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) |
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)) |
99.1 | Press Release, dated August 7, 2013 |
Education Management Corporation |
COMPANY CONTACT: |
John Iannone |
Director of Investor Relations |
(412) 995-7727 |
• | Total new students were approximately 20,060, a decrease of 6.3% from approximately 21,400 new students in the fourth quarter of fiscal 2012. When excluding South University's fully-online programs, which were impacted by the marketing strategy and operational changes made last summer, the Company's total new student enrollment increased 0.3% compared to the prior year quarter. |
• | For the three months ended June 30, 2013, average enrolled student body was approximately 120,920, a 9.4% decline from 133,500 in the prior year quarter. Net revenues were $595.2 million, a decrease of 6.9% from $639.2 million recorded in the fourth quarter of fiscal 2012 due primarily to the decline in average enrolled student body. |
• | The Company recorded a net loss of $2.0 million, or $(0.02) per diluted share, compared to a net loss of $1,188.7 million, or $(9.51) per diluted share, for the prior year quarter. The Company incurred $4.8 million ($2.9 million net of tax) and $1.6 million ($0.9 million net of tax) of restructuring and other charges in the current quarter and the prior year quarter, respectively, as well as a loss on an asset disposal of $0.4 million ($0.3 million net of tax) in the current quarter. Excluding these expenses and non-cash long-lived asset impairment charges of $1,251.4 million ($1,200.5 million net of tax) incurred in the prior year quarter, net income would have been $1.1 million, or $0.01 per diluted share, in the current quarter compared to $12.7 million, or $0.10 per diluted share, in the prior year quarter. |
• | Earnings before interest, taxes and depreciation and amortization ("EBITDA") was $63.3 million in the current quarter compared to a loss of $1,163.4 million in the prior year quarter. After adjusting for restructuring and other charges incurred in each quarter and non-cash long-lived asset impairment charges incurred in the prior year quarter as noted above, EBITDA would have been $68.1 million in the current quarter compared to $89.6 million in the prior year quarter. |
• | Net revenues were $2,498.6 million, a decrease of 9.5% from $2,761.0 million recorded in the fiscal year ended June 30, 2013, primarily due to an 11.3% decline in average enrolled student body for the fiscal year ended June 30, 2013 compared to the prior fiscal year. |
• | The Company recorded a net loss of $268.0 million, or $(2.15) per diluted share, compared to a net loss of $1,515.7 million, or $(11.97) per diluted share, for the prior fiscal year. The Company incurred non-cash long-lived asset impairment charges of $323.7 million ($312.0 million net of tax) and $1,746.8 million ($1,650.5 million net of tax) in fiscal 2013 and 2012, respectively. Additionally, the Company incurred $24.2 million ($14.5 million net of tax) and $23.6 million ($14.3 million net of tax) of expenses in fiscal 2013 and 2012, respectively, related to restructuring and other charges, losses on the refinancing of debt and an asset disposal. Excluding these expenses and the reversal of an uncertain tax position liability of $0.7 million in each of the fiscal years ended June 30, 2013 and 2012, net income would have been $57.8 million, or $0.46 per diluted share, in the current fiscal year compared to $148.4 million, or $1.17 per diluted share, in the prior fiscal year. |
• | EBITDA was $33.4 million in the current fiscal year compared to a loss of $1,260.5 million in the prior fiscal year. After adjusting for the non-cash long-lived asset impairments, restructuring and other charges and losses on the refinancing of debt as noted above, EBITDA would have been $376.3 million in the current year compared to $509.9 million in the prior year. |
• | Despite lower operating performance, cash flows provided by operating activities for the fiscal year ended June 30, 2013 were $191.3 million compared to a use of $10.9 million in the fiscal year ended June 30, 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 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 June 30, 2013, cash and cash equivalents were $130.7 million, compared to $191.0 million at June 30, 2012. |
• | Borrowings under the revolving credit facility at June 30, 2013 were $75.0 million compared to $111.3 million at June 30, 2012. The revolving credit facility was repaid in full on the first business day of the subsequent fiscal year. |
• | On a cash basis, capital expenditures were $83.2 million, or 3.3% of net revenues, for the fiscal year ended June 30, 2013 compared to $93.5 million, or 3.4% of net revenues, in the same period in the prior year. |
Fiscal 2014 Outlook – 1st Quarter: | For the Three Months Ending September 30, 2013 | |||||||
Low | High | |||||||
Loss per diluted share | $ | (0.10 | ) | $ | (0.09 | ) | ||
Net loss | $ | (12 | ) | $ | (11 | ) | ||
Income tax benefit | (12 | ) | (11 | ) | ||||
Net interest expense | 32 | 32 | ||||||
Depreciation and amortization | 38 | 38 | ||||||
EBITDA | $ | 46 | $ | 48 |
Fiscal 2014 Outlook – Annual: | For the Twelve Months Ending June 30, 2014 | |||||||
Low | High | |||||||
Earnings per diluted share | $ | 0.21 | $ | 0.28 | ||||
Net income | $ | 27 | $ | 36 | ||||
Income tax expense | 18 | 24 | ||||||
Net interest expense | 127 | 127 | ||||||
Depreciation and amortization | 153 | 153 | ||||||
EBITDA | $ | 325 | $ | 340 |
For the Three Months Ended June 30, | For the Fiscal Year Ended June 30, | ||||||||||||||||||||
2013 | 2012 | % Change | 2013 | 2012 | % Change | ||||||||||||||||
Net revenues | $ | 595,236 | $ | 639,184 | (6.9 | )% | $ | 2,498,599 | $ | 2,760,967 | (9.5 | )% | |||||||||
Costs and expenses: | |||||||||||||||||||||
Educational services (1) (2) | 355,133 | 369,935 | (4.0 | )% | 1,447,097 | 1,502,356 | (3.7 | )% | |||||||||||||
General and administrative (1) (3) | 176,805 | 181,256 | (2.5 | )% | 689,143 | 762,863 | (9.7 | )% | |||||||||||||
Depreciation and amortization (4) | 41,046 | 39,968 | 2.7 | % | 164,712 | 158,663 | 3.8 | % | |||||||||||||
Long-lived asset impairments | — | 1,251,385 | N/M | 323,690 | 1,746,765 | N/M | |||||||||||||||
Total costs and expenses | 572,984 | 1,842,544 | N/M | 2,624,642 | 4,170,647 | N/M | |||||||||||||||
Loss before interest, loss on debt refinancing and income taxes | 22,252 | (1,203,360 | ) | N/M | (126,043 | ) | (1,409,680 | ) | N/M | ||||||||||||
Interest expense, net | 31,739 | 31,190 | 1.8 | % | 124,663 | 110,330 | 13.0 | % | |||||||||||||
Loss on debt refinancing | — | — | N/M | 5,232 | 9,474 | (44.8 | )% | ||||||||||||||
Loss before income taxes | (9,487 | ) | (1,234,550 | ) | N/M | (255,938 | ) | (1,529,484 | ) | N/M | |||||||||||
Income tax expense (benefit) | (7,452 | ) | (45,843 | ) | N/M | 12,038 | (13,743 | ) | N/M | ||||||||||||
Net loss | $ | (2,035 | ) | $ | (1,188,707 | ) | N/M | $ | (267,976 | ) | $ | (1,515,741 | ) | N/M | |||||||
Loss per share: | |||||||||||||||||||||
Basic | $ | (0.02 | ) | $ | (9.51 | ) | $ | (2.15 | ) | $ | (11.97 | ) | |||||||||
Diluted | $ | (0.02 | ) | $ | (9.51 | ) | $ | (2.15 | ) | $ | (11.97 | ) | |||||||||
Weighted average number of shares outstanding: | |||||||||||||||||||||
Basic | 124,602 | 124,963 | 124,560 | 126,659 | |||||||||||||||||
Diluted | 124,602 | 124,963 | 124,560 | 126,659 |
(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 restructuring charges of $1.6 million and $0.8 million in the three months ended June 30, 2013 and 2012 and $9.8 million and $5.2 million in the fiscal year ended June 30, 2013 and 2012, respectively. |
(3) | Includes restructuring and other charges of $3.2 million and $0.8 million in the three months ended June 30, 2013 and 2012 and $4.1 million and $8.9 million in the fiscal year ended June 30, 2013 and 2012, respectively. |
(4) | Includes charges of $0.4 million and $5.0 million in the three and twelve months ended June 30, 2013, respectively related to assets that no longer had a useful life. |
June 30, 2013 | June 30, 2012 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 130,695 | $ | 191,008 | |||
Restricted cash | 271,340 | 267,880 | |||||
Total cash, cash equivalents and restricted cash | 402,035 | 458,888 | |||||
Student receivables, net of allowances of $174,760 and $225,657 | 206,406 | 203,341 | |||||
Notes, advances and other receivables | 32,547 | 22,174 | |||||
Inventories | 5,873 | 8,382 | |||||
Deferred income taxes | 76,927 | 102,668 | |||||
Prepaid income taxes | 20,854 | 6,796 | |||||
Other current assets | 26,977 | 40,399 | |||||
Total current assets | 771,619 | 842,648 | |||||
Property and equipment, net | 525,625 | 651,797 | |||||
Other long-term assets | 48,524 | 51,071 | |||||
Intangible assets, net | 300,435 | 330,029 | |||||
Goodwill | 669,090 | 963,550 | |||||
Total assets | $ | 2,315,293 | $ | 2,839,095 | |||
Liabilities and shareholders’ equity | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | 12,076 | $ | 12,076 | |||
Revolving credit facility | 75,000 | 111,300 | |||||
Accounts payable | 32,559 | 54,834 | |||||
Accrued liabilities | 157,417 | 137,348 | |||||
Unearned tuition | 113,371 | 116,277 | |||||
Advance payments | 95,675 | 102,170 | |||||
Total current liabilities | 486,098 | 534,005 | |||||
Long-term debt, less current portion | 1,273,164 | 1,453,468 | |||||
Deferred income taxes | 70,316 | 111,767 | |||||
Deferred rent | 201,202 | 197,758 | |||||
Other long-term liabilities | 34,414 | 45,533 | |||||
Shareholders’ equity: | |||||||
Common stock, at par | 1,435 | 1,434 | |||||
Additional paid-in capital | 1,794,846 | 1,777,732 | |||||
Treasury stock, at cost | (328,605 | ) | (328,605 | ) | |||
(Accumulated deficit) Retained earnings | (1,203,936 | ) | (935,960 | ) | |||
Accumulated other comprehensive loss | (13,641 | ) | (18,037 | ) | |||
Total shareholders’ equity | 250,099 | 496,564 | |||||
Total liabilities and shareholders’ equity | $ | 2,315,293 | $ | 2,839,095 |
For the Fiscal Year Ended June 30, | |||||||
Cash flows from operating activities: | 2013 | 2012 | |||||
Net loss | $ | (267,976 | ) | $ | (1,515,741 | ) | |
Adjustments to reconcile net loss to net cash flows from operating activities: | |||||||
Depreciation and amortization of property and equipment | 157,871 | 151,023 | |||||
Amortization of intangible assets | 6,841 | 7,640 | |||||
Bad debt expense | 171,850 | 163,926 | |||||
Long-lived asset impairments | 323,690 | 1,746,765 | |||||
Amortization of debt issuance costs | 8,460 | 1,071 | |||||
Loss on debt refinancing | 5,232 | 9,474 | |||||
Share-based compensation | 17,112 | 13,290 | |||||
Non cash adjustments related to deferred rent | (17,477 | ) | (12,956 | ) | |||
Amortization of deferred gains on sale-leaseback transactions | (1,575 | ) | — | ||||
Deferred income taxes | (18,836 | ) | (132,500 | ) | |||
Changes in assets and liabilities: | |||||||
Restricted cash | (3,460 | ) | (220,367 | ) | |||
Receivables | (194,437 | ) | (220,319 | ) | |||
Reimbursements for tenant improvements | 10,054 | 15,307 | |||||
Inventory | 2,505 | 1,203 | |||||
Other assets | 15,151 | (3,856 | ) | ||||
Purchase of loans | (899 | ) | — | ||||
Accounts payable | (19,596 | ) | (1,637 | ) | |||
Accrued liabilities | 6,092 | 20,454 | |||||
Unearned tuition | (2,906 | ) | (23,873 | ) | |||
Advance payments | (6,385 | ) | (9,754 | ) | |||
Total adjustments | 459,283 | 1,504,891 | |||||
Net cash flows provided by (used in) operating activities | 191,307 | (10,850 | ) | ||||
Cash flows from investing activities: | |||||||
Expenditures for long-lived assets | (83,241 | ) | (93,546 | ) | |||
Proceeds from sales of fixed assets | 65,065 | — | |||||
Reimbursements for tenant improvements | (10,054 | ) | (15,307 | ) | |||
Other | 2,418 | — | |||||
Net cash flows used in investing activities | (25,812 | ) | (108,853 | ) | |||
Cash flows from financing activities: | |||||||
Borrowings under revolving credit facility | 75,000 | 111,300 | |||||
Payments under revolving credit facility | (111,300 | ) | (79,000 | ) | |||
Principal payments on senior notes | (171,953 | ) | — | ||||
Issuance of common stock | 3 | 2,618 | |||||
Common stock repurchased for treasury | — | (104,073 | ) | ||||
Principal payments on long-term debt | (12,155 | ) | (11,025 | ) | |||
Debt issuance costs | (5,232 | ) | (11,928 | ) | |||
Net cash flows used in financing activities | (225,637 | ) | (92,108 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | (171 | ) | (405 | ) | |||
Net change in cash and cash equivalents | (60,313 | ) | (212,216 | ) | |||
Cash and cash equivalents, beginning of period | 191,008 | 403,224 | |||||
Cash and cash equivalents, end of period | $ | 130,695 | $ | 191,008 | |||
Cash paid during the period for: | |||||||
Interest (including swap settlement) | $ | 111,396 | $ | 116,014 | |||
Income taxes, net of refunds | 46,699 | 114,629 | |||||
As of June 30, | |||||||
Noncash investing activities: | 2013 | 2012 | |||||
Capital expenditures in current liabilities | $ | 9,022 | $ | 13,201 |
For the Three Months Ended June 30, | For the Fiscal Year Ended June 30, | ||||||||||||||||||||
2013 | 2012 | % Change | 2013 | 2012 | % Change | ||||||||||||||||
Net revenues: | |||||||||||||||||||||
The Art Institutes | $ | 358,153 | $ | 397,223 | (9.8 | )% | $ | 1,543,385 | $ | 1,738,542 | (11.2 | )% | |||||||||
Argosy University | 87,881 | 88,448 | (0.6 | )% | 356,544 | 397,458 | (10.3 | )% | |||||||||||||
Brown Mackie Colleges | 72,053 | 74,175 | (2.9 | )% | 298,175 | 314,801 | (5.3 | )% | |||||||||||||
South University | 77,149 | 79,338 | (2.8 | )% | 300,495 | 310,166 | (3.1 | )% | |||||||||||||
Total EDMC | 595,236 | 639,184 | (6.9 | )% | 2,498,599 | 2,760,967 | (9.5 | )% | |||||||||||||
EBITDA excluding certain expenses: | |||||||||||||||||||||
The Art Institutes | 63,188 | 92,023 | (31.3 | )% | 343,903 | 478,693 | (28.2 | )% | |||||||||||||
Argosy University | 7,699 | 6,955 | 10.7 | % | 41,062 | 57,535 | (28.6 | )% | |||||||||||||
Brown Mackie Colleges | 7,609 | 11,340 | (32.9 | )% | 36,407 | 62,073 | (41.3 | )% | |||||||||||||
South University | 13,891 | 4,558 | 204.8 | % | 44,560 | 5,878 | 658.1 | % | |||||||||||||
Corporate and other | (24,313 | ) | (25,324 | ) | 4.0 | % | (89,653 | ) | (94,298 | ) | 4.9 | % | |||||||||
Total EDMC | 68,074 | 89,552 | (24.0 | )% | 376,279 | 509,881 | (26.2 | )% | |||||||||||||
Reconciliation to EBITDA: | |||||||||||||||||||||
Long-lived asset impairments | — | 1,251,385 | N/M | 323,690 | 1,746,765 | N/M | |||||||||||||||
Loss on debt refinancing | — | — | N/M | 5,232 | 9,474 | (44.8 | )% | ||||||||||||||
Restructuring and other | 4,776 | 1,559 | 206.4 | % | 13,920 | 14,133 | (1.5 | )% | |||||||||||||
EBITDA | 63,298 | (1,163,392 | ) | N/M | 33,437 | (1,260,491 | ) | N/M | |||||||||||||
Reconciliation to net loss: | |||||||||||||||||||||
Depreciation and amortization | 41,046 | 39,968 | 2.7 | % | 164,712 | 158,663 | 3.8 | % | |||||||||||||
Net interest expense | 31,739 | 31,190 | 1.8 | % | 124,663 | 110,330 | 13.0 | % | |||||||||||||
Income tax expense (benefit) | (7,452 | ) | (45,843 | ) | N/M | 12,038 | (13,743 | ) | N/M | ||||||||||||
Net loss | $ | (2,035 | ) | $ | (1,188,707 | ) | N/M | $ | (267,976 | ) | $ | (1,515,741 | ) | N/M | |||||||
Long-lived asset impairments, net of tax | $ | — | $ | 1,200,480 | N/M | $ | 311,998 | $ | 1,650,461 | N/M | |||||||||||
Loss on debt refinancing, net of tax | — | — | N/M | 3,139 | 5,779 | (45.7 | )% | ||||||||||||||
Restructuring and other, net of tax | 2,867 | 945 | 203.4 | % | 8,352 | 8,637 | (3.3 | )% | |||||||||||||
Loss on disposal of asset, net of tax | 262 | — | N/M | 3,015 | — | N/M | |||||||||||||||
Reversal of uncertain tax position liability | — | — | N/M | (691 | ) | (749 | ) | N/M | |||||||||||||
Net income, excluding certain expenses | $ | 1,094 | $ | 12,718 | (91.4 | )% | $ | 57,837 | $ | 148,387 | (61.0 | )% | |||||||||
Diluted loss per share | $ | (0.02 | ) | $ | (9.51 | ) | $ | (2.15 | ) | $ | (11.97 | ) | |||||||||
Diluted earnings per share, excluding certain expenses | $ | 0.01 | $ | 0.10 | $ | 0.46 | $ | 1.17 | |||||||||||||
Weighted average number of diluted shares outstanding, excluding certain expenses | 127,067 | 124,963 | 125,368 | 126,659 |
For the Three Months Ended June 30, | ||||||||
(rounded to nearest tenth) | 2013 | 2012 | % Change | |||||
The Art Institutes | 8,620 | 8,920 | (3.4 | )% | ||||
Argosy University | 3,410 | 3,320 | 2.7 | % | ||||
Brown Mackie Colleges | 3,540 | 3,560 | (0.6 | )% | ||||
South University (1) | 4,490 | 5,600 | (19.8 | )% | ||||
Total EDMC (1) | 20,060 | 21,400 | (6.3 | )% |
(1) | The reduction in new student enrollment reflects the marketing strategy and operational changes made last summer related to South University's fully-online programs. When excluding South University's fully-online programs, "total EDMC" new student enrollment increased 0.3%. |
For the Three Months Ended June 30, | ||||||||
(rounded to nearest tenth) | 2013 | 2012 | % Change | |||||
The Art Institutes | 62,430 | 68,690 | (9.1 | )% | ||||
Argosy University | 24,240 | 25,690 | (5.6 | )% | ||||
Brown Mackie Colleges | 16,310 | 17,700 | (7.9 | )% | ||||
South University | 17,940 | 21,430 | (16.3 | )% | ||||
Total EDMC | 120,920 | 133,500 | (9.4 | )% |
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