##### 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 1934
 For the fiscal year ended June 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to  .
 Commission File No: 001-34466
 
 EDUCATION MANAGEMENT CORPORATION
 (Exact name of registrant as specified in its charter)
 
 Pennsylvania
    
    21-1119571(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)210 Sixth Avenue, Pittsburgh, PA, 33rdFloor
    
    15222(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (412) 562-0900
 
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $0.01 per share
    
    The NASDAQ Global Select Market
  Yes o No þ
 Yes o No þ
 Yes þ No o
 o o
 Form 10-K. o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 Yes o No þ




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##### 



Table of Contents
 INDEX
 PAGEPART I ITEM 1  BUSINESS
    
    
    5ITEM 1A  RISK FACTORS
    
    
    34ITEM 1B  UNRESOLVED STAFF COMMENTS
    
    
    51ITEM 2  PROPERTIES
    
    
    51ITEM 3  LEGAL PROCEEDINGS
    
    
    51ITEM
4  (REMOVED AND RESERVED)
    
    
    52PART II ITEM 5  MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    53ITEM 6  SELECTED FINANCIAL DATA
    
    
    55ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    58ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    78ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    80ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    119ITEM 9A  CONTROLS AND PROCEDURES
    
    
    119ITEM 9B  OTHER INFORMATION
    
    
    119PART III ITEM 10  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    120ITEM 11  EXECUTIVE COMPENSATION
    
    
    120ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    120ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    120ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    120PART IV ITEM 15  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    121Exhibit 10.28Exhibit 10.29Exhibit 10.30Exhibit 10.31Exhibit 10.32Exhibit 10.33Exhibit 12.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I
 SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
  
    
    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 and new regulations currently proposed by the U.S.
Department of Education;
 
    
    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 private loans for our students;
 
    
    loans provided to students under our Education Finance Loan program with a private lender;
 
    
    effects of a general economic slowdown or recession in the United States or abroad;
 
    
    disruptions in the credit and equity markets worldwide;
 
    
    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;
  3




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
    
    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;
 
    
    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.
   4




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ITEM 1. BUSINESS
 On June 1, 2006, EDMC was acquired by a consortium of private investors through a merger of an
acquisition company into EDMC, with EDMC surviving the merger. We sometimes refer to that
transaction in this Form 10-K as the Transaction. Our principal shareholders are private equity
funds affiliated with Providence Equity Partners, Goldman Sachs Capital Partners and Leeds Equity
Partners, which we refer to in this Form 10-K collectively as the Sponsors. As used in this Form
10-K, unless otherwise stated or the context otherwise requires, references to we, us, our,
the Company, EDMC and similar references refer collectively to Education Management Corporation
and its subsidiaries. References to our fiscal year refer to the 12-month period ended June 30 of
the year referenced.
 Business Overview
       5




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
    
    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 selective 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 48 Art Institutes campuses in 24 U.S. states and
in Canada. As of October 2009, students enrolled at The Art Institutes
represented approximately 56% of our total enrollments.
 
    
    Argosy University.Argosy University offers academic programs in
psychology and behavioral sciences, education, business and health
sciences disciplines. Argosy offers Doctoral, Masters and
undergraduate degrees. Argosys academic programs focus on graduate
students seeking advanced 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. As of October 2009, students enrolled at Argosy
University represented approximately 18% of our total enrollments.
 
    
    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 25 Brown
Mackie College campuses in 14 U.S. states. As of October 2009,
students enrolled at Brown Mackie Colleges represented approximately
14% of our total enrollments.
 
    
    South University.South University offers academic programs in health
sciences and business disciplines, including business administration,
health services management, nursing, pharmacy, medical assisting,
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 eight
South University campuses in six U.S. states. As of October 2009,
students enrolled at South University represented approximately 12% of
our total enrollments.
 Legislative and Regulatory Action
 Industry Overview
    6




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Our Competitive Strengths
  
    
    Commitment to offering quality academic programs and student and graduate success
  
    
    Recognized brands aligned with specific fields of study and degree offerings
   7




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
    
    Diverse program offerings and broad degree capabilities
  
    
    National platform of schools and integrated online learning platform
    
    
    Strong management team with a focus on long-term performance
  Our Growth Strategy
  
    
    Introduce new and existing academic programs across our national platform of schools
    8




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
    
    Increase enrollments in online distance learning and blended-format programs
  
    
    Develop new school locations in attractive markets
   Student Recruitment and Marketing
     9




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Student Admissions and Retention
   The Art Institutes
    
    26 years oldArgosy University
    
    36 years oldSouth University
    
    33 years oldBrown Mackie Colleges
    
    30 years old
  Education Programs
   2009
    
    
    2008Bachelors degrees
    
    
    47
    %
    
    
    49
    %Associates degrees
    
    
    31
    %
    
    
    27
    %Diploma and Certificates
    
    
    8
    %
    
    
    9
    %Doctorate degrees
    
    
    7
    %
    
    
    8
    %Masters degrees
    
    
    7
    %
    
    
    7
    %
   10




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The Art Institutes.
 The School of DesignAssociates Degree
    
    Bachelors DegreeGraphic Design
    
    AdvertisingInterior Design
    
    Design ManagementGraphic DesignIllustration & DesignIndustrial DesignInterior DesignThe School of FashionAssociates Degree
    
    Bachelors DegreeFashion Design
    
    Fashion DesignFashion Marketing
    
    Fashion MarketingFashion Merchandising
    
    Fashion MerchandisingFashion & Retail ManagementThe School of Media ArtsAssociates Degree
    
    Bachelors DegreeAnimation Art & Design
    
    Animation Art & DesignAudio Production
    
    Audio ProductionPhotography
    
    Digital Filmmaking & Video ProductionVideo Production
    
    Digital Media ProductionWeb Design & Interactive Media Design
    
    Game Art & DesignMedia Arts & AnimationPhotographyVisual Effects & Motion GraphicsVisual & Game ProgrammingWeb Design & Interactive Media DesignThe School of Culinary ArtsAssociates Degree
    
    Bachelors DegreeBaking and Pastry
    
    Culinary ManagementCulinary Arts
    
    Hotel & Restaurant Management
 Argosy University.
 School of Undergraduate StudiesBachelor of Arts
    
    Bachelor of SciencePsychology
    
    Business AdministrationPsychology and Behavioral SciencesMaster of Arts
    
    Doctor of PsychologyClinical Psychology
    
    Clinical PsychologyCounseling PsychologyCommunity CounselingForensic Psychology
    
    Doctor of EducationIndustrial Organizational Psychology
    
    Counselor Education and SupervisionMarriage and Family Therapy
    
    Counseling PsychologyMental Health Counseling
    
    Pastoral Community CounselingHealth SciencesAssociate of Applied Science
    
    Associate of ScienceDiagnostic Medical Sonography
    
    Dental HygieneRadiologic Technology
    
    Medical Laboratory TechnologyVeterinary Technology
  11




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EducationMaster of Arts in Education
    
    Doctor of EducationInstructional Leadership
    
    Instructional LeadershipEducational Leadership
    
    Educational LeadershipSchool Counseling
    
    Organizational LeadershipBusinessMaster of ScienceManagementMaster of Business Administration
 Brown Mackie Colleges.
 Healthcare and Wellness
    
    NursingAssociates Degrees
    
    Associates DegreesHealthcare Administration
    
    NursingMedical AssistingOccupational Therapy Assistant
    
    Early Childhood EducationPharmacy Technology
    
    Associates DegreePhysical Therapist Assistant
    
    Early Childhood EducationSurgical TechnologyVeterinary TechnologyLegal StudiesAssociates Degrees
    
    Bachelors DegreesCriminal Justice
    
    Criminal JusticeParalegalBusinessAssociates Degrees
    
    Bachelors DegreesAccounting
    
    Business AdministrationBusinessBusiness AdministrationInformation TechnologyAssociates DegreesAudio/Visual ProductionBiomedical Equipment TechnologyComputer Aided Design & Drafting TechnologyComputer Networking and ApplicationsInformation Technology
  12




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South University.
 College of Arts and SciencesAssociates Degrees
    
    Masters DegreesParalegal Studies
    
    Professional CounselingBachelors DegreesCriminal JusticeLegal StudiesPsychologyCollege of BusinessAssociates Degrees
    
    Masters DegreesAccounting
    
    Business AdministrationBusiness AdministrationInformation TechnologyBachelors DegreesBusiness AdministrationHealthcare ManagementInformation TechnologyCollege of Health ProfessionsAssociates Degrees
    
    Bachelors DegreesAllied Health Science
    
    Health ScienceMedical AssistingPhysical Therapist AssistingCollege of NursingBachelors Degrees
    
    Masters DegreesNursing
    
    NursingSchool of PharmacyDoctorate DegreesDoctor of Pharmacy
  Graduate Employment
   13




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Accreditation
     14




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Calendar
    
    Fiscal YearYear
    
    AcquiredSchool
    
    Location
    
    Established
    
    or 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)The 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)
  15




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Calendar
    
    Fiscal YearYear
    
    AcquiredSchool
    
    Location
    
    Established
    
    or Opened
    
    Accrediting AgencyThe 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 AssociationThe Art Institute of Dallas
    
    Dallas, TX
    
    
    1964
    
    
    
    1985
    
    
    SACSThe Art Institute of Fort Lauderdale
    
    Fort Lauderdale, FL
    
    
    1968
    
    
    
    1974
    
    
    ACICSThe Art Institute of Fort Worth
    
    Fort Worth, TX
    
    
    2009
    
    
    
    2010
    
    
    SACS (as a branch of The Art
Institute of Dallas)The Art Institute of Houston
    
    Houston, TX
    
    
    1974
    
    
    
    1979
    
    
    SACSThe Art Institute of Houston  North
    
    Houston, TX
    
    
    2008
    
    
    
    2009
    
    
    SACS (as a branch of The Art Institute of Houston)The 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
    
    
    HLC and 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
    
    
    ACICS
  16




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Calendar
    
    Fiscal YearYear
    
    AcquiredSchool
    
    Location
    
    Established
    
    or Opened
    
    Accrediting AgencyThe Art Institute of Pittsburgh
    
    Pittsburgh, PA
    
    
    1921
    
    
    
    1970
    
    
    Middle States Association of Colleges & Schools of
the Commission on Higher EducationThe Art Institute of Portland
    
    Portland, OR
    
    
    1963
    
    
    
    1998
    
    
    Northwest Commission on Colleges and Universities (NWCCU)The Art Institute of Raleigh-Durham
    
    Durham, NC
    
    
    2008
    
    
    
    2008
    
    
    ACICS (as a branch of The Art Institute of Charlotte)The Art Institute of
San Antonio
    
    San Antonio, TX
    
    
    2010
    
    
    
    2010
    
    
    SACS (as a branch of the Art Institute
of Houston)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 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
Virginia Beach
    
    Virginia Beach,
VA
    
    
    2009
    
    
    
    2010
    
    
    SACS (as a branch of The Art Institute of Atlanta)The Art Institute of Washington
    
    Arlington, VA
    
    
    2000
    
    
    
    2001
    
    
    SACS (as a branch of The Art Institute of Atlanta)The Art Institute of Washington 
Northern Virginia
    
    Sterling, VA
    
    
    2009
    
    
    
    2009
    
    
    SACS (as a branch of The Art Institute of Atlanta)The Art Institute of
Wisconsin (1)
    
    Milwaukee, WI
    
    
    2010
    
    
    
    2010
    
    
    ACICS (as a branch of The Art Institute of
Phoenix)The Art Institute of York 
Pennsylvania
    
    York, PA
    
    
    1952
    
    
    
    2004
    
    
    ACCSCTThe Art Institutes International 
Kansas City
    
    Kansas City, KS
    
    
    2008
    
    
    
    2008
    
    
    ACICS (as a branch of The Art Institute of Phoenix)
  17




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Calendar
    
    Fiscal YearYear
    
    AcquiredSchool
    
    Location
    
    Established
    
    or Opened
    
    Accrediting AgencyThe Art Institutes 
International Minnesota
    
    Minneapolis, MN
    
    
    1964
    
    
    
    1997
    
    
    ACICSThe Illinois Institute of
Art  Chicago
    
    Chicago, IL
    
    
    1916
    
    
    
    1996
    
    
    HLC and ACCSCTThe 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 Bernardino, 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
    
    Salt Lake City, UT
    
    
    2008
    
    
    
    2008Argosy University, San 
Diego
    
    San Diego, CA
    
    
    2006
    
    
    
    2006Argosy University, San 
Francisco
    
    Point Richmond, CA
    
    
    1998
    
    
    
    2002
  18




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Calendar
    
    Fiscal YearYear
    
    AcquiredSchool
    
    Location
    
    Established
    
    or Opened
    
    Accrediting AgencyArgosy 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
    
    
    
    2002Argosy 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
    
    
    
    2006South University/
Richmond
    
    Richmond, VA
    
    
    2009
    
    
    
    2009South University/Novi (1)
    
    Novi, MI
    
    
    2009
    
    
    
    2010South University/Virginia 
Beach
    
    Virginia Beach, VA
    
    
    2010
    
    
    
    2010The 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
    
    
    ACICS
  19




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##### Table of Contents



Calendar
    
    Fiscal YearYear
    
    AcquiredSchool
    
    Location
    
    Established
    
    or Opened
    
    Accrediting AgencyBrown 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 Charlotte)Brown Mackie College  Kansas City
    
    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
    
    
    ACICSBrown 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
    
    
    
    2009
    
    
    ACICS (as a branch of Brown Mackie College  South Bend)Brown Mackie College  Phoenix
    
    Phoenix, AZ
    
    
    2008
    
    
    
    2009
    
    
    ACICS (as a branch of Brown Mackie College  Tucson)
  20




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##### Table of Contents



Calendar
    
    Fiscal YearYear
    
    AcquiredSchool
    
    Location
    
    Established
    
    or Opened
    
    Accrediting AgencyBrown Mackie College  Greenville
    
    Greenville, SC
    
    
    2009
    
    
    
    2009
    
    
    ACICS (as a branch of Brown Mackie College  Tucson)Brown Mackie
College  St. Louis
    
    St. Louis,
MO
    
    
    2009
    
    
    
    2010
    
    
    ACICS (as a branch of Brown Mackie College  Tucson)Brown Mackie
College  Albuquerque
    
    Albuquerque,
NM
    
    
    2010
    
    
    
    2010
    
    
    ACICS (as a branch of Brown Mackie College  Tucson)Brown Mackie
College  San Antonio (1)
    
    San Antonio,
TX
    
    
    2010
    
    
    
    2010
    
    
    ACICS (as a branch of The Art Institute of Phoenix)Western State University College
of Law
    
    Fullerton, CA
    
    
    1966
    
    
    
    2002
    
    
    Commission on Colleges of the Western Association
of Schools and Colleges;
American Bar Association
 (1)
    
    First class scheduled to start in October 2010    21




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##### Table of Contents



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;
 
    
    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 2010
    
    

Fiscal
2009(6)% of
    
    
    
    
    
    
    
    
    
    
    % ofGross Cash
    
    
    Gross
    
    
    % of Net
    
    
    Gross Cash
    
    
    Gross
    
    
    % of NetReceipts(1)
    
    
    Receipts
    
    
    Revenue
    
    
    Receipts(1)
    
    
    Receipts
    
    
    RevenueFederal Title IV Aid(2):FFEL  Stafford and Direct Loans
    
    $
    1,558.9
    
    
    
    51.5
    %
    
    
    62.1
    %
    
    $
    1,194.2
    
    
    
    49.9
    %
    
    
    59.4
    %FFEL  PLUS Loans
    
    
    265.1
    
    
    
    8.8
    %
    
    
    10.6
    %
    
    
    203.8
    
    
    
    8.5
    %
    
    
    10.1
    %Grad Plus Loans
    
    
    37.7
    
    
    
    1.2
    %
    
    
    1.5
    %
    
    
    25.2
    
    
    
    1.1
    %
    
    
    1.3
    %Pell Grants
    
    
    358.4
    
    
    
    11.8
    %
    
    
    14.3
    %
    
    
    193.0
    
    
    
    8.1
    %
    
    
    9.6
    %FSEOG Awards
    
    
    13.0
    
    
    
    0.4
    %
    
    
    0.5
    %
    
    
    12.3
    
    
    
    0.5
    %
    
    
    0.6
    %Perkins Loans
    
    
    1.7
    
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    5.0
    
    
    
    0.2
    %
    
    
    0.2
    %Other Title IV Aid(3)
    
    
    4.6
    
    
    
    0.2
    %
    
    
    0.2
    %
    
    
    2.9
    
    
    
    0.1
    %
    
    
    0.1
    %Total Federal Title IV Aid
    
    
    2,239.4
    
    
    
    74.0
    %
    
    
    89.3
    %
    
    
    1,636.4
    
    
    
    68.4
    %
    
    
    81.3
    %Private Loans
    
    
    112.0
    
    
    
    3.7
    %
    
    
    4.5
    %
    
    
    261.5
    
    
    
    10.9
    %
    
    
    13.0
    %Education Finance Loan Program
    
    
    65.6
    
    
    
    2.2
    %
    
    
    2.6
    %
    
    
    19.0
    
    
    
    0.8
    %
    
    
    1.0
    %Cash Payments
    
    
    552.2
    
    
    
    18.2
    %
    
    
    22.0
    %
    
    
    413.4
    
    
    
    17.3
    %
    
    
    20.6
    %State Grants
    
    
    47.4
    
    
    
    1.6
    %
    
    
    1.9
    %
    
    
    52.9
    
    
    
    2.2
    %
    
    
    2.6
    %Canadian Financial Aid
    
    
    9.6
    
    
    
    0.3
    %
    
    
    0.4
    %
    
    
    8.4
    
    
    
    0.4
    %
    
    
    0.4
    %Total Cash Receipts(4)
    
    $
    3,026.2
    
    
    
    100.0
    %
    
    
    120.7
    %
    
    $
    2,391.6
    
    
    
    100.0
    %
    
    
    118.9
    %Net Revenue(5)
    
    
    
    
    
    
    
    
    
    $
    2,508.5
    
    
    
    
    
    
    
    
    
    
    $
    2,011.5
  22




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##### Table of Contents



(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)
    
    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 semesters starting
during the fiscal year.(3)
    
    Includes receipts from the Academic Competitive Grant program and the National SMART Grant program.(4)
    
    Total cash receipts include stipends, or financing received by students in excess of the tuition
and fees that 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 2010 and 2009 were $531.2 million and $399.1
million, respectively. Aid received from the Federal Work Study program is excluded from total
cash receipts along with institutional aid, employee reimbursement of tuition payments and
institutional scholarships.(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.(6)
    
    Certain amounts have been updated  from the prior year presentation
due to refunds and other revisions which occurred after the completion
of fiscal 2009. FFEL and Direct Loans.
  Pell.
 FSEOG.
  23




---



##### Table of Contents



Perkins.
 Federal Work-Study.
 ACG and National Smart Programs.
 Legislative and Regulatory Action.
     24




---



##### Table of Contents




    
    As more fully described below, eliminating the 12
safe harbors for types of activities and payment
arrangements of certain persons and entities involved in
student recruiting and other activities that an
institution may carry out without violating the HEAs
prohibition on the payment of incentive compensation to
these persons and entities. One of the safe harbors
permits the payment of fixed compensation, such as a fixed
annual salary or hourly wage, so long as the fixed
compensation is not adjusted up or down more than twice
during any 12-month period, and any adjustment to the
fixed compensation is not based solely on the number of
students recruited, admitted, enrolled or awarded
financial aid. The proposed regulation would prohibit an
institution from making salary adjustments or providing
anything of value to any person or entity engaged in any
student recruitment or admission activity or in making
decisions regarding the awarding of Title IV program funds
if the salary adjustment or thing of value is based
directly or indirectly upon success in securing
enrollments or the award of financial aid.
 
    
    As more fully described below, adopting a definition of gainful
employment that would result in the ineligibility of
programs where (i) students who attended the program have
annual loan repayment rates on FFEL and Direct loans of
less than 35%, and (ii) students who completed the program
have an assumed debt-to-income ratio that is greater than
30% of their discretionary income and greater than 12% of
their assumed average annual earnings. The proposed
regulation would also impose growth restrictions and
warning requirements and employer affirmation restrictions
for programs that do not meet certain minimum
debt-to-income ratios and FFEL/Direct loan repayment
rates.
 
    
    Revising the related definitions and
provisions to expand the activities that
constitute a substantial misrepresentation
by an institution of the nature of its
educational programs, its financial
charges or the employability of its
graduates. Under the proposed
regulations, any false, erroneous, or
misleading statement, or statement that
has a capacity to mislead, that a
representative of an institution or person
or entity with whom the institution has an
agreement makes directly or indirectly to
any member of the public, an accrediting
agency or a state licensing agency could
constitute a misrepresentation by the
institution. The proposed regulations
also expand the type of statements and the
manner in which statements can be made
along with the U.S. Department of
Educations ability to enforce their
regulation by revocation or limitation of
an institutions eligibility to
participate in the Title IV programs.
 
    
    Requiring states to legally authorize
institutions through a state governmental
agency or entity, subject institutions to
adverse action by the state, and establish
a process to review and act on complaints
concerning institutions and enforce
applicable state laws. There are no
similar requirements under the existing
regulations adopted by the U.S. Department
of Education. The HEA requires
post-secondary institutions to be
authorized to offer programs within the
state in which they are physically located
in order to provide access to students to
financial assistance resources through
Title IV but does not require such
authorization to be performed by a state
agency or entity. One of our schools is
located in a state that does not have an
existing state agency or entity
responsible for post-secondary education.
 
    
    Limiting the percentage of an
enrolling institutions (the home
institution) program that could be
provided by another institution (the host
institution) if the institutions have a
common, for-profit parent. The preamble
language to the proposed regulation states
that, if the host institution delivers
programs in a distinct format, such as
distance education, the home institutions
accreditor must approve the mode of
delivery. Some of our students take
online courses at one of our three schools
that offer fully online programs under an
agreement between the two schools approved
by the home institutions accrediting
agency even though the home institution
does not have the capability or approval
from its accrediting agency to offer
online programs. We are unsure whether
the new proposed regulation would limit
students attending a home institution from
taking online classes at a host
institution we own.
 
    
    Defining a credit hour and establishing
the procedures that accrediting agencies
must have in place to determine whether an
institutions assignment of a credit hour
is acceptable.
  25




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##### Table of Contents



Other Financial Assistance Sources
     Federal Oversight of Title IV Programs
   26




---



##### Table of Contents



Cohort Default Rates.
     27




---



##### Table of Contents



Regulatory Oversight.
  Financial Responsibility Standards.
  28




---



##### Table of Contents



Return of Title IV Funds.
 Administrative Capability Requirements.
 Restrictions on Operating Additional Schools.
 The 90/10 Rule.
  29




---



##### Table of Contents



Restrictions on Payment of Bonuses, Commissions or Other Incentives.
  The Proposed Gainful Employment Rule
 DEBT BURDEN(A)
    
    
    
    (B)Above 12% of
    
    
    
    Below 8% ofEarnings AND 30%
    
    Neither Column (A)
    
    Earnings OR 20%of Discretionary
    
    or Column (B)
    
    of DiscretionaryIncome
    
    Applies
    
    IncomePRINCIPAL
REPAYMENT
RATE
    
    Above 45%
    
    Fully Eligible;
Warning
Required
    
    Fully Eligible;
Warning Required
    
    Fully Eligible35%  45%
    
    Restricted;
Warning
Required
    
    Restricted; Warning
Required
    
    Fully Eligible;
Warning
RequiredBelow 35%
    
    Ineligible
    
    Restricted; Warning
Required
    
    Fully Eligible;
Warning
Required
  30




---



##### Table of Contents



31




---



##### Table of Contents



State Authorization and Accreditation Agencies
      32




---



##### Table of Contents



Canadian Regulation and Financial Aid
     Employees
  Competition
  Seasonality in Results of Operations
   33




---



##### Table of Contents



Availability of Reports
 www.edmc.edu rd
 
 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.
 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.
    34




---



##### Table of Contents



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.
  The U.S. Department of Education has proposed a number of new regulations that, if adopted in their
current form, would result in significant changes to the way we operate our business and increases
to the administrative cost of complying with the regulations.
  
    
    As more fully described in Business  Federal Oversight of
Title IV Programs, eliminating the 12 safe
harbors for types of activities and payment arrangements
of certain persons and entities involved in student
recruiting and other activities that an institution may
carry out without violating the HEAs prohibition on the
payment of incentive compensation to these persons and
entities. One of the safe harbors permits the payment of
fixed compensation, such as a fixed annual salary or
hourly wage, so long as the fixed compensation is not
adjusted up or down more than twice during any 12-month
period, and any adjustment to the fixed compensation is
not based solely on the number of students recruited,
admitted, enrolled or awarded financial aid. The proposed
regulation would prohibit an institution from making
salary adjustments or providing anything of value to any
person or entity engaged in any student recruitment or
admission activity or in making decisions regarding the
awarding of Title IV program funds if the salary
adjustment or thing of value is based directly or
indirectly upon success in securing enrollments or the
award of financial aid.
 
    
    As more fully described in Business  Federal Oversight of
Title IV Programs, defining gainful employment
that would result in the ineligibility of programs where
(i) students who attended the program have annual loan
repayment rates on FFEL and Direct loans of less than 35%,
and (ii) students who completed the program have an
assumed debt-to-income ratio that is greater than 30% of
their discretionary income and greater than 12% of their
assumed average annual earnings. The proposed regulation
would also impose growth restrictions and warning
requirements and employer affirmation restrictions for
programs that do not meet certain minimum debt-to-income
ratios and FFEL/Direct loan repayment rates.
 
    
    Revising the related definitions and
provisions to expand the activities that
constitute a substantial misrepresentation
by an institution of the nature of its
educational programs, its financial
charges or the employability of its
graduates. Under the proposed
regulations, any false, erroneous, or
misleading statement, or statement that
has a capacity to mislead, that a
representative of an institution or person
or entity with whom the institution has an
agreement makes directly or indirectly to
any member of the public, an accrediting
agency or a state licensing agency could
constitute a misrepresentation by the
institution. The proposed regulations
also expand the type of statements and the
manner in which statements can be made.
The proposed regulations also expand the
U.S. Department of Educations ability to
enforce their regulation by revocation or
limitation of an institutions eligibility
to participate in the Title IV programs.
  35




---



##### Table of Contents




    
    As more fully described below, requiring
states to legally authorize institutions
through a state governmental agency or
entity, subject institutions to adverse
action by the state, and establish a
process to review and act on complaints
concerning institutions and enforce
applicable state laws.
 
    
    Limiting the percentage of a home
institutions program that could be
provided by a host
institution if the institutions have a
common, for-profit parent. The preamble
language to the proposed regulation states
that, if the host institution delivers
programs in a distinct format, such as
distance education, the home institutions
accreditor must approve the mode of
delivery. Some of our students take
online courses at one of our three schools
that offer fully online programs under an
agreement between the two schools approved
by the home institutions accrediting
agency even though the home institution
does not have the capability or approval
from its accrediting agency to offer
online programs. We are unsure whether
the new proposed regulation would limit
students attending a home institution from
taking online classes at a host
institution we own.
 
    
    Defining a credit hour and establishing
the procedures that accrediting agencies
must have in place to determine whether an
institutions assignment of a credit hour
is acceptable.
  The definition of gainful employment proposed by the U.S. Department of Education could result in
our inability to offer a number of programs currently offered to students and substantially
decrease the attractiveness of our programs to prospective students, which could reduce the number
of students attending our schools and revenue, earnings and cash flows.
   36




---



##### Table of Contents



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.
     37




---



##### 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;
 
    
    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.
   38




---



##### Table of Contents



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.
    39




---



##### Table of Contents



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.
     40




---



##### Table of Contents



Our regulatory environment and our reputation may be negatively influenced by the actions of other
post-secondary education institutions.
  We do not have significant experience in processing student loans through the Direct Loan program
and we could experience increases to our administrative costs and delays to the receipt of federal
loan proceeds.
  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 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;
  41




---



##### Table of Contents




    
    changes in applicable laws or regulations, such as provisions of the most
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;
and
 
    
    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 institutions.
     We
do not anticipate awarding aid to new students under the Education Finance Loan program during fiscal
2011, which could have a material adverse effect on our financial condition, results of operations
and cash flows.
    42




---



##### Table of Contents



Our business may be adversely affected by a general economic slowdown or recession in the U.S. or
abroad.
  The continued disruptions in the credit and equity markets worldwide may impede or prevent our
access to the capital markets for additional funding to expand or operate our business and may
affect the availability or cost of borrowing under our existing credit facilities.
  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.
   43




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##### Table of Contents



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.
   Our marketing and advertising programs may not be effective in attracting prospective students,
current students or potential employers of our graduates.
  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.
   44




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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.
  Senior secured term loan facility
    
    $
    1,115.08
3/4% senior notes due 2014
    
    
    375.010
1/4% senior subordinated notes due 2016
    
    
    47.7Other
    
    
    1.0Total
    
    $
    1,538.7
  
    
    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, 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.
  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.
   45




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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.
  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 affect our ability to grow.
  Failure to effectively manage our growth could harm our business.
   46




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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.
   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.
   47




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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.
 Our inability to operate one or more of our schools or locations due to a natural disaster,
terrorist act or widespread epidemic or to restore a damaged school or location to its prior
operational level could materially hurt our operating results.
   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 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.
    48




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If we expand in the future into new markets outside the United States, we would be subject to risks
inherent in non-domestic operations.
  Private equity funds affiliated with the Sponsors own the majority of our voting stock, which, if
they act together, allows them to control substantially all matters requiring shareholder approval.
   We qualify for and avail ourselves of exemptions from certain corporate governance requirements for
companies whose stock is quoted on The NASDAQ Stock Market LLC (Nasdaq) that provide protection
to shareholders of other companies.
  
    
    that a majority of our Board of Directors consists of independent directors;
 
    
    that the compensation of executive officers be determined, or recommended
to our Board of Directors for determination, either by (a) a majority of
the independent directors or (b) a compensation committee comprised solely
of independent directors; and
 
    
    that director nominees be selected, or recommended for our Board of
Directors selection, either by (a) a majority of the independent directors
or (b) a nominations committee comprised solely of independent directors.
   49




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Provisions in our charter documents and the Pennsylvania Business Corporation Law could make it
more difficult for a third party to acquire us and could discourage a takeover and adversely affect
existing shareholders.
  
    
    our articles of incorporation prohibit cumulative voting in the election of directors;
 
    
    once the private equity funds affiliated with the Sponsors and certain
of our other institutional investors collectively cease to
beneficially own 50% or more of our outstanding common stock, our
articles of incorporation and bylaws will not (i) permit shareholder
action without a meeting by consent, except for unanimous written
consent, (ii) permit shareholders to call or to require the Board of
Directors to call a special meeting or (iii) permit shareholder
removal of directors without assigning any cause; and
 
    
    our bylaws provide that shareholders seeking to nominate candidates
for election as directors or to bring business before an annual
meeting of shareholders must comply with advance notice procedures.
  We currently do not intend to pay dividends on our common stock and, consequently, investors only
opportunity to achieve a return on their investment is if the price of our common stock
appreciates.
  We rely on dividends, distributions and other payments, advances and transfers of funds from our
operating subsidiaries to meet our debt service and other obligations.
   50




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##### Table of Contents



We experience seasonal fluctuations in our results of operations which may result in similar
fluctuations in the trading price of our common stock.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
    
 ITEM 3. LEGAL PROCEEDINGS
 Capalbo et al. v. Argosy University, Education Management LLC, Education Management
Corporation and Marilyn Powell-Kissinger Buirkle et al. v. Argosy Education Group, Inc., Education Management
LLC and Education Management Corporation
  51




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##### Table of Contents



Buirkle Adibian et al. v. Argosy
University, Education Management LLC and Education Management Corporation Adibian Buirkle
 qui tam Buchanan v. South University Online and Education
Management Corporation
 Gaer v. Education Management
Corp., et. al
   
 ITEM 4. (REMOVED AND RESERVED)
  52




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PART II
 
 ITEM 5.
    MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
   Year Ended June 30,2010High
    
    
    LowFiscal Quarter EndedDecember 31
    
    $
    26.98
    
    
    $
    20.06March 31
    
    $
    24.11
    
    
    $
    17.10June 30
    
    $
    26.79
    
    
    $
    15.05
  53




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54




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ITEM 6. SELECTED FINANCIAL DATA
     55




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Predecessor
    
    
    
    SuccessorPeriod from
    
    
    
    Period fromJuly 1, 2005
    
    
    
    June 1, 2006through
    
    
    
    throughMay 31,
    
    
    

June 30,
    
    
    Year Ended June 30,2006
    
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010(dollars in millions except per share amounts)Statement of Operations Data:Net revenues
    
    $
    1,095.8
    
    
    
    $
    74.4
    
    
    $
    1,363.7
    
    
    $
    1,684.2
    
    
    $
    2,011.5
    
    
    $
    2,508.5Costs and expenses:Educational services
    
    
    590.9
    
    
    
    
    59.0
    
    
    
    729.9
    
    
    
    901.3
    
    
    
    1,067.7
    
    
    
    1,267.1General and administrative
    
    
    273.3
    
    
    
    
    25.6
    
    
    
    310.3
    
    
    
    414.1
    
    
    
    507.7
    
    
    
    667.1Management fees paid to affiliates
    
    
    
    
    
    
    
    0.4
    
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0
    
    
    
    32.1Depreciation and amortization
    
    
    62.9
    
    
    
    
    7.4
    
    
    
    90.6
    
    
    
    100.3
    
    
    
    112.3
    
    
    
    123.4Total costs and expenses
    
    
    927.1
    
    
    
    
    92.4
    
    
    
    1,135.8
    
    
    
    1,420.7
    
    
    
    1,692.7
    
    
    
    2,089.7Income (loss) before interest, loss on early retirement of debt and income
taxes
    
    
    168.7
    
    
    
    
    (18.0
    )
    
    
    227.9
    
    
    
    263.5
    
    
    
    318.8
    
    
    
    418.8Interest expense (income), net
    
    
    (5.3
    )
    
    
    
    14.1
    
    
    
    168.3
    
    
    
    156.3
    
    
    
    153.3
    
    
    
    121.5Loss on early retirement of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47.2Income (loss) before income taxes
    
    
    174.0
    
    
    
    
    (32.1
    )
    
    
    59.6
    
    
    
    107.2
    
    
    
    165.5
    
    
    
    250.1Provision for (benefit from) income taxes
    
    
    73.6
    
    
    
    
    (12.4
    )
    
    
    27.2
    
    
    
    41.2
    
    
    
    61.1
    
    
    
    81.6Net income (loss)
    
    $
    100.4
    
    
    
    $
    (19.7
    )
    
    $
    32.4
    
    
    $
    66.0
    
    
    $
    104.4
    
    
    $
    168.5Basic earnings (loss) per common share
    
    
    *
    
    
    
    $
    (0.17
    )
    
    $
    0.27
    
    
    $
    0.55
    
    
    $
    0.87
    
    
    $
    1.23Diluted earnings (loss) per common share
    
    
    *
    
    
    
    $
    (0.17
    )
    
    $
    0.27
    
    
    $
    0.55
    
    
    $
    0.87
    
    
    $
    1.22Basic weighted average shares outstanding
    
    
    *
    
    
    
    
    116,316
    
    
    
    118,292
    
    
    
    119,769
    
    
    
    119,770
    
    
    
    136,917Diluted weighted average shares outstanding
    
    
    *
    
    
    
    
    116,316
    
    
    
    118,292
    
    
    
    119,769
    
    
    
    119,770
    
    
    
    137,667Statement of Cash Flows Data:Net cash flows provided by (used in):Operating activities
    
    $
    301.7
    
    
    
    $
    (22.5
    )
    
    $
    179.9
    
    
    $
    152.7
    
    
    $
    293.4
    
    
    $
    307.1Investing activities
    
    
    (56.4
    )
    
    
    
    (3,434.0
    )
    
    
    (110.8
    )
    
    
    (157.3
    )
    
    
    (173.1
    )
    
    
    (190.2
    )Financing activities
    
    
    (43.2
    )
    
    
    
    3,445.5
    
    
    
    (41.3
    )
    
    
    (8.5
    )
    
    
    (33.7
    )
    
    
    (106.4
    )Other Data:EBITDA(1)
    
    $
    231.6
    
    
    
    $
    (10.6
    )
    
    $
    318.5
    
    
    $
    363.8
    
    
    $
    431.1
    
    
    $
    542.2Capital expenditures for long lived assets
    
    $
    57.9
    
    
    
    $
    7.7
    
    
    $
    96.1
    
    
    $
    150.9
    
    
    $
    150.7
    
    
    $
    175.8Enrollment at beginning of fall quarter
    
    
    72,500
    
    
    
    
    
    
    
    
    80,300
    
    
    
    96,000
    
    
    
    110,800
    
    
    
    136,000Campus locations (at period end)
    
    
    71
    
    
    
    
    71
    
    
    
    78
    
    
    
    88
    
    
    
    92
    
    
    
    101
 
 *
    
    Not meaningful SuccessorAs of June 30,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010(In millions)Balance Sheet Data:Cash and cash equivalents (excludes restricted cash)
    
    $
    263.3
    
    
    $
    290.7
    
    
    $
    277.4
    
    
    $
    363.3
    
    
    $
    373.5Total assets
    
    
    3,945.5
    
    
    
    3,988.7
    
    
    
    4,095.4
    
    
    
    4,285.2
    
    
    
    4,511.6Total debt, including current portion and revolving credit facility
    
    
    2,110.0
    
    
    
    2,030.0
    
    
    
    2,021.4
    
    
    
    1,988.6
    
    
    
    1,538.7Total shareholders equity
    
    
    1,282.7
    
    
    
    1,350.8
    
    
    
    1,392.2
    
    
    
    1,485.7
    
    
    
    2,076.7
  56




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(1)
    
    EBITDA, a measure used by management to measure operating performance, is defined as net
income (loss) plus interest (income) expense, net, loss on early retirement of debt, provision for (benefit from) income taxes
and depreciation and amortization, including amortization of intangible assets. 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 flows 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. In
addition, management believes that EBITDA provides more comparability between our historical
results 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, 2006through
    
    
    
    throughMay 31,
    
    
    

June 30,
    
    
    Year Ended June 30,2006
    
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010(In millions)Net income (loss)
    
    $
    100.4
    
    
    
    $
    (19.7
    )
    
    $
    32.4
    
    
    $
    66.0
    
    
    $
    104.4
    
    
    $
    168.5Interest (income) expense, net
    
    
    (5.3
    )
    
    
    
    14.1
    
    
    
    168.3
    
    
    
    156.3
    
    
    
    153.3
    
    
    
    121.5Loss on early retirement of debt (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47.2Provision for (benefit from) income taxes
    
    
    73.6
    
    
    
    
    (12.4
    )
    
    
    27.2
    
    
    
    41.2
    
    
    
    61.1
    
    
    
    81.6Depreciation and amortization (b)
    
    
    62.9
    
    
    
    
    7.4
    
    
    
    90.6
    
    
    
    100.3
    
    
    
    112.3
    
    
    
    123.4EBITDA (c)
    
    $
    231.6
    
    
    
    $
    (10.6
    )
    
    $
    318.5
    
    
    $
    363.8
    
    
    $
    431.1
    
    
    $
    542.2
 (a)
    
    In connection with the initial public offering in October 2009, we retired
$316.0 million of the Senior Subordinated Notes in a tender offer. We also purchased
Senior Subordinated Notes with a face value of $21.4 million in the third quarter of
fiscal 2010 through another tender offer.(b)
    
    Depreciation and amortization includes $5.5 million in non-cash impairments related
to property, equipment and intangible assets in fiscal 2008.(c)
    
    EBITDA, as presented above, is different from 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 Adjusted EBITDA, see Management
Discussion and Analysis of Financial Condition and Results of Operations  Liquidity and Funds of
Capital Resources.  57




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Business Overview
         58




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Industry Overview
   Statement of Operations
    59




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60




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Results of Operations
  Amounts expressed as a percentage of net revenues
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Fiscal YearEnded June 30,2010
    
    
    2009
    
    
    2008Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Costs and expenses:Educational services
    
    
    50.5
    %
    
    
    53.1
    %
    
    
    53.5
    %General and administrative
    
    
    26.6
    %
    
    
    25.3
    %
    
    
    24.6
    %Management fees paid to affiliates
    
    
    1.3
    %
    
    
    0.2
    %
    
    
    0.3
    %Depreciation and amortization
    
    
    4.9
    %
    
    
    5.6
    %
    
    
    6.0
    %Total costs and expenses
    
    
    83.3
    %
    
    
    84.2
    %
    
    
    84.4
    %Income before interest, loss on early retirement of debt, and income taxes
    
    
    16.7
    %
    
    
    15.8
    %
    
    
    15.6
    %Interest expense, net
    
    
    4.8
    %
    
    
    7.6
    %
    
    
    9.3
    %Loss on early retirement of debt
    
    
    1.9
    %
    
    
    0.0
    %
    
    
    0.0
    %Income before income taxes
    
    
    10.0
    %
    
    
    8.2
    %
    
    
    6.3
    %Provision for income taxes
    
    
    3.3
    %
    
    
    3.0
    %
    
    
    2.4
    %Net income
    
    
    6.7
    %
    
    
    5.2
    %
    
    
    3.9
    %
 Year Ended June 30, 2010 (Fiscal 2010) Compared with the Year Ended June 30, 2009 (Fiscal 2009)
 All basis point changes are presented as a change in the percentage of net revenues in each
year of comparison.
 Net revenues
    61




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Educational services expense
  Federal Family Education
Loan Program and Private Student Loans
  General and administrative expense
   Management fees paid to affiliates
   62




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Depreciation and amortization
  Interest expense, net
  Loss on early retirement of debt
  Provision for income taxes
   Year Ended June 30, 2009 (Fiscal 2009) Compared with the Year Ended June 30, 2008 (Fiscal 2008)
 All basis point changes are presented as a change in the percentage of net revenues in each
year of comparison.
 Net revenues
    63




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Educational services expense
   General and administrative expense
  Management fees paid to affiliates
  Depreciation and amortization
  Interest expense, net
  Provision for income taxes
  Liquidity and Funds of Capital Resources
   64




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Operating cash flows
    Federal Family Education Loan Program and
Private Student Loans
  Investing cash flows
    65




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Financing cash flows
       Federal Family Education Loan Program and Private Student Loans
    66




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67




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Contractual obligations
  Total amounts
    
    
    Payments due by fiscal year (in thousands)committed
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    ThereafterTerm loan,
maturing on June 3, 2013
    
    $
    1,114,977
    
    
    $
    11,850
    
    
    $
    8,887
    
    
    $
    1,094,240
    
    
    $
    
    
    
    $
    
    
    
    $
    Senior notes, maturing on June 1, 2014
    
    
    375,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    375,000
    
    
    
    
    
    
    
    Senior subordinated notes, maturing on June 1, 2016
    
    
    47,680
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,680Other debt
    
    
    1,081
    
    
    
    253
    
    
    
    367
    
    
    
    284
    
    
    
    177
    
    
    
    
    
    
    
    Total short-term and long-term debt
    
    
    1,538,738
    
    
    
    12,103
    
    
    
    9,254
    
    
    
    1,094,524
    
    
    
    375,177
    
    
    
    
    
    
    
    47,680Interest payments (1)
    
    
    379,500
    
    
    
    108,906
    
    
    
    97,489
    
    
    
    125,627
    
    
    
    37,704
    
    
    
    4,887
    
    
    
    4,887Operating leases, extending through 2020
    
    
    1,138,750
    
    
    
    149,461
    
    
    
    150,480
    
    
    
    149,884
    
    
    
    139,899
    
    
    
    121,524
    
    
    
    427,502Unconditional purchase obligations through 2015
    
    
    66,045
    
    
    
    59,622
    
    
    
    3,823
    
    
    
    2,353
    
    
    
    247
    
    
    
    
    
    
    
    Education Finance Loan program (2)
    
    
    15,208
    
    
    
    15,208
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total commitments
    
    $
    3,138,241
    
    
    $
    345,300
    
    
    $
    261,046
    
    
    $
    1,372,388
    
    
    $
    553,027
    
    
    $
    126,411
    
    
    $
    480,069
 (1)
    
    Interest payments are based on either the fixed rate or the variable rate as of June 30, 2010
and assume that repayments are in accordance with the loan agreements without giving effect to
mandatory prepayments.(2)
    
    We are required to purchase loans originated by a private lender on behalf of our students
under the Education Finance Loan program. There is typically a 10-month lag between the time a loan is
originated by the private lender and when we purchase it. Contingencies
  Off Balance Sheet Arrangements
  Indebtedness
    68




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Senior Secured Credit Facilities
 Overview.
  Interest Rate and Fees. The Wall Street Journal
   Payments.
  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 the capital stock of Education
Management LLC;
 
    
    make investments, loans or advances;
 
    
    repay subordinated indebtedness (including Education Management LLCs senior
subordinated notes);
  69




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
    
    make certain acquisitions;
 
    
    engage in certain transactions with affiliates;
 
    
    enter into certain restrictive agreements;
 
    
    amend agreements governing our subordinated indebtedness (including Education
Management LLCs senior subordinated notes) and our organizational documents;
 
    
    change the nature of our business; and
 
    
    change the status of Education Management Holdings LLC as a passive holding company.
 Covenant Compliance
  Senior Notes and Senior Subordinated Notes
  
    
    incur additional indebtedness;
 
    
    pay dividends on or make other distributions or repurchase the capital stock of
Education Management LLC or any of its parent companies;
 
    
    make certain investments, including capital expenditures;
 
    
    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.
  Covenant Compliance
    70




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71




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For the Year EndedJune 30,2010Net income
    
    
    168.6Interest expense, net
    
    
    121.5Loss on early retirement of debt
    
    
    47.2Provision for income taxes
    
    
    81.7Depreciation and amortization
    
    
    123.4EBITDA
    
    
    542.4Reversal of impact of unfavorable leases (1)
    
    
    (0.8
    )Transaction and advisory expense (2)
    
    
    32.1Severance and relocation
    
    
    6.4Capital taxes
    
    
    5.1Non-cash compensation (3)
    
    
    21.4Other
    
    
    5.4Adjusted EBITDA  Covenant Compliance
    
    $
    612.0
 (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 purchase accounting as part of the
Transaction.(2)
    
    Represents pro rated portion of $5.0 million of advisory fees per annum beginning June 1,
2006 under the Sponsor Management Agreement and a non-recurring fee of
$29.6 million to terminate the agreement which was paid at the time of
the initial public offering.(3)
    
    Represents expense for stock options and restricted stock during the
fiscal year ended June 30, 2010.  Covenant
    
    
    ActualSenior secured credit facility
    
    Requirements
    
    
    RatiosAdjusted EBITDA to Consolidated Interest Expense ratio
    
    Minimum of 2.00x
    
    
    
    4.97xConsolidated Total Debt to Adjusted EBITDA ratio
    
    Maximum of 5.75x
    
    
    
    1.98x
 Regulations
    72




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Use of Estimates and Critical Accounting Policies
 General
   Revenue Recognition and Receivables
   73




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Impairment of Property, Equipment and Finite-Lived Intangible Assets
  Impairment of Goodwill and Indefinite-Lived Intangible Assets
   74




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
    
    Discount rate  The discount rate is based on each reporting units
estimated weighted average cost of capital (WACC). The cost of equity,
cost of debt and capital structure are the three components of the
WACC, each of which requires judgment by management to estimate. The
cost of equity was developed using the Capital Asset Pricing Model
(CAPM) which is comprised of a risk free rate, beta derived from
comparable company betas, and an equity risk premium combined with
other company-specific adjustments based on perceived risks and
predictability of each reporting units future cash flows. The supply
side equity risk premium, which utilizes the Morningstar 2010
Ibbotson® SBBI Valuation Workbook, is calculated by
subtracting the three-year average price-to-earnings ratio from the
historical equity risk premium (large company stock total returns
minus long-term government bond income returns). The cost of debt
component represents a market participants estimated cost of
borrowing, which we estimated using the average return on corporate
bonds as of the valuation date, adjusted for taxes.
 
    
    Future cash flow assumptions  Our projections are based on organic
growth and are derived from historical experience and assumptions on
how growth and profitability will trend into the future. These
projections also take into account the continuing growing demand for
post-secondary education and the growth opportunities that exist in
our markets. Our assumed period of cash flows was ten years with a
terminal value determined using the Gordon Growth Model.
  75




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
    
    $330.0 million related to The Art Institutes tradename; and
    
    $112.2 million related to our licensing, accreditation and Title IV program participation assets.
   Income Taxes
    76




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Stock-based compensation
    Valuation of
Privately-Held-Company Equity Securities Issued as Compensation
     (i) Income method (DCF)
  (ii) Guideline Public Company method
   77




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(iii) Guideline Transactions method
   
    
    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
     78




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79




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    81Consolidated Balance Sheets
    
    
    83Consolidated Statements of Operations
    
    
    84Consolidated Statements of Cash Flows and Supplemental Cash Flow Information
    
    
    85Consolidated Statements of Shareholders Equity
    
    
    87Notes to Consolidated Financial Statements
    
    
    88Schedule IIValuation and Qualifying Accounts
    
    
    116Supplemental Quarterly Information
    
    
    117
  80




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Report of Independent Registered Public Accounting Firm
 
      
  81




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Report of Independent Registered Public Accounting Firm
 
     .
  
  82




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EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
(In thousands)
 June 30,
    
    
    June 30,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    373,546
    
    
    $
    363,318Restricted cash
    
    
    12,842
    
    
    
    10,372Total cash, cash equivalents and restricted cash
    
    
    386,388
    
    
    
    373,690Receivables, net of allowances of $124,242 and $83,691 respectively
    
    
    167,857
    
    
    
    122,272Notes, advances and other
    
    
    20,680
    
    
    
    13,678Inventories
    
    
    11,655
    
    
    
    9,355Deferred income taxes (Note 11)
    
    
    65,410
    
    
    
    45,164Other current assets
    
    
    40,971
    
    
    
    30,163Total current assets
    
    
    692,961
    
    
    
    594,322Property and equipment, net (Note 4)
    
    
    678,846
    
    
    
    580,965Intangible assets, net (Note 5)
    
    
    467,188
    
    
    
    471,882Other long-term assets (Note 6)
    
    
    93,441
    
    
    
    58,945Goodwill (Note 5)
    
    
    2,579,131
    
    
    
    2,579,131Total assets
    
    $
    4,511,567
    
    
    $
    4,285,245Liabilities and shareholders equityCurrent liabilities:Current portion of long-term debt (Note 8)
    
    $
    12,103
    
    
    $
    12,622Revolving credit facility (Note 8)
    
    
    
    
    
    
    100,000Accounts payable
    
    
    71,211
    
    
    
    53,516Accrued liabilities (Note 7)
    
    
    178,085
    
    
    
    163,485Accrued income taxes (Note 11)
    
    
    17,851
    
    
    
    5,015Unearned tuition
    
    
    155,746
    
    
    
    118,741Advance payments
    
    
    72,154
    
    
    
    67,020Total current liabilities
    
    
    507,150
    
    
    
    520,399Long-term debt, less current portion (Note 8)
    
    
    1,526,635
    
    
    
    1,876,021Deferred income taxes (Note 11)
    
    
    180,934
    
    
    
    187,583Deferred rent
    
    
    165,808
    
    
    
    123,656Other long-term liabilities
    
    
    54,345
    
    
    
    91,933Shareholders equity:Common stock
    
    
    1,429
    
    
    
    1,198Additional paid-in capital
    
    
    1,749,456
    
    
    
    1,338,316Treasury stock, at cost
    
    
    (2,207
    )
    
    
    Retained earnings
    
    
    350,273
    
    
    
    181,767Accumulated other comprehensive loss
    
    
    (22,256
    )
    
    
    (35,628
    )Total shareholders equity
    
    
    2,076,695
    
    
    
    1,485,653Total liabilities and shareholders equity
    
    $
    4,511,567
    
    
    $
    4,285,245
   83




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EDUCATION
MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
 For the Fiscal YearEnded June 30,2010
    
    
    2009
    
    
    2008Net revenues
    
    $
    2,508,521
    
    
    $
    2,011,458
    
    
    $
    1,684,158Costs and expenses:Educational services
    
    
    1,267,106
    
    
    
    1,067,724
    
    
    
    901,258General and administrative
    
    
    667,191
    
    
    
    507,675
    
    
    
    414,090Management fees paid to affiliates
    
    
    32,055
    
    
    
    5,000
    
    
    
    5,000Depreciation and amortization
    
    
    123,359
    
    
    
    112,289
    
    
    
    100,272Total costs and expenses
    
    
    2,089,711
    
    
    
    1,692,688
    
    
    
    1,420,620Income before interest, loss on early retirement of
debt, and income taxes
    
    
    418,810
    
    
    
    318,770
    
    
    
    263,538Interest expense, net
    
    
    121,456
    
    
    
    153,244
    
    
    
    156,358Loss on early retirement of debt
    
    
    47,207
    
    
    
    
    
    
    
    Income before income taxes
    
    
    250,147
    
    
    
    165,526
    
    
    
    107,180Provision for income taxes
    
    
    81,641
    
    
    
    61,121
    
    
    
    41,194Net income
    
    $
    168,506
    
    
    $
    104,405
    
    
    $
    65,986Earnings per share: (Note 3)Basic
    
    $
    1.23
    
    
    $
    0.87
    
    
    $
    0.55Diluted
    
    $
    1.22
    
    
    $
    0.87
    
    
    $
    0.55Weighted average number of shares outstanding: (Note 3)Basic
    
    
    136,917
    
    
    
    119,770
    
    
    
    119,769Diluted
    
    
    137,667
    
    
    
    119,770
    
    
    
    119,769
   84




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EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 For the Fiscal YearEnded June 30,2010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    168,506
    
    
    $
    104,405
    
    
    $
    65,986Adjustments to reconcile net income to
net cash flows provided by operating activities:Depreciation and amortization of property and equipment
    
    
    114,598
    
    
    
    95,582
    
    
    
    80,848Amortization of intangible assets
    
    
    8,761
    
    
    
    16,707
    
    
    
    19,424Bad debt expense
    
    
    105,593
    
    
    
    72,493
    
    
    
    42,201Amortization of debt issuance costs
    
    
    8,129
    
    
    
    7,763
    
    
    
    7,690Loss on early retirement of debt
    
    
    47,207
    
    
    
    
    
    
    
    Share-based compensation
    
    
    21,670
    
    
    
    
    
    
    
    Non-cash adjustments related to deferred rent
    
    
    2,258
    
    
    
    (1,958
    )
    
    
    (2,620
    )Deferred income taxes
    
    
    (35,859
    )
    
    
    (8,179
    )
    
    
    (20,609
    )Excess tax benefit from share-based compensation
    
    
    (260
    )
    
    
    
    
    
    
    Changes in assets and liabilities:Restricted cash
    
    
    (2,470
    )
    
    
    3,450
    
    
    
    (3,514
    )Receivables
    
    
    (137,329
    )
    
    
    (102,743
    )
    
    
    (58,826
    )Reimbursements for tenant improvements
    
    
    14,416
    
    
    
    22,382
    
    
    
    4,400Inventories
    
    
    (2,292
    )
    
    
    (899
    )
    
    
    (1,502
    )Other assets
    
    
    (17,307
    )
    
    
    (14,425
    )
    
    
    (7,221
    )Purchase of private loans
    
    
    (74,021
    )
    
    
    (9,998
    )
    
    
    Accounts payable
    
    
    14,137
    
    
    
    (5,137
    )
    
    
    6,025Accrued liabilities
    
    
    29,514
    
    
    
    57,628
    
    
    
    21,059Unearned tuition
    
    
    37,005
    
    
    
    49,587
    
    
    
    17,202Advance payments
    
    
    4,859
    
    
    
    6,740
    
    
    
    (17,816
    )Total adjustments
    
    
    138,609
    
    
    
    188,993
    
    
    
    86,741Net cash flows provided by operating activities
    
    
    307,115
    
    
    
    293,398
    
    
    
    152,727Cash flows from investing activities:Acquisition of subsidiaries, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (1,947
    )Expenditures for long-lived assets
    
    
    (175,782
    )
    
    
    (150,713
    )
    
    
    (150,908
    )Reimbursements for tenant improvements
    
    
    (14,416
    )
    
    
    (22,382
    )
    
    
    (4,400
    )Net cash flows used in investing activities
    
    
    (190,198
    )
    
    
    (173,095
    )
    
    
    (157,255
    )Cash flows from financing activities:Borrowings under revolving credit facility
    
    
    
    
    
    
    180,000
    
    
    
    120,000Payments under revolving credit facility
    
    
    (100,000
    )
    
    
    (200,000
    )
    
    
    (90,000
    )Retirement of senior subordinated notes
    
    
    (378,952
    )
    
    
    
    
    
    
    Net proceeds from issuance of common stock, including stock option exercises
    
    
    389,441
    
    
    
    
    
    
    
    Excess tax benefit from share-based compensation
    
    
    260
    
    
    
    
    
    
    
    Common stock repurchased
    
    
    (2,207
    )
    
    
    
    
    
    
    Principal payments on other long-term debt
    
    
    (12,584
    )
    
    
    (12,802
    )
    
    
    (38,534
    )Debt issuance costs and other
    
    
    (2,400
    )
    
    
    (873
    )
    
    
    Net cash flows used in financing activities
    
    
    (106,442
    )
    
    
    (33,675
    )
    
    
    (8,534
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (247
    )
    
    
    (718
    )
    
    
    (204
    )Net change in cash and cash equivalents
    
    
    10,228
    
    
    
    85,910
    
    
    
    (13,266
    )Cash and cash equivalents, beginning of period
    
    
    363,318
    
    
    
    277,408
    
    
    
    290,674Cash and cash equivalents, end of period
    
    $
    373,546
    
    
    $
    363,318
    
    
    $
    277,408
   85




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EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(In thousands)
 For the Fiscal YearEnded June 30,2010
    
    
    2009
    
    
    2008Cash paid during the period for:Interest (including swap settlement)
    
    $
    116,939
    
    
    $
    146,636
    
    
    $
    173,297Income taxes, net of refunds
    
    
    120,120
    
    
    
    76,173
    
    
    
    48,179Noncash investing activities:Capital expenditures in current liabilities at June 30
    
    $
    27,682
    
    
    $
    22,192
    
    
    $
    31,230
   86




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EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Dollars in thousands except per share amounts)
 AccumulatedCommon
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    OtherStock at
    
    
    Paid-in
    
    
    Treasury
    
    
    Retained
    
    
    ComprehensivePar Value (b)
    
    
    Capital
    
    
    Stock (b)
    
    
    Earnings
    
    
    Loss
    
    
    TotalBalance at June 30, 2007
    
    $
    1,198
    
    
    $
    1,338,302
    
    
    $
    
    
    
    $
    12,715
    
    
    $
    (1,461
    )
    
    $
    1,350,754Cumulative effect of adoption of accounting for uncertain
tax positions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,339
    )
    
    
    
    
    
    
    (1,339
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,986
    
    
    
    
    
    
    
    65,986Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    68Unrealized loss on interest
rate swaps, net of tax
benefit of $13,609
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,292
    )
    
    
    (23,292
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,762Balance at June 30, 2008
    
    
    1,198
    
    
    
    1,338,302
    
    
    
    
    
    
    
    77,362
    
    
    
    (24,685
    )
    
    
    1,392,177Issuance of common stock
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Comprehensive 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,462Balance at June 30, 2009
    
    
    1,198
    
    
    
    1,338,316
    
    
    
    
    
    
    
    181,767
    
    
    
    (35,628
    )(a)
    
    
    1,485,653Issuance of common stock
including stock option
exercises
    
    
    231
    
    
    
    389,210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    389,441Share-based compensation
    
    
    
    
    
    
    21,670
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,670Excess tax benefit from
share-based compensation
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260Common stock repurchased
    
    
    
    
    
    
    
    
    
    
    (2,207
    )
    
    
    
    
    
    
    
    
    
    
    (2,207
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168,506
    
    
    
    
    
    
    
    168,506Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    458
    
    
    
    458Unrealized gain on interest
rate swaps, net of tax
expense of $7,575
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,914
    
    
    
    12,914Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181,878Balance at June 30, 2010
    
    $
    1,429
    
    
    $
    1,749,456
    
    
    $
    (2,207
    )
    
    $
    350,273
    
    
    $
    (22,256
    )(a)
    
    $
    2,076,695
 (a)
    
    The balance in accumulated other comprehensive loss at June 30, 2010 and 2009 is comprised of $21.4 million and $34.2 million of
unrealized losses on interest rate swaps, net of tax benefit, respectively, and $0.9 million and $1.4 million of cumulative foreign
currency translation losses, respectively.(b)
    
    There were 600,000,000 authorized shares of par value $0.01 common stock at June 30, 2010. Common stock and treasury stock balances
and activity were as follows for the years ended June 30, 2010 and 2009. Treasury
    
    
    OutstandingBalance at June 30, 2008
    
    
    
    
    
    
    119,769,082Issued for stock-based compensation plans
    
    
    
    
    
    
    1,195Balance at June 30, 2009
    
    
    
    
    
    
    119,770,277Repurchased
    
    
    123,000
    
    
    
    (123,000
    )Public offering
    
    
    
    
    
    
    23,000,000Issued for stock-based compensation plans
    
    
    
    
    
    
    205,141Balance at June 30, 2010
    
    
    123,000
    
    
    
    142,852,418
   87




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1. DESCRIPTION OF BUSINESS AND CHANGE IN OWNERSHIP
 Description of Business
  Going Private Transaction
   Initial
Public Offering
     88




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##### Table of Contents



Government Regulations
  Reclassifications
  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Use of Estimates
  Cash and Cash Equivalents and Restricted Cash
    2010
    
    
    2009Title IV funds in excess of charges applied
    
    $
    7,946
    
    
    $
    5,272Escrowed in connection with operating lease
    
    
    2,896
    
    
    
    3,600Endowments
    
    
    2,000
    
    
    
    1,500Restricted cash
    
    $
    12,842
    
    
    $
    10,372
  89




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Allowances for Doubtful Accounts and Loan Losses
   Inventories
  Property and Equipment
  
    
    Buildings are depreciated over an estimated useful life of 30 years using the
straight-line method.
 
    
    Leasehold improvements 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 is depreciated over estimated
useful lives ranging from 3 to 10 years using the straight-line method, depending on the
asset.
  Leases
     90




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Goodwill and Other Identifiable Intangible Assets
    Income Taxes
   Derivative Financial Instruments
   91




---



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Foreign Currency Translation
  Revenue Recognition
     Costs and Expenses
     92




---



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Stock-Based Compensation
   Segment Reporting
  Contingencies
  Recent Accounting Pronouncements
   93




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3. EARNINGS PER SHARE
   For the Fiscal YearEnded June 30,2010
    
    
    2009
    
    
    2008Net income
    
    $
    168,506
    
    
    $
    104,405
    
    
    $
    65,986Weighted average number of shares outstanding:Basic
    
    
    136,917
    
    
    
    119,770
    
    
    
    119,769Dilutive effect of stock-based awards
    
    
    750
    
    
    
    
    
    
    
    Diluted
    
    
    137,667
    
    
    
    119,770
    
    
    
    119,769Earnings per share:Basic
    
    $
    1.23
    
    
    $
    0.87
    
    
    $
    0.55Diluted
    
    $
    1.22
    
    
    $
    0.87
    
    
    $
    0.55
  4. PROPERTY AND EQUIPMENT
  June 30,
    
    
    June 30,Asset Class
    
    2010
    
    
    2009Land
    
    $
    17,655
    
    
    $
    17,805Buildings and improvements
    
    
    74,764
    
    
    
    74,171Leasehold improvements
    
    
    446,992
    
    
    
    329,449Furniture and equipment
    
    
    128,411
    
    
    
    97,783Technology and other equipment
    
    
    226,587
    
    
    
    170,818Software
    
    
    56,350
    
    
    
    45,651Library books
    
    
    35,051
    
    
    
    29,778Construction in progress
    
    
    29,850
    
    
    
    43,470Total
    
    
    1,015,660
    
    
    
    808,925Less accumulated depreciation
    
    
    (336,814
    )
    
    
    (227,960
    )Property and equipment, net
    
    $
    678,846
    
    
    $
    580,965
   94




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5. GOODWILL AND INTANGIBLE ASSETS
 Goodwill
  Intangible Assets
  2010
    
    
    2009Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationTradename-Art Institute
    
    $
    330,000
    
    
    $
    
    
    
    $
    330,000
    
    
    $
    Tradename-Argosy University
    
    
    3,000
    
    
    
    (1,361
    )
    
    
    3,000
    
    
    
    (1,028
    )Licensing, accreditation and Title
IV program participation
    
    
    112,179
    
    
    
    
    
    
    
    112,179
    
    
    
    Curriculum and programs
    
    
    31,948
    
    
    
    (18,412
    )
    
    
    27,974
    
    
    
    (13,520
    )Student contracts, applications and
relationships
    
    
    39,511
    
    
    
    (34,048
    )
    
    
    39,511
    
    
    
    (32,479
    )Favorable leases and other
    
    
    16,403
    
    
    
    (12,032
    )
    
    
    16,351
    
    
    
    (10,106
    )Total intangible assets
    
    $
    533,041
    
    
    $
    (65,853
    )
    
    $
    529,015
    
    
    $
    (57,133
    )
     95




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AmortizationFiscal years
    
    Expense2011
    
    $
    8,4162012
    
    
    7,3512013
    
    
    5,0042014
    
    
    3,2362015
    
    
    1,002Thereafter
    
    
    
 6. OTHER LONG-TERM ASSETS
  2010
    
    
    2009Private loans, net
    
    $
    49,529
    
    
    $
    5,043Deferred financing fees
    
    
    25,536
    
    
    
    36,837Other
    
    
    18,376
    
    
    
    17,065Total other long-term assets
    
    $
    93,441
    
    
    $
    58,945
     96




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7. ACCRUED LIABILITIES
  2010
    
    
    2009Payroll and related taxes
    
    $
    67,803
    
    
    $
    77,894Capital expenditures
    
    
    10,020
    
    
    
    8,032Advertising
    
    
    32,474
    
    
    
    25,192Interest
    
    
    12,732
    
    
    
    13,878Benefits
    
    
    12,014
    
    
    
    8,597Other
    
    
    43,042
    
    
    
    29,892Total accrued liabilities
    
    $
    178,085
    
    
    $
    163,485
  8. SHORT-TERM AND LONG-TERM DEBT
   Short-Term Debt:
     97




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Long-Term Debt:
  2010
    
    
    2009Senior secured term loan facility, due 2013
    
    $
    1,114,977
    
    
    $
    1,126,827Senior notes due 2014 at 8.75%
    
    
    375,000
    
    
    
    375,000Senior subordinated notes due 2016 at 10.25%
    
    
    47,680
    
    
    
    385,000Other
    
    
    1,081
    
    
    
    1,816Total long-term debt
    
    
    1,538,738
    
    
    
    1,888,643Less current portion
    
    
    12,103
    
    
    
    12,622Total long term debt, less current portion
    
    $
    1,526,635
    
    
    $
    1,876,021
 Senior Secured Credit Facility
      Senior Notes Due 2014 and Senior Subordinated Notes Due 2016
   98




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Fiscal year:2011
    
    
    12,1032012
    
    
    9,2542013
    
    
    1,094,5242014
    
    
    375,1772015
    
    
    Thereafter
    
    
    47,680Total
    
    $
    1,538,738
  99




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9. DERIVATIVE INSTRUMENTS
      100




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##### Table of Contents



10. FAIR VALUE OF FINANCIAL INSTRUMENTS
  2010
    
    
    2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueVariable rate debt
    
    $
    1,114,977
    
    
    $
    1,036,929
    
    
    $
    1,126,827
    
    
    $
    1,031,047Fixed rate debt
    
    
    423,761
    
    
    
    426,979
    
    
    
    761,816
    
    
    
    738,916
  11. INCOME TAXES
  For the Fiscal Year Ended June 30,2010
    
    
    2009
    
    
    2008Income before taxes:Domestic
    
    $
    248,304
    
    
    $
    164,794
    
    
    $
    105,132Foreign
    
    
    1,843
    
    
    
    732
    
    
    
    2,048$
    250,147
    
    
    $
    165,526
    
    
    $
    107,180
  For the Fiscal Year Ended June 30,2010
    
    
    2009
    
    
    2008Current taxes:Federal
    
    $
    101,895
    
    
    $
    61,162
    
    
    $
    51,456State and local
    
    
    15,605
    
    
    
    8,138
    
    
    
    10,347Total current tax provision
    
    
    117,500
    
    
    
    69,300
    
    
    
    61,803Deferred tax benefit
    
    
    (35,859
    )
    
    
    (8,179
    )
    
    
    (20,609
    )Total provision for income taxes
    
    $
    81,641
    
    
    $
    61,121
    
    
    $
    41,194
  101




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For the Fiscal Year Ended June 30,2010
    
    
    2009
    
    
    2008U.S. Federal statutory income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State and local income taxes, net of U.S. federal income tax benefit
    
    
    1.4
    %
    
    
    1.1
    %
    
    
    1.8
    %Increase in valuation allowance
    
    
    2.0
    %
    
    
    0.6
    %
    
    
    1.4
    %Permanent items
    
    
    0.1
    %
    
    
    (0.3
    )%
    
    
    (1.6
    )%Uncertain tax positions
    
    
    (5.9
    )%
    
    
    0.8
    %
    
    
    1.5
    %Other items, net
    
    
    0.0
    %
    
    
    (0.3
    )%
    
    
    0.3
    %Effective income tax rate
    
    
    32.6
    %
    
    
    36.9
    %
    
    
    38.4
    %
  2010
    
    
    2009Current deferred tax assets:Allowance for doubtful accounts
    
    $
    50,297
    
    
    $
    34,136Accrued wages
    
    
    16,681
    
    
    
    11,706Other
    
    
    4,131
    
    
    
    3,488Gross current deferred tax assets
    
    
    71,109
    
    
    
    49,330Less valuation allowance
    
    
    (5,699
    )
    
    
    (4,166
    )Total current deferred tax assets
    
    $
    65,410
    
    
    $
    45,164Noncurrent deferred tax assets:Interest rate swap
    
    $
    14,774
    
    
    $
    23,680Deferred liabilities
    
    
    20,879
    
    
    
    14,466Foreign and state net operating losses
    
    
    9,764
    
    
    
    10,693Share-based compensation
    
    
    8,811
    
    
    
    Other
    
    
    28,757
    
    
    
    14,366Gross noncurrent deferred tax assets
    
    
    82,985
    
    
    
    63,205Less valuation allowance
    
    
    (16,953
    )
    
    
    (14,681
    )Total noncurrent deferred tax assets
    
    
    66,032
    
    
    
    48,524Noncurrent deferred tax liabilities:Intangible assets
    
    
    224,323
    
    
    
    218,141Property and equipment
    
    
    20,193
    
    
    
    16,496Other
    
    
    2,450
    
    
    
    1,470Total noncurrent deferred tax liabilities
    
    
    246,966
    
    
    
    236,107Total net noncurrent deferred tax liabilities
    
    $
    180,934
    
    
    $
    187,583
     102




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2010
    
    
    2009Unrecognized tax benefits, beginning of year
    
    $
    22,639
    
    
    $
    23,243Increase in prior year unrecognized tax benefits
    
    
    51
    
    
    
    0(Decrease) in prior year unrecognized tax benefits
    
    
    (539
    )
    
    
    (520
    )Increase in current year unrecognized tax benefits
    
    
    3,070
    
    
    
    692(Decrease) in unrecognized tax benefits due to settlement
    
    
    
    
    
    
    (Decrease) in unrecognized tax benefits due to the expiration of statutes of limitation
    
    
    (16,319
    )
    
    
    (776
    )Unrecognized tax benefits, end of year
    
    $
    8,902
    
    
    $
    22,639
   12. STOCK-BASED COMPENSATION
   103




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2006 Stock Option Plan
    Omnibus Long-Term Incentive Plan
     2010
    
    
    2009
    
    
    2008Weighted average fair value of options
    
    $
    8.50
    
    
    $
    10.19
    
    
    $
    9.79Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    44.2
    %
    
    
    43.2
    %
    
    
    42.8
    %Risk-free interest rate
    
    
    2.9
    %
    
    
    3.2
    %
    
    
    3.6
    %Expected forfeiture rate
    
    
    12.4
    %
    
    
    12.4
    %
    
    
    12.4
    %Expected term
    
    6.25 yrs
    
    
    6.50 yrs
    
    
    6.50 yrsVesting periods
    
    4.00 yrs
    
    
    5.00 yrs
    
    
    5.00 yrs
  104




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WeightedAverage
    
    
    AggregateWeighted
    
    
    Remaining
    
    
    IntrinsicAverage
    
    
    Contractual
    
    
    Value (inOptions
    
    
    Exercise Price
    
    
    Term (yrs)
    
    
    thousands)Outstanding at June 30, 2009
    
    
    3,962,365
    
    
    $
    12.35Granted
    
    
    1,386,310
    
    
    $
    18.00Exercised
    
    
    (184,226
    )
    
    $
    11.29
    
    
    
    
    
    
    $
    1,842Forfeited
    
    
    (86,583
    )
    
    $
    13.86Outstanding at June 30, 2010
    
    
    5,077,866
    
    
    $
    13.89
    
    
    7.15 yrs
    
    
    $
    12,146Exercisable at June 30, 2010
    
    
    2,467,375
    
    
    $
    11.66
    
    
    6.22 yrs
    
    
    $
    8,861
   2009
    
    
    2008Weighted average fair value of options
    
    $
    7.41
    
    
    $
    5.10Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    42.8
    %
    
    
    39.5
    %Risk-free interest rate
    
    
    2.9
    %
    
    
    3.2
    %Expected forfeiture rate
    
    
    12.4
    %
    
    
    12.4
    %Expected term
    
    
    4.9 years
    
    
    
    3.2 years
 WeightedAverage
    
    
    AggregateWeighted
    
    
    Remaining
    
    
    IntrinsicAverage
    
    
    Contractual
    
    
    Value (inOptions
    
    
    Exercise Price
    
    
    Term (yrs)
    
    
    thousands)Outstanding at June 30, 2009
    
    
    3,850,522
    
    
    $
    12.35Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (479,421
    )
    
    $
    11.85Outstanding at June 30, 2010
    
    
    3,371,101
    
    
    $
    12.42
    
    
    6.39 yrs
    
    
    $
    9,550Exercisable at June 30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Long Term Incentive Compensation Plan
   105




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13. STOCK REPURCHASE PROGRAM
  14. OTHER EMPLOYEE BENEFIT PLANS
  15. COMMITMENTS AND CONTINGENCIES
    2011
    
    $
    149,4612012
    
    
    150,4802013
    
    
    149,8842014
    
    
    139,8992015
    
    
    121,524Thereafter
    
    
    427,502$
    1,138,750
   106




---



##### Table of Contents



Capalbo et al. v. Argosy University, Education Management LLC, Education Management
Corporation and Marilyn Powell-Kissinger Buirkle et al. v. Argosy Education Group, Inc., Education Management LLC and Education
Management Corporation
 Buirkle Adibian et al. v. Argosy
University, Education Management LLC and Education Management Corporation Adibian Buirkle
 qui tam Buchanan v. South University Online and Education
Management Corporation
    107




---



##### Table of Contents



16. RELATED PARTY TRANSACTIONS
        17. GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION
     108




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##### Table of Contents



CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2010 (In thousands)
 Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    EM LLC
    
    
    
    
    
    
    
    
    
    
    EDMCEM LLC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated
    
    
    EDMC
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent:Cash and cash equivalents
    
    $
    11,522
    
    
    $
    314
    
    
    $
    313,403
    
    
    $
    
    
    
    $
    325,239
    
    
    $
    48,307
    
    
    $
    
    
    
    $
    373,546Restricted cash
    
    
    387
    
    
    
    
    
    
    
    12,455
    
    
    
    
    
    
    
    12,842
    
    
    
    
    
    
    
    
    
    
    
    12,842Notes, advances and trade receivables, net
    
    
    99
    
    
    
    90
    
    
    
    188,342
    
    
    
    
    
    
    
    188,531
    
    
    
    6
    
    
    
    
    
    
    
    188,537Inventories
    
    
    
    
    
    
    182
    
    
    
    11,473
    
    
    
    
    
    
    
    11,655
    
    
    
    
    
    
    
    
    
    
    
    11,655Other current assets
    
    
    26,741
    
    
    
    576
    
    
    
    79,064
    
    
    
    
    
    
    
    106,381
    
    
    
    
    
    
    
    
    
    
    
    106,381Total current assets
    
    
    38,749
    
    
    
    1,162
    
    
    
    604,737
    
    
    
    
    
    
    
    644,648
    
    
    
    48,313
    
    
    
    
    
    
    
    692,961Property and equipment, net
    
    
    64,814
    
    
    
    6,956
    
    
    
    607,076
    
    
    
    
    
    
    
    678,846
    
    
    
    
    
    
    
    
    
    
    
    678,846Intangible assets, net
    
    
    2,737
    
    
    
    65
    
    
    
    464,386
    
    
    
    
    
    
    
    467,188
    
    
    
    
    
    
    
    
    
    
    
    467,188Goodwill
    
    
    7,328
    
    
    
    
    
    
    
    2,571,803
    
    
    
    
    
    
    
    2,579,131
    
    
    
    
    
    
    
    
    
    
    
    2,579,131Intercompany balances
    
    
    1,285,257
    
    
    
    (76,041
    )
    
    
    (1,611,040
    )
    
    
    
    
    
    
    (401,824
    )
    
    
    401,824
    
    
    
    
    
    
    
    Other long-term assets
    
    
    38,474
    
    
    
    49,529
    
    
    
    5,440
    
    
    
    
    
    
    
    93,443
    
    
    
    (2
    )
    
    
    
    
    
    
    93,441Investment in subsidiaries
    
    
    1,883,576
    
    
    
    
    
    
    
    
    
    
    
    (1,883,576
    )
    
    
    
    
    
    
    1,626,483
    
    
    
    (1,626,483
    )
    
    
    Total assets
    
    $
    3,320,935
    
    
    $
    (18,329
    )
    
    $
    2,642,402
    
    
    $
    (1,883,576
    )
    
    $
    4,061,432
    
    
    $
    2,076,618
    
    
    $
    (1,626,483
    )
    
    $
    4,511,567Liabilities and shareholders equity (deficit)Current:Current portion of long-term debt
    
    $
    11,850
    
    
    $
    
    
    
    $
    253
    
    
    $
    
    
    
    $
    12,103
    
    
    $
    
    
    
    $
    
    
    
    $
    12,103Accounts payable, accrued and other current liabilities
    
    
    114,396
    
    
    
    4,827
    
    
    
    375,641
    
    
    
    
    
    
    
    494,864
    
    
    
    183
    
    
    
    
    
    
    
    495,047Total current liabilities
    
    
    126,246
    
    
    
    4,827
    
    
    
    375,894
    
    
    
    
    
    
    
    506,967
    
    
    
    183
    
    
    
    
    
    
    
    507,150Long-term debt, less current portion
    
    
    1,525,807
    
    
    
    
    
    
    
    828
    
    
    
    
    
    
    
    1,526,635
    
    
    
    
    
    
    
    
    
    
    
    1,526,635Other long-term liabilities
    
    
    58,397
    
    
    
    3,172
    
    
    
    158,584
    
    
    
    
    
    
    
    220,153
    
    
    
    
    
    
    
    
    
    
    
    220,153Deferred income taxes
    
    
    (15,998
    )
    
    
    (13,393
    )
    
    
    210,585
    
    
    
    
    
    
    
    181,194
    
    
    
    (260
    )
    
    
    
    
    
    
    180,934Total liabilities
    
    
    1,694,452
    
    
    
    (5,394
    )
    
    
    745,891
    
    
    
    
    
    
    
    2,434,949
    
    
    
    (77
    )
    
    
    
    
    
    
    2,434,872Total shareholders equity (deficit)
    
    
    1,626,483
    
    
    
    (12,935
    )
    
    
    1,896,511
    
    
    
    (1,883,576
    )
    
    
    1,626,483
    
    
    
    2,076,695
    
    
    
    (1,626,483
    )
    
    
    2,076,695Total liabilities and shareholders equity (deficit)
    
    $
    3,320,935
    
    
    $
    (18,329
    )
    
    $
    2,642,402
    
    
    $
    (1,883,576
    )
    
    $
    4,061,432
    
    
    $
    2,076,618
    
    
    $
    (1,626,483
    )
    
    $
    4,511,567
  109




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##### Table of Contents



CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2009 (In thousands)
 Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    EM LLC
    
    
    
    
    
    
    
    
    
    
    EDMCEM LLC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated
    
    
    EDMC
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent: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
    
    
    19,056
    
    
    
    1,213
    
    
    
    55,058
    
    
    
    
    
    
    
    75,327
    
    
    
    
    
    
    
    
    
    
    
    75,327Total current assets
    
    
    35,806
    
    
    
    1,729
    
    
    
    515,021
    
    
    
    
    
    
    
    552,556
    
    
    
    41,766
    
    
    
    
    
    
    
    594,322Property and equipment, net
    
    
    52,190
    
    
    
    6,137
    
    
    
    522,638
    
    
    
    
    
    
    
    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
    
    
    1,880,889
    
    
    
    (20,819
    )
    
    
    (1,859,626
    )
    
    
    
    
    
    
    444
    
    
    
    (444
    )
    
    
    
    
    
    
    Other long-term assets
    
    
    48,447
    
    
    
    9,764
    
    
    
    734
    
    
    
    
    
    
    
    58,945
    
    
    
    
    
    
    
    
    
    
    
    58,945Investment in subsidiaries
    
    
    1,590,364
    
    
    
    
    
    
    
    
    
    
    
    (1,590,364
    )
    
    
    
    
    
    
    1,444,515
    
    
    
    (1,444,515
    )
    
    
    Total assets
    
    $
    3,618,143
    
    
    $
    (3,128
    )
    
    $
    2,219,272
    
    
    $
    (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
    
    
    111,694
    
    
    
    4,739
    
    
    
    291,159
    
    
    
    
    
    
    
    407,592
    
    
    
    185
    
    
    
    
    
    
    
    407,777Total current liabilities
    
    
    223,605
    
    
    
    4,739
    
    
    
    291,870
    
    
    
    
    
    
    
    520,214
    
    
    
    185
    
    
    
    
    
    
    
    520,399Long-term debt, less current portion
    
    
    1,874,921
    
    
    
    
    
    
    
    1,100
    
    
    
    
    
    
    
    1,876,021
    
    
    
    
    
    
    
    
    
    
    
    1,876,021Other long-term liabilities
    
    
    91,124
    
    
    
    4,649
    
    
    
    119,817
    
    
    
    
    
    
    
    215,590
    
    
    
    (1
    )
    
    
    
    
    
    
    215,589Deferred income taxes
    
    
    (16,022
    )
    
    
    72
    
    
    
    203,533
    
    
    
    
    
    
    
    187,583
    
    
    
    
    
    
    
    
    
    
    
    187,583Total liabilities
    
    
    2,173,628
    
    
    
    9,460
    
    
    
    616,320
    
    
    
    
    
    
    
    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)
    
    $
    3,618,143
    
    
    $
    (3,128
    )
    
    $
    2,219,272
    
    
    $
    (1,590,364
    )
    
    $
    4,243,923
    
    
    $
    1,485,837
    
    
    $
    (1,444,515
    )
    
    $
    4,285,245
  110




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##### Table of Contents



CONSOLIDATED STATEMENT OF OPERATIONS
For the Fiscal Year Ended June 30, 2010 (In thousands)
 Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    EM LLC
    
    
    
    
    
    
    
    
    
    
    EDMCEM LLC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated
    
    
    EDMC
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    
    
    
    $
    (3,178
    )
    
    $
    2,511,699
    
    
    $
    
    
    
    $
    2,508,521
    
    
    $
    
    
    
    $
    
    
    
    $
    2,508,521Costs and expenses:Educational services
    
    
    60,658
    
    
    
    (684
    )
    
    
    1,207,132
    
    
    
    
    
    
    
    1,267,106
    
    
    
    
    
    
    
    
    
    
    
    1,267,106General and administrative
    
    
    (94,146
    )
    
    
    (573
    )
    
    
    761,682
    
    
    
    
    
    
    
    666,963
    
    
    
    228
    
    
    
    
    
    
    
    667,191Management fees paid to affiliates
    
    
    32,055
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,055
    
    
    
    
    
    
    
    
    
    
    
    32,055Depreciation and amortization
    
    
    18,936
    
    
    
    243
    
    
    
    104,180
    
    
    
    
    
    
    
    123,359
    
    
    
    
    
    
    
    
    
    
    
    123,359Total costs and expenses
    
    
    17,503
    
    
    
    (1,014
    )
    
    
    2,072,994
    
    
    
    
    
    
    
    2,089,483
    
    
    
    228
    
    
    
    
    
    
    
    2,089,711Income (loss) before interest, loss on
early retirement of debt and income taxes
    
    
    (17,503
    )
    
    
    (2,164
    )
    
    
    438,705
    
    
    
    
    
    
    
    419,038
    
    
    
    (228
    )
    
    
    
    
    
    
    418,810Interest (income) expense, net
    
    
    120,309
    
    
    
    (1,649
    )
    
    
    2,854
    
    
    
    
    
    
    
    121,514
    
    
    
    (58
    )
    
    
    
    
    
    
    121,456Loss on early retirement of debt
    
    
    47,207
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,207
    
    
    
    
    
    
    
    
    
    
    
    47,207Equity in earnings of subsidiaries
    
    
    (293,212
    )
    
    
    
    
    
    
    
    
    
    
    293,212
    
    
    
    
    
    
    
    (168,596
    )
    
    
    168,596
    
    
    
    Income (loss) before income taxes
    
    
    108,193
    
    
    
    (515
    )
    
    
    435,851
    
    
    
    (293,212
    )
    
    
    250,317
    
    
    
    168,426
    
    
    
    (168,596
    )
    
    
    250,147Provision for (benefit from) income taxes
    
    
    (60,403
    )
    
    
    (168
    )
    
    
    142,292
    
    
    
    
    
    
    
    81,721
    
    
    
    (80
    )
    
    
    
    
    
    
    81,641Net income (loss)
    
    $
    168,596
    
    
    $
    (347
    )
    
    $
    293,559
    
    
    $
    (293,212
    )
    
    $
    168,596
    
    
    $
    168,506
    
    
    $
    (168,596
    )
    
    $
    168,506
 CONSOLIDATED STATEMENT OF OPERATIONS
For the Fiscal Year Ended June 30, 2009 (In thousands)
 Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    EM LLC
    
    
    
    
    
    
    
    
    
    
    EDMCEM LLC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated
    
    
    EDMC
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    
    
    
    $
    4,716
    
    
    
    2,006,742
    
    
    $
    
    
    
    $
    2,011,458
    
    
    $
    
    
    
    $
    
    
    
    $
    2,011,458Costs and expenses:Educational services
    
    
    51,196
    
    
    
    3,378
    
    
    
    1,013,147
    
    
    
    
    
    
    
    1,067,721
    
    
    
    3
    
    
    
    
    
    
    
    1,067,724General and administrative
    
    
    (71,461
    )
    
    
    2,975
    
    
    
    575,934
    
    
    
    
    
    
    
    507,448
    
    
    
    227
    
    
    
    
    
    
    
    507,675Management fees paid to affiliates
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    5,000Depreciation and amortization
    
    
    15,540
    
    
    
    180
    
    
    
    96,569
    
    
    
    
    
    
    
    112,289
    
    
    
    
    
    
    
    
    
    
    
    112,289Total costs and expenses
    
    
    275
    
    
    
    6,533
    
    
    
    1,685,650
    
    
    
    
    
    
    
    1,692,458
    
    
    
    230
    
    
    
    
    
    
    
    1,692,688Income (loss) before interest and income taxes
    
    
    (275
    )
    
    
    (1,817
    )
    
    
    321,092
    
    
    
    
    
    
    
    319,000
    
    
    
    (230
    )
    
    
    
    
    
    
    318,770Interest (income) expense, net
    
    
    150,933
    
    
    
    
    
    
    
    2,636
    
    
    
    
    
    
    
    153,569
    
    
    
    (325
    )
    
    
    
    
    
    
    153,244Equity in earnings of subsidiaries
    
    
    (199,524
    )
    
    
    
    
    
    
    
    
    
    
    199,524
    
    
    
    
    
    
    
    (104,243
    )
    
    
    104,243
    
    
    
    Income (loss) before income taxes
    
    
    48,316
    
    
    
    (1,817
    )
    
    
    318,456
    
    
    
    (199,524
    )
    
    
    165,431
    
    
    
    104,338
    
    
    
    (104,243
    )
    
    
    165,526Provision for (benefit from) income taxes
    
    
    (55,927
    )
    
    
    (672
    )
    
    
    117,787
    
    
    
    
    
    
    
    61,188
    
    
    
    (67
    )
    
    
    
    
    
    
    61,121Net income (loss)
    
    $
    104,243
    
    
    $
    (1,145
    )
    
    $
    200,669
    
    
    $
    (199,524
    )
    
    $
    104,243
    
    
    $
    104,405
    
    
    $
    (104,243
    )
    
    $
    104,405
  111




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##### Table of Contents



CONSOLIDATED STATEMENT OF OPERATIONS
For the Fiscal Year Ended June 30, 2008 (In thousands)
 Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    EM LLC
    
    
    
    
    
    
    
    
    
    
    EDMCEM LLC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated
    
    
    EDMC
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    
    
    
    $
    10,850
    
    
    
    1,673,308
    
    
    $
    
    
    
    $
    1,684,158
    
    
    $
    
    
    
    $
    
    
    
    $
    1,684,158Costs and expenses:Educational services
    
    
    42,506
    
    
    
    8,192
    
    
    
    850,561
    
    
    
    
    
    
    
    901,259
    
    
    
    (1
    )
    
    
    
    
    
    
    901,258General and administrative
    
    
    (52,022
    )
    
    
    6,719
    
    
    
    459,336
    
    
    
    
    
    
    
    414,033
    
    
    
    36
    
    
    
    
    
    
    
    414,069Management fees paid to affiliates
    
    
    5,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,021
    
    
    
    
    
    
    
    
    
    
    
    5,021Depreciation and amortization
    
    
    10,232
    
    
    
    
    
    
    
    90,040
    
    
    
    
    
    
    
    100,272
    
    
    
    
    
    
    
    
    
    
    
    100,272Total costs and expenses
    
    
    5,737
    
    
    
    14,911
    
    
    
    1,399,937
    
    
    
    
    
    
    
    1,420,585
    
    
    
    35
    
    
    
    
    
    
    
    1,420,620Income (loss) before interest and income taxes
    
    
    (5,737
    )
    
    
    (4,061
    )
    
    
    273,371
    
    
    
    
    
    
    
    263,573
    
    
    
    (35
    )
    
    
    
    
    
    
    263,538Interest (income) expense, net
    
    
    153,874
    
    
    
    
    
    
    
    3,850
    
    
    
    
    
    
    
    157,724
    
    
    
    (1,366
    )
    
    
    
    
    
    
    156,358Equity in earnings of subsidiaries
    
    
    (162,275
    )
    
    
    
    
    
    
    
    
    
    
    162,275
    
    
    
    
    
    
    
    (64,705
    )
    
    
    64,705
    
    
    
    Income (loss) before income taxes
    
    
    2,664
    
    
    
    (4,061
    )
    
    
    269,521
    
    
    
    (162,275
    )
    
    
    105,849
    
    
    
    66,036
    
    
    
    (64,705
    )
    
    
    107,180Provision for (benefit from) income taxes
    
    
    (62,041
    )
    
    
    (1,579
    )
    
    
    104,764
    
    
    
    
    
    
    
    41,144
    
    
    
    50
    
    
    
    
    
    
    
    41,194Net income (loss)
    
    $
    64,705
    
    
    $
    (2,482
    )
    
    $
    164,757
    
    
    $
    (162,275
    )
    
    $
    64,705
    
    
    $
    65,986
    
    
    $
    (64,705
    )
    
    $
    65,986
  112




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##### Table of Contents



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Fiscal Year Ended June 30, 2010 (In thousands)
 Guarantor
    
    
    Non-Guarantor
    
    
    EM LLC
    
    
    
    
    
    
    EDMCEM LLC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated
    
    
    EDMC
    
    
    ConsolidatedNet cash flows provided by (used in) operations
    
    $
    (85,735
    )
    
    $
    (40,919
    )
    
    $
    431,407
    
    
    $
    304,753
    
    
    $
    2,362
    
    
    $
    307,115Cash flows from investing activities:Expenditures for long-lived assets
    
    
    (16,783
    )
    
    
    (1,801
    )
    
    
    (157,198
    )
    
    
    (175,782
    )
    
    
    
    
    
    
    (175,782
    )Other investing activities
    
    
    
    
    
    
    
    
    
    
    (14,416
    )
    
    
    (14,416
    )
    
    
    
    
    
    
    (14,416
    )Net cash flows used in investing activities
    
    
    (16,783
    )
    
    
    (1,801
    )
    
    
    (171,614
    )
    
    
    (190,198
    )
    
    
    
    
    
    
    (190,198
    )Cash flows from financing activities:Net repayments of debt and other
    
    
    (493,206
    )
    
    
    
    
    
    
    (730
    )
    
    
    (493,936
    )
    
    
    
    
    
    
    (493,936
    )Net proceeds from issuance of common stock,
including stock option exercises, net of
treasury stock and excess tax benefit from
share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    387,494
    
    
    
    387,494Intercompany transactions
    
    
    591,457
    
    
    
    42,553
    
    
    
    (250,700
    )
    
    
    383,310
    
    
    
    (383,310
    )
    
    
    Net cash flows provided by (used in) financing activities
    
    
    98,251
    
    
    
    42,553
    
    
    
    (251,430
    )
    
    
    (110,626
    )
    
    
    4,184
    
    
    
    (106,442
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (247
    )
    
    
    (247
    )
    
    
    
    
    
    
    (247
    )Increase (decrease) in cash and cash equivalents
    
    
    (4,267
    )
    
    
    (167
    )
    
    
    8,116
    
    
    
    3,682
    
    
    
    6,546
    
    
    
    10,228Beginning cash and cash equivalents
    
    
    15,789
    
    
    
    481
    
    
    
    305,287
    
    
    
    321,557
    
    
    
    41,761
    
    
    
    363,318Ending cash and cash equivalents
    
    $
    11,522
    
    
    $
    314
    
    
    $
    313,403
    
    
    $
    325,239
    
    
    $
    48,307
    
    
    $
    373,546
  113




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##### Table of Contents



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Fiscal Year Ended June 30, 2009 (In thousands)
 Guarantor
    
    
    Non-Guarantor
    
    
    EM LLC
    
    
    
    
    
    
    EDMCEM LLC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated
    
    
    EDMC
    
    
    ConsolidatedNet cash flows provided by (used in) operations
    
    $
    (29,702
    )
    
    $
    (6,067
    )
    
    $
    328,801
    
    
    $
    293,032
    
    
    $
    366
    
    
    $
    293,398Cash flows from investing activities:Expenditures for long-lived assets
    
    
    (13,539
    )
    
    
    (1,592
    )
    
    
    (135,582
    )
    
    
    (150,713
    )
    
    
    
    
    
    
    (150,713
    )Other investing activities
    
    
    
    
    
    
    
    
    
    
    (22,382
    )
    
    
    (22,382
    )
    
    
    
    
    
    
    (22,382
    )Net cash flows used in investing activities
    
    
    (13,539
    )
    
    
    (1,592
    )
    
    
    (157,964
    )
    
    
    (173,095
    )
    
    
    
    
    
    
    (173,095
    )Cash flows from financing activities:Net proceeds from (payments of) debt and other
    
    
    (32,761
    )
    
    
    (1
    )
    
    
    (927
    )
    
    
    (33,689
    )
    
    
    14
    
    
    
    (33,675
    )Intercompany transactions
    
    
    89,480
    
    
    
    8,006
    
    
    
    (97,486
    )
    
    
    
    
    
    
    
    
    
    
    Net cash flows provided by (used in) financing activities
    
    
    56,719
    
    
    
    8,005
    
    
    
    (98,413
    )
    
    
    (33,689
    )
    
    
    14
    
    
    
    (33,675
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (718
    )
    
    
    (718
    )
    
    
    
    
    
    
    (718
    )Increase (decrease) in cash and cash equivalents
    
    
    13,478
    
    
    
    346
    
    
    
    71,706
    
    
    
    85,530
    
    
    
    380
    
    
    
    85,910Beginning cash and cash equivalents
    
    
    2,311
    
    
    
    135
    
    
    
    233,581
    
    
    
    236,027
    
    
    
    41,381
    
    
    
    277,408Ending cash and cash equivalents
    
    $
    15,789
    
    
    $
    481
    
    
    $
    305,287
    
    
    $
    321,557
    
    
    $
    41,761
    
    
    $
    363,318
  114




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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Fiscal Year Ended June 30, 2008 (In thousands)
 Guarantor
    
    
    Non-Guarantor
    
    
    EM LLC
    
    
    
    
    
    
    EDMCEM LLC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Consolidated
    
    
    EDMC
    
    
    ConsolidatedNet cash flows provided by (used in) operations
    
    $
    (25,101
    )
    
    $
    (1,985
    )
    
    $
    178,383
    
    
    $
    151,297
    
    
    $
    1,430
    
    
    $
    152,727Cash flows from investing activities:Expenditures for long-lived assets
    
    
    (13,865
    )
    
    
    (824
    )
    
    
    (136,219
    )
    
    
    (150,908
    )
    
    
    
    
    
    
    (150,908
    )Acquisition of subsidiaries, net of cash acquired
    
    
    (1,947
    )
    
    
    
    
    
    
    
    
    
    
    (1,947
    )
    
    
    
    
    
    
    (1,947
    )Other investing activities
    
    
    
    
    
    
    
    
    
    
    (4,400
    )
    
    
    (4,400
    )
    
    
    
    
    
    
    (4,400
    )Net cash flows used in investing activities
    
    
    (15,812
    )
    
    
    (824
    )
    
    
    (140,619
    )
    
    
    (157,255
    )
    
    
    
    
    
    
    (157,255
    )Cash flows from financing activities:Net proceeds from (payments of) debt and other
    
    
    (7,466
    )
    
    
    (5
    )
    
    
    (1,063
    )
    
    
    (8,534
    )
    
    
    
    
    
    
    (8,534
    )Intercompany transactions
    
    
    (41,639
    )
    
    
    2,825
    
    
    
    38,814
    
    
    
    
    
    
    
    
    
    
    
    Net cash flows provided by (used in) financing activities
    
    
    (49,105
    )
    
    
    2,820
    
    
    
    37,751
    
    
    
    (8,534
    )
    
    
    
    
    
    
    (8,534
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (204
    )
    
    
    (204
    )
    
    
    
    
    
    
    (204
    )Increase (decrease) in cash and cash equivalents
    
    
    (90,018
    )
    
    
    11
    
    
    
    75,311
    
    
    
    (14,696
    )
    
    
    1,430
    
    
    
    (13,266
    )Beginning cash and cash equivalents
    
    
    92,329
    
    
    
    124
    
    
    
    158,270
    
    
    
    250,723
    
    
    
    39,951
    
    
    
    290,674Ending cash and cash equivalents
    
    $
    2,311
    
    
    $
    135
    
    
    $
    233,581
    
    
    $
    236,027
    
    
    $
    41,381
    
    
    $
    277,408
  115




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##### Table of Contents



18. SUBSEQUENT EVENTS
   Gaer v. Education Management
Corp., et. al
  116




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SCHEDULE II
 EDUCATION MANAGEMENT LLC AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
 Balance at
    
    
    Additions
    
    
    
    
    
    
    Balance atBeginning
    
    
    Charged to
    
    
    Deductions/
    
    
    End ofof Period
    
    
    Expenses
    
    
    Other
    
    
    PeriodAllowance accounts for:Year 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
    
    
    
    
    
    
    
    22,477Year ended June 30, 2009Uncollectable accounts receivable
    
    $
    52,270
    
    
    $
    67,049
    
    
    $
    35,628
    
    
    $
    83,691Estimated future loan losses
    
    
    1,719
    
    
    
    11,284
    
    
    
    (1,512
    )
    
    
    14,515Deferred tax asset valuation allowance
    
    
    22,477
    
    
    
    1,066
    
    
    
    4,696
    
    
    
    18,847Year ended June 30, 2010Uncollectable accounts receivable
    
    $
    83,691
    
    
    $
    91,744
    
    
    $
    51,193
    
    
    $
    124,242Estimated future loan losses
    
    
    14,515
    
    
    
    28,646
    
    
    
    
    
    
    
    43,161Deferred tax asset valuation allowance
    
    
    18,847
    
    
    
    3,805
    
    
    
    
    
    
    
    22,652
  117




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SUPPLEMENTAL QUARTERLY INFORMATION (Unaudited)
   Quarter EndedFiscal 2008
    
    September 30
    
    
    December 31
    
    
    March 31
    
    
    June 30Net revenues
    
    $
    361,333
    
    
    $
    445,311
    
    
    $
    461,164
    
    
    $
    416,350Income before interest and income taxes
    
    
    31,291
    
    
    
    95,024
    
    
    
    91,615
    
    
    
    45,608Income (loss) before income taxes
    
    
    (9,049
    )
    
    
    55,565
    
    
    
    52,576
    
    
    
    8,088Net income (loss)
    
    
    (5,559
    )
    
    
    34,047
    
    
    
    31,393
    
    
    
    6,105
 Quarter EndedFiscal 2009
    
    September 30
    
    
    December 31
    
    
    March 31
    
    
    June 30Net revenues
    
    $
    434,228
    
    
    $
    522,218
    
    
    $
    535,438
    
    
    $
    519,574Income before interest and income taxes
    
    
    32,754
    
    
    
    107,160
    
    
    
    107,589
    
    
    
    71,267Income (loss) before income taxes
    
    
    (5,405
    )
    
    
    66,705
    
    
    
    70,189
    
    
    
    34,037Net income (loss)
    
    
    (3,302
    )
    
    
    42,301
    
    
    
    44,127
    
    
    
    21,279
 Quarter EndedFiscal 2010
    
    September 30
    
    
    December 31
    
    
    March 31
    
    
    June 30Net revenues
    
    $
    534,399
    
    
    $
    655,469
    
    
    $
    667,896
    
    
    $
    650,757Income
before interest, loss on early retirement of debt and income taxes
    
    
    61,752
    
    
    
    109,692
    
    
    
    139,630
    
    
    
    107,736Income before income taxes
    
    
    25,423
    
    
    
    34,540
    
    
    
    109,252
    
    
    
    80,932Net income
    
    
    15,762
    
    
    
    20,274
    
    
    
    84,570
    
    
    
    47,900
  118




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting.
      Changes in Internal Controls Over Financial Reporting.
  
 ITEM 9B. OTHER INFORMATION
   119




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##### Table of Contents



PART III
 
 ITEM 10  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11  EXECUTIVE COMPENSATION
  
 ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM
13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
  
 ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES
   120




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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.
   121




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SIGNATURES
  Date: September 1, 2010
    EDUCATION MANAGEMENT CORPORATION/s/
Edward H. WestEdward H. WestPresident and Chief Financial Officer  Signature
    
    Title
    
    Date/s/
Todd S. Nelson
    
    Chief Executive Officer and Director
    
    September 1, 2010Todd S. Nelson
    
    (Principal Executive Officer)/s/
Randall J. Killeen
    
    Vice President, Controller and Chief
    
    September 1, 2010Randall J. Killeen
    
    Accounting Officer/s/
Edward H. West
    
    President and Chief Financial Officer
    
    September 1, 2010Edward H. West
    
    (Principal Financial Officer)/s/
John R. McKernan, Jr.
    
    Chairman of the Board of Directors
    
    August 31, 2010John R. McKernan, Jr./s/
Mick J. Beekhuizen
    
    Director
    
    August 31, 2010Mick J. Beekhuizen/s/
Samuel C. Cowley
    
    Director
    
    August 31, 2010Samuel C. Cowley/s/
Adrian M. Jones
    
    Director
    
    August 31, 2010Adrian M. Jones/s/
Jeffrey T. Leeds
    
    Director
    
    August 31, 2010Jeffrey T. Leeds/s/
Leo F. Mullin
    
    Director
    
    August 31, 2010Leo F. Mullin/s/
Michael K. Powell
    
    Director
    
    August 31, 2010Michael K. Powell/s/
Paul J. Salem
    
    Director
    
    August 31, 2010Paul J. Salem/s/
Peter O. Wilde
    
    Director
    
    August 31, 2010Peter O. Wilde
  122




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Exhibit Index
 3.1
    
    
    Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of Education
Management Corporation for its fiscal quarter ended September 30, 2009)3.2
    
    
    Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q of Education Management Corporation
for its fiscal quarter ended September 30, 2009)4.1
    
    
    Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 6 to the Registration Statement on Form S-1 of
Education Management Corporation (File No. 333-148259))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 83/4% Senior Notes due 2014 (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the
Registration Statement on Form S-4 of Education Management LLC and Education Management Finance Corp. (File No. 333-137605))4.3
    
    
    Form of 83/4% Senior Note due 2014 (included as part of Exhibit 4.2)4.4
    
    
    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 (incorporated by reference to Exhibit 4.2 to Amendment No.
1 to the Registration Statement on Form S-4 of Education Management LLC and Education Management Finance Corp. (File No. 333-137605))4.5
    
    
    Form of 101/4% Senior Subordinated Note due 2016 (included as part of Exhibit 4.4)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 (incorporated by reference to
Exhibit 10.01 to the Current Report on Form 8-K of Education Management LLC filed on February 14, 2007)10.2
    
    
    First Amendment to Amended and Restated Credit and Guaranty Agreement dated March 23, 2009 by and among Education Management LLC, Education
Management Holdings, LLC, Goldman Sachs Lending Partners LLC, J.P. Morgan Securities Inc. and BNP Paribas Securities Corp., as auction managers,
BNP Paribas, as Administrative Agent and Issuing Bank, the guarantors listed on the signature papers thereto and the lenders listed on the
signature papers thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Education Management LLC filed on March
26, 2009)10.3
    **
    
    Employment Agreement dated February 8, 2007 among Education Management LLC, Education Management Corporation and Todd S. Nelson (incorporated by
reference to Exhibit 10.02 to the Current Report on Form 8-K of Education Management LLC filed on February 14, 2007)10.4
    **
    
    Employment Agreement, dated as of December 7, 2006, between Education Management LLC and John M. Mazzoni (incorporated by reference to Exhibit
10.02 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)10.5
    **
    
    Employment Agreement, dated as of December 7, 2006, between Education Management LLC and Stacey R. Sauchuk (incorporated by reference to Exhibit
10.03 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)10.6
    **
    
    Employment Agreement, dated as of December 7, 2006, between Education Management LLC and John T. South, III (incorporated by reference to Exhibit
10.04 to the Current Report on Form 8-K of Education Management LLC filed on December 13, 2006)10.7
    **
    
    Letter Agreement, dated as of December 7, 2006, between Education Management
LLC and John T. South, III (incorporated by reference to Exhibit 10.05 to the
Current Report on Form 8-K of Education Management LLC filed on December 13,
2006)
  123




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##### Table of Contents



10.8
    **
    
    Letter Agreement, dated March 30, 2007, between Education Management LLC and
John T. South, III (incorporated by reference Exhibit 10.03 to the Current
Report on Form 8-K of Education Management LLC filed on April 5, 2007)10.9
    **
    
    Employment Agreement, dated as of June 1, 2006, between Education Management
Corporation and John R,. McKernan, Jr. (incorporated by reference to Exhibit
10.15 to the Registration Statement on Form S-4 of Education Management LLC
and Education Management Finance Corp. (File No. 333-137605))10.10
    **
    
    Letter Agreement, dated February 13, 2007, between Education Management
Corporation and John R. McKernan, Jr. (incorporated by reference to Exhibit
10.03 to the Current Report on Form 8-K of Education Management LLC filed on
February 14, 2007)10.11
    **
    
    Letter Agreement, dated June 28, 2007, between Education Management
Corporation and John R. McKernan, Jr. (incorporated by reference to Exhibit
10.02 to the Current Report on Form 8-K of Education Management LLC filed on
July 5, 2007)10.12
    **
    
    Employment Agreement, dated as of December 7, 2006, between Education
Management LLC and Stephen J. Weiss (incorporated by reference to Exhibit
10.06 to the Current Report on Form 8-K of Education Management LLC filed on
December 13, 2006)10.13
    **
    
    Waiver and Release of Claims, dated July 10, 2009, among Stephen J. Weiss,
Education Management LLC and Education Management Corporation (incorporated
by reference to Exhibit 10.14 to the Annual Report on Form 10-K of Education
Management LLC for its fiscal year ended June 30, 2009)10.14
    **
    
    Employment Agreement, dated as of June 1, 2006, between Education Management
Corporation and Edward H. West (incorporated by reference to Exhibit 10.16 to
the Registration Statement on Form S-4 of Education Management LLC and
Education Management Finance Corp. (File No. 333-137605))10.15
    **
    
    Form of Executive TimeVested Stock Option Agreement (incorporated by
reference to Exhibit 10.07 to the Current Report on Form 8-K of Education
Management LLC filed on December 13, 2006)10.16
    **
    
    Form of Executive PerformanceVested Stock Option Agreement (incorporated by
reference to Exhibit 10.08 to the Current Report on Form 8-K of Education
Management LLC filed on December 13, 2006)10.17
    **
    
    Fiscal 2007 Management Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.01 to the Current Report on Form 8-K filed of Education
Management LLC on December 11, 2006)10.18
    **
    
    EDMC Stock Option Plan, effective August 1, 2006, as amended (incorporated by
reference to Exhibit 10.9 to Amendment No. 1 to the Registration Statement on
Form S-4 of Education Management LLC and Education Management Finance Corp.
(File No. 333-137605)), amendments filed as Exhibit 10.01 to the Current
Report on Form 8- K of Education Management LLC filed on March 15, 2007,
Exhibit 10.01 to the Current Report on Form 8-K of Education Management LLC
filed on April 5, 2007 and Exhibit 10.01 to the Current Report on Form 8-K of
Education Management LLC filed on July 5, 2007)10.19
    **
    
    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 of Education Management LLC filed on December 29, 2006)10.20
    **
    
    Education Management Corporation Long-Term Incentive Compensation Plan
(previously filed as Exhibit 10.01 to the Current Report on Form 8-K of
Education Management LLC filed on March 2, 2007)10.21
    
    
    Shareholders Agreement, dated as of October 7, 2009, by and among Education Management Corporation and each of
the Shareholders named therein (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
of Education Management Corporation for its fiscal quarter ended September 30, 2009)10.22
    **
    
    Education Management Corporation Omnibus Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to
the Quarterly Report on Form 10-Q of Education Management Corporation for its fiscal quarter ended September
30, 2009)10.23
    **
    
    Form of Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q
of Education Management Corporation for its fiscal quarter ended September 30, 2009)
  124




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10.24
    **
    
    Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.4 to the Quarterly Report on
Form 10-Q of Education Management Corporation for its fiscal quarter ended September 30, 2009)10.25
    
    
    Registration Rights Agreement, dated as of June 1, 2006, by and among EM Acquisition Corporation, GS Capital
Partners V Fund, L.P., GS Capital Partners V Offshore Fund, L.P., GS Capital Partners V GmbH & Co. KG, GS
Capital Partners V Institutional, L.P., Providence Equity Partners V L.P., Providence Equity Partners V-A L.P.,
Providence Equity Partners IV L.P., Providence Equity Operating Partners IV L.P. and the other shareholders
that are signatory thereto (incorporated by reference to Exhibit 10.23 to Amendment No. 4 to the Registration
Statement on Form S-1 of Education Management Corporation (File No. 333-148259))10.26
    
    
    Form of Indemnification Agreement (incorporated by reference to Exhibit 10.26 to Amendment No. 4 to the
Registration Statement on Form S-1 of Education Management Corporation (File No. 333-148259))10.27
    
    
    Joinder Agreement, dated as of August 25, 2009, by and among each Joinder Lender listed therein, each Issuing
Bank listed therein, Education Management LLC, Education Management Holdings LLC, the guarantors listed therein
and BNP Paribas, as Administrative Agent (incorporated by reference to Exhibit 10.27 to Amendment No. 4 to the
Registration Statement on Form S-1 of Education Management
Corporation (File No. 333-148259))
 10.28
    * **
    
    Employment Agreement, dated as of June 25, 2007, between Education Management LLC and
Robert A. Carroll.10.29
    * **
    
    Employment Agreement, dated as of December 7, 2006, between Education Management LLC
and J. Devitt Kramer.10.30
    * **
    
    Employment Agreement, dated as of December 7, 2006, between Education Management LLC
and Danny Finuf.10.31
    * **
    
    Employment Agreement, dated as of October 22, 2007, between Education Management LLC
and Craig Swenson.10.32
    * **
    
    Employment Agreement, dated as of August 11, 2009, between Education Management LLC
and John R. Kline.10.33
    * **
    
    Employment Agreement, dated as of April 23, 2007, between Education Management LLC and
Roberta Troike.12.1
    *
    
    Statement re computation of ratios21.1
    
    

List
of Subsidiaries (incorporated by reference to Exhibit 21.1 to the
Registration Statement on Form S-1 (File No. 333-148259))23.1
    *
    

Consent
of Ernst & Young LLP31.1
    *
    
    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.**
    
    Management contract or compensatory plan or arrengement.  125