Education Management LLC Reports Fiscal 2007 Fourth Quarter and Full Year Results PITTSBURGH, Aug. 22 /PRNewswire/ -- Education Management LLC, one of the largest providers of post-secondary education in North America, today reported its financial results for the three months and twelve months ended June 30, 2007. For the fourth quarter of fiscal 2007, net revenues rose 19.1% to $347.7 million from the fourth quarter of fiscal 2006. For the twelve months ended June 30, 2007, net revenues rose 16.5% to $1,363.7 million from fiscal 2006 net revenues with net income of $32.2 million. Todd S. Nelson, President and Chief Executive Officer of Education Management, commented, "During our recent July start, we had double digit enrollment growth over last July for our campus-based schools and 125% growth online. Our results are a direct result of strong performance of our dedicated faculty and staff across our schools, and the investments we have made in our business over the last year which are now contributing to student and revenue growth." On June 1, 2006, a consortium of private investors acquired Education Management Corporation in a transaction valued at approximately $3.4 billion (the "Transaction"). Education Management Corporation (the "Predecessor") contributed substantially all of its assets and liabilities to Education Management LLC (the "Successor") in connection with the closing of the Transaction. In this press release, the results for the fourth quarter of fiscal 2006 are the combined results of the Predecessor for the two month period ended June 1, 2006 and the Successor for the one month period ended June 30, 2006, while the fiscal 2006 results are the combined eleven and one month periods ended June 1, 2006 and June 30, 2006, respectively. Financial Highlights -- Net revenues for the three months ended June 30, 2007 increased 19.1% to $347.7 million, compared to $292.0 million for the same period a year ago. For the twelve months ended June 30, 2007, net revenues rose 16.5% to a record $1,363.7 million, compared to $1,170.2 million for the comparable twelve-month period last year. This increase resulted from a 12.7% increase in average total student enrollment and an approximate 5% increase in tuition rates during the twelve months ended June 30, 2007. -- For the fourth quarter of fiscal 2007, net loss improved from $21.2 million in the prior year period to a net loss of $1.0 million due primarily to costs incurred related to the Transaction in the prior year period. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $64.4 million from $7.3 million for the same period a year ago. This increase was the result of improved performance and the year over year reduction in expenditures associated with equity compensation, transaction costs and advisory fees of $49.1 million. -- For fiscal 2007, net income was $32.2 million as compared to $80.7 million in fiscal 2006. The decrease from fiscal 2006 was primarily associated with increased interest expense associated with indebtedness incurred in connection with the Transaction. Fiscal 2007 EBITDA increased to $318.9 million from $221.0 million for the same period a year ago. This increase was the result of improved performance and the year over year reduction in expenditures associated with equity compensation, transaction costs and advisory fees of $68.5 million. -- At June 30, 2007, cash and cash equivalents were $250.7 million compared to $263.3 million at June 30, 2006. There were outstanding borrowings of $90.0 million on the revolving credit facility at June 30, 2007 compared with borrowings of $160.0 million at June 30, 2006. -- Cash flow from operations for the twelve month period ended June 30, 2007 was $179.4 million compared to $279.3 million in the prior year period. The lower amount in the current fiscal year is primarily the result of higher interest expense related to the indebtedness incurred in connection with the Transaction. -- Cash paid for capital expenditures was $96.1 million, or 7.0% of net revenues, for the twelve months ended June 30, 2007 compared to $65.6 million, or 5.6% of net revenues, for the same period in fiscal 2006. We expect capital expenditures during fiscal 2008 to be approximately 8 to 9% of net revenues. -- In June 2007, we completed the acquisition of two schools in Tucson, AZ -- Chaparral College and Tucson Design College -- totaling approximately 400 students combined. These schools will be included within our existing Brown Mackie College and Art Institutes education systems. The presentation of EBITDA and Adjusted EBITDA does not comply with U.S. generally accepted accounting principles (GAAP). For an explanation of EBITDA and Adjusted EBITDA (used for covenant compliance) and a reconciliation to GAAP, see the Non-GAAP Financial Measures disclosures in the financial tables section below. Student Enrollment At the start of the current July quarter (first quarter of fiscal 2008), total enrollment at our schools was approximately 78,700 students, a 19.6% increase from the same time last year. Same-school enrollment (schools owned for one year or more) increased 18.4% to approximately 77,900 students. Students enrolled in fully online programs increased 125.8% to approximately 10,400 students. 2007 2006 Percentage July July Change ------ ------ ---------- Total enrollment 78,700 65,800 19.6% Same-school enrollment (owned for 1 year or more) 77,900 65,800 18.4% Students enrolled in fully online programs 10,400 4,600 125.8% Our quarterly revenues and income fluctuate primarily as a result of the pattern of student enrollments. The seasonality of our business has decreased over the last several years due primarily to an increased percentage of students at our schools enrolling in online programs. The first quarter is typically the lowest revenue recognition quarter due to student vacations. Conference Call and Webcast Education Management will host a conference call to discuss its fiscal 2007 fourth quarter and year end results on Thursday, August 23, 2007 at 10:30 a.m. (Eastern Time). Those wishing to participate in this call should dial 303-262-2053 approximately 10 minutes prior to the start of the call. A listen-only audio of the conference call will also be broadcast live over the Internet at http://www.edmc.com. About Education Management Education Management (http://www.edmc.com), with over 80,300 students as of Fall 2006, is among the largest providers of post-secondary education in North America, based on student enrollment and revenue. Education Management has 78 primary locations in 25 states and two Canadian provinces. Education Management's educational institutions offer a broad range of academic programs concentrated in the media arts, design, fashion, culinary arts, behavioral sciences, health sciences, education, information technology, legal studies and business fields, culminating in the award of associate's through doctoral degrees. Education Management has provided career-oriented education for over 40 years. Cautionary Statement This press release may include information that could constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements may involve risk and uncertainties that could cause actual results to differ materially from any future results encompassed within the forward-looking statements. Factors that could cause or contribute to such differences include those matters disclosed in the Company's Securities and Exchange Commission filings. Past results of Education Management are not necessarily indicative of its future results. Education Management does not undertake any obligation to update any forward-looking statements. COMPANY CONTACTS: James Sober, CFA Vice President, Finance (412) 995-7684 EDUCATION MANAGEMENT LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - FISCAL FOURTH QUARTER (Dollars in millions) (Unaudited) Successor Combined Successor Predecessor For Period Period Period the from from from three April 1, June 1, April 1, months 2006 2006 2006 ended, through through through June 30, June 30, June 30, May 31, 2007 2006 2006 2006 ------- ------- ------ ------- Net revenues $ 347.7 $ 292.0 $ 74.4 $ 217.6 Costs and expenses: Educational services 212.6 193.6 64.7 128.9 General and administrative 89.2 108.6 26.0 82.6 Amortization of intangible assets 4.4 2.2 1.7 0.5 Total cost and expenses 306.2 304.4 92.4 212.0 Income (loss) before interest and income taxes 41.5 (12.4) (18.0) 5.6 Interest (income) expense, net 40.4 13.1 14.1 (1.0) Income (loss) before income taxes 1.1 (25.5) (32.1) 6.6 Provision (benefit) for income taxes 2.1 (4.3) (12.4) 8.1 Net loss $ (1.0) $ (21.2) $ (19.7) $ (1.5) Note: certain prior year amounts have been reclassified to conform to the current year's presentation EDUCATION MANAGEMENT LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - FISCAL YEAR (Dollars in millions) (Unaudited) Successor Combined Successor Predecessor For Period Period Period the from from from twelve July 1, June 1, July 1, months 2005 2006 2005 ended, through through through June 30, June 30, June 30, May 31, 2007 2006 2006 2006 --------- --------- ------ --------- Net revenues $ 1,363.7 $ 1,170.2 $ 74.4 $ 1,095.8 Costs and expenses: Educational services 801.6 714.5 64.7 649.8 General and administrative 314.4 299.3 26.0 273.3 Amortization of intangible assets 19.3 5.7 1.7 4.0 Total cost and expenses 1,135.3 1,019.5 92.4 927.1 Income (loss) before interest and income taxes 228.4 150.7 (18.0) 168.7 Interest (income) expense, net 169.1 8.8 14.1 (5.3) Income (loss) before income taxes 59.3 141.9 (32.1) 174.0 Provision (benefit) for income taxes 27.1 61.2 (12.4) 73.6 Net income (loss) $ 32.2 $ 80.7 $ (19.7) $ 100.4 Note: certain prior year amounts have been reclassified to conform to the current year's presentation EDUCATION MANAGEMENT LLC AND SUBSIDIARIES SELECTED CASH FLOW DATA - FISCAL YEAR (Dollars in millions) (Unaudited) Successor Combined Successor Predecessor For Period Period Period the from from from twelve July 1, June 1, July 1, months 2005 2006 2005 ended, through through through June 30, June 30, June 30, May 31, 2007 2006 2006 2006 ------- ------- ------- ------- Net cash flows provided by (used in) operations $ 179.4 $ 279.3 $ (22.4) $ 301.7 Depreciation and amortization 90.5 70.3 7.4 62.9 Capital expenditures (a) (96.1) (65.6) (7.7) (57.9) (a) Represents cash paid for property and equipment, leasehold improvements and online curriculum development EDUCATION MANAGEMENT LLC AND SUBSIDIARIES SELECTED BALANCE SHEET DATA - FISCAL YEAR (Dollars in millions) (Unaudited) As of June 30, 2007 2006 ------- ------- Cash and cash equivalents $ 250.7 $ 263.3 Current assets 388.4 403.2 Total assets 3,949.0 3,945.4 Revolver 90.0 160.0 Current liabilities 408.8 437.3 Long-term debt (including current portion) 1,939.9 1,950.0 Shareholders' equity 1,311.1 1,282.8 EDUCATION MANAGEMENT LLC AND SUBSIDIARIES RECONCILIATION OF NON-GAAP MEASURES Reconciliation of Net Income to EBITDA (Dollars in millions) (Unaudited) Non-GAAP Financial Measures EBITDA, a measure used by management to measure operating performance, is defined as net income plus net interest expense (income), taxes, depreciation and amortization. Management compensates for the limitations of 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. Management believes 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. In addition, EBITDA provides more comparability between the historical results of Education Management Corporation (Predecessor) and results of Education Management LLC (Successor) that reflect purchase accounting and the new capital structure. FISCAL FOURTH QUARTER Successor Combined Successor Predecessor For Period Period Period the from from from three April 1, June 1, April 1, months 2006 2006 2006 ended, through through through June 30, June 30, June 30, May 31, 2007 2006 2006 2006 ------ ------- ------- ------ Net loss $ (1.0) $ (21.2) $ (19.7) $ (1.5) Interest (income) expense, net 40.4 13.1 14.1 (1.0) Provision (benefit) for income taxes 2.1 (4.3) (12.4) 8.1 Depreciation and amortization (a) 22.9 19.7 7.4 12.3 EBITDA $ 64.4 $ 7.3 $ (10.6) $ 17.9 (a) includes non-cash charges related to fixed asset impairments and write-offs FISCAL YEAR Successor Combined Successor Predecessor For Period Period Period the from from from twelve July 1, June 1, July 1, months 2005 2006 2005 ended, through through through June 30, June 30, June 30, May 31, 2007 2006 2006 2006 ------ ------ ------- ------- Net income (loss) $ 32.2 $ 80.7 $ (19.7) $ 100.4 Interest (income) expense, net 169.1 8.8 14.1 (5.3) Provision (benefit) for income taxes 27.1 61.2 (12.4) 73.6 Depreciation and amortization (a) 90.5 70.3 7.4 62.9 EBITDA $ 318.9 $ 221.0 $ (10.6) $ 231.6 (a) includes non-cash charges related to fixed asset impairments and write-offs EDUCATION MANAGEMENT LLC AND SUBSIDIARIES RECONCILIATION OF NON-GAAP MEASURES Reconciliation of Net Income to Adjusted EBITDA for Covenant Compliance (Dollars in millions) (Unaudited) Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") is a non-GAAP measure used to determine our compliance with certain covenants contained in the indentures governing the 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 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 financial covenants. For the twelve months ended June 30, 2007 ------ Net income $ 32.2 Interest expense, net 169.1 Provision for income taxes 27.1 Depreciation and amortization (1) 90.5 EBITDA 318.9 Reversal of impact of unfavorable leases (2) (1.7) Transaction and advisory expense (3) 5.4 Severance and relocation (4) 3.9 Adjusted EBITDA - Covenant Compliance (5) $ 326.5 (1) Includes non-cash charges related to fixed asset impairments and write-offs. (2) Represents non-cash reduction of lease costs due to the amortization of $7.3 million of unfavorable lease liabilities resulting from fair value adjustments required under purchase accounting as part of the Transaction. (3) Represents legal and professional services costs as a result of the Transaction. Also includes $5.0 million of advisory fees incurred under a management advisory agreement with certain of our investors. (4) Represents severance and relocation expenses incurred during the twelve months ended June 30, 2007. (5) As defined in the Credit and Guaranty Agreement, dated June 1, 2006; the Indenture, dated June 1, 2006 governing the 8 3/4% Senior Notes due 2014; and the Indenture, dated June 1, 2006 governing the 10 1/4% Senior Subordinated Notes due 2016.