-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TdB/y+Y9r+jUtrThVxQD6NCWdQoSPmxZrV3t0sdjlm3P9ZqYfELBgwzxR2yDnOMn hibimyVyTHklS/Xh0ESPVA== 0001275287-06-000728.txt : 20060209 0001275287-06-000728.hdr.sgml : 20060209 20060209060153 ACCESSION NUMBER: 0001275287-06-000728 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20060208 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060209 DATE AS OF CHANGE: 20060209 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: 000-21363 FILM NUMBER: 06590824 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 em4767.txt FORM 8-K ================================================================================ UNITED STATES 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): February 8, 2006 ---------- EDUCATION MANAGEMENT CORPORATION (Exact Name of Registrant as Specified in Charter) Pennsylvania 000-21363 25-1119571 (State or Other Jurisdiction (Commission (IRS Employer of incorporation) File Number) 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. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] 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 February 8, 2006, Education Management Corporation issued a press release announcing its financial results for the quarter ended December 31, 2005. A copy of the February 8, 2006 press release is attached hereto as an exhibit and incorporated herein by reference. The information included 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. (d) Exhibits Exhibit 99.1 Press release dated February 8, 2006 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/ ROBERT T. MCDOWELL ---------------------------- Robert T. McDowell Executive Vice President and Chief Financial Officer Dated: February 8, 2006 EXHIBIT INDEX Exhibit No. Description - ----------- -------------------------------------------------------------- 99.1 Press release dated February 8, 2006 EX-99.1 2 em4767ex991.txt EXHIBIT 99.1 Exhibit 99.1 EDUCATION MANAGEMENT CORPORATION REPORTS FISCAL 2006 SECOND QUARTER EPS OF $0.62 -- INCREASES FISCAL 2006 EPS GUIDANCE BY $0.08 -- PITTSBURGH, Feb. 8 /PRNewswire-FirstCall/ -- Education Management Corporation (Nasdaq: EDMC) today reported its financial results for the second quarter ended December 31, 2005. For the quarter, net revenues increased 13.3% to $312.6 million and net income grew 20.3% to $47.6 million, or $0.62 per diluted share. Effective July 1, 2005, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R) ("SFAS 123(R)"), "Share-Based Payment," using the modified-prospective transition method, under which no restatement of prior periods is made for the fair value recognition of compensation cost. The adoption of this standard has a significant impact on the comparability of the results of operations for the Company. If the Company had adopted SFAS 123(R) using the retrospective method and restated the second quarter of fiscal 2005, net income for the second quarter of fiscal 2006 would have increased 36.3% over the prior year period. John R. McKernan, Jr., EDMC's Vice Chairman and Chief Executive Officer, commented, "Through good management of our expenses and the dedication of our employees, the Company had a strong second quarter. As a result, we are raising our full year earnings per share guidance to $1.54 while continuing to invest in our future as evidenced by moving our online operations into a new 40,000 square foot facility in Pittsburgh, the hiring of additional admissions representatives, and the opening of two new Art Institutes in Indianapolis, IN and San Bernardino (Inland Empire), CA." Financial Highlights - Revenues for the three months ended December 31, 2005 increased 13.3% to $312.6 million, compared to $275.8 million for the same period a year ago. Revenue growth in the second quarter of fiscal 2006 resulted from a 9.5% increase in total student enrollment and an approximate 5% increase in tuition rates. Total enrollment at the start of the Fall quarter was 72,471 students compared to 66,179 students for the same period last year. - Second quarter income before interest and taxes (operating income) rose 19.6% to $77.9 million from $65.1 million for the same period a year ago. The consolidated operating margin improved 130 basis points to 24.9%. The improvement in consolidated operating margin was due in part to lower bad debt, salaries and rent expense as a percentage of revenue that was partially offset by higher advertising expense. On a proforma basis after giving effect to stock compensation expense under SFAS 123(R) for the quarter ended December 31, 2004, income before interest and taxes (operating income) increased 34.9% to $77.9 million from $57.7 million, resulting in consolidated operating margin improvement of approximately 400 basis points to 24.9% from 20.9%. - The Company's effective tax rate was 39.9% for the second quarter of fiscal 2006, as compared to 39.0% recorded in the comparable quarter of the prior year. The effective tax rate was higher primarily due to a reduction in tax reserves recorded in the 2005 second quarter related to a favorable resolution of a tax audit. - Net income for the quarter grew 20.3% to $47.6 million, or $0.62 per diluted share, compared to $39.6 million, or $0.53 per diluted share, in the year ago period. On a proforma basis after giving effect to stock compensation expense under SFAS 123(R) for the quarter ended December 31, 2004, net income would have been $34.9 million, or $0.47 per diluted share and would have increased 31.9% in the second quarter of fiscal 2006 (see table below labeled "Reconciliation of Non-GAAP Financial Measures"). - At December 31, 2005, the Company had cash and cash equivalents of $213.4 million as compared to $29.2 million at December 31, 2004. Cash flow from operations for the six-month period ended December 31, 2005 was $132.7 million compared to $80.5 million last fiscal year. Higher cash flow compared to the same period in the prior year was primarily due to the growth in net income and positive working capital changes. - Capital expenditures were $34.6 million, or 6.1% of revenue for the first half of fiscal 2006, compared to $40.6 million, or 8.3% of revenue, last year. Student Enrollment At the start of the current winter quarter (third quarter of fiscal 2006), total enrollment at EDMC's schools was 71,911 students, an 8.8% increase from the same time last year. Same-school enrollment (schools owned for one year or more) increased 8.5% to 71,753 students. Campus-based enrollment includes students at Brown Mackie Colleges in Dallas and Fort Worth, Texas that discontinued accepting new enrollments in August 2005. There were a total of 80 students at these two schools during the current winter quarter compared to 423 in the prior year period. At the start of the current winter quarter, excluding students at Brown Mackie Colleges in Dallas and Fort Worth, total enrollment and same-school enrollment at EDMC's schools increased 9.4% and 9.1%, respectively. Students taking 100% of their coursework online increased 60.9% to 4,447 students. 2006 2005 % Winter Winter Change -------- -------- -------- Total enrollment 71,911 66,103 8.8% Same-school enrollment (owned for 1 year or more) 71,753 66,103 8.5% Students taking 100% of their coursework online 4,447 2,763 60.9% The Company's quarterly revenues and income fluctuate primarily as a result of the pattern of student enrollments. Student enrollment at the Art Institute schools has typically peaked in the fall (fiscal year second quarter), when the largest number of recent high school and college graduates traditionally begin post-secondary education programs. The first quarter is typically the lowest revenue recognition quarter due to student vacations. The seasonality of the Company's business has decreased over the last several years due to an increased percentage of students at the Company's schools enrolling in bachelor's and graduate degree programs. Share-based Payment Effective July 1, 2005, the Company adopted the fair value recognition provisions of SFAS 123(R), "Share-Based Payment," using the modified- prospective transition method. Under that transition method, compensation cost recognized during the second quarter of fiscal 2006 includes (a) compensation cost for all share-based payments granted prior to, but not fully vested as of July 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of FASB Statement No. 123, and (b) compensation cost for all share-based payments granted subsequent to July 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). The adoption of SFAS 123(R) resulted in $5.1 million of share-based payment expense in the quarter ended December 31, 2005. In addition, an incremental $1.7 million of restricted stock expense, which is generally accounted for similarly under APB No. 25 and SFAS 123(R), was also recognized in the quarter ended December 31, 2005. Because the Company adopted SFAS 123(R) using the modified prospective method, results for periods prior to June 30, 2005 have not been restated which affects the comparability of results. Business Outlook The Company estimates that enrollment growth will be in the high single digits for the Spring term (fourth quarter of fiscal 2006) but somewhat lower than the Winter term. For the third quarter and 2006 fiscal year, the Company projects revenue growth in the range of 12-13% and 13-14%, respectively. Reflecting the impact of SFAS 123(R), the Company estimates diluted EPS of $0.48 and $1.54 for the third quarter and fiscal year, respectively. For the full fiscal year ending June 30, 2006, the Company anticipates an effective tax rate of 39.4% and capital spending of approximately 7.5 to 8.0% of revenue. Conference Call with Management Education Management will host a conference call to discuss its fiscal 2006 second quarter results on Thursday, February 9, 2006 at 10:30 a.m. (Eastern Time). Those wishing to participate in this call should dial 303-262-2054 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.com. Education Management Corporation (www.edmc.com) is among the largest providers of private post-secondary education in North America, based on student enrollment and revenue. EDMC has 72 primary campus locations in 24 states and two Canadian provinces. EDMC's education institutions offer a broad range of academic programs concentrated in the media arts, design, fashion, culinary arts, behavioral sciences, health sciences, education, information technology, legal studies and business fields, culminating in the award of associate's through doctoral degrees. EDMC has provided career-oriented education for over 40 years. Statements in this press release that relate to future results and events, including statements about EDMC's anticipated financial and operating performance, are forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks, uncertainties and assumptions, which change over time. Forward-looking statements speak only as of the date they are made and EDMC does not undertake any obligation to update these forward- looking statements. Actual results could differ materially from those anticipated in the forward-looking statements, and future results could differ materially from EDMC's historical performance. Factors that could cause or contribute to such differences include: general economic, political and industry conditions; the Company's effectiveness in its regulatory compliance efforts; the effects of extensive and changing regulations on the Company's business; changing market needs and technology; the Company's ability to add and integrate new schools and grow its online programs; increased competition; the Company's ability to recruit and retain key personnel; and other matters disclosed in the Company's Securities and Exchange Commission filings, including the Company's Annual Report on Form 10-K. --Tables to Follow-- EDUCATION MANAGEMENT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) (unaudited)
For the three months For the six months ended December 31, ended December 31, --------------------------- --------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ Net revenues $ 312,611 $ 275,808 $ 565,596 $ 489,402 Costs and expenses: Educational services 171,096 157,412 342,497 308,237 General and administrative 62,533 51,629 121,975 98,161 Amortization of intangible assets 1,130 1,657 2,617 3,423 234,759 210,698 467,089 409,821 Income before interest and taxes 77,852 65,110 98,507 79,581 Interest (income) expense, net (1,444) 260 (2,148) 983 Income before income taxes 79,296 64,850 100,655 78,598 Provision for income taxes 31,667 25,270 39,074 30,865 Net income $ 47,629 $ 39,580 $ 61,581 $ 47,733 Diluted earnings per share $ 0.62 $ 0.53 $ 0.80 $ 0.64 Weighted average number of diluted shares outstanding (000's): 76,673 75,315 76,586 75,127
Selected Cash Flow Data (Unaudited):
For the three months For the six months ended December 31, ended December 31, --------------------------- --------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ Net cash flows provided by (used in) operations $ (38,461) $ (42,155) $ 132,705 $ 80,545 Depreciation and amortization 17,412 14,256 34,301 28,751 Capital expenditures (19,018) (22,438) (34,600) (40,575)
Selected Consolidated Balance Sheet Data (Unaudited): As of December 31, --------------------------- 2005 2004 ------------ ------------ Cash and cash equivalents $ 213,449 $ 29,222 Receivables, net 43,660 47,883 Current assets 296,863 116,731 Total assets 976,454 756,184 Current liabilities 163,606 147,463 Long-term debt (including current portion) 8,739 5,585 Shareholders' investment 754,573 588,585 Reconciliation of Non-GAAP Financial Measures (Unaudited) (Dollars in thousands, except per share amounts) EDMC makes use of certain non-GAAP financial measures in evaluating the Company's results to enhance comparability between previously reported periods. The non-GAAP measure, "net income, including the impact of stock compensation expense", is reconciled with GAAP net income for the three month and six month periods ended December 31, 2004, in the table below.
For the three months For the six months ended December 31, ended December 31, --------------------------- --------------------------- 2005 (a) 2004 2005 (a) 2004 ------------ ------------ ------------ ------------ GAAP Net Income $ 47,629 $ 39,580 $ 61,581 $ 47,733 Add: Share-based employee compensation expense included in reported net income, net of tax, for the periods ended December 31, 2004 - 166 - 318 Deduct: Total share-based employee compensation expense determined under SFAS 123(R), net of tax, for the periods ended December 31, 2004 - (4,801) - (9,004) Net income, including the impact of share-based compensation expenses $ 47,629 $ 34,945 $ 61,581 $ 39,047 Earnings per share: Basic--as reported $ 0.63 $ 0.54 $ 0.82 $ 0.65 Basic--including the impact of share-based compensation expense n/a $ 0.47 n/a $ 0.53 Diluted--as reported $ 0.62 $ 0.53 $ 0.80 $ 0.64 Diluted--including the impact of share-based compensation expense n/a $ 0.47 n/a $ 0.52
(a) Results for the three and six month periods ended December 31, 2005 include an additional $6.8 and $12.8 million, pre-tax, respectively, of share-based compensation expense due to the adoption of SFAS 123(R). The Company adopted SFAS 123(R) on July 1, 2005 using the modified prospective method, which resulted in the recognition of stock compensation expense in the statement of income during the three and six months ended December 31, 2005 without corresponding charges in the prior year periods. The Company believes that presenting diluted earnings per share, including the impact of stock compensation expense for the three and six month periods ended December 31, 2004, is an additional measure of performance that investors can use to compare operating results between reporting periods. Due to the increased comparability, management of the Company uses this information in evaluating the Company's results of operations and believes that this information may also provide investors better insight in evaluating the Company's earnings performance in comparison to the prior year periods. COMPANY CONTACTS: James Sober, CFA Vice President, Finance (412)995-7684 SOURCE Education Management Corporation -0- 02/08/2006 /CONTACT: James Sober, CFA, Vice President, Finance of Education Management Corporation, +1-412-995-7684/ /Web site: http://www.edmc.com/ (EDMC) -----END PRIVACY-ENHANCED MESSAGE-----