0000880059-13-000033.txt : 20130502 0000880059-13-000033.hdr.sgml : 20130502 20130501174703 ACCESSION NUMBER: 0000880059-13-000033 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20130501 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20130502 DATE AS OF CHANGE: 20130501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDUCATION MANAGEMENT CORPORATION CENTRAL INDEX KEY: 0000880059 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 251119571 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-34466 FILM NUMBER: 13804664 BUSINESS ADDRESS: STREET 1: 300 SIXTH AVENUE CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4125620900 MAIL ADDRESS: STREET 1: 300 SIXTH AVE CITY: PITTSBURGH STATE: PA ZIP: 15222 8-K 1 earningsrelease8-k3q13.htm FORM 8-K Earnings Release 8-K 3Q13


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 1, 2013 (May 1, 2013)
Education Management Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania
 
001-34466
 
25-1119571
 
 
 
 
 
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
 
 
210 Sixth Avenue, Pittsburgh, Pennsylvania
 
15222
 
 
 
 
(Address of principal executive offices)
 
 
(Zip code)
    
    
Registrant's telephone number, including area code: (412) 562-0900
Check the appropriate box below if the Form 8−K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a−12 under the Exchange Act (17 CFR 240.14a−12)
o
Pre-commencement communications pursuant to Rule 14d−2(b) under the Exchange Act (17 CFR 240.14d−2(b))
o
Pre-commencement communications pursuant to Rule 13e−4(c) under the Exchange Act (17 CFR 240.13e−4(c))













Item 2.02. --Results of Operations and Financial Condition.

On May 1, 2013, Education Management Corporation issued a press release announcing its financial results for the fiscal quarter ended March 31, 2013. A copy of the May 1, 2013 press release is attached hereto as an exhibit and incorporated herein by reference.

The information included in this Form 8-K, including the exhibit, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.


Item 9.01 - Financial Statements and Exhibits

(a)    None.

(b)    None.

(c )     None.

(d)    Exhibits
Exhibit 99.1 Press Release dated May 1, 2013







































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 hereunto duly authorized.
EDUCATION MANAGEMENT CORPORATION
By:     /s/ MICK J. BEEKHUIZEN        
Mick J. Beekhuizen
Executive Vice President and Chief Financial Officer
Dated: May 1, 2013





EXHIBIT INDEX

Exhibit No.    Description

99.1
Press Release, dated May 1, 2013




























EX-99.1 2 exhibit99133113.htm PRESS RELEASE Exhibit 99.1 3.31.13


Education Management Corporation
COMPANY CONTACT:
John Iannone
Director of Investor Relations
(412) 995-7727

Education Management Corporation Reports Fiscal 2013 Third Quarter Results

Pittsburgh, PA, May 1, 2013 -- Education Management Corporation (the "Company") (NASDAQ:EDMC), one of the largest providers of post-secondary education in North America, today reported its financial results for the three months ended March 31, 2013. Net revenues during the quarter were $638.9 million and, as a result of certain charges further described below, including non-cash asset impairment charges of $323.7 million, the Company reported a net loss of $284.0 million, or $2.28 per diluted share. Excluding these charges, net income would have been $30.5 million or $0.24 per diluted share.

“We are pleased with this quarter's results as we made progress across multiple objectives,” said Edward H. West, Education Management's President and Chief Executive Officer. "In addition to the sequential improvement in new student enrollment trends during the quarter, we also experienced improvements in retention as a result of the commitment and efforts made by faculty and staff across our colleges and universities. Our students are at the core of what we do, and we are passionate about helping them achieve their career goals through education that is aligned with real opportunities in the American workforce.”

Mr. West added, "During the quarter, we made good progress on other fronts, including the debt exchange that reduces our outstanding debt and extends our maturity schedule. We also strengthened our executive management team with the additions of Carol DiBattiste and Joan Walker to lead our legal and compliance and corporate communications functions, respectively, and Mick Beekhuizen as our new Chief Financial Officer. It is a testament to our mission and position as an industry leader that we were able to attract these accomplished individuals to EDMC.”

Due primarily to the Company's equity market capitalization being below book value at March 31, 2013, the Company performed impairment reviews of the carrying value of goodwill and indefinite-lived intangible assets at each of its four reporting units at March 31, 2013. The reviews resulted in a non-cash goodwill impairment of $294.5 million and a non-cash indefinite-lived intangible asset impairment of $28.0 million at The Art Institutes reporting unit. Goodwill and indefinite-lived intangible asset impairments were not indicated at the Company's other three reporting units, which are Argosy University, Brown Mackie Colleges and South University. In addition, the Company recorded a $1.2 million non-cash impairment charge related to fixed assets at one of its schools.

1





Financial Highlights
•
Financial highlights for the third quarter of fiscal 2013 included the following:
◦
Net revenues were $638.9 million, a decrease of 9.1% from $702.5 million recorded in the third quarter of fiscal 2012, primarily due to an 11.4% decline in average enrolled student body for the three months ended March 31, 2013 compared to the prior year quarter.
◦
The Company recorded a net loss of $284.0 million, or $2.28 per diluted share, compared to a net loss of $417.1 million, or $3.31 per diluted share, for the prior year quarter. The prior year quarter included a goodwill impairment charge of $495.4 million.
◦
As noted in the table below, the Company incurred long-lived asset impairments, a loss on debt refinancing, and a reversal of an uncertain tax position liability in both the current quarter and the prior year quarter, as well as a restructuring charge in the prior year quarter. After adjusting for these expenses, net income would have been $30.5 million, or $0.24 per diluted share, in the current quarter compared to net income of $41.6 million, or $0.33 per diluted share, in the prior year quarter.
◦
Earnings before interest, taxes and depreciation and amortization ("EBITDA") was a loss of $206.9 million compared to a loss of $376.3 million in the prior year quarter. After adjusting for impairment charges, a debt refinancing charge and restructuring charges described below, EBITDA would have been $122.0 million in the current quarter compared to $134.5 million in the prior year quarter.
(dollars in millions except per share data)
For the Three Months Ended March 31,
 
2013
 
2012
EBITDA
$
(206.9
)
 
$
(376.3
)
Long-lived asset impairments
323.7

 
495.4

Loss on debt refinancing
5.2

 
9.5

Restructuring
—

 
5.9

EBITDA excluding certain expenses
122.0

 
134.5

 
 
 
 
Net loss
(284.0
)
 
(417.1
)
Long-lived asset impairments, loss on debt refinancing and restructuring, net of tax
315.2

 
459.4

Reversal of uncertain tax position liability
(0.7
)
 
(0.7
)
Net income excluding certain expenses
$
30.5

 
$
41.6

 
 
 
 
Diluted loss per share
$
(2.28
)
 
$
(3.31
)
Diluted earnings per share, excluding certain expenses
$
0.24

 
$
0.33

•
On March 5, 2013, the Company completed an offer to exchange the 8.75% Senior Notes due June 1, 2014 ("Old Notes") for new Senior Cash Pay/PIK Notes due July 1, 2018 ("New Notes") and cash. In connection with this exchange offer and a simultaneous private exchange on the same terms, the Company issued $203.0 million of New Notes and paid down $162.3 million of Old Notes with cash on

2


hand. The remaining $9.7 million of Old Notes not tendered were extinguished in April 2013 at par. A loss on debt refinancing of $5.2 million was reported in the fiscal third quarter, which represents fees paid to third parties in connection with this exchange offer.
•
Despite lower operating performance in the current period, cash flows provided by operating activities for the nine months ended March 31, 2013 were $286.2 million compared to $152.7 million in the nine months ended March 31, 2012. Current year operating cash flows were comparatively higher primarily due to a transfer of $210.0 million to restricted cash in the prior year quarter in connection with the issuance of letters of credit under the Company's cash secured letter of credit facilities, which reduced the prior year period's cash flow from operating activities. The cash secured letter of credit facilities are being used to help satisfy the Company's previously disclosed letter of credit requirement with the U.S. Department of Education.
•
At March 31, 2013, cash and cash equivalents were $183.6 million, compared to $287.5 million at March 31, 2012.
•
On a cash basis, capital expenditures were $64.6 million, or 3.4% of net revenues, for the nine months ended March 31, 2013 compared to $64.7 million, or 3.0% of net revenues, in the same period in the prior year.

3


New Student Enrollment
 
For the Three Months Ended March 31,
 
2013
 
2012
 
% Change
The Art Institutes
11,200

 
12,100

 
(7.3
)%
Argosy University
5,100

 
4,300

 
18.1
 %
Brown Mackie Colleges
4,100

 
4,000

 
3.7
 %
South University (1)
4,100

 
6,700

 
(39.0
)%
Total EDMC (1)
24,500

 
27,100

 
(9.5
)%
The new student enrollment data shown above includes the number of new students who enrolled in fully-online programs at The Art Institute of Pittsburgh, Argosy University and South University. Total new students who enrolled in fully-online programs for the three months ended March 31, 2013 were approximately 7,700 as compared to 10,300 in three months ended March 31, 2012.
(1)
The reduction in new student enrollment reflects the impact of the actions taken last summer related to South University's fully-online programs. When excluding South University's fully-online programs, "total EDMC" new student enrollment increased 2.0%.


Average Enrolled Student Body
 
For the Three Months Ended March 31,
 
2013
 
2012
 
% Change
The Art Institutes
67,000

 
75,300

 
(11.1
)%
Argosy University
25,300

 
28,400

 
(10.9
)%
Brown Mackie Colleges
17,000

 
18,600

 
(8.3
)%
South University
19,000

 
22,500

 
(15.6
)%
Total EDMC
128,300

 
144,800

 
(11.4
)%
Average enrolled student body is the three month average of the unique students who met attendance requirements within a month of the quarter. The data above includes the number of students enrolled in fully-online programs at The Art Institute of Pittsburgh, Argosy University and South University. The average enrolled student body in fully-online programs was approximately 31,800 for the three months ended March 31, 2013 as compared to 39,300 in the three months ended March 31, 2012.

 
Starting Student Enrollment
 
April
 
April
 
 
 
2013
 
2012
 
% Change
The Art Institutes
63,700

 
70,500

 
(9.8
)%
Argosy University
24,500

 
26,100

 
(6.2
)%
Brown Mackie Colleges
16,700

 
18,200

 
(8.1
)%
South University
17,600

 
20,100

 
(12.3
)%
Total EDMC
122,500

 
134,900

 
(9.2
)%
The starting student enrollment data shown above includes the number of students enrolled in fully-online programs at The Art Institute of Pittsburgh, Argosy University and South University. Starting students enrolled in fully-online programs were approximately 29,500 as of April 2013 as compared to 34,200 as of April 2012. Fully-online

4


enrollment is measured based on the number of students meeting attendance requirements over a two-week period near the start of the fiscal quarter.

5


Fiscal 2013 Guidance
The following discussion of the Company's fiscal 2013 guidance includes information that could constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. As more fully described below under the heading “Cautionary Statement,” these and other forward-looking statements are based on information currently available to management and involve estimates, assumptions, risks, uncertainties and other factors that may cause actual results, performance or achievements to differ materially and unpredictably from any future results, performance or achievements expressed or implied by such forward-looking statements.

For the fiscal year ending June 30, 2013, capital expenditures are projected to be approximately 3.5% of net revenues, compared to 3.4% of net revenues in the fiscal year ended June 30, 2012. The following fourth quarter and annual guidance for fiscal 2013 excludes the impact of asset impairments, restructuring and other special charges.


Reconciliation of Fiscal Year 2013 Fourth Quarter and Annual Guidance of Net Income to EBITDA
(Dollars in millions, except earnings per share) (Unaudited)

Fiscal 2013 Guidance – 4th Quarter:
 
For the Three Months Ending June 30, 2013
 
 
Low
 
High
Loss per diluted share
 
$
(0.05
)
 
$
(0.02
)
 
 
 
 
 
Net loss
 
$
(6
)
 
$
(3
)
Net interest expense
 
32

 
32

Income tax benefit
 
(4
)
 
(2
)
Depreciation and amortization
 
40

 
40

EBITDA
 
$
62

 
$
67


Fiscal Year 2013 Guidance – Annual:
 
For the Twelve Months Ending June 30, 2013
 
 
Low
 
High
Loss per diluted share
 
$
(2.18
)
 
$
(2.16
)
Earnings per diluted share excluding expenses related to long-lived asset impairments, loss on debt refinancing, restructuring and other charges
 
$
0.41

 
$
0.43

 
 
 
 
 
Net loss
 
$
(272
)
 
$
(269
)
Expenses related to long-lived asset impairments, loss on debt refinancing, restructuring and other charges, net of tax
 
323

 
323

Net income excluding expenses
 
$
51

 
$
54

 
 
 
 
 
  Net interest expense
 
$
125

 
$
125

Income tax expense
 
35

 
37

Depreciation and amortization
 
159

 
159

EBITDA excluding expenses
 
$
370

 
$
375



6


Our quarterly revenues and income fluctuate primarily as a result of the pattern of student enrollments, and our first fiscal quarter is typically the lowest revenue quarter of the fiscal year due to student vacations. However, the seasonality of our business has decreased over the last several years, primarily due to the percentage of students enrolling in online programs, which generally experience less seasonal fluctuation than campus-based programs.

The presentation of EBITDA, as well as the presentations excluding certain expenses, do not comply with U.S. generally accepted accounting principles ("GAAP"). For an explanation of EBITDA and EBITDA and net income excluding certain expenses, together with a reconciliation to net income, which is the most directly comparable GAAP financial measure, see the Non-GAAP Financial Measures disclosure in the financial tables section below.

Conference Call and Webcast
Education Management Corporation will host a conference call to discuss its fiscal 2013 third quarter results on Thursday, May 2, 2013 at 9:00 a.m. (Eastern Time). Those wishing to participate in this call should dial 412-317-6789 approximately 10 minutes prior to the start of the call. A listen-only audio of the conference call will also be broadcast live over the Internet at www.edmc.edu. A replay of the conference call will be available at www.edmc.edu for up to one year.


7


EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)


 
For the Three Months Ended March 31,
 
For the Nine Months Ended March 31,
 
2013
 
2012
 
% Change
 
2013
 
2012
 
% Change
Net revenues
$
638,903

 
$
702,499

 
(9.1
)%
 
$
1,903,363

 
$
2,121,782

 
(10.3
)%
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Educational services (1) (2)
350,134

 
382,204

 
(8.4
)%
 
1,091,808

 
1,132,421

 
(3.6
)%
General and administrative (1)
166,814

 
191,747

 
(13.0
)%
 
512,496

 
581,608

 
(11.9
)%
Depreciation and amortization
40,266

 
40,610

 
(0.8
)%
 
123,667

 
118,694

 
4.2
 %
Long-lived asset impairments (3)
323,690

 
495,380

 
(34.7
)%
 
323,690

 
495,380

 
(34.7
)%
Total costs and expenses
880,904

 
1,109,941

 
(20.6
)%
 
2,051,661

 
2,328,103

 
(11.9
)%
Loss before interest and income taxes
(242,001
)
 
(407,442
)
 
(40.6
)%
 
(148,298
)
 
(206,321
)
 
(28.1
)%
Interest expense, net
30,464

 
25,424

 
19.8
 %
 
92,924

 
79,139

 
17.4
 %
Loss on debt refinancing
5,232

 
9,474

 
(44.8
)%
 
5,232

 
9,474

 
(44.8
)%
Loss before income taxes
(277,697
)
 
(442,340
)
 
(37.2
)%
 
(246,454
)
 
(294,934
)
 
(16.4
)%
Income tax expense (benefit)
6,297

 
(25,224
)
 
N/M

 
19,489

 
32,101

 
(39.3
)%
Net loss
$
(283,994
)
 
$
(417,116
)
 
(31.9
)%
 
$
(265,943
)
 
$
(327,035
)
 
(18.7
)%
Loss per share:
 
 
 
 
 
 
 
 
 
 
 
Basic
$
(2.28
)
 
$
(3.31
)
 
 
 
$
(2.14
)
 
$
(2.57
)
 
 
Diluted
$
(2.28
)
 
$
(3.31
)
 
 
 
$
(2.14
)
 
$
(2.57
)
 
 
Weighted average number of shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
124,602

 
126,005

 
 
 
124,546

 
127,224

 
 
Diluted
124,602

 
126,005

 
 
 
124,546

 
127,224

 
 

(1)
Certain reclassifications of fiscal 2012 data have been made to conform to the fiscal 2013 presentation. These reclassifications did not materially change any of the previously reported amounts.

(2)
Includes bad debt expense of $39.9 million and $41.2 million in the three months ended March 31, 2013 and 2012, respectively and $129.7 million and $117.7 million in the nine months ended March 31, 2013 and 2012, respectively.

(3)
The current quarter includes a $294.5 million goodwill impairment and a $28.0 million indefinite-lived intangible asset impairment each recorded at The Art Institutes and $1.2 million of an impairment charge related to fixed assets at one of the Company's schools. The prior year quarter includes goodwill impairment charges at Argosy University, Brown Mackie Colleges and South University.














8






EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands)
 
March 31, 2013
 
June 30, 2012
 
March 31, 2012
Assets
(Unaudited)
 
 
 
(Unaudited)
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
183,614

 
$
191,008

 
$
287,503

Restricted cash
272,029

 
267,880

 
284,053

Total cash, cash equivalents and restricted cash
455,643

 
458,888

 
571,556

Student receivables, net of allowances of $177,802, $225,657 and $214,140
153,069

 
203,341

 
144,495

Notes, advances and other receivables
27,509

 
22,174

 
20,768

Inventories
7,000

 
8,382

 
10,035

Deferred income taxes
102,793

 
102,668

 
76,674

Prepaid income taxes
—

 
6,796

 
7,406

Other current assets
33,547

 
40,399

 
40,009

Total current assets
779,561

 
842,648

 
870,943

Property and equipment, net
543,731

 
651,797

 
653,888

Other long-term assets
55,878

 
51,071

 
47,176

Intangible assets, net
301,039

 
330,029

 
458,844

Goodwill
669,090

 
963,550

 
2,086,619

Total assets
$
2,349,299

 
$
2,839,095

 
$
4,117,470

Liabilities and shareholders’ equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current portion of long-term debt
$
12,076

 
$
12,076

 
$
12,076

Revolving credit facility
—

 
111,300

 
—

Accounts payable
20,955

 
54,834

 
31,735

Accrued liabilities
148,782

 
137,348

 
169,838

Accrued income taxes
3,174

 
—

 
—

Unearned tuition
78,473

 
116,277

 
80,046

Advance payments
222,942

 
102,170

 
261,260

Total current liabilities
486,402

 
534,005

 
554,955

Long-term debt, less current portion
1,283,344

 
1,453,468

 
1,456,352

Deferred income taxes
88,216

 
111,767

 
171,498

Deferred rent
206,847

 
197,758

 
195,494

Other long-term liabilities
39,250

 
45,533

 
45,766

Shareholders’ equity:
 
 
 
 
 
Common stock, at par
1,435

 
1,434

 
1,434

Additional paid-in capital
1,789,672

 
1,777,732

 
1,774,634

Treasury stock, at cost
(328,605
)
 
(328,605
)
 
(317,888
)
(Accumulated deficit) Retained earnings
(1,201,903
)
 
(935,960
)
 
252,746

Accumulated other comprehensive loss
(15,359
)
 
(18,037
)
 
(17,521
)
Total shareholders’ equity
245,240

 
496,564

 
1,693,405

Total liabilities and shareholders’ equity
$
2,349,299

 
$
2,839,095

 
$
4,117,470


9




EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 
 
For the Nine Months Ended March 31,
Cash flows from operating activities:
2013
 
2012
Net loss
$
(265,943
)
 
$
(327,035
)
Adjustments to reconcile net loss to net cash flows from operating activities:
 
 
 
Depreciation and amortization of property and equipment
118,814

 
112,936

Amortization of intangible assets
4,853

 
5,758

Bad debt expense
129,659

 
117,695

Long-lived asset impairments
323,690

 
495,380

Loss on debt refinancing
5,232

 
9,474

Share-based compensation
11,937

 
10,171

Non cash adjustments related to deferred rent
(12,610
)
 
(9,300
)
Amortization of deferred gains on sale-leaseback transactions
(1,012
)
 
—

Restricted cash
(4,149
)
 
(236,540
)
Receivables
(91,473
)
 
(105,089
)
Reimbursements for tenant improvements
7,102

 
14,248

Inventory
1,383

 
(447
)
Other assets
8,667

 
(9,444
)
Accounts payable
(29,792
)
 
(20,922
)
Accrued liabilities
(3,095
)
 
6,632

Unearned tuition
(37,804
)
 
(60,104
)
Advance payments
120,743

 
149,263

Total adjustments
552,145

 
479,711

Net cash flows provided by operating activities
286,202

 
152,676

Cash flows from investing activities:
 
 
 
Expenditures for long-lived assets
(64,586
)
 
(64,679
)
Proceeds from sales of fixed assets
65,065

 
—

Reimbursements for tenant improvements
(7,102
)
 
(14,248
)
Net cash flows used in investing activities
(6,623
)
 
(78,927
)
Cash flows from financing activities:
 
 
 
Payments under revolving credit facility
(111,300
)
 
(79,000
)
Principal payment on senior notes
(162,246
)
 
—

Issuance of common stock
3

 
2,618

Common stock repurchased for treasury
—

 
(92,756
)
Principal payments on long-term debt
(9,117
)
 
(8,141
)
Debt issuance costs and other
(4,436
)
 
(11,928
)
Net cash flows used in financing activities
(287,096
)
 
(189,207
)
Effect of exchange rate changes on cash and cash equivalents
123

 
(263
)
Net change in cash and cash equivalents
(7,394
)
 
(115,721
)
Cash and cash equivalents, beginning of period
191,008

 
403,224

Cash and cash equivalents, end of period
$
183,614

 
$
287,503

Cash paid during the period for:
 
 
 
Interest (including swap settlement)
$
89,705

 
$
77,736

Income taxes, net of refunds
34,960

 
74,328

 
As of March 31,
Noncash investing activities:
2013
 
2012
Capital expenditures in current liabilities
$
7,756

 
$
7,580


10


EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited)


The Company reports results in four segments - The Art Institutes, Argosy University, Brown Mackie Colleges and South University. The Company evaluates segment performance based on EBITDA excluding certain expenses. Adjustments to reconcile segment results to consolidated results are included under the caption “Corporate and Other,” which primarily includes unallocated corporate activity.

EBITDA, a measure used by management to measure operating performance, is defined as net income before net interest expense, provision for income taxes and depreciation and amortization. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow available for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Management believes EBITDA is helpful in highlighting trends because EBITDA excludes the results of decisions that are outside the control of operating management and can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We also present diluted earnings per share, weighted average number of diluted shares outstanding, net income and EBITDA after adjusting for certain expenses, which also are non-GAAP financial measures. Management believes this presentation is also helpful in highlighting trends in our business because it excludes certain expenses management believes are not indicative of ongoing operations. Management compensates for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to similarly titled measures of other companies. A reconciliation of EBITDA excluding certain expenses by segment to consolidated net loss to consolidated net income, excluding certain expenses is detailed below:















11




Segment Information and Reconciliation of EBITDA to Net Loss to
Net Income Excluding Certain Expenses
(In thousands, except per share amounts) (Unaudited)
 
For the Three Months Ended March 31,
 
For the Nine Months Ended March 31,
 
2013
 
2012
 
% Change
 
2013
 
2012
 
% Change
Net revenues:
 
 
 
 
 
 
 
 
 
 
 
The Art Institutes
$
393,560

 
$
442,842

 
(11.1
)%
 
$
1,185,232

 
$
1,341,344

 
(11.6
)%
Argosy University
94,430

 
104,781

 
(9.9
)%
 
268,663

 
308,995

 
(13.1
)%
Brown Mackie Colleges
73,876

 
77,949

 
(5.2
)%
 
226,122

 
240,617

 
(6.0
)%
South University
77,037

 
76,927

 
0.1
 %
 
223,346

 
230,826

 
(3.2
)%
Total EDMC
638,903

 
702,499

 
(9.1
)%
 
1,903,363

 
2,121,782

 
(10.3
)%
 
 
 
 
 

 
 
 
 
 
 
EBITDA excluding certain expenses:
 
 
 

 
 
 
 
 
 
The Art Institutes
100,527

 
124,611

 
(19.3
)%
 
280,714

 
386,688

 
(27.4
)%
Argosy University
16,373

 
19,202

 
(14.7
)%
 
33,363

 
50,580

 
(34.0
)%
Brown Mackie Colleges
8,436

 
14,521

 
(41.9
)%
 
28,798

 
50,733

 
(43.2
)%
South University
15,410

 
(1,980
)
 
N/M
 
30,670

 
1,320

 
N/M
Corporate and other
(18,791
)
 
(21,898
)
 
14.2
 %
 
(65,341
)
 
(68,993
)
 
5.3
 %
Total EDMC
121,955

 
134,456

 
(9.3
)%
 
308,204

 
420,328

 
(26.7
)%
 
 
 
 
 

 
 
 
 
 
 
Reconciliation to EBITDA:
 
 
 
 

 
 
 
 
 
 
Long-lived asset impairments
323,690

 
495,380

 
(34.7
%)
 
323,690

 
495,380

 
(34.7
%)
Loss on debt refinancing
5,232

 
9,474

 
(44.8
)%
 
5,232

 
9,474

 
(44.8
)%
Restructuring
—

 
5,908

 
N/M
 
9,145

 
12,575

 
(27.3
)%
EBITDA
(206,967
)
 
(376,306
)
 
(45.0
%)
 
(29,863
)
 
(97,101
)
 
(69.2
%)
 
 
 
 
 


 
 
 
 
 
 
Reconciliation to net loss:
 
 
 


 
 
 
 
 
 
Depreciation and amortization
40,266

 
40,610

 
(0.8
%)
 
123,667

 
118,694

 
4.2
%
Net interest expense
30,464

 
25,424

 
19.8
%
 
92,924

 
79,139

 
17.4
%
Income tax expense (benefit)
6,297

 
(25,224
)
 
N/M
 
19,489

 
32,101

 
(39.3
)%
Net loss
$
(283,994
)
 
$
(417,116
)
 
(31.9
)%
 
$
(265,943
)
 
$
(327,035
)
 
(18.7
)%
 
 
 
 
 


 
 
 
 
 
 
Long-lived asset impairments, net of tax
$
311,998

 
$
450,000

 
(30.7
)%
 
$
311,998

 
$
450,000

 
(30.7
)%
Loss on debt refinancing, net of tax
3,139

 
5,779

 
(45.7
)%
 
3,139

 
5,779

 
(45.7
)%
Restructuring, net of tax
—

 
3,674

 
N/M
 
5,488

 
7,674

 
(28.5
)%
Software-related charge, net of tax
—

 
—

 
N/M
 
2,753

 
—

 
N/M
Reversal of uncertain tax position liability
(691
)
 
(749
)
 
(7.7
)%
 
(691
)
 
(749
)
 
(7.7
)%
Net income, excluding certain expenses
$
30,452

 
$
41,588

 
(26.8
)%
 
$
56,744

 
$
135,669

 
(58.2
)%
 
 
 
 
 
 
 
 
 
 
 
 
Diluted loss per share
$
(2.28
)
 
$
(3.31
)
 
 
 
$
(2.14
)
 
$
(2.57
)
 
 
Diluted earnings per share, excluding certain expenses
$
0.24

 
$
0.33

 
 
 
$
0.45

 
$
1.07

 
 
Weighted average number of diluted shares outstanding, excluding certain expenses
125,167

 
126,005

 
 
 
124,802

 
127,224

 
 

12


About Education Management Corporation
Education Management Corporation (www.edmc.edu), with approximately 132,000 students as of October 2012, is among the largest providers of post-secondary education in North America, based on student enrollment and revenue, with a total of 110 locations in 32 U.S. states and Canada. We offer academic programs to our students through campus-based and online instruction, or through a combination of both. We are committed to offering quality academic programs and strive to improve the learning experience for our students. Our educational institutions offer students the opportunity to earn undergraduate and graduate degrees and certain specialized non-degree diplomas in a broad range of disciplines, including media arts, health sciences, design, psychology and behavioral sciences, culinary, business, fashion, legal, education and information technology.

Cautionary Statement
This press release includes information that could constitute forward-looking statements with the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which are based on information currently available to management, concern the Company's strategy, plans, intentions or expectations and typically contain words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “will,” “should,” “seeks,” “approximately,” or “plans” or similar words, although the absence of such words does not mean that any particular statement is not forward-looking. All of the statements included in this press release that relate to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results, including the fourth quarter and annual guidance for fiscal 2013, and including statements regarding expected enrollment, revenue, expense levels, capital expenditures and earnings, are forward-looking statements, as are any statements concerning the Company's expected future operations and performance and other future developments. These and other forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to differ materially and unpredictably from any future results, performance or achievements expressed or implied by such forward-looking statements. The Company derives many of its forward-looking statements from its operating budgets and forecasts, which are based upon many detailed assumptions, and the Company cautions that it is very difficult to predict the impact of unknown factors, and impossible to anticipate all factors, that could affect its actual results. Some of the factors that the Company believes could affect its results and that could cause actual results to differ materially from expectations include, but are not limited to: the timing and magnitude of student enrollment and changes in student mix, including the relative proportions of campus-based and online students enrolled in its programs; changes in average registered credits taken by students; the Company's ability to maintain eligibility to participate in Title IV programs; other changes in its students' ability to access federal and state financial aid, as well as obtain loans from third-party lenders; difficulties the Company may face in opening new schools, growing its academic programs and otherwise implementing its growth strategy; increased or unanticipated legal and regulatory costs; the results of program reviews and audits; changes in accreditation standards; the implementation of new operating procedures for the Company's fully online programs; the implementation of program initiatives in response to the U.S. Department of Education's new gainful employment regulations; adjustments to the Company's programmatic offerings to comply with the 90/10 rule; its high degree of leverage and ability to generate sufficient cash to service all of its debt obligations and other liquidity needs; market and credit risks associated with the post-secondary education industry, adverse media coverage of the industry and the overall condition of the industry; changes in the overall U.S. or global economies and access to credit and capital markets; the effects of war, terrorism, natural disasters or other catastrophic events and other risks affecting the Company, including but not limited to those described in its periodic reports filed with the Securities Exchange Commission pursuant to the Securities Exchange Act of 1934.     

13
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