<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number 1-11111
EDUCATION ALTERNATIVES, INC.
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-1581297
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1300 Norwest Financial Center
7900 Xerxes Avenue South
MINNEAPOLIS, MINNESOTA 55431
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(Address of principal executive offices) (Zip Code)
(612) 832-0092
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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As of October 31, 1996, there were issued and outstanding 7,488,970 shares
of Common Stock, $.01 par value.
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EDUCATION ALTERNATIVES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 1996
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Page
Number
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed consolidated balance sheets
as of September 30, 1996, and June 30, 1996 3
Condensed consolidated statements of operations for
the three months ended September 30, 1996 and 1995 4
Condensed consolidated statements of cash flows for
the three months ended September 30, 1996 and 1995 5
Notes to condensed consolidated financial statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 8
Signatures 9
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EDUCATION ALTERNATIVES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
(Dollars in thousands) 1996 1996
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 22,988 $ 15,391
Marketable securities 2,221 2,221
Accounts receivable, net 671 442
Other current assets 262 362
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Total current assets 26,142 18,416
LONG-TERM MARKETABLE SECURITIES -- 7,322
PROPERTY AND EQUIPMENT, NET 4,308 4,372
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$ 30,450 $ 30,110
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 245 $ 470
Other current liabilities 5,495 5,019
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Total current liabilities 5,740 5,489
LONG-TERM DEBT 250 309
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000
shares authorized; no shares issued
and outstanding -- --
Common stock, $.01 par value, 25,000,000
shares authorized; issued and outstanding
7,488,970 at September 30, 1996 and
June 30, 1996 75 75
Additional paid-in capital 46,386 46,386
Accumulated deficit (22,001) (22,149)
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Total shareholders' equity 24,460 24,312
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$ 30,450 $ 30,110
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</TABLE>
See notes to condensed consolidated financial statements.
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EDUCATION ALTERNATIVES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
(In thousands, except per share amounts) September 30,
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1996 1995
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<S> <C> <C>
REVENUE
School management $ -- $ 29,871
Tuition and other 747 661
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747 30,532
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DIRECT EXPENSES
School management -- 31,515
Private school costs and other 713 660
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713 32,175
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GROSS PROFIT (LOSS) 34 (1,643)
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 949 1,374
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OPERATING LOSS (915) (3,017)
OTHER INCOME (EXPENSE)
Investment income 450 538
Settlement income 625 --
Interest expense (12) (72)
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1,063 466
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EARNINGS (LOSS) BEFORE INCOME TAX EXPENSE 148 (2,551)
INCOME TAX EXPENSE -- --
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NET EARNINGS (LOSS) $ 148 $ (2,551)
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NET EARNINGS (LOSS) PER SHARE $ .02 $ (.34)
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WEIGHTED AVERAGE SHARES OUTSTANDING 7,489 7,445
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</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
EDUCATION ALTERNATIVES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
(In thousands) September 30,
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1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 148 $ (2,551)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 79 453
Changes in operating assets and liabilities 105 1,388
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Net cash provided by (used in) operating activities 332 (710)
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INVESTING ACTIVITIES
Proceeds from sales and maturities of marketable securities 7,367 18,136
Additions to property and equipment (15) (1,261)
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Net cash provided by investing activities 7,352 16,875
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FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants -- 288
Repayment of long-term debt (87) (76)
Net cash provided by (used in) financing activities (87) 212
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INCREASE IN CASH AND CASH EQUIVALENTS 7,597 16,377
Cash and cash equivalents at beginning of period 15,391 2,449
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22,988 $ 18,826
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
EDUCATION ALTERNATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting solely of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended
September 30, 1996, are not necessarily indicative of the results that
may be expected for the year ending June 30, 1997. For further
information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
June 30, 1996.
2. ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The condensed consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary.
Intercompany balances and transactions have been eliminated in
consolidation.
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 and contingency
disclosures included in the financial statements. Ultimate results could
differ from these estimates.
NEW ACCOUNTING PRONOUNCEMENT: The Company adopted Statement of Financial
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
No. 123"), effective July 1, 1996. As allowed under SFAS No. 123, the
Company has elected to continue to measure compensation cost under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, and comply with the pro forma disclosure requirements.
This statement will have no impact on the results of operations or
financial condition of the Company.
FINANCIAL STATEMENT RECLASSIFICATIONS: Certain fiscal 1996 amounts have
been reclassified to conform to the fiscal 1997 presentation. These
reclassifications had no effect on the results of operations or
shareholders' equity as previously reported.
3. SETTLEMENT OF DISPUTES
During the quarter ended September 30, 1996, the Company entered into a
final settlement agreement with its investment management firm,
resolving all remaining disputes relating to the firm's management of
the Company's investment portfolio. The investment management firm
agreed to pay the Company $1,250,000, of which $625,000 was received and
recorded in income during the quarter ended September 30, 1996. The
remaining settlement proceeds will be recorded in income during fiscal
1997 when they are received.
Subsequent to the end of the quarter, the Company finalized an agreement
with Hartford officials on the remaining amounts owed to the Company under
the school management contract. Under this settlement, the Company will
receive $3,250,000 in annual installments of $650,000 over the next five
years, with the first payment due in July 1997. These annual payments will
be recorded in income as they are received. In addition, both parties have
released each other from any further claims under the management contract.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the three months ended September 30, 1996, was $747,000 compared to
$30,532,000 for the same period in the prior year. This decrease is the result
of the cancellation of the Company's public school management and consulting
contracts in Baltimore and Hartford in the third quarter of fiscal 1996.
Tuition and other revenue consists of revenue from the two private schools
owned by the Company and consulting revenue on the Company's private school
consulting contracts.
Private school costs and other expenses represent costs related to the two
private schools owned by the Company. Prior year school management costs
included a charge of $1,662,000 related to costs incurred but not yet
reimbursed under the Company's school management contract with the Hartford
Board of Education.
Selling, general, and administrative expenses were $949,000 and $1,374,000 in
the three months ended September 30, 1996 and 1995, respectively, a decrease of
$425,000. This decrease reflects a reduction in personnel due to the
cancellation of the public school contracts during the third quarter of fiscal
1996. In addition, marketing and legal costs were below prior year levels as the
Company focuses more of its resources on expanding its private school business
in fiscal 1997.
Other income for the three months ended September 30, 1996, was $1,063,000
compared to $466,000 for the same period in the prior year. The current year
three-month period includes $625,000 received from the Company's investment
management firm related to the settlement of disputes between the Company and
the investment management firm.
The Company reported net earnings of $148,000 or $.02 per share in the three
months ended September 30, 1996, compared to a net loss of $2,551,000 or $.34
per share in the same period of the prior year. The change is primarily due to
the loss on the Hartford public school management contract in the three months
ended September 30, 1995.
CAPITAL RESOURCES AND LIQUIDITY
During the three months ended September 30, 1996, net cash provided by operating
activities totaled $332,000 compared to a net use of cash of $710,000 in the
same period of the prior year. The change is due primarily to the net earnings
recorded in the current three-month period compared to a net loss in the prior
year.
Cash generated from investing activities totaled $7,352,000 in the three months
ended September 30, 1996, and includes $7,367,000 in proceeds from sales and
maturities of marketable securities, as the Company liquidated all securities in
its long-term portfolio during the quarter.
The Company has working capital of $20,402,000 at September 30, 1996, compared
to $12,927,000 at June 30, 1996. The increase is primarily the result of the
liquidation of the long-term marketable securities portfolio, as previously
discussed.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
27 Financial Data Schedule (EDGAR version only).
(B) REPORTS ON FORM 8-K:
No reports on Form 8-K have been filed by the Company during the three
months ended September 30, 1996.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDUCATION ALTERNATIVES, INC.
Date: November 11, 1996 By /s/ JOHN T. GOLLE
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John T. Golle
Chairman and Chief
Executive Officer
Date: November 11, 1996 By /s/ GERALD A. HAUGEN
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Gerald A. Haugen
Chief Financial and
Administrative Officer
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 22,988
<SECURITIES> 2,221
<RECEIVABLES> 671
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,142
<PP&E> 4,308
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,450
<CURRENT-LIABILITIES> 5,740
<BONDS> 250
0
0
<COMMON> 75
<OTHER-SE> 24,385
<TOTAL-LIABILITY-AND-EQUITY> 30,450
<SALES> 0
<TOTAL-REVENUES> 747
<CGS> 0
<TOTAL-COSTS> 713
<OTHER-EXPENSES> 949
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> 148
<INCOME-TAX> 0
<INCOME-CONTINUING> 148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
