<PAGE> 1
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 period ending March 31, 1998
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.
[X] Yes [ ] No
SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK
As of March 31, 1998
Common Stock: 14,462,850 shares
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements...................................................................................3-7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition..........................................................8-10
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................11
Item 2. Changes in Securities..................................................................................11
Item 3. Defaults Upon Senior Securities........................................................................11
Item 4. Submission of Matters to a Vote of Security Holders....................................................11
Item 5. Other Information......................................................................................11
Item 6. Exhibits and Reports on Form 8-K.......................................................................11
SIGNATURES ......................................................................................................13
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, MARCH 31,
ASSETS 1997 1997 1998
- ------ ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,592 $ 32,646 $ 20,634
Restricted cash 1,958 581 1,370
-------- -------- --------
Total cash and cash equivalents 13,550 33,227 22,004
Receivables:
Trade, net of allowances 7,683 8,706 7,623
Notes, advances and other 4,398 1,841 2,679
Inventories 1,541 1,356 1,802
Deferred income taxes 381 1,509 1,509
Other current assets 3,908 2,247 4,674
-------- -------- --------
Total current assets 31,461 48,886 40,291
-------- -------- --------
PROPERTY AND EQUIPMENT, NET 49,179 52,571 55,999
OTHER ASSETS 6,525 6,381 6,271
GOODWILL, NET OF AMORTIZATION 18,580 18,454 19,716
-------- -------- --------
$105,745 $126,292 $122,277
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,551 $ 3,637 $ 2,878
Accounts payable 1,691 6,931 2,574
Accrued liabilities 10,683 9,778 11,862
Advance payments 26,902 15,832 30,694
-------- -------- --------
Total current liabilities 42,827 36,178 48,008
-------- -------- --------
LONG-TERM DEBT, LESS CURRENT PORTION 4,418 30,394 1,409
DEFERRED INCOME TAXES AND
OTHER LONG-TERM LIABILITIES 2,505 1,964 1,937
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Capital stock:
Common stock, par value $.01 per share,
14,462,850 outstanding as of March 31, 1998 144 144 145
Additional paid-in capital 87,368 87,893 88,576
Treasury stock 39,401 shares at cost (354) (354) (354)
Stock subscriptions receivable (171) (122) (8)
Accumulated deficit (30,992) (29,805) (17,436)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 55,995 57,756 70,923
-------- -------- --------
$105,745 $126,292 $122,277
======== ======== ========
</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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------- ---------
1997 1998 1997 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
NET REVENUES $ 50,696 $ 59,807 $ 136,120 $ 166,051
COSTS AND EXPENSES:
Educational services 32,346 39,318 87,320 107,601
General and administrative 11,409 12,191 30,562 35,727
Amortization of intangibles 540 294 1,533 1,317
----------- ----------- ----------- -----------
44,295 51,803 119,415 144,645
----------- ----------- ----------- -----------
INCOME BEFORE INTEREST AND TAXES 6,401 8,004 16,705 21,406
Interest expense, net 96 (15) 1,647 84
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 6,305 8,019 15,058 21,322
Provision for income taxes 2,650 3,368 6,329 8,955
----------- ----------- ----------- -----------
NET INCOME $ 3,655 $ 4,651 $ 8,729 $ 12,367
=========== =========== =========== ===========
EARNINGS PER SHARE:
BASIC $ .25 $ .32 $ .74 $ .86
----------- ----------- ----------- -----------
DILUTED $ .25 $ .31 $ .65 $ .83
----------- ----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 14,389,343 14,454,942 11,117,102 14,441,108
----------- ----------- ----------- -----------
DILUTED 14,748,633 14,913,229 13,287,647 14,876,516
----------- ----------- ----------- -----------
</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>
NINE MONTHS ENDED MARCH 31,
1997 1998
---- ----
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 8,729 $ 12,367
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH FLOWS FROM OPERATING ACTIVITIES-
Depreciation and amortization 9,120 10,542
Vesting of compensatory stock options 375 --
Changes in current assets and liabilities-
Restricted cash (721) (789)
Receivables (3,890) 291
Inventories (269) (446)
Other current assets (1,268) (2,419)
Accounts payable (3,085) (3,508)
Accrued liabilities 3,369 1,892
Advance payments 15,658 14,769
-------- --------
Total adjustments 19,289 20,332
-------- --------
Net cash flows from operating activities 28,018 32,699
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiaries (9,753) (1,488)
Expenditures for property and equipment (12,089) (13,839)
Other items, net (175) (322)
-------- --------
Net cash flows from investing activities (22,017) (15,649)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public stock offering, net 44,969 --
Principal payments on debt, net (57,950) (29,783)
Dividends paid to ESOP (83) --
Capital stock transactions, net (7,507) 721
-------- --------
Net cash flows from financing activities (20,571) (29,062)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (14,570) (12,012)
-------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 26,162 32,646
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,592 $ 20,634
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 1,975 $ 564
Income taxes $ 4,766 $ 9,389
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
5
<PAGE> 6
EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The interim consolidated financial statements consist of the accounts of
Education Management Corporation (the "Company") and its wholly owned
subsidiaries, which include The Art Institutes International ("AII") and
The National Center for Professional Development ("NCPD"). The Company's
schools offer associate's and bachelor's degree programs and non-degree
programs in the areas of design, technology, culinary arts, fashion and
professional development. The Company has provided career-oriented
education programs for over 35 years. Unless otherwise noted, references
to the fiscal years 1997 and 1998 are to the periods ended March 31, 1997
and 1998, respectively.
2. The results of operations for the three and nine-month periods ended March
31, 1997 and 1998 are not necessarily indicative of the results to be
expected for the entire fiscal year. 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, 1997
included in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission. 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. Third quarter
fiscal year 1997 and 1998 interim financial information was reviewed by
Arthur Andersen LLP as set forth in their report included in this document.
3. The Company's authorized and outstanding capital stock was as follows:
MARCH 31, 1998
--------------
CAPITAL STOCK AUTHORIZED OUTSTANDING
------------- ---------- -----------
Preferred Stock 10,000,000 --
Common Stock 60,000,000 14,462,850
JUNE 30, 1997
-------------
CAPITAL STOCK AUTHORIZED OUTSTANDING
------------- ---------- -----------
Preferred Stock 10,000,000 --
Common Stock 60,000,000 14,417,874
4. Effective August 1, 1996, the Company acquired certain net assets of The
New York Restaurant School ("NYRS") for $9.5 million in cash. The Company
acquired principally current assets net of specified current liabilities,
property and equipment, student enrollment agreements, curriculum and
trade names. The excess of the purchase price over the fair value of the
assets acquired has been assigned to goodwill. This transaction was
accounted for as a purchase.
On January 30, 1997, the Company acquired the assets of Lowthian College,
located in Minneapolis, Minnesota, for $200,000 in cash and approximately
$200,000 of assumed liabilities. The Company acquired principally accounts
receivable, equipment and student enrollment agreements. The excess of the
purchase price over the fair value of the assets acquired has been
assigned to goodwill. The school was renamed The Art Institute of
Minnesota ("AIM"). This transaction was accounted for as a purchase.
The Art Institute of Los Angeles ("AILA") became licensed in the State of
California in March 1997. AILA began student recruiting and school
startup activities in April 1997. Classes commenced in AILA in October
1997. All costs associated with AILA's startup have been expensed as
incurred and are reflected in the results of operations.
-6-
<PAGE> 7
On December 19, 1997, the Company acquired the assets of The Louise
Salinger Academy of Fashion located in San Francisco, California, for
$600,000 in cash. The Company also entered into a consulting agreement
with the former president in exchange for an option to purchase 10,000
shares of Common Stock of the Company at an exercise price of $25.93, the
closing price of the Common Stock on December 19, 1997. The Company
acquired principally accounts receivable and equipment. The excess of the
purchase price over the fair value of the assets acquired has been
assigned to goodwill. The school was renamed The Art Institutes
International at San Francisco. This transaction was accounted for as a
purchase. The Art Institutes International at San Francisco received U.S.
Department of Education approval in April 1998.
On February 26, 1998, the Company acquired the assets of Bassist College
in Portland, Oregon, for $888,000 in cash. The Company, as further
consideration for the net assets acquired, has agreed to pay Bassist
Corporation a percentage of gross revenues over the next five fiscal
years. The Company acquired principally accounts receivable and equipment.
The excess of the purchase price over the fair value of the assets
acquired has been assigned to goodwill. The school was renamed The Art
Institutes International at Portland. This transaction was accounted for
as a purchase. The Art Institutes International at Portland received U.S.
Department of Education approval in April 1998.
5. In fiscal 1997, the net income allocable to common shareholders was reduced
by dividends and a redemption premium on the Company's Series A 10.19%
Convertible Preferred Stock, $.0001 par value (the "Series A Preferred
Stock"), in the computation of earnings per share. Dividends accrued but
not payable that reduced the net income applicable to common shareholders
were not paid because the Series A Preferred Stock was converted into
Common Stock immediately prior to the consummation of the initial public
offering of the Common Stock of the Company, which closed on November 5,
1996.
Reconciliation of net income available for common shareholders
<TABLE>
<CAPTION>
(Dollars in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $3,655 $4,651 $8,729 $12,367
Redemption premium on Series A Preferred Stock -- -- (107) --
------- ------- ------- -------
Net Income Available to common shareholders for
diluted earnings per share $3,655 $4,651 $8,622 $12,367
------ ------ ------ -------
Dividends paid on Series A Preferred Stock -- -- (83) --
Dividends accrued, but not payable on Series A
Preferred Stock -- -- (296) --
------- ------- ------- -------
Net income available to common shareholders for basic
earnings per share $3,655 $4,651 $8,243 $12,367
====== ====== ====== =======
</TABLE>
On December 31, 1997, the Company adopted Financial Accounting Standards
Board Statement #128. Accordingly, all prior period earnings per share
amounts have been restated using the new computation method.
Reconciliation of Diluted Shares:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic shares 14,389,343 14,454,942 11,117,102 14,441,108
Dilution for stock options 359,290 458,287 293,399 435,408
Dilution for warrants and Series A Preferred Stock -- -- 1,877,146 --
---------- ---------- ---------- ----------
Diluted Shares 14,748,633 14,913,229 13,287,647 14,876,516
========== ========== ========== ==========
</TABLE>
-7-
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following discussion of the Company's results of operations and financial
condition should be read in conjunction with the interim unaudited consolidated
financial statements of the Company and the notes thereto. Unless otherwise
noted, references to the fiscal years 1997 and 1998 are to the periods ended
March 31, 1997 and 1998, respectively.
RESULTS OF OPERATIONS
For the three months ended March 31, 1998 compared to the three months ended
March 31, 1997:
Net revenues increased by 18.0% to $59.8 million in the third quarter of
fiscal 1998 from $50.7 million in the third quarter of fiscal 1997 due primarily
to a 14.6% increase in student enrollments at Company-owned schools, accompanied
by an approximate 5.0% tuition price increase. Total student enrollment at the
Company's schools increased from 15,746 at the start of the third quarter of
fiscal 1997 to 18,041 at the start of the third quarter of fiscal 1998,
including growth of approximately 13.0% at the twelve Company-owned schools
that, as of the start of the quarter, had been operated by the Company for 24
months or more. In addition, the Company had three more schools in the third
quarter when compared to the prior year's quarter. The Art Institute of Los
Angeles ("AILA") commenced classes in October 1997. The Louise Salinger Academy
of Fashion in San Francisco, California was acquired in December 1997 and
renamed the Art Institutes International at San Francisco ("AISF"). Bassist
College in Portland, Oregon was acquired in February 1998 and renamed the Art
Institutes International at Portland ("AIPD").
Educational services expense increased by $7.0 million, or 21.6%, to $39.3
million in the third quarter of fiscal 1998 from $32.3 million in the third
quarter of fiscal 1997. The increase was primarily the result of the additional
costs required to service higher student enrollments at The Art Institutes, the
addition of AILA, AISF, and AIPD and normal cost increases for wages, supplies
expense and other services. Educational services expense in the third quarter
of fiscal 1998 was 65.7% of net revenues, compared to 63.8% in the same period
last year. Educational services expense, as a percentage of net revenue for new
schools, such as AILA, AIPD and AISF is higher than the overall consolidated
percentage.
General and administrative expense increased by $782,000, or 6.9%, to $12.2
million in the third quarter of fiscal 1998 from $11.4 million in the third
quarter of fiscal 1997 primarily because of higher marketing and student
admissions expense, including normal cost increases for wages and media
advertising. General and administrative expense as a percentage of net revenues
decreased to 20.4% in the third quarter of fiscal 1998, compared to 22.5% in the
same period last year, principally because corporate and centralized
administrative expense grew more slowly than net revenues.
Amortization of intangibles decreased by 45.6%, to $294,000 in the third
quarter of fiscal 1998 from $540,000 in the third quarter of fiscal 1997. The
decrease in amortization expense primarily resulted from certain intangible
assets becoming fully amortized during the third quarter of fiscal 1998.
The Company had net interest income in the third quarter of fiscal 1998
compared to net expense in the third quarter of fiscal 1997 due to higher
average cash balances (invested in short-term instruments) and lower average
outstanding indebtedness.
The Company's effective tax rate has remained constant at 42.0% for fiscal
1998 and fiscal 1997.
Net income for the quarter increased 27.3% to $4.7 million in fiscal 1998
compared to $3.7 million in fiscal 1997. The increase was primarily the result
of increased revenues and improved margins.
-8-
<PAGE> 9
RESULTS OF OPERATIONS
For the nine months ended March 31, 1998 compared to the nine months ended
March 31, 1997:
Net revenues increased by 22.0% to $166.1 million in fiscal 1998 from
$136.1 million in fiscal 1997 due primarily to an 18.0% increase in average
student enrollments at Company-owned schools, accompanied by an approximate
5.0% tuition price increase. In addition, the Company's revenues and earnings
reflect an increase in the number of schools during all or part of the
nine-month period compared to the prior year period. Average starting student
enrollment at the Company's schools increased from 14,296 in fiscal 1997 to
16,860 in fiscal 1998. The New York Restaurant School was acquired in August
1996. In January, 1997, a Minneapolis school was acquired and renamed The Art
Institute of Minnesota ("AIM"). A new school, The Art Institute of Los Angeles,
commenced classes in October 1997. In December 1997, a school was acquired and
renamed The Art Institutes International at San Francisco. In February 1998, a
school was acquired and renamed The Art Institutes International at Portland.
Educational services expense increased by $20.3 million, or 23.2%, to
$107.6 million in fiscal 1998 from $87.3 million in fiscal 1997. The increase
was primarily the result of the additional costs required to service higher
student enrollments at The Art Institutes, normal cost increases for wages,
supplies expense and other services and the addition of AIM, AILA, AISF and
AIPD. Educational services expense, as a percentage of net revenues was 64.8% in
fiscal 1998 compared to 64.1% in fiscal 1997.
General and administrative expense increased by $5.1 million, or 16.9%, to
$35.7 million in fiscal 1998 from $30.6 million in fiscal 1997 primarily
because of higher marketing and student admissions expense, including the
addition of approximately $1.6 million of such expenses at AIM, AILA, AIPD and
AISF and normal cost increases for wages and media advertising. General and
administrative expense as a percentage of net revenues decreased to 21.5% for
fiscal 1998, compared to 22.5% for fiscal 1997.
Amortization of intangibles decreased by 14.1% to $1.3 million in fiscal
1998 from $1.5 million in fiscal 1997 because certain intangible assets became
fully amortized in the third quarter.
Net interest expense decreased to $84,000 in fiscal 1998 from $1.6 million
in fiscal 1997. The lower interest expense was primarily attributable to a
decrease in the average outstanding indebtedness from $27.3 million in fiscal
1997 to $5.7 million in fiscal 1998.
The Company's effective tax rate has remained constant at 42.0% for fiscal
1998 and fiscal 1997.
Net income for the period increased by $3.7 million or 41.7% to $12.4
million in fiscal 1998 from $8.7 million in fiscal 1997. This increase is
primarily the result of greater revenues at Company-owned schools, slightly
higher margins and lower interest expense.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated positive cash flow from operating activities of
$32.7 million and $28.0 million for the nine months ended March 31, 1998 and
1997, respectively.
The Company had a working capital deficit of $7.7 million as of March 31,
1998, compared to $12.7 million of working capital as of June 30, 1997. The
decrease in working capital was due primarily to $29.7 million in debt
repayments on revolving credit borrowings and capitalized leases.
-9-
<PAGE> 10
Effective October 13, 1997, in accordance with the terms of the Company's
revolving credit agreement, the amount of the facility thereunder was reduced
from $70.0 million to $65.0 million. 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. Available borrowing capacity is
reduced by outstanding letters of credit. As of March 31, 1998, the Company was
in compliance with all covenants and had $64.0 million of 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
seasonal 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.
The Company believes that cash flow from operations, supplemented from
time to time by borrowings under its revolving credit agreement, will provide
adequate funds for ongoing operations, planned expansion of new locations, and
planned capital expenditures and debt service during the term of the revolving
credit agreement.
The Company's capital expenditures were $12.1 million and $13.8 million for
the nine months ended March 31, 1997 and 1998, respectively. The Company
anticipates a slight increase in capital spending for 1998, principally related
to the continued investment in schools acquired or opened during fiscal 1996,
1997 and 1998, additional investment in classroom technology and the
introduction and expansion of culinary arts and other education programs.
The Company leases nearly all of its facilities. Future commitments on
existing leases will be paid from cash provided by operating activities.
-10-
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.......................................Not Applicable
Item 2. Changes in Securities...................................Not Applicable
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
(a) Exhibits:
(15) Report of Independent Public Accountants
(27) Financial Data Schedules
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended March 31, 1998
-11-
<PAGE> 12
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: May 15, 1998
/s/ ROBERT B. KNUTSON
-------------------------------------
Robert B. Knutson
Chairman and Chief Executive Officer
/s/ ROBERT T. McDOWELL
-------------------------------------
Robert T. McDowell
Senior Vice President and
Chief Financial Officer
-12-
<PAGE> 1
Exhibit 15
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Education Management Corporation and Subsidiaries:
We have reviewed the accompanying consolidated balance sheet of Education
Management Corporation (a Pennsylvania corporation) and Subsidiaries as of
March 31, 1998, and the related consolidated statements of income for the
three-month and nine-month periods then ended, and the related consolidated
statement of cash flows for the nine-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 and 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 out 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.
/s/ ARTHUR ANDERSEN LLP
-----------------------
Pittsburgh, Pennsylvania
April 22, 1998
<PAGE> 1
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] MAR-31-1998
[CASH] 22,004
[SECURITIES] 0
[RECEIVABLES] 17,379
[ALLOWANCES] (9,756)
[INVENTORY] 1,802
[CURRENT-ASSETS] 40,291
[PP&E] 112,800
[DEPRECIATION] (56,801)
[TOTAL-ASSETS] 122,277
[CURRENT-LIABILITIES] 48,008
[BONDS] 4,287
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 145
[OTHER-SE] 70,778
[TOTAL-LIABILITY-AND-EQUITY] 122,277
[SALES] 166,051
[TOTAL-REVENUES] 166,051
[CGS] 107,601
[TOTAL-COSTS] 144,645
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 84
[INCOME-PRETAX] 21,322
[INCOME-TAX] 8,955
[INCOME-CONTINUING] 12,367
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 12,367
[EPS-PRIMARY] .86
[EPS-DILUTED] .83
</TABLE>
