Education Management Corporation

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Education Management Corporation

300 6th Avenue
Pittsburgh, Pennsylvania 15222-2598
U.S.A.
Telephone: (412) 562-0900
Fax: (412) 562-0598
Web site: http://www.edumgt.com

Public Company
Incorporated: 1962
Employees: 2,780
Sales: $260.8 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: EDMC
NAIC: 511519 Other Technical and Trade Schools; 611210 Junior Colleges; 611310 Colleges, Universities, and Professional Schools; 611410 Business and Secretarial Schools; 611430 Professional and Management Development Training

The Education Management Corporation (EDMC) owns and operates 22 post-secondary schools nationwide, providing career education to more than 24,000 students from throughout the United States and over 80 foreign countries. The company offers certificates, Associate degrees, or Bachelor’s degrees in: culinary arts/management; graphic design; industrial design technology; photography; interior design; computer animation; fashion design/marketing; multimedia and web site design; online media & marketing; interactive multimedia programming; game art & design; and video/audio production. At the National Center for Paralegal Studies in Atlanta, EDMC offers an Associate of Arts degree in legal studies, as well as certificate programs for administrative assistants to the legal profession. EDMC’s schools are located in major metropolitan areas in 13 states and Washington D.C. EDMC counts over 100,000 alumni.

1960s Origins

EDMC was founded in 1962, offering professional development education in Pennsylvania. The company’s scope and focus then shifted with the 1970 acquisition of the Art Institute of Pittsburgh, founded in 1921. As a post-secondary art school under the parentage of EDMC, the Art Institute of Pittsburgh offered certificate programs in graphic design, interior design, and photography.

Robert B. Knutson joined EDMC in 1969 and became president of the company in 1971. Knutson would oversee a period of expansion through acquisition. Over the next 15 years, EDMC would add to its higher education holdings with eight acquisitions, seven of which would involve commercial arts schools in Denver, Ft. Lauderdale, Atlanta, Philadelphia, Dallas, Houston, and Seattle. The company grouped these, in a national marketing campaign, as “The Art Institutes.” The eighth acquisition, of the National Center for Paralegal Training, offered certificates in legal studies. Another driving force behind EDMC’s expansion was Knutson’s wife, Miryam L. Drucker, who joined the company in 1984 as president of The Art Institute of Dallas, becoming president of The Art Institute of Fort Lauderdale before heading up the Art Institutes umbrella organization in 1988. She and Knutson were married during this time.

Under Knutson, who became EDMC’s chairman and CEO in 1986, and Miry am Knutson, who in 1989 was named president and chief operating officer, the company upgraded and expanded the educational capacities of its schools by improving student services, updating the curriculum, upgrading facilities and equipment, and increasing the quality and quantity of faculty members.

Also during this time, the company gave increased attention to implementing technology in the classroom, embarking on a multimillion dollar investment in classroom technology to provide vocational training in computer animation, video production, and desktop publishing. EDMC instituted new programs and restructured several existing programs in order to improve the proportion of students who completed the programs. Some of the schools offering Associate degrees in interior design, industrial design, and graphics design built those programs into Bachelor of Arts degrees in 1993. EDMC also initiated career and employment programs to assist graduates in finding quality entry level positions with higher starting salaries.

In the early 1990s, EDMC began developing a culinary arts program, launching its School of Culinary Arts at the Colorado Institute of Art (CIA). Beginning in late 1993, that school offered an Associate of Applied Science degree, an 18-month to two-year program for the instruction of fine food preparation and fine dining restaurant operation. In March 1995 EDMC opened Assignments restaurant, a fully operational, 71-seat restaurant which provided an on-the-job training experience to students. On a rotating five-week schedule, students experienced all facets of restaurant operations, including table service, bar service, preliminary food preparation, and final food preparation for the customer. The facility featured a kitchen modeled after the one at New York’s Waldorf-Astoria Hotel, with more than four times the space of an average restaurant kitchen. Through their assignments, students offered American cuisine to the public at lunch and added classic European cuisine for dinner in July.

EDMC pursued growth through the introduction of new schools and the acquisition of existing schools. In 1995 EDMC purchased two schools from the Ray College of Design, for $1.1 million and the assumption of debt, and renamed the schools The Illinois Institute of Art at Chicago and The Illinois Institute of Art at Schaumburg. EDMC also made the culinary arts program, with an Associate of Applied Science degree, an integral part of the Art Institute of Phoenix where classes commenced in January 1996. The following August the company acquired the New York Restaurant School for $9.5 million. Also, EDMC began to offered certificate programs for legal health care specialists and legal administrative assistants at the National Center of Paralegal Training in Atlanta.

In October 1996 the Pittsburgh Art Institute celebrated its 75th anniversary. Distinguished alumni at the festivities included Tom Wilson, creator of the “Ziggy” comic strip, and Mark Stutzman, designer of the U.S. Postal Service’s bestselling “Elvis” stamp.

1996: Going Public and Continued Growth

EDMC funded further growth with an initial public offering of stock in October 1996. The company offered 5.4 million shares at $15 per share on the NASDAQ exchange and garnered approximately $45 million. The proceeds funded debt reduction and working capital as well as acquisitions and new schools. EDMC added the Lowthian College in Minneapolis to its chain in January 1997, renaming The Art Institutes International Minnesota. At the Colorado Institute of Art, EDMC expanded the Associate degree programs in interior design, industrial design, and graphic design into Bachelor of Science degree programs. The school also introduced an 18-month certificate program in web site administration, which involved existing multimedia and design classes as well as new programming classes staffed by three new faculty members. The Art Institute of Los Angeles opened for classes in October 1997.

For the fiscal year ending June 30, 1997, EDMC reported revenues of $182.8 million, an increase of 23 percent, while income reached $10 million, an increase of 46 percent. The company attributed the rise in income and revenues to increased enrollment and a 5.5 percent tuition increase during the fall 1996 quarter. Student enrollment had increased nearly 20 percent overall, averaging 14,490 students per quarter, while same-school enrollment at schools owned by EDMC for two or more years increased approximately 14 percent.

A secondary offering of stock in November 1997 raised $79.8 million for growth and improvement. Two acquisitions followed closely after the stock offering: the Louise Salinger Academy of Fashion in San Francisco and Bassist College in Portland, Oregon, renamed The Art Institutes International at San Francisco and The Art Institutes International at Portland, respectively. The Portland school offered Associate and Bachelor’s degrees in apparel design, merchandising management, and interior design and a Bachelor’s degree in business administration. EDMC expected its Associate degree recipients at the Art Institute of Seattle to consider Portland as an option for completion of a Bachelor’s degree.

In consultation with professionals in computer design technology, EDMC began to formulate new educational programs and launched three new degree programs for Internet marketing and design in June 1999. The company offered a Bachelor of Science degree in online media and marketing, which involved classes on business strategy and online advertising. EDMC launched the program at the Colorado Institute of Art and planned to extend the programs to several other schools after government approval. The Art Institute of Phoenix offered a Bachelor’s degree in game art and design, including character animation and complex mapping and modeling. An Associate degree in multimedia and web design involved interactive design and technical elements, such as audio, video animation, still pictures, text, and data. EDMC planned to offer the latter program in Atlanta, Chicago, Dallas, Houston, Ft. Lauderdale, Los Angeles, Minneapolis, Phoenix, Schaumburg, and Seattle.

Key Dates:

1962:: Education Management Corporation (EDMC) is founded.
1970:: Company acquires The Art Institute of Pittsburgh.
1971:: Company begins a series of eight acquisitions.
1993:: EDMC initiates four-year degree programs.
1996:: Initial public offering of stock.
1997:: Average enrollment reaches 14,490 students.
1999:: Company launches The Art Institute Online.
2000:: EDMC opens The Art Institute of Washington, D.C.

By the end of fiscal year June 30, 1999, revenues at EDMC reached $260.8 million. Federal funding for student grants and loans comprised approximately 66 percent of revenues. Average quarterly enrollment reached 19,325 students compared to 17,002 students in fiscal 1998. Moreover, the company’s stock, initially offered at $15 a share, had more than doubled to trade around $33 per share in early 1999. EDMC attributed growth in the student body to new educational programs, expanded degree programs, and more evening degree programs. Approximately 25 percent of the increase in enrollment stemmed from evening classes. Tuition increased six percent in 1999, while net income increased 30.9 percent, to $18.8 million. EDMC also reported that 91 percent of 1998 graduates found employment in their areas of study within six months of graduation. Starting salaries averaged $24,200 per year, a 7.2 percent increase over 1997 graduates.

Culinary arts education continued to be a major focus of growth, with three new programs initiated during the fiscal year. In January 1999 EDMC introduced a new culinary arts school at the Philadelphia Art Institute; facilities included Suburban Soup, a take-out restaurant at the Suburban Station transit center. EDMC also initiated plans for a culinary arts program at The Art Institute of Chicago which began in January 2000 with facilities expected to be fully operational for fall 2000.

EDMC’s strategy for further growth involved the addition of two new schools per year. In August 1999 EDMC acquired the American Business and Fashion Institute in Charlotte. With 135 students, degree programs included interior design, fashion merchandising, and retail management. EDMC renamed the North Carolina school The Art Institute of Charlotte. A second acquisition involved the Massachusetts Communications College in Boston, with 450 students. The school offered Internet communications and technology; multimedia technology; and recording arts and broadcasting programs.

EDMC continued to improve educational programs at existing schools. In October 1999 the State of Pennsylvania approved EDMC to offer Bachelor of Arts degrees in computer animation, interior design, and industrial design technology at The Art Institutes in Pittsburgh and Philadelphia and a graphic design program at Pittsburgh. The new curriculum added management classes and other field-related courses. The New York Restaurant School, renamed the Art Institute of New York City, received approval to offer an Associate of Occupational Studies in art and design Technology. The program was slated to begin in January 2001. EDMC also planned to expand the culinary arts program there. The Art Institute of Phoenix initiated a Bachelor of Science degree program in online media and marketing.

EDMC sought to strengthen brand recognition for its educational programs among prospective students and corporate employers. A new marketing program promoted The Art Institutes as “America’s Leader in Creative Education.”

Planning for Future Growth

In fall 1999 EDMC introduced the Art Institute Online which offered 12 courses in graphic design. The pilot project was introduced through the Art Institutes of Phoenix and Ft. Lauderdale. The company intended the online courses as a precursor to an online Bachelor of Arts degree in graphic design, the first of its kind. The Socrates Distance Learning Technologies Group of Phoenix, acquired by EDMC in 1998, designed the courses.

EDMC established corporate partnerships to enrich student education with access to Internet infrastructure and functions. First Regional Telecom (FRT) and Tut Systems, Inc. provided students at the Art Institute of Philadelphia with email services, intranet, and access to the company’s private label Web Neighborhood port. While FRT designed the port specifically for Art Institute students, allowing for interactive capabilities and possibilities for e-commerce, Tut Systems provided the infrastructure for high-speed access. MarketingCentral.com offered web-based capabilities for collaboration and management of creative projects to students at the Art Institute of Atlanta.

Growth in student enrollment required EDMC to relocate some schools to new facilities. In May the Colorado Institute of Art, renamed the Art Institute of Colorado, completed a move to a 100,000 square-foot, ten-story building near the site of the original school. The move allowed the school to consolidate offices and classrooms into one building, while adding more student-teacher conference rooms and a larger library. New technology involved the addition of a digital darkroom to the traditional photographer’s darkroom and fully networked computer labs.

The Art Institute of Pittsburgh, renamed The Design Alliance, moved to a new facility in summer 2000. The $20 million project involved internal demolition of a historic landmark downtown. Renovation of the 170,000 square-foot building included up-dated electrical wiring and fiber optics, providing the infrastructure for 15 state-of-the-industry computer labs with 400 computers and Internet access for faculty and students alike. New technological capabilities included a digital darkroom, an industrial design technology shop, and video production and post-production facilities. EDMC projected enrollment at The Design Alliance to increase 30 to 40 percent during the 2000-2001 school year.

EDMC received approval by an accrediting organization to offer several new degree programs at the Art Institute International of Minnesota. With 700 students, the school planned to offer Associate of Applied Science and Bachelor of Science degrees in graphic design; interior design; media arts and animation; and Internet marketing and advertising. Associate degrees were also available in culinary arts, as well as in multimedia and web design. Also, the National Center for Paralegal Training received approval from the state of Georgia to offer an Associate of Arts in legal studies.

EDMC expanded into new markets with its 21st and 22nd schools. Classes commenced at The Art Institute of Washington in Roslyn, Virginia, in summer 2000. The Art Institute of Los Angeles-Orange County, where classes began in July 2000, offered Bachelor of Science programs in media arts and animation and in Internet marketing and advertising. Associate degree programs included graphic design and multimedia design, with the Culinary Arts school scheduled to open in summer 2001.