Pennsylvania | 001-34466 | 25-1119571 | ||
_____________________ | ____________ | __________________ | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
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)) |
By: | /s/ Edward H. West |
Edward H. West | |
President and Chief Financial Officer |
99.1 | Press release dated May 2, 2012 |
• | Net revenues for the three months ended March 31, 2012 were $702.5 million, compared to $754.3 million for the prior year quarter. The decrease in net revenues from the third quarter of fiscal 2011 was primarily driven by a 9.3% decline in January 2012 student enrollment as compared to January 2011. |
• | For the third quarter of fiscal 2012, the Company recorded a net loss of $417.1 million, or a $3.31 loss per diluted share, compared to net income of $73.0 million, or $0.53 per diluted share, for the prior year quarter. Earnings before interest, taxes and depreciation and amortization (EBITDA) equaled a loss of $366.8 million in the third quarter of fiscal 2012, compared to earnings of $182.1 million in the prior year quarter. |
• | On March 30, 2012, the Company completed a refinancing of $348.6 million of its $1.1 billion term loan that was due to expire in June 2013 by replacing the expiring debt with $350.0 million of new term debt under the same credit agreement. The new term loan, which was issued with an original issue discount at 97.0%, matures in March 2018 and accrues interest at a rate equal to the higher of LIBOR or 1.25%, plus a margin of 7.0%. The Company recorded a loss on extinguishment of debt of $9.5 million during the third fiscal quarter as a result of the refinancing. |
• | In addition to the goodwill impairment charge and the loss on extinguishment of debt, the Company recorded $5.9 million of expenses related to restructuring and a lease termination during the third quarter of fiscal 2012. Excluding these expenses and a reversal of a liability for an uncertain tax |
(dollars in millions) | For the Three Months Ended March 31, | ||||
2012 | 2011 | ||||
Goodwill impairment | $495.4 | $0 | |||
Restructuring | 4.9 | — | |||
Fair market value loss on EFL portfolio | — | 13.2 | |||
Lease termination | 1.0 | — | |||
Total impact to EBITDA | $501.3 | $13.2 | |||
Loss on debt extinguishment | 9.5 | — | |||
Total expenses, pre-tax | $510.8 | $13.2 | |||
Total expenses, net of tax | $459.4 | $8.1 | |||
Reversal of uncertain tax position liability | (0.7 | ) | (3.5 | ) | |
Total impact to net income | $458.7 | $4.6 |
• | Cash flow from operations for the nine month period ended March 31, 2012 was $152.7 million, compared to $513.8 million in the prior year period. The decrease in operating cash flows was due in part to the transfer in March 2012 of $210.0 million to restricted cash in connection with the issuance of letters of credit under the Company's cash secured letter of credit facilities. These facilities are being used to help satisfy the Company's previously disclosed letter of credit requirement with the U.S. Department of Education. In addition, reduced operating performance also negatively impacted cash flow from operations as compared to the prior year period. |
• | At March 31, 2012, cash and cash equivalents were $287.5 million, compared to $613.2 million at March 31, 2011. There were no outstanding borrowings under the revolving credit facility at March 31, 2012. |
• | On a cash basis, capital expenditures were $64.7 million, or 3.0% of net revenues, for the nine months ended March 31, 2012, compared to $106.3 million, or 4.9% of net revenues, in the same period in the prior year. |
• | Since the inception of its share repurchase program, the Company has repurchased 17.8 million shares of its common stock at an average share price of $17.83. During the third quarter of fiscal 2012, the Company repurchased approximately 1.0 million shares. |
2012 | 2011 | Percentage | ||||||
April | April | Change | ||||||
Total enrollment (1) | 134,900 | 148,800 | (9.3 | )% | ||||
Same-school enrollment (2) | 134,600 | 148,800 | (9.6 | )% | ||||
Students enrolled in fully online programs (1) | 34,200 | 41,000 | (16.6 | )% |
(1) | As a result of the transition to a non-term academic calendar, beginning in July 2011, the number of students enrolled in fully online programs is determined based on the number of students meeting attendance requirements over a two-week period near the start of the fiscal quarter. For the April 2011 enrollment, the number of fully online students was determined based on the number of students enrolled at a specific date at the start of a fiscal quarter. |
(2) | Schools with enrollment for one year or more. |
EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS – FISCAL THIRD QUARTER (Dollars in millions, except earnings per share) (Unaudited) | |||||||||||||
For the Three Months Ended March 31, | For the Nine Months Ended March 31, | ||||||||||||
2012 | 2011 | % change | 2012 | 2011 | % change | ||||||||
Net revenues | $702.5 | $754.3 | (6.9 | )% | $2,121.8 | $2,192.2 | (3.2 | )% | |||||
Costs and expenses: | |||||||||||||
Educational services (1)(2) | 382.3 | 381.7 | 0.2 | % | 1,133.8 | 1,113.4 | 1.8 | % | |||||
General and administrative (3) | 191.6 | 190.5 | 0.6 | % | 580.2 | 564.3 | 2.8 | % | |||||
Depreciation and amortization | 40.6 | 37.1 | 9.3 | % | 118.7 | 107.5 | 10.4 | % | |||||
Goodwill impairment (4) | 495.4 | — | n/m | 495.4 | — | n/m | |||||||
Total costs and expenses | 1,109.9 | 609.3 | 82.1 | % | 2,328.1 | 1,785.2 | 30.4 | % | |||||
Income (loss) before interest, loss on extinguishment of debt and income taxes | (407.4 | ) | 145.0 | n/m | (206.3 | ) | 407.0 | n/m | |||||
Interest expense, net | 25.4 | 31.5 | (19.2 | )% | 79.1 | 87.5 | (9.6 | )% | |||||
Loss on extinguishment of debt (5) | 9.5 | — | n/m | 9.5 | 8.4 | 13.1 | % | ||||||
Income (loss) before income taxes | (442.3 | ) | 113.5 | n/m | (294.9 | ) | 311.1 | n/m | |||||
Provision for (benefit from) income taxes (6) | (25.2 | ) | 40.5 | n/m | 32.1 | 116.4 | (72.4 | )% | |||||
Net income (loss) | $(417.1) | $73.0 | n/m | $(327.0) | $194.7 | n/m | |||||||
Diluted earnings (loss) per share | $(3.31) | $0.53 | n/m | $(2.57) | $1.39 | n/m | |||||||
Weighted average number of diluted shares outstanding (000’s) | 126,005 | 136,759 | 127,224 | 140,003 |
(1) | Includes bad debt expense of $41.2 million and $32.2 million in the three month periods presented, respectively, and $117.7 million and $105.8 million in the nine month periods presented, respectively. |
(2) | Includes $2.0 million of restructuring expense in the three and nine month periods ended March 31, 2012. Also includes $2.5 million of lease termination fees in fiscal 2012, of which $1.0 million occurred in the current quarter. Fiscal 2011 includes fair value adjustments for the Education Finance Loan portfolio of $21.4 million, of which $13.9 million occurred in the March 31, 2011 quarter. |
(3) | Includes $8.1 million of restructuring expense in the nine months ended March 31, 2012, of which $2.9 million occurred in the current quarter. |
(4) | Includes impairments of $155.9 million, $254.6 million and $84.9 million at the Argosy University, Brown Mackie Colleges and South University reporting units, respectively. |
(5) | Fiscal 2012 includes $2.0 million of previously deferred financing fees and $7.5 million of other costs that could not be capitalized as part of a debt extinguishment in March 2012. Fiscal 2011 includes the acceleration of deferred financing fees of $5.1 million and debt extinguishment costs of $3.3 million in December 2010. |
(6) | Includes the reversal of $0.7 million and $3.5 million of uncertain tax position liabilities in the three months ended March 31, 2012 and 2011, respectively, as well as the corresponding nine month periods. |
EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES SELECTED CASH FLOW DATA – FISCAL THIRD QUARTER (Dollars in millions) (Unaudited) | |||||||
For the Nine Months Ended March 31, | |||||||
2012 | 2011 | % Change | |||||
Net cash flows provided by operations | $152.7 | $513.8 | (70.3 | %) | |||
Capital expenditures (1) | (64.7 | ) | (106.3 | ) | (39.2 | %) | |
Common stock repurchases | (92.8 | ) | (135.7 | ) | (31.6 | %) |
EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES SELECTED BALANCE SHEET DATA – FISCAL THIRD QUARTER (Dollars in millions) (Unaudited) | |||||
As of March 31, | |||||
2012 | 2011 | ||||
Cash and cash equivalents | $287.5 | $613.2 | |||
Restricted cash | 284.1 | 52.9 | |||
Current assets | 866.0 | 911.3 | |||
Goodwill | 2,083.7 | 2,579.1 | |||
Total assets | 4,119.4 | 4,739.7 | |||
Current liabilities | 555.0 | 679.0 | |||
Long-term debt (including current portion) | 1,468.4 | 1,529.6 | |||
Shareholders’ equity | 1,693.4 | 2,158.3 |
For the Three Months Ended March 31, | For the Nine Months Ended March 31, | ||||||||||||
2012 | 2011 | % change | 2012 | 2011 | % change | ||||||||
Net income (loss) | $(417.1) | $73.0 | n/m | $(327.0) | $194.7 | n/m | |||||||
Net interest expense | 25.4 | 31.5 | (19.2 | )% | 79.1 | 87.5 | (9.6 | )% | |||||
Loss on extinguishment of debt | 9.5 | — | n/m | 9.5 | 8.4 | n/m | |||||||
Income tax expense (benefit) | (25.2 | ) | 40.5 | n/m | 32.1 | 116.4 | (72.4 | )% | |||||
Depreciation and amortization | 40.6 | 37.1 | 9.3 | % | 118.7 | 107.5 | 10.4 | % | |||||
EBITDA - reported | $(366.8) | $182.1 | n/m | $(87.6) | $514.5 | n/m | |||||||
Goodwill impairment | 495.4 | — | n/m | 495.4 | — | n/m | |||||||
Restructuring | 4.9 | — | n/m | 10.1 | — | n/m | |||||||
Lease termination | 1.0 | — | n/m | 2.5 | — | n/m | |||||||
Fair market value loss on EFL loans | — | 13.2 | n/m | — | 13.2 | n/m | |||||||
EBITDA - excluding certain expenses | $134.5 | $195.3 | (31.2 | )% | $420.4 | $527.7 | (20.4 | )% |
Reconciliation of Net Income to Net Income Excluding Certain Expenses (Dollars in Millions) (Unaudited) | ||||||||
For the three months ended March 31, | ||||||||
2012 | 2011 | % change | ||||||
Net income (loss), as reported | $(417.1) | $73.0 | n/m | |||||
Goodwill impairment, net of tax | 450.0 | — | n/m | |||||
Loss on extinguishment of debt, net of tax | 5.8 | — | n/m | |||||
Restructuring charge, net of tax | 3.0 | — | n/m | |||||
Lease termination fees, net of tax | 0.6 | n/m | ||||||
Fair market value loss on EFL portfolio, net of tax | — | 8.1 | n/m | |||||
Reversal of uncertain tax position liabilities | (0.7 | ) | (3.5 | ) | n/m | |||
Net income, excluding certain expenses | $41.6 | $77.6 | (46.4 | )% |
Reconciliation of Fiscal Year 2012 Fourth Quarter Guidance of Net Income to EBITDA (Dollars in millions, except earnings per share) (Unaudited) Fiscal 2012 Guidance – 4th Quarter | |||||
For the three months ending June 30, 2012 | |||||
Low End | High End | ||||
Earnings per diluted share | $0.06 | $0.08 | |||
Net income | $8 | $11 | |||
Net interest expense | $31 | $31 | |||
Income tax expense | 5 | 7 | |||
Depreciation and amortization | 41 | 41 | |||
EBITDA | $85 | $90 |
Reconciliation of Fiscal Year 2012 Annual Guidance of Net Income to EBITDA (Dollars in millions, except earnings per share) (Unaudited) Fiscal Year 2012 Guidance – Annual | |||||||
For the twelve months ending June 30, 2012 | |||||||
Low End | High End | ||||||
Loss per diluted share | $(2.50) | $(2.48) | |||||
Earnings per diluted share excluding expenses described above | $1.12 | $1.14 | |||||
Net loss | $(319) | $(316) | |||||
Goodwill impairment, restructuring charges, loss on debt extinguishment and lease termination expenses, net of tax, and reversal of an uncertain tax position liability | 463 | 463 | |||||
Net income excluding expenses described above | $143 | $146 | |||||
Net interest expense | $111 | $111 | |||||
Income tax expense | 92 | 94 | |||||
Depreciation and amortization | 159 | 159 | |||||
EBITDA excluding expenses described above | $505 | $510 |