UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 2003
Commission File Number: 000-21363
EDUCATION MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)
| Pennsylvania | 25-1119571 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 210 Sixth Avenue, Pittsburgh, PA | 15222 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (412) 562-0900
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of shares of the registrant’s Common Stock outstanding as of December 31, 2003 was 72,933,524.
| PAGE | ||||||||||
| PART I |
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| ITEM 1 |
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FINANCIAL STATEMENTS | 3-11 | |||||||
| ITEM 2 |
– |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 12-18 | |||||||
| ITEM 3 |
– |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 18 | |||||||
| ITEM 4 |
– |
CONTROLS AND PROCEDURES | 18 | |||||||
| PART II |
– |
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| ITEM 4 |
– |
19 | ||||||||
| ITEM 6 |
– |
20 | ||||||||
| 21 | ||||||||||
| 22 | ||||||||||
2
EDUCATION MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| December 31, 2002 |
June 30, 2003 |
December 31, 2003 |
||||||||||
| (unaudited) | (unaudited) | |||||||||||
| Assets |
||||||||||||
| Current assets: |
||||||||||||
| Cash and cash equivalents |
$ | 5,486 | $ | 79,896 | $ | 7,297 | ||||||
| Restricted cash |
2,561 | 595 | 7,574 | |||||||||
| Total cash and cash equivalents |
8,047 | 80,491 | 14,871 | |||||||||
| Receivables, net |
35,509 | 39,709 | 45,887 | |||||||||
| Inventories |
4,638 | 4,371 | 5,982 | |||||||||
| Deferred and prepaid income taxes |
10,102 | 17,162 | 18,247 | |||||||||
| Other current assets |
9,386 | 9,296 | 11,362 | |||||||||
| Total current assets |
67,682 | 151,029 | 96,349 | |||||||||
| Property and equipment, net |
223,174 | 230,749 | 266,519 | |||||||||
| Deferred income taxes and other long-term assets |
10,390 | 11,202 | 10,692 | |||||||||
| Intangible assets, net of amortization |
18,635 | 16,892 | 21,954 | |||||||||
| Goodwill |
154,550 | 156,701 | 310,961 | |||||||||
| Total assets |
$ | 474,431 | $ | 566,573 | $ | 706,475 | ||||||
| Liabilities and shareholders’ investment |
||||||||||||
| Current liabilities: |
||||||||||||
| Current portion of long-term debt |
$ | 140 | $ | 35,074 | $ | 85,998 | ||||||
| Notes payable |
— | — | 11,000 | |||||||||
| Accounts payable |
11,440 | 16,301 | 25,151 | |||||||||
| Accrued liabilities |
35,315 | 28,461 | 52,466 | |||||||||
| Advance payments |
36,795 | 36,943 | 42,617 | |||||||||
| Unearned tuition |
4,128 | 13,429 | 8,337 | |||||||||
| Total current liabilities |
87,818 | 130,208 | 225,569 | |||||||||
| Long-term debt, less current portion |
3,638 | 3,426 | 3,415 | |||||||||
| Deferred income taxes and other long-term liabilities |
3,350 | 5,160 | 4,618 | |||||||||
| Shareholders’ investment: |
||||||||||||
| Common stock |
710 | 722 | 732 | |||||||||
| Additional paid-in capital |
254,802 | 272,702 | 280,091 | |||||||||
| Treasury stock, at cost |
(1,495 | ) | (1,495 | ) | (1,495 | ) | ||||||
| Retained earnings |
125,740 | 153,368 | 190,026 | |||||||||
| Accumulated other comprehensive income/(loss) |
(132 | ) | 2,482 | 3,519 | ||||||||
| Total shareholders’ investment |
379,625 | 427,779 | 472,873 | |||||||||
| Total liabilities and shareholders’ investment |
$ | 474,431 | $ | 566,573 | $ | 706,475 | ||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
3
EDUCATION MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per share amounts)
| For the three months ended December 31, |
For the six months ended December 31, | |||||||||||
| 2002 |
2003 |
2002 |
2003 | |||||||||
| Net revenues |
$ | 175,136 | $ | 232,980 | $ | 303,279 | $ | 401,956 | ||||
| Costs and expenses: |
||||||||||||
| Educational services |
100,753 | 135,702 | 194,883 | 259,301 | ||||||||
| General and administrative |
31,322 | 40,994 | 59,482 | 76,856 | ||||||||
| Amortization of intangible assets |
1,095 | 1,816 | 2,060 | 3,262 | ||||||||
| 133,170 | 178,512 | 256,425 | 339,419 | |||||||||
| Income before interest and taxes |
41,966 | 54,468 | 46,854 | 62,537 | ||||||||
| Interest expense, net |
332 | 820 | 642 | 1,510 | ||||||||
| Income before income taxes |
41,634 | 53,648 | 46,212 | 61,027 | ||||||||
| Provision for income taxes |
15,823 | 21,491 | 17,563 | 24,369 | ||||||||
| Net income |
$ | 25,811 | $ | 32,157 | $ | 28,649 | $ | 36,658 | ||||
| Earnings per share: |
||||||||||||
| Basic |
$ | .37 | $ | .44 | $ | .41 | $ | .51 | ||||
| Diluted |
$ | .35 | $ | .43 | $ | .39 | $ | .49 | ||||
| Weighted average number of shares outstanding (000’s): |
||||||||||||
| Basic |
70,678 | 72,638 | 70,530 | 72,404 | ||||||||
| Diluted |
73,370 | 75,039 | 73,300 | 74,618 | ||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
4
EDUCATION MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
| Six months ended December 31, |
||||||||
| 2002 |
2003 |
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| Cash flows from operating activities: |
||||||||
| Net income |
$ | 28,649 | $ | 36,658 | ||||
| Adjustments to reconcile net income to net cash flows from operating activities: |
||||||||
| Depreciation and amortization |
18,551 | 25,725 | ||||||
| Changes in current assets and liabilities: |
||||||||
| Restricted cash |
(805 | ) | (6,979 | ) | ||||
| Receivables |
(4,194 | ) | (1,077 | ) | ||||
| Inventories |
(668 | ) | (1,109 | ) | ||||
| Other current assets |
(64 | ) | (696 | ) | ||||
| Accounts payable |
3,035 | 13,793 | ||||||
| Accrued liabilities |
8,319 | 21,264 | ||||||
| Advance payments |
(26,414 | ) | 4,919 | |||||
| Unearned tuition |
(4,991 | ) | (13,949 | ) | ||||
| Total adjustments |
(7,231 | ) | 41,891 | |||||
| Net cash flows from operating activities |
21,418 | 78,549 | ||||||
| Cash flows from investing activities: |
||||||||
| Acquisition of subsidiaries, net of cash acquired |
(24,044 | ) | (159,908 | ) | ||||
| Expenditures for property and equipment |
(55,648 | ) | (49,128 | ) | ||||
| Other items, net |
(417 | ) | 903 | |||||
| Net cash flows from investing activities |
(80,109 | ) | (208,133 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Revolving credit facility activity, net |
(25,000 | ) | 50,760 | |||||
| Principal payments on debt |
(51 | ) | (123 | ) | ||||
| Proceeds from issuance of Common Stock |
4,889 | 7,399 | ||||||
| Net cash flows from financing activities |
(20,162 | ) | 58,036 | |||||
| Effective exchange rate changes on cash |
(138 | ) | (1,051 | ) | ||||
| Net change in cash and cash equivalents |
(78,991 | ) | (72,599 | ) | ||||
| Cash and cash equivalents, beginning of period |
84,477 | 79,896 | ||||||
| Cash and cash equivalents, end of period |
$ | 5,486 | $ | 7,297 | ||||
| Supplemental disclosure of cash flow information: |
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| Cash paid during the period for: |
||||||||
| Interest |
$ | 374 | $ | 933 | ||||
| Income taxes |
$ | 49 | $ | 339 | ||||
| Cash paid for acquisitions: |
||||||||
| Fair value of: |
||||||||
| Assets acquired |
$ | 29,302 | $ | 191,025 | ||||
| Liabilities assumed |
(3,385 | ) | (13,199 | ) | ||||
| Less: Cash acquired |
(1,873 | ) | (6,918 | |||||