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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 December 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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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 January 31, 1997, there were issued and outstanding 7,489,220 shares of
Common Stock, $.01 par value.
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EDUCATION ALTERNATIVES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
DECEMBER 31, 1996
Page
Number
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed consolidated balance sheets as of
December 31, 1996, and June 30, 1996 3
Condensed consolidated statements of operations for the
three months ended December 31, 1996 and 1995 4
Condensed consolidated statements of operations for the
six months ended December 31, 1996 and 1995 5
Condensed consolidated statements of cash flows for the
six months ended December 31, 1996 and 1995 6
Notes to condensed consolidated financial statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
Signatures 10
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EDUCATION ALTERNATIVES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, June 30,
(DOLLARS IN THOUSANDS) 1996 1996
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 24,622 $ 15,391
Marketable securities - 2,221
Accounts receivable, net 162 442
Other current assets 333 362
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Total current assets 25,117 18,416
LONG-TERM MARKETABLE SECURITIES - 7,322
PROPERTY AND EQUIPMENT, NET 4,233 4,372
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$ 29,350 $ 30,110
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 104 $ 470
Other current liabilities 4,508 5,019
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Total current liabilities 4,612 5,489
LONG-TERM DEBT - 309
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000
shares authorized; no shares issued
and outstanding - -
Common stock, $.01 par value, 25,000,000
shares authorized; issued and outstanding
7,489,220 at December 31, 1996 and
7,488,970 at June 30, 1996 75 75
Additional paid-in capital 46,387 46,386
Accumulated deficit (21,724) (22,149)
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Total shareholders' equity 24,738 24,312
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$ 29,350 $ 30,110
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See notes to condensed consolidated financial statements.
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EDUCATION ALTERNATIVES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) December 31
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1996 1995
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REVENUE
School management $ - $ 73,601
Tuition and other 1,512 1,324
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1,512 74,925
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DIRECT EXPENSES
School management - 77,559
Private school costs 1,023 979
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1,023 78,538
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GROSS PROFIT (LOSS) 489 (3,613)
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 831 1,484
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OPERATING LOSS (342) (5,097)
OTHER INCOME (EXPENSE)
Investment income 309 510
Settlement income 313 -
Interest expense (3) (66)
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619 444
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EARNINGS (LOSS) BEFORE INCOME TAX EXPENSE 277 (4,653)
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INCOME TAX EXPENSE - -
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NET EARNINGS (LOSS) $ 277 $ (4,653)
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NET EARNINGS (LOSS) PER SHARE $ .04 $ (.62)
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WEIGHTED AVERAGE SHARES OUTSTANDING 7,489 7,487
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See notes to condensed consolidated financial statements.
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EDUCATION ALTERNATIVES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six months ended
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) December 31
--------------------------
1996 1995
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REVENUE
School management $ - $ 103,472
Tuition and other 2,259 1,985
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2,259 105,457
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DIRECT EXPENSES
School management - 109,074
Private school costs 1,736 1,639
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1,736 110,713
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GROSS PROFIT (LOSS) 523 (5,256)
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 1,780 2,858
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OPERATING LOSS (1,257) (8,114)
OTHER INCOME (EXPENSE)
Investment income 759 1,048
Settlement income 938 -
Interest expense (15) (138)
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1,682 910
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EARNINGS (LOSS) BEFORE INCOME TAX EXPENSE 425 (7,204)
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INCOME TAX EXPENSE - -
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NET EARNINGS (LOSS) $ 425 $ (7,204)
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NET EARNINGS (LOSS) PER SHARE $ .06 $ (.96)
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WEIGHTED AVERAGE SHARES OUTSTANDING 7,489 7,466
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See notes to condensed consolidated financial statements.
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EDUCATION ALTERNATIVES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
(IN THOUSANDS) December 31
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1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 425 $ (7,204)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 159 990
Changes in operating assets and liabilities (285) 3,034
Other - (11)
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Net cash provided by (used in) operating activities
299 (3,191)
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INVESTING ACTIVITIES
Proceeds from sales and maturities of marketable securities 9,597 19,162
Additions to property and equipment (20) (2,124)
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Net cash provided by investing activities 9,577 17,038
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FINANCING ACTIVITIES
Advances on management and consulting contracts, net - 1,576
Proceeds from exercise of stock options and warrants 1 307
Repayment of long-term debt (646) (152)
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Net cash provided by (used in) financing activities (645) 1,731
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INCREASE IN CASH AND CASH EQUIVALENTS 9,231 15,578
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,391 2,449
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,622 $ 18,027
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</TABLE>
See notes to condensed consolidated financial statements.
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EDUCATION ALTERNATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 and six-month periods ended December 31, 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.
3. SETTLEMENT OF DISPUTES
During the six months ended December 31, 1996, the Company entered into a
final settlement 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 $938,000 was received and recorded as income
during the six months ended December 31, 1996. The remaining settlement
proceeds will be recorded in income during fiscal 1997 when they are
received.
During the quarter ended December 31, 1996, 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 and six months ended December 31, 1996, was $1,512,000 and
$2,259,000, respectively, compared to $74,925,000 and $105,457,000 for the same
periods of the prior year. The decrease in both the three and six month periods
is the result of the cancellation of the Company's public school management
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 represent costs related to the two private schools owned by
the Company. School management costs for the prior year three and six month
periods included charges of $3,972,000 and $5,634,000, respectively, related to
costs incurred but not reimbursed under the Company's contract with the Hartford
Board of Education and to cover estimated write-offs and shutdown costs
associated with the cancellation of the Baltimore and Hartford contracts.
Selling, general, and administrative expenses for the three and six months ended
December 31, 1996, were $831,000 and $1,780,000, respectively, compared to
$1,484,000 and $2,858,000 for the same periods of the prior year. These
decreases reflect 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 its
resources on public charter schools and expanding its private school business.
Other income for the three and six months ended December 31, 1996, was $619,000
and $1,682,000, respectively, compared to $444,000 and $910,000 for the same
periods of the prior year. The current year three and six month periods include
$313,000 and $938,000, respectively, 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 $277,000 or $.04 per share in the three
months ended December 31, 1996, compared to a net loss of $4,653,000 or $.62 per
share for the same period of the prior year. For the six months ended December
31, 1996, the Company reported net earnings of $425,000 or $.06 per share
compared to a net loss of $7,204,000 or $.96 per share for the same period of
the prior year. The change in both periods is primarily due to the charges
recorded in the prior year on the Baltimore and Hartford public school
contracts.
CAPITAL RESOURCES AND LIQUIDITY
During the six months ended December 31, 1996, net cash provided by operating
activities totaled $299,000 compared to a net use of cash of $3,191,000 in the
same period of the prior year. The change is due primarily to the net earnings
recorded in the current six-month period compared to a net loss in the prior
year, offset by a significant increase in operating liabilities in the prior
year six-month period.
Cash generated from investing activities totaled $9,577,000 in the six months
ended December 31, 1996, and includes $9,597,000 in proceeds from sales and
maturities of marketable securities, as the Company liquidated all securities in
its long-term portfolio during the six-month period.
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The Company has working capital of $20,505,000 at December 31, 1996, compared to
$12,927,000 at June 30, 1996. The increase is primarily the result of the
liquidation of its long-term marketable securities portfolio, as previously
discussed.
As discussed in Note 3, during the quarter ended December 31, 1996, the Company
finalized an agreement with Hartford officials on the remaining amounts owed to
the Company under the school management contract. 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.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1996 Annual Meeting of Shareholders on November 12, 1996, the
shareholders approved the following:
1. Proposal to amend the 1988 Education Alternatives, Inc. Stock Option Plan.
The proposal received 5,861,813 votes for and 293,541 votes against. There
were 16,191 abstentions and 167,203 broker non-votes.
2. Proposal to ratify the appointment of Arthur Andersen LLP as independent
auditors for the 1997 fiscal year. The proposal received 6,321,566 votes
for and 10,903 votes against. There were 6,279 abstentions and no broker
non-votes.
3. Election of directors to serve until his successor is duly elected. The
directors were elected as follows:
Director-Nominee Votes For Votes Against
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Richard T. Burke 6,251,299 87,449
John T. Walton 6,250,387 88,361
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 December 31, 1996.
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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: February 3, 1997 By /s/ John T. Golle
-----------------------
John T. Golle
Chairman and Chief
Executive Officer
Date: February 3, 1997 By /s/ Gerald A. Haugen
-----------------------
Gerald A. Haugen
Chief Financial and
Administrative Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 24,622
<SECURITIES> 0
<RECEIVABLES> 162
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,117
<PP&E> 4,233
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,350
<CURRENT-LIABILITIES> 4,612
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 24,663
<TOTAL-LIABILITY-AND-EQUITY> 29,350
<SALES> 0
<TOTAL-REVENUES> 2,259
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<TOTAL-COSTS> 1,736
<OTHER-EXPENSES> 1,780
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<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
