##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
      þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    June 30, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission File No:
    333-137605
      EDUCATION MANAGEMENT
    LLC
 (Exact name of registrant as
    specified in its charter)
      Delaware

20-4506022(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)c/o Education
    Management Corporation
    210 Sixth Avenue, Pittsburgh, PA,
    33rdFloor(Address of principal executive
    offices)

15222(Zip Code)   Registrants telephone number, including area code:
 (412) 562-0900
      Securities registered pursuant to Section 12(b) of the
    Act:
 None
  Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  þ
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o   o þ




---



##### 





Table of
    Contents
  INDEX
   
 PagePART IITEM 1





BUSINESS


5ITEM 1A





RISK FACTORS


31ITEM 1B





UNRESOLVED STAFF COMMENTS


44ITEM 2





PROPERTIES


44ITEM 3





LEGAL PROCEEDINGS


45ITEM 4





SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


45PART IIITEM 5





MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
    MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


46ITEM 6





SELECTED FINANCIAL DATA


47ITEM 7





MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
    AND RESULTS OF OPERATIONS


49ITEM 7A





QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


68ITEM 8





FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


69ITEM 9





CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE


110ITEM 9A





CONTROLS AND PROCEDURES


110ITEM 9B





OTHER INFORMATION


111PART IIIITEM 10





DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


111ITEM 11





EXECUTIVE COMPENSATION


114ITEM 12





SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    AND RELATED STOCKHOLDER MATTERS


133ITEM 13





CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
    INDEPENDENCE


135ITEM 14





PRINCIPAL ACCOUNTANT FEES AND SERVICES


137PART IVITEM 15





EXHIBITS, FINANCIAL STATEMENT SCHEDULES


137EX-12.1EX-31.1EX-31.2EX-32.1EX-32.2   2




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##### Table of Contents



FORWARD-LOOKING
    STATEMENTS
  Form 10-K Form 10-K) Form 10-K. Form 10-K.
  
    compliance with extensive federal, state and accrediting agency
    regulations and requirements;
    our ability to maintain eligibility to participate in
    Title IV programs;
    government and regulatory changes including revised
    interpretations of regulatory requirements that affect the
    post-secondary education industry;
    regulatory and accrediting agency approval of transactions
    involving a change of ownership or control or a change in our
    corporate structure;
    damage to our reputation or our regulatory environment caused by
    actions of other for-profit institutions;
    availability of alternative loans for our students;
    our introduction of a new student loan program with a private
    lender;
    difficulty in opening additional schools and expanding online
    academic programs;
    our ability to improve existing academic programs or to develop
    new programs on a timely basis and in a cost-effective manner;
    failure to effectively market and advertise to new students;
    decline in the overall growth of enrollment in post-secondary
    institutions;
    our ability to manage our substantial leverage;
    compliance with restrictions and other terms in our debt
    agreements, some of which are beyond our control;
    our ability to keep pace with changing market needs and
    technology;
    our ability to raise additional capital in the future in light
    of our substantial leverage;
    our ability to effectively manage our growth;
    capacity constraints or system disruptions to our online
    computer networks;
    the vulnerability of our online computer networks to security
    risks;
    failure to attract, retain and integrate qualified management
    personnel;
    our ability to integrate acquired schools; 3




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##### Table of Contents




    inability to operate schools due to a natural disaster;
    competitors with greater resources;
    risks inherent in non-domestic operations; and
    the other factors set forth under Risk Factors.  Form 10-K
 4




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##### Table of Contents



PART I  ITEM 1.
    BUSINESS  Business
    Overview
    35-year
      
    The Art Institutes.  The Art Institutes focus
    on applied arts in creative professions such as graphic design,
    interior design, web design and interactive media, digital
    filmmaking, media arts and animation, game art and design,
    fashion design and marketing and culinary arts. The Art
    Institutes offer Associates, Bachelors and
    Masters degree programs, as well as certain non-degree
    diploma programs. Students pursue their degrees through local
    campuses, fully online programs through The Art Institute of
    Pittsburgh, Online Division and blended formats, which combine
    on campus and online education. There are 43 Art Institutes
    campuses in 23 U.S. states and in Canada.
    Argosy University.  Argosy University offers
    academic programs in psychology and behavioral sciences,
    education, business and health sciences disciplines. Argosy
    students can obtain Doctoral, Masters and undergraduate
    degrees. Argosys academic programs focus on graduate
    students seeking advanced 5




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##### Table of Contents



credentials as a prerequisite to initial licensing, career
    advancement
    and/or
    structured pay increases. Students pursue their degrees through
    local campuses, fully online programs and blended formats. There
    are 19 Argosy University campuses in 13 U.S. states.  
    Brown Mackie Colleges.  Brown Mackie Colleges
    offer flexible Associates and non-degree diploma programs
    that enable students to develop skills for entry-level positions
    in high demand vocational specialties and Bachelors degree
    programs that assist students to advance within the workplace.
    Brown Mackie Colleges offer programs in growing fields such as
    nursing, medical assisting, business, criminal justice, legal
    support and information technology. There are 20 Brown Mackie
    College campuses in ten U.S. states.
    South University.  South University offers
    programs in health sciences and business disciplines, including
    business administration, health services management, nursing,
    pharmacy, medical assistant, criminal justice and information
    technology. South University offers Doctoral, Masters,
    Bachelors and Associates degrees through local
    campuses, fully online programs and blended formats. There are
    five South University campuses in four U.S. states.    
    History of consistent revenue growth.  We
    believe that we benefit from a business model with good insight
    into future revenue and earnings, given the length of our
    academic programs and relatively consistent persistence rates.
    Over 63% of our students as of October 2007 were enrolled in
    Doctorate, Masters and Bachelors degree programs,
    which are typically multi-year programs that contribute to the
    overall stability of our student population. The significant
    investments we have made since the Transaction in numerous areas
    of our workforce, including marketing and admissions, new
    campuses and online education and infrastructure, are designed
    to support future enrollment growth.
    Opportunity for future profit margin
    expansion.  Our business model benefits from scale
    and permits us to leverage fixed costs across our delivery
    platforms. Since the Transaction in June 2006,  and
    notwithstanding the increase in interest expense that we have
    experienced as a result of the indebtedness that we incurred in
    connection with the Transaction and the resulting adverse effect
    on our net income, we have made significant investments in
    numerous areas of our workforce in order to support future
    enrollment growth and enhance the student experience. We expect
    that our business model, along with the anticipated benefits of
    these investments, will enable us over time to leverage fixed
    costs as we add new locations and expand our existing locations.
    With respect to our online programs, we have built sufficient
    presence to enable us over time to utilize shared technology and
    infrastructure. We believe that our continued focus on
    information systems, operating processes and key performance
    indicators will permit us to enhance our educational quality,
    growth and profitability over time, although we expect that
    expenses incurred with respect to our student lending
    initiatives will negatively impact our profitability in the
    short term.
    Strong operating cash flow generation.  We
    historically have generated strong cash flows. We benefit from
    investments with attractive returns on capital and favorable
    working capital balances due to advance payment of tuition and
    fees. In fiscal 2008, we generated cash flows from operations of
    $151.3 million. Since the Transaction, most of our
    investments have been made to support growth, as well as the
    infrastructure required to leverage our delivery platforms.   6




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##### Table of Contents



Industry
    Overview
             7




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##### Table of Contents



Our
    Competitive Strengths
     Recognized
    brands aligned with specific fields of study and degree
    offerings
     Diverse
    program offerings and broad degree capabilities
     National
    portfolio of schools and integrated online learning
    platform
    100-mile
     Commitment
    to offering quality academic programs and student and graduate
    success
   8




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##### Table of Contents



 Strong
    management team with a focus on long-term
    performance
    Our
    Growth Strategy
     Introduce
    new and existing academic programs across our national portfolio
    of schools
       Increase
    enrollments in online distance learning and blended-format
    programs
     Develop
    new school locations in attractive markets
   9




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##### Table of Contents



Student
    Recruitment and Marketing
        Student
    Admissions and Retention
        Education
    Programs
   10




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##### Table of Contents



2007


2006Bachelors degrees


48.8
%


47.5
%Associates degrees


26.2
%


27.4
%Diploma and Certificates


10.3
%


10.0
%Doctorate degrees


8.4
%


9.2
%Masters degrees


6.3
%


5.9
%     The Art Institutes.
  The
    School of Design
   Associates Degree
   Bachelors Degree
   Masters Degree
 11




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##### Table of Contents



The
    School of Fashion
   Associates Degree
   Bachelors Degree
  The
    School of Media Arts
   Associates Degree
   Bachelors Degree
   Masters Degree
 12




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##### Table of Contents



The
    School of Culinary Arts
   Associates Degree
   Bachelors Degree
  Argosy University.
  Psychology
    and Behavioral Sciences
   Bachelor of Arts
   Education Specialist Degree
   Master of Arts
   Doctor of Education
   Doctor of Psychology
 13




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##### Table of Contents



Health
    Sciences
   Associate of Applied Science
   Associate of Science
  Education
   Educational Specialist
   Master of Arts in Education
   Doctor of Education
  Business
   Associate of Applied Science
   Bachelor of Science
   Master of Science
   Master of Business Administration
   Doctor of Business Administration
 14




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##### Table of Contents



Brown Mackie Colleges.
  Health
    Sciences
   Associates Degrees
   Bachelors Degrees
  Education
   Associates Degree
  Legal
    Studies
   Associates Degrees
   Bachelors Degrees
  Business
   Associates Degrees
   Bachelors Degrees
  Information
    Technology
   Associates Degrees
 15




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##### Table of Contents



Design
    Technologies
   Associates Degrees
  South University.
  School of
    Health Professions
   Associates Degrees
   Bachelors Degrees
   Masters Degrees
  School of
    Pharmacy
   Doctorate Degrees
  School of
    Business
   Associates Degrees
   Bachelors Degrees
   Masters Degrees
 16




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##### Table of Contents



Graduate
    Employment
      Form 10-K
  Accreditation
     17




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##### Table of Contents



Calendar

Fiscal YearYear

Acquired orSchool

Location

Established

Opened

Accrediting AgencyThe Art InstitutesThe Art Institute of Atlanta

Atlanta, GA

1949

1971

Commission on Colleges of the Southern Association of Colleges
    and Schools (SACS)The Art Institute of Atlanta  Decatur

Decatur, GA

2007

2008

SACS (as an additional location of The Art Institute of Atlanta)The Art Institute of Austin

Austin, TX

2008

2008

SACS (as a branch of The Art Institute of Houston)The Art Institute of California  Hollywood (formerly
    California Design College)

Los Angeles, CA

1991

2003

Accrediting Council of Independent Colleges and Schools
    (ACICS)The Art Institute of California  Inland Empire

San Bernardino, CA

2006

2006

Accrediting Commission of Career Schools and Colleges of
    Technology (ACCSCT) (as a branch of The Art
    Institute of California  San Diego)The Art Institute of California  Los Angeles

Los Angeles, CA

1997

1998

ACICSThe Art Institute of California  Orange County

Orange County, CA

2000

2001

ACICS (as a branch of The Art Institute of
    California  Los Angeles)The Art Institute of California  Sacramento

Sacramento, CA

2007

2007

ACICS (as a branch of The Art Institute of
    California  Los Angeles)The Art Institute of California  San Diego

San Diego, CA

1981

2001

ACCSCTThe Art Institute of California  San Francisco

San Francisco, CA

1939

1998

ACICS (as a branch of The Art Institute of
    California  Los Angeles) 18




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##### Table of Contents



Calendar

Fiscal YearYear

Acquired orSchool

Location

Established

Opened

Accrediting AgencyThe Art Institute of California  Sunnyvale

Sunnyvale, CA

2008

2008

ACICS (as a branch of The Art Institute of
    California  Hollywood)The Art Institute of Charleston

Charleston, SC

2007

2007

SACS (as a branch of The Art Institute of Atlanta)The Art Institute of Charlotte

Charlotte, NC

1973

2000

ACICSThe Art Institute of Colorado

Denver, CO

1952

1976

Higher Learning Commission (HLC) of the North
    Central Association and ACICSThe Art Institute of Dallas

Dallas, TX

1964

1985

SACSThe Art Institute of Fort Lauderdale

Fort Lauderdale, FL

1968

1974

ACICSThe Art Institute of Houston

Houston, TX

1974

1979

SACSThe Art Institute of Indianapolis

Indianapolis, IN

2006

2006

ACCSCT (as a branch of The Art Institute of Las Vegas)The Art Institute of Jacksonville

Jacksonville, FL

2007

2007

SACS (as a branch of Miami International University of Art
    & Design)The Art Institute of Las Vegas

Las Vegas, NV

1983

2001

ACCSCTThe Art Institute of Michigan

Detroit, MI

2007

2008

HLC and ACCSCT (as a branch of The Illinois Institute of
    Art  Chicago)The Art Institute of Tennessee  Nashville

Nashville, TN

2006

2007

SACS (as a branch of The Art Institute of Atlanta)The Art Institute of New York City

New York, NY

1980

1997

ACICSThe Art Institute of Ohio  Cincinnati

Cincinnati, OH

2004

2005

ACCSCT (as a branch of The Illinois Institute of Art 
    Chicago)The Art Institute of Philadelphia

Philadelphia, PA

1971

1980

ACICSThe Art Institute of Phoenix

Phoenix, AZ

1995

1996

ACICSThe Art Institute of Pittsburgh

Pittsburgh, PA

1921

1970

Middle States Association of Colleges & Schools of the
    Commission on Higher Education and ACICSThe Art Institute of Portland

Portland, OR

1963

1998

Northwest Commission on Colleges and Schools Universities
    (NWCCU)The Art Institute of Raleigh-Durham(1)

Durham, NC

2008

2008

ACICS (as a branch of The Art Institute of Charlotte)The Art Institute of Salt Lake City

Salt Lake City, UT

2007

2007

ACCSCT (as a branch of The Art Institute of Las Vegas)The Art Institute of Seattle

Seattle, WA

1946

1982

NWCCUThe Art Institute of Tampa

Tampa, FL

2004

2004

SACS (as a branch of the Miami International University of Art
    & Design)The Art Institute of Toronto

Toronto, Ontario

1997

2002

None 19




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##### Table of Contents



Calendar

Fiscal YearYear

Acquired orSchool

Location

Established

Opened

Accrediting AgencyThe Art Institute of Tucson

Tucson, AZ

2002

2007

ACICSThe Art Institute of Vancouver

Vancouver, BC

1979

2003

Private Career Training Institutions Agency of British ColumbiaThe Art Institute of Washington

Arlington, VA

2000

2001

SACS (as a branch of The Art Institute of Atlanta)The Art Institute of York  Pennsylvania

York, PA

1952

2004

ACCSCTThe Art Institutes International  Kansas City(1)

Kansas City, KS

2008

2008

ACICS (as a branch of The Art Institute of Phoenix)The Art Institutes International Minnesota

Minneapolis, MN

1964

1997

ACICSThe Illinois Institute of Art  Chicago

Chicago, IL

1916

1996

HLC and ACCSCT (Chicago and Detroit locations only)The Illinois Institute of Art  Schaumburg

Schaumburg, IL

1983

1996

HLC and ACCSCT (as a branch of The Illinois Institute of
    Art  Chicago)Miami International University of Art & Design

Miami, FL

1965

2002

SACSThe New England Institute of Art

Boston, MA

1988

2000

New England Association of Schools and CollegesArgosy University







HLC (all locations)Argosy University, Atlanta

Atlanta, GA

1990

2002Argosy University, Chicago

Chicago, IL

1976

2002Argosy University, Dallas

Dallas, TX

2002

2002Argosy University, Denver

Denver, CO

2006

2006Argosy University, Honolulu

Honolulu, HI

1979

2002Argosy University, Inland Empire

San Bernadino, CA

2006

2006Argosy University, Nashville

Nashville, TN

2001

2001Argosy University, Orange County

Orange, CA

1999

2002Argosy University, Phoenix

Phoenix, AZ

1997

2002Argosy University, Salt Lake City(1)

Salt Lake City, UT

2008

2008Argosy University, San Diego

San Diego, CA

2006

2006Argosy University, San Francisco

Point Richmond, CA

1998

2002Argosy University, Santa Monica

Santa Monica, CA

2006

2006Argosy University, Sarasota

Sarasota, FL

1969

2002Argosy University, Schaumburg

Schaumburg, IL

1979

2002Argosy University, Seattle

Seattle, WA

1997

2002Argosy University, Tampa

Tampa, FL

1997

2002 20




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##### Table of Contents



Calendar

Fiscal YearYear

Acquired orSchool

Location

Established

Opened

Accrediting AgencyArgosy University, Twin Cities

Eagan, MN

1961

2002Argosy University, Washington D.C.

Arlington, VA

1994

2002South University







SACS (all locations)South University/Savannah

Savannah, GA

1899

2004South University/Montgomery

Montgomery, AL

1997

2004South University/West Palm Beach

West Palm Beach, FL

1974

2004South University/Columbia

Columbia, SC

1935

2004South University/Tampa

Tampa, FL

2006

2006The Brown Mackie CollegesBrown Mackie College  Akron

Akron, OH

1980

2004

ACICS (as a branch of Brown Mackie College 
    Cincinnati)Brown Mackie College  Cincinnati

Cincinnati, OH

1927

2004

ACICSBrown Mackie College  Findlay

Findlay, OH

1986

2004

ACICSBrown Mackie College  Northern Kentucky

Ft. Mitchell, KY

1927

2004

ACICS (as a branch of Brown Mackie College 
    Cincinnati)Brown Mackie College  North Canton

North Canton, OH

1984

2004

ACICS (as a branch of Brown Mackie College  Tucson)Brown Mackie College  Atlanta

Norcross, GA

1969

2004

ACICS (as a branch of The Art Institute of CharlotteBrown Mackie College  Lenexa

Lenexa, KS

1984

2004

HLC (as a branch of Brown Mackie College  Salina)Brown Mackie College  Salina

Salina, KS

1892

2004

HLCBrown Mackie College  Merrillville

Merrillville, IN

1984

2004

ACICS (as a branch of Brown Mackie College 
    Cincinnati)Brown Mackie College  Michigan City

Michigan City, IN

1890

2004

ACICS (as a branch of Brown Mackie College 
    Cincinnati)Brown Mackie College  Moline

Moline, IL

1985

2004

ACICS (as a branch of Brown Mackie College 
    Cincinnati)Brown Mackie College  Fort Wayne

Fort Wayne, IN

1991

2004

ACICS (as a branch of Brown Mackie College  South
    Bend)Brown Mackie College  South Bend

South Bend, IN

1882

2004

ACICSBrown Mackie College  Louisville

Louisville, KY

1935

2004

ACICS (as a branch of Brown Mackie College  Findlay)Brown Mackie College  Hopkinsville

Hopkinsville, KY

1995

2004

ACICS (as a branch of Brown Mackie College  Findlay)Brown Mackie College  Miami

Miami, FL

2004

2005

ACICS (as a branch of Brown Mackie College 
    Cincinnati)Brown Mackie College  Tucson

Tucson, AZ

1972

2007

ACICS 21




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##### Table of Contents



Calendar

Fiscal YearYear

Acquired orSchool

Location

Established

Opened

Accrediting AgencyBrown Mackie College  Indianapolis

Indianapolis, IN

2007

2008

ACICS (as a branch of Brown Mackie College  Findlay)Brown Mackie College  Boise

Boise, ID

2008

2008

ACICS (as a branch of Brown Mackie College  South
    Bend)Brown Mackie College  Tulsa

Tulsa, OK

2008

2008

ACICS (as a branch of Brown Mackie College  South
    Bend)Western State University College of Law(2)

Fullerton, CA

1966

2002

Commission on Colleges of the Western Association of Schools and
    Colleges; provisionally accredited by American Bar Association     (1)
    
    Application for students attending school location to
    participate in Title IV programs currently pending with
    U.S. Department of Education.(2)
    
    In July 2008, two of our indirectly wholly-owned subsidiaries
    entered into a Stock Purchase Agreement with the Purchaser
    pursuant to which the Purchaser will purchase all of the issued
    and outstanding capital stock of Western State University of
    Southern California, which operates Western State University
    College of Law. Total cash proceeds from the sale are expected
    to be between $5 million and $10 million. The
    transaction is expected to close in January 2009 and is subject
    to customary conditions, including regulatory approvals.    Student
    Financial Assistance
      
    if our schools fail to comply with extensive regulations, we
    could be subject to financial penalties, restrictions on our
    operations or loss of external financial aid funding for our
    students; 22




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##### Table of Contents




    the provinces or national government may change the law or
    reduce funding for student financial aid programs, which could
    harm our student population and revenue;
    if our schools do not maintain their approvals, they may not
    operate or participate in federal student financial aid
    programs; and
    government and regulatory agencies may conduct compliance
    reviews, bring claims or initiate litigation against us.    Fiscal 2008


Fiscal 2007% of








% ofGross Cash


Gross


% of Net


Gross Cash


Gross


% of NetReceipts(1)


Receipts


Revenue


Receipts(1)


Receipts


RevenueFederal Title IV Aid(2):Stafford Loans

$
838.1



42.4
%


49.8
%

$
631.6



39.5
%


46.3
%PLUS Loans


191.2



9.7
%


11.4
%


163.3



10.2
%


12.0
%Pell Grants


143.5



7.3
%


8.5
%


98.7



6.2
%


7.2
%FSEOG awards


11.4



0.6
%


0.7
%


10.5



0.7
%


0.8
%Perkins Loans


7.4



0.4
%


0.4
%


6.2



0.4
%


0.5
%Other Title IV Aid(3)


7.2



0.4
%


0.4
%


5.7



0.4
%


0.4
%1,198.8



60.6
%


71.2
%


916.0



57.4
%


67.2
%Private Loans


374.0



18.9
%


22.2
%


308.4



19.3
%


22.6
%Cash Payments


350.0



17.7
%


20.7
%


319.6



20.0
%


23.4
%State Grants


45.1



2.3
%


2.7
%


42.5



2.7
%


3.1
%Canadian Financial Aid


9.8



0.5
%


0.6
%


8.9



0.6
%


0.7
%Total Cash Receipts(4)

$
1,977.7



100.0
%


117.4
%

$
1,595.4



100.0
%


117.0
%Net Revenue









$
1,684.2
(5)









$
1,363.7
(5)     (1)
    
    Cash receipts are net of the return to the federal student
    financial aid programs of all unearned funds from students who
    withdraw from a program of study.(2)
    
    For fiscal 2008 and 2007, equals Title IV financial aid
    received by students attending (i) The Art Institutes
    during quarters starting during the fiscal year except for The
    New England Institute of Art, where the summer semester
    beginning in May was included in the following fiscal year;
    (ii) Argosy University during the summer semester that
    began in May prior to the beginning of the fiscal year and the
    fall and winter semesters that began during the fiscal year;
    (iii) South University during the quarters starting during
    the fiscal year, except that campus based students attending the
    summer quarter beginning at the end of June and fully online
    students attending the quarter beginning in May were included in
    the following fiscal year; (iv) Brown Mackie Colleges
    during quarters starting during the fiscal year; and
    (v) Western States University during the summer semester
    that began in May prior to the beginning of the fiscal year and
    the fall and winter semesters which began during the fiscal year. 23




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##### Table of Contents



(3)
    
    Includes receipts from the Federal Work-Study program, the
    Academic Competitive Grant program and the National SMART Grant
    program.(4)
    
    Gross cash receipts include stipends, or financing received by
    students in excess of tuition and fees they pay to our schools,
    which we receive from financing sources on behalf of students.
    Stipends are generally used by students to fund living expenses
    while attending school. Total stipends paid to students during
    fiscal 2008 and 2007 were $339.3 million and
    $262.8 million, respectively.(5)
    
    The difference between net revenue and gross cash receipts paid
    by students to attend our post-secondary institutions primarily
    relates to stipends received on behalf of students and the
    effect of timing differences between cash-basis and
    accrual-basis accounting, including changes in student accounts
    receivable balances.  Nature
    of U.S. Federal Support for Post-Secondary
    Education
  FFEL and Direct Loans.
    Pell.
  FSEOG.
  Perkins.
 24




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##### Table of Contents



Federal Work-Study.
  New Title IV Programs.
  Legislative Action.
  Other
    Financial Assistance Sources
     25




---



##### Table of Contents



Availability
    of Lenders
      Federal
    Oversight of Title IV Programs
     26




---



##### Table of Contents



Cohort Default Rates.
         27




---



##### Table of Contents



Regulatory Oversight.
  Financial Responsibility Standards.
  Return of Title IV Funds.
  Administrative Capability
    Requirements.
 28




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##### Table of Contents



Restrictions on Operating Additional
    Schools.
  The 90/10 Rule.
  Restrictions on Payment of Bonuses, Commissions or Other
    Incentives.
 29




---



##### Table of Contents



State
    Authorization and Accreditation Agencies
      and/or
    Canadian
    Regulation and Financial Aid
  and/or
     30




---



##### Table of Contents



and/or
    Employees
    Competition
    Seasonality
    in Results of Operations
    Availability
    of Reports
  www.edmc.com Form 10-K Form 10-K, Form 10-Q, Form 8-K (412) 562-0900
  ITEM 1A.
    RISK
    FACTORS  The following risks comprise all the material risks of which
    we are aware; however, these risks and uncertainties may not be
    the only ones we face. Additional risks and uncertainties not
    presently known to us or that we currently deem immaterial may
    also adversely affect our business or financial performance. If
    any of the events or developments described below actually
    occurred, it could have a material adverse effect on our
    business, financial condition or results of operations.
 31




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##### Table of Contents



RISKS
    RELATED TO OUR HIGHLY REGULATED INDUSTRY
  Failure
    of our schools to comply with extensive regulations could result
    in monetary liabilities or assessments, restrictions on our
    operations, limitations on our growth or loss of external
    financial aid funding for our students.
      If we
    fail to obtain periodic recertifications for our schools to
    participate in Title IV programs, or if our certifications
    are withdrawn by the U.S. Department of Education prior to the
    next scheduled recertification, students at the affected schools
    would no longer be able to receive Title IV program
    funds.
   32




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Congress
    may change eligibility standards or reduce funding for federal
    student financial aid programs, or other governmental or
    regulatory bodies may change similar laws or regulations
    relating to other student financial aid programs, which could
    reduce the growth of our student population and
    revenue.
        If we
    do not meet specific financial responsibility ratios and other
    compliance tests established by the U.S. Department of
    Education, our schools may lose eligibility to participate in
    federal student financial aid programs, which may result in a
    reduction in our student enrollment and an adverse effect on our
    results of operations.
     33




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##### Table of Contents



If any
    of our schools either fails to demonstrate administrative
    capability to the U.S. Department of Education or violates
    other requirements of Title IV programs, the U.S.
    Department of Education may impose sanctions or terminate that
    schools participation in Title IV
    programs.
    
    comply with all applicable federal student financial aid
    regulations;
    have capable and sufficient personnel to administer the federal
    student financial aid programs;
    have acceptable methods of defining and measuring the
    satisfactory academic progress of its students;
    provide financial aid counseling to its students; and
    submit all reports and financial statements required by the
    regulations.    
    require the repayment of federal student financial aid funds
    improperly disbursed;
    transfer the institution from the advance system of
    payment of federal student financial aid funds to the
    reimbursement system of payment or cash
    monitoring; 34




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
    place the institution on provisional certification
    status; or
    commence a proceeding to impose a fine or to limit, suspend or
    terminate the participation of the institution in Title IV
    programs.    If our
    institutions do not comply with the 90/10 Rule, they will lose
    eligibility to participate in federal student financial aid
    programs.
    Our
    failure to comply with various state regulations or to maintain
    any national, regional or programmatic accreditation could
    result in actions taken by those states or accrediting agencies
    that would have a material adverse effect on our student
    enrollment and results of operations.
   35




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##### Table of Contents



and/or
  Loss
    of or reductions in state financial aid programs for our
    students could negatively impact our revenues from
    students.
    If
    regulators do not approve transactions involving a change of
    control or change in our corporate structure, we may lose our
    ability to participate in federal student financial aid
    programs, which would result in declines in our student
    enrollment, and thereby adversely affect our results of
    operations.
    Government
    and regulatory and accrediting agencies may conduct compliance
    reviews, bring claims or initiate litigation against us, which
    may adversely impact our licensing or accreditation status, and
    thereby adversely affect our results of
    operations.
   36




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##### Table of Contents



Our
    regulatory environment and our reputation may be negatively
    influenced by the actions of other
    for-profit
    institutions.
    RISKS
    RELATED TO OUR BUSINESS
  If our
    students were unable to obtain private loans from third party
    lenders, our business could be adversely affected given our
    increasing reliance on such lenders as a source of net
    revenues.
    
    changes in overall economic conditions or overall uncertainty or
    disruption in capital markets, in either case causing lenders to
    cease making student loans, limit the volume or types of loans
    made or impose more stringent eligibility or underwriting
    standards;
    the financial condition and continued financial viability of
    student loan providers, including Sallie Mae;
    changes in applicable laws or regulations, such as provisions of
    the recently enacted HEA reauthorization that impose new
    disclosure and certification requirements with respect to
    private educational loans, that could have the effect of
    reducing the availability of education financing, including as a
    result of any lenders choosing to provide fewer loans or to stop
    providing loans altogether in light of increased regulation, or
    which could increase the costs of student loans; or
    determinations by lenders to reduce the number of loans, or to
    cease making loans altogether, to students attending or planning
    to attend certain types of schools, particularly for-profit
    schools.   37




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##### Table of Contents



and/or
    We
    recently introduced a new student loan program with a private
    lender that could have a material adverse effect on our
    financial condition, results of operations and cash
    flows.
         38




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We may
    have difficulty opening additional new schools and growing our
    online academic programs, and we may be unable to achieve the
    anticipated return on our investment.
      We may
    not be able to implement our growth strategy optimally if we are
    not able to improve the content of our existing academic
    programs or to develop new programs on a timely basis and in a
    cost-effective manner.
     39




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Our
    marketing and advertising programs may not be effective in
    attracting prospective students, current students or potential
    employers of our graduates.
  and/or
  A
    decline in the overall growth of enrollment in post-secondary
    institutions could cause us to experience lower enrollment at
    our schools, which would negatively impact our future
    growth.
    Our
    substantial leverage could adversely affect our ability to raise
    additional capital to fund our operations, limit our ability to
    react to changes in the economy or our industry and expose us to
    interest rate risk to the extent of our variable rate
    debt.
    
    making it more difficult for us to make payments on our
    indebtedness;
    increasing our vulnerability to general economic and industry
    conditions;
    requiring a substantial portion of cash flows from operations to
    be dedicated to the payment of principal and interest on our
    indebtedness, therefore reducing our ability to use our cash
    flows to fund our operations, capital expenditures and future
    business opportunities;
    increasing the likelihood of our not satisfying, on a
    consolidated basis, the U.S. Department of Educations
    annual responsibility requirements and subjecting us to letter
    of credit and provisional certification requirements for the
    foreseeable future;
    exposing us to the risk of increased interest rates as certain
    of our borrowings, including borrowings under our senior secured
    credit facilities, will bear interest at variable rates;
    restricting us from making strategic acquisitions or causing us
    to make non-strategic divestitures;
    limiting our ability to obtain additional financing for working
    capital, capital expenditures, program development, debt service
    requirements, acquisitions and general corporate or other
    purposes; and
    limiting our ability to adjust to changing market conditions and
    placing us at a competitive disadvantage compared to our
    competitors who are less highly leveraged.  3 4
 40




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##### Table of Contents



1 4
  We may
    not be able to generate sufficient cash to service all of our
    debt obligations and may be forced to take other actions in an
    effort to satisfy our obligations under such indebtedness, which
    may not be successful.
  Form 10-K,
  Our
    debt agreements contain restrictions that limit our flexibility
    in operating our business.
    
    incur additional indebtedness or issue certain preferred shares;
    pay dividends on, repurchase or make distributions in respect of
    capital stock or make other restricted payments;
    make certain investments, including capital expenditures;
    sell certain assets;
    create liens;
    consolidate, merge, sell or otherwise dispose of all or
    substantially all of our assets; and
    enter into certain transactions with affiliates.   41




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##### Table of Contents



Failure
    to keep pace with changing market needs and technology could
    harm our ability to attract students.
    Failure
    to obtain additional capital in the future could adversely
    effect our ability to grow.
    Failure
    to effectively manage our growth could harm our
    business.
    Capacity
    constraints or system disruptions to our online computer
    networks could have a material adverse effect on our ability to
    attract and retain students.
    The
    personal information that we collect may be vulnerable to
    breach, theft or loss that could adversely affect our reputation
    and operations.
   42




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##### Table of Contents



We may
    not be able to retain our key personnel or hire and retain
    additional personnel needed for us to sustain and grow our
    business as planned.
    If we
    are not able to integrate acquired schools, we may experience
    operational inefficiencies.
    
    inability to maintain uniform standards, controls, policies and
    procedures;
    distraction of managements attention from normal business
    operations during the integration process;
    expenses associated with the integration efforts; and
    unidentified issues not discovered in our due diligence process,
    including legal contingencies.  We may
    be unable to operate one or more of our schools due to a natural
    disaster or to restore a damaged school to its prior operational
    level.
   43




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We
    operate in a highly competitive industry, and competitors with
    greater resources could harm our business.
    We
    could experience an event of default under our senior secured
    credit agreement if Providence Equity Partners, Goldman Sachs
    Capital Partners and Leeds Equity Partners (collectively,
    the Sponsors) cease to own an aggregate of at least
    35% of the voting interests of our outstanding capital stock,
    and such an event of default could adversely effect our
    liquidity and financial position.
      If we
    expand in the future into new markets outside the United States,
    we would be subject to risks inherent in non-domestic
    operations.
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES   44




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ITEM 3.
    LEGAL
    PROCEEDINGS        ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   45




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##### Table of Contents



PART II  ITEM 5.
    MARKET
    FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES    46




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##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA  Form 10-K. Form 10-K. Form 10-K.
  Predecessor



SuccessorPeriod from



Period fromJuly 1, 2005



June 1, 2006Year Ended


through



through


Year EndedJune 30,


May 31,



June 30,


June 30,2004(1)


2005


2006



2006


2007


2008(Dollars in millions)Statement of Operations Data:Net revenues

$
853.0


$
1,019.3


$
1,095.8



$
74.4


$
1,363.7


$
1,684.2Costs and expenses:Educational services


497.6



564.2



590.9




59.0



729.9



901.1General and administrative


167.1



202.4



273.3




26.0



314.9



419.3Depreciation and amortization


55.3



84.1



62.9




7.4



90.5



100.3Total costs and expenses


720.0



850.7



927.1




92.4



1,135.3



1,420.7Income (loss) before interest and income taxes


133.0



168.6



168.7




(18.0
)


228.4



263.5Interest expense (income), net


2.5



(0.2
)


(5.3
)



14.1



169.1



157.7Income (loss) before income taxes


130.5



168.8



174.0




(32.1
)


59.3



105.8Provision for (benefit from) income taxes


53.5



67.2



73.6




(12.4
)


27.1



41.1Net income (loss)

$
77.0


$
101.6


$
100.4



$
(19.7
)

$
32.2


$
64.7Balance Sheet Data:Cash and cash equivalents (excludes restricted cash)

$
116.7


$
172.0







$
263.3


$
250.7


$
236.0Total assets


828.0



956.0








3,945.5



3,949.0



4,054.3Total debt, including current portion


128.6



70.4








2,110.0



2,030.0



2,021.4Total shareholders or members equity


528.7



666.0








1,282.8



1,311.1



1,351.2Statement of Cash Flows Data:Net cash flows provided by (used in):Operating activities

$
166.3


$
192.5


$
301.7



$
(22.4
)

$
179.4


$
151.3Investing activities


(239.9
)


(98.1
)


(56.4
)



(3,534.1
)


(110.8
)


(157.3
)Financing activities


102.0



(39.0
)


(43.2
)



3,445.5



(80.8
)


(8.5
) 47




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##### Table of Contents



Predecessor



SuccessorPeriod from



Period fromJuly 1, 2005



June 1, 2006Year Ended


through



through


Year EndedJune 30,


May 31,



June 30,


June 30,2004(1)


2005


2006



2006


2007


2008(Dollars in millions)Other Data:EBITDA(2)

$
188.3


$
252.7


$
231.6



$
(10.6
)

$
318.9


$
363.8Capital expenditures(3)


82.3



74.9



57.9




7.7



96.1



150.9Enrollment at beginning of fall quarter(4)


58,828



66,179



72,471








80,324



95,990Campus locations (at period end)(5)


66



70



71




71



78



88Ratio of earnings to fixed charges(6)


7.7
x


9.2
x


9.4
x







1.3
x


1.5
x     (1)
    
    South University and the Brown Mackie Colleges are included as
    of their respective acquisition dates during fiscal 2004.(2)
    
    EBITDA, a measure used by management to measure operating
    performance, is defined as net income plus interest expense
    (income), net, provision for income taxes, depreciation and
    amortization. EBITDA is not a recognized term under GAAP and
    does not purport to be an alternative to net income as a measure
    of operating performance or to cash flows from operating
    activities as a measure of liquidity. Additionally, EBITDA is
    not intended to be a measure of free cash flow available for
    managements discretionary use, as it does not consider
    certain cash requirements such as interest payments, tax
    payments and debt service requirements. Our obligations to make
    interest payments and our other debt service obligations have
    increased substantially as a result of the indebtedness incurred
    to finance the Transaction and to pay related expenses in June
    2006. 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. Further, we use EBITDA less capital expenditures as
    a financial target for purposes of determining cash bonuses
    granted pursuant to our MICP, as described under Item 11,
    Executive Compensation  Compensation Discussion
    and Analysis  Cash Bonuses. In addition,
    management believes that EBITDA provides more comparability
    between the historical results of EDMC and results that reflect
    purchase accounting and the new capital structure. Management
    compensates for the limitations of using 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. Because not all companies
    use identical calculations, these presentations of EBITDA may
    not be comparable to other similarly titled measures of other
    companies. EBITDA is calculated as follows:  Predecessor


SuccessorPeriod from


Period fromJuly 1, 2005


June 1, 2006Year Ended

through


through

Year EndedJune 30,

May 31,


June 30,

June 30,2004

2005

2006


2006

2007

2008(Dollars in millions)Net income (loss)

$
77.0


$
101.6


$
100.4



$
(19.7
)

$
32.2


$
64.7Interest (income) expense, net


2.5



(0.2
)


(5.3
)



14.1



169.1



157.7Provision for (benefit from) income taxes


53.5



67.2



73.6




(12.4
)


27.1



41.1Depreciation and amortization(a)


55.3



84.1



62.9




7.4



90.5



100.3EBITDA(b)

$
188.3


$
252.7


$
231.6



$
(10.6
)

$
318.9


$
363.8     (a)
    
    Depreciation and amortization includes non-cash charges related
    to property, equipment and intangible asset impairments of
    $4.2 million in fiscal 2005 and $5.5 million in fiscal
    2008. The year ended June 30, 2005 also includes
    $19.5 million related to cumulative adjustments for changes
    in lease accounting. 48




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##### Table of Contents



(b)
    
    EBITDA, as presented above, is different from the Adjusted
    EBITDA calculated for the purpose of determining compliance with
    our senior secured credit agreement and the indentures governing
    our Notes. For an explanation of our Adjusted EBITDA, see
    Management Discussion and Analysis of Financial Condition
    and Results of Operations  Liquidity and Capital
    Resources.  (3)
    
    Capital expenditures represent net cash paid for property and
    equipment, leasehold improvements, online curriculum
    development, software and other assets.(4)
    
    Represents the number of students enrolled in our schools as of
    the first week in October of the preceding calendar year.(5)
    
    Brown Mackie College-Dallas and Brown Mackie
    College-Fort Worth discontinued accepting new enrollments
    effective August 4, 2005, and the completion of instruction
    for all students at each school occurred in June 2006. Upon
    completion of the instruction of students enrolled at
    August 4, 2005, each school closed. Brown Mackie
    College-Los Angeles, Brown Mackie College-Orange County, Brown
    Mackie College-San Diego and Brown Mackie College-Denver
    discontinued new enrollments in fiscal 2006. We established a
    degree site of Argosy University at each location which assumed
    the non-diploma Brown Mackie College class offerings. The Brown
    Mackie College location closed once current students completed
    their classes. The Art Institute of Toronto announced in June
    2007 that it will no longer accept new students and that it will
    close after all current students complete their respective
    programs. Prior to announcing this closing, approximately 250
    students attended The Art Institute of Toronto.(6)
    
    For purposes of calculating the ratio of earnings to fixed
    charges, earnings consist of income before income taxes plus
    fixed charges. Fixed charges include interest expense, whether
    expensed or capitalized, amortization of debt issuance costs,
    and the portion of rental expense representative of the interest
    factor. During the period June 1 through June 30, 2006, the
    Successors fixed charges exceeded earnings (losses) by
    $16.1 million.  ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Overview
       49




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start-up
  , , 18-24 years ,
     50




---



##### Table of Contents



Results
    of Operations
    Predecessor



SuccessorPeriod from



Period fromJuly 1, 2005



June 1, 2006through



through


Year EndedMay 31,



June 30,


June 30,2006



2006


2007


2008Net revenues


100.0
%



100.0
%


100.0
%


100.0
%Costs and expenses:Educational services


53.9
%



79.3
%


53.5
%


53.5
%General and administrative


24.9
%



34.9
%


23.1
%


24.9
%Depreciation and amortization


5.8
%



9.9
%


6.7
%


6.0
%Total costs and expenses


84.6
%



124.1
%


83.3
%


84.4
%Income (loss) before interest and income taxes


15.4
%



(24.1
)%


16.7
%


15.6
%Interest (income) expense, net


(0.5
)%



18.9
%


12.4
%


9.4
%Income (loss) before income taxes


15.9
%



(43.0
)%


4.3
%


6.2
%Provision for (benefit from) income taxes


6.7
%



(16.7
)%


2.0
%


2.4
%Net income (loss)


9.2
%



(26.3
)%


2.3
%


3.8
%  51




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##### Table of Contents



Year
    Ended June 30, 2008 (Fiscal 2008) Compared with Year
    Ended June 30, 2007 (Fiscal 2007)
  Net
    revenues
      Educational
    services expenses
    General
    and administrative expenses
    Depreciation
    and amortization
    Income
    before interest and taxes
   52




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##### Table of Contents



Net
    interest expense
    Provision
    for income taxes
    Net
    income
    Successor
    Year Ended June 30, 2007 (Fiscal 2007) Compared with
    the Predecessor
    11-Month
    Period from July 1, 2005 through May 31, 2006 (2006
    Period)
  Net
    revenues
  11-month 11-month
  11-month 11-month
  Educational
    services
  11-month
  General
    and administrative
   53




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11-month
  Depreciation
    and amortization
  11-month
  Income
    before interest and income taxes
    Interest
    expense, net
    Provision
    for income taxes
  11-month
  Net
    income
    Successor
    Period from June 1, 2006 through June 30,
    2006
   54




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Liquidity
    and Capital Resources
      Operating
    cash flows
          Investing
    cash flows
   55




---



##### Table of Contents



Financing
    cash flows
        Federal
    Family Education Loan Program and Private Student
    Loans
      
    In April 2008, we entered into a new agreement with Sallie Mae
    to provide up to $90.0 million of loans to current students
    who previously received loans from Sallie Mae and are continuing
    their education but who do not satisfy Sallie Maes current
    standard underwriting criteria. We pay credit enhancement fees
    to Sallie Mae in connection with these loans based on the
    principal balance of each loan disbursed by Sallie Mae under the
    agreement. 56




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##### Table of Contents




    We have added additional providers of private student loans to
    our recommended lender lists. The new lenders vary based on
    education system.
    We have provided additional training to financial aid officers
    at all our schools. The training focuses on highlighting to
    prospective students the benefits of obtaining co-borrowers and
    the use of PLUS loans, cash payments and other sources of
    available aid.
    In August 2008, we introduced a new student loan program with a
    private lender that enables students who have exhausted all
    available government-sponsored or other aid and have been denied
    a private loan to borrow a portion of their tuition and other
    educational expenses at our schools not covered by other
    financial aid sources if they or a co-borrower meet certain
    eligibility and underwriting criteria. We currently estimate
    that our investments in loans under this program will not exceed
    $50.0 million in fiscal 2009, subject to limitations on
    such investments set forth in the documents governing our debt
    arrangements.      Contractual
    obligations
    Total Amounts


Payments due by Fiscal YearCommitted


2009


2010


2011


2012


2013


ThereafterRevolving credit loans(1)

$
120,000


$
120,000


$



$



$



$



$
Term loan(2)


1,138,677



11,850



11,850



11,850



8,887



1,094,240



Senior notes(3)


375,000























375,000Senior subordinated notes(4)


385,000























385,000Mortgage debt of consolidated entities(5)


1,404



210



226



244



263



284



177Capital leases


1,364



804



534



26











Total short-term and long-term debt


2,021,445



132,864



12,610



12,120



9,150



1,094,524



760,177Interest payments(6)


842,015



147,715



146,845



146,370



117,849



132,032



151,204Operating leases(7)


720,880



118,018



97,435



85,508



80,380



78,372



261,167Unconditional purchase
    obligations(8)


22,612



12,647



6,002



3,103



435



425



Total commitments

$
3,606,952


$
411,244


$
262,892


$
247,101


$
207,814


$
1,305,353


$
1,172,548  57




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##### Table of Contents



(1)
    
    Borrowings under our revolving credit facility, if any, mature
    on June 1, 2012. As the $120.0 million of borrowings
    outstanding under our revolving credit facility was repaid on
    July 1, 2008, we have included it in the table above as a
    2009 repayment.(2)
    
    Our term loan under the senior secured credit facility matures
    on June 1, 2013.(3)
    
    Our senior notes are due June 1, 2014.(4)
    
    Our senior subordinated notes are due June 1, 2016.(5)
    
    Our mortgage debt of consolidated entities matures on
    January 2, 2014.(6)
    
    Interest payments are based on either the fixed rate or the
    variable rate as of June 30, 2008 and assume that
    repayments are in accordance with the loan agreements without
    giving effect to mandatory prepayments.(7)
    
    Our operating lease obligations extend through 2020.(8)
    
    We have various contractual obligations that extend through 2013
    for future services.  Contingencies
          Indebtedness
  Overview
     58




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##### Table of Contents



Form 10-K,
  Senior
    secured credit facilities
  Overview. same-day
  Interest rate and fees. The Wall Street Journal
  96-19
        Payments.
   59




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##### Table of Contents



Certain covenants and events of default.
  
    incur additional indebtedness;
    make capital expenditures;
    create liens on assets;
    engage in mergers or consolidations;
    sell assets;
    pay dividends and distributions or repurchase our capital stock;
    make investments, loans or advances;
    repay subordinated indebtedness (including the senior
    subordinated notes);
    make certain acquisitions;
    engage in certain transactions with affiliates;
    enter into certain restrictive agreements;
    amend agreements governing our subordinated indebtedness
    (including the senior subordinated notes) and our constitutive
    documents;
    change the nature of our business; and
    change the status of Education Management Holdings LLC as a
    passive holding company.    
    a maximum total leverage ratio; and
    a minimum interest coverage ratio.    Senior
    notes and senior subordinated notes
  3 4 1 4
  
    incur additional indebtedness;
    pay dividends on or make other distributions or repurchase our
    capital stock;
    make certain investments;
    enter into certain types of transactions with affiliates;
    use assets as security in other transactions; and
    sell certain assets or merge with or into other companies.   60




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##### Table of Contents



Covenant
    compliance
         61




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##### Table of Contents



For the YearEnded June 30,2008Net income

$
64.7Interest expense, net


157.7Provision for income taxes


41.1Depreciation and amortization(1)


100.3EBITDA


363.8Reversal of impact of unfavorable lease liabilities(2)


(1.5
)Advisory and transaction costs(3)


5.0Severance and relocation


3.7Capital taxes


1.2Other


1.7Adjusted EBITDA  Covenant Compliance

$
373.9     (1)
    
    Depreciation and amortization includes non-cash charges related
    to fixed asset impairments of $5.5 million.(2)
    
    Represents non-cash reduction to rent expense due to the
    amortization on $7.3 million of unfavorable lease
    liabilities resulting from fair value adjustments required under
    SFAS No. 141 as part of the Transaction.(3)
    
    Represents $5.0 million of advisory fees per annum incurred
    under a management advisory agreement with the Sponsors along
    with legal and professional services costs as a result of the
    Transaction.    Covenant


ActualRequirements


RatiosSenior secured credit facilitiesMinimum Adjusted EBITDA to Consolidated Interest Expense ratio


1.55x



2.40xMaximum Consolidated Total Debt to Adjusted EBITDA ratio


7.25x



4.78x   Regulations
     62




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##### Table of Contents



Use of
    Estimates and Critical Accounting Policies
  General
  10-K.
    Revenue
    Recognition and Receivables
     63




---



##### Table of Contents



case-by-case
  Impairment
    of Property, Equipment and Finite-Lived Intangible
    Assets
    Impairment
    of Goodwill and Indefinite-Lived Intangible Assets
     64




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##### Table of Contents



Income
    Taxes
      Share-Based
    Payment
   65




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##### Table of Contents



Valuation of
    Privately-Held-Company Equity Securities Issued as
    Compensation
  (i)
    Income
    method (DCF)    (ii)
    Guideline
    Public Company method    (iii)
    Guideline
    Transactions method   66




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##### Table of Contents




    the nature, history and growth opportunities of our business;
    the outlook for the general economy and for our industry;
    the book value of the securities and our financial condition;
    the historical trend of earnings and the future earnings and
    dividend-paying potential;
    market valuations of our publicly traded competitors, with
    particular attention given to the ratio of price to sales,
    equity and earnings; and
    the risk involved in the investment, as related to earnings
    stability, capital structure, competition and market potential.  Long-Term
    Incentive Compensation Plan
    New
    Accounting Standards
        ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   67




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##### Table of Contents



68




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##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Report of Independent Registered Public
    Accounting Firm


70Consolidated Balance Sheets


71Consolidated Statements of Operations


72Consolidated Statements of Cash Flows


73Consolidated Statements of Members
    Equity


75Notes to Consolidated Financial Statements


76Schedule II  Valuation and
    Qualifying Accounts


109Supplemental Quarterly Information


110  69




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm  
            70




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Dollars in thousands)
  June 30,


June 30,2008


2007ASSETSCurrent assets:Cash and cash equivalents

$
236,027


$
250,723Restricted cash


13,822



10,308Total cash, cash equivalents and restricted cash


249,849



261,031Receivables, net of allowances of $52,270 and $38,002


86,580



69,940Notes, advances and other


11,339



8,687Inventories


8,490



6,969Deferred income taxes


25,352



15,320Other current assets


37,328



26,421Total current assets


418,938



388,368Property and equipment, net


504,560



416,394Other long-term assets


61,351



68,625Intangible assets, net


483,853



499,567Goodwill


2,585,581



2,576,055Total assets

$
4,054,283


$
3,949,009LIABILITIES AND MEMBERS EQUITYCurrent liabilities:Current portion of long-term debt

$
12,862


$
38,121Revolver


120,000



90,000Accounts payable


57,430



50,419Accrued liabilities


128,398



112,792Accrued income taxes


11,522



9,430Unearned tuition


69,154



51,952Advance payments


60,679



78,337Total current liabilities


460,045



431,051Long-term debt, less current portion


1,888,583



1,901,858Deferred income taxes


186,518



216,276Deferred rent


96,449



80,166Other long-term liabilities


71,473



8,585Members equity:Capital contribution from Education Management Holdings LLC


1,300,000



1,300,000Accumulated earnings


75,900



12,534Accumulated other comprehensive loss


(24,685
)


(1,461
)Total members equity


1,351,215



1,311,073Total liabilities and members equity

$
4,054,283


$
3,949,009    71




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(Dollars in thousands)
  Successor



PredecessorPeriod from



Period fromFor the Fiscal


For the Fiscal


June 1, 2006



July 1, 2005Year Ended


Year Ended


through



throughJune 30, 2008


June 30, 2007


June 30, 2006



May 31, 2006Net revenues

$
1,684,158


$
1,363,690


$
74,397



$
1,095,763Costs and expenses:Educational services


901,054



729,883



59,007




590,878General and administrative


419,259



314,868



25,967




273,330Depreciation and amortization


100,272



90,565



7,385




62,896Total costs and expenses


1,420,585



1,135,316



92,359




927,104Income (loss) before interest and income taxes


263,573



228,374



(17,962
)



168,659Interest expense (income), net


157,724



169,053



14,106




(5,350
)Income (loss) before income taxes


105,849



59,321



(32,068
)



174,009Provision for (benefit from) income taxes


41,144



27,128



(12,409
)



73,603Net income (loss)

$
64,705


$
32,193


$
(19,659
)


$
100,406    72




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
    (Dollars in thousands)
  Successor



PredecessorFor the


For the


Period from



Period fromFiscal Year


Fiscal Year


June 1, 2006



July 1, 2005Ended


Ended


through



throughJune 30, 2008


June 30, 2007


June 30, 2006



May 31, 2006Cash flows from operating activities:Net income (loss)

$
64,705


$
32,193


$
(19,659
)


$
100,406Adjustments to reconcile net income (loss) to net cash flows
    from operating activities:Depreciation and amortization on property and equipment


80,848



71,258



5,676




58,936Reimbursements for tenant improvements


4,400



6,568








1,353Amortization of intangibles


19,424



19,307



1,709




3,960Amortization of debt issuance costs


7,690



7,662








Non-cash adjustments to deferred rent


(2,620
)


(898
)


(407
)



(2,127
)Excess tax benefits from share based payments















(5,462
)Stock-based compensation















32,219Deferred income taxes


(20,609
)


2,868



1,199




(8,423
)Changes in assets and liabilities:Restricted cash


(3,514
)


(272
)


(5,293
)



149Receivables


(16,625
)


(18,965
)


14,675




(12,993
)Inventories


(1,502
)


(784
)


(363
)



(182
)Other assets


(7,370
)


1,622



(3,589
)



(3,008
)Accounts payable


6,025



4,856



(1,533
)



8,782Accrued liabilities


21,059



72,338



(26,965
)



77,286Unearned tuition


17,202



14,060



(52,348
)



59,440Advance payments


(17,816
)


(32,403
)


64,539




(8,672
)Total adjustments


86,592



147,217



(2,700
)



201,258Net cash flows provided by (used in) operating activities


151,297



179,410



(22,359
)



301,664Cash flows from investing activities:Acquisition of Predecessor, net of cash acquired










(3,526,171
)



Acquisition of subsidiaries, net of cash acquired


(1,947
)


(8,543
)







(1,333
)Expenditures for long-lived assets


(150,908
)


(96,057
)


(7,664
)



(57,932
)Reimbursements for tenant improvements


(4,400
)


(6,568
)







(1,353
)Investment in marketable securities






(344,885
)







(832,221
)Redemption of marketable securities






344,885








832,221Other items, net






387



(233
)



4,203Net cash flows used in investing activities


(157,255
)


(110,781
)


(3,534,068
)



(56,415
)Cash flows from financing activities:Borrowings under revolving credit facility


120,000



90,000



210,000




Payments on revolving credit facility


(90,000
)


(160,000
)


(50,000
)



(62,000
)Payments of debt


(38,534
)


(9,986
)


(91
)



(3,603
)Excess tax benefits from share based payments















5,462Debt issuance costs






(833
)


(59,574
)



Borrowings for the acquisition of Predecessor










1,945,000




Capital contribution from Education Management Holdings LLC










1,300,000




Net proceeds received from stock option and award plans










100,186




16,450Other















530Net cash flows provided by (used in) financing activities


(8,534
)


(80,819
)


3,445,521




(43,161
)Effect of exchange rate changes on cash and cash
    equivalents


(204
)


(383
)


124




16Net change in cash and cash equivalents


(14,696
)


(12,573
)


(110,782
)



202,104Cash and cash equivalents, beginning of period


250,723



263,296



374,078




171,974Cash and cash equivalents, end of period

$
236,027


$
250,723


$
263,296



$
374,078    73




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
    (Dollars in thousands)
  Successor


Successor


Successor



PredecessorFor the


For the


Period from



Period fromFiscal Year


Fiscal Year


June 1, 2006



July 1, 2005Ended


Ended


through



throughJune 30, 2008


June 30, 2007


June 30, 2006



May 31, 2006Cash paid (received) during the period for:Interest (including swap settlement)

$
173,297


$
152,963


$
175



$
674Income taxes, net of refunds


48,179



(19,371
)


1,001




41,037Noncash investing and financing activities:Expenditures in accounts payble and accrued liabilities at end
    of period for property and equipment

$
31,230


$
21,279


$
10,772



$
8,165Tax benefit for options exercised















5,462Proceeds from stock option and award plans:Issuance of shares and stock options exercised

$



$



$
100,186



$
21,912    74




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF MEMBERS
    EQUITY
    (Dollars in thousands)
  Retained


AccumulatedCommon


Additional





Earnings


OtherStock at


Paid-in


Treasury


(Accumulated


Comprehensivepar Value


Capital


Stock


Deficit)


Income (Loss)(a)


TotalPredecessorBalance, June 30, 2005


751



328,972



(1,791
)


331,956



6,122



666,010Comprehensive income:Net income














100,406







100,406Foreign currency translation


















2,348



2,348Comprehensive income






















102,754Shares exchanged under stock based plan










(351
)










(351
)Issuance of restricted stock






942















942Restricted stock expense






17,176















17,176Stock option expense






14,080















14,080Exercise of stock options


8



15,338















15,346Tax effect on stock compensation






5,463















5,463Stock issued under employee stock purchase plan


1



1,985















1,986Balance, May 31, 2006

$
760


$
383,956


$
(2,142
)

$
432,362


$
8,470


$
823,406SuccessorCapital contribution from Education Management Holdings LLC

$



$
1,300,000


$



$



$



$
1,300,000Comprehensive loss:Net loss














(19,659
)






(19,659
)Foreign currency translation


















(66
)


(66
)Unrealized gain on interest rate swaps, net of tax of $1,940


















2,484



2,484Comprehensive loss






















(17,241
)Balance, June 30, 2006






1,300,000







(19,659
)


2,418



1,282,759Comprehensive income:Net income














32,193







32,193Foreign currency translation


















(334
)


(334
)Unrealized loss on interest rate swaps, net of tax of $2,772


















(3,545
)


(3,545
)Comprehensive income






















28,314Balance, June 30, 2007

$



$
1,300,000


$



$
12,534


$
(1,461
)

$
1,311,073Comprehensive income:Net income














64,705







64,705Foreign currency translation


















68



68Unrealized loss on interest rate swaps, net of tax of $13,609


















(23,292
)


(23,292
)Comprehensive income






















41,481Cumulative effect of adoption of FASB Interpretation No. 48
    (Note 11)














(1,339
)






(1,339
)Balance, June 30, 2008

$



$
1,300,000


$



$
75,900


$
(24,685
)

$
1,351,215     (a)
    
    The balance in accumulated other comprehensive income at
    June 30, 2008 and 2007 is comprised of $0.3 million
    and $0.4 million of cumulative foreign currency translation
    losses and $24.4 million and $1.1 million of
    unrealized net losses on interest rate swaps, net of tax.   75




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS
  1.
    DESCRIPTION
    OF BUSINESS, GOVERNANCE AND CHANGE IN OWNERSHIP  Description
    of Business
    Change
    in Ownership
        Government
    Regulations
   76




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Basis
    of Consolidation
    Use of
    Estimates
    Cash
    and Cash Equivalents and Restricted Cash
          Allowances
    for Doubtful Accounts
   77




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  case-by-case
  Inventories
  first-in,
  Property
    and Equipment
      
    Buildings are depreciated over an estimated useful life of
    30 years using the straight-line method.
    Leasehold improvements and capitalized lease costs are amortized
    using the straight-line method over the shorter of the original
    lease term, exclusive of any renewal periods, or their estimated
    useful lives, which is generally 7 to 15 years.
    The remainder of the Companys property and equipment are
    depreciated over estimated useful lives ranging from 3 to
    7 years using the straight-line method.    Leases
       78




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Goodwill
    and Other Identifiable Intangible Assets
          Income
    Taxes
     79




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Derivative
    Financial Instruments
    Foreign
    Currency Translation
    Revenue
    Recognition
         80




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Costs
    and Expenses
        Share-Based
    Payment
      Segment
    Reporting
   81




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Contingencies
    Recently
    Issued Accounting Standards
        3.
    BUSINESS
    COMBINATIONS  Acquisition
    of Tucson entities
    The
    Transaction
   82




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Sources
    and Uses:
    Sources of Funds:Revolving credit facility

$
50,000Cash and cash equivalents from Predecessor(1)


374,078Senior secured term loan facilities, due 2013 at 7.63%


1,185,000Senior notes due 2014 at 8.75%


375,000Senior subordinated notes due 2016 at 10.25%


385,000Equity contribution by Sponsors and other investors


1,300,000Total sources of funds

$
3,669,078   Uses of Funds:Equity purchase price(2)

$
3,380,598Cash and cash equivalents to Successor(1)


147,750Debt issuance costs


59,574Transaction costs in purchase price(3)


45,387Transaction costs incurred by Predecessor(4)


30,279Prepaid advisory fees


2,932Other


2,558Total uses of funds

$
3,669,078     (1)
    
    Excludes restricted cash.(2)
    
    The holders of outstanding shares of common stock were paid
    $43.00 in cash per share, in connection with the Transaction.
    There were no outstanding shares of preferred stock at the date
    of the Transaction. The equity purchase price is reduced by the
    stock option proceeds of $100.2 million.(3)
    
    Represents fees and expenses associated with the Transaction
    paid by the Successor including accounting, legal and investment
    banking fees and transaction fees paid to affiliates of the
    Sponsors, as well as other transaction costs and professional
    fees.(4)
    
    Represents fees and expenses associated with the Transaction
    paid by the Predecessor, including investment banking, legal and
    other professional fees.  Purchase
    Price Allocation:
     83




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Property and equipment

$
368,665Other long-term assets


17,202Intangible assets


518,666Goodwill


2,568,034Net current assets acquired


340,179Deferred income tax liabilities


(217,625
)Deferred rent and other long-term liabilities


(63,895
)Debt assumed


(5,055
)Total purchase price allocation

$
3,526,171     Weighted-AverageAsset Class

FMV


Life(In thousands)Property and Equipment:Land

$
17,805



IndefiniteBuildings and improvements


71,880



26.6Leasehold improvements and capitalized lease costs


145,362



10.3Furniture and equipment


44,173



3.2Technology and other equipment


64,170



3.1Software


13,033



5.1Library books


12,242



3.4Total

$
368,665Intangible Assets:Tradename-Art Institutes

$
330,000



IndefiniteLicensing, accreditation & Title IV program
    participation


114,000



IndefiniteStudent relationships


39,000



4.5Favorable leases


16,235



6.0Programs


10,000



6.4Online curriculum


6,431



3.3Tradename-Argosy University


3,000



9.0Total

$
518,666  84




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Unaudited
    pro forma financial information:
    Year Ended June 30,2006(In thousands)Net revenues

$
1,170,160Net loss


(33,396
)   Transaction
    Costs incurred by Predecessor:
    4.
    OTHER
    CURRENT ASSETS    2008


2007Tenant improvement receivables

$
21,607


$
14,769Prepaid rent


1,358



1,687Prepaid advisory fees


2,500



2,521Prepaid software licenses


1,386



1,409Prepaid insurance


1,337



1,633Prepaid service contracts


3,848



980Other


5,292



3,422Total other current assets

$
37,328


$
26,421  85




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  5.
    PROPERTY
    AND EQUIPMENT    Asset Class

2008


2007Land

$
17,805


$
17,805Buildings and improvements


73,428



72,847Leasehold improvements and capitalized lease costs


291,132



206,696Furniture and equipment


85,868



63,176Technology and other equipment


134,667



94,198Software


32,768



19,835Library books


24,348



18,005Total


660,016



492,562Less accumulated depreciation


155,456



76,168Property and equipment, net

$
504,560


$
416,394     6.
    GOODWILL
    AND INTANGIBLE ASSETS    Balance at June 30, 2006

$
2,568,034Additional goodwill from acquisitions of schools


8,246Additional adjustments to fair value subsequent to Transaction


(225
)Balance at June 30, 2007

$
2,576,055Adoption of FIN 48


9,441Other adjustments, net


85Balance at June 30, 2008

$
2,585,581  86




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007Gross





GrossCarrying


Accumulated


Carrying


AccumulatedAsset Class

Amount


Amortization


Amount


AmortizationTradename-Art Institutes

$
330,000


$



$
330,000


$
Tradename-Argosy University


3,000



(694
)


3,000



(361
)Licensing, accreditation and Title IV program participation


112,179







112,179



Curriculum and programs


23,200



(8,989
)


19,507



(4,835
)Student contracts, applications & relationships


39,511



(23,325
)


39,511



(11,856
)Favorable leases and other


16,409



(7,438
)


16,391



(3,969
)Total intangible assets

$
524,299



(40,446
)

$
520,588


$
(21,021
)         AmortizationFiscal Years

Expense2009

$
16,7072010


7,4242011


6,0912012


5,0262013


2,679Thereafter


3,747   7.
    ACCRUED
    LIABILITIES    2008


2007Payroll and related taxes

$
58,720


$
47,533Capital expenditures


18,359



9,377Advertising


11,770



7,397Interest


11,084



27,987Benefits


4,857



2,946Other


23,608



17,552Total accrued liabilities

$
128,398


$
112,792  87




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  8.
    SHORT
    TERM AND LONG TERM DEBT    Short-Term
    Debt:
    Long-Term
    Debt:
    2008


2007Senior secured term loan facility, due 2013

$
1,138,677


$
1,176,113Senior notes due 2014 at 8.75%


375,000



375,000Senior subordinated notes due 2016 at 10.25%


385,000



385,000Capital leases


1,364



2,244Mortgage debt of consolidated entities


1,404



1,622Total long term debt


1,901,445



1,939,979Less current portion


12,862



38,121Total long term debt, less current portion

$
1,888,583


$
1,901,858   Senior
    Secured Credit Facility
  1 2
   88




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  96-19
          Senior
    Notes Due 2014 and Senior Subordinated Notes Due
    2016
         89




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Other
    indebtedness
        Fiscal Year:2009


12,8642010


12,6102011


12,1202012


9,1502013


1,094,524Thereafter


760,177Total

$
1,901,445   9.
    DERIVATIVE
    INSTRUMENTS   90




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    10.
    FAIR
    VALUE OF FINANCIAL INSTRUMENTS    2008


2007Carrying


Fair


Carrying


FairValue


Value


Value


ValueFair value of interest rate swaps

$
38,916


$
38,916


$
1,890


$
1,890Variable rate debt

$
1,138,677


$
1,058,970


$
1,176,113


$
1,163,045Fixed rate debt

$
762,768


$
710,555


$
763,866


$
785,804     11.
    INCOME
    TAXES    Successor



PredecessorPeriod from



Period fromFor the Fiscal


For the Fiscal


June 1, 2006



July 1, 2005Year Ended


Year Ended


through



throughJune 30,


June 30,


June 30,



May 31,2008


2007


2006



2006Income (loss) before taxes:Domestic

$
103,801


$
57,283


$
(34,170
)


$
169,759Foreign


2,048



2,038



2,102




4,250$
105,849


$
59,321


$
(32,068
)


$
174,009  91




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Successor



PredecessorPeriod from



Period fromFor the Fiscal


For the Fiscal


June 1, 2006



July 1, 2005Year Ended


Year Ended


through



throughJune 30,


June 30,


June 30,



May 31,2008


2007


2006



2006Current taxes (benefit):Federal

$
51,406


$
16,741


$
(10,211
)


$
67,823State and local


10,347



7,519



(3,397
)



14,203Tax benefit of stock options










(39,656
)



(5,000
)Total current tax provision (benefit)


61,753



24,260



(53,264
)



77,026Deferred tax provision (benefit)


(20,609
)


2,868



1,199




(8,423
)Tax benefit of stock options










39,656




5,000Total provision (benefit) for income taxes

$
41,144


$
27,128


$
(12,409
)


$
73,603     Successor



PredecessorPeriod from



Period fromFor the Fiscal


For the Fiscal


June 1, 2006



July 1, 2005Year Ended


Year Ended


through



throughJune 30,


June 30,


June 30,



May 31,2008


2007


2006



2006U.S. Federal statutory income tax rate


35.0
%


35.0
%


35.0
%



35.0
%State and local income taxes, net of U.S. federal income tax
    benefit


3.1
%


5.7
%


16.2
%



7.1
%Increase (decrease) in valuation allowance


1.4
%


9.4
%


(10.3
)%



3.4
%Permanent items


(1.3
)%


(3.1
)%


(2.1
)%



2.3
%Stock options


0.0
%


0.0
%


0.0
%



(5.5
)%Effect of FIN 48


1.5
%


0.0
%


0.0
%



0.0
%Other, net


(0.8
)%


(1.3
)%


(0.1
)%



0.0
%Effective income tax rate


38.9
%


45.7
%


38.7
%



42.3
%  92




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007Current deferred tax assets:Allowance for doubtful accounts

$
20,938


$
15,005Accrued wages


4,942



Other


1,652



1,101Gross current deferred tax assets


27,532



16,106Less valuation allowance


(2,180
)


(786
)Total current deferred tax assets

$
25,352


$
15,320Noncurrent deferred tax assets:Interest rate swap

$
16,965


$
827Deferred liabilities


11,089



9,167Foreign and state net operating losses


11,635



14,013Other


8,838



1,209Gross noncurrent deferred tax assets


48,527



25,216Less valuation allowance


(20,297
)


(18,333
)Total noncurrent deferred tax assets

$
28,230


$
6,883Noncurrent deferred tax liabilities:Intangibles

$
210,845


$
213,044Other


3,903



10,115Total noncurrent deferred tax liabilities

$
214,748


$
223,159Total net noncurrent deferred tax liabilities

$
186,518


$
216,276        93




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Unrecognized tax benefits at July 1, 2007





$
27,245Increase in prior year unrecognized tax benefits






762(Decrease) in prior year unrecognized tax benefits






(3,031
)Increase in current year unrecognized tax benefits






92(Decrease) in unrecognized tax benefits due to settlement






(Decrease) in unrecognized tax benefits due to the expiration of
    statutes of limitation






(1,825
)Unrecognized tax benefits at June 30, 2008





$
23,243          94




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  12.
    SHARE-BASED
    PAYMENT  Successor
  2006
    Stock Option Plan
            2008


2007Weighted average fair value of options

$
43.80


$
28.55Expected dividend yield


0.0
%


0.0
%Expected volatility


42.8
%


39.9
%Risk-free interest rate


3.6
%


4.6
%Expected forfeiture rate


12.4
%


12.4
%Expected term


6.5 years



6.5 years  95




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedWeighted


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicOptions


Price


Term (yrs)


Value(In thousands)Outstanding at June 30, 2007


902,260


$
52.23Granted


37,790


$
90.61Exercised






Forfeited


(65,492
)

$
50.44Outstanding at June 30, 2008


874,558


$
54.05



8.5


$
36,683Exercisable at June 30, 2008


284,538


$
51.43



8.3


$
12,683     2008


2007Weighted average fair value of options

$
22.81


$
10.27Expected dividend yield


0.0
%


0.0
%Expected volatility


39.5
%


37.2
%Risk-free interest rate


3.2
%


4.5
%Expected forfeiture rate


12.4
%


12.4
%Expected term


3.2 years



3.8 years     WeightedWeighted


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicOptions


Price


Term (yrs)


Value(In thousands)Outstanding at June 30, 2007


877,261


$
52.23Granted


37,790


$
90.61Exercised






Forfeited


(65,492
)

$
50.44Outstanding at June 30, 2008


849,559


$
54.03



8.5


$
35,658Exercisable at June 30, 2008














      96




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Long Term
    Incentive Compensation Plan
    Predecessor:
    11-month
   97




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Eleven MonthsEnded May 31,2006Risk-free interest rate


3.94
%Expected dividend yield


Expected life of options (years)


4.5Expected volatility rate


30.90
%       Period fromJuly 1, 2005throughMay 31, 2006WeightedAverageExerciseOptions


PriceOutstanding, beginning of period


5,318,964


$
22.28Granted


32,575



32.16Exercised


807,113



18.44Forfeited


153,602



29.20Outstanding, end of period


4,390,824


$
22.82Exercisable, end of period


4,390,824       11-month
 98




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    13.
    OTHER
    EMPLOYEE BENEFIT PLANS    14.
    COMMITMENTS
    AND CONTINGENCIES      2009

$
118,0182010


97,4352011


85,5082012


80,3802013


78,372Thereafter


261,167720,880        99




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        15.
    RELATED
    PARTY TRANSACTIONS        non-employee
    16.
    GUARANTOR
    SUBSIDIARIES FINANCIAL INFORMATION   100




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Non-Guarantors one-month
  CONDENSED
    CONSOLIDATING BALANCE SHEET (Successor)
    June 30, 2008 (In thousands)
  Guarantor


Non-GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedAssetsCurrent:Cash and cash equivalents

$
2,314


$
135


$
233,578


$



$
236,027Restricted cash


500







13,322







13,822Notes, advances and trade receivables, net


238



62



97,619







97,919Inventories










8,490







8,490Other current assets


13,623



700



48,357







62,680Total current assets


16,675



897



401,366







418,938Property and equipment, net


43,057



5,637



455,866







504,560Intangible assets, net


535



67



483,251







483,853Goodwill


9,447







2,576,134







2,585,581Intercompany balances


2,009,299



(13,911
)


(1,995,388
)






Other long term assets


65,401







(4,050
)






61,351Investment in subsidiaries


1,389,606











(1,389,606
)


Total assets

$
3,534,020



(7,310
)

$
1,917,179


$
(1,389,606
)

$
4,054,283Liabilities and members equity (deficit)Current:Short term and current portion of long-term debt

$
131,911


$
1


$
950


$



$
132,862Accounts payable, accrued and other current liabilities


88,951



4,016



234,216







327,183Total current liabilities


220,862



4,017



235,166







460,045Long-term debt, less current portion


1,886,795







1,788







1,888,583Other long term liabilities


75,148



44



92,730







167,922Deferred income taxes






72



186,446







186,518Total liabilities


2,182,805



4,133



516,130







2,703,068Total members equity (deficit)


1,351,215



(11,443
)


1,401,049



(1,389,606
)


1,351,215Total liabilities and members equity (deficit)

$
3,534,020


$
(7,310
)

$
1,917,179


$
(1,389,606
)

$
4,054,283  101




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    BALANCE SHEET (Successor)
    June 30, 2007 (In thousands)
  Guarantor


Non-GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedAssetsCurrent:Cash and cash equivalents

$
57,943


$
124


$
192,656


$



$
250,723Restricted cash


2,046







8,262







10,308Notes, advances and trade receivables, net


3,217



59



75,351







78,627Inventories










6,969







6,969Other current assets


8,747



184



32,810







41,741Total current assets


71,953



367



316,048







388,368Property and equipment, net


31,286



5,300



379,808







416,394Intangible assets, net


716



74



498,777







499,567Goodwill










2,576,055







2,576,055Intercompany balances


2,055,775



(11,586
)


(2,044,189
)






Other long term assets


63,969







4,656







68,625Investment in subsidiaries


1,230,503











(1,230,503
)


Total assets

$
3,454,202


$
(5,845
)

$
1,731,155


$
(1,230,503
)

$
3,949,009Liabilities and members equity (deficit)Current:Short term and current portion of long- term debt

$
127,216


$
6


$
899


$



$
128,121Accounts payable, accrued and other current liabilities


97,442



3,002



202,486







302,930Total current liabilities


224,658



3,008



203,385







431,051Long-term debt, less current portion


1,898,950







2,908







1,901,858Other long term liabilities


10,353



42



78,356







88,751Deferred income taxes


9,168



66



207,042







216,276Total liabilities


2,143,129



3,116



491,691







2,637,936Total members equity (deficit)


1,311,073



(8,961
)


1,239,464



(1,230,503
)


1,311,073Total liabilities and members equity (deficit)

$
3,454,202


$
(5,845
)

$
1,731,155


$
(1,230,503
)

$
3,949,009  102




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENT OF OPERATIONS (Successor)
    For the fiscal year ended June 30, 2008 (In
    thousands)
  Guarantor


Non-GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedNet revenues

$



$
10,850


$
1,673,308


$



$
1,684,158Costs and expenses:Educational services


28,529



8,192



864,333







901,054General and administrative


(36,958
)


6,719



449,498







419,259Depreciation and amortization


8,978







91,294







100,272Total costs and expenses


549



14,911



1,405,125







1,420,585Income (loss) before interest and income taxes


(549
)


(4,061
)


268,183







263,573Interest expense, net


153,874







3,850







157,724Equity in earnings of subsidiaries


(159,103
)










159,103



Income (loss) before income taxes


4,680



(4,061
)


264,333



(159,103
)


105,849Provision for (benefit from) income taxes


(60,025
)


(1,579
)


102,748







41,144Net income (loss)

$
64,705


$
(2,482
)

$
161,585


$
(159,103
)

$
64,705   CONSOLIDATING
    STATEMENTS OF OPERATIONS (Successor)
    For the fiscal year ended June 30, 2007 (In thousands)
  Guarantor


Non-GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedNet revenues

$
1


$
9,904


$
1,353,785


$



$
1,363,690Cost and expenses:Educational services


24,546



6,819



698,518







729,883General and administrative


(52,342
)


9,311



357,899







314,868Depreciation and amortization


7,308







83,257







90,565Total costs and expenses


(20,488
)


16,130



1,139,674







1,135,316Income (loss) before interest and income taxes


20,489



(6,226
)


214,111







228,374Interest expense, net


166,310



2



2,741







169,053Equity in earnings of subsidiaries


(125,372
)










125,372



Income (loss) before income taxes


(20,449
)


(6,228
)


211,370



(125,372
)


59,321Provision for (benefit from) income taxes


(52,642
)


(118
)


79,888







27,128Net income (loss)

$
32,193


$
(6,110
)

$
131,482


$
(125,372
)

$
32,193  103




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATING
    STATEMENTS OF OPERATIONS (Successor)
    For the one month ended June 30, 2006 (In
    thousands)
  Guarantor


Non-GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedNet revenues

$



$
1,673


$
72,724


$



$
74,397Cost and expenses:Educational services

$
4,152



33



54,822







59,007General and administrative


(57,471
)


1,815



81,623







25,967Depreciation and amortization


735







6,650







7,385Total costs and expenses


(52,584
)


1,848



143,095







92,359Income (loss) before interest and income taxes


52,584



(175
)


(70,371
)






(17,962
)Interest expense, net


13,883



1



222







14,106Equity in earnings of subsidiaries


45,308











(45,308
)


Income (loss) before income taxes


(6,607
)


(176
)


(70,593
)


45,308



(32,068
)Provision for (benefit from) income taxes


13,052



210



(25,671
)






(12,409
)Net income (loss)

$
(19,659
)

$
(386
)

$
(44,922
)

$
45,308


$
(19,659
)   CONSOLIDATING
    STATEMENTS OF OPERATIONS (Predecessor)
    For the period from July 1, 2005 to May 31, 2006 (In
    thousands)
  Guarantor


Non-GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedNet revenues

$
111


$
8,018


$
1,087,634


$



$
1,095,763Cost and expenses:Educational services

$
27,848



4,127



558,928







590,903General and administrative


(9,738
)


9,564



273,479







273,305Depreciation and amortization


5,191







57,705







62,896Total costs and expenses


23,301



13,691



890,112







927,104Income (loss) before interest and income taxes


(23,190
)


(5,673
)


197,522







168,659Interest (income) expense, net


(8,127
)


1



2,776







(5,350
)Equity in earnings of subsidiaries


(114,322
)










114,322



Income (loss) before income taxes


99,259



(5,674
)


194,746



(114,322
)


174,009Provision for (benefit from) income taxes


(1,147
)


(698
)


75,448







73,603Net income (loss)

$
100,406


$
(4,976
)

$
119,298


$
(114,322
)

$
100,406  104




---



##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOWS (Successor)
    For the fiscal year ended June 30, 2008 (In
    thousands)
  Guarantor


Non-GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedNet cash flows provided by (used in) operating activities

$
(49,045
)

$
(1,985
)

$
202,327


$



$
151,297Cash flows from investing activities Cash paid for
    property, equipment and curriculum development


(10,561
)


(824
)


(139,523
)






(150,908
)Acquisition of subsidiaries, net of cash acquired


(1,947
)














(1,947
)Other investing activities










(4,400
)






(4,400
)Net cash flows used in investing activities


(12,508
)


(824
)


(143,923
)






(157,255
)Cash flows from financing activitiesNet repayments of debt


(7,460
)


(5
)


(1,069
)






(8,534
)Intercompany transactions


13,384



2,825



(16,209
)






Net cash flows provided by (used in) financing activities


5,924



2,820



(17,278
)






(8,534
)Effect of exchange rate changes on cash and cash
    equivalents










(204
)






(204
)Increase (decrease) in cash and cash equivalents


(55,629
)


11



40,922







(14,696
)Beginning cash and cash equivalents


57,943



124



192,656







250,723Ending cash and cash equivalents

$
2,314


$
135


$
233,578


$



$
236,027  105




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOWS (Successor)
    For the fiscal year ended June 30, 2007 (In
    thousands)
  Guarantor


Non-GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedNet cash flows provided by (used in) operating activities

$
(13,354
)

$
(6,362
)

$
199,126


$



$
179,410Cash flows from investing activities Cash paid for
    property, equipment and curriculum development


(6,722
)


(525
)


(88,810
)






(96,057
)Acquisition of subsidiaries, net of cash acquired


(8,543
)














(8,543
)Other investing activities


(2,300
)






(3,881
)






(6,181
)Net cash flows used in investing activities


(17,565
)


(525
)


(92,691
)






(110,781
)Cash flows from financing activities Net repayments of
    debt


(78,911
)


(9
)


(1,066
)






(79,986
)Intercompany transactions


163,053



7,236



(170,289
)






Other financing activities


(298
)


(386
)


(149
)






(833
)Net cash flows provided by (used in) financing activities


83,844



6,841



(171,504
)






(80,819
)Effect of exchange rate changes on cash and cash
    equivalents










(383
)






(383
)Increase (decrease) in cash and cash equivalents


52,925



(46
)


(65,452
)






(12,573
)Beginning cash and cash equivalents


5,018



170



258,108







263,296Ending cash and cash equivalents

$
57,943


$
124


$
192,656


$



$
250,723  106




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOWS (Successor)
    For the one month ended June 30, 2006 (In
    thousands)
  Guarantor


Non-GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedNet cash flows provided by (used in) operating activities

$
(98,582
)

$
297


$
75,926


$



$
(22,359
)Cash flows from investing activitiesAcquisition of subsidiaries


(3,526,171
)














(3,526,171
)Cash paid for property, equipment and curriculum development


(1,434
)


(35
)


(6,195
)






(7,664
)Other investing activities










(233
)






(233
)Net cash flows used in investing activities


(3,527,605
)


(35
)


(6,428
)






(3,534,068
)Cash flows from financing activitiesNet borrowings (repayments) of debt


2,104,997



(1
)


(87
)






2,104,909Intercompany transactions


(55,839
)


(247
)


56,086







Transaction activities


1,300,000















1,300,000Other financing activities


40,612















40,612Net cash flows provided by (used in) financing activities


3,389,770



(248
)


55,999







3,445,521Effect of exchange rate changes on cash and cash
    equivalents










124







124Increase (decrease) in cash and cash equivalents


(236,417
)


14



125,621







(110,782
)Beginning cash and cash equivalents


241,435



156



132,487







374,078Ending cash and cash equivalents

$
5,018


$
170


$
258,108


$



$
263,296  107




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATING STATEMENTS OF CASH FLOWS (Predecessor)
    For the period from July 1, 2005 through May 31, 2006
    (In thousands)
  Guarantor


Non-GuarantorParent


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedNet cash flows provided by (used in) operating activities

$
52,382


$
(4,516
)

$
253,798


$



$
301,664Cash flows from investing activitiesAcquisition of subsidiaries


(1,333
)














(1,333
)Cash paid for property, equipment and curriculum development


(7,691
)


(1,159
)


(50,435
)






(59,285
)Other investing activities










4,203







4,203Net cash flows used in investing activities


(9,024
)


(1,159
)


(46,232
)






(56,415
)Cash flows from financing activities Net repayments of
    debt


(62,000
)






(3,603
)






(65,603
)Intercompany transactions


201,506



5,666



(207,172
)






Other financing activities


54,624



38



(32,220
)






22,442Net cash flows provided by (used in)  financing activities


194,130



5,704



(242,995
)






(43,161
)Effect of exchange rate changes on cash and cash
    equivalents










16







16Increase (decrease) in cash and cash equivalents


237,488



29



(35,413
)






202,104Beginning cash and cash equivalents


3,947



127



167,900







171,974Ending cash and cash equivalents

$
241,435


$
156


$
132,487


$



$
374,078  108




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##### Table of Contents



SCHEDULE II



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
    VALUATION AND QUALIFYING ACCOUNTS
    (Dollars in thousands)  Balance at


Additions





Balance atBeginning of


Charged to





End ofPeriod


Expenses


Deductions


PeriodAllowance accounts for:PredecessorPeriod from July 1, 2005 through May 31, 2006Uncollectable accounts receivable

$
32,824


$
21,721


$
15,328


$
39,217Estimated future loan losses


1,681











1,681Deferred tax asset valuation allowance


8,666







2,779



5,887SuccessorPeriod from June 1, 2006 through June 30, 2006Uncollectable accounts receivable

$
39,217


$
1,306


$
5,131


$
35,392Estimated future loan losses


1,681











1,681Deferred tax asset valuation allowance


10,006
(a)


1,620







11,626Year ended June 30, 2007Uncollectable accounts receivable

$
35,392


$
27,930


$
25,320


$
38,002Estimated future loan losses


1,681



38







1,719Deferred tax asset valuation allowance


11,626



7,493







19,119Year ended June 30, 2008Uncollectable accounts receivable

$
38,002


$
42,201


$
27,933


$
52,270Estimated future loan losses


1,719











1,719Deferred tax asset valuation allowance


19,119



3,358







22,477     (a)
    
    In conjunction with the Transaction, the Company recorded a
    $4.1 million valuation allowance against various deferred
    tax assets. 109




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##### Table of Contents



SUPPLEMENTAL
    QUARTERLY INFORMATION (Unaudited)      Predecessor



SuccessorPeriod from



Period fromQuarter


Quarter


Quarter


April 1



June 1Ended


Ended


Ended


through



throughSeptember 30


December 31


March 31


May 31



June 30Fiscal 2006Net revenues

$
252,985


$
312,611


$
312,533


$
217,634



$
74,397Income (loss) before interest and income taxes


20,655



77,852



64,624



5,528




(17,962
)Income (loss) before income taxes


21,359



79,296



66,800



6,554




(32,068
)Net income (loss)


13,952



47,629



40,358



(1,533
)



(19,659
)   Quarter EndedSuccessor

September 30


December 31


March 31


June 30Fiscal 2007Net revenues

$
290,515


$
358,786


$
366,721


$
347,668Income before interest and income taxes


28,089



84,477



74,271



41,537Income (loss) before income taxes


(15,900
)


41,377



32,779



1,065Net income (loss)


(9,747
)


25,364



17,615



(1,039
)   Quarter EndedSuccessor

September 30


December 31


March 31


June 30Fiscal 2008Net revenues

$
361,333


$
445,311


$
461,164


$
416,350Income before interest and income taxes


31,291



95,024



91,615



45,643Income (loss) before income taxes


(9,407
)


55,210



52,119



7,927Net income (loss)


(5,778
)


33,824



30,981



5,678   ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURES    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Disclosure
    Controls and Procedures
  Rule 13a-15(e) Form 10-K.
 110




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##### Table of Contents



Changes
    in Internal Controls Over Financial Reporting.
  Form 10-K
  ITEM 9B.
    OTHER
    INFORMATION   PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    Name

Age

PositionJohn R. McKernan, Jr.


60


Executive Chairman and Chairman of the Board of DirectorsTodd S. Nelson


49


Chief Executive Officer, President and DirectorRobert A. Carroll


43


Senior Vice President  Chief Information OfficerJoseph A. Charlson


38


Senior Vice President  Chief Marketing OfficerDanny Finuf


48


President, Brown Mackie CollegesJohn M. Mazzoni


45


President, The Art InstitutesStacey R. Sauchuk


48


Senior Vice President  Academic Programs and Student
    AffairsJohn T. South, III


61


Senior Vice President, Chancellor, South University and Chairman
    of the Board of Directors of Argosy UniversityCraig D. Swenson


56


President, Argosy UniversityRoberta L. Troike


42


Senior Vice President  Human ResourcesStephen J. Weiss


45


President, EDMC Online Higher EducationEdward H. West


42


Executive Vice President and Chief Financial OfficerAdrian M. Jones


44


DirectorJeffrey T. Leeds


52


DirectorLeo F. Mullin


65


DirectorPaul J. Salem


44


DirectorPeter O. Wilde


40


Director   John R. McKernan, Jr.
 111




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##### Table of Contents



Todd S. Nelson
  Robert A. Carroll
  Joseph A. Charlson
  Danny Finuf
  John M. Mazzoni
  Stacey R. Sauchuk
  John T. South, III,
  Craig D. Swenson
  Roberta L. Troike
 112




---



##### Table of Contents



Stephen J. Weiss
  Edward H. West
  Adrian M. Jones
  Jeffrey T. Leeds
  Leo F. Mullin
  Paul J. Salem
  Peter O. Wilde
     113




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##### Table of Contents



In re Apollo Group, Inc. Securities Litigation
  Leo F. Mullin,
  Code
    of Ethics
    Audit
    Committee
    ITEM 11.
    EXECUTIVE
    COMPENSATION  Compensation
    Discussion and Analysis
  Overview
    Compensation
    Objectives
    
    to provide competitive compensation packages to attract and
    retain superior executive talent;
    to reward successful performance by the executive and the
    Company by linking a significant portion of compensation to our
    financial and business results; and
    to further align the interests of executive officers with those
    of our shareholders by providing long-term equity compensation
    and meaningful equity ownership.     114




---



##### Table of Contents



Discussion
    of Specific Compensation Elements
  case-by-case
    Base
    Salary
      Cash
    Bonuses
   115




---



##### Table of Contents




    For education systems other than Argosy University, achievement
    of a specified undergraduate student placement rate and average
    starting salary for placed students; and
    For Argosy University employees, receipt from HLC of
    reaccreditation for a minimum of a five year period with no
    prohibitions on the formation of new campuses or introduction of
    new programs.      Financial Measures

Above Plan

Below PlanRevenue

4% increase for each 1% above plan

1% reduction for the first 1% below plan, 2% for the next 1%
    below plan, 3% for the next 1% below plan and 4% for every
    percent below plan thereafter.EBITDA

4% increase for each 1% above plan

1% reduction for the first 1% below plan, 2% for the next 1%
    below plan, 3% for the next 1% below plan and 4% for every
    percent below plan thereafter.Capital Expenditures

1% increase for each 1% above plan

1% reduction for the first 1% below plan, 2% for the next 1%
    below plan, 3% for the next 1% below plan and 4% for every
    percent below plan thereafter.Key Performance
    Objectives

4% increase for each 1% above plan

4% reduction for each 1% below plan      116




---



##### Table of Contents



Long-Term
    Incentive Plans
    2006 Stock Option Plan.
   117




---



##### Table of Contents



LTIC Plan.
  Benefits
    and Perquisites
   118




---



##### Table of Contents



gross-ups
  Compensation
    Committee Interlocks and Insider Participation
    Compensation
    Committee Report
  Form 10-K.
            SUMMARY
    COMPENSATION TABLE
    Change inPensionValue andNon-Equity


Non-QualifiedOption


Incentive


DeferredFiscal








Stock


Award


Plan


Compensation


All OtherYear


Salary


Bonus(7)


Award


(s)(1)


Payments


Earnings


Compensation


TotalJohn R. McKernan, Jr.


2008


$
463,472


$
136,639










$
683,197






$
69,560
(2)

$
1,352,868Executive Chairman


2007



553,466



157,059











785,297







60,254



1,556,076Todd S. Nelson


2008



568,192



170,799











853,996







82,794
(3)


1,675,781President and Chief Executive


2007



177,692



65,442











327,208







31,838



602,180OfficerEdward H. West


2008



464,192



139,745











698,724







108,909
(4)


1,411,570Chief Financial Officer


2007



450,000



128,503











642,516







56,970



1,277,989John M. Mazzoni


2008



309,462



72,878











364,092







30,896
(5)


777,328President, The Art Institutes


2007



297,061



60,507











302,535







25,173



685,276Stephen J. Weiss


2008



308,262



67,220











336,102







34,944
(6)


746,528President, EDMC Online


2007



294,185



33,807











416,193







20,201



764,386Higher Education     (1)
    
    The Company did not record any expense for options under
    SFAS No. 123R during fiscal 2008, due to restrictions
    on option holders ability to receive value on their stock
    option grants until certain performance conditions are achieved.
    If we had recorded option expense under SFAS No. 123R,
    we would have recorded 119




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##### Table of Contents



expense for the time-vested options of $918,732 for
    Mr. McKernan, $1,834,621 for Mr. Nelson, $442,778 for
    Mr. West, $221,154 for Mr. Mazzoni and $294,984 for
    Mr. Weiss. A description of the Companys analysis of
    SFAS No. 123R expense is set forth in Note 12 to
    the accompanying audited consolidated financial statements.(2)
    
    Represents the Companys match to Mr. McKernans
    401(k) contribution ($8,182), the amount paid to the
    Companys Deferred Compensation Plan on
    Mr. McKernans behalf due to a limitation on the
    Companys match to the 401(k) plan under Internal Revenue
    Code limitations ($57,355), compensation for declining the
    Companys health insurance benefit program and the dollar
    value of life insurance premiums we paid with respect to term
    life insurance for the benefit of Mr. McKernan.(3)
    
    Represents the reimbursement for housing in Pittsburgh,
    Pennsylvania, reimbursement for travel to and from Pittsburgh,
    Pennsylvania ($40,994) and a tax
    gross-up
    payment for the housing and travel reimbursements ($38,290)
    along with the dollar value of life insurance premiums we paid
    with respect to term life insurance for the benefit of
    Mr. Nelson.(4)
    
    Represents a
    tax-gross up
    payment for relocation expenses ($47,814), expense reimbursement
    and a related
    tax-gross-up
    ($5,095), the Companys match to Mr. Wests
    401(k) contribution ($10,405), the amount paid to the
    Companys Deferred Compensation Plan on
    Mr. Wests behalf due to a limitation on the
    Companys match to the 401(k) plan under Internal Revenue
    Code limitations ($45,055), and the dollar value of life
    insurance premiums we paid with respect to term life insurance
    for the benefit of Mr. West.(5)
    
    Represents the Companys match to Mr. Mazzonis
    401(k) contribution ($10,054), the amount paid to the
    Companys Deferred Compensation Plan on
    Mr. Mazzonis behalf due to a limitation on the
    Companys match to the 401(k) plan under Internal Revenue
    Code limitations ($20,167), and the dollar value of life
    insurance premiums we paid with respect to term life insurance
    for the benefit of Mr. Mazzoni.(6)
    
    Includes the Companys match to Mr. Weiss 401(k)
    contribution ($10,358), the amount paid to the Companys
    Deferred Compensation Plan on Mr. Weisss behalf due
    to a limitation on the Companys match to the 401(k) plan
    under Internal Revenue Code limitations ($23,912), and the
    dollar value of life insurance premiums we paid with respect to
    term life insurance for the benefit of Mr. Weiss.(7)
    
    Amounts in this column represent discretionary bonuses paid
    under the MICP.  GRANTS OF
    PLAN-BASED AWARDS
    Employment
    Agreements
    McKernan Employment Agreement.
 120




---



##### Table of Contents



Nelson Employment Agreement.
       121




---



##### Table of Contents



West Employment Agreement.
       122




---



##### Table of Contents



Other Executive Employment Agreements.
  
    A three-year term commencing December 7, 2006, with
    one-year automatic renewals unless terminated on 180 days
    advance notice, provided that if we terminate the agreement
    effective upon expiration of the term with timely notice to
    executive, and the executive elects to terminate his employment
    within 30 days after the end of the term, then such
    termination will be treated as a termination without cause under
    the employment agreement;
    An annual base salary which is reviewed annually and may be
    adjusted upward by the Board of Directors, plus a target bonus
    based on a percentage of the executives annual salary;
    Employee benefits under the various benefit plans and programs
    we maintain for our employees;
    Participation in the EDMC stock option plan;
    Monthly salary and bonus payments for 12 months
    (18 months in the case of Mr. Weiss) upon a
    termination without cause or a resignation for
    good reason, provided that the period of monthly
    payments increases to two years if the termination without cause
    or resignation for good reason if the date of termination is in
    anticipation of or within two years following a change of
    control, as defined in the 2006 Stock Option Plan;
    Cause means (i) the individuals willful and continued
    failure to use his best efforts to perform his reasonably
    assigned duties (other than on account of disability);
    (ii) the individual is indicted for, convicted of, or
    enters a plea of guilty or nolo contendere to, (x) a felony
    or (y) a misdemeanor involving moral turpitude;
    (iii) the individual engages in (x) gross negligence
    causing material harm to us or our business or reputation,
    (y) willful and material misconduct or (z) willful and
    material breach of fiduciary duty; or (iv) the individual
    willfully and materially breaches (x) the restrictive
    covenants described in his respective agreement or
    (y) certain material written policies, as in effect on the
    Effective Date;
    Good reason means the occurrence of any of the following events
    without either the individuals prior written consent or
    full cure within 30 days after he gives written notice to
    us describing the event and requesting cure: (i) the
    reassignment to the individual to a position that is not a
    corporate officer level position or the assignment to the
    individual of duties that are not consistent with such corporate
    officer level position; (ii) any relocation of the
    individuals principal place of employment; (iii) any
    material breach by us or any of our affiliates of any material
    obligation to the individual; or (iv) any failure of us to
    obtain the assumption in writing of its obligation to perform
    his respective agreement by any successor to all or
    substantially all of our assets within 15 days after any
    merger, consolidation, sale or similar transaction, except where
    such assumption occurs by operation of law;
    Noncompetition, confidentiality and nonsolicitation restrictive
    covenants for a period of 12 months after termination of
    employment;
    In the event of the executives disability, continuation of
    all compensation and benefits through the earlier to occur of
    the next anniversary of the date of the employment agreement or
    the date of the executives death, provided that the
    obligation to pay the executives base salary will be
    reduced by the amounts paid to the 123




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##### Table of Contents



executive under any long-term disability insurance plan that we
    sponsor or otherwise maintain and that in no event will our
    total annual obligation for base salary payments to the
    executive be greater than an amount equal to two-thirds of the
    executives base salary; and  
    In the event of the executives death, six months of
    salary, a pro-rata bonus for the year of death and six months of
    bonus payments based on the higher of (i) the average bonus
    paid to the executive in each of the last three years, and
    (ii) the bonus paid to the executive in the most recent
    12 month period (annualized for any partial year payments).      OUTSTANDING
    EQUITY AWARDS AT FISCAL YEAR-END
    Option Awards

Stock AwardsEquityIncentiveEquity

PlanIncentive

Awards:Plan

MarketAwards:

or PayoutEquity







Market

Number of

Value ofIncentive







Value of

Unearned

UnearnedPlan





Number of

Shares or

Shares,

Shares,Awards:





Shares

Units of

Units or

Units orNumber of

Number of

Number of





or Units

Stock

Other

OtherSecurities

Securities

Securities





of Stock

That

Rights

RightsUnderlying

Underlying

Underlying

Option



That Have

Have

That

ThatUnexercised

Unexercised

Unexercised

Exercise

Option

Not

Not

Have Not

Have NotOptions (#)

Options (#)

Unearned

Price

Expiration

Vested

Vested

Vested

VestedExercisable

Unexercisable

Options (#)

($)

Date

(#)

($)

(#)

($)John R. McKernan, Jr.


64,439
(1)


59,863
(1)





$
50.00



5/31/2016























124,299
(2)


50.00



5/31/2016















Todd S. Nelson


56,420



225,681
(3)






55.00



3/8/2017























282,102
(4)


55.00



3/8/2017















5,000



20,000
(5)






55.00



3/29/2017















Edward H. West


27,368
(6)


41,053
(6)






50.00



5/31/2016























68,421
(4)


50.00



5/31/2016















2,053



8,210
(7)






60.00



6/27/2017























10,263
(4)


60.00



6/27/2017















John M. Mazzoni


13,240
(6)


19,860
(6)






50.00



5/31/2016























33,100
(4)


50.00



5/31/2016















993



3,972
(7)






60.00



6/27/2017























4,965
(4)


60.00



6/27/2017















Stephen J. Weiss


17,660
(6)


26,490
(6)






50.00



5/31/2016























44,150
(4)


50.00



5/31/2016















1,324



5,298
(7)






60.00



6/27/2017























6,623
(4)


60.00



6/27/2017















     (1)
    
    Represents time vested stock options that vest on a monthly
    basis over a five-year term. Mr. McKernan forfeited 46,750
    of his time vested stock options on December 31, 2007, the
    effective date of the transition event under his
    employment agreement. 124




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##### Table of Contents



(2)
    
    Represents performance vested stock options that vest based on
    investment returns to the investment funds associated with the
    Principal Shareholders which invested in EDMC in connection with
    the Transaction. Mr. McKernan forfeited 46,755 of his
    performance vested stock options on December 31, 2007, the
    effective date of the transition event under his
    employment agreement.(3)
    
    Represents time-based stock options which vest over a five-year
    period, 20% of which vested on March 9, 2008, one year from
    the date of grant, and 20% of which vests on each of the next
    four anniversaries of the date of grant.(4)
    
    Represents performance vested stock options that vest based on
    investment returns to the investment funds associated with the
    Principal Shareholders which invested in EDMC in connection with
    the Transaction.(5)
    
    Represents time-based stock options which vest over a five-year
    period, 20% of which vested on March 30, 2008, one year
    from the date of grant, and 20% of which vests on each of the
    next four anniversaries of the date of grant.(6)
    
    Represents time-based stock options which vest over a five year
    period, 20% of which vested on June 1, 2007 and 20% of
    which vests on June 1 of the next four years.(7)
    
    Represents time-based stock options which vest over a five-year
    period, 20% of which vested on June 28, 2008, one year from
    the date of grant, and 20% of which vests on each of the next
    four anniversaries of the date of grant.  Option
    Exercises and Stock Vested
    Pension
    Benefits
    NONQUALIFIED
    DEFERRED COMPENSATION
    AggregateExecutive


Registrant


Earnings


Aggregate


AggregateContributions


Contributions


in Fiscal


Withdrawals/


Balance atin Fiscal 2008


in Fiscal 2008 (*)


2008


Distributions


6/30/08John R. McKernan, Jr.

$
94,236


$
57,355


$
(46,189
)





$
756,120Todd S. Nelson


















Edward H. West






45,055



(3,641
)






41,414John M. Mazzoni


2,704



20,167



(2,957
)






133,859Stephen J. Weiss






23,912



(2,223
)






49,013   *
    The amounts in this column are reported as compensation in the
    All Other Compensation column of the Summary Compensation Table.   125




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##### Table of Contents



POTENTIAL
    PAYMENTS UPON TERMINATION OR
    CHANGE-IN-CONTROL
            
    the willful failure to use best efforts to perform the
    executives employment duties;
    the indictment for, conviction of or guilty plea to any felony
    or a misdemeanor involving moral turpitude;
    gross negligence causing harm to the Company or willful and
    material misconduct or breach of fiduciary duty; or
    the willful breach of certain restrictive covenants or written
    policies.    John R.
    McKernan, Jr.
      Todd S.
    Nelson
   126




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##### Table of Contents



Edward H.
    West
      Agreements
    with Messrs. Mazzoni and Weiss
      Table of
    Benefits Upon Termination Events
   127




---



##### Table of Contents



John
    R. McKernan, Jr.
  Without Cause


For Cause


Change inor For


or Without


Control or SaleGood Reason


Good Reason


of Business(1)


Disability


DeathCompensation:Base Salary and Target Bonus

$
1,372,800
(2)

$



$
2,745,600
(3)

$



$
Target Bonus in Year of Termination


572,000







572,000



572,000



572,000Stock Options(4)


4,852,447



2,964,203



5,717,892



2,964,203



2,964,203Benefits and Perquisites:Health and Welfare Benefits


















Outplacement Services


















Life Insurance Proceeds(5)


















500,000Disability Benefits(6)


















Accrued Vacation Pay


22,440



22,440



22,440



22,440



22,440Excise Tax and
    Gross-Up


















Total:

$
6,819,687


$
2,986,643


$
9,057,932


$
3,558,643


$
4,058,643     (1)
    
    If a sale of a business occurs and the executives
    employment agreement is not assumed, then his termination is
    considered a resignation for good reason. If, however, a sale of
    a business occurs and the executives employment agreement
    is assumed but he chooses to terminate his employment, then the
    executives termination is considered a resignation without
    good reason. For purposes of the table, we have assumed that the
    executive is terminated without cause or terminates his
    employment for good reason after the occurrence of a change in
    control.(2)
    
    Consists of 1.5 times the sum of (i) base salary at
    June 30, 2008, and (ii) fiscal 2008 target incentive
    bonus.(3)
    
    Consists of three times the sum of (i) base salary at
    June 30, 2008, and (ii) fiscal 2008 target incentive
    bonus.(4)
    
    Assumes fair market value of $96.00 per share. The
    executives time vested stock options become fully vested
    upon a change in control of EDMC. In the event that
    Mr. McKernan is terminated other than for cause or
    terminates his employment for good reason, his time vested stock
    options will continue to vest for an additional 24 months.
    In the event that the executive is terminated for cause, the
    executives right to exercise his stock options terminates
    upon the effectiveness of the termination while the executive
    may exercise any vested stock options during the
    30-day
    period following termination of employment by the executive
    without good reason. For purposes of the table, we have assumed
    that the executive exercises his vested stock options prior to a
    termination for cause or within 30 days after a termination
    by the executive without good reason. Amount does not include
    any vesting of performance vested stock options because the
    minimum vesting of such options requires a return of at least
    twice the initial investment in EDMC by the Principal
    Shareholders in connection with the Transaction. Does not
    include the impact of any repurchase rights held by EDMC upon
    exercise of the stock options under EDMCs Amended and
    Restated Shareholders Agreement.(5)
    
    Amount equals the proceeds payable upon the executives
    death under the Companys group term life insurance policy
    which covers all employees. Does not include the proceeds of any
    supplemental life insurance purchased by the executive.(6)
    
    The Company does not provide a disability policy for employees.
    Does not include any disability benefits which the executive may
    be eligible for under a policy paid for by the executive. 128




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##### Table of Contents



Todd
    S. Nelson
  Without Cause


For Cause


Change inor For


or Without


Control or SaleGood Reason


Good Reason


of Business(1)


Disability


DeathCompensation:Base Salary and Target Bonus

$
1,930,500
(2)

$



$
3,861,000
(3)

$



$
Target Bonus in Year of Termination


715,000







715,000



715,000



715,000Stock Options(4)


7,554,685



2,518,228



12,591,141



2,518,228



2,518,228Benefits and Perquisites:Health and Welfare Benefits(5)


12,478







12,478







Outplacement Services


















Life Insurance Proceeds(6)


















500,000Disability Benefits(7)


















Accrued Vacation Pay


22,000



22,000



22,000



22,000



22,000Excise Tax and
    Gross-Up


















Total:

$
10,234,663


$
2,540,228


$
17,201,619


$
3,255,228


$
3,755,228     (1)
    
    If a sale of a business occurs and the executives
    employment agreement is not assumed, then his termination is
    considered a resignation for good reason. If, however, a sale of
    a business occurs and the executives employment agreement
    is assumed but he chooses to terminate his employment, then the
    executives termination is considered a resignation without
    good reason. For purposes of the table, we have assumed that the
    executive is terminated without cause or terminates his
    employment for good reason after the occurrence of a change in
    control.(2)
    
    Consists of 1.5 times the sum of (i) fiscal 2008 base
    salary of $572,000 and (ii) fiscal 2008 target incentive
    bonus of $715,000.(3)
    
    Consists of three times the sum of (i) fiscal 2008 base
    salary of $572,000 and (ii) fiscal 2008 target incentive
    bonus of $715,000.(4)
    
    Assumes fair market value of $96.00 per share. The
    executives time vested stock options become fully vested
    upon a change in control of EDMC. In the event that
    Mr. Nelson is terminated other than for cause or terminates
    his employment for good reason, an additional 20% of his time
    vested stock options will vest on each of the next two
    anniversaries of the date of grant. In the event that the
    executive is terminated for cause, the executives right to
    exercise his stock options terminates upon the effectiveness of
    the termination while the executive may exercise any vested
    stock options during the 30-day period following termination of
    employment by the executive without good reason. For purposes of
    the table, we have assumed that the executive exercises his
    vested stock options prior to a termination for cause or within
    30 days after a termination by the executive without good
    reason. Amount does not include any vesting of performance
    vested stock options because the minimum vesting of such options
    requires a return of at least twice the initial investment in
    EDMC by the Principal Shareholders in connection with the
    Transaction. Does not include the impact of any repurchase
    rights held by EDMC upon exercise of the stock options under
    EDMCs Amended and Restated Shareholders Agreement.(5)
    
    Amount equals the Companys estimated expense of providing
    the executive with COBRA health insurance benefits for
    18 months after termination.(6)
    
    Amount equals the proceeds payable upon the executives
    death under the Companys group term life insurance policy
    which covers all employees. Does not include the proceeds of any
    supplemental life insurance purchased by the executive.(7)
    
    The Company does not provide a disability policy for employees.
    Does not include any disability benefits which the executive may
    be eligible for under a policy paid for by the executive. 129




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##### Table of Contents



Edward
    H. West
  Without Cause


For Cause


Change inor For


or Without


Control or SaleGood Reason


Good Reason


of Business(1)


Disability


DeathCompensation:Base Salary and Target Bonus

$
1,579,500
(2)

$



$
2,106,000
(3)

$



$
Target Bonus in Year of Termination


585,500







585,500



585,500



585,500Stock Options(4)


2,739,574



1,332,840



3,516,834



1,332,840



1,332,840Benefits and Perquisites:Health and Welfare Benefits(5)


13,086







13,086







Outplacement Services


















Life Insurance Proceeds(6)


















500,000Disability Benefits(7)


















Accrued Vacation Pay


19,800



19,800



19,800



19,800



19,800Excise Tax and
    Gross-Up


















Total:

$
4,937,460


$
1,352,640


$
6,241,220


$
1,938,140


$
2,438,140     (1)
    
    If a sale of a business occurs and the executives
    employment agreement is not assumed, then his termination is
    considered a resignation for good reason. If, however, a sale of
    a business occurs and the executives employment agreement
    is assumed but he chooses to terminate his employment, then the
    executives termination is considered a resignation without
    good reason. For purposes of the table, we have assumed that the
    executive is terminated without cause or terminates his
    employment for good reason after the occurrence of a change in
    control.(2)
    
    Consists of 1.5 times the sum of (i) fiscal 2008 base
    salary of $468,000 and (ii) fiscal 2008 target incentive
    bonus of $585,000.(3)
    
    Consists of two times the sum of (i) fiscal 2008 base
    salary of $468,000 and (ii) fiscal 2008 target incentive
    bonus of $585,000.(4)
    
    Assumes fair market value of $96.00 per share. The
    executives time vested stock options become fully vested
    upon a change in control of EDMC. In the event that
    Mr. West is terminated other than for cause or terminates
    his employment for good reason, an additional 20% of his time
    vested stock options will vest on each of the next two
    anniversaries of the date of grant. In the event that the
    executive is terminated for cause, the executives right to
    exercise his stock options terminates upon the effectiveness of
    the termination while the executive may exercise any vested
    stock options during the 30-day period following termination of
    employment by the executive without good reason. For purposes of
    the table, we have assumed that the executive exercises his
    vested stock options prior to a termination for cause or within
    30 days after a termination by the executive without good
    reason. Amount does not include any vesting of performance
    vested stock options because the minimum vesting of such options
    requires a return of at least twice the initial investment in
    EDMC by the Principal Shareholders in connection with the
    Transaction. Does not include the impact of any repurchase
    rights held by EDMC upon exercise of the stock options under
    EDMCs Amended and Restated Shareholders Agreement.(5)
    
    Amount equals the Companys estimated expense of providing
    the executive with COBRA health insurance benefits for
    18 months after termination.(6)
    
    Amount equals the proceeds payable upon the executives
    death under the Companys group term life insurance policy
    which covers all employees. Does not include the proceeds of any
    supplemental life insurance purchased by the executive.(7)
    
    The Company does not provide a disability policy for employees.
    Does not include any disability benefits which the executive may
    be eligible for under a policy paid for by the executive. 130




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##### Table of Contents



John
    M. Mazzoni
  Without Cause


For Cause


Change inor For


or Without


Control or SaleGood Reason


Good Reason


of Business(1)


Disability


DeathCompensation:Base Salary and Target Bonus

$
592,800
(2)

$



$
1,185,600
(3)

$
208,000
(4)

$
156,000
(5)Target Bonus in Year of Termination


280,800







280,800



280,800
(6)


181,521
(7)Stock Options(8)


985,056



644,788



1,701,340



644,788



644,788Benefits and Perquisites:Health and Welfare Benefits(9)


8,724







8,724



8,724



Outplacement Services(10)


25,000







25,000







Life Insurance Proceeds(11)


















500,000Disability Benefits(12)


















Accrued Vacation Pay


4,200



4,200



4,200



4,200



4,200Excise Tax and
    Gross-Up


















Total:

$
1,896,580


$
648,988


$
3,205,664


$
1,146,512


$
1,486,509     (1)
    
    If a sale of a business occurs and the executives
    employment agreement is not assumed, then his termination is
    considered a resignation for good reason. If, however, a sale of
    a business occurs and the executives employment agreement
    is assumed but he chooses to terminate his employment, then the
    executives termination is considered a resignation without
    good reason. For purposes of the table, we have assumed that the
    executive is terminated without cause or terminates his
    employment for good reason after the occurrence of a change in
    control.(2)
    
    Consists of the sum of (i) fiscal 2008 base salary of
    $312,000 and (ii) fiscal 2008 target incentive bonus of
    $280,800.(3)
    
    Consists of two times the sum of (i) fiscal 2008 base
    salary of $312,000 and (ii) fiscal 2008 target incentive
    bonus of $280,800.(4)
    
    Equals two-thirds of the executives base salary for fiscal
    2008.(5)
    
    Equals one-half of the executives fiscal 2008 base salary.(6)
    
    Equals the executives fiscal 2008 target incentive bonus.(7)
    
    Equals one-half of the executives fiscal 2007 actual
    incentive bonus.(8)
    
    Assumes fair market value of $96.00 per share. The
    executives time vested stock options become fully vested
    upon a change in control of EDMC. In the event that
    Mr. Mazzoni is terminated other than for cause or
    terminates his employment for good reason, an additional 20% of
    his time vested stock options will vest on the next anniversary
    of the date of grant. In the event that the executive is
    terminated for cause, the executives right to exercise his
    stock options terminates upon the effectiveness of the
    termination while the executive may exercise any vested stock
    options during the 30-day period following termination of
    employment by the executive without good reason. For purposes of
    the table, we have assumed that the executive exercises his
    vested stock options prior to a termination for cause or within
    30 days after a termination by the executive without good
    reason. Amount does not include any vesting of performance
    vested stock options because the minimum vesting of such options
    requires a return of at least twice the initial investment in
    EDMC by the Principal Shareholders in connection with the
    Transaction. Does not include the impact of any repurchase
    rights held by EDMC upon exercise of the stock options under
    EDMCs Amended and Restated Shareholders Agreement.(9)
    
    Amount equals the Companys estimated expense of providing
    the executive with health and welfare benefits for twelve months
    after termination.(10)
    
    Amount equals the Companys estimated expense of providing
    the executive with outplacement services upon termination. The
    executive may elect to receive a lump sum payment from the
    Company in lieu of receiving outplacement services. 131




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##### Table of Contents



(11)
    
    Amount equals the proceeds payable upon the executives
    death under the Companys group term life insurance policy
    which covers all employees. Does not include the proceeds of any
    supplemental life insurance purchased by the executive.(12)
    
    The Company does not provide a disability policy for employees.
    Does not include any disability benefits which the executive may
    be eligible for under a policy paid for by the executive.  Stephen
    J. Weiss
  Without Cause


For Cause


Change inor For


or Without


Control or SaleGood Reason


Good Reason


of Business(1)


Disability


DeathCompensation:Base Salary and Target Bonus

$
936,000
(2)

$



$
1,248,000
(3)

$
208,000
(4)

$
156,000
(5)Target Bonus in Year of Termination


312,000







312,000



312,000
(6)


225,000
(7)Stock Options(8)


1,313,896



860,038



2,269,292



860,038



860,038Benefits and Perquisites:Health and Welfare Benefits(9)


12,264







12,264



12,264



Outplacement Services(10)


25,000







25,000







Life Insurance Proceeds(11)


















500,000Disability Benefits(12)


















Accrued Vacation Pay


15,600



15,600



15,600



15,600



15,600Excise Tax and
    Gross-Up


















Total:

$
2,614,760


$
875,638


$
3,882,156


$
1,407,902


$
1,756,638     (1)
    
    If a sale of a business occurs and the executives
    employment agreement is not assumed, then his termination is
    considered a resignation for good reason. If, however, a sale of
    a business occurs and the executives employment agreement
    is assumed but he chooses to terminate his employment, then the
    executives termination is considered a resignation without
    good reason. For purposes of the table, we have assumed that the
    executive is terminated without cause or terminates his
    employment for good reason after the occurrence of a change in
    control.(2)
    
    Consists of 1.5 times the sum of (i) fiscal 2008 base
    salary of $312,000 and (ii) fiscal 2008 target incentive
    bonus of $312,000.(3)
    
    Consists of two times the sum of (i) fiscal 2008 base
    salary of $312,000 and (ii) fiscal 2008 target incentive
    bonus of $312,000.(4)
    
    Equals two-thirds of the executives base salary for fiscal
    2008.(5)
    
    Equals one-half of the executives fiscal 2008 base salary.(6)
    
    Equals the executives fiscal 2008 target incentive bonus.(7)
    
    Equals one-half of the executives fiscal 2007 actual
    incentive bonus.(8)
    
    Assumes fair market value of $96.00 per share. The
    executives time vested stock options become fully vested
    upon a change in control of EDMC. In the event that
    Mr. Weiss is terminated other than for cause or terminates
    his employment for good reason, an additional 20% of his time
    vested stock options will vest on the next anniversary of the
    date of grant. In the event that the executive is terminated for
    cause, the executives right to exercise his stock options
    terminates upon the effectiveness of the termination while the
    executive may exercise any vested stock options during the
    30-day period following termination of employment by the
    executive without good reason. For purposes of the table, we
    have assumed that the executive exercises his vested stock
    options prior to a termination for cause or within 30-days after
    a termination by the executive without good reason. Amount does
    not include any vesting of performance vested stock options
    because the minimum vesting of such options requires a return of
    at least twice the initial investment in EDMC by the Principal
    Shareholders in 132




---



##### Table of Contents



connection with the Transaction. Does not include the impact of
    any repurchase rights held by EDMC upon exercise of the stock
    options under EDMCs Amended and Restated Shareholders
    Agreement.(9)
    
    Amount equals the Companys estimated expense of providing
    the executive with health and welfare benefits for twelve months
    after termination.(10)
    
    Amount equals the Companys estimated expense of providing
    the executive with outplacement services upon termination. The
    executive may elect to receive a lump sum payment from the
    Company in lieu of receiving outplacement services.(11)
    
    Amount equals the proceeds payable upon the executives
    death under the Companys group term life insurance policy
    which covers all employees. Does not include the proceeds of any
    supplemental life insurance purchased by the executive.(12)
    
    The Company does not provide a disability policy for employees.
    Does not include any disability benefits which the executive may
    be eligible for under a policy paid for by the executive.  DIRECTOR
    COMPENSATION
    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT    Percentage ofNumber of


OutstandingName and Address of Beneficial Owner(1)

Shares Owned


Shares OwnedProvidence Equity Funds(2)


9,130,608



34.1GS Limited Partnerships(3)(4)


9,130,608



34.1GS EDMC Investors, LP(4)


1,600,000



8.3GS Private Equity Partners Funds(5)


1,400,000



5.2Leeds Equity Partners(6)


2,213,417



8.3Adrian M. Jones(4)(5)


9,130,608



34.1Jeffrey T. Leeds(6)


2,213,417



8.3John M. Mazzoni(7)


22,233



*John R. McKernan, Jr.(8)


129,571



*Leo F. Mullin


10,000



*Todd S. Nelson(9)


243,238



1.0Paul J. Salem(2)


9,130,608



34.1Stephen J. Weiss(10)


28,984



*Edward H. West(11)


39,421



*Peter O. Wilde(2)


9,130,608



34.1All executive officers and directors as a group
    (17 persons)(12)


21,034,527



78.6     *
    
    Less than 1%.(1)
    
    The address of each listed shareholder, unless otherwise noted,
    is
    c/o Education
    Management Corporation, 210 Sixth Avenue, 33rd Floor,
    Pittsburgh, Pennsylvania 15222.(2)
    
    Consists of (i) 7,223,947 shares of common stock held
    by Providence Equity Partners V L.P. (PEP V), whose
    general partner is Providence Equity GP V L.P., whose general
    partner is Providence Equity Partners V 133




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##### Table of Contents



L.L.C. (PEP V LLC); (ii) 1,141,053 shares
    of common stock held by Providence Equity Partners V-A L.P.
    (PEP V-A), whose general partner is Providence
    Equity GP V L.P., whose general partner is PEP V LLC;
    (iii) 598,071 shares of common stock held by
    Providence Equity Partners IV L.P. (PEP IV),
    whose general partner is Providence Equity GP IV L.P., whose
    general partner is Providence Equity Partners IV L.L.C.
    (PEP IV LLC), (iv) 1,929 shares of common
    stock held by Providence Equity Operating Partners IV L.P.
    (PEOP IV) whose general partner is Providence Equity
    GP IV L.P., whose general partner is PEP IV LLC, and
    (v) 165,608 shares of common stock owned by PEP EDMC
    L.L.C. (collectively with PEOP IV, PEP IV, PEP V and PEP V-A,
    the Providence Equity Funds). PEP V LLC may be
    deemed to share beneficial ownership of the shares owned by PEP
    V and PEP V-A. PEP V LLC disclaims this beneficial ownership.
    PEP IV LLC may be deemed to share the beneficial ownership of
    PEP IV and PEOP IV. PEP IV LLC disclaims this beneficial
    ownership. Mr. Salem is a member of PEP V LLC and PEP IV
    LLC and may also be deemed to possess indirect beneficial
    ownership of the securities owned by the Providence Equity
    Funds, but disclaims such beneficial ownership. PEP EDMC L.L.C.
    may be deemed to share beneficial ownership with PEP V, PEP
    V-A, PEP IV and PEOP IV. PEP EDMC L.L.C. disclaims this
    beneficial ownership. Mr. Wilde is a limited partner of
    Providence Equity GP IV L.P. and Providence Equity Partners GP V
    L.P. and disclaims beneficial ownership of any securities owned
    by such limited partnerships. The address of Mr. Salem,
    Mr. Wilde and each of the entities listed in this footnote
    is
    c/o Providence
    Equity Partners Inc., 50 Kennedy Plaza, 18th Floor, Providence,
    Rhode Island 02903.(3)
    
    Consists of 4,720,611 shares owned by GS Capital Partners V
    Fund, L.P., 2,438,470 shares owned by GS Capital Partners
    Fund V Offshore Fund, L.P., 1,618,762 shares owned by
    GS Capital Partners V Institutional, L.P., 187,157 shares
    owned by GS Capital Partners V GmbH & Co. KG, and
    165,608 shares owned by GSCP V EDMC Holdings, L.P.
    (collectively, the Goldman Sachs Capital Partners
    Funds).(4)
    
    The Goldman Sachs Group, Inc. and certain affiliates, including
    Goldman, Sachs & Co., may be deemed to directly or
    indirectly own the 10,730,608 shares of common stock which
    are collectively owned directly or indirectly by the Goldman
    Sachs Capital Partners Funds and GS EDMC Investors, LP, of which
    affiliates of The Goldman Sachs Group, Inc. and Goldman,
    Sachs & Co. are the general partner, managing limited
    partner or the managing partner. Goldman, Sachs & Co.
    is the investment manager for certain of the Goldman Sachs
    Capital Partner Funds and GS EDMC Investors, LP. Goldman,
    Sachs & Co. is a direct and indirect wholly-owned
    subsidiary of The Goldman Sachs Group, Inc. The Goldman Sachs
    Group, Inc., Goldman, Sachs & Co. and the Goldman
    Sachs Capital Partner Funds and GS EDMC Investors, LP share
    voting power and investment power with certain of their
    respective affiliates. Adrian M. Jones is a managing director of
    Goldman, Sachs & Co. Each of Mr. Jones, The
    Goldman Sachs Group, Inc. and Goldman, Sachs & Co.
    disclaims beneficial ownership of the common shares owned
    directly or indirectly by the Goldman Sachs Capital Partners
    Funds and GS EDMC Investors, LP, except to the extent of their
    pecuniary interest therein, if any. The address of the Goldman
    Sachs Capital Partner Funds, The Goldman Sachs Group, Inc.,
    Goldman, Sachs & Co. and Mr. Jones is 85 Broad
    Street, 10th Floor, New York, New York 10004.(5)
    
    Consists of 427,926 shares owned by GS Private Equity
    Partners 2000, L.P., 150,626 shares owned by
    GS Private Equity Partners 2000 Offshore, L.P.,
    166,192 shares owned by GS Private Equity Partners
    2000  Direct Investment Fund, L.P.,
    59,656 shares owned by GS Private Equity Partners 2002,
    L.P., 229,774 shares owned by GS Private Equity Partners
    2002 Offshore, L.P., 51,850 shares owned by GS Private
    Equity Partners 2002  Direct Investment Fund, L.P.,
    26,380 shares owned by GS Private Equity Partners 2002
    Employee Fund, L.P., 18,554 shares owned by GS Private
    Equity Partners 2004, L.P., 120,705 shares owned by GS
    Private Equity Partners 2004 Offshore, L.P., 34,596 shares
    owned by Multi-Strategy Holdings, LP, 83,372 shares owned
    by GS Private Equity Partners 2004  Direct Investment
    Fund, L.P. and 30,369 shares owned by GS Private Equity
    Partners 2004 Employee Fund, L.P. (collectively, the GS
    Private Equity Partners Funds). The Goldman Sachs Group,
    Inc., and certain of its affiliates, including Goldman Sachs
    Asset Management, L.P., may be deemed to directly or indirectly
    own the shares of common stock which are owned by the GS Private
    Equity Partners Funds, of which affiliates of The Goldman Sachs
    Group, Inc. and Goldman Sachs Asset Management, L.P. are the
    general partner, managing limited partner or the managing
    partner. Goldman Sachs Asset Management, L.P. is the investment
    manager for certain of the GS Private Equity Partners Funds.
    Goldman Sachs Asset Management, L.P. is a direct and indirect
    wholly-owned subsidiary of The Goldman Sachs Group, Inc. The
    Goldman Sachs Group, Inc., Goldman Sachs Asset Management, L.P. 134




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and the GS Private Equity Partners Funds share voting power and
    investment power with certain of their respective affiliates.
    Each of The Goldman Sachs Group, Inc. and Goldman Sachs Asset
    Management, L.P. disclaims beneficial ownership of the common
    shares owned directly or indirectly by the GS Private Equity
    Partners Funds except to the extent of their pecuniary interest
    therein, if any. The address of Goldman Sachs Asset Management,
    L.P. and the GS Private Equity Partner Funds is 32 Old Slip, 9th
    Floor, New York, New York 10004.(6)
    
    Shares are owned by Leeds Equity Partners IV, L.P., whose
    general partner is Leeds Equity Associates IV, L.L.C. Jeffrey T.
    Leeds, a Director of the Company, is the Managing Member of
    Leeds Equity Associates IV, L.L.C. The address of Leeds Equity
    Partners IV, L.P., Leeds Equity Associates IV, L.L.C. and
    Mr. Leeds is 350 Park Avenue, 23rd Floor, New York, New
    York 10022.(7)
    
    Includes 14,233 shares of common stock receivable upon the
    exercise of options that are exercisable within 60 days of
    the date of the table set forth above.(8)
    
    Includes 69,571 shares of common stock receivable upon the
    exercise of options that are exercisable within 60 days of
    the date of the table set forth above.(9)
    
    Includes 61,420 shares of common stock receivable upon the
    exercise of options that are exercisable within 60 days of
    the date of the table set forth above.(10)
    
    Includes 18,984 shares of common stock receivable upon the
    exercise of options that are exercisable within 60 days of
    the date of the table set forth above.(11)
    
    Includes 29,421 shares of common stock receivable upon the
    exercise of options that are exercisable within 60 days of
    the date of the table set forth above.(12)
    
    Includes 219,076 shares of common stock receivable upon the
    exercise of options that are exercisable within 60 days of
    the date of the table set forth above.    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
    INDEPENDENCE  Approval
    of Transactions with Related Persons
    Shareholders
    Agreement
   135




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Sponsor
    Management Agreement
          Other
    Relationships
      Board
    Independence
   136




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ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES    2008


2007Audit Fees

$
1,436,615


$
1,393,029Audit-Related Fees(1)


284,287



369,812Tax Fees(2)


111,768



308,556Total

$
1,837,670


$
2,071,397     (1)
    
    Audit-Related Fees consist of Sarbanes Oxley Section 404
    consultation, assistance with the Transaction, assistance with
    the Companys private placement debt offering including
    assistance with purchase accounting and other technical matters,
    statutory audits of subsidiaries and technical assistance with
    SFAS No. 123R.(2)
    
    Tax Fees consist of merger and acquisition and international tax
    matters, transfer pricing study, assistance with preparation of
    Canadian tax returns, management fee study, transaction cost
    analysis and FIN 48 technical assistance.  Pre-Approval
    Policies and Procedures
   PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  (a)1
.

Financial Statements.Reference is made to Item 8 herein.(a)2
.

Financial Statement Schedules.Reference is made to Item 8 herein.(a)3
.

ExhibitsReference is made to the Index on Page 131.    137




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##### Table of Contents



SIGNATURES
      /s/  Edward
    H. West Edward
    H. West
 Executive Vice President and Chief Financial Officer
      Signature

Title

Date/s/  Todd
    S. NelsonTodd
    S. Nelson

Chief Executive Officer, President and Director (Principal
    Executive Officer)

September 19, 2008/s/  Christopher
    M. LynneChristopher
    M. Lynne

Senior Vice President, Controller and Chief Accounting Officer

September 19, 2008/s/  Edward
    H. WestEdward
    H. West

Executive Vice President and Chief Financial Officer (Principal
    Financial Officer)

September 19, 2008/s/  John
    R. McKernan, Jr.John
    R. McKernan, Jr.

Executive Chairman and Chairman of the Board of Directors

September 19, 2008/s/  Adrian
    M. JonesAdrian
    M. Jones

Director

September 19, 2008/s/  Leo
    F. MullinLeo
    F. Mullin

Director

September 19, 2008/s/  Paul
    J. SalemPaul
    J. Salem

Director

September 19, 2008/s/  Peter
    O. WildePeter
    O. Wilde

Director

September 19, 2008/s/  Jeffrey
    T. LeedsJeffrey
    T. Leeds

Director

September 19, 2008  138




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ExhibitList3
.1

Certificate of Formation of Education Management LLC (previously
    filed as Exhibit 3.1 to the Registration Statement on Form S-4
    of Education Management LLC and Education Management Finance
    Corp. (File No. 333-137605) filed on September 27, 2006)3
.2

Limited Liability Company Agreement of Education Management LLC
    (previously filed as Exhibit 3.2 to the Registration Statement
    on Form S-4 of Education Management LLC and Education Management
    Finance Corp. (File No. 333-137605) filed on September 27, 2006)4
.1

Indenture, dated as of June 1, 2006, among Education Management
    LLC, Education Management Finance Corp., the Guarantors named
    therein and The Bank of New York, as Trustee, governing the 8
    3/4% Senior Notes due 2014 (previously filed as Exhibit 4.1
    to Amendment No. 1 to the Registration Statement on Form S-4/A
    of Education Management LLC and Education Management Finance
    Corp. (File No. 333-137605) filed on November 8, 2006)4
.2

Indenture, dated as of June 1, 2006, among Education Management
    LLC, Education Management Finance Corp., the Guarantors named
    therein and The Bank of New York, as Trustee, governing the
    101/4% Senior
    Subordinated Notes due 2016 (previously filed as Exhibit 4.2 to
    Amendment No. 1 to the Registration Statement on Form S-4/A of
    Education Management LLC and Education Management Finance Corp.
    (File No. 333-137605) filed on November 8, 2006)10
.1

Amended and Restated Credit and Guaranty Agreement dated
    February 13, 2007 among Education Management LLC, Education
    Management Holdings LLC, certain Subsidiaries of Education
    Management Holdings LLC, the designated Subsidiary Borrowers
    referred to therein, each lender thereto, Credit Suisse
    Securities (USA) LLC, as Syndication Agent, and BNP Paribas, as
    Administrative Agent and Collateral Agent (previously filed as
    Exhibit 10.01 to the Current Report on Form 8-K filed on
    February 14, 2007).10
.2

Employment Agreement dated February 8, 2007 among Education
    Management LLC, Education Management Corporation and Todd S.
    Nelson (previously filed as Exhibit 10.02 to the Current Report
    on Form 8-K filed on February 14, 2007).10
.3

Employment Agreement, dated as of December 7, 2006, between
    Education Management LLC and Joseph A. Charlson (previously
    filed as Exhibit 10.01 to the Current Report on Form 8-K filed
    on December 13, 2006)10
.4

Employment Agreement, dated as of December 7, 2006, between
    Education Management LLC and John M. Mazzoni (previously filed
    as Exhibit 10.02 to the Current Report on Form 8-K filed on
    December 13, 2006)10
.5

Employment Agreement, dated as of December 7, 2006, between
    Education Management LLC and Stacey R. Sauchuk (previously filed
    as Exhibit 10.03 to the Current Report on Form 8-K filed on
    December 13, 2006)10
.6

Employment Agreement, dated as of December 7, 2006, between
    Education Management LLC and John T. South, III
    (previously filed as Exhibit 10.04 to the Current Report on Form
    8-K filed on December 13, 2006)10
.7

Letter Agreement, dated as of December 7, 2006, between
    Education Management LLC and John T. South, III
    (previously filed as Exhibit 10.05 to the Current Report on Form
    8-K filed on December 13, 2006)10
.8

Letter Agreement, dated March 30, 2007, between Education
    Management LLC and John T. South, III (previously filed as
    Exhibit 10.03 to the Current Report on Form 8-K filed on April
    5, 2007)10
.9

Employment Agreement, dated as of June 1, 2006, between
    Education Management Corporation and John R. McKernan, Jr.
    (previously filed as Exhibit 10.15 to the Registration Statement
    on Form S-4 of Education Management LLC and Education Management
    Finance Corp. (File No. 333-137605) filed on September 24, 2006)10
.10

Letter Agreement, dated February 13, 2007, between Education
    Management Corporation and John R. McKernan, Jr. (previously
    filed as Exhibit 10.03 to the Current Report on Form 8-K filed
    on February 14, 2007)10
.11

Letter Agreement, dated June 28, 2007, between Education
    Management Corporation and John R. McKernan, Jr. (previously
    filed as Exhibit 10.02 to the Current Report on Form 8-K filed
    on July 5, 2007) 139




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##### Table of Contents



ExhibitList10
.12

Employment Agreement, dated as of December 7, 2006, between
    Education Management LLC and Stephen J. Weiss (previously filed
    as Exhibit 10.06 to the Current Report on Form 8-K filed on
    December 13, 2006)10
.13

Employment Agreement, dated as of June 1, 2006, between
    Education Management Corporation and Edward H. West (previously
    filed as Exhibit 10.16 to the Registration Statement on Form S-4
    of Education Management LLC and Education Management Finance
    Corp. (File No. 333-137605) filed on September 24, 2006)10
.14

Form of Executive Time Vested Stock Option Agreement (previously
    filed as Exhibit 10.07 to the Current Report on Form 8-K filed
    on December 13, 2006)10
.15

Form of Executive Performance Vested Stock Option Agreement
    (previously filed as Exhibit 10.08 to the Current Report on Form
    8-K filed on December 13, 2006)10
.16

Fiscal 2007 Management Incentive Stock Option Plan (previously
    filed as Exhibit 10.01 to the Current Report on Form 8-K filed
    on December 11, 2006)10
.17

EDMC Stock Option Plan, effective August 1, 2006, as amended
    (previously filed as Exhibit 10.9 to Amendment No. 1 to the
    Registration Statement on Form S-4 filed on November 8, 2006,
    amendments filed as Exhibit 10.01 to the Current Report on Form
    8- K filed on March 15, 2007, Exhibit 10.01 to the Current
    Report on Form 8-K filed on April 5, 2007 and Exhibit 10.01 to
    the Current Report on Form 8-K filed on July 5, 2007)10
.18

Education Management LLC Retirement Plan, as amended and
    restated as of January 1, 2006 (previously filed as Exhibit
    10.01 to the Current Report on Form 8-K filed on December 29,
    2006)10
.19

Education Management Corporation Long Term Incentive
    Compensation Plan (previously filed as Exhibit 10.01 to the
    Current Report on Form 8-K filed on March 2, 2007)10
.20

Amended and Restated Shareholders Agreement, dated as of
    October 30, 2006, between EDMC and each of the Shareholders
    named therein, as amended (previously filed as Exhibit 10.7 to
    Amendment No. 1 to the Registration Statement on Form S-4 filed
    on November 8, 2006, amendment filed as Exhibit 10.02 to the
    Current Report on Form 8-K filed on April 5, 2007)12
.1*

Statement re computation of ratios21
.1

List of Subsidiaries (previously filed as Exhibit 21.1 to the
    Registration Statement on Form S-4 (File No. 333-137605) filed
    on September 27, 2006)31
.1*

Certification of Todd S. Nelson required by Rule 13a-14(a) or
    Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 200231
.2*

Certification of Edward H. West required by Rule 13a-14(a) or
    Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 200232
.1*

Certification of Todd S. Nelson required by Rule 13a-14(b) or
    Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 200232
.2*

Certification of Edward H. West required by Rule 13a-14(b) or
    Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002     *
    
    Filed herewith. All other exhibits were previously filed. 140