EDMC loses $664M; executives receive six-figure bonuses
Education Management Corp. lost $664 million during a difficult year in which the operator of for-profit colleges struggled with declining enrollment and intense regulatory pressure.
Compensation for CEO Edward West and CFO Mick Beekhuizen plummeted, mostly on the lower value of stock options. But two executives hired last year to handle legal and compliance matters, issues that have dogged the company, received six-figure bonuses that were guaranteed by their contracts.
The year was a difficult one for EDMC, marked by ongoing lawsuits over its recruiting practices and pressure from lenders to collect on $1.5 billion in debt. The lawsuits could prompt potentially hefty financial penalties and add to the company’s financial troubles.
The information EDMC disclosed in its annual report underscored the challenges facing the for-profit education industry, said Kevin Kinser, a professor at the State University of New York in Albany who studies the for-profit education industry.
“I keep waiting to see evidence that the sector has finally settled, and is positioned for a rebound,” Kinser said Friday. “This is further evidence that major issues remain before the industry regains its footing.”
The company declined to comment. The company filed the annual report late Thursday, weeks after the Nasdaq threatened to delist its stock because it had delayed filing the comprehensive financial statement.
EDMC has 125,560 students on campuses in 32 states and in Canada, and employs 20,800 people, including 2,000 in Pittsburgh. It’s schools include The Art Institutes, Argosy University and Brown Mackie College.
Enrollment declined 7.3 percent and net revenue was down 9 percent to $2.3 billion. The company’s stock fell 3.81 percent Friday to close at $1.01, and has fallen 90 percent this year. West’s total compensation was slashed nearly in half, to $3.5 million in the fiscal year that ended June 30 from $6 million in 2013. Beekhuizen’s compensation dropped 62 percent to $1.3 million from $3.5 million in 2013.
No top executive received cash bonuses related to performance. Carol DiBattiste, the company’s top legal and security officer, pulled in $2.2 million in total compensation, including a $484,000 bonus for the fiscal year that ended on June 30, 2014. Chief compliance officer Donna Bucella meanwhile earned more than $1 million in total compensation, including her $262,500 bonus. Their bonuses were guaranteed by their employment contracts and not tied to performance. Kinser said the bonuses for DiBattiste and Bucella, despite the company’s dismal financial performance, seem to distinguish for-profit education providers from how non-profit colleges work.
“It is hard to imagine such a scenario in the nonprofit higher education world,” he said, adding that it emphasizes how for-profits “think differently.”
EDMC executives were still granted stock options, with West collecting the most at 251,831 shares priced at $12.74 per share. At that price, the stock is deep underwater, meaning that the shares would have to rise above $12.74, almost 13 times its value Friday, for them to realize any gains by exercising their options.
EDMC’s stock has taken a huge hit as it faced myriad pressures from regulators and investors. Amid enrollment declines at EDMC’s 110 schools, it fended off an $11 billion federal lawsuit alleging improper recruiting practices. The company struggled under $1.5 billion in debt before reaching a debt-for-equity exchange with lenders in August that reduced its debt to $400 million, and is facing a potential class-action lawsuit from investors seeking to recoup losses since the Justice Department began investigating the company several years ago.
In response, EDMC has slashed more than 600 workers nationwide, nearly half of them in Pittsburgh, and restructured its operations to cut costs.
Other for-profit education companies are struggling. University of Phoenix and Corinthian Colleges have faced similar allegations over improper recruiting. Corinthian said this summer that it was selling 85 of its 107 campuses and online programs amid scrutiny from the U.S. Department of Education.
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or [email protected].