EAI shouldn't get schools contract, city official says

November 24, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- Baltimore Comptroller Jacqueline McLean leveled a broadside yesterday against Education Alternatives Inc., saying the Minnesota-based company was misleading investors and should not be allowed to run more Baltimore public schools.

Mrs. McLean, who opposed EAI when the company signed its initial contract last year to manage nine Baltimore public schools for $27 million a year, also said the company had still not furnished audited financial statements that were due months ago. Because of that, she said, the company was in default of the contract.

Responding to Mrs. McLean's comments about misleading investors, EAI Chief Executive John Golle said: "There is no substance to what they said. It's been reviewed and it's not true. We are complying with all rules and regulations."

Mrs. McLean, who serves on Baltimore's Board of Estimates, which must approve contracts to manage city schools, also dismissed the company's educational impact, according to the Dow Jones News Service, saying: "They have a good dog and pony show. They throw out to you the emotional part of how they are helping the kids."

Her comments plunged EAI investors into a state of near-panic for about an hour after the remarks were broadcast by cable network CNBC. Nervous traders unloaded the company's stock, which immediately dropped 14 percent in one hour. The stock recovered to close down just 3 percent, or $1, to $35.25 a share.

EAI analysts said the stock recovered once investors realized that Mrs. McLean's comments did not necessarily threaten the company's prospects in Baltimore. EAI won its initial contract over Mrs. McLean's objections and might do so again.

The Board of Estimates could consider EAI's contracts to manage two additional public schools at today's meeting. The contracts would have EAI manage Baltimore City College High School and Robert W. Coleman Elementary School.

EAI's current contracts give the company about $5,900 per pupil to run and upgrade eight elementary schools and one middle school. Most of the money counted as revenue, however, is returned to the school board to pay teachers' salaries and to cover administrative expenses.

"They tell everyone that the contract is worth $27 million to them, but it's not really $27 million; we're responsible for $21 million of that," Mrs. McLean said. "It's misleading to say that their revenues are so high."

The issue about how EAI should account for its revenues has dogged the company since it signed the Baltimore contract in 1992. But Mr. Golle said his company's financial statements were prepared by the nationally recognized auditing firm Arthur Andersen & Co. and one of EAI's partners in Baltimore was another big auditing firm, KPMG Peat Marwick.

He also denied the company was failing to provide audited financial statements. EAI was making a good faith effort to provide the figures, which were supposed to have been furnished within 60 days of the end of the school year. But the company has been waiting for the school board to provide financial information it needs to complete the audit.

In recognition that the school board has been tardy, the two new contracts call for EAI to provide the figures within 30 days of the school board completing its audit, he said.

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