-----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, ARMR2eaO71YtzUMnYVnhMDBp9hW6CIq/IUCNSeMtqD6yer+hnSeTyvHd1mS3QxTH Gv+DTXpohYLdZWeO1SGspg== 0001275287-06-002397.txt : 20060502 0001275287-06-002397.hdr.sgml : 20060502 20060502083346 ACCESSION NUMBER: 0001275287-06-002397 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20060502 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20060502 DATE AS OF CHANGE: 20060502 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: 06797256 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 em5650.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): MAY 2, 2006 (MAY 2, 2006) EDUCATION MANAGEMENT CORPORATION (Exact Name of Registrant as Specified in Charter) Pennsylvania 000-21363 25-1119571 (State or Other Jurisdiction (Commission File Number) (IRS Employer of incorporation) 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 May 2, 2006, Education Management Corporation issued a press release announcing its financial results for the quarter ended March 31, 2006. A copy of the May 2, 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. (c) None. (d) Exhibits Exhibit 99.1 Press release dated May 2, 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: May 2, 2006 EXHIBIT INDEX Exhibit No. Description - ----------- -------------------------------------------------------------- 99.1 Press release dated May 2, 2006 EX-99.1 2 em5650ex991.txt EXHIBIT 99.1 Exhibit 99.1 FOR: Education Management Corporation COMPANY CONTACTS: James Sober, CFA Vice President, Finance (412) 995-7684 EDUCATION MANAGEMENT CORPORATION REPORTS FISCAL 2006 THIRD QUARTER EPS OF $0.52 Pittsburgh, PA, May 2, 2006 -- Education Management Corporation (NASDAQ:EDMC) today reported its financial results for the third quarter ended March 31, 2006. For the quarter, net revenues increased 13.8% to $312.5 million and net income grew 17.9% to $40.4 million, or $0.52 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 third quarter of fiscal 2005, net income for the third quarter of fiscal 2006 would have increased 32.8% over the prior year period. John R. McKernan, Jr., EDMC's Vice Chairman and Chief Executive Officer, commented, "We are pleased with our strong third quarter results. Due to the strength of our wide-range of program offerings and an improving marketing and admissions effort, we were able to exceed our enrollment expectations." The Company previously announced the execution of a definitive agreement to be acquired by Providence Equity Partners and Goldman Sachs Capital Partners in a transaction valued at approximately $3.4 billion. Under the terms of the merger agreement, the private investors will acquire all of EDMC's outstanding shares of common stock for $43.00 per share in cash. The Company will hold a special meeting of its shareholders at 10:00 a.m. Eastern time on Thursday, May 25, 2006, to vote on the proposed acquisition. FINANCIAL HIGHLIGHTS o Revenues for the three months ended March 31, 2006 increased 13.8% to $312.5 million, compared to $274.6 million for the same period a year ago. Revenue growth in the third quarter of fiscal 2006 resulted from an 8.8% increase in total student enrollment and an approximate 5% increase in tuition rates. Total enrollment at the start of the Winter quarter was 71,911 students compared to 66,103 students for the same period last year. o Third quarter income before interest and taxes (operating income) rose 16.5% to $64.6 million from $55.5 million for the same period a year ago. The consolidated operating margin improved 48 basis points to 20.7% due in part to lower salaries and bad debt expense as a percent of revenue. Additionally, audit expenses were lower compared to last year as a result of efficiencies realized in the second year operating under Sarbanes-Oxley Section 404 requirements. These improvements were partially offset by additional investment in advertising and non-recurring transaction costs of approximately $3.6 million related to the proposed purchase of the Company by a private equity group. Operating income results for the prior year third quarter reflected a charge of $3.8 million for a cumulative lease accounting adjustment. o On a proforma basis after giving effect to stock compensation expense under SFAS 123(R) for the quarter ended March 31, 2005, income before interest and taxes (operating income) increased 23.3% to $68.4 million from $55.5 million, resulting in consolidated operating margin improvement of approximately 168 basis points to 21.9% from 20.2%. o Bad debt expense was 1.9% of revenue as compared to 2.6% of revenue in the prior year period due to improved collections of accounts receivable, primarily due to alternative loan funding. o The Company's effective tax rate was 39.6% for the third quarter of fiscal 2006, as compared to 38.6% recorded in the comparable quarter of the prior year. The effective tax rate for the quarter was higher primarily due to a favorable return to provision adjustment for fiscal 2004 that was recorded during the third quarter of fiscal 2005 as well as non-deductible transaction costs associated with the pending acquisition of the Company by a private equity group. The rate increase related to these items was offset in part by the reversal of valuation allowances against Canadian deferred tax assets related to net operating loss carry-forwards that resulted from conforming the inter-company transfer pricing arrangement between the Company's U.S. and Canadian operations to the business operations in Canada. o Net income for the quarter grew 17.9% to $40.4 million, or $0.52 per diluted share, compared to $34.2 million, or $0.45 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 March 31, 2005, net income would have been $30.4 million, or $0.40 per diluted share and would have increased 32.8% in the third quarter of fiscal 2006 (see table below labeled "Reconciliation of Non-GAAP Financial Measures"). o Expenses related to the proposed transaction reduced reported earnings per share by $0.04 and $0.05, respectively, for the quarter and nine months ended March 31, 2006. o At March 31, 2006, the Company had cash and cash equivalents of $394.0 million as compared to $177.1 million at March 31, 2005 due to higher cash flow from operations, improved collections and lower capital expenditures. o Cash flow from operations for the three-month period ended March 31, 2006 was $189.0 million compared to $176.0 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. o Capital expenditures were $48.9 million, or 5.6% of revenue for the first nine months of fiscal 2006, compared to $53.5 million, or 7.0% of revenue, last year. STUDENT ENROLLMENT At the start of the current Spring quarter (fourth quarter of fiscal 2006), total enrollment at EDMC's schools was 69,775 students, an 8.7% increase from the same time last year. Same-school enrollment (schools owned for one year or more) increased 8.3% to 69,521 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 22 students at these two schools during the current Spring quarter compared to 383 in the prior year period. At the start of the current Spring quarter, excluding students at Brown Mackie Colleges in Dallas and Fort Worth, total enrollment and same-school enrollment at EDMC's schools increased 9.3% and 8.9%, respectively. Students taking 100% of their coursework online increased 55.6% to 4,796 students.
2006 2005 % SPRING SPRING CHANGE -------- -------- -------- Total enrollment 69,775 64,179 8.7% Same-school enrollment (owned for 1 year or more) 69,521 64,179 8.3% Students taking 100% of their coursework online 4,796 3,082 55.6%
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 third 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 $1.8 million of share-based payment expense in the quarter ended March 31, 2006. In addition, an incremental $2.2 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 March 31, 2006. 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 For the fourth quarter of fiscal 2006, the Company projects revenue growth of approximately 13%. Further, the Company anticipates fourth quarter diluted earnings per share of $0.20, which reflects an estimated impact of $0.04 per share due to expenses associated with the proposed acquisition by Providence and Goldman and $0.03 per share due to equity compensation expense under SFAS 123(R). For the full fiscal year ending June 30, 2006, the Company anticipates an effective tax rate of 39.6% and capital spending of approximately 7.0% of revenue. The Company's earnings per share guidance for the fourth quarter does not include the material impact of SFAS 123(R) expense from the vesting of restricted stock and stock options that would occur and be recorded in the fourth quarter if the Company's shareholders approve the transaction at the special shareholder meeting to be held on May 25, 2006. Also, the estimate does not include the substantial additional transaction fees that would be borne by the Company subject to and upon consummation of the transaction. The Company anticipates that the transaction will close in June or July of 2006, subject to the approval of the transaction by the Company's shareholders, the receipt of approvals from certain state authorizing agencies and accrediting agencies and the satisfaction of certain other conditions. CONFERENCE CALL WITH MANAGEMENT Education Management will host a conference call to discuss its fiscal 2006 third quarter results on Tuesday, May 2, 2006 at 10:30 a.m. (Eastern Time). Those wishing to participate to this call should dial 303-262-2055 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 71 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 NINE MONTHS ENDED MARCH 31, ENDED MARCH 31, -------------------------- -------------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Net revenues $ 312,533 $ 274,599 $ 878,129 $ 764,001 Costs and expenses: Educational services 178,382 166,605 520,879 474,842 General and administrative 68,686 50,880 190,661 149,041 Amortization of intangible assets 841 1,647 3,458 5,070 ----------- ----------- ----------- ----------- 247,909 219,132 714,998 628,953 ----------- ----------- ----------- ----------- Income before interest and taxes 64,624 55,467 163,131 135,048 Interest (income) expense, net (2,176) (276) (4,324) 707 ----------- ----------- ----------- ----------- Income before income taxes 66,800 55,743 167,455 134,341 Provision for income taxes 26,442 21,517 65,516 52,382 ----------- ----------- ----------- ----------- Net income $ 40,358 $ 34,226 $ 101,939 $ 81,959 =========== =========== =========== =========== Diluted earnings per share $ 0.52 $ 0.45 $ 1.33 $ 1.09 =========== =========== =========== =========== Weighted average number of diluted shares outstanding (000's): 77,123 75,718 76,762 75,237
SELECTED CASH FLOW DATA (Unaudited):
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED MARCH 31, ENDED MARCH 31, -------------------------- -------------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Net cash flows provided by (used in) operations $ 189,010 $ 176,031 $ 321,715 $ 256,576 Depreciation and amortization 16,231 16,173 50,532 50,474 Capital expenditures (14,290) (12,935) (48,890) (53,510)
SELECTED CONSOLIDATED BALANCE SHEET DATA (Unaudited): AS OF MARCH 31, ----------------------- 2006 2005 ---------- ---------- Cash and cash equivalents $ 394,017 $ 177,094 Receivables, net 41,558 54,533 Current assets 480,397 269,102 Total assets 1,159,164 945,363 Current liabilities 293,145 259,543 Long-term debt (including current portion) 5,084 5,412 Shareholders' investment 808,003 627,485 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 period ended March 31, 2005, in the table below.
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED MARCH 31, ENDED MARCH 31, ------------------------- ------------------------- 2006(a) 2005 2006(a) 2005 ----------- ---------- ----------- ----------- GAAP Net Income $ 40,358 $ 34,226 $ 101,939 $ 81,959 Add: Share-based employee compensation expense included in reported net income, net of tax, for the periods ended December 31, 2004 - 157 - 475 Deduct: Total share-based employee compensation expense determined under SFAS 123(R), net of tax, for the periods ended December 31, 2004 - (3,994) - (12,998) ----------- ----------- ----------- ----------- Net income, including the impact of share-based compensation expenses $ 40,358 $ 30,389 $ 101,939 $ 69,436 =========== =========== =========== =========== Earnings per share: Basic-- as reported $ 0.53 $ 0.46 $ 1.35 $ 1.11 Basic-- including the impact of share-based compensation expense n/a $ 0.41 n/a $ 0.94 Diluted-- as reported $ 0.52 $ 0.45 $ 1.33 $ 1.09 Diluted-- including the impact of share-based compensation expense n/a $ 0.40 n/a $ 0.92
(a) Results for the three and nine month periods ended March 31, 2006include an additional $4.0 and $17.3 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 nine months ended March 31, 2006 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 nine month periods ended March 31, 2005, 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. -----END PRIVACY-ENHANCED MESSAGE-----