<DAILY DOUBLE>
Monday, February 8, 1999

Koala Corp.
(Nasdaq: KARE)
Phone: 303-770-3500
Website: www.koalabear.com
Price (2/5/99): $21 13/16

HOW DID IT DOUBLE?

Kids love koalas. Parents love Koala. For years, the company has been providing retail establishment restrooms with baby-care changing stations. The popular Koala Bear Kare pulldown station has meant salvation to anyone who has ever had to tend to a wet or soiled diaper.

In 1996, when Rubbermaid (NYSE: RBD) entered the changing-station market, this Koala didn't go up a tree looking for cover. It fought back. It expanded its offerings through related product lines and acquisitions. Koala grew, and the shares went along for the upward spurt.

BUSINESS DESCRIPTION

Denver-based Koala is a purveyor of plastic products and play equipment. From its original baby changing station in 1987, the company has grown its offerings internally and through absorption.

In 1996, the company acquired Activities Unlimited, a maker of commercial-use interlocking play tables, wiry mazes and other manipulative products. In June of 1997, Koala bought Delta Play, a manufacturer of indoor and outdoor modular play equipment. Just last year, the company closed on a deal to buy Park Structures, a Delta competitor, to add to its outdoor modular play division.

FINANCIAL FACTS

Income Statement
12-month sales: $17.8 million
12-month income: $2.8 million
12-month EPS: $1.10
Profit Margin: 15.7%
Market Cap: $57.7 million

Balance Sheet
Cash: $1.2 million
Current Assets: $7.1 million
Current Liabilities: $1.7 million
Long-term Debt: None

Ratios
Price-to-earnings: 19.8
Price-to-sales: 3.2

HOW COULD YOU HAVE FOUND THIS DOUBLE?

My first experience with Koala came from changing my first son's diaper on one of his earliest outings. We were at Outback Steakhouse (Nasdaq: OSSI) and, at the time, I figured the Koala was just a clever novelty provided by the Australian-themed restaurant. Then, place after place, that diaper-clad koala mascot became a welcome sight in times of need.

So, like most parents out there, I have seen Koala grow firsthand. Rather than place all of its eggs in one sturdy fold-up changing station basket, the company began a logical diversification into similar products. From its Booster Buddy seats to give toddlers a lift at the movie theaters, to its Kradle infant seat holder that raises a portable baby seat off the floor with practical uses at home and restaurants, Koala grew.

Sensing the surging demand for commercial entertainment for waiting children, the company gobbled up other players. Who hasn't noticed the proliferation of activity center tables in waiting rooms and the invasion of Discovery Zone-esque modular play mazes springing up at fast-food restaurants everywhere?

Even an investor not under parental arrest could have seen it coming. Any quest ignited from "Who makes these things?" would have ended with a short list -- and no play as pure as Koala.

WHERE TO FROM HERE?

Here's an interesting factoid to consider the next time you come across a vertical or horizontal Koala Bear Kare station (and, yes, they make two different versions for the area constraints of each particular restroom): They hold up to 350 pounds! That would be some heavy baby, right? But the lesson is clear from this -- the company can withstand the weight of a behemoth.

That is why, despite Rubbermaid's 1996 entry, Koala still remains the market leader and, since that time, the company has been named to Forbes 200 Best Small Companies in each of the last three years.

Having a cute koala as a mascot doesn't win you those accolades. Delivering on the bottom line does. Over the past five years, the company has managed to grow earnings per share by better than 20% every single year. Given the three annual acquisitions, the top line has actually grown even better than that.

The analysts don't see any letup in the growth. This year, earnings are projected to grow another 25% to $1.49 a share. So, despite the stock doubling in price since hitting October lows, Koala shares are still selling for just a little more than half of its earnings growth rate. That makes the shares as attractive as the changing stations are cozy. And, don't worry, odds are that Koala can hold your weight.

--Rick Aristotle Munarriz
(tmfedible@aol.com)

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