 10-K for the fiscal Quarter ended June 6, 1997.
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.
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INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
of La Petite Academy, Inc.:
We have audited the consolidated financial statements of La Petite Academy,
Inc. and its subsidiary as of August 30, 1997 and August 31, 1996 and for the
52 weeks ended August 30, 1997, the 53 weeks ended August 31, 1996, and the 52
weeks ended August 26, 1995 and have issued our report thereon dated October 3,
1997; such report is included elsewhere in this Form 10-K. Our audits also
included the financial statement schedules of La Petite Academy, Inc. and its
subsidiary listed in Item 14. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. 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.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
October 3, 1997
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44
LA PETITE ACADEMY INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
==================================================================================================================
ALLOWANCE FOR DOUBTFUL ACCOUNTS
BALANCE AT CHARGED TO BALANCE AT
AUGUST COSTS AND AUGUST
DESCRIPTION 31, 1996 EXPENSES WRITE-OFFS 30, 1997
Allowance for doubtful accounts $ 82 $ 1,670 $ 1,669 $ 83
--------- ---------- ---------- ---------
BALANCE AT CHARGED TO BALANCE AT
AUGUST COSTS AND AUGUST
DESCRIPTION 26, 1995 EXPENSES WRITE-OFFS 31, 1996
Allowance for doubtful accounts (a) $ 722 $ 1,109 $ 1,749 $ 82
--------- ---------- ---------- ---------
BALANCE AT CHARGED TO BALANCE AT
AUGUST COSTS AND AUGUST
27, 1994 EXPENSES WRITE-OFFS 26, 1995
DESCRIPTION
Allowance for doubtful accounts $ 621 $ 841 $ 740 $ 722
--------- ---------- ---------- ---------
(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)
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45
LA PETITE ACADEMY INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
================================================================================================================
RESERVE FOR CLOSED ACADEMIES
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
---------- ---------- ---------- ----------
BALANCE AT CHARGED TO BALANCE AT
AUGUST 27, COSTS AND CHARGED TO AUGUST 26,
DESCRIPTION 1994 EXPENSES RESERVE 1995
Reserve for Closed Academies $ 2,971 $ 11,700 $ 960 $ 13,711
---------- ---------- ---------- ----------
(Concluded)
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46
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 25, 1997.
La Petite Academy, Inc.
/s/ James R. Kahl
------------------
By: James R. Kahl
Chief Executive
Officer, President
and Director
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 25, 1997.
/s/ James P. Kelley /s/ Patrick J. McNeela
- - - ------------------------ ------------------------
By: James P. Kelley By: Patrick J. McNeela
Chairman of the Board of Director
Directors, and Director
/s/ James R. Kahl /s/ Arthur J. Nagle
- - - ------------------------ ------------------------
By: James R. Kahl By: Arthur J. Nagle
Chief Executive Officer, Director
President and Director
/s/ Phillip M. Kane /s/ Agnes T. Richardson
- - - ------------------------ ------------------------
By: Phillip M. Kane By: Agnes T. Richardson
Senior Vice President, Director
Finance and Chief Financial
Officer
/s/ Barbara W. Bell Coleman /s/ Naoto Sugiyama
- - - ------------------------ ------------------------
By: Barbara W. Bell Coleman By: Naoto Sugiyama
Director Director
/s/ Habib Y. Gorgi /s/ Robert T. Thompson
- - - ------------------------ ------------------------
By: Habib Y. Gorgi By: Robert T. Thompson
Director Director
/s/ Leonard Lieberman /s/ Hiromasa Yokoi
- - - ------------------------ ------------------------
By: Leonard Lieberman By: Hiromasa Yokoi
Director Director
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