##### Table of Contents



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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended: September 30,
    2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Transition Period
    From          to    Commission File Number:
    001-34466
      EDUCATION MANAGEMENT
    CORPORATION
 (Exact name of registrant as
    specified in its charter)
      Pennsylvania(State or other jurisdiction
    of
    incorporation or organization)

25-1119571(I.R.S. Employer
    Identification No.)210 Sixth Avenue, Pittsburgh, PA,
    33rd

    Floor(Address of principal
    executive offices)

15222(Zip
    Code)    Registrants telephone number, including area code:
    (412) 562-0900
  o þ
  o o
    Large
    accelerated
    filer  o
    Accelerated
    filer  o
    Non-accelerated
    filer  þ
    Smaller
    reporting
    company  o   Rule 12b-2 o þ




---



##### 



Table of
    Contents
  INDEX
  PAGEPART I  FINANCIAL INFORMATIONITEM 1



FINANCIAL STATEMENTS


2ITEM 2



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


22ITEM 3



QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK


29ITEM 4



CONTROLS AND PROCEDURES


29PART II  OTHER INFORMATIONITEM 1



LEGAL PROCEEDINGS


30ITEM 1A



RISK FACTORS


30ITEM 2



UNREGISTERED SALES OF EQUITY SECURITIES AND USE
    OF PROCEEDS


30ITEM 3



DEFAULTS UPON SENIOR SECURITIES


30ITEM 4



SUBMISSION OF MATTERS TO VOTE OF SECURITY
    HOLDERS


30ITEM 5



OTHER INFORMATION


30ITEM 6



EXHIBITS INDEX


30SIGNATURES


31EX-3.1EX-3.2EX-10.1EX-10.2EX-10.3EX-10.4EX-31.1EX-31.2EX-32.1EX-32.2   1




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##### Table of Contents



EDUCATION
    MANAGEMENT CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  September 30,


June 30,


September 30,2009


2009


2008(Unaudited)





(Unaudited)(Dollars in thousands)ASSETSCurrent assets:Cash and cash equivalents

$
422,867


$
363,318


$
390,545Restricted cash


39,187



10,372



27,637Total cash, cash equivalents and restricted cash


462,054



373,690



418,182Receivables, net of allowances of $95,461, $83,691 and $61,045


109,854



122,272



95,407Notes, advances and other


24,006



13,678



31,875Inventories


14,090



9,355



11,135Deferred income taxes


45,164



45,164



25,739Prepaid income taxes










4,016Other current assets


36,399



30,163



34,843Total current assets


691,567



594,322



621,197Property and equipment, net


593,894



580,965



521,242Other long-term assets


64,361



58,945



59,653Intangible assets, net


470,783



471,882



480,373Goodwill


2,579,131



2,579,131



2,585,581Total assets

$
4,399,736


$
4,285,245


$
4,268,046LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt

$
12,490


$
12,622


$
12,854Revolving credit facility






100,000



180,000Accounts payable


43,695



53,516



54,100Accrued liabilities


167,883



163,485



130,052Accrued income taxes


9,767



5,015



Unearned tuition


143,735



118,741



106,818Advance payments


237,310



67,020



155,361Total current liabilities


614,880



520,399



639,185Long-term debt, less current portion


1,872,951



1,876,021



1,885,357Deferred income taxes


185,005



187,583



185,085Deferred rent


128,357



123,656



97,298Other long-term liabilities


95,600



91,933



73,043Shareholders equity:Common stock, par value $0.01 per share; 600,000,000 shares
    authorized; 119,770,277 issued and outstanding at
    September 30, 2009 and June 30, 2009 and 119,769,082
    issued and outstanding at September 30, 2008


1,198



1,198



1,198Additional paid-in capital


1,338,316



1,338,316



1,338,302Retained earnings


197,529



181,767



74,060Accumulated other comprehensive loss


(34,100
)


(35,628
)


(25,482
)Total shareholders equity


1,502,943



1,485,653



1,388,078Total liabilities and shareholders equity

$
4,399,736


$
4,285,245


$
4,268,046    2




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##### Table of Contents



EDUCATION
    MANAGEMENT CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  For the Three MonthsEnded September 30,2009


2008(Unaudited)(Dollars in thousands except per share amounts)Net revenues

$
534,399


$
434,228Costs and expenses:Educational services


295,713



253,512General and administrative


148,107



121,359Depreciation and amortization


28,827



26,604Total costs and expenses


472,647



401,475Income before interest and income taxes


61,752



32,753Interest expense, net


36,329



38,159Income (loss) before income taxes


25,423



(5,406
)Provision for (benefit from) income taxes


9,661



(2,103
)Net income (loss)

$
15,762


$
(3,303
)Earnings (loss) per share:Basic

$
0.13


$
(0.03
)Diluted

$
0.13


$
(0.03
)Weighted average number of shares outstanding:Basic


119,770



119,769Diluted


119,770



119,769    3




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##### Table of Contents



EDUCATION
    MANAGEMENT CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  For the Three MonthsEnded September 30,2009


2008(Unaudited)(Dollars in thousands)Cash flows from operating activities:Net income (loss)

$
15,762


$
(3,303
)Adjustments to reconcile net income to net cash flows
    provided by operating activities:Depreciation and amortization on property and equipment


26,420



22,128Amortization of intangible assets


2,407



4,476Amortization of debt issuance costs


2,033



1,923Reimbursements for tenant improvements


3,232



1,797Non-cash adjustments in deferred rent


914



(605
)Changes in assets and liabilities:Restricted cash


(28,815
)


(13,815
)Receivables


12,418



(8,985
)Inventories


(4,714
)


(2,667
)Other assets


(18,969
)


(18,627
)Accounts payable


(1,760
)


5,765Accrued liabilities


(3,373
)


(12,081
)Unearned tuition


24,994



37,975Advance payments


170,034



94,708Total adjustments


184,821



111,992Net cash flows provided by operating activities


200,583



108,689Cash flows from investing activities:Expenditures for long-lived assets


(33,238
)


(50,789
)Reimbursements for tenant improvements


(3,232
)


(1,797
)Net cash flows used in investing activities


(36,470
)


(52,586
)Cash flows from financing activities:Borrowings on revolving credit facility






180,000Payments on revolving credit facility


(100,000
)


(120,000
)Payments of debt


(3,202
)


(3,234
)Debt issuance costs


(1,320
)


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


(104,522
)


56,766Effect of exchange rate changes on cash and cash
    equivalents


(42
)


268Net change in cash and cash equivalents


59,549



113,137Cash and cash equivalents, beginning of period


363,318



277,408Cash and cash equivalents, end of period

$
422,867


$
390,545Cash paid during the period for:Interest (including swap settlement)

$
15,592


$
19,116Income taxes


7,161



14,634    4




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##### Table of Contents



EDUCATION
    MANAGEMENT CORPORATION AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS EQUITY
  AccumulatedCommon


Additional





OtherStock at Par


Paid-in


Retained


ComprehensiveValue


Capital


Earnings


Loss


Total(Dollars in thousands)Balance, June 30, 2008

$
1,198


$
1,338,302


$
77,362


$
(24,685
)

$
1,392,177Comprehensive income:Net income










104,405







104,405Foreign currency translation














(1,147
)


(1,147
)Unrealized loss on interest rate swaps, net of tax benefit of
    $5,709














(9,796
)


(9,796
)Comprehensive income


















93,462
(a)Other






14











14Balance, June 30, 2009
    (Unaudited)


1,198



1,338,316



181,767



(35,628
)(b)


1,485,653Comprehensive income:Net income










15,762







15,762Foreign currency translation














597



597Unrealized gain on interest rate swaps, net of tax expense of
    $481














931



931Comprehensive income


















17,290Balance, September 30, 2009

$
1,198


$
1,338,316


$
197,529


$
(34,100
)(b)

$
1,502,943     (a)
    
    During the three months ended September 30, 2008, other
    comprehensive loss consisted of a $0.8 million unrealized
    loss on interest rate swaps, net of tax expense, and less than a
    $0.1 million foreign currency translation gain.(b)
    
    The balance in accumulated other comprehensive loss at
    September 30, 2009, June 30, 2009 and
    September 30, 2008 is comprised of $33.3 million,
    $34.2 million and $25.2 million of unrealized net
    losses on interest rate swaps, net of tax expense, respectively
    and $0.8 million, $1.4 million and $0.3 million
    of cumulative foreign currency translation losses, respectively.   5




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS
  1.
    BASIS OF
    PRESENTATION  Basis
    of presentation
          Nature
    of operations
    Ownership
   6




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Seasonality
    Reclassifications
    2.
    RECENT
    ACCOUNTING PRONOUNCEMENTS  tm
  3.
    EARNINGS
    PER SHARE      For the Three MonthsEnded September 30,2009


2008Net income (loss)

$
15,762


$
(3,303
)Weighted average number of shares outstandingBasic


119,770



119,769Effect of stock options






Diluted


119,770



119,769Earnings (loss) per share:Basic

$
0.13


$
(0.03
)Diluted

$
0.13


$
(0.03
)  7




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    4.
    SHARE-BASED
    PAYMENT    2006
    Stock Option Plan
        Long
    Term Incentive Compensation Plan
   8




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Omnibus
    Long-Term Incentive Plan
    5.
    PROPERTY
    AND EQUIPMENT  (in
    thousands):
  Asset Class

September 30, 2009


June 30, 2009


September 30, 2008Land

$
17,808


$
17,805


$
17,805Buildings and improvements


74,392



74,171



73,520Leasehold improvements and capitalized lease costs


355,414



329,449



276,021Furniture and equipment


99,607



97,783



88,457Technology and other equipment


178,051



170,818



144,272Software


46,595



45,651



35,157Library books


30,977



29,778



25,598Construction in progress


53,095



43,470



37,525Total


855,939



808,925



698,355Less accumulated depreciation


262,045



227,960



177,113Property and equipment, net

$
593,894


$
580,965


$
521,242     6.
    GOODWILL
    AND INTANGIBLE ASSETS  Goodwill
     9




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Intangible
    Assets
  in
    thousands)
  September 30, 2009


June 30, 2009


September 30, 2008Gross





Gross





GrossCarrying


Accumulated


Carrying


Accumulated


Carrying


AccumulatedAmount


Amortization


Amount


Amortization


Amount


AmortizationTradename-Art Institute

$
330,000


$



$
330,000


$



$
330,000


$
Tradename-Argosy University


3,000



(1,111
)


3,000



(1,028
)


3,000



(778
)Licensing, accreditation and Title IV program participation


112,179







112,179







112,179



Curriculum and programs


29,258



(14,802
)


27,974



(13,520
)


24,209



(10,175
)Student contracts, applications and relationships


39,511



(32,881
)


39,511



(32,479
)


39,511



(25,860
)Favorable leases and other


16,400



(10,771
)


16,351



(10,106
)


16,390



(8,103
)Total intangible assets

$
530,348


$
(59,565
)

$
529,015


$
(57,133
)

$
525,289


$
(44,916
)           AmortizationFiscal Years

Expense2010 (remainder)

$
6,1952011


7,6182012


6,5532013


4,2052014


2,437Thereafter


1,596  10




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   7.
    ACCRUED
    LIABILITIES  (in
    thousands)
  September 30, 2009


June 30, 2009


September 30, 2008Payroll and related taxes

$
39,411


$
77,894


$
28,545Capital expenditures


18,945



8,032



14,361Advertising


28,893



25,192



19,988Interest


33,192



13,878



29,302Benefits


9,821



8,597



9,070Other


37,621



29,892



28,786Total accrued liabilities

$
167,883


$
163,485


$
130,052   8.
    SHORT-TERM
    AND LONG-TERM DEBT    Short-Term
    Debt:
     11




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Long-Term
    Debt:
  in thousands)
  September 30, 2009


June 30, 2009


September 30, 2008Senior secured term loan facility, due 2013

$
1,123,865


$
1,126,827


$
1,135,715Senior notes due 2014 at 8.75%


375,000



375,000



375,000Senior subordinated notes due 2016 at 10.25%


385,000



385,000



385,000Capital leases


437



622



1,143Mortgage debt of consolidated entity


1,139



1,194



1,353Total debt


1,885,441



1,888,643



1,898,211Less current portion


12,490



12,622



12,854Total long term debt, less current portion

$
1,872,951


$
1,876,021


$
1,885,357     9.
    DERIVATIVE
    INSTRUMENTS       12




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   10.
    FAIR
    VALUE OF FINANCIAL INSTRUMENTS  in thousands)
  September 30, 2009


June 30, 2009


September 30, 2008Carrying


Fair


Carrying


Fair


Carrying


FairValue


Value


Value


Value


Value


ValueInterest rate swap liabilities

$
53,009


$
53,009


$
54,421


$
54,421


$
40,169


$
40,169Variable rate debt


1,123,865



1,073,291



1,126,827



1,031,047



1,135,715



988,072Fixed rate debt


761,576



825,345



761,816



738,916



762,496



515,246     11.
    INCOME
    TAXES        12.
    CONTINGENCIES  and/or
 13




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            13.
    RELATED
    PARTY TRANSACTIONS        14.
    GUARANTOR
    SUBSIDIARIES FINANCIAL INFORMATION   14




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   15




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATED BALANCE SHEET
 September 30,
    2009
  Guarantor


Non-Guarantor





EM LLC








EDMCEM LLC


Subsidiaries


Subsidiaries


Eliminations


Consolidated


EDMC


Eliminations


Consolidated(In thousands)ASSETSCurrent:Cash and cash equivalents

$
364,623


$
1,119


$
15,353


$



$
381,095


$
41,772


$



$
422,867Restricted cash


740







38,447







39,187











39,187Notes, advances and trade receivables, net


76



70



133,711







133,857



3







133,860Inventories










14,090







14,090











14,090Other current assets


24,593



881



56,089







81,563











81,563Total current assets


390,032



2,070



257,690







649,792



41,775







691,567Property and equipment, net


49,754



6,526



537,614







593,894











593,894Intangible assets, net


3,044



70



467,669







470,783











470,783Goodwill


7,328







2,571,803







2,579,131











2,579,131Intercompany balances


1,418,969



(26,225
)


(1,392,744
)














Other long-term assets


49,149



9,814



5,880







64,843



(482
)






64,361Investment in subsidiaries


1,625,183











(1,625,183
)






1,461,834



(1,461,834
)


Total assets

$
3,543,459


$
(7,745
)

$
2,447,912


$
(1,625,183
)

$
4,358,443


$
1,503,127


$
(1,461,834
)

$
4,399,736LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current:Current portion of long-term debt

$
11,912


$



$
578


$



$
12,490


$



$



$
12,490Accounts payable, accrued and other current liabilities


121,399



2,489



478,318







602,206



184







602,390Total current liabilities


133,311



2,489



478,896







614,696



184







614,880Long-term debt, less current portion


1,871,958







993







1,872,951











1,872,951Other long-term liabilities


91,974



8,259



123,724







223,957











223,957Deferred income taxes


(15,618
)


(5,986
)


206,609







185,005











185,005Total liabilities


2,081,625



4,762



810,222







2,896,609



184







2,896,793Total shareholders equity (deficit)


1,461,834



(12,507
)


1,637,690



(1,625,183
)


1,461,834



1,502,943



(1,461,834
)


1,502,943Total liabilities and shareholders equity (deficit)

$
3,543,459


$
(7,745
)

$
2,447,912


$
(1,625,183
)

$
4,358,443


$
1,503,127


$
(1,461,834
)

$
4,399,736  16




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATED BALANCE SHEET
 June 30,
    2009
  Guarantor


Non-Guarantor





EM LLC








EDMCEM LLC


Subsidiaries


Subsidiaries


Eliminations


Consolidated


EDMC


Eliminations


Consolidated(In thousands)ASSETSCurrent:Cash and cash equivalents

$
15,789


$
481


$
305,287


$



$
321,557


$
41,761


$



$
363,318Restricted cash


789







9,583







10,372











10,372Notes, advances and trade receivables, net


172



35



135,738







135,945



5







135,950Inventories










9,355







9,355











9,355Other current assets


19,378



1,213



54,736







75,327











75,327Total current assets


36,128



1,729



514,699







552,556



41,766







594,322Property and equipment, net


52,537



6,137



522,291







580,965











580,965Intangible assets, net


3,119



61



468,702







471,882











471,882Goodwill


7,328







2,571,803







2,579,131











2,579,131Intercompany balances


1,883,346



(20,819
)


(1,862,527
)


















Other long-term assets


48,447



9,764



1,178







59,389



(444
)






58,945Investment in subsidiaries


1,590,364











(1,590,364
)






1,444,515



(1,444,515
)


Total assets

$
3,621,269


$
(3,128
)

$
2,216,146


$
(1,590,364
)

$
4,243,923


$
1,485,837


$
(1,444,515
)

$
4,285,245LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current:Current portion of long-term debt

$
111,911


$



$
711


$



$
112,622


$



$



$
112,622Accounts payable, accrued and other current liabilities


114,771



4,739



288,082







407,592



185







407,777Total current liabilities


226,682



4,739



288,793







520,214



185







520,399Long-term debt, less current portion


1,874,921







1,100







1,876,021











1,876,021Other long-term liabilities


91,138



4,649



119,803







215,590



(1
)






215,589Deferred income taxes


(15,987
)


72



203,498







187,583











187,583Total liabilities


2,176,754



9,460



613,194







2,799,408



184







2,799,592Total shareholders equity (deficit)


1,444,515



(12,588
)


1,602,952



(1,590,364
)


1,444,515



1,485,653



(1,444,515
)


1,485,653Total liabilities and shareholders equity (deficit)

$
3,621,269


$
(3,128
)

$
2,216,146


$
(1,590,364
)

$
4,243,923


$
1,485,837


$
(1,444,515
)

$
4,285,245  17




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATED BALANCE SHEET
 September 30,
    2008
  Guarantor


Non-Guarantor





EM LLC








EDMCEM LLC


Subsidiaries


Subsidiaries


Eliminations


Consolidated


EDMC


Eliminations


Consolidated(In thousands)ASSETSCurrent:Cash and cash equivalents

$
344,878


$
104


$
4,008


$



$
348,990


$
41,555


$



$
390,545Restricted cash


899







26,738







27,637











27,637Notes, advances and trade receivables, net


491



61



126,692







127,244



38







127,282Inventories










11,135







11,135











11,135Other current assets


12,545



568



51,670







64,783



(185
)






64,598Total current assets


358,813



733



220,243







579,789



41,408







621,197Property and equipment, net


47,735



5,884



467,623







521,242











521,242Intangible assets, net


3,409



65



476,899







480,373











480,373Goodwill


8,075







2,577,506







2,585,581











2,585,581Intercompany balances


1,719,187



(15,747
)


(1,703,440
)


















Other long-term assets


54,436







5,559







59,995



(342
)






59,653Investment in subsidiaries


1,411,226











(1,411,226
)






1,347,012



(1,347,012
)


Total assets

$
3,602,881


$
(9,065
)

$
2,044,390


$
(1,411,226
)

$
4,226,980


$
1,388,078


$
(1,347,012
)

$
4,268,046LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current:Current portion of long-term debt

$
191,913


$



$
941


$



$
192,854


$



$



$
192,854Accounts payable, accrued and other current liabilities


102,085



2,140



342,106







446,331











446,331Total current liabilities


293,998



2,140



343,047







639,185











639,185Long-term debt, less current portion


1,883,827







1,530







1,885,357











1,885,357Other long-term liabilities


77,561



45



92,735







170,341











170,341Deferred income taxes


483



72



184,530







185,085











185,085Total liabilities


2,255,869



2,257



621,842







2,879,968











2,879,968Total shareholders equity (deficit)


1,347,012



(11,322
)


1,422,548



(1,411,226
)


1,347,012



1,388,078



(1,347,012
)


1,388,078Total liabilities and shareholders equity (deficit)

$
3,602,881


$
(9,065
)

$
2,044,390


$
(1,411,226
)

$
4,226,980


$
1,388,078


$
(1,347,012
)

$
4,268,046  18




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONSOLIDATED
    STATEMENT OF OPERATIONS
 For the
    Three Months Ended September 30, 2009
  Guarantor


Non-Guarantor





EM LLC








EDMCEM LLC


Subsidiaries


Subsidiaries


Eliminations


Consolidated


EDMC


Eliminations


Consolidated(In thousands)Net revenues

$



$
(205
)

$
534,604


$



$
534,399


$



$



$
534,399Costs and expenses:Educational services


9,498



(526
)


286,741







295,713











295,713General and administrative


(19,191
)


420



166,822







148,051



56







148,107Depreciation and amortization


4,472



63



24,292







28,827











28,827Total costs and expenses


(5,221
)


(43
)


477,855







472,591



56







472,647Income (loss) before interest and income taxes


5,221



(162
)


56,749







61,808



(56
)






61,752Interest expense, net


35,911



(293
)


720







36,338



(9
)






36,329Equity in earnings of subsidiaries


(34,819
)










34,819







(15,791
)


15,791



Income (loss) before income taxes


4,129



131



56,029



(34,819
)


25,470



15,744



(15,791
)


25,423Provision for (benefit from) income taxes


(11,662
)


50



21,291







9,679



(18
)






9,661Net income (loss)

$
15,791


$
81


$
34,738


$
(34,819
)

$
15,791


$
15,762


$
(15,791
)

$
15,762   CONSOLIDATED
    STATEMENT OF OPERATIONS
 For the
    Three Months Ended September 30, 2008
  Guarantor


Non-Guarantor





EM LLC








EDMCEM LLC


Subsidiaries


Subsidiaries


Eliminations


Consolidated


EDMC


Eliminations


Consolidated(In thousands)Net revenues

$



$
3,328


$
430,900


$



$
434,228


$



$



$
434,228Costs and expenses:Educational services


11,146



2,360



240,006







253,512











253,512General and administrative


(14,645
)


772



135,175







121,302



57







121,359Depreciation and amortization


3,720







22,884







26,604











26,604Total costs and expenses


221



3,132



398,065







401,418



57







401,475Income (loss) before interest and income taxes


(221
)


196



32,835







32,810



(57
)






32,753Interest expense, net


37,587







733







38,320



(161
)






38,159Equity in earnings of subsidiaries


(19,971
)










19,971







3,407



(3,407
)


Income (loss) before income taxes


(17,837
)


196



32,102



(19,971
)


(5,510
)


(3,303
)


3,407



(5,406
)Provision for (benefit from) income taxes


(14,430
)


75



12,252







(2,103
)










(2,103
)Net income (loss)

$
(3,407
)

$
121


$
19,850


$
(19,971
)

$
(3,407
)

$
(3,303
)

$
3,407


$
(3,303
)  19




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  CONDENSED
    CONSOLIDATED STATEMENT OF CASH FLOWS
 For the
    Three Months Ended September 30, 2009
  Guarantor


Non-Guarantor


EM LLC





EDMCEM LLC


Subsidiaries


Subsidiaries


Consolidated


EDMC


Consolidated(In thousands)Net cash flows provided by (used in) operations

$
(12,864
)

$
1,688


$
211,748


$
200,572


$
11


$
200,583Cash flows from investing activitiesExpenditures for long-lived assets


(2,785
)


(365
)


(30,088
)


(33,238
)






(33,238
)Other investing activities










(3,232
)


(3,232
)






(3,232
)Net cash flows used in investing activities


(2,785
)


(365
)


(33,320
)


(36,470
)






(36,470
)Cash flows from financing activitiesNet repayments of debt and other


(104,282
)






(240
)


(104,522
)






(104,522
)Intercompany transactions


468,765



(685
)


(468,080
)










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


364,483



(685
)


(468,320
)


(104,522
)






(104,522
)Effect of exchange rate changes on cash and cash
    equivalents










(42
)


(42
)






(42
)Increase (decrease) in cash and cash equivalents


348,834



638



(289,934
)


59,538



11



59,549Beginning cash and cash equivalents


15,789



481



305,287



321,557



41,761



363,318Ending cash and cash equivalents

$
364,623


$
1,119


$
15,353


$
381,095


$
41,772


$
422,867   CONDENSED
    CONSOLIDATED STATEMENT OF CASH FLOWS
    For the Three Months Ended September 30, 2008
  Guarantor


Non-Guarantor


EM LLC





EDMCEM LLC


Subsidiaries


Subsidiaries


Consolidated


EDMC


Consolidated(In thousands)Net cash flows provided by (used in) operations

$
2,855


$
(1,661
)

$
107,321


$
108,515


$
174


$
108,689Cash flows from investing activitiesExpenditures for long-lived assets


(4,651
)


(574
)


(45,564
)


(50,789
)






(50,789
)Other investing activities










(1,797
)


(1,797
)






(1,797
)Net cash flows used in investing activities


(4,651
)


(574
)


(47,361
)


(52,586
)






(52,586
)Cash flows from financing activitiesNet repayments of debt and other


57,034



(1
)


(267
)


56,766







56,766Intercompany transactions


287,326



2,205



(289,531
)










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


344,360



2,204



(289,798
)


56,766







56,766Effect of exchange rate changes on cash and cash
    equivalents










268



268







268Increase (decrease) in cash and cash equivalents


342,564



(31
)


(229,570
)


112,963



174



113,137Beginning cash and cash equivalents


2,314



135



233,578



236,027



41,381



277,408Ending cash and cash equivalents

$
344,878


$
104


$
4,008


$
348,990


$
41,555


$
390,545  20




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##### Table of Contents



EDUCATION
    MANAGEMENT LLC AND SUBSIDIARIES
  CONDENSED
    NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   15.
    SUBSEQUENT
    EVENTS     21




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##### Table of Contents



ITEM 2.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Results
    of Operations
  Amounts
    expressed as a percentage of net revenues
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  For the Three MonthsEnded September 30,2009


2008(Unaudited)Net revenues


100.0
%


100.0
%Costs and expenses:Educational services


55.4
%


58.4
%General and administrative


27.7
%


27.9
%Depreciation and amortization


5.4
%


6.1
%Total costs and expenses


88.5
%


92.4
%Income before interest and income taxes


11.5
%


7.6
%Interest expense, net


6.8
%


8.7
%Income (loss) before income taxes


4.7
%


(1.1
)%Provision for (benefit from) income taxes


1.8
%


(0.5
)%Net income (loss)


2.9
%


(0.6
)%   Three
    months ended September 30, 2009 (current period) compared
    to the three months ended September 30, 2008 (prior
    period)
  All basis point changes are presented as a percentage of net
    revenues in each period of comparison.
  Net
    revenues
      Educational
    services expense
   22




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##### Table of Contents



out-of-school
  General
    and administrative expense
      Depreciation
    and amortization expense
    Interest
    expense, net
    Provision
    for income taxes
   23




---



##### Table of Contents



Liquidity
    and Funds of Capital Resources
      Operating
    cash flows
            Investing
    cash flows
   24




---



##### Table of Contents



Financing
    cash flows
              Federal
    Family Education Loan Program and Private Student
    Loans
   25




---



##### Table of Contents



and/or
        Contingencies
    New
    Accounting Standards Not Yet Adopted
    Non-GAAP Financial
    Measures
   26




---



##### Table of Contents



For the Three MonthsEnded September 30,2009


2008Net income (loss)

$
15.8


$
(3.3
)Interest expense, net


36.3



38.2Provision for (benefit from) income taxes


9.7



(2.1
)Depreciation and amortization


28.8



26.6EBITDA

$
90.6


$
59.4   Covenant
    Compliance
         27




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##### Table of Contents



For the TwelveMonths EndedSeptember 30,2009Net income

$
123.4Interest expense, net


151.6Provision for income taxes


73.0Depreciation and amortization


114.5EBITDA


462.5Reversal of impact of unfavorable leases(1)


(1.2
)Transaction and advisory expense(2)


5.0Severance and relocation


5.5Capital taxes


4.2Other


1.4Adjusted EBITDA  Covenant Compliance

$
477.4     (1)
    
    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.(2)
    
    Represents fees incurred under a management advisory agreement
    with the Sponsors.    Covenant

ActualSenior Secured Credit Facility

Requirements

RatiosAdjusted EBITDA to Consolidated Interest Expense ratio


Minimum of 1.80
x


3.14
xConsolidated Total Debt to Adjusted EBITDA ratio


Maximum of 6.25
x


3.15
x   Certain
    Risks and Uncertainties
   28




---



##### Table of Contents



ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK          ITEM 4.
    CONTROLS
    AND PROCEDURES  Rule 13a-15(e) Form 10-Q.
  Form 10-Q
 29




---



##### Table of Contents



PART II
    OTHER INFORMATION ITEM 1.
    LEGAL
    PROCEEDINGS    ITEM 1A.
    RISK
    FACTORS  no. 333-148259)
  ITEM 2.
    UNREGISTERED
    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS    ITEM 3.
    DEFAULTS
    UPON SENIOR SECURITIES    ITEM 4.
    SUBMISSION
    OF MATTERS TO VOTE OF SECURITY HOLDERS    ITEM 5.
    OTHER
    INFORMATION    ITEM 6.
    EXHIBITS INDEX  Number

Document3
.1

Amended and Restated Articles of Incorporation.3
.2

Amended and Restated Bylaws.10
.1

Shareholders Agreement dated as of October 7, 2009 by and
    among Education Management Corporation and the shareholders
    party thereto.10
.2

Education Management Corporation Omnibus Long-Term Incentive
    Plan.10
.3

Form of Stock Option Agreement.10
.4

Form of Restricted Stock Award Agreement.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 2002.31
.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 2002.32
.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 2002.32
.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.  30




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##### Table of Contents



SIGNATURE          Date:
    November 10, 2009
 31