<PAGE> 1
November 22, 1996
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending: September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-21363
EDUCATION MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1119571
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 SIXTH AVENUE, PITTSBURGH, PENNSYLVANIA 15222
(Address of principal executive offices, including zip code)
(412) 562-0900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
[ ] Yes [X] No
SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK
AS OF September 30, 1996
Class A Common Stock, 1,842,802 Shares
Class B Common Stock, 5,064,315 Shares
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<PAGE> 2
EDUCATION MANAGEMENT CORPORATION SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements........................................3-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................10-12
PART 11 -- OTHER INFORMATION
Item 1. Legal Proceedings............................................13
Item 2. Changes in Securities........................................13
Item 3. Defaults Upon Senior Securities..............................13
Item 4. Submission of Matters to a Vote of Security Holders..........13
Item 5. Other Information............................................13
Item 6. Exhibits and Reports on Form 8-K.............................13
SIGNATURES..............................................................14
</TABLE>
- 2 -
<PAGE> 3
EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
ASSETS 1995 1996 1996
- ------ ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,160 $ 26,162 $ 5,096
Restricted cash 7,847 1,237 1,086
-------- -------- --------
Total cash and cash equivalents 13,007 27,399 6,182
Receivables:
Trade, net of allowances 4,013 5,680 6,763
Notes, advances and other 4,296 2,492 2,566
Inventories 1,832 1,271 2,080
Other current assets 3,645 3,016 6,139
-------- -------- --------
Total current assets 26,793 39,858 23,730
-------- -------- --------
PROPERTY AND EQUIPMENT, NET 34,897 41,174 46,497
OTHER ASSETS 4,688 5,837 7,210
GOODWILL, NET OF AMORTIZATION 13,869 14,543 18,358
-------- -------- --------
$ 80,247 $101,412 $ 95,795
======== ======== ========
LIABILITIES AND REDEEMABLE SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current portion of long-term debt $ 6,302 $ 3,890 $ 3,814
Accounts payable 1,797 4,776 2,979
Accrued liabilities 8,617 7,355 7,332
Advance payments 24,545 11,243 30,533
-------- -------- --------
Total current liabilities 41,261 27,264 44,658
-------- -------- --------
LONG-TERM DEBT, LESS CURRENT PORTION 36,129 62,029 47,159
DEFERRED INCOME TAXES AND
OTHER LONG-TERM LIABILITIES 2,319 2,463 2,488
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SHAREHOLDERS' INVESTMENT:
Capital stock:
Preferred stock, Series A, at paid-in value 22,075 22,075 14,575
Common stock, Class A and Class B,
par value $.0001 per share 1 1 1
Warrants outstanding 7,683 7,683 7,683
Additional paid-in capital 19,235 19,742 20,113
Deferred compensation related to ESOP (3,587) -- --
Treasury stock (250) (99) (359)
Stock subscriptions receivable (150) (442) (171)
Accumulated deficit (44,469) (39,304) (40,352)
-------- -------- --------
TOTAL REDEEMABLE SHAREHOLDERS' INVESTMENT 538 9,656 1,490
-------- -------- --------
$ 80,247 $101,412 $ 95,795
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
- 3 -
<PAGE> 4
EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1995 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
NET REVENUES $28,333 $33,410
COSTS AND EXPENSES:
Educational services 21,942 24,929
General and administrative 6,453 8,177
Amortization of intangibles 265 447
ESOP expense 238 --
------- -------
28,898 33,553
------- -------
INCOME (LOSS) BEFORE INTEREST AND TAXES (565) (143)
Interest expense, net 916 952
------- -------
INCOME (LOSS) BEFORE INCOME TAXES (1,481) (1,095)
Provision (credit) for income taxes (550) (460)
------- -------
NET INCOME (LOSS) $ (931) $ (635)
======= =======
SERIES A PREFERRED STOCK TRANSACTIONS:
Dividends paid $ (563) $ (83)
Redemption premium -- (107)
Dividends accruable but not paid -- (223)
------- -------
INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $(1,494) $(1,048)
======= =======
EARNINGS (LOSS) PER SHARE APPLICABLE
TO COMMON SHAREHOLDERS: $ (.22) $ (.15)
======= =======
Shares used in calculating per
share amounts (in thousands): 6,916 6,922
PRO FORMA EARNINGS (LOSS) PER SHARE
FOR THE TRANSACTIONS: $ (.10) $ (.07)
======= =======
Pro forma shares used in calculating
pro forma per share amounts (in thousands): 11,019 11,026
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
- 4 -
<PAGE> 5
EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (931) $ (635)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH FLOWS FROM OPERATING ACTIVITIES-
Depreciation and amortization 2,093 2,739
ESOP expense 238 --
Vesting of compensatory stock options 116 375
Changes in current assets and liabilities-
Restricted cash (344) 151
Receivables (895) (1,157)
Inventories (840) (809)
Other current assets (2,012) (3,123)
Accounts payable (4,960) (1,797)
Accrued liabilities (554) (246)
Advance payments 11,381 19,290
-------- --------
Total adjustments 4,223 15,423
-------- --------
Net cash flows from operating
activities 3,292 14,788
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Subsidiary -- (9,553)
Expenditures for property and equipment, net (2,756) (2,488)
Other items, net (178) (1,184)
-------- --------
Net cash flows from investing activities (2,934) (13,225)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt, net (27,379) (14,946)
Dividends paid to ESOP -- (83)
Capital stock transactions, net 61 (7,600)
-------- --------
Net cash flows from financing activities (27,318) (22,629)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (26,960) (21,066)
CASH AND CASH EQUIVALENTS, BEGINNING OF QUARTER 32,120 26,162
-------- --------
CASH AND CASH EQUIVALENTS, END OF QUARTER $ 5,160 $ 5,096
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
- 5 -
<PAGE> 6
EDUCATION MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The interim consolidated financial statements include the accounts of
Education Management Corporation (or the "Company") and its wholly
owned subsidiaries, which include The Art Institutes International
("AII"), The New York Restaurant School ("NYRS"), The National Center
for Paralegal Training ("NCPT") and The National Center for
Professional Development ("NCPD"). The Company offers associate's and
bachelor's degree programs and non-degree programs in the areas of
design, media arts, culinary arts, fashion and paralegal studies. The
Company has provided career-oriented education programs for nearly 35
years. Unless otherwise noted, references to 1996 and 1997 refer to the
periods ended September 30, 1995 and 1996, respectively.
2. The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto for the fiscal year ended June 30, 1996 included in the
Company's Registration Statement on Form S-1 as filed with the
Securities and Exchange Commission on August 19, 1996 and the related
amendments thereto. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the disclosures for
complete financial statements. This financial information reflects all
adjustments, consisting only of normal recurring adjustments, that are,
in the opinion of management, necessary to present fairly the financial
condition and results of operations for the interim periods presented.
First quarter fiscal year 1997 interim financial information was
reviewed by Arthur Andersen LLP as set forth in their report included
in this document. The 1996 interim financial information was not
reviewed by the Company's independent accountants in accordance with
standards established for such reviews.
3. The results of operations for the three months ended September 30, 1995
and 1996 are not necessarily indicative of the results to be expected
for the entire fiscal year. On November 5, 1996 the Company completed
an initial public offering of Common Stock (the "Offering"). In
connection with the Offering, the Company's existing Class A and Class
B Common Stock were converted on a one for two basis. Additionally, the
Series A Preferred Stock was converted and the outstanding warrants
were exercised. The financial statements do not reflect these
transactions, except earnings per share reflects the one-for-two
reverse stock split (See Note 9).
4. In 1996 and 1997, the weighted average common shares and common stock
equivalent shares do not include the assumed exercise of stock options
the exercise of the warrants or the conversion of the 10.19%
Convertible Series A Preferred Stock (the "Series A Preferred Stock")
as the effect would be antidilutive.
The net loss allocable to common shareholders has been increased by
dividends paid on Series A Preferred Stock in the computation of
earnings per share. However, dividends accruable but not paid reflected
in the loss applicable to common shareholders will not be paid because
the Series A Preferred Stock was converted immediately prior to the
consummation of the Offering.
Pro forma earnings per share are computed as if the Series A Preferred
Stock redemption, the conversion of Series A Preferred Stock and the
exercise of the stock warrants had occurred as of the beginning of the
reported period (See Notes to Consolidated Financial Statements 8 and
9(a))
5. The Company provides an Employee Stock Ownership Plan and Trust (the
"ESOP") for certain of its employees. In connection with establishing
the ESOP, the borrowings under a senior term loan financing ("ESOP
Term Loan") were loaned to the ESOP on the same terms. This loan was
recorded as "deferred compensation related to ESOP" and is shown as a
reduction in redeemable shareholders' investment in the accompanying
consolidated financial statements.
- 6 -
<PAGE> 7
As this loan was repaid, shares were released from pledge and
allocated to ESOP participants' accounts. ESOP expense primarily
represents the difference between the cost of shares released to ESOP
participants' accounts and the dividends used by the ESOP for
principal and interest repayment on this loan. The dividends paid to
the ESOP on the Series A Preferred Stock were used by the ESOP trustee
to pay the Company principal and interest due on the ESOP's loan from
the Company. As of June 30, 1996, the senior term loan had been
repaid, as was the loan due from the ESOP to the Company. There will
be no future ESOP expense attributable to the repayment of this loan.
6. Shareholders' investment is described as redeemable because, prior to
the closing date of the Offering on November 5, 1996, holders of the
Company's equity securities had the right, under certain circumstances,
to require the Company to repurchase such securities. In addition, the
Company had the right to redeem shares of Series A Preferred Stock and
Class B Stock under certain circumstances. Coincident with the Offering
(see Notes 4 and 8), these rights expired and, accordingly, the term
"redeemable" will not appear in the caption included in future
balance sheets.
As of September 30, 1996, the Company's authorized and outstanding
Series A Preferred Stock and Class A Stock and Class B Common Stock
were as reflected below:
<TABLE>
<CAPTION>
Authorized Outstanding
---------- -----------
<S> <C> <C>
Series A Preferred Stock............. 1,000,000 145,750
Class A Common Stock................. 25,000,000 1,842,802
Class B Common Stock................. 17,000,000 5,064,315
</TABLE>
7. Effective August 1, 1996, the Company acquired certain net assets of
NYRS (subject to obtaining certain regulatory approvals) for $9.5
million in cash. The Company acquired principally accounts receivable,
property and equipment, certain contracts and student agreements,
curriculum, trade names, goodwill and certain other assets. The final
values will be determined based upon the resolution of certain
pre-acquisition contingencies. The acquisition was accounted for as a
purchase.
- 7 -
<PAGE> 8
8. On August 9, 1996, the Company redeemed 75,000 shares of Series A
Preferred Stock from the ESOP at $101.43 per share, plus accrued and
unpaid dividends. The redemption was funded through borrowings of $7.6
million under the Revolving Credit Agreement (as defined below).
9. SUBSEQUENT EVENTS
(a) Conversion of Preferred Stock and Exercise of Stock Warrants
Coincident with the closing of the Offering, the ESOP converted the
remaining 145,750 shares of Series A Preferred Stock into 1,124,977
shares of Class A Common Stock.
Also, coincident with the completion of the Offering, all outstanding
warrants were exercised for an aggregate of 2,978,039 shares of Class B
Common Stock.
(b) Amendment to Articles of Incorporation
On August 15, 1996, the Board of Directors authorized, and on October
24, 1996, the shareholders approved and adopted, the Amended and
Restated Articles of Incorporation (the "Articles") providing for,
among other things, capital stock consisting of the Common Stock, $.01
par value (the "Common Stock"), and Preferred Stock and effecting the
conversion of all shares of the existing and outstanding Class A Stock
and Class B Stock into Common Stock at the rate of one share of Common
Stock for each two shares of existing and outstanding Class A Stock and
Class B Stock immediately upon the filing of the Articles. The Articles
were filed and became effective on November 5, 1996. Accordingly, the
number of shares of Class A Stock and Class B Stock, conversion ratios,
exercise prices and per share amounts in the accompanying consolidated
financial statements and notes to consolidated financial statements
have been retroactively restated to reflect a one-for-two reverse stock
split.
(c) Shareholder Rights Plan
Pursuant to a Preferred Share Purchase Rights Plan (the "Rights Plan")
approved by the Company's Board of Directors, and which became
effective upon the consummation of the Offering, one Preferred Share
Purchase Right (a "Right") will be associated with each outstanding
share of Common Stock. Each Right will entitle its holder to buy one
one-hundredth of a share of Series A Junior Participating Preferred
Stock at an exercise price of $50, subject to adjustment (the "Purchase
Price"). The Rights Plan is not subject to shareholder approval.
The Rights will become exercisable following a public announcement of a
person or group of persons acquiring or intending to make a tender
offer for 17.5% or more of the outstanding shares of Common Stock (an
"Acquiring Person"). If an Acquiring Person acquires 17.5% or more of
the Common Stock, each Right will entitle the shareholders, except the
Acquiring Person, to receive that number of shares of Common Stock
having a market value of two times the Purchase Price of the Right. In
the event the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or
earning power are sold after a person or group of persons
- 8 -
<PAGE> 9
becomes an Acquiring Person, each Right will entitle its holder to
purchase, at the Purchase Price, that number of shares of the acquiring
company having a market value of two times the Purchase Price. The
Rights will expire on the tenth anniversary of the effective date and
are subject to redemption by the Company at $.01 per Right, subject to
adjustment.
(d) Initial Public Offering
On November 5, 1996, the Company closed the Offering of 5,073,600
shares of Common Stock, including 1,701,391 shares from selling
shareholders at a price of $15 per share. The Company received total
net proceeds, after deduction of expenses payable and underwriting
discounts by the Company, of approximately $45 million. On the date the
Offering closed, $38.5 million of the proceeds were used to repay the
outstanding indebtedness under the amended and restated credit facility
dated March 16, 1995 (the "Revolving Credit Agreement"). The remaining
proceeds are being used for general corporate purposes.
- 9 -
<PAGE> 10
PART I - FINANCIAL INFORMATION
ITEM 2 - EDUCATION MANAGEMENT CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto.
RESULTS OF OPERATIONS
For the 3 months ended September 30, 1996 compared to the 3 months ended
September 30, 1995:
Net revenues increased by 17.9% to $33.4 million in 1997 from $28.3
million in 1996 due primarily to a 13.7% increase in student enrollments at
company owned schools, accompanied by an average 6.0% tuition price increase at
The Art Institutes. Total student enrollment at the Company's schools
increased from 9,944 in 1996 to 11,303 in 1997. In November 1995, a group of
two schools was acquired and renamed The Illinois Institute of Art at Chicago
and The Illinois Institute of Art at Schaumburg. A new school, The Art
Institute of Phoenix, commenced classes in January 1996 and The New York
Restaurant School (NYRS) was acquired in August 1996.
Educational services expense increased by $3.0 million, or 13.6%, to
$24.9 million in 1997 from $21.9 million in 1996. The increase was primarily
the result of the additional costs required to service higher student
enrollments at The Art Institutes, the inclusion of NYRS and normal
inflationary cost increases for wages and other services. As a percentage of
net revenues, educational services expense declined generally because of
operating leverage associated with the increased student enrollment.
General and administrative expense increased by $1.7 million, or 26.7%,
to $8.2 million in 1997 from $6.5 million in 1996 primarily because of higher
marketing and student admissions expense, including the addition of $1.1
million of such expenses at four new schools and normal inflationary cost
increases for wages and media advertising. In addition, charges for non-cash
compensation expense related to the vesting of non-statutory stock options
increased from $116,000 in 1996 to $375,000 in 1997. As a result of the above
factors, general and administrative expense as a percent of revenue increased
to 24.5% in the first quarter of fiscal 1997, compared to 22.8% the same period
last year.
- 10 -
<PAGE> 11
Amortization of intangibles increased by 68.7%, to $447,000 in 1997 from
$265,000 in 1996. The increase in amortization expense resulted from the
acquisition of the two Illinois Institutes of Art and NYRS. ESOP expense was
zero in 1997 compared to $238,000 in 1996 because the entire ESOP Term Loan was
repaid as of June 30, 1996. Accordingly, the Company will incur no ESOP expense
subsequent to June 30, 1996 resulting from the repayment of such loan.
Historically, the Company has experienced net losses in its fiscal first
quarter ending September 30, due to lower revenues combined with expenses
incurred in preparation for the peak enrollments in the fall quarter. The
consolidated loss before interest and taxes decreased from $565,000 in 1996 to
$143,000 in 1997.
Net interest expense increased slightly to $952,000 in 1997 from $916,000
in 1996. The higher interest expense was primarily attributable to an increase
in the average outstanding indebtedness to approximately $49 million in 1997
from $44 million in 1996 as a result of borrowings under the Revolving Credit
Agreement to fund the acquisition of NYRS and to complete the Series A Preferred
Stock redemption.
The Company's effective tax credit rate increased from 37.1% in 1996 to
42.0% in 1997. The rate in fiscal 1996 was lower than the combined federal and
state statutory rate due to the tax deductibility of dividends on the Series A
Preferred Stock paid to the ESOP and used for ESOP Term Loan repayment.
The Company's net loss for the quarter decreased by $.3 million to $.6
million in 1997 from $.9 million in 1995. The lower loss resulted principally
from improved operations at The Art Institutes, partially offset by a lower
credit for income taxes.
SEASONALITY AND OTHER FACTORS AFFECTING QUARTERLY RESULTS
The Company's quarterly revenues and income fluctuate primarily as a
result of the pattern of student enrollments. The Company experiences a
seasonal increase in new enrollments in the fall (fiscal year second quarter),
which is traditionally when the largest number of new high school graduates
begin postsecondary education. Some students choose not to attend classes
during summer months, although The Art Institutes and NYRS encourage year-round
attendance. As a result, total student enrollments at the Company's schools are
highest in the fall quarter and lowest in the summer months (fiscal year first
quarter). The Company's costs and expenses, however, do not fluctuate as
significantly as revenues on a quarterly basis. Historically, the Company has
experienced net losses in its fiscal first quarter ending September 30 due to
lower revenues combined with expenses incurred in preparation for the peak
enrollments in the fall quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated positive cash flow from operating activities for
the three months ended September 30, 1995 and 1996 respectively. Cash flow from
operations was $3.3 million and $14.8 million for 1995 and 1996, respectively.
- 11 -
<PAGE> 12
The Company had a $20.9 million working capital deficit as of September
30, 1996 as compared to $12.6 million of working capital as of June 30, 1996.
The decrease in working capital was due primarily to $14.9 million in debt
repayments under its Revolving Credit Agreement and capitalized leases.
Effective October 13, 1995 the Company and its lenders amended the
Revolving Credit Agreement in order to increase the amount of the facility
thereunder to $70.0 million and to extend its term to October 13, 2000.
Borrowings under the Revolving Credit Agreement bear interest at one of three
rates set forth in the Revolving Credit Agreement at the election of the
Company. As of September 30, 1996, the Company was in compliance with all
covenants under the Revolving Credit Agreement. As of September 30, 1996, the
Company had $41 million of additional borrowing capacity available under the
Revolving Credit Agreement.
Borrowings under the Revolving Credit Agreement are used by the Company
primarily to fund its capital investment program, finance acquisitions and meet
working capital needs. The pattern of cash receipts is seasonal throughout the
year. The level of accounts receivable reaches a peak immediately after the
billing of tuition and fees at the beginning of each academic quarter.
Collection of these receivables is heaviest at the start of each academic
quarter.
Following the consummation of the Offering, $38.5 million of the net
proceeds received by the Company was used to repay indebtedness under the
Revolving Credit Agreement. It is expected that the Company's interest expense
in periods following the Offering will be lower and will have a lesser
proportionate impact on net income in comparison to periods prior to the
Offering.
The Company believes that cash flow from operations, supplemented from
time to time by borrowings under the Revolving Credit Agreement, will provide
adequate funds for ongoing operations, planned expansion to new locations,
planned capital expenditures and debt service during the term of the Revolving
Credit Agreement.
The Company's capital expenditures were $2.8 million and $2.5 million
for the three months ended September 30, 1995 and 1996, respectively. The
Company anticipates increased capital spending for 1997, principally related to
the introduction and expansion of culinary programs, further investment in
schools acquired during 1996 and 1997 and additional investment in classroom
technology. The Company does not have any material commitments for any capital
expenditures in 1997 or beyond.
The Company leases nearly all of its facilities. Future commitments on
existing leases will be paid from cash provided by operating activities.
- 12 -
<PAGE> 13
<TABLE>
<S> <C>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings..........................................Not Applicable
Item 2. Changes in Securities
As approved by the shareholders on October 24, 1996, the Articles
reclassified all of the Company's common stock so that each existing
share of Class A and Class B Stock, outstanding immediately prior to
the filing of the Articles with the Department of State of the
Commonwealth of Pennsylvania and any treasury stock held by the
Company, was automatically reclassified as and converted into
one-half of a share of the New Common Stock.
Item 3. Defaults Upon Senior Securities............................Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders....... Not Applicable
Item 5. Other Information..........................................Not Applicable
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
(a) Exhibits:
(3)(a) Amended and Restated Articles of Incorporation (1)
(3)(b) Amended and Restated Bylaws (2)
(4) Rights Agreement, dated October 1, 1996, between Education
Management Corporation and Mellon Bank, N.A. (3)
(15.1) Report of Independent Public Accountants
(27) Financial Data Schedules
- ----------
(1) Previously filed with the Company's registration statement on
Form S-1 as amended (Registration No. 333-10385) filed on
August 19, 1996 and incorporated herein by reference.
(2) Previously filed with the Company's registration statement on
Form S-1 as amended (Registration No. 333-10385) filed on
August 19, 1996 and incorporated herein by reference.
(3) Previously filed with the Company's registration statement on
Form S-1 as amended (Registration No. 333-10385) filed on
August 19, 1996 and incorporated herein by reference. Since the
filing of this exhibit this agreement has been executed in the
form filed with the Securities and Exchange Commission on October
1, 1996, by Education Management Corporation and Mellon Bank, N.A.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
September 30, 1996
- 13 -
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EDUCATION MANAGEMENT CORPORATION
(Registrant)
Date: November 21, 1996 By: /s/ ROBERT B. KNUTSON
------------------------------------
Robert B. Knutson
Chairman and Chief Executive Officer
By: /s/ ROBERT T. MCDOWELL
------------------------------------
Robert T. McDowell
Senior Vice President and Chief
Financial Officer
- 14 -
<PAGE> 1
Exhibit 15.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Education Management Corporation and Subsidiaries:
We have reviewed the accompanying consolidated balance sheets of Education
Management Corporation (a Pennsylvania corporation) and Subsidiaries as of
September 30, 1996, and the related consolidated statements of income and cash
flows for the three-month period then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
Pittsburgh, Pennsylvania
October 31, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,182
<SECURITIES> 0
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0
14,575
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<EPS-PRIMARY> (.15)
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</TABLE>
