Attached files
file | filename |
---|---|
EX-3.2 - EX-3.2 - EDUCATION MANAGEMENT CORPORATION | l38002exv3w2.htm |
EX-3.1 - EX-3.1 - EDUCATION MANAGEMENT CORPORATION | l38002exv3w1.htm |
EX-10.4 - EX-10.4 - EDUCATION MANAGEMENT CORPORATION | l38002exv10w4.htm |
EX-10.3 - EX-10.3 - EDUCATION MANAGEMENT CORPORATION | l38002exv10w3.htm |
EX-31.2 - EX-31.2 - EDUCATION MANAGEMENT CORPORATION | l38002exv31w2.htm |
EX-31.1 - EX-31.1 - EDUCATION MANAGEMENT CORPORATION | l38002exv31w1.htm |
EX-10.1 - EX-10.1 - EDUCATION MANAGEMENT CORPORATION | l38002exv10w1.htm |
EX-32.2 - EX-32.2 - EDUCATION MANAGEMENT CORPORATION | l38002exv32w2.htm |
EX-32.1 - EX-32.1 - EDUCATION MANAGEMENT CORPORATION | l38002exv32w1.htm |
EX-10.2 - EX-10.2 - EDUCATION MANAGEMENT CORPORATION | l38002exv10w2.htm |
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended: September 30, 2009 | ||
OR
|
||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Transition Period From to |
Commission File Number:
001-34466
EDUCATION MANAGEMENT
CORPORATION
(Exact name of registrant as
specified in its charter)
Pennsylvania (State or other jurisdiction of incorporation or organization) |
25-1119571 (I.R.S. Employer Identification No.) |
|
210 Sixth Avenue, Pittsburgh, PA,
33rd
Floor (Address of principal executive offices) |
15222 (Zip Code) |
Registrants 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 o No þ
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act.): Yes o No þ
As of November 10, 2009, 142,786,364 shares of the
registrants common stock were outstanding.
Table of
Contents
INDEX
PAGE | ||||||||
PART I FINANCIAL INFORMATION
|
||||||||
ITEM 1
|
| FINANCIAL STATEMENTS | 2 | |||||
| MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 22 | ||||||
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 29 | ||||||
| CONTROLS AND PROCEDURES | 29 | ||||||
LEGAL PROCEEDINGS | 30 | |||||||
RISK FACTORS | 30 | |||||||
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 30 | |||||||
DEFAULTS UPON SENIOR SECURITIES | 30 | |||||||
SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS | 30 | |||||||
OTHER INFORMATION | 30 | |||||||
| EXHIBITS INDEX | 30 | ||||||
31 | ||||||||
EX-3.1 | ||||||||
EX-3.2 | ||||||||
EX-10.1 | ||||||||
EX-10.2 | ||||||||
EX-10.3 | ||||||||
EX-10.4 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
1
Table of Contents
EDUCATION
MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
September 30, |
June 30, |
September 30, |
||||||||||
2009 | 2009 | 2008 | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
(Dollars in thousands) | ||||||||||||
ASSETS
|
||||||||||||
Current assets:
|
||||||||||||
Cash and cash equivalents
|
$ | 422,867 | $ | 363,318 | $ | 390,545 | ||||||
Restricted cash
|
39,187 | 10,372 | 27,637 | |||||||||
Total cash, cash equivalents and restricted cash
|
462,054 | 373,690 | 418,182 | |||||||||
Receivables, net of allowances of $95,461, $83,691 and $61,045
|
109,854 | 122,272 | 95,407 | |||||||||
Notes, advances and other
|
24,006 | 13,678 | 31,875 | |||||||||
Inventories
|
14,090 | 9,355 | 11,135 | |||||||||
Deferred income taxes
|
45,164 | 45,164 | 25,739 | |||||||||
Prepaid income taxes
|
| | 4,016 | |||||||||
Other current assets
|
36,399 | 30,163 | 34,843 | |||||||||
Total current assets
|
691,567 | 594,322 | 621,197 | |||||||||
Property and equipment, net
|
593,894 | 580,965 | 521,242 | |||||||||
Other long-term assets
|
64,361 | 58,945 | 59,653 | |||||||||
Intangible assets, net
|
470,783 | 471,882 | 480,373 | |||||||||
Goodwill
|
2,579,131 | 2,579,131 | 2,585,581 | |||||||||
Total assets
|
$ | 4,399,736 | $ | 4,285,245 | $ | 4,268,046 | ||||||
LIABILITIES AND SHAREHOLDERS EQUITY
|
||||||||||||
Current liabilities:
|
||||||||||||
Current portion of long-term debt
|
$ | 12,490 | $ | 12,622 | $ | 12,854 | ||||||
Revolving credit facility
|
| 100,000 | 180,000 | |||||||||
Accounts payable
|
43,695 | 53,516 | 54,100 | |||||||||
Accrued liabilities
|
167,883 | 163,485 | 130,052 | |||||||||
Accrued income taxes
|
9,767 | 5,015 | | |||||||||
Unearned tuition
|
143,735 | 118,741 | 106,818 | |||||||||
Advance payments
|
237,310 | 67,020 | 155,361 | |||||||||
Total current liabilities
|
614,880 | 520,399 | 639,185 | |||||||||
Long-term debt, less current portion
|
1,872,951 | 1,876,021 | 1,885,357 | |||||||||
Deferred income taxes
|
185,005 | 187,583 | 185,085 | |||||||||
Deferred rent
|
128,357 | 123,656 | 97,298 | |||||||||
Other long-term liabilities
|
95,600 | 91,933 | 73,043 | |||||||||
Shareholders equity:
|
||||||||||||
Common stock, par value $0.01 per share; 600,000,000 shares
authorized; 119,770,277 issued and outstanding at
September 30, 2009 and June 30, 2009 and 119,769,082
issued and outstanding at September 30, 2008
|
1,198 | 1,198 | 1,198 | |||||||||
Additional paid-in capital
|
1,338,316 | 1,338,316 | 1,338,302 | |||||||||
Retained earnings
|
197,529 | 181,767 | 74,060 | |||||||||
Accumulated other comprehensive loss
|
(34,100 | ) | (35,628 | ) | (25,482 | ) | ||||||
Total shareholders equity
|
1,502,943 | 1,485,653 | 1,388,078 | |||||||||
Total liabilities and shareholders equity
|
$ | 4,399,736 | $ | 4,285,245 | $ | 4,268,046 | ||||||
The accompanying notes are an integral part of these
consolidated financial statements.
2
Table of Contents
EDUCATION
MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Three Months |
||||||||
Ended September 30, | ||||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
(Dollars in thousands except per share amounts) | ||||||||
Net revenues
|
$ | 534,399 | $ | 434,228 | ||||
Costs and expenses:
|
||||||||
Educational services
|
295,713 | 253,512 | ||||||
General and administrative
|
148,107 | 121,359 | ||||||
Depreciation and amortization
|
28,827 | 26,604 | ||||||
Total costs and expenses
|
472,647 | 401,475 | ||||||
Income before interest and income taxes
|
61,752 | 32,753 | ||||||
Interest expense, net
|
36,329 | 38,159 | ||||||
Income (loss) before income taxes
|
25,423 | (5,406 | ) | |||||
Provision for (benefit from) income taxes
|
9,661 | (2,103 | ) | |||||
Net income (loss)
|
$ | 15,762 | $ | (3,303 | ) | |||
Earnings (loss) per share:
|
||||||||
Basic
|
$ | 0.13 | $ | (0.03 | ) | |||
Diluted
|
$ | 0.13 | $ | (0.03 | ) | |||
Weighted average number of shares outstanding:
|
||||||||
Basic
|
119,770 | 119,769 | ||||||
Diluted
|
119,770 | 119,769 |
The accompanying notes are an integral part of these
consolidated financial statements.
3
Table of Contents
EDUCATION
MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the Three Months |
||||||||
Ended September 30, | ||||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Cash flows from operating activities:
|
||||||||
Net income (loss)
|
$ | 15,762 | $ | (3,303 | ) | |||
Adjustments to reconcile net income to net cash flows
provided by operating activities:
|
||||||||
Depreciation and amortization on property and equipment
|
26,420 | 22,128 | ||||||
Amortization of intangible assets
|
2,407 | 4,476 | ||||||
Amortization of debt issuance costs
|
2,033 | 1,923 | ||||||
Reimbursements for tenant improvements
|
3,232 | 1,797 | ||||||
Non-cash adjustments in deferred rent
|
914 | (605 | ) | |||||
Changes in assets and liabilities:
|
||||||||
Restricted cash
|
(28,815 | ) | (13,815 | ) | ||||
Receivables
|
12,418 | (8,985 | ) | |||||
Inventories
|
(4,714 | ) | (2,667 | ) | ||||
Other assets
|
(18,969 | ) | (18,627 | ) | ||||
Accounts payable
|
(1,760 | ) | 5,765 | |||||
Accrued liabilities
|
(3,373 | ) | (12,081 | ) | ||||
Unearned tuition
|
24,994 | 37,975 | ||||||
Advance payments
|
170,034 | 94,708 | ||||||
Total adjustments
|
184,821 | 111,992 | ||||||
Net cash flows provided by operating activities
|
200,583 | 108,689 | ||||||
Cash flows from investing activities:
|
||||||||
Expenditures for long-lived assets
|
(33,238 | ) | (50,789 | ) | ||||
Reimbursements for tenant improvements
|
(3,232 | ) | (1,797 | ) | ||||
Net cash flows used in investing activities
|
(36,470 | ) | (52,586 | ) | ||||
Cash flows from financing activities:
|
||||||||
Borrowings on revolving credit facility
|
| 180,000 | ||||||
Payments on revolving credit facility
|
(100,000 | ) | (120,000 | ) | ||||
Payments of debt
|
(3,202 | ) | (3,234 | ) | ||||
Debt issuance costs
|
(1,320 | ) | | |||||
Net cash flows provided by (used in) financing activities
|
(104,522 | ) | 56,766 | |||||
Effect of exchange rate changes on cash and cash
equivalents
|
(42 | ) | 268 | |||||
Net change in cash and cash equivalents
|
59,549 | 113,137 | ||||||
Cash and cash equivalents, beginning of period
|
363,318 | 277,408 | ||||||
Cash and cash equivalents, end of period
|
$ | 422,867 | $ | 390,545 | ||||
Cash paid during the period for:
|
||||||||
Interest (including swap settlement)
|
$ | 15,592 | $ | 19,116 | ||||
Income taxes
|
7,161 | 14,634 |
The accompanying notes are an integral part of these
consolidated financial statements.
4
Table of Contents
EDUCATION
MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
Accumulated |
||||||||||||||||||||
Common |
Additional |
Other |
||||||||||||||||||
Stock at Par |
Paid-in |
Retained |
Comprehensive |
|||||||||||||||||
Value | Capital | Earnings | Loss | Total | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Balance, June 30, 2008
|
$ | 1,198 | $ | 1,338,302 | $ | 77,362 | $ | (24,685 | ) | $ | 1,392,177 | |||||||||
Comprehensive income:
|
||||||||||||||||||||
Net income
|
| | 104,405 | | 104,405 | |||||||||||||||
Foreign currency translation
|
| | | (1,147 | ) | (1,147 | ) | |||||||||||||
Unrealized loss on interest rate swaps, net of tax benefit of
$5,709
|
| | | (9,796 | ) | (9,796 | ) | |||||||||||||
Comprehensive income
|
93,462 | (a) | ||||||||||||||||||
Other
|
| 14 | | | 14 | |||||||||||||||
Balance, June 30, 2009
(Unaudited) |
1,198 | 1,338,316 | 181,767 | (35,628 | )(b) | 1,485,653 | ||||||||||||||
Comprehensive income:
|
||||||||||||||||||||
Net income
|
| | 15,762 | | 15,762 | |||||||||||||||
Foreign currency translation
|
| | | 597 | 597 | |||||||||||||||
Unrealized gain on interest rate swaps, net of tax expense of
$481
|
| | | 931 | 931 | |||||||||||||||
Comprehensive income
|
17,290 | |||||||||||||||||||
Balance, September 30, 2009
|
$ | 1,198 | $ | 1,338,316 | $ | 197,529 | $ | (34,100 | )(b) | $ | 1,502,943 | |||||||||
(a) | During the three months ended September 30, 2008, other comprehensive loss consisted of a $0.8 million unrealized loss on interest rate swaps, net of tax expense, and less than a $0.1 million foreign currency translation gain. | |
(b) | The balance in accumulated other comprehensive loss at September 30, 2009, June 30, 2009 and September 30, 2008 is comprised of $33.3 million, $34.2 million and $25.2 million of unrealized net losses on interest rate swaps, net of tax expense, respectively and $0.8 million, $1.4 million and $0.3 million of cumulative foreign currency translation losses, respectively. |
The accompanying notes are an integral part of these
consolidated financial statements.
5
Table of Contents
EDUCATION
MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
1. | BASIS OF PRESENTATION |
Basis
of presentation
The accompanying unaudited consolidated financial statements of
Education Management Corporation and its subsidiaries (the
Company) have been prepared by the Companys
management in accordance with generally accepted accounting
principles for interim financial information and applicable
rules and regulations of the Securities Exchange Act of 1934, as
amended. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting
principles in the United States for annual financial statements.
The unaudited consolidated financial statements included herein
contain all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary
to present fairly the financial position as of
September 30, 2009 and 2008, and the statements of
operations and cash flows for the three months ended
September 30, 2009 and 2008. The statements of operations
for the three months ended September 30, 2009 and 2008 are
not necessarily indicative of the results to be expected for
future periods. These financial statements should be read in
conjunction with the audited consolidated financial statements
and notes thereto included in the Companys prospectus
dated October 1, 2009 for the fiscal year ended
June 30, 2009 as filed with the Securities and Exchange
Commission (SEC). The accompanying consolidated
balance sheet at June 30, 2009 has been derived from the
consolidated audited balance sheet included in the prospectus
dated October 1, 2009 as filed with the SEC.
On September 30, 2009, the Companys Board of
Directors declared a 4.4737 for one split of the Companys
common stock, which was paid in the form of a stock dividend on
September 30, 2009. In connection with this stock split,
the Company amended and restated its articles of incorporation
to, among other things, increase the Companys number of
authorized shares of common stock. The stock split resulted in
the issuance of approximately 93.0 million additional
shares of common stock, affected the number of stock options
outstanding and exercisable in all periods presented, changed
earnings per share information and resulted in a
reclassification of $0.9 million from additional paid-in
capital to common stock on the accompanying consolidated balance
sheets. All information presented in the accompanying
consolidated financial statements and related notes has been
adjusted to reflect the Companys amended and restated
articles of incorporation and stock split.
The Company performed an evaluation of subsequent events through
November 10, 2009, the date the financial statements were
issued.
In November 2009, the Company guaranteed the indebtedness of
Education Management LLC (EM LLC) and Education
Management Finance Corp. under the 8.75% senior notes due 2014
(the Senior Notes) and 10.25% senior subordinated
notes due 2016 (the Senior Subordinated Notes and,
together with the Senior Notes, the Notes).
Nature
of operations
The Company is among the largest providers of post-secondary
education in North America, with approximately 136,000 active
students as of October 2009. The Company offers education
through four different education systems (The Art Institutes,
Argosy University, Brown Mackie Colleges and South University)
and through online platforms at three of the four education
systems. The schools provide students a wide variety of
programmatic and degree choices in a flexible learning
environment. The curriculum is designed with a distinct emphasis
on applied career-oriented content and is primarily taught by
faculty members that possess practical and relevant professional
experience in their respective fields.
Ownership
On June 1, 2006, the Company was acquired by a consortium
of private equity investment funds led by Providence Equity
Partners, Goldman Sachs Capital Partners and Leeds Equity
Partners (collectively, the Sponsors). The
acquisition was accomplished through the merger of EM
Acquisition Corporation into the Company, with the Company
surviving the merger (the Transaction). Pursuant to
the terms of the merger agreement, all
6
Table of Contents
EDUCATION
MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
outstanding shares of the Companys common stock were
cancelled in exchange for $43.00 per share in cash. The
Sponsors, together with certain other investors, became the
owners of the Company.
The acquisition of the Company was financed by equity invested
in EM Acquisition Corporation by the Sponsors and other
investors, cash on hand, borrowings under a new senior secured
credit facility by EM LLC and the issuance by EM LLC and
Education Management Finance Corp. (a wholly-owned subsidiary of
EM LLC) of the Notes.
Seasonality
The Companys quarterly net revenues and net income
fluctuate primarily as a result of the pattern of student
enrollments at its schools. The seasonality of the
Companys business has decreased over the last several
years due to an increase in the percentage of students enrolling
in online programs, which generally experience less seasonal
fluctuations than campus-based programs. The Companys
first fiscal quarter is typically its lowest revenue recognition
quarter due to student vacations.
Reclassifications
Certain reclassifications of September 30, 2008 data have
been made to conform to the September 30, 2009 presentation.
2. | RECENT ACCOUNTING PRONOUNCEMENTS |
In June 2009, the Financial Accounting Standards Board (the
FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 168, The FASB
Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting Principles
(GAAP), a replacement of FASB Statement
No. 162. All existing accounting standard documents
are superseded by the Codification, which does not change or
alter existing GAAP. Since the Company adopted
SFAS No. 168 in the first quarter of fiscal 2010, any
references to GAAP included in the Companys historical
public filings with the SEC are no longer included in the
Companys filings. The adoption of SFAS No. 168
had no impact on the Companys consolidated financial
statements.
3. | EARNINGS PER SHARE |
Basic earnings per share (EPS) is computed using the
weighted average number of shares outstanding during the period,
while diluted EPS is calculated to reflect the potential
dilution related to time-based and performance-based stock
options. The Company uses the treasury stock method to compute
diluted EPS.
Basic and diluted EPS were calculated as follows (in thousands,
except per share amounts):
For the Three Months |
||||||||
Ended September 30, | ||||||||
2009 | 2008 | |||||||
Net income (loss)
|
$ | 15,762 | $ | (3,303 | ) | |||
Weighted average number of shares outstanding
|
||||||||
Basic
|
119,770 | 119,769 | ||||||
Effect of stock options
|
| | ||||||
Diluted
|
119,770 | 119,769 | ||||||
Earnings (loss) per share:
|
||||||||
Basic
|
$ | 0.13 | $ | (0.03 | ) | |||
Diluted
|
$ | 0.13 | $ | (0.03 | ) |
7
Table of Contents
EDUCATION
MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
All stock options for all periods presented were contingently
issuable. None of the thresholds that would cause share dilution
were met, and therefore none of the Companys outstanding
stock options during the periods presented were dilutive.
4. | SHARE-BASED PAYMENT |
In October 2009, the Company completed an initial public
offering of its common stock. See Note 15 for details
surrounding that events effect on the financial statements
in the quarter ended December 31, 2009.
2006
Stock Option Plan
In August 2006, the Companys board of directors approved
the 2006 Stock Option Plan (the Option Plan), which
authorized equity awards to be granted for up to approximately
6.1 million shares of the Companys common stock. The
Option Plan was amended during fiscal 2007 to increase the
number of available shares to approximately 8.3 million.
Under the Option Plan, certain employees of the Company have
been granted a combination of time-based and performance-based
options to purchase the Companys common stock. Both types
of grants are subject to certain conditions defined in the
Option Plan and in the Companys Amended and Restated
Shareholders Agreement that must be met in order for the
participants to receive fair market value for their options.
The Amended and Restated Shareholders Agreement contains a
call right that gives the Company the option, not obligation, to
repurchase shares issued pursuant to the exercise of stock
options to employees who terminate employment with the Company.
The purchase price of the Companys call option depends on
the circumstances under which an employee terminates employment
with the Company. If a participant in the Option Plan were to
terminate employment, the Companys exercise of a
repurchase right under the Amended and Restated
Shareholders Agreement on shares received by the former
employee through the exercise of stock options may require
equity awards to be expensed in the Companys statement of
operations in the period in which the termination occurs.
Time-based options vest ratably over the applicable service
period, which is generally five years, on each anniversary of
the date of grant. Performance-based options vest upon the
attainment of specified returns on capital invested in the
Company by Providence Equity Partners and Goldman Sachs Capital
Partners (together, the Principal Shareholders).
Time-based and performance-based options also generally vest
upon a change in control or realization event, as defined in the
Amended and Restated Shareholders Agreement, subject to certain
conditions, and generally expire ten years from the date of
grant. At September 30, 2009, the Company considered the
conditions entitling the option holders to fair value for their
shares to be less than probable, and as such compensation
expense on the grants is not recognized until one of the
conditions entitling option holders to fair value for their
shares becomes probable. Accordingly, the Company has not
recognized compensation expense related to any options granted
since the Transaction, including during the three month periods
ended September 30, 2009 or 2008. The total amount of
unrecognized compensation cost over the vesting periods of all
options, net of expected forfeitures, is $35.7 million at
September 30, 2009. See Note 15 for additional details
surrounding the completion of the initial public offering in
October 2009.
Long
Term Incentive Compensation Plan
In fiscal 2007, the Company adopted the Long-Term Incentive
Compensation Plan (the LTIC Plan). The LTIC Plan
consists of a bonus pool that is valued based on returns to the
Principal Shareholders in connection with a change in control of
the Company. Out of a total of 1,000,000 units authorized,
approximately 832,000 units were outstanding under the LTIC
Plan at September 30, 2009. Each unit represents the right
to receive a payment based on the value of the bonus pool. As
the contingent future events that would result in value to the
unit-holders are less than probable, no compensation expense has
been recognized by the Company during any of the periods
following the Transaction.
8
Table of Contents
EDUCATION
MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of September 30, 2009, the LTIC Plan is accounted for as
a liability-based plan, due to the fact that the units must be
settled in cash if a realization event were to occur prior to an
initial public offering by the Company. See Note 15 for
additional details surrounding the completion of the initial
public offering in October 2009.
Omnibus
Long-Term Incentive Plan
In April 2009, the Companys Board of Directors adopted the
Omnibus Long-Term Incentive Plan, which became effective upon
the effectiveness of the initial public offering further
described in Note 15. Approximately 6.4 million shares
of additional common stock have been reserved for issuance under
the Plan, which may be used to issue stock options, stock-option
appreciation rights, restricted stock and restricted stock units.
5. | PROPERTY AND EQUIPMENT |
Property and equipment consisted of the following amounts (in
thousands):
Asset Class
|
September 30, 2009 | June 30, 2009 | September 30, 2008 | |||||||||
Land
|
$ | 17,808 | $ | 17,805 | $ | 17,805 | ||||||
Buildings and improvements
|
74,392 | 74,171 | 73,520 | |||||||||
Leasehold improvements and capitalized lease costs
|
355,414 | 329,449 | 276,021 | |||||||||
Furniture and equipment
|
99,607 | 97,783 | 88,457 | |||||||||
Technology and other equipment
|
178,051 | 170,818 | 144,272 | |||||||||
Software
|
46,595 | 45,651 | 35,157 | |||||||||
Library books
|
30,977 | 29,778 | 25,598 | |||||||||
Construction in progress
|
53,095 | 43,470 | 37,525 | |||||||||
Total
|
855,939 | 808,925 | 698,355 | |||||||||
Less accumulated depreciation
|
262,045 | 227,960 | 177,113 | |||||||||
Property and equipment, net
|
$ | 593,894 | $ | 580,965 | $ | 521,242 | ||||||
Depreciation and amortization expense on property and equipment
was $26.4 million and $22.1 million, respectively, for
the three months ended September 30, 2009 and 2008.
6. | GOODWILL AND INTANGIBLE ASSETS |
Goodwill
As a result of the Transaction, the Company recorded
approximately $2.6 billion of goodwill. Goodwill is
recognized as an asset in the financial statements and is
initially measured as the excess of the purchase price of the
acquired company over the amounts assigned to net assets
acquired. In connection with the Transaction, property,
equipment, intangible assets other than goodwill and other
assets and liabilities were recorded at fair value. The
remaining value was assigned to goodwill and represents the
intrinsic value of the Company beyond its tangible and
identifiable intangible assets. This is evidenced by the excess
of the amount paid to acquire the Company over the values of
these respective assets.
The Company formally evaluates the carrying amount of goodwill
for impairment on April 1 of each fiscal year. During interim
periods, the Company reviews forecasts, business plans,
regulatory and legal matters and other activities necessary to
identify events that may trigger more frequent impairment tests.
During the quarter ended September 30, 2009, the Company
identified no such triggering events, and as a result, no
impairments were recorded.
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CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Intangible
Assets
Intangible assets consisted of the following amounts (in
thousands):
September 30, 2009 | June 30, 2009 | September 30, 2008 | ||||||||||||||||||||||
Gross |
Gross |
Gross |
||||||||||||||||||||||
Carrying |
Accumulated |
Carrying |
Accumulated |
Carrying |
Accumulated |
|||||||||||||||||||
Amount | Amortization | Amount | Amortization | Amount | Amortization | |||||||||||||||||||
Tradename-Art Institute
|
$ | 330,000 | $ | | $ | 330,000 | $ | | $ | 330,000 | $ | | ||||||||||||
Tradename-Argosy University
|
3,000 | (1,111 | ) | 3,000 | (1,028 | ) | 3,000 | (778 | ) | |||||||||||||||
Licensing, accreditation and Title IV program participation
|
112,179 | | 112,179 | | 112,179 | | ||||||||||||||||||
Curriculum and programs
|
29,258 | (14,802 | ) | 27,974 | (13,520 | ) | 24,209 | (10,175 | ) | |||||||||||||||
Student contracts, applications and relationships
|
39,511 | (32,881 | ) | 39,511 | (32,479 | ) | 39,511 | (25,860 | ) | |||||||||||||||
Favorable leases and other
|
16,400 | (10,771 | ) | 16,351 | (10,106 | ) | 16,390 | (8,103 | ) | |||||||||||||||
Total intangible assets
|
$ | 530,348 | $ | (59,565 | ) | $ | 529,015 | $ | (57,133 | ) | $ | 525,289 | $ | (44,916 | ) | |||||||||
State licenses and accreditations of the Companys schools
as well as their eligibility for Title IV program
participation are periodically renewed in cycles ranging from
every year to up to every ten years depending upon government
and accreditation regulations. The Company considers these
renewal processes to be a routine aspect of the overall business
and assigned these assets indefinite lives.
Tradenames are often considered to have useful lives similar to
that of the overall business, which generally means such assets
are assigned an indefinite life for accounting purposes.
However, the Argosy tradename was assigned a finite life at the
date of the Transaction due to the potential for that tradename
to be eliminated. As such, the same life was assigned to that
asset, nine years, as was assigned to its existing student
relationships economic life.
Amortization of intangible assets for the three months ended
September 30, 2009 and 2008 was $2.4 million and
$4.5 million, respectively.
Total estimated amortization on the Companys existing
intangible assets at September 30, 2009 for each of the
years ending June 30, 2010 through 2014 and thereafter is
as follows (in thousands):
Amortization |
||||
Fiscal Years
|
Expense | |||
2010 (remainder)
|
$ | 6,195 | ||
2011
|
7,618 | |||
2012
|
6,553 | |||
2013
|
4,205 | |||
2014
|
2,437 | |||
Thereafter
|
1,596 |
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CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
7. | ACCRUED LIABILITIES |
Accrued liabilities consisted of the following amounts (in
thousands):
September 30, 2009 | June 30, 2009 | September 30, 2008 | ||||||||||
Payroll and related taxes
|
$ | 39,411 | $ | 77,894 | $ | 28,545 | ||||||
Capital expenditures
|
18,945 | 8,032 | 14,361 | |||||||||
Advertising
|
28,893 | 25,192 | 19,988 | |||||||||
Interest
|
33,192 | 13,878 | 29,302 | |||||||||
Benefits
|
9,821 | 8,597 | 9,070 | |||||||||
Other
|
37,621 | 29,892 | 28,786 | |||||||||
Total accrued liabilities
|
$ | 167,883 | $ | 163,485 | $ | 130,052 | ||||||
8. | SHORT-TERM AND LONG-TERM DEBT |
In August 2009, EM LLC signed an agreement to increase capacity
on its revolving credit facility from $322.5 million to
$388.5 million and to add two letter of credit issuing
banks. The addition of issuing banks increased amounts available
for letters of credit from $175.0 million to
$375.0 million. The agreement also outlined terms under
which the revolving credit facility could be increased by up to
another $54.0 million once the Company completed a
qualifying initial public offering under the terms of the senior
credit facility. See Note 15 for additional detail with
respect to the increase in the size of the revolving credit
facility.
Short-Term
Debt:
No borrowings were outstanding at September 30, 2009 under
the $388.5 million credit facility. At June 30, 2009
and September 30, 2008, $100.0 million and
$180.0 million, respectively, were outstanding. The
interest rates on outstanding borrowings on the revolving credit
facility at June 30, 2009 and September 30, 2008 were
3.75% and 4.50%, respectively, which equals prime plus a margin
of 0.50% at June 30, 2009 and LIBOR plus a margin of 1.75%
at September 30, 2008. The applicable margin for borrowings
under the revolving credit facility changes based on certain
leverage ratios. EM LLC is obligated to pay a 0.375% rate per
annum commitment fee on undrawn amounts under the revolving
credit facility, which also varies based on certain leverage
ratios. The revolving credit facility is secured by certain of
the Companys assets and is subject to the Companys
satisfaction of certain covenants and financial ratios described
in Managements Discussion and Analysis
of Financial Condition and Results of Operations
Covenant Compliance.
EM LLC had outstanding letters of credit of $137.3 million
at September 30, 2009. The U.S. Department of
Education requires the Company to maintain a $120.5 million
letter of credit due to the Companys failure to satisfy
certain regulatory financial ratios after giving effect to the
Transaction. The outstanding letters of credit reduced
availability of borrowings under the revolving credit facility,
leaving $251.2 million of available borrowings at
September 30, 2009.
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MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-Term
Debt:
The Companys long-term debt consisted of the following
amounts (in thousands):
September 30, 2009 | June 30, 2009 | September 30, 2008 | ||||||||||
Senior secured term loan facility, due 2013
|
$ | 1,123,865 | $ | 1,126,827 | $ | 1,135,715 | ||||||
Senior notes due 2014 at 8.75%
|
375,000 | 375,000 | 375,000 | |||||||||
Senior subordinated notes due 2016 at 10.25%
|
385,000 | 385,000 | 385,000 | |||||||||
Capital leases
|
437 | 622 | 1,143 | |||||||||
Mortgage debt of consolidated entity
|
1,139 | 1,194 | 1,353 | |||||||||
Total debt
|
1,885,441 | 1,888,643 | 1,898,211 | |||||||||
Less current portion
|
12,490 | 12,622 | 12,854 | |||||||||
Total long term debt, less current portion
|
$ | 1,872,951 | $ | 1,876,021 | $ | 1,885,357 | ||||||
The interest rate on the senior secured term loan facility,
which equals LIBOR plus a margin spread of 1.75%, was 2.1% at
September 30, 2009, 2.4% at June 30, 2009 and 5.6% at
September 30, 2008. See Note 15 for additional detail
with respect to the purchase and cancellation of the senior
subordinated notes due 2016 in October 2009.
9. | DERIVATIVE INSTRUMENTS |
EM LLC utilizes interest rate swap agreements, which are
contractual agreements to exchange payments based on underlying
interest rates, to manage the floating rate portion of its term
debt. Currently, EM LLC has two five-year interest rate swaps
outstanding through July 1, 2011, each for a notional
amount of $375.0 million. The interest rate swaps
effectively convert a portion of the variable interest rate on
the senior secured term loan to a fixed rate. EM LLC receives
payments based on the three-month LIBOR and makes payments based
on a fixed rate of 5.4%.
The fair value of the interest rate swaps was
$53.0 million, $54.4 million and $40.2 million at
September 30, 2009, June 30, 2009 and
September 30, 2008, respectively, which was recorded in
other long-term liabilities on the consolidated balance sheet.
The Company recorded an unrealized after-tax gain/(loss) of
$0.9 million and $(0.8) million for the three months
ended September 30, 2009 and 2008, respectively, in other
comprehensive loss related to the change in market value of the
swap agreements. Additionally, at September 30, 2009, there
was a cumulative unrealized loss of $33.3 million, net of
tax, related to these interest rate swaps included in
accumulated other comprehensive loss on the Companys
consolidated balance sheet. This loss would be immediately
recognized in the consolidated statement of operations if these
instruments fail to meet certain cash flow hedge requirements.
During the three months ended September 30, 2009, the
Company reclassified $5.7 million from accumulated other
comprehensive loss to the consolidated statement of operations,
all of which was paid due to normal quarterly settlements of the
interest rate swaps. Over the next twelve months, the Company
estimates approximately $22.6 million will be reclassified
to the consolidated statement of operations based on current
interest rates and underlying debt obligations at
September 30, 2009.
The Company used level two inputs to value its
interest rate swaps. These inputs are defined as other than
quoted prices in active markets that are either directly or
indirectly observable, including obtaining quotes from
counterparties, which are based on LIBOR forward curves, and
assessing non-performance risk based upon published market data.
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MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
10. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
The following table presents the carrying amounts and fair
values of financial instruments (in thousands):
September 30, 2009 | June 30, 2009 | September 30, 2008 | ||||||||||||||||||||||
Carrying |
Fair |
Carrying |
Fair |
Carrying |
Fair |
|||||||||||||||||||
Value | Value | Value | Value | Value | Value | |||||||||||||||||||
Interest rate swap liabilities
|
$ | 53,009 | $ | 53,009 | $ | 54,421 | $ | 54,421 | $ | 40,169 | $ | 40,169 | ||||||||||||
Variable rate debt
|
1,123,865 | 1,073,291 | 1,126,827 | 1,031,047 | 1,135,715 | 988,072 | ||||||||||||||||||
Fixed rate debt
|
761,576 | 825,345 | 761,816 | 738,916 | 762,496 | 515,246 |
The fair values of cash and cash equivalents, accounts
receivable, the revolving credit facility, accounts payable and
accrued expenses approximate carrying values. This is due to the
short-term nature of these instruments. The derivative financial
instruments are carried at fair value, which is based on the
framework discussed in Note 9. The fair values of the
Companys debt instruments are generally determined based
on each instruments trading value at the dates presented.
However, as described in Note 15, a portion of the Senior
Subordinated Notes was purchased and cancelled by EM LLC in
October 2009 at a higher premium than its trading value at
September 30, 2009. As such, the Company has disclosed this
higher fair value on the portion of the Senior Subordinated
Notes that was purchased and cancelled at September 30,
2009.
11. | INCOME TAXES |
The Company accounts for income taxes by the asset and liability
method. Under this method, deferred tax assets and liabilities
result from (i) temporary differences in the recognition of
income and expense for financial and federal income tax
reporting requirements, and (ii) differences between the
recorded value of assets acquired in business combinations
accounted for as purchases for financial reporting purposes and
their corresponding tax bases. The Company regularly evaluates
deferred income tax assets for recoverability and records a
valuation allowance if it is more-likely-than-not that some
portion of the deferred income tax asset will not be realized.
The Companys effective tax rate was 38.0% for the quarter
ended September 30, 2009 and 38.9% for the quarter ended
September 30, 2008. The effective rates differed from the
combined federal and state statutory rates primarily due to
valuation allowances, expenses that are non-deductible for tax
purposes, and accounting for uncertain tax positions.
There have been no material adjustments to liabilities relating
to uncertain tax positions since the last annual disclosure for
the fiscal year ended June 30, 2009.
12. | CONTINGENCIES |
In August 2009, a complaint was filed in the District Court for
Dallas County, Texas against Argosy University, Education
Management Corporation and Marilyn Powell-Kissinger, former
President of the Dallas campus of Argosy University. The
plaintiffs in the litigation are 15 former students who were
enrolled in the Clinical Psychology doctoral program at the
Argosy University Dallas campus. The complaint alleges that,
prior to the plaintiffs enrollment
and/or while
the plaintiffs were enrolled in the program, the defendants
violated the Texas Deceptive Trade Practices and Consumer
Protection Act and made material misrepresentations regarding
the importance of accreditation of the program by the Commission
on Accreditation, American Psychological Association, the status
of the application of the Dallas campus for such accreditation,
the availability of loan repayment options for the plaintiffs,
and the quantity and quality of the plaintiffs career
options. Plaintiffs seek unspecified monetary compensatory and
punitive damages. In September 2009, the defendants removed the
case to the United States District Court for the Northern
District of Texas, Dallas division, alleging that defendant
Powell-Kissinger was improperly joined to the action. In October
2009, the plaintiffs filed a motion to remand the case to
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EDUCATION
MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
state court and, in November 2009, filed a motion for leave to
file an amended complaint. The amended complaint added an
additional plaintiff, among other things.
In August 2008, the Company introduced the Education Finance
Loan program with a private lender, which enables students who
have exhausted all available government-sponsored or other aid
and have been denied a private loan to borrow funds to finance a
portion of their tuition and other educational expenses. Under
the Education Finance Loan program, the Company purchases loans
that are originated by a private lender. As of
September 30, 2009, the Company is committed to purchase
$66.2 million of loans during fiscal 2010 and 2011.
In June 2007, The New England Institute of Art (NEIA) received a
civil investigative demand letter from the Massachusetts State
Attorney General requesting information in connection with the
Attorney Generals review of alleged submissions of false
claims by NEIA to the Commonwealth of Massachusetts and alleged
unfair and deceptive student lending and marketing practices
engaged in by the school. In February 2008, the Attorney General
informed NEIA that it does not plan to further pursue its
investigation of the false claims and deceptive marketing
practices. NEIA intends to fully cooperate with the Attorney
General in connection with its investigation of NEIAs
student lending practices.
The Art Institute of Portland and the Companys schools
located in Illinois have received requests for information from
the Attorney General of their respective states addressing the
relationships between the schools and providers of loans to
students attending the schools. The Company has responded to the
requests for information and intends to fully cooperate with the
Attorneys General in their investigations.
In addition to the matters described above, the Company is a
defendant in certain legal proceedings arising out of the
conduct of its business. In the opinion of management, based
upon an investigation of these claims and discussion with legal
counsel, the ultimate outcome of such legal proceedings,
individually and in the aggregate, is not expected to have a
material adverse effect on the Companys consolidated
financial position, results of operations or liquidity.
13. | RELATED PARTY TRANSACTIONS |
In September 2009, South University, LLC a wholly-owned
subsidiary of the Company, renewed a long term leasing
arrangement of two buildings from two separate entities owned by
John T. South, who is one of the Companys executive
officers. Annual rent payments under this lease, which begins
June 1, 2010, will approximate $2.2 million.
In connection with the Transaction and under the terms of an
agreement between the Company and the Sponsors, the Company
agreed to pay the Sponsors advisory fees of $5.0 million
annually. Other current assets includes $1.3 million at
September 30, 2009 and 2008 and $2.5 million at
June 30, 2009 relating to these prepaid advisory fees and
general and administrative expense includes $1.3 million in
each of the three-month periods ended September 30, 2009
and 2008. This agreement includes customary exculpation and
indemnification provisions in favor of the Sponsors and their
affiliates. See Note 15 for additional details.
In June 2006, the Company entered into a five-year interest rate
swap agreement in the amount of $375.0 million with an
affiliate of one of the Sponsors. The terms of this swap are
discussed in Note 9.
14. | GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION |
On June 1, 2006, in connection with the Transaction, EM LLC
and Education Management Finance Corp. issued the Notes, which
are fully and unconditionally guaranteed by all of EM LLCs
existing direct and indirect domestic restricted subsidiaries,
other than any subsidiary that directly owns or operates a
school or has been formed for such purposes and subsidiaries
that have no material assets (collectively, the
Guarantors). All other subsidiaries of EM LLC,
either direct or indirect, do not guarantee the
(Non-Guarantors).
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EDUCATION
MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In November 2009, the Company guaranteed the Notes. The
following tables present the condensed consolidated financial
position of EM LLC, the Guarantor Subsidiaries, the
Non-Guarantor Subsidiaries, Parent (EDMC) and Eliminations as of
September 30, 2009, June 30, 2009 and
September 30, 2008. The results of operations for the three
month periods ended September 30, 2009 and 2008 and the
condensed statements of cash flows for the three-month periods
ended September 30, 2009 and 2008 are presented for the EM
LLC, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries,
Parent (EDMC) and Eliminations.
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EDUCATION
MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATED BALANCE SHEET
September 30,
2009
Guarantor |
Non-Guarantor |
EM LLC |
EDMC |
|||||||||||||||||||||||||||||
EM LLC | Subsidiaries | Subsidiaries | Eliminations | Consolidated | EDMC | Eliminations | Consolidated | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||||||||||
Current:
|
||||||||||||||||||||||||||||||||
Cash and cash equivalents
|
$ | 364,623 | $ | 1,119 | $ | 15,353 | $ | | $ | 381,095 | $ | 41,772 | $ | | $ | 422,867 | ||||||||||||||||
Restricted cash
|
740 | | 38,447 | | 39,187 | | | 39,187 | ||||||||||||||||||||||||
Notes, advances and trade receivables, net
|
76 | 70 | 133,711 | | 133,857 | 3 | | 133,860 | ||||||||||||||||||||||||
Inventories
|
| | 14,090 | | 14,090 | | | 14,090 | ||||||||||||||||||||||||
Other current assets
|
24,593 | 881 | 56,089 | | 81,563 | | | 81,563 | ||||||||||||||||||||||||
Total current assets
|
390,032 | 2,070 | 257,690 | | 649,792 | 41,775 | | 691,567 | ||||||||||||||||||||||||
Property and equipment, net
|
49,754 | 6,526 | 537,614 | | 593,894 | | | 593,894 | ||||||||||||||||||||||||
Intangible assets, net
|
3,044 | 70 | 467,669 | | 470,783 | | | 470,783 | ||||||||||||||||||||||||
Goodwill
|
7,328 | | 2,571,803 | | 2,579,131 | | | 2,579,131 | ||||||||||||||||||||||||
Intercompany balances
|
1,418,969 | (26,225 | ) | (1,392,744 | ) | | | | | |||||||||||||||||||||||
Other long-term assets
|
49,149 | 9,814 | 5,880 | | 64,843 | (482 | ) | | 64,361 | |||||||||||||||||||||||
Investment in subsidiaries
|
1,625,183 | | | (1,625,183 | ) | | 1,461,834 | (1,461,834 | ) | | ||||||||||||||||||||||
Total assets
|
$ | 3,543,459 | $ | (7,745 | ) | $ | 2,447,912 | $ | (1,625,183 | ) | $ | 4,358,443 | $ | 1,503,127 | $ | (1,461,834 | ) | $ | 4,399,736 | |||||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
|
||||||||||||||||||||||||||||||||
Current:
|
||||||||||||||||||||||||||||||||
Current portion of long-term debt
|
$ | 11,912 | $ | | $ | 578 | $ | | $ | 12,490 | $ | | $ | | $ | 12,490 | ||||||||||||||||
Accounts payable, accrued and other current liabilities
|
121,399 | 2,489 | 478,318 | | 602,206 | 184 | | 602,390 | ||||||||||||||||||||||||
Total current liabilities
|
133,311 | 2,489 | 478,896 | | 614,696 | 184 | | 614,880 | ||||||||||||||||||||||||
Long-term debt, less current portion
|
1,871,958 | | 993 | | 1,872,951 | | | 1,872,951 | ||||||||||||||||||||||||
Other long-term liabilities
|
91,974 | 8,259 | 123,724 | | 223,957 | | | 223,957 | ||||||||||||||||||||||||
Deferred income taxes
|
(15,618 | ) | (5,986 | ) | 206,609 | | 185,005 | | | 185,005 | ||||||||||||||||||||||
Total liabilities
|
2,081,625 | 4,762 | 810,222 | | 2,896,609 | 184 | | 2,896,793 | ||||||||||||||||||||||||
Total shareholders equity (deficit)
|
1,461,834 | (12,507 | ) | 1,637,690 | (1,625,183 | ) | 1,461,834 | 1,502,943 | (1,461,834 | ) | 1,502,943 | |||||||||||||||||||||
Total liabilities and shareholders equity (deficit)
|
$ | 3,543,459 | $ | (7,745 | ) | $ | 2,447,912 | $ | (1,625,183 | ) | $ | 4,358,443 | $ | 1,503,127 | $ | (1,461,834 | ) | $ | 4,399,736 | |||||||||||||
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MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATED BALANCE SHEET
June 30,
2009
Guarantor |
Non-Guarantor |
EM LLC |
EDMC |
|||||||||||||||||||||||||||||
EM LLC | Subsidiaries | Subsidiaries | Eliminations | Consolidated | EDMC | Eliminations | Consolidated | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||||||||||
Current:
|
||||||||||||||||||||||||||||||||
Cash and cash equivalents
|
$ | 15,789 | $ | 481 | $ | 305,287 | $ | | $ | 321,557 | $ | 41,761 | $ | | $ | 363,318 | ||||||||||||||||
Restricted cash
|
789 | | 9,583 | | 10,372 | | | 10,372 | ||||||||||||||||||||||||
Notes, advances and trade receivables, net
|
172 | 35 | 135,738 | | 135,945 | 5 | | 135,950 | ||||||||||||||||||||||||
Inventories
|
| | 9,355 | | 9,355 | | | 9,355 | ||||||||||||||||||||||||
Other current assets
|
19,378 | 1,213 | 54,736 | | 75,327 | | | 75,327 | ||||||||||||||||||||||||
Total current assets
|
36,128 | 1,729 | 514,699 | | 552,556 | 41,766 | | 594,322 | ||||||||||||||||||||||||
Property and equipment, net
|
52,537 | 6,137 | 522,291 | | 580,965 | | | 580,965 | ||||||||||||||||||||||||
Intangible assets, net
|
3,119 | 61 | 468,702 | | 471,882 | | | 471,882 | ||||||||||||||||||||||||
Goodwill
|
7,328 | | 2,571,803 | | 2,579,131 | | | 2,579,131 | ||||||||||||||||||||||||
Intercompany balances
|
1,883,346 | (20,819 | ) | (1,862,527 | ) | | | | | | ||||||||||||||||||||||
Other long-term assets
|
48,447 | 9,764 | 1,178 | | 59,389 | (444 | ) | 58,945 | ||||||||||||||||||||||||
Investment in subsidiaries
|
1,590,364 | | | (1,590,364 | ) | | 1,444,515 | (1,444,515 | ) | | ||||||||||||||||||||||
Total assets
|
$ | 3,621,269 | $ | (3,128 | ) | $ | 2,216,146 | $ | (1,590,364 | ) | $ | 4,243,923 | $ | 1,485,837 | $ | (1,444,515 | ) | $ | 4,285,245 | |||||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
|
||||||||||||||||||||||||||||||||
Current:
|
||||||||||||||||||||||||||||||||
Current portion of long-term debt
|
$ | 111,911 | $ | | $ | 711 | $ | | $ | 112,622 | $ | | $ | | $ | 112,622 | ||||||||||||||||
Accounts payable, accrued and other current liabilities
|
114,771 | 4,739 | 288,082 | | 407,592 | 185 | | 407,777 | ||||||||||||||||||||||||
Total current liabilities
|
226,682 | 4,739 | 288,793 | | 520,214 | 185 | | 520,399 | ||||||||||||||||||||||||
Long-term debt, less current portion
|
1,874,921 | | 1,100 | | 1,876,021 | | | 1,876,021 | ||||||||||||||||||||||||
Other long-term liabilities
|
91,138 | 4,649 | 119,803 | | 215,590 | (1 | ) | | 215,589 | |||||||||||||||||||||||
Deferred income taxes
|
(15,987 | ) | 72 | 203,498 | | 187,583 | | | 187,583 | |||||||||||||||||||||||
Total liabilities
|
2,176,754 | 9,460 | 613,194 | | 2,799,408 | 184 | | 2,799,592 | ||||||||||||||||||||||||
Total shareholders equity (deficit)
|
1,444,515 | (12,588 | ) | 1,602,952 | (1,590,364 | ) | 1,444,515 | 1,485,653 | (1,444,515 | ) | 1,485,653 | |||||||||||||||||||||
Total liabilities and shareholders equity (deficit)
|
$ | 3,621,269 | $ | (3,128 | ) | $ | 2,216,146 | $ | (1,590,364 | ) | $ | 4,243,923 | $ | 1,485,837 | $ | (1,444,515 | ) | $ | 4,285,245 | |||||||||||||
17
Table of Contents
EDUCATION
MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATED BALANCE SHEET
September 30,
2008
Guarantor |
Non-Guarantor |
EM LLC |
EDMC |
|||||||||||||||||||||||||||||
EM LLC | Subsidiaries | Subsidiaries | Eliminations | Consolidated | EDMC | Eliminations | Consolidated | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
ASSETS
|
||||||||||||||||||||||||||||||||
Current:
|
||||||||||||||||||||||||||||||||
Cash and cash equivalents
|
$ | 344,878 | $ | 104 | $ | 4,008 | $ | | $ | 348,990 | $ | 41,555 | $ | | $ | 390,545 | ||||||||||||||||
Restricted cash
|
899 | | 26,738 | | 27,637 | | | 27,637 | ||||||||||||||||||||||||
Notes, advances and trade receivables, net
|
491 | 61 | 126,692 | | 127,244 | 38 | | 127,282 | ||||||||||||||||||||||||
Inventories
|
| | 11,135 | | 11,135 | | | 11,135 | ||||||||||||||||||||||||
Other current assets
|
12,545 | 568 | 51,670 | | 64,783 | (185 | ) | | 64,598 | |||||||||||||||||||||||
Total current assets
|
358,813 | 733 | 220,243 | | 579,789 | 41,408 | | 621,197 | ||||||||||||||||||||||||
Property and equipment, net
|
47,735 | 5,884 | 467,623 | | 521,242 | | | 521,242 | ||||||||||||||||||||||||
Intangible assets, net
|
3,409 | 65 | 476,899 | | 480,373 | | | 480,373 | ||||||||||||||||||||||||
Goodwill
|
8,075 | | 2,577,506 | | 2,585,581 | | | 2,585,581 | ||||||||||||||||||||||||
Intercompany balances
|
1,719,187 | (15,747 | ) | (1,703,440 | ) | | | | | | ||||||||||||||||||||||
Other long-term assets
|
54,436 | | 5,559 | | 59,995 | (342 | ) | | 59,653 | |||||||||||||||||||||||
Investment in subsidiaries
|
1,411,226 | | | (1,411,226 | ) | | 1,347,012 | (1,347,012 | ) | | ||||||||||||||||||||||
Total assets
|
$ | 3,602,881 | $ | (9,065 | ) | $ | 2,044,390 | $ | (1,411,226 | ) | $ | 4,226,980 | $ | 1,388,078 | $ | (1,347,012 | ) | $ | 4,268,046 | |||||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
|
||||||||||||||||||||||||||||||||
Current:
|
||||||||||||||||||||||||||||||||
Current portion of long-term debt
|
$ | 191,913 | $ | | $ | 941 | $ | | $ | 192,854 | $ | | $ | | $ | 192,854 | ||||||||||||||||
Accounts payable, accrued and other current liabilities
|
102,085 | 2,140 | 342,106 | | 446,331 | | | 446,331 | ||||||||||||||||||||||||
Total current liabilities
|
293,998 | 2,140 | 343,047 | | 639,185 | | | 639,185 | ||||||||||||||||||||||||
Long-term debt, less current portion
|
1,883,827 | | 1,530 | | 1,885,357 | | | 1,885,357 | ||||||||||||||||||||||||
Other long-term liabilities
|
77,561 | 45 | 92,735 | | 170,341 | | | 170,341 | ||||||||||||||||||||||||
Deferred income taxes
|
483 | 72 | 184,530 | | 185,085 | | | 185,085 | ||||||||||||||||||||||||
Total liabilities
|
2,255,869 | 2,257 | 621,842 | | 2,879,968 | | | 2,879,968 | ||||||||||||||||||||||||
Total shareholders equity (deficit)
|
1,347,012 | (11,322 | ) | 1,422,548 | (1,411,226 | ) | 1,347,012 | 1,388,078 | (1,347,012 | ) | 1,388,078 | |||||||||||||||||||||
Total liabilities and shareholders equity (deficit)
|
$ | 3,602,881 | $ | (9,065 | ) | $ | 2,044,390 | $ | (1,411,226 | ) | $ | 4,226,980 | $ | 1,388,078 | $ | (1,347,012 | ) | $ | 4,268,046 | |||||||||||||
18
Table of Contents
EDUCATION
MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATED
STATEMENT OF OPERATIONS
For the
Three Months Ended September 30, 2009
Guarantor |
Non-Guarantor |
EM LLC |
EDMC |
|||||||||||||||||||||||||||||
EM LLC | Subsidiaries | Subsidiaries | Eliminations | Consolidated | EDMC | Eliminations | Consolidated | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Net revenues
|
$ | | $ | (205 | ) | $ | 534,604 | $ | | $ | 534,399 | $ | | $ | | $ | 534,399 | |||||||||||||||
Costs and expenses:
|
||||||||||||||||||||||||||||||||
Educational services
|
9,498 | (526 | ) | 286,741 | | 295,713 | | | 295,713 | |||||||||||||||||||||||
General and administrative
|
(19,191 | ) | 420 | 166,822 | | 148,051 | 56 | | 148,107 | |||||||||||||||||||||||
Depreciation and amortization
|
4,472 | 63 | 24,292 | | 28,827 | | | 28,827 | ||||||||||||||||||||||||
Total costs and expenses
|
(5,221 | ) | (43 | ) | 477,855 | | 472,591 | 56 | | 472,647 | ||||||||||||||||||||||
Income (loss) before interest and income taxes
|
5,221 | (162 | ) | 56,749 | | 61,808 | (56 | ) | | 61,752 | ||||||||||||||||||||||
Interest expense, net
|
35,911 | (293 | ) | 720 | | 36,338 | (9 | ) | | 36,329 | ||||||||||||||||||||||
Equity in earnings of subsidiaries
|
(34,819 | ) | | | 34,819 | | (15,791 | ) | 15,791 | | ||||||||||||||||||||||
Income (loss) before income taxes
|
4,129 | 131 | 56,029 | (34,819 | ) | 25,470 | 15,744 | (15,791 | ) | 25,423 | ||||||||||||||||||||||
Provision for (benefit from) income taxes
|
(11,662 | ) | 50 | 21,291 | | 9,679 | (18 | ) | | 9,661 | ||||||||||||||||||||||
Net income (loss)
|
$ | 15,791 | $ | 81 | $ | 34,738 | $ | (34,819 | ) | $ | 15,791 | $ | 15,762 | $ | (15,791 | ) | $ | 15,762 | ||||||||||||||
CONSOLIDATED
STATEMENT OF OPERATIONS
For the
Three Months Ended September 30, 2008
Guarantor |
Non-Guarantor |
EM LLC |
EDMC |
|||||||||||||||||||||||||||||
EM LLC | Subsidiaries | Subsidiaries | Eliminations | Consolidated | EDMC | Eliminations | Consolidated | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Net revenues
|
$ | | $ | 3,328 | $ | 430,900 | $ | | $ | 434,228 | $ | | $ | | $ | 434,228 | ||||||||||||||||
Costs and expenses:
|
||||||||||||||||||||||||||||||||
Educational services
|
11,146 | 2,360 | 240,006 | | 253,512 | | | 253,512 | ||||||||||||||||||||||||
General and administrative
|
(14,645 | ) | 772 | 135,175 | | 121,302 | 57 | | 121,359 | |||||||||||||||||||||||
Depreciation and amortization
|
3,720 | | 22,884 | | 26,604 | | | 26,604 | ||||||||||||||||||||||||
Total costs and expenses
|
221 | 3,132 | 398,065 | | 401,418 | 57 | | 401,475 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Income (loss) before interest and income taxes
|
(221 | ) | 196 | 32,835 | | 32,810 | (57 | ) | | 32,753 | ||||||||||||||||||||||
Interest expense, net
|
37,587 | | 733 | | 38,320 | (161 | ) | | 38,159 | |||||||||||||||||||||||
Equity in earnings of subsidiaries
|
(19,971 | ) | | | 19,971 | | 3,407 | (3,407 | ) | | ||||||||||||||||||||||
Income (loss) before income taxes
|
(17,837 | ) | 196 | 32,102 | (19,971 | ) | (5,510 | ) | (3,303 | ) | 3,407 | (5,406 | ) | |||||||||||||||||||
Provision for (benefit from) income taxes
|
(14,430 | ) | 75 | 12,252 | | (2,103 | ) | | | (2,103 | ) | |||||||||||||||||||||
Net income (loss)
|
$ | (3,407 | ) | $ | 121 | $ | 19,850 | $ | (19,971 | ) | $ | (3,407 | ) | $ | (3,303 | ) | $ | 3,407 | $ | (3,303 | ) | |||||||||||
19
Table of Contents
EDUCATION
MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
For the
Three Months Ended September 30, 2009
Guarantor |
Non-Guarantor |
EM LLC |
EDMC |
|||||||||||||||||||||
EM LLC | Subsidiaries | Subsidiaries | Consolidated | EDMC | Consolidated | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Net cash flows provided by (used in) operations
|
$ | (12,864 | ) | $ | 1,688 | $ | 211,748 | $ | 200,572 | $ | 11 | $ | 200,583 | |||||||||||
Cash flows from investing activities
|
||||||||||||||||||||||||
Expenditures for long-lived assets
|
(2,785 | ) | (365 | ) | (30,088 | ) | (33,238 | ) | | (33,238 | ) | |||||||||||||
Other investing activities
|
| | (3,232 | ) | (3,232 | ) | | (3,232 | ) | |||||||||||||||
Net cash flows used in investing activities
|
(2,785 | ) | (365 | ) | (33,320 | ) | (36,470 | ) | | (36,470 | ) | |||||||||||||
Cash flows from financing activities
|
||||||||||||||||||||||||
Net repayments of debt and other
|
(104,282 | ) | | (240 | ) | (104,522 | ) | | (104,522 | ) | ||||||||||||||
Intercompany transactions
|
468,765 | (685 | ) | (468,080 | ) | | | | ||||||||||||||||
Net cash flows provided by (used in) financing activities
|
364,483 | (685 | ) | (468,320 | ) | (104,522 | ) | | (104,522 | ) | ||||||||||||||
Effect of exchange rate changes on cash and cash
equivalents
|
| | (42 | ) | (42 | ) | | (42 | ) | |||||||||||||||
Increase (decrease) in cash and cash equivalents
|
348,834 | 638 | (289,934 | ) | 59,538 | 11 | 59,549 | |||||||||||||||||
Beginning cash and cash equivalents
|
15,789 | 481 | 305,287 | 321,557 | 41,761 | 363,318 | ||||||||||||||||||
Ending cash and cash equivalents
|
$ | 364,623 | $ | 1,119 | $ | 15,353 | $ | 381,095 | $ | 41,772 | $ | 422,867 | ||||||||||||
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended September 30, 2008
For the Three Months Ended September 30, 2008
Guarantor |
Non-Guarantor |
EM LLC |
EDMC |
|||||||||||||||||||||
EM LLC | Subsidiaries | Subsidiaries | Consolidated | EDMC | Consolidated | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Net cash flows provided by (used in) operations
|
$ | 2,855 | $ | (1,661 | ) | $ | 107,321 | $ | 108,515 | $ | 174 | $ | 108,689 | |||||||||||
Cash flows from investing activities
|
||||||||||||||||||||||||
Expenditures for long-lived assets
|
(4,651 | ) | (574 | ) | (45,564 | ) | (50,789 | ) | | (50,789 | ) | |||||||||||||
Other investing activities
|
| | (1,797 | ) | (1,797 | ) | | (1,797 | ) | |||||||||||||||
Net cash flows used in investing activities
|
(4,651 | ) | (574 | ) | (47,361 | ) | (52,586 | ) | | (52,586 | ) | |||||||||||||
Cash flows from financing activities
|
||||||||||||||||||||||||
Net repayments of debt and other
|
57,034 | (1 | ) | (267 | ) | 56,766 | | 56,766 | ||||||||||||||||
Intercompany transactions
|
287,326 | 2,205 | (289,531 | ) | | | | |||||||||||||||||
Net cash flows provided by (used in) financing activities
|
344,360 | 2,204 | (289,798 | ) | 56,766 | | 56,766 | |||||||||||||||||
Effect of exchange rate changes on cash and cash
equivalents
|
| | 268 | 268 | | 268 | ||||||||||||||||||
Increase (decrease) in cash and cash equivalents
|
342,564 | (31 | ) | (229,570 | ) | 112,963 | 174 | 113,137 | ||||||||||||||||
Beginning cash and cash equivalents
|
2,314 | 135 | 233,578 | 236,027 | 41,381 | 277,408 | ||||||||||||||||||
Ending cash and cash equivalents
|
$ | 344,878 | $ | 104 | $ | 4,008 | $ | 348,990 | $ | 41,555 | $ | 390,545 | ||||||||||||
20
Table of Contents
EDUCATION
MANAGEMENT LLC AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
15. | SUBSEQUENT EVENTS |
In October 2009, the Company consummated an initial public
offering of 23.0 million shares of its common stock. Net
proceeds of approximately $385.0 million were primarily
used to purchase approximately $316.0 million of the Senior
Subordinated Notes in a tender offer and pay $29.6 million
to terminate a management agreement entered into with the
Sponsors in connection with the Transaction. Immediately upon
the completion of the initial public offering, there were
approximately 142.8 million shares of the Companys
common stock outstanding. In the quarter ending
December 31, 2009, the Company will recognize in the
statement of operations several one-time expenses as a direct
result of the initial public offering, including
$44.8 million for the cancellation of indebtedness,
$15.5 million of previously unrecognized stock-based
compensation costs due to the termination of the Companys
Amended and Restated Shareholders Agreement, and
$29.6 million in advisory fees for early termination of the
Sponsor management agreement. These expenses are not reflected
in the accompanying consolidated financial statements. In
addition, the availability for borrowing under EM LLCs
revolving credit facility increased from $388.5 million to
$442.5 million effective upon the closing of the initial
public offering.
As described in Note 4, the Companys LTIC Plan is a
liability-based plan at September 30, 2009. In connection
with the initial public offering, it became an equity-based
plan, as it is the Companys intent to settle these awards
in common stock. The total amount of unrecognized compensation
cost over the vesting periods of all units, net of expected
forfeitures, is approximately $4.0 million at
September 30, 2009; however, the Company does not expect to
recognize any compensation expense related to the LTIC Plan in
the quarter ended December 31, 2009 due to the uncertainty
of certain performance conditions being met.
21
Table of Contents
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Results
of Operations
Amounts
expressed as a percentage of net revenues
CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Three Months |
||||||||
Ended September 30, | ||||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Net revenues
|
100.0 | % | 100.0 | % | ||||
Costs and expenses:
|
||||||||
Educational services
|
55.4 | % | 58.4 | % | ||||
General and administrative
|
27.7 | % | 27.9 | % | ||||
Depreciation and amortization
|
5.4 | % | 6.1 | % | ||||
Total costs and expenses
|
88.5 | % | 92.4 | % | ||||
Income before interest and income taxes
|
11.5 | % | 7.6 | % | ||||
Interest expense, net
|
6.8 | % | 8.7 | % | ||||
Income (loss) before income taxes
|
4.7 | % | (1.1 | )% | ||||
Provision for (benefit from) income taxes
|
1.8 | % | (0.5 | )% | ||||
Net income (loss)
|
2.9 | % | (0.6 | )% | ||||
Three
months ended September 30, 2009 (current period) compared
to the three months ended September 30, 2008 (prior
period)
All basis point changes are presented as a percentage of net
revenues in each period of comparison.
Net
revenues
Net revenues for the three months ended September 30, 2009
increased 23.1% to $534.4 million, compared to
$434.2 million in the same period a year ago. Average
student enrollment increased 23.1% in the current period
compared to the prior period primarily due to the opening of new
school locations, the growth in our fully online programs and
the introduction of new academic programs. In addition, tuition
rates increased approximately 6% in the current period compared
to the prior period. These factors were partially offset by a
lower average credit load taken by students. The decrease in
credit load was primarily the result of growth in the number of
students enrolled in fully online programs, in which students
typically take a lesser credit load than onground students. None
of the increase in student enrollment was due to acquisitions of
schools since September 30, 2008. Tuition revenue generally
varies based on the average tuition charge per credit hour,
average credits per student and the average student population.
Our quarterly net revenues and net income fluctuate primarily as
a result of the pattern of student enrollments at our schools.
The seasonality of our business has decreased over the last
several years due to an increased percentage of students
enrolling in online programs, which generally experience less
seasonal fluctuations than campus-based programs. Our first
fiscal quarter is typically our lowest revenue recognition
quarter due to student vacations.
Educational
services expense
Educational services expense consists primarily of costs related
to the development, delivery and administration of our education
programs. The major cost components include faculty
compensation, salaries of
22
Table of Contents
administrative and student services staff, costs of educational
materials, facility occupancy costs, information systems costs,
loan fees and bad debt expense.
Educational services expense increased by $42.2 million, or
16.6%, to $295.7 million in the current period due
primarily to the incremental costs incurred to support higher
student enrollment. As a percentage of net revenues, educational
services expense decreased by 305 basis points from the
quarter ended September 30, 2008 to the current quarter.
Salaries and benefits decreased by 166 basis points from
the prior period primarily due to operating leverage at existing
onground campuses, partially offset by an increase in these
costs for our fully online programs. Rent expense associated
with schools was $40.4 million in the current period and
$35.3 million in the prior period, representing a decrease
of 56 basis points. Additionally, costs related to
utilities, employee relations and travel and training decreased
57 basis points in the current period compared to the prior
period. We also experienced a decrease of seven basis points
from the prior period in fees paid to private lenders to
originate loans obtained by our students. Bad debt expense was
$23.2 million, or 4.3% of net revenues, in the current
period compared to $18.0 million, or 4.1% of net revenues,
in the prior period, which represented an increase of
19 basis points. The increase in bad debt expense as a
percentage of net revenues was primarily due to larger
receivable balances as a result of our assistance with
students cost of education, higher delinquency rates and
an increase in the proportion of our receivables from
out-of-school
students, which are reserved for at a higher rate than in-school
students. In addition, allowances recorded in connection with
our Education Finance Loan program and worsening economic
conditions negatively impacted bad debt expense. The remaining
net decrease of 38 basis points in the current period was
driven by other costs, none of which were individually
significant.
General
and administrative expense
General and administrative expense consists of marketing and
student admissions expenses and certain central staff
departmental costs such as executive management, finance and
accounting, legal, corporate development and other departments
that do not provide direct services to our students.
General and administrative expenses were $148.1 million for
the current period, an increase of 22.0% from
$121.3 million in the prior period. As a percentage of net
revenues, general and administrative expenses decreased
23 basis points compared with the quarter ended
September 30, 2008, due primarily to a 20 basis point
decrease in marketing and admissions costs. Marketing and
admissions costs were 24.0% of net revenues in the current
quarter compared to 24.2% of net revenues in the prior year
quarter. The remaining net decrease of three basis points in the
current quarter was driven by other costs, none of which were
individually significant.
Depreciation
and amortization expense
Depreciation and amortization expense on long-lived assets was
$28.8 million in the current period, an increase of 8.4%
from the prior period. As a percentage of net revenues,
depreciation and amortization expense decreased by 73 basis
points compared to the prior period, due in part to a reduction
in the amortization of intangible assets recorded in connection
with the Transaction.
Interest
expense, net
Net interest expense was $36.3 million in the current
period, a decrease of $1.9 million from the prior period.
The decrease in net interest expense is primarily related to a
reduction in the average interest rate of the term loan during
the current period, coupled with the effect of required
principal repayments of $12.8 million on outstanding
indebtedness since September 30, 2008.
Provision
for income taxes
The provision for income taxes for the three months ended
September 30, 2009 was $9.7 million as compared to an
income tax benefit of $2.1 million for the same period in
the prior year. The Companys effective tax rate was 38.0%
for the three months ended September 30, 2009 as compared
to 38.9% for the same period in the prior year. The effective
rates differed from the combined federal and state statutory
rates primarily due to valuation allowances, expenses that are
non-deductible for tax purposes, and accounting for uncertain
tax positions.
23
Table of Contents
Liquidity
and Funds of Capital Resources
We finance our operating activities primarily from cash
generated from operations, and our primary source of cash is
tuition collected from our students. We believe that cash flow
from operations, supplemented from time to time with borrowings
under our $442.5 million revolving credit facility, will
provide adequate funds for ongoing operations, planned expansion
to new locations, planned capital expenditures and debt service
as well as acquisitions during the next twelve months.
Net working capital is calculated as total current assets less
total current liabilities. Advance payments and amounts
outstanding under our revolving credit facility do not
contribute to any changes in net working capital as these
liabilities are directly offset in current assets. We had
working capital of $76.7 million at September 30,
2009, which compares favorably to an $18.0 million working
capital deficit at September 30, 2008. The change in
working capital is primarily the result of a $31.2 million
increase in earnings before interest, taxes and depreciation
(EBITDA) compared to the prior year quarter, a
decrease of $17.6 million in the amount spent on long-lived
assets during the quarter and a $19.4 increase in current
deferred tax assets.
Operating
cash flows
Cash flow from operations for the three month period ended
September 30, 2009 was $200.6 million, compared to
$108.7 million in the prior year period. The increase in
operating cash flows as compared to the prior year period was
primarily related to a $75.3 million increase in advanced
payments, which benefited from the timing of our October
academic term start occurring earlier than in the first quarter
of fiscal 2009, and increased net income.
Days sales outstanding (DSO) in receivables
decreased slightly from 26.6 days in the period ended
September 30, 2008 to 22.9 days at September 30,
2009. We calculate DSO by dividing net student and other
receivables at period end by average daily net revenues for the
most recently completed quarter. Net accounts receivable can be
affected significantly by the changes in the start dates of
academic terms from reporting period to reporting period. There
were no significant changes to the start dates of academic terms
in session as compared to the prior year.
The level of accounts receivable reaches a peak immediately
after the billing of tuition and fees at the beginning of each
academic period. Collection of these receivables is heaviest at
the start of each academic period. Additionally, federal
financial aid proceeds for continuing students can be received
up to ten days prior to the start of an academic quarter, which
can result in fluctuations in quarterly cash receipts due to the
timing of the start of academic periods.
In an effort to provide our students with financing for the cost
of tuition, we have established relationships with alternative
or private loan providers. Private loans help bridge the funding
gap created by tuition rates that have risen more quickly than
federally-guaranteed student loans. In addition, we introduced
the Education Finance Loan program in August 2008, which enables
students who have exhausted all available government-sponsored
or other aid and have been denied a private loan to borrow a
portion of their tuition and other educational expenses at our
schools if they or a co-borrower meet certain eligibility and
underwriting criteria. We purchased loans totaling
$7.9 million during the three-month period ended
September 30, 2009 related to the Education Finance Loan
program.
We have accrued a total of $22.7 million as of
September 30, 2009 for uncertain tax positions, excluding
interest and the indirect benefits associated with state income
taxes. There have been no material adjustments to liabilities
relating to uncertain tax positions since the last annual
disclosure for the fiscal year ended June 30, 2009. We may
have future cash payments up to the amount accrued if we are
ultimately unsuccessful in defending these uncertain tax
positions. However, we cannot reasonably predict at this time
the future period in which these payments may occur, if at all.
Investing
cash flows
Capital expenditures were $33.2 million, or 6.2% of net
revenues, for the quarter ended September 30, 2009,
compared to $50.8 million, or 11.7% of net revenues, for
the prior year quarter. The decrease in capital expenditures
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as a percentage of net revenues during the first quarter of
fiscal 2010 as compared to the first quarter of fiscal 2009 was
primarily due to the timing of capital expenditures during the
prior year period. We expect capital expenditures in fiscal 2010
to be between 6.5% and 7.5% of net revenues compared to 7.5% of
net revenues in fiscal 2009. During fiscal 2010, we will
continue to invest both in new facilities and in the expansion
of existing facilities. Reimbursements for tenant improvements
represent cash received from lessors based on the terms of lease
agreements to be used for leasehold improvements. We lease most
of our facilities under operating lease agreements. We
anticipate that future commitments on existing leases will be
satisfied from cash provided from operating activities. We also
expect to extend the terms of leases that will expire in the
near future or enter into similar long-term commitments for
comparable space.
Financing
cash flows
Our revolving credit facility is available to draw upon in order
to satisfy certain year-end regulatory financial ratios, fund
working capital needs that may result from the seasonal pattern
of cash receipts that occur throughout the year and finance
acquisitions. On July 1, 2009, we repaid the revolving
credit facilitys balance outstanding of
$100.0 million, which existed in order to satisfy year-end
regulatory financial ratios, from cash on hand at June 30,
2009. In connection with the increase to EM LLCs revolving
credit facility in August 2009 from $322.5 million to
$388.5 million, two letter of credit issuing banks were
added to increase the amount available for letters of credit
under the revolving credit facility from $175.0 million to
$375.0 million.
At September 30, 2009, we had an outstanding letter of
credit issued to the U.S. Department of Education of
approximately $120.5 million primarily due to our failure
to satisfy certain regulatory financial ratios after giving
effect to the Transaction. Outstanding letters of credit reduce
our availability to borrow funds under the revolving credit
facility. Including those issued to the U.S. Department of
Education, an aggregate of $137.3 million of letters of
credit were outstanding at September 30, 2009.
As a result of the Transaction, we are highly leveraged and our
debt service requirements are significant. At September 30,
2009, we had $1,885.4 million in aggregate indebtedness
outstanding. After giving effect to outstanding letters of
credit and amounts drawn, we had $251.2 million of
additional borrowing capacity on the revolving credit facility
at September 30, 2009. We expect our cash flows from
operations, combined with availability under our revolving
credit facility, to provide sufficient liquidity to fund our
current obligations, projected working capital requirements and
capital spending over the next twelve months.
In October 2009, we consummated an initial public offering of
23.0 million shares of our common stock for net proceeds of
approximately $385.0 million, which was primarily used to
purchase approximately $316.0 million of our senior
subordinated notes due June 2016 in a tender offer and pay
$29.6 million to terminate a management agreement entered
into with the Sponsors in connection with the Transaction. In
connection with the completion of the initial public offering,
EM LLC also increased capacity for borrowing on its revolving
credit facility from $388.5 million to $442.5 million.
In November 2009, the Company guaranteed the 8.75% senior
notes due 2014 and the 10.25% senior subordinated notes due
2016 issued by EM LLC and Education Management Finance Corp. We
do not expect the guarantee will adversely affect our liquidity
within the next twelve months or restrict our ability to declare
dividends or incur additional indebtedness in the future.
We may from time to time seek to retire or purchase our
outstanding debt through cash purchases through open market
purchases, privately negotiated transactions or otherwise. Such
repurchases, if any, will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions
and other factors. The amounts involved may be material.
Federal
Family Education Loan Program and Private Student
Loans
Approximately 81.5% and 13.1% of our net revenues were
indirectly derived from Title IV programs under the Higher
Education Act of 1965 and private loan programs, respectively,
in fiscal 2009 compared to 70.2% and 22.3% from Title IV
programs and private loan programs, respectively, in fiscal
2008. There have been significant recent developments that have
impacted these programs.
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The U.S. government has recently made additional financial
aid available to students in order to meet rising post-secondary
education and decreased availability of private loans. Effective
July 1, 2008, the annual Stafford loans available for
undergraduate students under the FFEL program increased by
$2,000. Effective as of July 1, 2008, the maximum amount of
availability of a Pell grant increased to $4,731 per year from a
maximum of $4,310 per year in fiscal 2008. The maximum Pell
grant available to eligible students further increased effective
July 1, 2009 to $5,350 per award year.
The credit and equity markets of both mature and developing
economies have experienced extraordinary volatility, asset
erosion and uncertainty in recent periods. In particular,
adverse market conditions for consumer student loans have
resulted in providers of private loans reducing the
attractiveness
and/or
decreasing the availability of private loans to post-secondary
students, including students with low credit scores who would
not otherwise be eligible for credit-based private loans. In
order to provide student loans to certain of our students who do
not satisfy the new standard underwriting, we pay credit
enhancement fees to certain lenders (including Sallie Mae) based
on the principal balance of each loan disbursed by the lender.
An agreement we entered into with Sallie Mae to provide loans to
certain students who received a private loan from Sallie Mae
prior to April 17, 2008 and are continuing their education
but who do not satisfy Sallie Maes current standard
underwriting criteria expires in June 2010.
The reliance by students attending our schools on private loans
decreased substantially during fiscal 2009 due to the increased
availability of federal aid and certain operating initiatives we
implemented over the past 18 months. Excluding activity
under our Education Finance Loan program, private loans
accounted for approximately 13% of our net revenues in fiscal
2009 as compared to approximately 22% in fiscal 2008. This trend
continued during the first quarter of fiscal 2010, as private
loans accounted for approximately 7% of our net revenues as
compared to approximately 19% in the first quarter of fiscal
2009.
In response to the tightened credit markets facing our students,
in August 2008 we introduced the Education Finance Loan program
through a private lender. The program enables students who have
exhausted all available government-sponsored or other aid and
have been denied a private loan to borrow a portion of their
tuition and other educational expenses at our schools if they or
a co-borrower meet certain eligibility and underwriting
criteria. Under the program, we purchase loans made by a private
lender to students who attend our schools. Aid awarded under the
Education Finance Loan Program represented approximately 1.0%
and 2.9% as a percentage of net revenues during fiscal 2009 and
the first quarter of 2010, respectively. We estimate that
disbursements under this program during fiscal 2010 will be
approximately $75 million.
The Education Finance Loan program adversely impacts our
liquidity and exposes us to new and greater credit risk because
we own loans to our students. This financing provides for
payments to us by our students over an extended term, which
could have a material adverse effect on our cash flows from
operations. In addition, we have the risk of collection with
respect to these loans, which resulted in an increase in our bad
debt expense as a percentage of net revenues in fiscal 2009
compared to prior fiscal years. While we are taking steps to
address the private loan needs of our students, the consumer
lending market could worsen. The inability of our students to
finance their education could cause our student population to
decrease, which could have a material adverse effect on our
financial condition, results of operations and cash flows.
Contingencies
Refer to Item 1 Financial
Statements Note 12, Contingencies.
New
Accounting Standards Not Yet Adopted
Refer to Item 1 Financial
Statements Note 2, Recent Accounting
Pronouncements.
Non-GAAP Financial
Measures
We use EBITDA, defined as net income plus interest expense
(income), net, income taxes, depreciation and amortization, to
measure operating performance. EBITDA is not a recognized term
under GAAP and does not purport to be an alternative to net
income as a measure of operating performance or to cash flows
from operating
26
Table of Contents
activities as a measure of liquidity. Additionally, EBITDA is
not intended to be a measure of free cash flow available for our
discretionary use, as it does not consider certain cash
requirements such as interest payments, tax payments and debt
service requirements. We believe EBITDA is helpful in
highlighting trends because EBITDA excludes the results of
decisions that are outside the control of operating management
and can differ significantly from company to company depending
on long-term strategic decisions regarding capital structure,
the tax jurisdictions in which companies operate and capital
investments. We compensate for the limitations of using non-GAAP
financial measures by using them to supplement GAAP results to
provide a more complete understanding of the factors and trends
affecting the business than GAAP results alone. Because not all
companies use identical calculations, these presentations of
EBITDA may not be comparable to similarly titled measures of
other companies. EBITDA is calculated as follows (in millions):
For the Three Months |
||||||||
Ended September 30, | ||||||||
2009 | 2008 | |||||||
Net income (loss)
|
$ | 15.8 | $ | (3.3 | ) | |||
Interest expense, net
|
36.3 | 38.2 | ||||||
Provision for (benefit from) income taxes
|
9.7 | (2.1 | ) | |||||
Depreciation and amortization
|
28.8 | 26.6 | ||||||
EBITDA
|
$ | 90.6 | $ | 59.4 | ||||
Covenant
Compliance
Under its senior secured credit facilities, our subsidiary, EM
LLC, is required to satisfy a maximum total leverage ratio, a
minimum interest coverage ratio and other financial conditions
tests. At September 30, 2009, EM LLC was in compliance
with the financial and non-financial covenants. Its continued
ability to meet those financial ratios and tests can be affected
by events beyond our control, and we cannot assure you that it
will meet those ratios and tests in the future.
Adjusted EBITDA is a non-GAAP measure used to determine our
compliance with certain covenants contained in the indentures
governing the senior notes and senior subordinated notes and in
our senior secured credit facilities. Adjusted EBITDA is defined
as EBITDA further adjusted to exclude unusual items and other
adjustments permitted in calculating covenant compliance under
the indentures governing the senior notes and senior
subordinated notes and our senior secured credit facilities. We
believe that the inclusion of supplementary adjustments to
EBITDA applied in presenting Adjusted EBITDA is appropriate to
provide additional information to investors to demonstrate
compliance with our financing covenants.
The breach of covenants in our senior secured credit facilities
that are tied to ratios based on Adjusted EBITDA could result in
a default under that agreement, in which case the lenders could
elect to declare all amounts borrowed due and payable. Any such
acceleration would also result in a default under our indentures
governing the senior notes and senior subordinated notes.
Additionally, under our senior secured credit facilities and the
indentures governing the senior notes and senior subordinated
notes, our ability to engage in activities such as incurring
additional indebtedness, making investments and paying dividends
is also tied to ratios based on Adjusted EBITDA.
Adjusted EBITDA does not represent net income or cash flows from
operations as those terms are defined by GAAP and does not
necessarily indicate whether cash flows will be sufficient to
fund cash needs. In addition, unlike GAAP measures such as net
income and earnings per share, Adjusted EBITDA does not reflect
the impact of our obligations to make interest payments on our
debt service obligations, which have increased substantially as
a result of our indebtedness incurred in June 2006 to finance
the Transaction and related expenses. While Adjusted EBITDA and
similar measures are frequently used as measures of operations
and the ability to meet debt service requirements, these terms
are not necessarily comparable to other similarly titled
captions of other companies due to the potential inconsistencies
in the method of calculation. Adjusted EBITDA does not reflect
the impact of earnings or charges resulting from matters that we
may consider not to be indicative of our ongoing operations. In
particular, the definition of Adjusted EBITDA in the senior
credit facilities and the indentures allows us to add back
certain non-cash, extraordinary, unusual or non-recurring
charges that are deducted in calculating net income. However,
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these are expenses that may recur, vary greatly and are
difficult to predict. Further, our debt instruments require that
Adjusted EBITDA be calculated for the most recent four fiscal
quarters. As a result, the measure can be disproportionately
affected by a particularly strong or weak quarter. Further, it
may not be comparable to the measure for any subsequent
four-quarter period or any complete fiscal year.
The following is a reconciliation of net income, which is a GAAP
measure of operating results, to Adjusted EBITDA for EM LLC as
defined in its debt agreements. The terms and related
calculations are defined in the senior secured credit agreement
(in millions).
For the Twelve |
||||
Months Ended |
||||
September 30, |
||||
2009 | ||||
Net income
|
$ | 123.4 | ||
Interest expense, net
|
151.6 | |||
Provision for income taxes
|
73.0 | |||
Depreciation and amortization
|
114.5 | |||
EBITDA
|
462.5 | |||
Reversal of impact of unfavorable leases(1)
|
(1.2 | ) | ||
Transaction and advisory expense(2)
|
5.0 | |||
Severance and relocation
|
5.5 | |||
Capital taxes
|
4.2 | |||
Other
|
1.4 | |||
Adjusted EBITDA Covenant Compliance
|
$ | 477.4 | ||
(1) | Represents non-cash reduction to rent expense due to the amortization on $7.3 million of unfavorable lease liabilities resulting from fair value adjustments required under SFAS No. 141 as part of the Transaction. | |
(2) | Represents fees incurred under a management advisory agreement with the Sponsors. |
Our covenant requirements and actual ratios for the twelve
months ended September 30, 2009 are as follows:
Covenant |
Actual |
|||||||
Senior Secured Credit Facility
|
Requirements | Ratios | ||||||
Adjusted EBITDA to Consolidated Interest Expense ratio
|
Minimum of 1.80 | x | 3.14 | x | ||||
Consolidated Total Debt to Adjusted EBITDA ratio
|
Maximum of 6.25 | x | 3.15 | x |
Certain
Risks and Uncertainties
Certain of the matters we discuss in this report may constitute
forward-looking statements. Forward-looking statements contain
words such as believes, expects,
may, will, should,
seeks, approximately,
intends, plans, estimates,
or anticipates or similar expressions which concern
our strategy, plans or intentions. All statements we make
relating to estimated and projected earnings, margins, costs,
expenditures, cash flows, growth rates and financial results are
forward-looking statements. In addition, from time to time we
make forward-looking public statements concerning our expected
future operations and performance and other developments. All of
these forward-looking statements are subject to risks and
uncertainties that may change at any time, and, therefore, our
actual results may differ materially from those that we
expected. We derive most of our forward-looking statements from
our operating budgets and forecasts, which are based upon many
detailed assumptions. While we believe that our assumptions are
reasonable, we caution that it is very difficult to predict the
impact of known factors, and, of course, it is impossible for us
to anticipate all factors that could affect our actual results.
Some of the factors that we believe could affect our results
include: our high degree of leverage; our ability to generate
sufficient cash to service all of our debt obligations; general
economic and market conditions; the condition of the
post-secondary education industry; the integration of acquired
businesses, the performance of acquired businesses, and the
prospects for future acquisitions; the effect of war, terrorism,
natural disasters or other
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Table of Contents
catastrophic events; the effect of disruptions to our systems
and infrastructure; the timing and magnitude of student
enrollment; the timing and scope of technological advances; the
trend in information availability toward solutions utilizing
more dedicated resources; the market and credit risks associated
with the post-secondary education industry; the ability to
retain and attract students and key personnel; and risks
relating to the foreign countries where we transact business.
The factors described in this paragraph and other factors that
may affect our business or future financial results are
discussed in our filings with the Securities and Exchange
Commission, including this report.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to market risks in the ordinary course of
business that include foreign currency exchange rates and
typically do not utilize forward or option contracts on foreign
currencies or commodities. We are also subject to fluctuations
in the value of the Canadian dollar relative to the
U.S. dollar, but we do not believe we are subject to
material risks from reasonably possible near-term changes in
exchange rates due to the size of our Canadian operations
relative to our total business.
The fair values of cash and cash equivalents, accounts
receivable, borrowings under our revolving credit facility,
accounts payable and accrued expenses approximate carrying
values because of the short-term nature of these instruments.
At September 30, 2009, we had total debt obligations of
$1,885.4 million, including $1,123.9 million in
variable rate debt under the senior secured credit facility at a
weighted average interest rate of 7.1%. A hypothetical change of
1.25% in interest rates from September 30, 2009 levels
would have increased or decreased interest expense by
approximately $1.2 million for the variable-rate debt in
the three-month period ended September 30, 2009.
Two five-year interest rate swap agreements fix the interest
rate on $750.0 million of our variable rate debt through
July 1, 2011. At September 30, 2009, we had variable
rate debt of $373.9 million that was subject to market rate
risk, as our interest payments fluctuated as a result of market
changes. Under the terms of the interest rate swaps, we receive
variable payments based on the three month LIBOR and make
payments based on a fixed rate of 5.4%. The net receipt or
payment from the interest rate swap agreements is recorded in
interest expense. The interest rate swaps are designated and
qualify as cash flow hedges. The derivative financial
instruments are carried at fair value, which is based on the
framework discussed in Note 9 to the accompanying
consolidated financial statements. We do not use derivative
instruments for trading or speculative purposes. For the
three-month period ended September 30, 2009, we recorded an
unrealized after-tax gain of $0.9 million in other
comprehensive loss related to the change in market value on the
swap agreements. The cumulative unrealized net loss of
$33.3 million, net of tax, at September 30, 2009
related to the swaps may be recognized in the consolidated
statement of operations if certain terms of the senior secured
credit facilities change, if the senior secured credit
facilities are extinguished or if the swap agreements are
terminated prior to maturity.
ITEM 4. | CONTROLS AND PROCEDURES |
The Company, under the supervision and participation of its
management, which include the Companys chief executive
officer and chief financial officer, evaluated the effectiveness
of its disclosure controls and procedures, as
defined in
Rule 13a-15(e)
under the Securities Act of 1934, as amended (the Exchange
Act). This evaluation was conducted as of the end of the
period covered by this
Form 10-Q.
Based on that evaluation, our chief executive officer and chief
financial officer have concluded that the Companys
disclosure controls and procedures are effective. Effective
controls ensure that information required to be disclosed by the
Company in reports that it files under the Exchange Act is
recorded, processed and summarized within the time periods
specified in Securities and Exchange Commissions rules and
forms. These controls and procedures are designed to ensure that
information required to be disclosed by the Company in such
reports are accumulated and communicated to our management,
including our chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding
required disclosure.
There were no changes that occurred during the fiscal quarter
covered by this Quarterly Report on
Form 10-Q
that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over
financial reporting.
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Table of Contents
PART II
OTHER INFORMATION
OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
Information relating to legal proceedings is included in
Note 12, Contingencies, to the Consolidated Financial
Statements set forth in Part I, Item 1 of this
Quarterly Report on Form 10-Q, which is incorporated herein
by reference.
ITEM 1A. | RISK FACTORS |
There have been no material changes to our Risk Factors as
previously disclosed in our Prospectus filed on October 2,
2009 with the Securities and Exchange Commission (file
no. 333-148259)
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS |
Not applicable.
ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS INDEX |
Number
|
Document
|
|||
3 | .1 | Amended and Restated Articles of Incorporation. | ||
3 | .2 | Amended and Restated Bylaws. | ||
10 | .1 | Shareholders Agreement dated as of October 7, 2009 by and among Education Management Corporation and the shareholders party thereto. | ||
10 | .2 | Education Management Corporation Omnibus Long-Term Incentive Plan. | ||
10 | .3 | Form of Stock Option Agreement. | ||
10 | .4 | Form of Restricted Stock Award Agreement. | ||
31 | .1 | Certification of Todd S. Nelson required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31 | .2 | Certification of Edward H. West required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32 | .1 | Certification of Todd S. Nelson required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32 | .2 | Certification of Edward H. West required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURE
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.
/S/ EDWARD H. WEST
Edward H. West
President and Chief Financial Officer
Date:
November 10, 2009
31