UNITED STATES SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM~~ Form 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended June 30, 2009
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to .

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2007

¨ 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: 333-137605

EDUCATION MANAGEMENT LLC

(Exact name of registrant as specified in its charter)

Delaware		20-4506022
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
c/o Education Management Corporation
c/o Education Management Corporation 210 Sixth Avenue, Pittsburgh, PA, 33rd Floor		15222 (Zip Code)
210 Sixth Avenue, Pittsburgh, PA, 33rd Floor		15222
(Address of principal executive offices)
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: ~~(412) 562-0900~~

~~Securities registered pursuant to Section 12~~ (b412) ~~of the Act: None~~ 562-0900

Securities registered pursuant to Section 12(gb) of the Act: ~~None~~

~~Indicate by check mark if the registrant is a well-known seasoned~~ ~~issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x~~ None

~~Indicate by check mark if the registrant is~~ ~~not~~ Securities ~~required~~registered ~~to file reports~~ pursuant to Section ~~13 or Section 15~~12(dg) of the Act~~. Yes ¨ No x~~ :

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the ~~registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨~~ None

Indicate by check mark if ~~disclosure~~the ofregistrant ~~delinquent filers pursuant to Item 405 of Registration S-K~~ is ~~not~~a ~~contained herein, and will~~well-known ~~not~~ seasoned ~~be contained~~issuer, toas ~~the~~defined ~~best of registrant’s knowledge,~~ in ~~definitive~~Rule 405 ~~proxy or information statements incorporated by reference in Part III~~ of ~~this Form 10-K or any amendment to~~ the ~~Form 10-K~~Securities Act. x Yes o No þ

Indicate by check mark ~~whether~~if the registrant is anot ~~large~~required ~~accelerated~~to ~~filer,~~file reports anpursuant ~~accelerated~~to ~~filer,~~Section 13 or aSection 15(d) ~~non-accelerated filer. See definition~~ of ~~“accelerated filer and large accelerated filer” in Rule 12b-2 of~~ the ~~Exchange~~ Act. Yes þ No o

~~Large~~ Indicate ~~accelerated~~by ~~filer~~check ¨mark ~~Accelerated~~whether ~~filer~~the ¨registrant: ~~Non-accelerated~~(1) has filed ~~filer~~all xreports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant ishas asubmitted electronically ~~shell~~and ~~company~~posted ~~(as~~on ~~defined~~its incorporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule ~~12b-2~~405 of Regulation S-T during the preceding ~~Exchange~~12 ~~Act.~~months (or for such shorter period that the registrant was required to submit and post such files)~~: Yes~~. ¨ Yes o No x o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Registration S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes o No þ

The aggregate market value of the voting and non-voting equity held by non-affiliates of the registrant is not applicable as no public market for the voting stock of the registrant exists.

The number of units of the registrant’s outstanding membership interests at September 20, 2007 was 100.

Table of Contents

INDEX

							PAGE
					Page
PART I	–
PART I —
ITEM 1		—	~~ITEM 1~~	–BUSINESS	~~BUSINESS~~	5	2
ITEM 1A		—	~~ITEM 1A~~	–RISK FACTORS	~~RISK FACTORS~~	33	25
ITEM 1B		—	~~ITEM 1B~~	–UNRESOLVED STAFF COMMENTS	~~UNRESOLVED STAFF COMMENTS~~	47	33
ITEM 2		—	~~ITEM 2~~	–PROPERTIES	~~PROPERTIES~~	47	34
ITEM 3		—	~~ITEM 3~~	–LEGAL PROCEEDINGS	~~LEGAL PROCEEDINGS~~	47	34
ITEM 4		—	~~ITEM 4~~	–SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	~~SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~	48	34
PART II	–
PART II —
ITEM 5		—	~~ITEM 5~~	–MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	~~MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~	48	34
ITEM 6		—	~~ITEM 6~~	–SELECTED FINANCIAL DATA	~~SELECTED FINANCIAL DATA~~	49	35
ITEM 7		—	~~ITEM 7~~	–MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~	51	39
ITEM 7A		—	~~ITEM 7A~~	–QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~	69	56
ITEM 8		—	~~ITEM 8~~	–FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~	71	57
ITEM 9		—	~~ITEM 9~~	–CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE~~	109	~~101~~
ITEM 9A		—	~~ITEM 9A~~	–CONTROLS AND PROCEDURES	~~CONTROLS AND PROCEDURES~~	109	~~101~~
ITEM 9B		—	~~ITEM 9B~~	–OTHER INFORMATION	~~OTHER INFORMATION~~	109	~~101~~
PART III	–
PART III —
ITEM 10		—	~~ITEM 10~~	–DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	~~DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE~~	110	~~102~~
ITEM 11		—	~~ITEM 11~~	–EXECUTIVE COMPENSATION	~~EXECUTIVE COMPENSATION~~	114	~~104~~
ITEM 12		—	~~ITEM 12~~	–SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	~~SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS~~	135	~~124~~
ITEM 13		—	~~ITEM 13~~	–CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	~~CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE~~	137	~~126~~
ITEM 14		—	~~ITEM 14~~	–PRINCIPAL ACCOUNTANT FEES AND SERVICES	~~PRINCIPAL ACCOUNTANT FEES AND SERVICES~~	139	~~128~~
PART IV	–
PART IV —
ITEM 15		—	~~ITEM 15~~	–EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	~~EXHIBITS, FINANCIAL STATEMENT SCHEDULES~~	139	~~129~~
EX-10.14
EX-12.1
EX-21.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

FORWARD-LOOKING STATEMENTS

This ~~annual~~Annual ~~report~~Report on Form 10-K (this “Form 10-K”) contains “forward-looking statements” within the meaning of the federal securities laws, which involve risks and uncertainties. ~~You can identify forward~~Forward-looking statements can be identified because they contain words such as “believes,” , “expects,”, “may,”, “will,”, “should,”, “seeks,” , “approximately,”, “intends,” , “plans,”, “estimates,”, or “anticipates” or similar expressions that concern our strategy, plans or intentions. All statements we make ~~relating~~ relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. All of these forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may ~~differ~~ differ materially from those we expected. We derive most of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations ~~(“cautionary statements”)~~ are disclosed under “Risk Factors” and elsewhere in this Form 10-K, including, without limitation, in conjunction with the forward-looking statements included in this Form 10-K. ~~All~~ All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the ~~cautionary~~factors ~~statements.~~discussed in this Form 10-K. Some of the factors that we believe could affect our results include:

• compliance with extensive federal, state and accrediting agency regulations and requirements; • our ability to maintain eligibility to participate in Title IV programs; • government and regulatory changes including revised interpretations of regulatory requirements that affect the post-secondary education industry; • regulatory and accrediting agency approval of transactions involving a change of ownership or control or a change in our corporate structure; • damage to our reputation or our regulatory environment caused by actions of other for-profit institutions; • availability of private loans for our students; • our introduction of the 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 ~~student~~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; • increases to our administrative costs and delays to the receipt of federal loan proceeds that we may experience if we are required to process all or a substantial portion of our students’ federal loans through the Direct Loan Program;

~~• failure to effectively market and advertise to new students;~~ 3

•Table government and regulatory changes including revised interpretations of regulatory requirements that affect the post-secondary education industry;Contents

• capacity constraints or system disruptions to our online computer networks; • the ~~integration~~vulnerability of ~~acquired~~our ~~businesses~~online computer networks to security risks; • failure to attract, ~~the~~retain ~~performance~~and ofintegrate qualified management personnel; • our ability to integrate acquired ~~businesses~~schools; • inability to operate schools due to a natural disaster; • competitors with greater resources; • risks inherent in non-domestic operations; and • the ~~prospects~~other ~~for~~factors ~~future~~set ~~acquisitions;~~forth under “Risk Factors”.

• the effect of disruptions to our systems and infrastructure;

• failure to attract, retain and integrate qualified management personnel;

• failure to maintain relationships with key industry participants and/or key customers and/or loss of significant customer revenues;

• failure to effectively compete;

• failure to comply with regulations or maintain state authorizations and accreditations; and

• the other factors set forth under “Risk Factors.”

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Form 10-K may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

1 4

PART I


ITEM 1.	*BUSINESS*

Business Overview

Education Management LLC (the “Company”, the “Successor”, “we”, and “our”) is among the largest providers of post-secondary education in North America, with approximately 80110,~~300~~800 ~~active~~enrolled students as of ~~the~~ October ~~fall~~2008. We offer academic programs to our students through campus-based and online instruction, or through a combination of both. ~~2006~~We are committed to offering quality academic programs and continuously strive to improve the learning experience for our students. ~~Our~~We target a large and diverse market as our educational institutions offer students the opportunity to earn undergraduate and graduate degrees, including doctoral degrees, and certain specialized non-degree diplomas in a broad range of disciplines, including design, media arts, ~~design,~~health sciences, psychology and behavioral sciences, ~~education~~culinary, ~~information technology~~fashion, business, legal ~~studies~~, ~~business,~~education ~~health sciences~~ and ~~culinary~~information ~~arts~~technology. ~~For~~Each of our schools located in the ~~fiscal~~United ~~year~~States ~~ended~~is ~~June 30,~~licensed ~~2007,~~in wethe ~~generated~~state ~~revenues~~in which it is located, ~~Adjusted~~accredited ~~EBITDA~~by a national or regional accreditation agency and ~~net~~certified ~~income~~by the U.S. Department of $1Education,~~363.7~~ ~~million~~enabling students to access federal student loans, grants ~~$327.1~~and ~~million~~other forms of public and ~~$32~~private financial aid.2 ~~million~~Our academic programs are designed with an emphasis on applied content and are taught primarily by faculty members who, ~~respectively~~in addition to having appropriate academic credentials, offer practical and relevant professional experience in their respective fields. Our net revenues for fiscal 2009 were $2,011.5 million.

~~During~~ Our ~~our~~schools ~~over~~comprise ~~35-year~~a ~~operating~~national ~~history,~~education weplatform ~~have~~that ~~expanded~~is ~~the~~ designed ~~reach~~to ofaddress ~~our~~the ~~education~~needs ~~systems~~of ~~and,~~a asbroad ~~of June 30~~market, ~~2007,~~taking ~~operated~~into consideration 78various ~~schools~~factors ~~across~~that 25influence ~~states~~demand, insuch ~~the~~as programmatic ~~United States~~ and ~~two~~degree ~~Canadian provinces. Additionally~~interest, weemployment ~~offer an online education platform~~opportunities, requirements ~~enabling~~for ~~our~~credentials ~~students~~in tocertain ~~pursue degrees~~professions, ~~online~~ demographics, ortuition ~~through~~pricing apoints ~~flexible~~and ~~combination~~economic ofconditions. ~~both~~We believe ~~online~~that ~~and~~our ~~local~~schools ~~campuses.~~collectively ~~Our programs~~ enable ~~students~~us to ~~earn~~provide access ~~various~~to ~~degrees,~~a ~~including~~high ~~Doctorate,~~quality ~~Master’s,~~education ~~Bachelor’s~~for ~~and~~potential ~~Associate’s~~students, asat ~~well~~a variety asof ~~certain specialized non-~~degree ~~diplomas.~~ ~~These~~levels ~~academic~~and ~~programs~~across ~~are designed with~~ a ~~distinct~~wide ~~emphasis~~range onof ~~applied, career-oriented content and are primarily taught by faculty members that possess practical and relevant professional experience in their respective fields~~disciplines.

~~Our~~ During ~~student~~our ~~population~~more ~~includes~~than 35-year operating ~~both traditional students~~history, ~~typically~~ ~~recent~~we ~~high~~have ~~school~~expanded ~~graduates~~the ~~pursuing~~reach ~~their~~of ~~first~~our ~~higher~~ education systems ~~degree,~~ and ~~working~~currently ~~adults,~~operate ~~who~~92 ~~are~~primary ~~pursuing~~locations ~~additional~~across ~~education~~28 U.S. states and in ~~their current field or preparing for a new profession~~Canada. ~~Based~~In ~~on information collected by us from graduating students and employers~~addition, we ~~believe~~have ~~that~~offered online ofprograms ~~the~~since ~~approximately 13~~2000,~~500~~ ~~undergraduate~~enabling our students ~~who~~to ~~graduated~~pursue degrees ~~from~~fully ~~our~~online ~~institutions~~or ~~during~~through ~~the~~a ~~calendar~~flexible ~~year~~combination ~~ended~~of ~~December 31,~~both online ~~2006,~~and ~~approximately~~campus-based ~~90%~~education. ofDuring ~~those~~the ~~available~~period ~~for employment~~from ~~obtained~~ October ~~employment~~1998 inthrough ~~their~~October ~~fields~~2008, ofwe ~~study~~experienced or a ~~related~~compounded annual ~~field~~enrollment ~~within~~growth ~~six~~rate ~~months~~ of ~~graduation~~18.0%. ~~Similar~~During tothe ~~traditional~~same ~~public~~time period, ~~and~~the ~~private~~schools ~~colleges~~that ~~and~~we ~~universities,~~have ~~each~~owned ofor ~~our~~operated ~~schools~~for ~~located~~one inyear or ~~the~~more ~~United~~experienced ~~States~~a iscompounded ~~recognized~~annual byenrollment ~~accreditation~~growth rate ~~agencies~~ of ~~and by the U~~12.S0%. ~~Department~~We ofseek ~~Education,~~to ~~enabling~~maintain ~~students~~growth toin ~~access~~a ~~federal~~manner ~~student~~that ~~loans,~~assures adherence ~~grants~~to ~~and~~our ~~other~~high ~~forms~~standard of ~~public~~educational quality and ~~private~~track record ~~financial~~of ~~aid.~~student success.

Our ultimate parent company, Education Management Corporation (“EDMC” or the “Predecessor”), was acquired by a consortium of private investors on June 1, 2006 through a merger of an acquisition company into EDMC, with EDMC surviving the merger (the “Transaction”). Since that time we have undertaken multiple initiatives to increase our penetration of addressable markets in order to enable us to accelerate our growth and expand our market position. We have opened 20 new locations, acquired two schools, ~~are~~developed ~~organized~~36 new academic programs and ~~managed~~introduced ~~through~~over ~~four~~600 ~~education~~new or existing academic programs to locations that had not previously offered such programs. The compound annual enrollment growth rate at our schools was 19.6% between July 2006 and July 2009. During the same time period, the compound annual enrollment growth rate for schools owned or operated for one year or more was 18.2%. We have made significant capital investments in technology and human resources, particularly in marketing and admissions, designed to facilitate future enrollment growth while enhancing the effectiveness of our marketing efforts. We have also upgraded our infrastructure, student interfaces and student support systems to enhance the student experience, ~~each~~while providing ~~focused~~greater onoperational ~~specific~~transparency. ~~programmatic~~We have made considerable investments in our online education platform, which has resulted in strong enrollment growth. The number of students enrolled in fully online academic programs has grown more than five-fold to approximately 26,200 students in July 2009, compared to approximately 4,600 students in July 2006. Finally, we have enhanced our senior management team, achieving a balance of experience from both within and ~~degree~~outside ~~areas:~~the for-profit education industry.

• The Art Institutes. The Art Institutes offer Master’s, Bachelor’s and Associate’s degree programs, as well as certain non-degree diploma programs, in graphic design, media arts and animation, multimedia and web design, game art and design, video and digital media production, interior and industrial design, culinary arts, photography and fashion. Students can pursue their degree at one of our 37 Art Institute campuses in 21 states and two Canadian provinces, including Tucson Design College, acquired in June 2007 and subsequently renamed The Art Institute of Tucson, and fully online programs offered by The Art Institute Online, a division of The Art Institute of Pittsburgh. The Art Institute of Toronto announced in June 2007 that it will no longer accept new students and that it will close after all current students complete their respective programs.

• Argosy University. Argosy University is primarily focused on Doctorate and Master’s degree programs in clinical psychology, counseling, education and business administration. It also offers Bachelor’s and Associate’s degrees in similar fields. There are 18 Argosy University locations in 12 states.

• Brown Mackie Colleges. The Brown Mackie Colleges offer Associate’s degree programs, as well as certain non-degree diploma programs, in health sciences, business, information technology, legal studies and design technologies. At June 30, 2007, there were 16 Brown Mackie College campuses in seven states, primarily in the Midwestern United States. Chaparral College, which we acquired in June 2007, was renamed Brown Mackie College - Tucson in August 2007. We began offering Bachelor’s degree programs at several Brown Mackie Colleges in July 2007.

• South University. South University offers undergraduate and graduate degree programs in business, legal studies, information technology and health sciences fields through five campuses in the Southeastern United States and online programs.

In addition to the education systems listed above, we also operate Western State University College of Law in California, which offers Juris Doctor degrees.

We have provided educational services for more than 35 years since the acquisition of our first Art Institute in Pittsburgh in 1970. Throughout our history, we have selectively pursued acquisitions to augment our network, program and degree offerings with established franchises such as Argosy University in 2001 and South University and American Education Centers (renamed the Brown Mackie Colleges) in 2003. Of the 28 acquisitions we have completed, the majority have been select acquisitions of single campuses where the economics of acquiring an existing school were more favorable than opening a new school.

Change in Ownership

We are a wholly-owned subsidiary of Education Management Holdings LLC (“Holdings”), which is wholly-owned by Education Management Corporation (“EDMC”). On June 1, 2006 EDMC was acquired by a consortium of private investors led by Providence Equity Partners and Goldman Sachs Capital Partners (together, the “Sponsors”) through a merger of EM Acquisition Corporation into EDMC, with EDMC surviving the merger (the “Transaction”). In connection with the Transaction, each outstanding share of EDMC’s common stock (other than shares held in treasury or shares held by any of the respective subsidiaries) was cancelled and converted into the right to receive $43.00 in cash. EDMC remained as a legal entity after the Transaction but contributed substantially all of its assets and liabilities to Education Management LLC in connection with the Transaction.

The acquisition of EDMC was financed by equity invested in EM Acquisition Corporation by the Sponsors and other investors, cash on hand, borrowings under a new senior secured credit facility by us and the issuance by us and Education Management Finance Corp. (a wholly-owned subsidiary of the Company) of senior notes due 2014 and senior subordinated notes due 2016.

Our Business Strategy

We intend to pursue the following key elements of our current business strategy:

• Augment and improve our academic curricula and programs

Create new and revise existing academic programs. We continually strive to identify emerging industry trends in order to understand the evolving educational needs of our students and the employment market. We rapidly develop and introduce new programs in response to these needs with the assistance of our curriculum advisory teams, which consist of over 1,200 industry experts and employers. For example, during fiscal 2007, we introduced twelve new academic programs, including Associate’s degree programs in Kitchen and Bath Design and Early Childhood Education, a Bachelor’s degree program in Entertainment Design and Masters’ programs in Management and Health Services Management. We also regularly evaluate our existing program offerings and revise existing courses to meet changing market needs.

Rollout existing programs to additional schools. Our broad base of 78 schools enables us to drive growth through introducing programs that have been successful at one school to other schools within our systems. During fiscal 2007, we successfully rolled out 174 existing educational programs to additional schools. The rollout of existing programs at additional campuses allows us to drive enrollment growth at existing locations with minimal incremental costs, leverage existing curriculum development and quickly capitalize on identified market needs.

• Continue to improve our marketing and student services

Increase and optimize the use of marketing resources. We continually evaluate the efficiency of various marketing media channels by student, program, campus and each of our school systems, which enable us to rapidly optimize the allocation of our marketing budget. We also put significant emphasis on recruiting qualified admission officers. During fiscal 2007, we increased the number of admissions officers at our schools by approximately 50%.

Continue to emphasize student services. In student services, we focus on student retention and assisting our students in obtaining full-time employment. We maintain dedicated career services personnel at our schools, who provide assistance by establishing relationships with potential employers and preparing students for interviews and post-graduate employment. We also evaluate the placement of our students from each of our programs to assist us in determining how to allocate our resources in the future. Our focus on student outcomes also helps us to maintain a strong student retention rate and manage our cohort loan default rates, enhancing profitability and regulatory compliance. It also helps us to attract new students, because approximately 23% of the new students at our Art Institutes initially learn about us through referrals, generally from satisfied existing students and alumnus.

• Expand the number of online students

We believe that a significant growth opportunity exists in offering online programs to students who may not otherwise have attended our schools. As the quality and acceptance of online education continues to increase, we continue to invest in both expanding our online course offerings and enhancing our online marketing presence. Online programs primarily target students who are not able to pursue campus-based post-secondary education, due to schedule and location constraints, and thus address an additional market beyond our campus-based target demographics. Online courses provide these students flexible schedules which can be tailored around a student’s working hours and can be combined with traditional on-campus classes. Online offerings represent an attractive avenue for growth by utilizing many of our existing education curricula while requiring less capital expenditures relative to campus-based expansion. Our online efforts continue to experience significant success, with 6,400 students taking all of their courses online and 12,700 students taking at least one of their courses online during the fall term of 2006, compared to 4,100 and 9,100 students, respectively, during the same term in 2005.

• Grow our portfolio of schools in a capital-efficient manner

Develop new school locations. We believe that there are many attractive opportunities available to us to develop new school locations in the United States. Prior to opening a new campus, we perform a detailed analysis of the geographic area, including ranking the statistical attractiveness of a metropolitan area based on population size and growth, the percentage of the population likely to pursue education in a particular program area and the level of unmet demand represented by a student population not served by existing local post-secondary educational institutions. In opening new campuses, we utilize our centralized infrastructure and existing curricula to cost-effectively expedite the opening and ramp-up of a location. During fiscal 2007, we opened five new school locations in addition to our acquisitions of Tucson Design College and Chaparral College.

Utilize shared services locations. Since fiscal 2004, we have combined the facilities and administrative functions of some of our schools that are located in the same geographic regions. The administrative services which are combined for two or more schools located within a single facility may include career services, finance, human resources and information technology, among other functions. Currently, 25 of our schools are in shared services locations, and we plan to continue to utilize this model for new campuses in order to minimize capital expenditures and operating expenses, and increase facility utilization.

Student Recruitment and Marketing

We use marketing tools such as the Internet, radio, local newspaper, television and print media advertising, telephone campaigns, and direct mail campaigns to attract new students to our schools. In addition, the general reputation of our schools and referrals from current students, alumni and employers is an important source of new students. We also employ approximately 160 representatives who make presentations at high schools to promote The Art Institutes. These representatives also participate in college fairs and other inquiry-generating activities. In fiscal 2007, representatives conducted over 22,000 high school visits and attended approximately 2,700 career events. We estimate that new students at The Art Institutes made their initial inquiry based on the following percentages in fiscal 2007 and 2006:

	Year endedJune 30,
	2007		2006
Internet advertising and our websites	52	%	44	%
Referrals from other students and graduates	23	%	26	%
High school recruitment programs	13	%	15	%
Broadcast advertising	5	%	7	%
Print media	2	%	2	%
Direct mail campaigns	1	%	2	%
Other recruiting efforts	4	%	4	%

In fiscal 2007, our marketing efforts generated inquiries from approximately 1,600,000 prospective students as compared to approximately 1,200,000 inquiries in fiscal 2006. Our inquiry-to-application conversion ratio for these students decreased from 7.3% in fiscal 2006 to 7.0% in fiscal 2007 due primarily to an increase in the number of inquiries from the Internet in fiscal 2007. The applicant-to-new-student ratio for our students was 57% in both fiscal 2006 and fiscal 2007.

Our internal advertising agency creates publications, television and radio commercials, videos and other promotional materials for our schools. The agency is also responsible for inquiry generation, media planning and placement, online marketing, website development and branding.

Student Admissions and Retention

The admissions and entrance standards of each school are designed to identify those students who are best equipped to meet the requirements of their chosen fields of study and successfully complete their programs. In evaluating prospective students, we seek individuals with, among other things, a strong desire to learn, passion for their area of interest, and initiative. We believe that a success-oriented student body results in higher retention and placement rates, increased student and employer satisfaction, and lower student default rates on government loans. To be qualified for admission to one of our schools, each applicant must have received a high school diploma or a General Education Development certificate. Our graduate and Doctorate programs require an undergraduate degree. Most of our schools interview prospective students to assess their qualifications, their interest in the programs offered by the school and their commitment to their education. In addition, the curricula, student services, education costs, available financial resources and student housing options, if applicable, are reviewed during interviews.

Due to our broad program offerings, our students come from a wide variety of backgrounds. The estimated average age of a new student at all of our schools during fiscal 2007 was 27 years old.

Our students may fail to finish their programs for a variety of personal, academic or financial reasons. To reduce the risk of student withdrawals, each of our schools devotes staff resources to advising students regarding academic and financial matters, part-time employment and, if applicable, housing. Remedial courses are mandated for our undergraduate and graduate students with lower academic skill levels and tutoring is

~~encouraged~~ Each ~~for~~of ~~students~~our ~~experiencing~~92 ~~academic~~schools ~~difficulties~~provides student-centered education. Our schools ~~net annual persistence rate, which measures the number of students who~~ are ~~enrolled~~organized ~~during a fiscal year~~ and ~~either~~managed ~~graduate or advance~~ to ~~the~~capitalize ~~next~~on ~~fiscal year, for all of our students was approximately 72.0% in fiscal 2007 as compared to 72.3% in fiscal 2006. We adopted the calculation of persistence prescribed by the Accrediting Counsel~~recognized of brands ~~Independent Colleges~~ and ~~Schools~~align inthem ~~fiscal~~with ~~2007,~~specific ~~which~~targeted ismarkets ~~different~~based ~~from~~on field ~~our prior computation~~ of ~~persistence.~~study, ~~Under~~employment ~~our prior computation~~opportunity, ~~our~~type ~~net~~of ~~annual~~degree ~~persistence~~offering and ~~rate~~student ~~for fiscal 2006 was 67.5%~~ demographics:

~~Education~~• ~~Programs~~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 44 Art Institutes campuses in 23 U.S. states and in Canada. As of October 2008, students enrolled at The Art Institutes represented approximately 60.9% 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 2008, students enrolled at Argosy University represented approximately 16.7% 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 22 Brown Mackie College campuses in 11 U.S. states. As of October 2008, students enrolled at Brown Mackie Colleges represented approximately 12.2% 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 six South University campuses in five U.S. states As of October 2008, students enrolled at South University represented approximately 10.2% of our total enrollments.

~~The~~ Our ~~relationship~~business ofmodel ~~each~~has ofa ~~our~~number ~~schools~~of ~~with~~favorable ~~potential employers for our~~financial ~~students~~ characteristics, ~~plays~~including aconsistent ~~significant~~historical ~~role~~enrollment growth, inhigh ~~the~~visibility ~~development~~into ~~and~~operational ~~adaptation~~performance, opportunity offor ~~school~~future ~~curriculum.~~profit ~~Most~~margin ofexpansion ~~our~~and ~~schools~~strong operating ~~have~~cash ~~one~~flow orgeneration, ~~more~~although ~~program~~the ~~advisory~~interest ~~boards~~expense relating ~~composed~~to ~~of members of~~ the ~~local~~significant ~~and~~indebtedness ~~regional~~that ~~communities~~we orincurred ~~employers~~ in ~~the fields which we~~ ~~serve.~~ connection ~~These~~with ~~boards provide valuable input to~~ the ~~school’s~~Transaction ~~education~~has ~~department,~~caused ~~which~~our ~~allows~~net ~~the~~income ~~school~~ to decline ~~keep~~in ~~programs~~recent ~~current~~periods ~~and~~as ~~provide~~compared ~~students~~to ~~with~~periods ~~the~~prior ~~training~~to ~~and skills that employers seek~~the Transaction.

Our wide range of academic programs culminate in the awarding of diploma certificates through Doctorate degrees. In the fall of 2006, the enrollment by degree for all our schools was as follows:


	•	History of consistent enrollment growth. During the period from October 1998 through October 2008, we experienced a compounded annual enrollment growth rate of 18.0%. During the same time period, the schools that we have owned or operated for one year or more experienced a compounded annual enrollment growth rate of 12.0%. We generally achieve growth through a number of independent sources, including continued investment in existing schools, the addition of schools (organically or through acquisition) and new delivery channels, such as online. The significant investments we have made since the Transaction in numerous areas of our workforce, including marketing and admissions, new campuses and online education and infrastructure, are designed to support future enrollment.

	•	High visibility into operational performance. We believe that we benefit from a business model with good insight into future revenue and earnings, given the length of our academic programs. Approximately 64% of our students as of October 2008 were enrolled in Doctorate, Master’s and Bachelor’s degree programs, which are typically multi-year programs that contribute to the overall stability of our student population.

• Bachelor’s degrees—47.5%

• Associate’s degrees—27.4%

• Diploma and Certificates—10.0%

• Doctorate degrees—9.2%

• Master’s degrees—5.9%

The type of degrees and programs we offer vary by each of our schools. The following summarizes the programs offered at each of our education systems. Not all programs are offered at each school location within an education system.

The Art Institutes. The Art Institutes offer the following degree programs. For internal purposes, we classify the degree programs at The Art Institutes according to four “schools” or areas of study.


	•	Opportunity for future profit margin expansion. Our business model benefits from scale and permits us to leverage fixed costs across our delivery platforms. Since the Transaction in June 2006, and notwithstanding the increase in interest expense resulting from the indebtedness that we incurred in connection with the Transaction and the resulting adverse effect on our net income, we have made significant investments in numerous areas of our workforce in order to support future enrollment growth and enhance the student experience. We expect that our business model, along with the anticipated benefits of these investments, will enable us over time to leverage our fixed costs as we add new locations and expand our existing locations. With respect to our online programs, we have built sufficient presence to enable us over time to utilize shared technology and infrastructure. We believe that our continued focus on information systems, operating processes and key performance indicators will permit us to enhance our educational quality, growth and profitability over time, although we expect that expenses incurred with respect to student financial aid initiatives will negatively impact our profitability.

	•	Strong operating cash flow generation. We historically have generated strong cash flows. We benefit from investments with attractive returns on capital and favorable working capital balances due to advance payment of tuition and fees. Since the Transaction, we have made significant investments to support growth while simultaneously upgrading the infrastructure required to leverage our delivery platforms. In fiscal 2009, we generated cash flows from operations of $293.0 million.

~~The~~ All ~~School~~of these characteristics complement the successful outcomes that we deliver to our students, as reflected in our student persistence and graduate employment rates and in student satisfaction survey data. Approximately 87% of ~~Design~~undergraduate students who graduated from our institutions during the calendar year ended December 31, 2008 and were available for employment obtained a position in their field of study or a related field within six months of graduation.

~~Associate’s Degree~~ Industry Overview

~~Advertising~~ The U.S. Department of Education estimates that the U.S. public and private post-secondary education market for degree-granting institutions was a $450 billion industry in 2007, representing approximately 18.2 million students enrolled at over 4,400 institutions. According to the National Center of Education Statistics, traditional students, who typically are recent high school graduates under 25 years of age and are pursuing their first higher education degree, represent approximately 62% of the national student population. The remaining 38% of the student population is comprised of non-traditional students, who are largely working adults pursuing further education in their current field or are preparing for a new career.

~~Graphic~~ We ~~Design~~believe that there are a number of factors contributing to the long-term growth of the post-secondary education industry. First, the shift toward a services-based economy increases the demand for higher levels of education. According to the U.S. Department of Labor — Bureau of Labor Statistics, the projected growth rate for total job openings from 2006 to 2016 for occupations that require post-secondary education is over 15%, nearly double the growth rate for occupations that do not require post-secondary education. Second, economic incentives are favorable for post-secondary graduates. According to the U.S. Census Bureau, in 2008, the median weekly earnings for individuals aged 25 years and older with a Bachelor’s degree was approximately 66% higher than for high school graduates of the same age with no college experience, and the average unemployment rate in 2008 for persons aged 25 years and older with a Bachelor’s degree was half that of those without college experience. Third, government and private financial aid in various forms, including loan guarantees, grants and tax benefits for post-secondary students, has continued to increase. We believe that this support will continue as the U.S. government emphasizes the development of a highly skilled, educated workforce to maintain global competitiveness. Finally, the strong demand for post-secondary education has enabled educational institutions to consistently increase tuition and fees. According to the College Board, public four-year colleges and universities have increased tuition and fees by 7.4% annually on average over the last ten years.

~~Industrial~~ We ~~Design~~believe ~~Technology~~that for-profit providers will capture an increasing share of the growing demand for post-secondary education, which has not been fully addressed by traditional public and private universities. Non-profit public and private institutions can face limited financial capability to expand their offerings in response to the growing demand for education, due to a combination of state funding challenges, significant expenditures required for research and

Interior Design

Interior Planning with AutoCAD

Home Furnishings Merchandising

Kitchen & Bath Design

Web Design

Web Design & Interactive Media

Bachelor’s Degree

Advertising

Advertising Design

Design Management

Entertainment Design

Design Studies

Design Visualization

Graphic Design

Illustration

Illustration & Design

Industrial Design

Industrial Design & Technology

Interior Design

Set & Exhibit Design

Visual Communications

Web Design & Interactive Media

Master’s Degree

Graphic Design

Interior Design

The School of Fashion

Associate’s Degree

Accessory Design

Apparel Design

Apparel Accessory Design

Fashion Design

Fashion Marketing

Fashion Merchandising

Fashion Production

Visual Merchandising

Bachelor’s Degree

Apparel Design

Fashion Design

Fashion Marketing & Management

Fashion Marketing

Fashion Merchandising

Fashion & Retail Management

~~The~~ the ~~School~~professor tenure system. Certain private institutions also may control enrollments to preserve the perceived prestige and exclusivity of ~~Media~~their ~~Arts~~degree offerings.

~~Associate’s~~ As ~~Degree~~a result, we believe that for-profit, post-secondary education providers continue to have significant opportunities for growth. According to the National Center of Education Statistics, the number of students at for-profit, degree-granting institutions grew at an average annual rate of 13.7% from 1997 to 2007, compared to 2.3% growth for all degree-granting institutions over the same period. For-profit providers have continued their strong growth, primarily due to the higher flexibility of their programmatic offerings and learning structure, their emphasis on applied content and their ability to consistently introduce new campuses and academic programs. Despite rapid growth, the share of the post-secondary education market that has been captured by for-profit providers remains relatively small. In 2007, according to the National Center for Education Statistics, for-profit institutions accounted for 6.5% of all degree-granting, post-secondary enrollments, up from 2.3% in 1997.

~~Animation~~ We believe that growth in online education has been supported by favorable student outcomes, the flexibility and convenience associated with the instructional format and the higher penetration of broadband Internet access. According to Eduventures Inc., a leading information services company for the education market, online education programs generated an estimated $11.7 billion of revenues in 2008. Eduventures estimates that online enrollment grew by 25.3% annually from 2003 to 2008 and projects growth of 12.5% annually from 2008 to 2013.

~~Animation~~ The ~~Art &~~post-secondary ~~Design~~education industry is highly fragmented, with no one provider controlling a significant share of the market. Students choose among providers based on programs and degrees offered, program flexibility and convenience, quality of instruction, graduate employment rates, reputation and recruiting effectiveness. This multi-faceted market fragmentation results in significant differentiation among various education providers, limited direct competition and minimal overlap between for-profit providers. The main competitors of for-profit, post-secondary education providers are local public and private two-year junior and community colleges, traditional public and private undergraduate and graduate colleges and, to a lesser degree, other for-profit providers.

~~Art &~~ Our Competitive ~~Design Technology~~ Strengths

~~Audio~~ We ~~Production~~believe that the following strengths differentiate our business:

~~Broadcasting~~• Commitment to offering quality academic programs and student and graduate success

~~Digital~~ We ~~Arts~~are committed to offering quality academic programs, and we continuously strive to improve the learning experience for our students. We are dedicated to recruiting and retaining quality faculty and instructors with relevant industry experience and appropriate academic credentials. Our advisory boards help us to reassess and update our educational offerings on a regular basis in order to ensure the relevance of our curriculum and to design new academic programs. We do this with the goal of enabling students to either enter or advance in their chosen field. Our staff of trained, dedicated career services specialists maintains strong relationships with employers in order to improve our student graduate employment rates in their chosen fields.

~~Digital~~• ~~Filmmaking &~~Recognized ~~Video~~brands ~~Production~~aligned with specific fields of study and degree offerings

~~Drafting~~ We ~~Technology~~offer academic programs primarily through four education systems. We have devoted significant resources to establishing, and continue to invest in developing, the brand identity for each education system. Through The Art Institutes, Argosy University, Brown Mackie Colleges and South University education systems, we have the ability to align our academic program offerings to address the unique needs of specific student groups. Our marketing strategy is designed to develop brand awareness among practitioners and likely prospects in particular fields of study. We believe that this comprehensive brand building approach in each specific market also enables us to gain economies of scale with ~~AutoCAD~~respect to student acquisition and retention costs, assists in the recruitment and retention of quality faculty and staff members and accelerates our ability to expand online course offerings.

~~Interactive~~• ~~Media~~Diverse ~~Design~~program offerings and broad degree capabilities

~~Interactive~~ Our ~~Media~~breadth of programmatic and degree offerings enables us to ~~Design~~ appeal ~~Production~~to a diverse range of potential students. We currently offer academic programs in the following areas: design, media arts, health sciences,

Photography

Photographic Imaging

Video Production

Bachelor’s Degree

Audio Production

Audio & Media Technology

Computer Animation

Digital Filmmaking & Video Production

Digital Media Production

Digital Photography

Film & Digital Production

Game Art & Design

Interactive Media Design

Media Arts & Animation

Photography

Photographic Imaging

Simulation & Virtual Environments

Visual Effects & Motion Graphics

Visual & Game Programming

Visual & Entertainment Arts

Master’s Degree

Computer Animation

Film

Visual Arts

The School of Culinary

Associate’s Degree

Baking and Pastry

Culinary Arts

Culinary Arts & Restaurant Management

Restaurant & Catering Management

Restaurant & Catering Operations

Wine, Spirits & Beverage Management

Bachelor’s Degree

Culinary Management

Culinary Arts Management

Culinary Arts

Food & Beverage Management

Hotel & Restaurant Management

Hospitality Management

~~Argosy~~ psychology ~~University~~and behavioral sciences, culinary, fashion, business, legal, education and information technology. ~~The~~Approximately ~~following~~64% of our students as of October 2008 were enrolled in Doctorate, Master’s and Bachelor’s degree programs, which are typically ~~offered~~multi-year byprograms ~~Argosy~~that ~~University~~contribute to the overall stability of our student population. We monitor and adjust our education offerings based on changes in demand for new programs, degrees, schedules and delivery methods.

~~Psychology~~• National platform of schools and ~~Behavioral~~integrated ~~Sciences~~online learning platform

~~Associate~~ The combination of ~~Applied~~our ~~Science~~national platform of schools and integrated online learning platform provides students at three of our education systems with flexible curriculum delivery options and academic programs taught on campus, online and in blended formats. This flexibility enables our academic programs to appeal to both traditional students and working adults who may seek convenience due to scheduling, geographical or other constraints.

~~Criminal~~ ~~Justice~~ We have 92 primary locations across 28 U.S. states and in Canada. Our campuses are located primarily in large metropolitan areas, and we focus our marketing efforts on generating demand primarily within a 100-mile radius of the campus. Throughout our history, we have invested in our campuses in order to provide attractive and efficient learning environments. Our schools offer many amenities found in traditional colleges, including libraries, bookstores and laboratories, as well as the industry-specific equipment necessary for the various programs that we offer.

~~Paralegal~~ Our online presence offers a practical and flexible solution for our students without compromising quality. We have made a significant investment in online education by strengthening our online presence within The Art Institutes, Argosy University and South University education systems. We have introduced new online academic programs, strengthened our technology infrastructure, hired additional faculty and staff and increased our spending on marketing and admissions. We intend to continue to invest in the expansion of our online program offerings and our marketing efforts to capitalize on our well-known branded schools in order to expand our online presence. As of July 2009, approximately 26,200 students were enrolled in fully online programs.

~~Bachelor~~• ofStrong ~~Arts~~management team with a focus on long-term performance

~~Psychology~~ Since the Transaction, we have enhanced the depth and experience of our senior management team, recruiting a number of executives with specialized knowledge in key functional areas, such as technology, marketing and finance. The current executive team has been instrumental in directing investments to accelerate enrollment growth and build infrastructure to establish a platform for sustainable long-term growth. Furthermore, our school presidents and senior operating executives have substantial experience in the sector and have contributed to our history of success. We plan to continue to build our strong management team as we execute on our long-term growth strategy.

~~Education~~ Our Growth ~~Specialist Degree~~ Strategy

~~School~~ We ~~Counseling~~intend to support our growth through these three channels:

~~Master~~• ofIntroduce ~~Arts~~new and existing academic programs across our national platform of schools

~~Clinical~~ We ~~Psychology~~seek to identify emerging industry trends in order to understand the evolving educational needs of our students and graduates. With the assistance of over 1,500 industry experts and employers who actively participate on curriculum advisory teams, we are able to rapidly develop new academic programs that address specific market opportunities. We are also able to tailor our existing proprietary content for courses across our degree programs. New academic programs that we have introduced since the Transaction include Master’s degree programs in Interior Design, Management, Principal Preparation and Health Services Management, Bachelor’s degree programs in Entertainment Design, Hotel and Restaurant Management and Hospitality Management, and Associate’s degree programs in Accessory Design, Early Childhood Education, Restaurant and Catering Operations, Registered Nursing and Veterinary Technician.

Clinical Psychology/Marriage & Family Therapy

Counseling Psychology

Counseling Psychology/Marriage & Family Therapy

Community Counseling

School Counseling

Forensic Psychology

Guidance Counseling

Marriage and Family Therapy

Mental Health Counseling

Professional Counseling

Sport-Exercise Psychology

School Psychology

Doctor of Education

Counselor Education and Supervision

Counseling Psychology

Organizational Leadership

Pastoral Community Counseling

Doctor of Psychology

Clinical Psychology

School Psychology

Education

Educational Specialist

Instructional Leadership

Educational Leadership

Master of Arts in Education

Instructional Leadership

Educational Leadership

Doctor of Education

Instructional Leadership

Educational Leadership

Community College Executive Leadership

~~Business~~ In addition to developing new academic programs, we frequently introduce existing academic programs to additional locations in our national platform of schools, allowing us to drive incremental enrollment growth, utilize our existing curriculum development in multiple locations and capitalize on identified market needs.

~~Associate~~• ofIncrease ~~Applied~~enrollments ~~Science~~in online distance learning and blended-format programs

~~Accounting~~ Our ~~Technology~~investments in online education have enabled us to increase the number of students enrolled in fully online academic programs from approximately 4,600 students as of July 2006 to approximately 26,200 students as of July 2009. We believe that the fully online programs offered by The Art Institute of Pittsburgh, Online Division, Argosy University and South University allow us to offer academic programs that meet the needs of a wide range of distance learning students. In addition, our 92 schools operate under brands that are well known within various fields, and we believe that our online programs benefit from our strong campus presence and related marketing expenditures. Online offerings are also a cost effective means for us to utilize many of our existing education curricula and generate attractive returns on capital. We intend to continue to invest in the expansion of our online program offerings and enhance our marketing efforts to capitalize on our well-known branded schools and further expand our online presence.

~~Business~~• ~~Management~~Develop new school locations in attractive markets

~~Computer~~ We ~~Programming~~believe that many attractive locations are available to open additional campuses across the United States. We have identified target locations in new geographic markets, as well as opportunities to open additional campuses within existing large metropolitan areas. Because of the relatively large number of potential markets available for opening new campuses, we focus our efforts on markets that we believe offer the most attractive projected growth and return on capital. We rigorously analyze ~~Applications~~ employment statistics and demographic data in order to align our new schools with the specific educational needs of a targeted market. This focus enables penetration and presence for new schools. After entering a market, we drive incremental growth through the introduction of new academic programs and degrees, which enhance return on investment in new markets. We pursue additional efficiencies through our centralized and standardized infrastructure, systems and processes.

~~Computer~~ In ~~Software~~addition, ~~Technology~~although we believe that our diverse platform of program and degree offerings provides significant future growth opportunities, we routinely consider acquisition opportunities to increase the breadth of our education systems or provide unique programmatic exposure within new markets.

~~Bachelor~~ Student Recruitment ofand ~~Science~~ Marketing

~~Business~~ ~~Administration~~ Our diverse and metrics-based marketing activities are designed to position us as a leading provider of high quality educational programs, build strong brand recognition for our education systems and disciplines, differentiate us from other educational providers and stimulate enrollment inquiries. We target a large and diverse market, including traditional college students, working adults seeking a high quality education in a traditional college setting and working adults focused on the practicality and convenience of online education and career advancement goals. In marketing our programs to prospective students, we emphasize the value of the educational experience and the academic rigor of the programs, rather than the cost or speed to graduation.

~~Master~~ Our marketing personnel employ an integrated marketing approach that utilizes a variety of ~~Science~~lead sources to identify prospective students. These lead generation sources include web-based advertising, which generates the majority of our leads, and further include purchasing leads from aggregators, television and print media advertising, radio, local newspaper, telephone campaigns and direct mail campaigns. In addition, referrals from current students, alumni and employers are important sources of new students. We also employ approximately 250 representatives who present at high schools. These representatives also participate in college fairs and other inquiry-generating activities. In fiscal 2009, our marketing efforts generated inquiries from approximately 3.5 million prospective students as compared to approximately 2.4 million inquiries in fiscal 2008. Marketing and admissions expense represented approximately 21.9% and 21.0% of net revenues in fiscal 2009 and fiscal 2008, respectively.

~~Health~~ Upon ~~Services~~a ~~Management~~prospective student’s initial indication of interest in enrolling at one of our schools, an admissions representative initiates communication with the student. The admissions representative serves as the primary contact for the prospective student and helps the student assess the compatibility of his or her goals with our

Management

Master of Business Administration

Doctor of Business Administration

Health Sciences

Associate of Applied Science

Diagnostic Medical Sonography

Histotechnology

Medical Assisting

Radiologic Technology

Veterinary Technology

Associate of Science

Dental Hygiene

Medical Laboratory Technician

Radiation Therapy

Western State University College of Law

Juris Doctor

~~Brown~~ educational ~~Mackie~~offerings. ~~Colleges~~Our student services personnel work with applicants to gain acceptance, arrange financial aid and prepare the student for matriculation. ~~Brown~~Each ~~Mackie~~admissions ~~College~~representative undergoes ~~schools~~a ~~offer~~standardized training program, which includes a full competency assessment at the ~~following~~program’s ~~primary~~conclusion. ~~degree~~Since ~~programs~~ the Transaction, we have significantly increased our number of admissions representatives. As of June 30, 2009, we employed approximately 2,600 admissions representatives throughout our schools, representing a 180% increase since June 30, 2006.

~~Health~~ Student Admissions ~~Sciences~~and Retention

~~Associate’s~~ The ~~Degrees~~admissions and entrance standards of each school are designed to identify those students who are best equipped to meet the requirements of their chosen fields of study and successfully complete their programs. In evaluating prospective students, we seek individuals with, among other things, a strong desire to learn, passion for their area of interest and initiative. We believe that a success-oriented student body results in higher retention and placement rates, increased student and employer satisfaction and lower student default rates on government loans. To be qualified for admission to one of our schools, each applicant must have received a high school diploma or a General Education Development certificate. Applicants to our graduate and Doctorate programs are required to have received an undergraduate degree as a condition to admission. Most of our schools interview prospective students to assess their qualifications, their interest in the programs offered by the school and their commitment to their education. In addition, the curricula, student services, education costs, available financial resources and student housing options, if applicable, are reviewed during interviews.

~~Administration~~ Due into ~~Gerontology~~our broad program offerings, our students come from a wide variety of backgrounds. The estimated average age of a student at all of our schools during fiscal 2009 was approximately 28 years old.

~~Healthcare~~ Our ~~Administration~~students may fail to finish their programs for a variety of personal, academic or financial reasons. To reduce the risk of student withdrawals, each of our schools devotes staff resources to advising students regarding academic and financial matters, part-time employment and, if applicable, housing. Remedial courses are mandated for our undergraduate and graduate students with lower academic skill levels, and tutoring is encouraged for students experiencing academic difficulties. Our net annual persistence rate, which measures the number of students who are enrolled during a fiscal year and either graduate or advance to the next fiscal year, for all of our students was approximately 66% in fiscal 2009 as compared to approximately 68% in fiscal 2008 due primarily to the increase in fully online students during fiscal 2009.

~~Gerontology~~ Education Programs

~~Medical~~ The ~~Assisting~~relationship of each of our schools with potential employers for our students plays a significant role in the development and adaptation of the school curriculum. Most of our schools have one or more program advisory boards composed of members of the local and regional communities or employers in the fields which we serve. These boards provide valuable input to the school’s education department, which allows the school to keep programs current and provide students with the training and skills that employers seek.

~~Medical~~ Our ~~Office~~wide ~~Management~~range of academic programs culminate in the awarding of diploma certificates and a variety of degrees. In the fall of 2008 and 2007, the enrollment by degree for all our schools was as follows:

Nursing


	2008			2007

Bachelor’s degrees		49.5	%		48.8	%
Associate’s degrees		27.3	%		26.2	%
Diploma and Certificates		8.7	%		10.3	%
Doctorate degrees		7.9	%		8.4	%
Master’s degrees		6.6	%		6.3	%

~~Occupational~~ The ~~Therapy~~type ~~Assistant~~of degrees and programs we offer vary by each of our schools. The following summarizes the principal academic programs offered at each of our education systems as of June 30, 2009. Not all programs are offered at each school location within an education system.

Optical Science

Pharmacy Technology

Physical Therapist Assistant

Surgical Technology

Legal Studies

Associate’s Degrees

Criminal Justice

Paralegal

Bachelor’s Degrees

Criminal Justice

Legal Studies

Business

Associate’s Degrees

Accounting Technology

Business Management

Sales & Marketing

Bachelor’s Degrees

Business Administration

Information Technology

Associate’s Degrees

Electronics

Computer Networking and Applications

Computer Programming and Applications

Computer Software Technology

Database Technology

Information Technology

Design Technologies

Associate’s Degrees

Audio/Video Production

Computer Aided Design and Drafting Technology

Graphic Design

~~South~~ The ~~University~~Art Institutes. The ~~South~~Art Institutes ~~University~~offer ~~offers~~ the following degree programs. For internal purposes, we classify the degree programs at The Art Institutes according to four schools or areas of study.

The School of ~~Health~~Design ~~Professions~~Associate’s DegreeGraphic DesignIndustrial Design TechnologyInterior DesignMaster’s DegreeGraphic DesignInterior Design Bachelor’s Degree Advertising Design Management Graphic Design Illustration & Design Interior Design Visual Communications

The School of Fashion Associate’s ~~Degrees~~Degree Fashion Design Fashion Marketing Fashion Merchandising Bachelor’s Degree Apparel Design Fashion Design Fashion Marketing & Management Fashion Marketing Fashion Merchandising Fashion & Retail Management

~~Allied Health~~The ~~Science~~School of Media Arts Associate’s Degree Animation Animation Art & Design Audio Production Broadcasting Computer Animation Digital Arts Digital Filmmaking & Video Production Digital Photography Photography Photographic Imaging Video Production Web Design & Interactive Media Design Bachelor’s Degree Audio Production Digital Filmmaking & Video Production Digital Media Production Film & Digital Production Game Art & Design Media Arts & Animation Photography Visual Effects & Motion Graphics Visual & Game Programming Web Design & Interactive Media Design

~~Medical~~The ~~Assisting~~School of Culinary Arts Associate’s Degree Baking and Pastry Culinary Arts Restaurant & Catering Management Bachelor’s Degree Culinary Management Culinary Arts Management Culinary Arts Food & Beverage Management Hospitality Management

Physical Therapist Assisting

Bachelor’s Degrees

Health Science

Nursing

Nursing RN to BSN (degree completion)

Physician Assistant Studies

Psychology

Master’s Degrees

Anesthesiologist Assistant

Nursing

Physician Assistant Studies

Professional Counseling

School of Pharmacy

Doctorate Degrees

Doctor of Pharmacy

School of Business

Associate’s Degrees

Accounting

Business Administration

Graphic Design

Information Technology

Paralegal Studies

Bachelor’s Degrees

Business Administration

Criminal Justice

Graphic Design

Healthcare Management

Legal Studies

Information Technology

Master’s Degrees

Healthcare Administration

Criminal Justice

Business Administration

~~Graduate~~ Argosy ~~Employment~~University. The following degree programs are offered by Argosy University.

WeSchool ~~measure our success as an educator~~ of ~~students~~Undergraduate toStudies aBachelor ~~significant extent by the ability~~ of ~~our~~Arts ~~students~~Psychology toLiberal ~~find~~Arts ~~jobs~~Bachelor ~~in their chosen field~~ of ~~employment upon~~Science ~~graduation~~Business ~~from~~Administration ~~our~~Criminal schools. Most of our schools provide career development instruction to our students in order to assist the students in developing essential job-search skills. In addition to individualized training in interviewing, networking techniques and resume-writing, most of our schools require students to take a career development course. Additionally, we provide ongoing placement resources to our students and recent graduates. Career services departments also assist current students in finding part-time employment while attending school. Students in certain of our Doctorate programs spend up to a year in a paid internship in their chosen field. Justice

~~Each~~Psychology school’s career services department plays a role in marketing the school’s curriculum to the community in order to produce job leads for graduates. Career services advisors educate employers about the caliber of our graduates. These advisors participate in professional organizations, trade shows and ~~community~~Behavioral ~~events~~Sciences toMaster ~~keep apprised~~ of ~~industry~~ArtsClinical ~~trends and~~PsychologyCounseling ~~maintain~~PsychologyCommunity ~~relationships~~CounselingForensic ~~with~~PsychologyIndustrial ~~key~~Organizational ~~employers.~~PsychologyMarriage ~~Career services staff visit employer sites to learn more about their operations~~ and ~~better~~Family ~~understand~~TherapyMental ~~their~~Health ~~employment~~CounselingPsychopharmacologySport-Exercise ~~needs.~~Psychology AsDoctor of ~~June 30,~~PsychologyClinical ~~2007,~~PsychologyMarriage ~~the~~& ~~career~~Family ~~services~~TherapyDoctor ~~departments~~ of ~~our~~EducationCounselor ~~schools~~Education ~~had approximately~~and ~~260~~SupervisionCounseling ~~employees.~~PsychologyPastoral WeCommunity ~~estimate that our career services departments maintain contact with approximately 65,000 employers nationwide.~~ Counseling

~~Based~~Health onSciences ~~information~~Associate ~~collected by us from graduating students and employers, we believe that~~ of ~~the~~Applied ~~approximately~~ScienceDiagnostic ~~13,500~~Medical ~~undergraduate~~SonographyHistotechnologyMedical ~~students~~AssistingRadiologic ~~who graduated~~TechnologyVeterinary ~~from~~TechnologyBachelor ~~our schools during the calendar year ended December 31, 2006, approximately 90%~~ of ~~the~~ScienceMedical ~~available~~Technology ~~graduates~~(degree ~~obtained~~completion) ~~employment~~Associate ~~in their fields~~ of ~~study,~~ScienceDental orHygieneMedical inLaboratory ~~related~~TechnologyRadiation ~~fields~~TherapyMaster of ~~study,~~ScienceHealth ~~within~~Services six months of graduation. The graduate employment rates presented in this Form 10-K exclude students who are pursuing further education, who are deceased, who are in active military service, who have medical conditions that prevent them from working, who are continuing in a career unrelated to their program of study because they currently earn salaries which exceed those paid to entry-level employees, or who are international students no longer residing in the United States. The average salary paid to our available graduating undergraduate students from The Art Institutes, the Brown Mackie Colleges and South University for calendar year 2006 who obtained employment in their fields of study, or in related fields of study, was approximately $29,500. Management

~~Accreditation~~Education Educational SpecialistInstructional LeadershipEducational LeadershipEducational Leadership Principal CertificationMaster of Arts in EducationAdult Education & TrainingInstructional LeadershipEducational LeadershipEducational Leadership Principal CertificationSchool CounselingSchool Psychology Doctor of Education Instructional Leadership Educational Leadership Community College Executive Leadership Educational Leadership Principal Certification School Psychology

InBusiness ~~the~~Master ~~United States, accreditation is a process through which an institution submits itself to qualitative review by an organization~~ of ~~peer~~Science ~~institutions.~~Management ~~Accrediting~~Master ~~agencies primarily examine the academic quality~~ of ~~the~~Business ~~instructional~~Administration ~~programs~~Doctor of anBusiness ~~institution,~~Administration ~~and~~Doctorate ~~a grant~~ of ~~accreditation~~Education isin ~~generally~~Organizational viewed as certification that an institution’s programs meet generally accepted academic standards. Accrediting agencies also review the administrative and financial operations of the institutions they accredit to ensure that each institution has the resources to perform its educational mission. Leadership

Pursuant to provisions of the Higher Education Act of 1965, as amended (“HEA”), the U.S. Department of Education relies on accrediting agencies to determine whether institutions’ educational programs qualify the institutions to participate in federal financial aid programs under Title IV of the HEA. The HEA and its implementing regulations specify certain standards that all recognized accrediting agencies must adopt in connection with their review of post-secondary institutions. All of our U.S. schools are accredited by an institutional accrediting agency recognized by the U.S. Department of Education.

In addition to the institutional accreditations described above, ten Art Institutes offer interior design programs that have programmatic accreditation by the Council for Interior Design Accreditation and fourteen Art Institutes offer culinary programs accredited by the American Culinary Federation. Ten Argosy University locations have received accreditation by the American Psychological Association for their Doctor of Psychology programs and one Argosy University location is accredited by the Council for Accreditation of Counseling and

~~Related~~ Brown ~~Educational~~Mackie ~~Programs (“CACREP”)~~Colleges. Brown Mackie ~~While~~College ~~these programmatic accreditations cannot be relied upon for our~~ schools tooffer ~~obtain and maintain certification to participate in~~ the ~~Title~~following IVprimary degree programs~~, they are commonly relied upon in the relevant professions as indicators of the quality of the academic program~~.

~~The~~Health ~~following~~Sciences ~~table~~Associate’s ~~shows~~Degrees ~~the~~Dietetics ~~location~~Technology ofHealth ~~each~~& ofFitness ~~our~~Training ~~schools~~Health at& ~~June 30,~~Therapeutic ~~2007,~~Massage ~~the~~Healthcare ~~name~~Administration ~~under~~Medical ~~which~~Assisting itNursing ~~operates,~~Occupational ~~the year~~Therapy ofAssistant ~~its~~Pharmacy ~~establishment,~~Technology ~~the~~Physical ~~date~~Therapist weAssistant ~~opened~~Surgical orTechnology ~~acquired~~Veterinary ~~it,~~Technology ~~and~~Bachelor’s ~~the~~Degrees ~~institutional~~Healthcare accrediting agency (for schools accredited by more than one recognized accrediting agency, the primary accrediting agency is listed first). No accreditation is shown for The Art Institute of Toronto as the Province of Ontario has no accreditation process for post-secondary schools. The Art Institute of Toronto is registered with the Ontario Ministry of Training, Colleges and Universities. Management

School	Location	Calendar YearEstablished	Fiscal YearEDMCAcquired/Opened	Accrediting Agency
The Art Institutes
The Art Institute of Atlanta	Atlanta, GA	1949	1971	Commission on Colleges of the Southern Association of Colleges and Schools (“SACS”)
The Art Institute of California—Los Angeles	Los Angeles, CA	1997	1998	Accrediting Council of Independent Colleges and Schools (“ACICS”)
The 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	Accrediting Commission of Career Schools and Colleges of Technology (“ACCSCT”)
The Art Institute of California—Inland Empire	San Bernardino, CA	2006	2006	ACCSCT (as a branch of The Art Institute of California—San Diego)
The 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 Charlotte	Charlotte, NC	1973	2000	ACICS
The Art Institute of Charleston	Charleston, SC	2007	2007	SACS (as a branch of The Art Institute of Art Institute of Atlanta)
The Art Institute of Colorado	Denver, CO	1952	1976	ACICS
The Art Institute of Dallas	Dallas, TX	1964	1985	SACS
The Art Institute of Fort Lauderdale	Fort Lauderdale, FL	1968	1974	ACICS
The Art Institute of Houston	Houston, TX	1974	1979	SACS
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	ACCSCT
The Art Institute of Tennessee—Nashville	Nashville, TN	2006	2007	SACS
The Art Institute of New York City	New York, NY	1980	1997	ACICS

Education

Associate’s Degree
Early Childhood Education


Legal Studies
Associate’s Degrees Criminal Justice Paralegal		Bachelor’s Degrees Criminal Justice Legal Studies


Business
Associate’s Degrees Accounting Technology Business Management Office Management		Bachelor’s Degrees Business Administration


Information Technology
Associate’s Degrees Biomedical Equipment Technology Electronics Computer Networking and Applications Information Technology		Bachelor’s Degrees Information Technology

Design Technologies

Associate’s Degrees
Architectural Drafting & Design Technology
Computer Aided Design & Drafting Technology

School	Location	Calendar YearEstablished	Fiscal YearEDMCAcquired/Opened	Accrediting Agency
The Art Institute of Ohio—Cincinnati	Cincinnati, OH	2004	2004	ACICS (as a branch of Brown Mackie College—Findlay)
The Art Institute Online	Pittsburgh, PA	1999	2000	Approved by ACICS to offer programs as a division of The Art Institute of Pittsburgh
The Art Institute of Philadelphia	Philadelphia, PA	1971	1980	ACICS
The Art Institute of Phoenix	Phoenix, AZ	1995	1996	ACICS (as a branch of The Art Institute of Colorado)
The Art Institute of Pittsburgh	Pittsburgh, PA	1921	1970	ACICS; candidate with Middle States Association of Colleges & Schools of the Commission on Higher Education
The Art Institute of Portland	Portland, OR	1963	1998	Northwest Commission on Colleges and Schools Universities (“NWCCU”)
The Art Institute of Salt LakeCity	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	NWCCU
The Art Institute of Tampa	Tampa, FL	2004	2004	SACS (as a branch of the Miami International University of Art & Design)
The Art Institute of Toronto	Toronto, Ontario	1997	2002	None
The Art Institute of Vancouver	Vancouver, BC	1979	2003	Private Career Training Institutions Agency of British Columbia
The Art Institute of Washington	Arlington, VA	2000	2001	SACS (as a branch of The Art Institute of Atlanta)
The Art Institutes International Minnesota	Minneapolis, MN	1964	1997	ACICS
Bradley Academy for the Visual Arts	York, PA	1952	2004	ACCSCT
California Design College	Los Angeles, CA	1991	2003	ACICS
The Illinois Institute of Art—Chicago	Chicago, IL	1916	1996	ACCSCT; Higher Learning Commission (“HLC”) of the North Central Association (Chicago location only)
The Illinois Institute of Art—Schaumburg	Schaumburg, IL	1983	1996	ACCSCT (as a branch of The Illinois Institute of Art—Chicago)
Miami International Universityof Art & Design	Miami, FL	1965	2002	SACS
The New England Institute ofArt	Boston, MA	1988	2000	New England Association of Schools and Colleges
Tucson Design College (renamed The Art Institute of Tucson)	Tucson, AZ	2002	2007	ACICS
Argosy University				HLC (all locations)
Argosy University/Atlanta	Atlanta, GA	1990	2002
Argosy University/Chicago	Chicago, IL	1976	2002
Argosy University/Dallas	Dallas, TX	2002	2002
Argosy University/Denver	Denver, CO	2006	2006
Argosy University/Honolulu	Honolulu, HI	1979	2002
Argosy University/Inland Empire	San Bernadino, CA	2006	2006
Argosy University/Nashville	Nashville, TN	2001	2001
Argosy University/Orange County	Orange, CA	1999	2002

South University. South University offers the following degree programs.


College of Arts and Sciences
Associate’s Degrees Graphic Design Paralegal Studies		Master’s Degrees Criminal Justice Professional Counseling
Bachelor’s Degrees Criminal Justice Graphic Design Legal Studies Psychology


College of Business
Associate’s Degrees Accounting Business Administration Information Technology		Master’s Degrees Business Administration Information Systems Technology Healthcare Administration Leadership
Bachelor’s Degrees Business Administration Healthcare Management Information Technology		Public Administration


College of Health Professions
Associate’s Degrees Allied Health Science Medical Assisting Physical Therapist Assisting		Master’s Degrees Anesthesiologist Assistant Physician Assistant Studies
Bachelor’s Degrees Health Science


College of Nursing
Bachelor’s Degrees Health Sciences Nursing Nursing RN to BSN (degree completion)		Master’s Degrees Nursing

School of Pharmacy

Doctorate Degrees
Doctor of Pharmacy

In addition to the programs listed above, we own Western State University College of Law, which offers Juris Doctor degrees, and the Ventura Group, which provides courses and materials for postgraduate licensure examinations in the human services fields and continuing education courses for K-12 educators.

Graduate Employment

We measure our success as an educator of students to a significant extent by the ability of our students to find jobs in their chosen field of employment upon graduation from our schools. Most of our schools provide career development instruction to our students in order to assist the students in developing essential job-search skills. In addition to individualized training in interviewing, networking techniques and resume-writing, most of our schools require students to take a career development course. Additionally, we provide ongoing placement resources to our students and recent graduates. Career services departments also assist current students in finding part-time employment while attending school. Students in certain of our Doctorate programs spend up to a year in a paid internship in their chosen field.

School	Location	Calendar Year Established	Fiscal YearEDMCAcquired/Opened	Accrediting Agency
Argosy University/Phoenix	Phoenix, AZ	1997	2002
Argosy University/San Diego	San Diego, CA	2006	2006
Argosy University/San Francisco	Point Richmond, CA	1998	2002
Argosy University/Santa Monica	Santa Monica, CA	2006	2006
Argosy University/Sarasota	Sarasota, FL	1969	2002
Argosy University/Schaumburg	Schaumburg, IL	1979	2002
Argosy University/Seattle	Seattle, WA	1997	2002
Argosy University/Tampa	Tampa, FL	1997	2002
Argosy University/Twin Cities	Eagan, MN	1961	2002
Argosy University/Washington D.C.	Arlington, VA	1994	2002
Western State University Collegeof Law	Fullerton, CA	1966	2002	Commission on Colleges of the Western Association of Schools and Colleges; provisionally accredited by American Bar Association
South University				SACS (all locations)
South University/Savannah	Savannah, GA	1899	2004
South University/Montgomery	Montgomery, AL	1997	2004
South University/West Palm Beach	West Palm Beach, FL	1974	2004
South University/Columbia	Columbia, SC	1935	2004
South University/Tampa	Tampa, FL	2006	2006
Brown Mackie College
Brown 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
Brown Mackie College—Findlay	Findlay, OH	1986	2004	ACICS
Brown 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
Brown Mackie College—Atlanta	Norcross, GA	1969	2004	ACICS (as a branch of The Art Institute of Charlotte
Brown Mackie College—Lenexa	Lenexa, KS	1984	2004	HLC (as a branch of Brown Mackie College— Salina)
Brown Mackie College—Salina	Salina, KS	1892	2004	HLC
Brown Mackie College—Merrillville	Merrillville, IN	1984	2004	ACICS
Brown Mackie College—Michigan City	Michigan City, IN	1890	2004	ACICS (as a branch of Brown Mackie College—Merrillville)
Brown Mackie College—Moline	Moline, IL	1985	2004	ACICS (as a branch of Brown Mackie College—Merrillville)
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	ACICS
Brown Mackie College—Louisville	Louisville, KY	1935	2004	ACICS
Brown Mackie College—Hopkinsville	Hopkinsville, KY	1995	2004	ACICS (as a branch of Brown Mackie College—Louisville)
Brown Mackie College—Miami	Miami, FL	2004	2005	ACICS (as a branch of Brown Mackie College—Cincinnati)
Chaparral College (renamed Brown Mackie College—Tucson)	Tucson, AZ	1972	2007	ACICS

Each school’s career services department plays a role in marketing the school’s curriculum to the community in order to produce job leads for graduates. Career services advisors educate employers about the caliber of our graduates. These advisors participate in professional organizations, trade shows and community events to keep apprised of industry trends and maintain relationships with key employers. Career services staff visit employer sites to learn more about their operations and better understand their employment needs. As of June 30, 2009, the career services departments of our schools had approximately 300 full-time employees. We estimate that our career services departments maintain contact with approximately 70,000 employers nationwide.

Based on information collected by us from graduating students and employers, we believe that, of the approximately 16,000 undergraduate students who graduated from our schools during the calendar year ended December 31, 2008, approximately 87% of the available graduates obtained employment in their fields of study, or in related fields of study, within six months of graduation. The graduate employment rates presented in this Form 10-K exclude students who are pursuing further education, who are deceased, who are in active military service, who have medical conditions that prevent them from working, who are continuing in a career unrelated to their program of study because they currently earn salaries which exceed those paid to entry-level employees in their field of study, who choose to stay at home full-time or who are international students no longer residing in the country in which their school is located. The average salary paid to our available graduating undergraduate students from The Art Institutes, the Brown Mackie Colleges and South University for calendar year 2008 who obtained employment in their fields of study, or in related fields of study, was approximately $30,200.

Accreditation

In the United States, accreditation is a process through which an institution submits itself to qualitative review by an organization of peer institutions. Accrediting agencies primarily examine the academic quality of the instructional programs of an institution, and a grant of accreditation is generally viewed as reliable authority that an institution’s programs meet generally accepted academic standards. Accrediting agencies also review the administrative and financial operations of the institutions they accredit to ensure that each institution has the resources to perform its educational mission.

Pursuant to provisions of the Higher Education Act of 1965, as amended (the “HEA”), the U.S. Department of Education relies on accrediting agencies to determine whether the academic quality of an institution’s educational programs is sufficient to qualify the institution to participate in federal financial aid programs under Title IV of the HEA. The HEA and its implementing regulations specify certain standards that all recognized accrediting agencies must adopt in connection with their review of post-secondary institutions. All of our U.S. schools are accredited by an institutional accrediting agency recognized by the U.S. Department of Education.

In addition to the institutional accreditations described above, a number of our institutions have specialized programmatic accreditation for particular educational programs. For example, ten Art Institutes offer interior design programs that have programmatic accreditation by the Council for Interior Design Accreditation and 14 Art Institutes offer culinary programs accredited by the American Culinary Federation. Ten Argosy University locations have received accreditation by the American Psychological Association for their Doctor of Psychology programs and three Argosy University locations are accredited by the Council for Accreditation of Counseling and Related Educational Programs. Eight of our medical assisting programs (three at South University, four at Brown Mackie Colleges and one at Argosy University) are accredited by the Commission on Accreditation of Allied Health Programs. While these programmatic accreditations cannot be relied upon for our schools to obtain and maintain certification to participate in Title IV programs, they are commonly relied upon in the relevant professions as indicators of the quality of the academic program.

~~Accrediting agencies monitor each educational institution’s performance across a broad range of~~ ~~areas.~~ The ~~Monitoring~~following istable ~~generally~~shows ~~performed through annual self-reporting and through~~ the ~~conduct~~location of ~~periodic~~each ~~site~~of ~~visits~~our bycampuses at ~~representatives~~June 30, of2009, the ~~accrediting~~name ~~agency~~under ~~and~~which ~~qualified~~it ~~persons~~operates, ~~from peer institutions. In~~ the ~~event an accrediting agency~~ ~~determines~~ year ~~that~~of ~~such~~its ~~school’s performance in one or more areas falls below certain parameters~~establishment, the ~~accrediting~~date ~~agency~~we ~~may~~opened ~~require~~or ~~the~~acquired ~~school to supply~~ it ~~with supplemental reports on~~ and the institutional accrediting agency’s ~~specific~~(for ~~areas~~schools ofaccredited ~~concern until~~by ~~that~~ more ~~school~~than ~~meets~~one ~~the~~recognized accrediting agency~~’s performance guideline or standard. As of June 30~~, ~~2007,~~the ~~nine of our schools were required to provide such supplemental reports. Of these nine schools on supplement reporting status, four schools~~primary ~~are required to request and receive permission from their~~ accrediting agency ~~prior~~is tolisted ~~filing an application for a new location or program offering~~first).

Student Financial Assistance

Calendar

Fiscal Year

Year

Acquired

School

Location

Established

or Opened

Accrediting Agency

The Art Institutes

The 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

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

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

ACICS

The 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

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

The Art Institute of California — San Diego

San Diego, CA

1981

2001

ACCSCT

The Art Institute of California — San Francisco

San Francisco, CA

1939

1998

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

Many students at our U.S. schools rely, at least in part, on financial assistance to pay for the cost of their education. In the United States, the largest sources of such support are the federal student aid programs under Title IV of the HEA. Additional sources of funds include other federal grant programs, state grant and loan programs, private loan programs and institutional grants and scholarships. To provide students access to financial assistance resources available through Title IV programs, a school must be (i) authorized to offer its programs of instruction by the relevant agency of the states in which it is located, (ii) accredited by an agency recognized by the U.S. Department of Education, and (iii) certified as an eligible institution by the U.S. Department of Education. In addition, the school must ensure that Title IV program funds are properly accounted for and disbursed in the correct amounts to eligible students and remain in compliance generally with the Title IV program regulations. During fiscal 2007, approximately 70% of our net revenues were indirectly derived from Title IV programs.

As in the United States, there are certain risks associated with operating post-secondary institutions in Canada, including, among other risks: 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. During fiscal 2007, approximately 2.0% of our net revenues were from our schools located in Canada.

Nature of Federal Support for Post-secondary Education

While the states support public colleges and universities primarily through direct state subsidies, the federal government provides a substantial part of its support for post-secondary education in the form of grants and loans to students who can use this support at any institution that has been certified as eligible by the U.S. Department of Education. Students at our U.S. schools receive loans, grants and work-study funding to fund their education under several Title IV programs, of which the three largest are the Federal Family Education Loan (“FFEL”) program, the William D. Ford Federal Direct Loan (“Direct Loan”) program and the Federal Pell Grant (“Pell”) program. Most of our U.S. schools also participate in the Federal Supplemental Educational Opportunity Grant (“FSEOG”) program, the Federal Perkins Loan (“Perkins”) program, and the Federal Work-Study program.

FFEL and Direct Loans. The FFEL and Direct Loan programs consist of two types of loans: Stafford loans, which are made available to students regardless of financial need, and PLUS loans, which are made available to parents of undergraduate students classified as dependents and, as of July 1, 2006, graduate students. The primary difference between the FFEL and the Direct Loan programs is that the FFEL program is administered and funded by private sources while the U.S. Department of Education provides the administration and funds for the Direct Loan program. While all of our schools are eligible to participate in the Direct Loan program, only Brown Mackie College—Tucson and The Art Institute of Tucson currently participate in the program.

Effective July 1, 2007, under the Stafford loan program an undergraduate student may borrow up to $3,500 for the first academic year, $4,500 for the second academic year and, in certain educational programs, $5,500 for each of the third and fourth academic years. Students who are classified as independent can obtain up to an additional $4,000 for each of the first and second academic years and, depending upon the educational program, an additional $5,000 for each of the third and fourth academic years. Students enrolled in programs higher than a bachelor-level program can borrow up to $20,500 per academic year. Students enrolled in certain graduate-level health professions can receive an additional $12,500 per academic year. Prior to July 1, 2007, undergraduate students were only permitted to borrow up to $2,625 for the first academic year and $3,500 for the second academic year under the Stafford loan program. Students enrolled in programs higher than a bachelor-level were limited to borrowing up to $18,500 per academic year prior to July 1, 2007. Amounts received by students in our U.S. schools under the Stafford loan program equaled approximately 48% of our net revenues in fiscal 2007. Currently, PLUS loans may be obtained by the parent(s) of a dependent student in an amount not to exceed the difference between the total cost of that student’s education (including allowable educational expenses) and other aid to which that student is entitled. Amounts received by parents of students in our U.S. schools under the PLUS loan program in fiscal 2007 equaled approximately 12% of our net revenues in fiscal 2007.

Calendar

Fiscal Year

Year

Acquired

School

Location

Established

or Opened

Accrediting Agency

The Art Institute of California — Sunnyvale

Sunnyvale, CA

2008

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

The Art Institute of Charleston

Charleston, SC

2007

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

The Art Institute of Charlotte

Charlotte, NC

1973

2000

ACICS

The Art Institute of Colorado

Denver, CO

1952

1976

Higher Learning Commission (“HLC”) of the North Central Association

The Art Institute of Dallas

Dallas, TX

1964

1985

SACS

The Art Institute of Fort Lauderdale

Fort Lauderdale, FL

1968

1974

ACICS

The Art Institute of Houston

Houston, TX

1974

1979

SACS

The 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

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

The Art Institute of Jacksonville

Jacksonville, FL

2007

SACS (as a branch of Miami International University of Art & Design)

The Art Institute of Las Vegas

Las Vegas, NV

1983

2001

ACCSCT

The 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

ACICS

The 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

ACICS

The Art Institute of Phoenix

Phoenix, AZ

1995

1996

ACICS

Pell. Pell grants are the primary component of the Title IV programs under which the U.S. Department of Education makes grants to students who demonstrate financial need. Every eligible student is entitled to receive a Pell grant; there is no institutional allocation or limit. During fiscal 2007, Pell grants ranged up to $4,310 per year, depending on student need and other factors. Amounts received by students enrolled in our U.S. schools in fiscal 2007 under the Pell program represented approximately 8% of our net revenues in fiscal 2007.

FSEOG. FSEOG awards are designed to supplement Pell grants for the neediest students. FSEOG grants at our schools generally range in amount from $300 to $1,200 per year. However, the availability of FSEOG awards is limited by the amount of those funds allocated to an institution under a formula that takes into account the size of the institution, its costs and the income levels of its students. We are required to make a 25% matching contribution for all FSEOG program funds disbursed. Resources for this institutional contribution may include institutional grants and scholarships and, in certain states, portions of state grants and scholarships. Amounts received by students in our U.S. schools under the FSEOG program in fiscal 2007 represented less than 1% of our net revenues.

Perkins. Eligible undergraduate students may borrow up to $4,000 under the Perkins program during each academic year, with an aggregate maximum of $20,000. Eligible graduate students may borrow up to $6,000 in Perkins loans each academic year, with an aggregate maximum of $40,000. Perkins loans have a 5% interest rate and repayment is delayed until nine months after a student ceases enrollment as at least a half-time student. Perkins loans are made available to those students who demonstrate the greatest financial need. Perkins loans are made from a revolving account, with 75% of new funding contributed by the U.S. Department of Education and the remainder by the applicable school. Subsequent federal capital contributions, which must be matched by school funds, may be received if an institution meets certain requirements. Each school collects payments on Perkins loans from its former students and re-lends those funds to currently enrolled students. Collection and disbursement of Perkins loans is the responsibility of each participating institution. During fiscal 2007, we collected approximately $7.5 million from our former students. We were not required to make any matching contributions in fiscal 2007. The Perkins loans disbursed to students in our U.S. schools in fiscal 2007 represented less than 1% of our net revenues.

Federal Work-Study. Under the Federal Work-Study program, federal funds are made available to pay up to 75% of the cost of part-time employment of eligible students, based on their financial need, to perform work for the institution or for off-campus public or non-profit organizations. Most of our schools participate in the Federal Work-Study program. In order to participate in the program, each year a school must have at least 7% of the school’s Federal Work-Study program allocation paid to students performing community service work and at least one student in a literacy job. In fiscal 2007, Argosy University and two Brown Mackie Colleges did not meet this requirement. The U.S. Department of Education has announced that institutions that do not meet this

requirement in fiscal 2008 will be subject to fines and / or other administrative action. In fiscal 2007, Federal Work-Study funds represented less than 1% of our net revenues.

Calendar

Fiscal Year

Year

Acquired

School

Location

Established

or Opened

Accrediting Agency

The Art Institute of Pittsburgh

Pittsburgh, PA

1921

1970

Middle States Association of Colleges & Schools of the Commission on Higher Education

The Art Institute of Portland

Portland, OR

1963

1998

Northwest Commission on Colleges and Schools Universities (“NWCCU”)

The Art Institute of Raleigh-Durham

Durham, NC

2008

ACICS (as a branch of The Art Institute of Charlotte)

The Art Institute of Salt Lake City

Salt Lake City, UT

2007

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

The Art Institute of Seattle

Seattle, WA

1946

1982

NWCCU

The Art Institute of Tampa

Tampa, FL

2004

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

The Art Institute of Tucson

Tucson, AZ

2002

2007

ACICS

The Art Institute of Vancouver

Vancouver, BC

1979

2003

Private Career Training Institutions Agency of British Columbia

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(1)

Sterling, VA

2009

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

The Art Institute of York — Pennsylvania

York, PA

1952

2004

ACCSCT

The Art Institutes International — Kansas City

Kansas City, KS

2008

ACICS (as a branch of The Art Institute of Phoenix)

The Art Institutes International Minnesota

Minneapolis, MN

1964

1997

ACICS

The Illinois Institute of Art — Chicago

Chicago, IL

1916

1996

HLC and ACCSCT

The Illinois Institute of Art — Schaumburg

Schaumburg, IL

1983

1996

HLC and ACCSCT (as a branch of The Illinois Institute of Art — Chicago)

New Title IV Programs. Effective July 1, 2006, Congress enacted two new Title IV federal aid programs, the Academic Competitive Grant (“ACG”) and the National SMART (Science and Mathematics Access to Retain Talent) Grant. Both of these new programs require students to be eligible for a Pell grant and to attend school on a full-time basis. The ACG is designed for students in degree programs who have recently graduated from a high school at which they were enrolled in a rigorous curriculum. Students may receive a maximum of $750 of ACG during their first academic year and $1,300 during their second academic year. The National SMART Grant is designed for students in their third or fourth academic year with a cumulative grade point average of 3.0 or greater in certain designated bachelor’s degree or higher programs, primarily focused on science and math programs. Eligible students may receive up to $4,000 in each of their third and fourth academic year. In fiscal 2007, net revenues from the ACG and National SMART Grant programs in the aggregate represented less than 1% of our net revenues.

Legislative Action. Political and budgetary concerns can significantly affect the Title IV programs. The U.S. Congress generally reauthorizes the HEA approximately every six years. The next reauthorization of the HEA is being discussed in Congress and may result in numerous legislative changes. In addition, the U.S. Congress determines federal appropriations for Title IV programs on an annual basis. The U.S. Congress can also make changes in the laws affecting Title IV programs in those annual appropriations bills and in other laws it enacts between HEA reauthorizations. During the September 2007 budget reconciliation process, Congress passed legislation which decreases private lender yields for their participation in the FFEL program. The legislation has not been sent to the President, and the impact to students, institutions and private lenders is unknown at this time. In addition, Congress is considering legislation to address alternative, non-Title IV program loans as well as lenders and educational institution interaction. Since a significant percentage of our revenue is derived from Title IV programs, any action by the U.S. Congress that significantly reduces Title IV program funding or the ability of our schools or students to participate in the Title IV programs would have a material adverse effect on our business, results of operations or financial condition. Legislative action also could increase our administrative costs and require us to adjust our practices in order for our schools to comply fully with Title IV program requirements.

Other Financial Assistance Sources

Students at several of our U.S. schools participate in state grant programs. In fiscal 2007, approximately 3% of our net revenues were indirectly derived from state grant programs. In addition, certain students at some of our U.S. schools receive financial aid provided by the U.S. Department of Veterans Affairs, the U.S. Department of the Interior (Bureau of Indian Affairs) and the Rehabilitative Services Administration of the U.S. Department of Education (vocational rehabilitation funding). In fiscal 2007, financial assistance from such federal programs equaled less than 1% of our net revenues. Our schools also provide institutional grants and scholarships to qualified students. In fiscal 2007, institutional scholarships had a value equal to approximately 2% of our net revenues.

We have also arranged alternative supplemental loan programs that allow students to repay a portion of their loans after graduation and allow students with lower than average credit ratings to obtain loans. The primary objective of these loan programs is to facilitate funding which students can use to pay a portion of their tuition and fees that they are unable to pay through personal resources or government-backed loan programs. Such loans are without recourse to us or our schools. In fiscal 2007, alternative loans represented approximately 23% of our net revenues as compared to approximately 19% of net revenues in fiscal 2006.

We have also developed a loan program with a provider of student loans for students with low credit scores who otherwise may not qualify for loans and pursue a post-secondary education. This loan program requires that we pay the loan provider a discount fee based on the principal balance of each private loan. The loans are non-recourse to us and include a waiting period between the date of the loan origination and the first disbursement to the student.

Availability of Lenders


		Calendar		Fiscal Year
		Year		Acquired
School	Location	Established		or Opened		Accrediting Agency

Miami International University of Art & Design	Miami, FL		1965		2002	SACS
The New England Institute of Art	Boston, MA		1988		2000	New England Association of Schools and Colleges

Argosy University						HLC (all locations)
Argosy University, Atlanta	Atlanta, GA		1990		2002
Argosy University, Chicago	Chicago, IL		1976		2002
Argosy University, Dallas	Dallas, TX		2002		2002
Argosy University, Denver	Denver, CO		2006		2006
Argosy University, Honolulu	Honolulu, HI		1979		2002
Argosy University, Inland Empire	San Bernadino, CA		2006		2006
Argosy University, Nashville	Nashville, TN		2001		2001
Argosy University, Orange County	Orange, CA		1999		2002
Argosy University, Phoenix	Phoenix, AZ		1997		2002
Argosy University, Salt Lake City	Salt Lake City, UT		2008		2008
Argosy University, San Diego	San Diego, CA		2006		2006
Argosy University, San Francisco	Point Richmond, CA		1998		2002
Argosy University, Santa Monica	Santa Monica, CA		2006		2006
Argosy University, Sarasota	Sarasota, FL		1969		2002
Argosy University, Schaumburg	Schaumburg, IL		1979		2002
Argosy University, Seattle	Seattle, WA		1997		2002
Argosy University, Tampa	Tampa, FL		1997		2002
Argosy University, Twin Cities	Eagan, MN		1961		2002
Argosy University, Washington D.C.	Arlington, VA		1994		2002

South University						SACS (all locations)
South University/ Savannah	Savannah, GA		1899		2004

Students attending our schools primarily use a limited number of lending institutions to obtain their federally guaranteed loans to help pay their direct costs of attendance. While we believe that other lenders or the Federal Direct Loan program would be willing to make federally guaranteed student loans to our students if federally guaranteed loans were no longer available from our current lenders, there can be no assurances in this regard. In addition, the HEA requires the establishment of lenders of last resort in every state to ensure that loans are available to students at any school that cannot otherwise identify lenders willing to make federally guaranteed loans to its students.

We estimate that three student loan guaranty agencies guaranteed over 90% of all federally guaranteed student loans made to students enrolled at our U.S. schools during fiscal 2007. We believe that other guaranty agencies would be willing to guarantee federal loans to our students if any of the current agencies ceased guaranteeing those loans or reduced the volume of loans they guarantee, although there can be no assurances in this regard.

Federal Oversight of Title IV Programs

Our U.S. schools are subject to audits or program compliance reviews by various external agencies, including the U.S. Department of Education, its Office of Inspector General, and state, guaranty and accrediting agencies. The HEA and its implementing regulations also require that an institution’s administration of Title IV program funds be audited annually by an independent accounting firm. If the U.S. Department of Education or another regulatory agency determines that an institution has improperly disbursed Title IV or state program funds or violated a provision of the HEA or state law or their implementing regulations, the affected institution may be required to repay such funds to the U.S. Department of Education or the appropriate state agency or lender and may be assessed an administrative fine. Although we endeavor to comply with the all federal and state laws and implementing regulations, we cannot guarantee that our interpretation of the relevant rules will be upheld by the U.S. Department of Education, other agencies, or upon judicial review.

If the U.S. Department of Education is dissatisfied with an institution’s administration of the Title IV programs, it can also transfer the institution from the advance system of receiving Title IV program funds to the cash monitoring or reimbursement method of payment, under which a school may have to advance its own funds to students and provide documentation to the U.S. Department of Education that the funds were properly disbursed prior to receiving reimbursement from the Title IV programs. As a result of the Transaction, the U.S. Department of Education placed all our locations in the United States on provisional certification and on heightened cash monitoring level one. The implementation of heightened cash monitoring level one has not materially impacted our cash flow from operations.

Violations or alleged violations of Title IV program requirements also could subject us to other civil and criminal sanctions, including a proceeding to impose a fine, imposition of restrictions on our participation in Title IV programs or termination of our eligibility to participate in Title IV programs. The U.S. Department of Education also may initiate an emergency action to temporarily suspend an institution’s participation in Title IV programs without advance notice if it determines that a regulatory violation creates an imminent risk of material loss of public funds.

The HEA requires each accrediting agency recognized by the U.S. Department of Education to undergo comprehensive periodic review by the U.S. Department of Education to ascertain whether such accrediting agency is adhering to required standards. We are not aware of any reason that any of the agencies that accredit our institutions would not be approved as a result of such review. In any event, if an accreditation agency is not approved by the U.S. Department of Education, the HEA grants affected institutions reasonable opportunity to apply for accreditation from a different agency.

Cohort Default Rates. If, at any given point, an institution’s FFEL cohort default rate equals or exceeds 25% for each of the three most recent federal fiscal years, it will no longer be eligible to participate in the Title IV programs for the remainder of the federal fiscal year in which the U.S. Department of Education determines that such institution has lost its eligibility and for the two subsequent federal fiscal years. If, at any given point, an institution’s Perkins cohort default rate equals or exceeds 50% for each of the three most recent federal fiscal years it will no longer be eligible to participate in the Perkins programs for the remainder of the federal fiscal year in which the U.S. Department of Education determines that such institution has lost its eligibility and for the two subsequent federal fiscal years.

Calendar

Fiscal Year

Year

Acquired

School

Location

Established

or Opened

Accrediting Agency

South University/ Montgomery

Montgomery, AL

1997

2004

South University/ West Palm Beach

West Palm Beach, FL

1974

2004

South University/ Columbia

Columbia, SC

1935

2004

South University/ Tampa

Tampa, FL

2006

South University/ Richmond(1)(2)

Richmond, VA

2009

The Brown Mackie Colleges

Brown 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

Brown Mackie College — Findlay

Findlay, OH

1986

2004

ACICS

Brown 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 — Lenexa

Lenexa, KS

1984

2004

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

Brown Mackie College — Salina

Salina, KS

1892

2004

HLC

Brown 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)

None of our schools has had an FFEL cohort default rate of 25% or greater for any of the last three consecutive federal fiscal years. The most recent year for which FFEL cohort default rates have been calculated is the official rates for federal fiscal year 2005. The official combined FFEL cohort default rate for borrowers at our schools for federal fiscal year 2005 was 5.1% and our individual schools’ rates ranged from zero to 13.8%.

If an institution’s FFEL cohort default rate equals or exceeds 25% in any of the three most recent federal fiscal years, or if its cohort default rate for loans under the Perkins program exceeds 15% for the most recent federal award year (July 1 through June 30), that institution may be placed on provisional certification status for up to three years. Provisional certification does not by itself limit an institution’s access to Title IV program funds, but does subject that institution to closer review by the U.S. Department of Education and possible summary adverse action if that institution commits a material violation of Title IV program requirements.

To our knowledge, the U.S. Department of Education considers provisional certification based on an institution’s exceeding the cohort default rate thresholds described in the previous paragraph only when that institution is otherwise subject to a U.S. Department of Education renewal of certification review. As of June 30, 2007, 10 of our schools had Perkins cohort default rates in excess of 15% for students who were to begin repayment during the federal award year ending June 30, 2006, the most recent year for which such rates have been calculated. Funds from the Perkins program did not exceed 4% of these schools’ net revenues in fiscal 2007. None of these schools has been placed on provisional certification solely for this reason.

Each of our schools whose students participate in the FFEL program maintains a student loan default management plan if its default rate equals or exceeds 5%. Those plans provide for extensive loan counseling, methods to increase student persistence and completion rates and graduate employment rates, strategies to increase graduate salaries and, for most schools, the use of external agencies to assist the school with loan counseling and loan servicing after a student ceases to attend that school. These activities are in addition to the loan servicing and collection activities of FFEL lenders and guaranty agencies. The historical default rates experienced by Argosy University and Western State University College of Law have been quite low, and therefore these schools have engaged in significantly fewer default management activities.

Regulatory Oversight. The U.S. Department of Education is required to conduct periodic reviews to determine whether to renew the eligibility and certification of every institution participating in Title IV programs. Generally such reviews occur every six years. A denial of renewal of certification precludes a school from continuing to participate in Title IV programs. Currently all of our schools are operating under a Temporary Provisional Program Participation Agreement with the U.S. Department of Education due to the change in control of the Company which occurred in connection with the Transaction.

Financial Responsibility Standards. All institutions participating in Title IV programs must satisfy certain standards of financial responsibility. Institutions are evaluated for compliance with these requirements as part of the U.S. Department of Education’s renewal of certification process, and also annually as each institution submits its audited financial statements to the U.S. Department of Education. For the year ended June 30, 2007, we believe that, on an individual institution basis, each of our schools then participating in Title IV programs satisfied the financial responsibility standards. At our consolidated parent company level, our financial statements will not satisfy the financial responsibility standards for the fiscal year ended June 30, 2007 and for

the foreseeable future. Following the Transaction, the U.S. Department of Education separately considered our and our schools’ compliance with the financial responsibility requirements at our consolidated parent company level. We were required by the U.S. Department of Education to post a $87.9 million letter of credit on October 12, 2006 and are subject to provisional certification and additional financial and cash monitoring with respect to our disbursement of Title IV funds due to EDMC’s failure on a consolidated basis to satisfy the financial responsibility standards after the completion of the Transaction. The letter of credit, provisional certification and financial and heightened cash monitoring will be in effect until at least March 2008 and is likely to continue beyond that date.

Calendar

Fiscal Year

Year

Acquired

School

Location

Established

or Opened

Accrediting Agency

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

ACICS

Brown Mackie College — Louisville

Louisville, KY

1935

2004

ACICS (as a branch of Brown Mackie College — Findlay)

Brown Mackie College — Hopkinsville

Hopkinsville, KY

1995

2004

ACICS (as a branch of Brown Mackie College — Findlay)

Brown Mackie College — Miami

Miami, FL

2004

2005

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

Brown Mackie College — Tucson

Tucson, AZ

1972

2007

ACICS

Brown Mackie College — Indianapolis

Indianapolis, IN

2007

2008

ACICS (as a branch of Brown Mackie College — Findlay)

Brown Mackie College — Boise

Boise, ID

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

2009

ACICS (as a branch of Brown Mackie College — Tucson)

Brown Mackie College — Greenville(1)

Greenville, SC

2009

ACICS (as a branch of Brown Mackie College — Tucson)

Western State University College of Law

Fullerton, CA

1966

2002

Commission on Colleges of the Western Association of Schools and Colleges; American Bar Association

Return of Title IV Funds. Institutions that receive Title IV funds must follow requirements that ensure the return to the federal student financial aid programs of all unearned funds of a student who withdraws from a program. If refunds are not properly calculated and timely paid, institutions are subject to adverse actions by the U.S. Department of Education. We have posted letters of credit for nine of our schools because independent audits indicated that they had exceeded federal thresholds for allowable number of late refunds during at least one of their two most recent fiscal years. Our 2007 annual financial aid compliance audits have not been completed, therefore the number of schools requiring a letter of credit may increase. We have instituted practices and procedures at recently acquired schools to expedite refunds of FFEL program funds, including payment of refunds by electronic fund transfers.


(1)		First class of students scheduled to start in October 2009.

(2)		Application for state license pending with the State Council of Higher Education for Virginia.

Administrative Capability Requirements. Regulations of the U.S. Department of Education specify extensive criteria an institution must satisfy to establish that it has the requisite “administrative capability” to ~~participate~~ Accrediting inagencies ~~Title~~monitor IVeach ~~programs.~~educational ~~These criteria require, among other things, that the~~ institution ~~comply with all applicable federal student financial aid regulations; have capable and sufficient personnel to administer the Title IV programs; have~~’s ~~acceptable~~ performance ~~methods~~across ofa ~~defining~~broad ~~and~~range ~~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~~areas. IfMonitoring ~~an institution fails~~is to generally ~~satisfy~~performed ~~any~~through ofannual ~~these~~self-reporting ~~criteria,~~and the U.S. Department of Education may require the repayment of federal student financial aid funds; transfer the institution from the advance system of payment of Title IV program funds to the cash monitoring orthrough ~~reimbursement method of payment; place~~ the ~~institution~~conduct ~~on provisional certification status; or commence a proceeding to impose a fine or to limit, suspend or terminate the participation~~ of ~~the~~periodic ~~institution~~site invisits ~~Title IV programs.~~ by

Restrictions on Operating Additional Schools. The HEA generally requires that certain educational institutions be in full operation for two years before applying to participate in Title IV programs. However, under the HEA and applicable regulations, an institution that is certified to participate in Title IV programs may establish an additional location and apply to participate in Title IV programs at that location without reference to the two-year requirement if such additional location satisfies all other applicable requirements. In addition, a school that undergoes a change of ownership resulting in a change in control (as defined under the HEA) must be reviewed and recertified for participation in Title IV programs under its new ownership. All of our schools are currently provisionally certified due to the Transaction. During the time a school is provisionally certified, it may be subject to summary adverse action for a material violation of Title IV program requirements and may not establish additional locations without prior approval from the U.S. Department of Education. However, provisional certification does not otherwise limit an institution’s access to Title IV program funds. Our expansion plans are based, in part, on our ability to add additional locations and acquire schools that can be recertified. The U.S. Department of Education has informed us that it will not seek to impose growth restrictions on any of our schools as a result of the Transaction.

The “90/10 Rule.” Under a provision of the HEA commonly referred to as the “90/10 Rule,” an institution will cease to be eligible to participate in Title IV programs if, on a cash accounting basis, more than 90% of its revenues for the prior fiscal year were derived from Title IV programs. Any school that violates the 90/10 Rule immediately becomes ineligible to participate in Title IV programs and is unable to apply to regain eligibility until the following fiscal year. For our schools that disbursed federal financial aid during fiscal 2007, the percentage of revenues derived from Title IV programs ranged from approximately 40% to 83%, with a weighted average of approximately 61%.

~~Restrictions~~ representatives ~~on Payment~~ of ~~Bonuses,~~the ~~Commissions~~accrediting oragency ~~Other~~and ~~Incentives.~~qualified ~~An institution participating~~persons in from ~~the~~peer ~~Title~~institutions. IVIn ~~programs~~the ~~may~~event ~~not~~an ~~provide~~accrediting ~~any~~agency determines ~~commission,~~that ~~bonus,~~such orschool’s ~~other~~performance ~~incentive~~in ~~payment~~one ~~based~~or ~~directly~~more areas orfalls ~~indirectly~~below oncertain ~~success~~parameters, inthe ~~securing~~accrediting ~~enrollments~~agency ormay require ~~financial~~the ~~aid~~school to ~~any~~supply ~~person~~it orwith ~~entity~~supplemental ~~engaged~~reports inon ~~any~~the accrediting ~~student~~agency’s ~~recruiting~~specific orareas ~~admission activities~~of orconcern inuntil ~~making~~that school ~~decisions~~meets ~~regarding~~ the ~~awarding~~accrediting ofagency’s ~~Title~~performance IVguideline or ~~program funds~~standard. ~~Effective~~As ~~July~~of ~~2003~~June 30, ~~the~~2009, ~~U.S.~~four ~~Department~~ of ~~Education~~our ~~published~~schools ~~regulations~~were required to ~~attempt~~provide tosuch ~~clarify~~supplemental ~~this so-called “incentive compensation” law~~reports. ~~The~~Of ~~new~~these four ~~regulations~~ schools ~~identify~~on ~~twelve~~supplemental ~~compensation~~reporting ~~arrangements~~status, ~~that~~two ~~the~~schools ~~U.S. Department of Education has determined~~ are required ~~not~~to inrequest ~~violation~~and ofreceive ~~the~~permission ~~incentive~~from ~~compensation~~their accrediting ~~law,~~agency ~~including~~prior ~~the~~to ~~payment~~filing ~~and~~an ~~adjustment~~application offor ~~salaries,~~a ~~bonuses~~new location ~~and~~or ~~commissions~~program ~~in certain circumstances~~offering. ~~The~~An ~~new~~accrediting ~~regulations~~agency doalso ~~not~~may order ~~establish~~an ~~clear~~institution ~~criteria~~to ~~for~~show ~~compliance~~cause inwhy ~~all~~its ~~circumstances,~~accreditation ~~and~~should not ~~the~~be ~~Department~~revoked ~~has~~or ~~announced~~conditioned ~~that~~if it ~~will~~receives noinformation ~~longer~~leading it ~~review~~to ~~and~~question ~~approve~~whether ~~individual~~the ~~schools’~~institution ~~compensation~~satisfies ~~plans~~the requirements ~~prior~~of tocontinued ~~their implementation~~accreditation. ~~Although~~An weinstitution ~~can~~ found not ~~provide~~to ~~any~~be ~~assurances~~in ~~that~~compliance ~~the~~with ~~U.S.~~required ~~Department~~standards ofmay ~~Education~~have ~~will~~its accreditation ~~not~~revoked ~~find~~or ~~deficiencies~~withdrawn, inor ~~our~~it ~~compensation~~may ~~plans,~~be weplaced ~~believe~~on probation ~~that~~to ~~our~~more ~~current~~closely ~~compensation~~monitor ~~plans~~its ~~are in~~ compliance with ~~the HEA and the new~~ ~~regulations~~ accrediting ~~promulgated by the U~~requirements.~~S. Department of Education.~~

~~State~~ ~~Authorization~~ Student Financial ~~and Accreditation Agencies~~ Assistance

~~Each~~ Many ofstudents at our U.S. schools isrely, ~~authorized~~at least in part, on financial assistance to ~~offer~~pay ~~education~~for ~~programs~~the ~~and~~cost ~~grant~~of ~~degrees~~their oreducation. In ~~diplomas~~the byUnited States, the ~~state~~largest insources ~~which~~of such ~~school~~support isare the ~~located.~~federal ~~The~~student ~~level~~aid programs under Title IV of ~~regulatory~~the ~~oversight~~HEA. Additional ~~varies~~sources ~~substantially~~of ~~from~~funds ~~state~~include toother federal grant programs, state. Ingrant ~~some~~and ~~states~~loan programs, ~~the~~private ~~schools~~loan ~~are~~programs and ~~subject~~institutional ~~to licensure~~grants byand ~~the~~scholarships. ~~state~~To ~~education~~provide ~~agency~~students access ~~and~~to ~~also~~financial byassistance aresources ~~separate~~available ~~higher~~through Title IV ~~education~~programs, ~~agency.~~a ~~State~~school ~~laws~~must ~~may~~be ~~establish~~(i) authorized ~~standards~~to offer ~~for~~its programs of instruction, ~~qualifications~~by the relevant agency of ~~faculty,~~the states ~~location~~in ~~and~~which ~~nature~~it ofis ~~facilities~~physically located, (ii) institutionally ~~financial~~accredited ~~policies~~by ~~and~~an ~~responsibility~~agency ~~and~~recognized ~~other~~by ~~operational~~ the ~~matters~~U.S. Department ~~State~~of ~~laws~~Education, and ~~regulations~~(iii) certified as ~~may~~an ~~limit~~eligible ~~our~~institution ~~ability~~by tothe ~~obtain~~U.S. Department ~~authorization~~of Education. toIn ~~operate~~addition, inthe ~~certain~~school ~~states~~must orensure tothat Title IV ~~award~~program ~~degrees~~funds orare ~~diplomas~~properly oraccounted ~~offer~~for ~~new~~and disbursed ~~degree~~in ~~programs.~~the ~~Certain~~correct ~~states~~amounts ~~prescribe~~to ~~standards~~eligible ofstudents ~~financial~~and ~~responsibility~~remain ~~that~~ in ~~are~~compliance ~~different~~generally ~~from~~with ~~those prescribed by~~ the ~~U.S.~~Title IV ~~Department of Education~~program regulations.

~~Each~~ As ofin ~~our U.S. schools is accredited by a national or regional accreditation agency recognized by~~ the ~~U.S. Department~~United ~~of Education~~States, ~~and~~there ~~some educational programs~~ are ~~also~~certain ~~programmatically~~risks ~~accredited.~~associated ~~The level~~with of operating ~~regulatory~~post-secondary ~~oversight~~institutions ~~and~~in ~~standards~~Canada, ~~can~~including, among ~~vary~~other ~~based on the agency. Certain accreditation agencies prescribe standards that are different from those prescribed by the U.S. Department of Education.~~ risks:

If• aif ~~school~~our ~~does~~schools ~~not~~fail ~~meet~~to ~~its~~comply ~~accreditation~~with orextensive ~~state~~regulations, ~~requirements~~we could be subject to financial penalties, ~~its accreditation~~restrictions ~~and/~~on our operations or ~~state~~loss ~~licensing~~of ~~could~~external befinancial ~~limited,~~aid ~~modified,~~funding ~~suspended~~for our students; • the provinces or ~~terminated.~~national ~~Failure~~government tomay ~~maintain~~change ~~licensure~~the law or ~~institutional~~reduce ~~accreditation~~funding ~~makes~~for astudent ~~school~~financial ~~ineligible~~aid toprograms, which could harm our student population and revenue; • if our schools do not maintain their approvals, they may not operate or participate in ~~Title~~federal IVstudent financial aid programs.; and • government and regulatory agencies may conduct compliance reviews, bring claims or initiate litigation against us.

~~Certain~~ While ofmost states in the U.S. support public colleges and universities primarily through direct state ~~authorizing~~subsidies, ~~agencies~~the U.S. federal government provides a substantial part of its support for post-secondary education in the form of grants and loans ~~accrediting~~to ~~agencies~~students ~~with~~who can use this support at any institution ~~jurisdiction~~ that ~~over~~has been certified as eligible by the U.S. Department of Education. Students at our U.S. schools ~~also~~receive ~~have~~loans, grants ~~requirements~~and ~~that~~work-study ~~may~~funding to fund their education under several Title IV programs, inof ~~certain~~which ~~instances~~the three largest are the Federal Family Education Loan (“FFEL”) program, the ~~limit~~William D. Ford Federal Direct Loan (“Direct Loan”) program and the Federal Pell Grant (“Pell”) program. Most of our ~~ability~~U.S. schools toalso participate ~~open~~in athe ~~new~~Federal ~~school~~Supplemental Educational Opportunity Grant (“FSEOG”) program, ~~acquire~~the anFederal ~~existing~~Perkins ~~school~~Loan (“Perkins”) program, ~~establish~~the anFederal ~~additional~~Work-Study ~~location~~program and the Academic Competitive Grant program. A smaller number of our anU.S. schools ~~existing~~also ~~school,~~participate orin ~~add~~the ~~new~~National ~~educational~~SMART (Science ~~programs~~and Mathematics Access to Retain Talent) Grant program.

Canadian Regulation and Financial Aid

Our Canadian schools are subject to regulation in the provinces in which they operate and in the provinces in which they recruit students. Depending on their province of residence, our Canadian students may receive loans under the federally funded Canada Student Loan Program and/or provincial funding from their province of residence. Canadian schools must meet eligibility standards to administer these programs and must comply with all relevant statutes, rules, regulations, and requirements. We believe our Canadian schools currently hold all necessary registrations, approvals, and permits and meet all eligibility requirements to administer these governmental financial aid programs. If our Canadian schools cannot meet these and other eligibility standards or fail to comply with applicable requirements, it could have a material adverse effect on our business, results of operations or cash flows, or financial condition.

The British Columbia government, through its Ministry of Advanced Education, regulates private career colleges through an arms length accreditation and registration body called the Private Career Training Institutions

~~Agency~~ During offiscal ~~British~~2009 ~~Columbia (“PCTIA”)~~ and ~~provides financial assistance to eligible students through the British Columbia Student Assistance Program (“BCSAP”). In Ontario~~2008, the ~~government~~net ~~regulates~~cash ~~private~~receipts ~~career~~from ~~colleges through~~ the ~~Ministry of Training Colleges and Universities and provides student assistance through the Ontario Student Assistance Program (“OSAP”). In both~~ ~~provinces,~~ financial ~~the~~sources ~~student~~that ~~aid~~funded ~~programs~~our ~~are~~revenue ~~substantially~~from ~~the~~tuition ~~same~~ and ~~include two main components a federal component under the Canada Student Loan Program, which is combined with a provincial portion and administered through the respective provincial~~fees ~~OSAP~~ for orattending ~~the BCSAP programs. In order to maintain the right to administer student assistance;~~ our ~~schools~~post-secondary ~~must~~institutions ~~abide~~were byas ~~the rules, regulations, and administrative manuals and Memorandum of Agreements with the Canada Student Loan Program and the~~follows ~~respective~~ (dollars ~~OSAP/BCSAP~~in ~~Student Loans Plans.~~ millions):

Institutions cannot automatically acquire student aid designation through the acquisition of other student aid eligible institutions. In the event of a change of ownership, including a change in controlling interest, the respective ministries as well as OSAP or BCSAP, as applicable, require evidence that the institution has continued capacity and a formal undertaking to comply with registration and student aid eligibility requirements. Given that the provincial governments and PCTIA (in the case of British Columbia) periodically revise their respective regulations and other requirements and change their respective interpretations of existing laws and regulations, we cannot assure you that the provincial governments and/or PCTIA will agree with our interpretation of each requirement.


	Fiscal 2009								Fiscal 2008
	Gross Cash		% of Gross			% of Net			Gross Cash		% of Gross			% of Net
	Receipts(1)		Receipts			Revenue			Receipts(1)		Receipts			Revenue

Federal Title IV Aid(2):
FFEL — Stafford Loans(3)	$	1,201.4		50.1	%		59.7	%	$	838.2		42.2	%		49.8	%
FFEL — PLUS Loans(3)		204.8		8.6	%		10.2	%		175.5		8.9	%		10.4	%
Pell Grants		188.2		7.9	%		9.4	%		131.4		6.6	%		7.8	%
Grad Plus Loans		25.2		1.1	%		1.3	%		16.1		0.8	%		1.0	%
FSEOG Awards		12.2		0.5	%		0.6	%		11.5		0.6	%		0.7	%
Perkins Loans		5.0		0.2	%		0.2	%		7.4		0.4	%		0.4	%
Other Title IV Aid(4)		2.8		0.1	%		0.1	%		2.1		0.1	%		0.1	%

Total Federal Title IV Aid		1,639.6		68.5	%		81.5	%		1,182.2		59.6	%		70.2	%

Private Loans		263.6		11.0	%		13.1	%		374.8		18.9	%		22.3	%
Education Finance Loan Program		19.2		0.8	%		1.0	%		—		—			—
Cash Payments		410.2		17.1	%		20.4	%		368.0		18.6	%		21.8	%
State Grants		52.7		2.2	%		2.6	%		48.2		2.4	%		2.9	%
Canadian Financial Aid		8.5		0.4	%		0.4	%		9.1		0.5	%		0.5	%

Total Cash Receipts(5)	$	2,393.8		100.0	%		119.0	%	$	1,982.3		100.0	%		117.7	%

Net Revenue(6)						$	2,011.5							$	1,684.2

Canadian schools are required to audit their administration of student aid programs annually or as otherwise directed by OSAP or BCSAP, as the case may be. We believe we have complied with these requirements.


(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 loans received by students under the Direct Loan program.

(4)		Includes receipts from the Academic Competitive Grant program and the National SMART Grant program.

(5)		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 2009 and 2008 were $403.0 million and $340.9 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.

(6)		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.

~~Employees~~ FFEL and Direct Loans. The FFEL and Direct Loan programs consist of two types of loans: Stafford loans, which are made available to students regardless of financial need, and Parent Loan for Undergraduate Students (“PLUS”) loans, which are made available to parents of undergraduate students classified as dependents and to graduate and professional students. The primary difference between the FFEL and the Direct Loan programs is that

At June 30, 2007, we employed approximately 7,880 full time employees, of whom approximately 2,150 were faculty members, and approximately 1,680 part-time employees, of whom approximately 1,440 were faculty members. In addition, we also employed approximately 3,890 adjunct faculty members at June 30, 2007. Adjunct faculty members are employed on a term-to-term basis, while part-time faculty members work a regular part-time schedule.

Competition

The post-secondary education market is highly fragmented and competitive. Our schools compete for students with traditional public and private two-year and four-year colleges and universities and other proprietary schools, including those that offer distance learning programs. Many public and private colleges and universities, as well as other private career-oriented schools, offer programs similar to those we offer. Public institutions receive substantial government subsidies, and both public and private institutions have access to government and foundation grants, tax-deductible contributions and other financial resources generally not available to proprietary schools. Accordingly, public and private institutions may have facilities and equipment superior to those in the proprietary sector, and can often offer lower effective tuition prices. Some of our competitors in both the public and private sectors also have substantially greater financial and other resources than we do.

Seasonality in Results of Operations

Our quarterly revenues and income fluctuate primarily as a result of the pattern of student enrollments. Student enrollment at The Art Institute schools has typically peaked in the fall (fiscal second quarter), when the largest number of recent high school and college graduates traditionally begin post-secondary education programs. Our first quarter is typically our lowest revenue recognition quarter due to student vacations. The seasonality of our business has decreased over the last several years due to an increased percentage of students enrolling in online programs.

~~Availability~~ the FFEL program is administered and funded by private sources while the U.S. Department of ~~Reports~~Education provides the administration and funds for the Direct Loan program. While all of our schools are eligible to participate in the Direct Loan program, as of June 30, 2009 only Brown Mackie College — Tucson and The Art Institute of Tucson actively participate in the program. We anticipate that each of our U.S. based schools will participate in the Direct Loan program by June 30, 2010.

We Effective ~~make~~July 1, ~~available financial information~~2008, ~~news~~under ~~releases~~the ~~and~~Stafford ~~other~~loan ~~information~~program onan undergraduate ~~our~~student ~~Web~~may ~~site at~~borrow ~~www.edmc.com.~~up ~~Information~~to ~~contained~~$5,500 onfor ~~our~~the ~~Web~~first academic ~~site~~year, is$6,500 ~~not~~for ~~part~~the ofsecond ~~this~~academic ~~Annual~~year ~~Report~~and, onin certain ~~Form~~educational ~~10-K~~programs, or$7,500 ~~our~~for ~~other~~each ~~filings~~of ~~with~~ the ~~Securities~~third and fourth ~~Exchange~~academic ~~Commission~~years. ~~There~~Students iswho aare ~~direct~~classified ~~link~~as independent ~~from~~can obtain up to an additional $4,000 for each of the ~~Web~~first ~~site~~and tosecond ~~our~~academic ~~Securities~~years and, ~~Exchange~~depending upon the ~~Commission~~ educational ~~filings~~program, ~~where~~an ~~our~~additional ~~annual~~$5,000 ~~report~~for oneach ~~Form~~of ~~10-K,~~the ~~quarterly~~third and ~~reports~~fourth onacademic ~~Form 10-Q,~~years. ~~current~~Students ~~reports~~enrolled onin ~~Form~~programs 8higher than a bachelor-Klevel ~~and~~program ~~any~~can ~~amendments~~borrow up to ~~these~~$20,500 ~~reports~~per academic ~~filed~~year. orStudents ~~furnished~~enrolled ~~pursuant~~in tocertain ~~Section 13(a)~~graduate-level health orprofessions ~~15(d)~~can ofreceive ~~the~~an ~~Securities~~additional ~~Exchange~~$12,500 ~~Act~~per of academic ~~1934~~year. ~~are~~During ~~available~~fiscal ~~free~~2008, ofundergraduate ~~charge~~students asonly were ~~soon~~permitted asto ~~reasonably~~borrow ~~practicable~~up ~~after~~to we$3,500 ~~file~~for ~~such~~the ~~reports~~first ~~and~~academic year, ~~amendments~~$4,500 ~~with~~for the second academic year and, orin ~~furnish~~certain educational ~~them~~programs, to$5,500 for each of the ~~Securities~~third and ~~Exchange~~fourth academic ~~Commission~~years under the Stafford loan program. ~~Investors~~Currently, PLUS loans may ~~also~~be ~~contact~~obtained ~~Investor~~by ~~Relations~~parents atof ~~210~~a ~~Sixth~~dependent ~~Avenue,~~student in an 33 amount rdnot ~~Floor,~~to ~~Pittsburgh,~~exceed ~~Pennsylvania~~the ~~15222~~difference orbetween ~~call~~the total cost of that student’s education (~~412)~~including ~~562-0900~~allowable toeducational expenses) ~~obtain~~and aother ~~hard~~aid ~~copy~~to ofwhich ~~these~~that ~~reports~~student ~~without~~is ~~charge~~entitled.

~~ITEM~~ Pell. Pell 1Agrants are the primary component of Title IV programs under which the U.S. Department ~~RISK~~of Education ~~FACTORS~~makes grants to undergraduate students who demonstrate financial need. Every eligible student is entitled to receive a Pell grant; there is no institutional allocation or limit. Effective as of July 1, 2009, the maximum amount of availability of a Pell grant increased to $5,350 per year from a maximum of $4,731 per year in fiscal 2009. Additionally, effective as of July 1, 2009 certain students who attend school for an entire fiscal year in some cases will be eligible for additional Pell grant awards. The maximum available to an eligible student under the Pell grant program depends on student need and other factors.

~~Investment~~ FSEOG. FSEOG inawards ~~our~~are ~~securities~~designed isto ~~subject~~supplement Pell togrants ~~various~~for ~~risks,~~the ~~including~~neediest ~~risks~~undergraduate ~~and~~students. ~~uncertainties~~FSEOG grants ~~inherent~~at our schools generally range in ~~our~~amount ~~business~~from $300 to $1,200 per year. ~~The~~However, ~~following~~the ~~sets~~availability ~~forth~~of ~~factors~~FSEOG awards is ~~related~~ limited by the amount of those funds allocated to ~~our~~an ~~business,~~institution under ~~operations,~~a ~~financial~~formula ~~position~~that ortakes ~~future~~into ~~financial~~account ~~performance~~the orsize ~~cash~~of ~~flows~~the institution, ~~which~~its ~~could~~costs ~~cause~~and anthe ~~investment~~income inlevels ~~our~~of ~~securities~~its students. We are required to ~~decline~~make a 25% matching contribution for all FSEOG program funds disbursed. Resources for this institutional contribution may include institutional grants and ~~result~~scholarships and, in acertain ~~loss~~U.S. states, portions of state grants and scholarships.

~~Our~~ Perkins. Eligible ~~substantial~~undergraduate ~~leverage~~students ~~could~~may borrow ~~adversely~~up ~~affect~~to ~~our~~$5,500 ~~ability~~under tothe ~~raise~~Perkins ~~additional~~program ~~capital~~during toeach academic ~~fund~~year, ~~our~~with ~~operations~~an aggregate maximum of $27,500 ~~limit~~for ~~our~~students ~~ability~~ with toat ~~react~~least two years of study. Eligible graduate students may borrow up to ~~changes~~$8,000 in ~~the~~Perkins ~~economy~~loans oreach ~~our~~academic ~~industry~~year, ~~expose~~with usan aggregate tomaximum ~~interest~~of $60,000. Perkins loans have a 5% interest rate ~~risk~~and repayment is delayed until nine months after a student ceases enrollment as at least a half-time student. Perkins loans are made available to those students who demonstrate the greatest ~~extent~~financial need. Perkins loans are made from a revolving account. Congress has not supplied any new federal capital contributions to the Perkins program in several years. When Congress last funded the program, 75% of ~~our~~the ~~variable~~new ~~rate~~funding ~~debt~~was contributed by the U.S. Department of Education and ~~prevent~~the remainder usby the applicable school. Each school collects payments on Perkins loans from ~~meeting~~its former students and relends those funds to currently enrolled students. Collection and disbursement of Perkins loans is the responsibility of each participating institution. During fiscal 2009, we collected approximately $4.4 million from our ~~debt~~former ~~obligations~~students. We were not required to make any matching contributions in fiscal 2009.

~~The~~ Federal ~~following~~Work-Study. Under ~~chart~~the ~~shows~~Federal Work-Study program, federal funds are made available to pay up to 75% of the cost of part-time employment of eligible students, based on their financial need, to perform work for the institution or for off-campus public or non-profit organizations. Most of our ~~level~~schools participate in the Federal Work-Study program. In order to participate in the program, each year a school must have at least 7% of ~~indebtedness~~the school’s Federal Work-Study program allocation paid to students performing community service work and at ~~June 30~~least (one student in ~~millions)~~a literacy job. In fiscal 2009, all of our schools met this requirement.

	2007
Revolving credit facility (1)	$	90.0
Senior secured term loan facility, due 2013		1,176.1
Senior notes due 2014 at 8.75%		375.0
Senior subordinated notes due 2016 at 10.25%		385.0
Capital leases		2.3
Mortgage debt of consolidated entities		1.6
Total	$	2,030.0

New Title IV Programs. Effective July 1, 2006, Congress enacted two new Title IV federal aid programs, the Academic Competitive Grant (“ACG”) and the National SMART (Science and Mathematics Access to Retain

(1) Upon the closing of the Transaction, we entered into a $300.0 million revolving credit facility with a six-year maturity. The amount drawn at June 30, 2007 was used to satisfy certain regulatory requirements and was repaid on July 2, 2007. As of June 30, 2007, we also had $92.0 in outstanding letters of credit, including a $87.9 million letter of credit issued to the U.S. Department of Education due to our failure to satisfy certain regulatory financial ratios after giving effect to the Transaction. Outstanding letters of credit reduce the availability under our revolving credit facility.

Our high degree of leverage could have important consequences for you, including:

• making it more difficult for us to make payments on the notes;

• increasing our vulnerability to general economic and industry conditions;

• requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

• exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under our senior secured credit facilities, will bear interest at variable rates;

• Talent) ~~restricting~~Grant. usBoth of these new programs require students to be eligible for a Pell grant and to attend school on a full-time basis. The ACG is designed for students in degree programs who recently have graduated from ~~making~~a ~~strategic~~high ~~acquisitions~~school at which they were enrolled in a rigorous curriculum. Students may receive a maximum of $750 under ACG during their first academic year and $1,300 during their second academic year. The National SMART Grant is designed for students in their third or ~~causing~~fourth usacademic year with a cumulative grade point average of 3.0 or greater in certain designated bachelor’s degree or higher programs, primarily focused on science and math programs. Eligible students may receive up to ~~make~~$4,000 ~~non-strategic~~in ~~divestitures;~~each of their third and fourth academic year.

• Legislative ~~limiting~~Action. Political ~~our~~and ~~ability~~budgetary concerns tocan ~~obtain~~significantly ~~additional~~affect ~~financing~~Title IV ~~for~~programs. Congress ~~working~~generally ~~capital~~reauthorizes the HEA approximately every six years. In August 2008, ~~capital~~the ~~expenditures~~HEA was reauthorized through at least September 30, ~~product~~2014. ~~development~~The HEA reauthorization, ~~debt~~among ~~service~~other ~~requirements~~things, revised ~~acquisitions~~the 90/10 Rule, as described in more detail under “— Federal Oversight of Title IV Programs — The ‘90/10 Rule’ ”, revised the calculation of an institution’s cohort default rate, required additional disclosures and ~~general~~certifications ~~corporate~~with respect to non-Title IV private loans and prohibited certain activities or relations between lenders and schools to discourage preferential treatment of lenders based on factors not in students’ best interests. In addition, Congress determines federal appropriations for Title IV programs on an annual basis. Congress also can make changes in the laws affecting Title IV programs in those annual appropriations bills and in other ~~purposes;~~laws it enacts between HEA reauthorizations. In September 2007, legislation was enacted which, among other things, decreased private lender and guaranty agency yields for participation in the FFEL program, decreased student interest rates on Stafford loans and limited repayment obligations for students who receive loans pursuant to Title IV programs. Since a significant percentage of our revenue is derived from Title IV programs, any action by Congress that significantly reduces Title IV program funding or the ability of our schools or students to participate in Title IV programs would have a material adverse effect on our business, results of operations or financial condition.

• Legislative ~~limiting~~action also could increase our ~~ability~~administrative costs and require us to adjust our practices in order for our schools to ~~changing~~comply ~~market~~fully ~~conditions~~with Title IV program requirements. For example, President Obama has introduced a budget proposal and ~~placing~~a committee usin atthe U.S. House of Representatives has approved a ~~competitive~~bill ~~disadvantage~~that ~~compared~~would require all new federal student loans after July 1, 2010 to ~~our~~be ~~competitors~~made ~~who~~through ~~are~~the ~~less~~Direct ~~highly~~Loan ~~leveraged~~program. As of June 30, 2009, only Brown Mackie College — Tucson and The Art Institute of Tucson actively participate in the Direct Loan program.

~~We and our subsidiaries may be able to incur~~ substantial additional indebtedness in the future, subject to the restrictions contained in our senior secured credit facilities and the indentures governing the notes. If new indebtedness is added to our current debt levels, the related risks that we Other Financial ~~now~~Assistance ~~face could intensify.~~ Sources

~~Our~~ Students ~~debt~~at ~~agreements~~several ~~contain~~of ~~restrictions~~our ~~that~~U.S. schools participate in ~~limit~~ state aid programs. In addition, certain students at some of our U.S. schools ~~flexibility~~receive financial aid provided by the U.S. Department of Veterans Affairs, the U.S. Department of the Interior (Bureau of Indian Affairs) and the Rehabilitative Services Administration of the U.S. Department of Education (vocational rehabilitation funding). Effective August 1, 2009, the Post 9/11 Veterans Educational Assistance Act of 2008 will provide additional educational funding to eligible veterans who served in ~~operating~~the U.S. military. ~~our~~Our ~~business~~schools also provide institutional grants and scholarships to qualified students. In fiscal 2009, institutional scholarships had a value equal to approximately 3% of our net revenues.

~~Our~~ ~~senior~~ There ~~secured~~are ~~credit~~private ~~facilities~~supplemental loan programs available to our students, and ~~the~~those ~~indentures~~programs ~~governing~~allow ~~the~~students ~~notes~~to ~~contain~~repay ~~various~~a ~~covenants~~portion of ~~that~~their ~~limit~~loans ~~our~~after ~~ability~~graduation and make loans available to students ~~engage~~with inlower ~~specified~~than ~~types~~average credit ratings. The primary objective of ~~transactions~~these loan programs is to facilitate funding which students can use to pay a portion of their tuition and fees that they are unable to pay through personal resources or government-backed loan programs. ~~These~~Such ~~covenants~~loans ~~limit~~are without recourse to us or our schools, except for repurchase obligations under the Education Finance Loan program that we introduced in August 2008. Revenues derived indirectly from private loans to students at our schools, excluding loans under the Education Finance Loan program, represented approximately 13.1% and 22.3% of our ~~restricted~~net revenues ~~subsidiaries’~~in ~~ability~~fiscal to2009 and 2008, ~~among~~respectively. During fiscal ~~other~~ 2009, ~~things:~~loans under the Education Finance Loan program represented approximately 1.0% of our net revenues.

• Approximately ~~incur~~79% ~~additional~~of ~~indebtedness~~the private loans in fiscal 2009 were offered by SLM Corporation (“Sallie Mae”) and its affiliates and serviced by its affiliated loan servicer. During fiscal 2009, adverse market conditions for consumer student loans have resulted in providers of private loans reducing the attractiveness and/or decreasing ~~issue~~the availability of private loans to post-secondary students, including students with low credit scores who would not otherwise be eligible for credit-based private loans. In order to provide student loans to certain ~~preferred~~of ~~shares;~~our students

• pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;

• make certain investments;

• 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 our affiliates.

In addition, under the senior secured credit agreement, we are required to satisfy and maintain specified financial ratios and other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet those ratios and tests. A breach of any of these covenants could result in a default under the senior secured credit agreement. Upon the occurrence of an event of default under the senior secured credit agreement, the lenders could elect to declare all amounts outstanding under the senior secured credit agreement to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under the senior secured credit facilities could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under the senior secured credit agreement. If the lenders under the senior secured credit agreement accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay our indebtedness under the senior secured credit facilities, as well as our unsecured indebtedness.

Opening additional new schools and growing our online student programs could be difficult for us.

We anticipate continuing to open new schools in the future. Establishing new schools poses unique challenges and requires us to make investments in management, capital expenditures, marketing expenses and other resources. When opening a new school, we are required to obtain appropriate state or provincial and accrediting agency approvals. In addition, to be eligible for federal student financial aid programs, a school has to be certified by the U.S. Department of Education. Our failure to effectively manage the operations of newly established schools or service areas, or any diversion of management’s attention from our core school operating activities, could harm our business.

We anticipate significant future growth from online courses we offer to students. As of June 30, 2007, we offer fully online programs at The Art Institute Online, a division of The Art Institute of Pittsburgh, Argosy

~~University~~ who ~~and~~do ~~South~~not ~~University.~~satisfy Wethe ~~plan to continue to roll out~~ new ~~online~~standard ~~programs~~underwriting, atwe ~~these~~pay ~~schools~~credit enhancement infees ~~the~~to ~~future.~~certain ~~Further,~~lenders ~~the~~(including ~~success~~Sallie ofMae) ~~any new online~~based ~~programs~~ on ~~and~~the ~~classes~~principal ~~depends~~balance inof ~~part~~each onloan ~~our~~disbursed ~~ability~~by ~~to expand~~ the ~~content~~lender. An ofagreement ~~our~~we ~~programs,~~entered ~~develop~~into ~~new~~with ~~programs~~Sallie inMae ato ~~cost-effective~~provide ~~manner,~~loans ~~and~~to certain ~~meet the needs of our~~ students inwho received a ~~timely~~private ~~manner.~~loan ~~The~~from ~~expansion~~Sallie ofMae prior ~~our~~to ~~existing online programs~~April 17, ~~the creation~~2008 ~~of new online classes~~ and ~~the~~are ~~development~~continuing oftheir ~~new~~education but ~~online~~who ~~programs~~do ~~may~~ not besatisfy ~~accepted~~Sallie byMae’s ~~students~~current orstandard underwriting ~~the~~criteria ~~online~~expires ~~education~~in ~~market.~~June 2010.

The ~~development~~Education ofFinance ~~new~~Loan ~~programs~~program ~~and~~enables ~~classes,~~students ~~both~~who ~~conventional~~have exhausted ~~and~~all ~~online,~~available isgovernment-sponsored ~~subject~~or toother ~~requirements~~aid and have ~~limitations~~been ~~imposed~~denied bya ~~the~~private ~~U.S.~~loan ~~Department~~to ~~of Education,~~borrow ~~the~~a ~~state~~portion ~~licensing~~of ~~agencies~~their tuition and ~~the~~other ~~accrediting~~educational ~~bodies~~expenses. ~~Such~~Students ~~requirements~~or ~~and~~a co-borrower ~~limitations~~must ~~may~~meet orcertain ~~may~~eligibility ~~not~~and beunderwriting criteria. ~~related~~Under to the ~~Transaction.~~program, ~~The~~we ~~imposition~~purchase ofloans ~~restrictions~~made onby ~~the~~a ~~initiation~~private lender ofto ~~new~~students ~~educational~~who ~~programs~~attend byour ~~any~~schools. ofWe ~~our~~estimate ~~regulatory~~that ~~agencies~~ additional asdisbursements aunder ~~result~~this ofprogram ~~the~~during ~~Transaction~~fiscal ~~may~~2010 will ~~delay~~be ~~such~~approximately ~~expansion plans~~$75 million.

~~Our~~ ~~success depends, in part, on the effectiveness~~ Availability of ~~our marketing and advertising programs in recruiting new students.~~ Lenders

In While ~~order~~students toattending ~~maintain and increase~~ our ~~revenues~~U.S. schools ~~and~~may ~~margins,~~choose weany private ~~must~~provider ~~continue~~of tofederally ~~attract~~guaranteed ~~new~~student loans, students use in a ~~cost-effective~~limited ~~manner.~~number ~~Over~~of ~~the~~lending ~~last~~institutions ~~several fiscal~~to ~~years,~~obtain wetheir federally ~~have~~guaranteed ~~increased~~loans ~~the~~to ~~amounts~~help ~~spent~~pay ontheir ~~marketing~~direct ~~and~~costs ~~advertising, and we anticipate this trend will continue~~of attendance. IfWhile we ~~are~~believe ~~unable~~that toother ~~successfully~~lenders ~~advertise~~or ~~and~~the ~~market~~Direct Loan ~~our~~program ~~schools~~would ~~and~~be ~~programs,~~willing ~~our ability~~ to ~~attract~~make ~~and~~federally ~~enroll new~~guaranteed ~~students~~ student ~~could~~loans beto ~~adversely impacted and, consequently,~~ our ~~financial~~students ~~performance~~if ~~could~~federally ~~suffer.~~guaranteed Weloans ~~use~~were no ~~marketing~~longer ~~tools~~available ~~such~~from asour ~~the~~current ~~Internet~~lenders, ~~radio,~~there ~~television~~can ~~and~~be ~~print media advertising to promote our schools and programs. Our representatives also~~no ~~make~~ assurances ~~presentations~~in atthis ~~high schools to promote The Art Institutes~~regard. ~~Additionally~~In addition, wethe ~~rely~~HEA onrequires the establishment ~~general~~of ~~reputation~~lenders of ~~our~~last ~~schools~~resort ~~and~~in ~~referrals~~every ~~from~~state ~~current~~to ~~students,~~ensure that ~~alumni~~loans ~~and~~are ~~employers~~available asto ~~a source of new~~ students. ~~Among~~at ~~the~~any ~~factors~~school that ~~could~~cannot ~~prevent~~ otherwise usidentify ~~from~~lenders ~~successfully~~willing ~~marketing and advertising our schools and programs are the failure of our marketing tools and strategy~~ to ~~appeal~~make tofederally ~~prospective students, current student and/or employer dissatisfaction with our program offerings and~~guaranteed ~~diminished~~ loans ~~access~~ to ~~high~~its ~~school campuses~~students.

~~Failure~~ We toestimate ~~keep~~that ~~pace~~four ~~with~~student loan guaranty agencies guaranteed ~~changing~~ over ~~market~~90% ~~needs~~of ~~and~~all ~~technology~~federally ~~could~~guaranteed ~~harm~~student loans made to students enrolled at our ~~student~~U.S. schools ~~population~~during fiscal 2009. We believe that other guaranty agencies would be willing to guarantee federal loans to our students if any of the current agencies ceased guaranteeing those loans or reduced the volume of loans they guarantee, although there can be no assurances in this regard.

~~The~~ Federal Oversight ~~success~~ of ~~our~~Title IV ~~schools depends to a large extent on the willingness of prospective employers to employ our students upon graduation. Our schools must keep current with changing technological needs and skills~~Programs demanded by prospective employers. If we fail to respond to changes in industry requirements by offering new programs to our students or investing in new technology, it could have a material adverse effect on our ability to attract students.

Our ~~success~~U.S. schools ~~depends~~are ~~upon~~subject ~~our~~to ~~ability~~audits or program compliance reviews by various external agencies, including the U.S. Department of Education, its Office of Inspector General and state, guaranty and accrediting agencies. The HEA and its implementing regulations also require that an institution’s administration of Title IV program funds be audited annually by an independent accounting firm. If the U.S. Department of Education or another regulatory agency determines that an institution has improperly disbursed Title IV or state program funds or violated a provision of the HEA or state law or their implementing regulations, the affected institution may be required to ~~recruit~~repay such funds to the U.S. Department of Education or the appropriate state agency or lender and ~~retain~~may ~~key~~be ~~personnel~~assessed an administrative fine and be subject to other sanctions. Although we endeavor to comply with all federal and state laws and implementing regulations, we cannot guarantee that our interpretation of the relevant rules will be upheld by the U.S. Department of Education or other agencies, or upon judicial review.

~~Our~~ If ~~success~~the ~~also~~U.S. Department ~~depends,~~of inEducation ~~large~~is ~~part,~~dissatisfied ~~upon~~with ~~our ability~~an to institution’s ~~attract~~administration ~~and~~of ~~retain~~Title IV ~~highly~~programs, ~~qualified~~it can ~~faculty~~transfer, ~~school~~without ~~presidents~~prior ~~and~~notice ~~administrators~~or ~~and~~judicial ~~corporate~~review, ~~management.~~the institution Wefrom ~~may~~the ~~have~~advance ~~difficulty~~system ~~locating~~of ~~and~~receiving ~~hiring~~Title IV program ~~qualified~~funds ~~personnel,~~to ~~and~~the ~~retaining~~cash ~~such~~monitoring ~~personnel~~or ~~once~~reimbursement ~~hired.~~method ~~The loss~~ of payment, ~~the~~under ~~services~~which ofa ~~any of~~school ~~our~~may ~~key~~have ~~personnel,~~to oradvance ~~our~~its ~~failure~~own funds to ~~attract~~students and ~~retain~~provide ~~other~~documentation ~~qualified~~to ~~and~~the U.S. Department ~~experienced~~of ~~personnel~~Education onthat ~~acceptable~~the ~~terms~~funds ~~could~~were ~~cause~~properly disbursed ~~our~~prior ~~business~~ to ~~suffer.~~receiving reimbursement from Title IV programs.

We Violations ~~have~~or ~~experienced~~alleged ~~recent~~violations ~~changes~~of inTitle IV ~~our~~program requirements ~~executive~~also ~~management.~~could Insubject ~~June~~us ~~2006,~~to ~~Robert~~other T.civil ~~McDowell~~and ~~retired~~criminal proceedings asand ~~our~~sanctions, ~~Chief~~suits ~~Financial~~under ~~Officer~~the ~~and~~federal J.False ~~William~~Claims ~~Brooks~~ Act, ~~formerly~~limitations on our ~~President~~operations and ~~Chief~~ability ~~Operating~~to ~~Officer~~open new locations, ~~resigned~~or ~~from~~administrative ~~the~~proceedings ~~Company.~~to ~~Edward~~impose H.fines ~~West~~or limit, ~~was~~suspend ~~appointed~~or terminate our ~~new~~eligibility ~~Chief~~for ~~Financial~~participation ~~Officer~~ in Title IV ~~June~~programs. ~~2006~~The U.S. Department Inof ~~February~~Education also ~~2007,~~may ~~John~~initiate R.an ~~McKernan,~~emergency ~~Jr.,~~action ~~formerly~~to ~~our~~temporarily ~~Chief~~suspend ~~Executive~~an institution’s ~~Officer,~~participation ~~was~~in Title IV programs ~~appointed~~ without ~~Executive~~advance ~~Chairman~~notice ~~and~~if ~~Todd~~it S.determines ~~Nelson~~that ~~was~~a ~~appointed~~regulatory violation ~~our~~creates ~~Chief~~an ~~Executive~~imminent ~~Officer~~risk ~~and~~of ~~President.~~material loss of public funds.

~~Failure~~ institutions towould ~~obtain~~not ~~additional~~be ~~capital~~approved inas a result of such review. In any event, if an accreditation agency is not approved by the U.S. Department ~~future~~of ~~could~~Education, ~~reduce~~the ~~our~~HEA ~~ability~~grants affected institutions reasonable opportunity to ~~grow.~~apply for accreditation from a different agency.

We Cohort ~~believe~~Default ~~that~~Rates. If ~~funds~~an ~~from~~institution’s FFEL/Direct ~~operations,~~Loan ~~cash,~~cohort ~~investments~~default ~~and~~rate ~~borrowings~~equals or exceeds 25% for ~~under~~ each ~~our~~of ~~revolving~~the ~~credit~~three ~~facility~~most recent federal fiscal years, it no longer will be ~~adequate~~eligible to ~~fund~~participate ~~our~~in ~~current~~the ~~operating~~FFEL/Direct ~~plans~~Loan and Pell programs for the ~~foreseeable~~remainder ~~future~~of the federal fiscal year in which the U.S. Department ~~However,~~of weEducation ~~may~~determines ~~need~~that ~~additional~~such institution ~~debt~~has orlost ~~equity~~its ~~financing~~eligibility inand ~~order~~for tothe ~~finance~~two ~~our~~subsequent federal ~~continued~~fiscal ~~growth~~years. ~~The~~If ~~amount~~an ~~and~~institution’s ~~timing~~FFEL/Direct ofLoan cohort ~~such~~default rate exceeds 40% for any single fiscal year, it ~~additional~~ no ~~financing~~longer will ~~vary~~be ~~principally~~eligible ~~depending~~to onparticipate in the ~~timing~~FFEL and ~~size~~Direct Loan programs for the remainder of ~~acquisitions~~the ~~and~~federal ~~new~~fiscal ~~school~~year ~~openings,~~in which the ~~sellers’~~U.S. Department ~~willingness~~of toEducation ~~provide~~determines ~~financing~~that ~~for~~such institution ~~acquisitions,~~has lost its eligibility and for the ~~amount~~two ofsubsequent federal ~~cash~~fiscal ~~flow~~years. ~~from~~If, ~~our~~at ~~operations.~~any Togiven point, an institution’s Perkins cohort default rate equals or exceeds 50% for each of the ~~extent~~three most recent federal fiscal years it no ~~that~~ longer wewill ~~require~~be ~~additional~~eligible ~~financing~~to participate in the ~~future~~Perkins ~~and~~programs for ~~are~~the ~~unable~~remainder toof ~~obtain~~the ~~such~~federal ~~additional~~fiscal ~~financing~~year, wein ~~may~~which ~~not~~the U.S. Department beof ~~able~~Education todetermines ~~fully~~that ~~implement~~such institution ~~our~~has ~~growth~~lost ~~strategy.~~its eligibility and for the two subsequent federal fiscal years.

~~Competitors~~ None ~~with~~of our schools has had an FFEL/Direct cohort default rate of 25% or greater ~~resources~~for ~~could~~any ~~harm~~of the last three consecutive federal fiscal years. The most recent year for which FFEL/Direct cohort default rates have been calculated is federal fiscal year 2006. The official weighted average combined FFEL/Direct cohort default rate for borrowers at our ~~business~~schools for federal fiscal year 2006 was 5.4%, and our individual schools’ rates ranged from 1.0% to 11.3%. The draft weighted average combined FFEL/Direct cohort default rates for borrowers at our schools for fiscal 2007, which will be finalized in September 2009, was 8.1% and our individual schools’ rates ranged from 1.7% to 14.4%.

~~The~~ Under ~~post-secondary~~the ~~education~~recently ~~market~~enacted isHEA ~~highly~~reauthorization, ~~fragmented~~an institution’s ~~and~~cohort ~~competitive.~~default ~~Our~~rate ~~schools~~for ~~compete~~the ~~for~~2009 federal fiscal year, as well as subsequent federal fiscal years, will be based on the rate at which its former students ~~with~~who ~~traditional~~enter ~~public~~ repayment ~~and~~during ~~private~~the ~~two-~~year ~~and~~default ~~four-year~~on ~~colleges~~their FFEL and ~~universities~~Direct ~~and~~loans on ~~other~~or ~~proprietary~~before ~~schools,~~the ~~including~~end ~~those~~of ~~that~~the ~~offer~~second ~~online~~year ~~learning~~following ~~programs.~~the ~~Many~~year ~~public~~in which ~~and~~they ~~private~~entered ~~colleges~~repayment. ~~and~~The ~~universities,~~2009 ascohort ~~well~~default asrate ~~other~~will include ~~private~~students ~~career-oriented~~who enter repayment between October 1, ~~schools~~ 2008 and September 30, ~~offer~~2009 ~~programs~~and ~~similar~~who todefault ~~those~~on weor ~~offer~~before September 30, 2011. ~~Public~~As ~~institutions~~a ~~receive~~result ~~substantial~~of ~~government~~the ~~subsidies~~extended default period, ~~and~~most ~~public~~institutions’ ~~and~~respective ~~private~~cohort ~~institutions~~default ~~have~~rates are ~~access~~expected to ~~government~~materially ~~and~~increase ~~foundation~~when ~~grants,~~rates ~~tax-deductible~~based ~~contributions~~upon ~~and other financial~~the ~~resources~~ new ~~generally~~calculation ~~not~~method ~~available~~first toare ~~proprietary~~published ~~schools.~~after ~~Accordingly~~October 1, 2011. ~~public~~The ~~and~~recently ~~private~~enacted ~~institutions~~HEA ~~may~~reauthorization ~~have~~provides ~~instructional~~some relief ~~and~~from ~~support~~the ~~resources~~anticipated ~~superior~~increase toin ~~those~~cohort indefault rates by increasing the ~~proprietary~~default ~~sector~~rate threshold from 25% to 30% effective October 1, 2011 and ~~public~~by ~~institutions~~requiring ~~can~~that ~~offer~~the ~~substantially~~rate ~~lower~~as ~~tuition~~ calculated ~~prices.~~under ~~Some~~the ofold ~~our~~methodology ~~competitors~~will inbe ~~both~~used ~~the~~in ~~public~~determining sanctions ~~and~~associated ~~private~~with ~~sectors~~high ~~also~~cohort ~~have~~default ~~substantially~~rates ~~greater~~until ~~financial~~the federal ~~and~~fiscal ~~other~~year ~~resources~~beginning ~~than~~October 1, ~~we do~~2013.

~~Failure~~ If an institution’s FFEL/Direct cohort default rate equals or exceeds 25% in any of the three most recent federal fiscal years, or if its cohort default rate for loans under the Perkins program exceeds 15% for the most recent federal award year (July 1 through June 30), that institution may be placed on provisional certification status for up to ~~effectively~~three ~~manage~~years. Provisional ~~our~~certification ~~growth~~by ~~could~~itself ~~harm~~does ~~our~~not ~~business~~limit an institution’s access to Title IV program funds but does subject that institution to closer review by the U.S. Department of Education and possible summary adverse action if that institution commits a material violation of Title IV program requirements.

~~Our~~ To ~~business~~our ~~has~~knowledge, ~~grown~~the ~~rapidly~~U.S. Department ~~Our~~of ~~continued~~Education considers ~~rapid~~provisional ~~growth~~certification ~~may~~based ~~place~~on aan institution’s ~~strain~~exceeding onthe ~~our~~cohort ~~management,~~default ~~operations,~~rate ~~employees,~~thresholds described orin ~~resources.~~the Weprevious ~~may~~paragraph ~~not~~only bewhen ~~able~~that institution is otherwise subject to ~~maintain~~a orU.S. Department ~~accelerate~~of ~~our~~Education renewal ~~current~~of ~~growth~~certification ~~rate~~review. As of June 30, ~~effectively~~2009, ~~manage~~22 of our ~~expanding~~schools ~~operations,~~had orPerkins ~~achieve~~cohort ~~planned~~default ~~growth~~rates onin aexcess ~~timely~~of or15% for ~~profitable~~students ~~basis.~~who Ifwere weto ~~are~~begin ~~unable~~repayment toduring ~~manage~~the ~~our~~federal award ~~growth~~year ~~effectively~~ended June 30, we2008, ~~may~~the ~~experience~~most ~~operating~~recent ~~inefficiencies,~~year for ~~and~~ which ~~our~~such ~~net~~rates ~~income~~have ~~may~~been becalculated. ~~materially~~Funds ~~adversely~~from ~~affected~~the Perkins program did not exceed 3% of these schools’ respective net revenues in fiscal 2009. None of these schools has been placed on provisional certification for this reason.

~~Failure~~ Each of our schools whose students participate in the FFEL/Direct program maintains a student loan default management plan if its default rate equals or exceeds 5%. Those plans provide for extensive loan counseling, methods to increase ~~integrate~~ student ~~acquired~~persistence and completion rates and graduate employment rates, strategies to increase graduate salaries and, for most schools, ~~could~~the ~~harm~~use ~~our~~of ~~business~~external agencies to assist the school with loan counseling and loan servicing after a student ceases to attend that school. These activities are in addition to the loan servicing and

From time to time, we engage in evaluations of, and discussions with, possible acquisition candidates. We may not continue to be able to identify suitable acquisition opportunities or to acquire any such schools on favorable terms. Additionally, we may not be able to successfully integrate any acquired schools into our operations profitably. Continued growth through acquisition may also subject us to unanticipated business or regulatory uncertainties, barriers or liabilities. Acquired schools may not enhance our business and, if we do not successfully address associated risks and uncertainties, may ultimately have a material adverse effect on our growth and ability to compete.

In the event we decide to acquire an institution, the U.S. Department of Education and most applicable state authorizing and accrediting agencies would consider that a change of ownership or control of the institution has occurred. A change of ownership or control of an institution under the standards of the U.S. Department of Education may result in the imposition of requirements for the posting of a letter of credit in favor of the U.S. Department of Education. It may also result in the imposition of limitations on the growth of the institution and could result in the temporary suspension of the institution’s participation in the federal student financial aid programs until the U.S. Department of Education issues a temporary certification document. State authorizing agencies and accrediting agencies may likewise impose restrictions or deny or delay approval of an acquisition. If we were unable to promptly reestablish the state authorization, accreditation or U.S. Department of Education certification of an institution we acquired, depending on the size of the acquisition, that failure could have a material adverse effect on our business.

We collection ~~may~~activities beof ~~unable~~FFEL/Direct tolenders ~~operate~~and ~~one~~guaranty agencies. orThe ~~more~~historical default rates experienced by Argosy University and Western State University College of ~~our~~Law have been relatively low, and therefore these schools ~~due~~have toengaged ain significantly ~~natural~~fewer ~~disaster.~~default management activities.

A Regulatory ~~number~~Oversight. The U.S. Department of ~~our~~Education ~~schools~~is ~~are~~required ~~located~~to inconduct ~~Florida~~periodic ~~and~~reviews ~~elsewhere in the~~to ~~Southeastern~~ determine ~~United~~whether ~~States.~~to Werenew ~~also~~the ~~have~~eligibility aand ~~number~~certification of every ~~schools~~institution ~~located~~participating in ~~southern~~Title IV ~~California~~programs. Generally ~~One~~such orreviews ~~more~~occur ofevery ~~these~~six ~~schools~~years, ~~may~~although beit typically ~~unable~~occurs toafter ~~operate~~three years for an ~~extended~~institution ~~period~~on provisional ofcertification. ~~time~~A indenial ~~the~~of ~~event~~renewal of certification precludes a ~~hurricane,~~school ~~earthquake~~from orcontinuing ~~other~~to ~~natural~~participate ~~disaster which~~in ~~does~~ Title IV ~~substantial~~programs. ~~damage~~Currently toall ~~the~~of ~~area~~our inschools ~~which~~are operating under a ~~school~~Provisional isProgram ~~located.~~Participation ~~The~~Agreement with ~~failure~~the ofU.S. Department ~~one or more~~ of ~~our~~Education ~~schools~~due to ~~operate~~the ~~for~~change aof control ~~substantial period~~ of ~~time~~the ~~could~~Company ~~have~~which aoccurred ~~material~~in ~~adverse~~connection ~~effect~~with ~~on our results of operations~~the Transaction.

Financial Responsibility Standards. Education institutions participating in Title IV programs must satisfy a series of specific standards of financial responsibility. The ~~Sponsors~~U.S. Department of Education has adopted standards to determine an institution’s financial responsibility to participate in Title IV programs. The regulations establish three ratios: (i) the equity ratio, intended ~~acting~~to ~~collectively~~measure an institution’s capital resources, ability ~~have~~to borrow and financial viability; (ii) the ~~right~~primary reserve ratio, intended to ~~control~~measure usan institution’s ability to support current operations from expendable resources; and (iii) the net income ratio, intended to measure an institution’s profitability. Each ratio is calculated separately, based on the figures in the institution’s most recent annual audited financial statements, and then weighted and combined to arrive at a single composite score. The composite score must be at least 1.5 in order for the institution to be deemed financially responsible without conditions or additional oversight. If an institution fails to meet any of these requirements, the U.S. Department of Education may ~~have~~set ~~conflicts~~restrictions on the institution’s eligibility to participate in Title IV programs. Institutions are evaluated for compliance with these requirements as part of the U.S. Department of ~~interest~~ Education’s renewal of certification process and also annually as each institution submits its audited financial statements to the U.S. Department of Education. Following the Transaction, the U.S. Department of Education separately considered our and our schools’ compliance with the usfinancial orresponsibility ~~you~~requirements inat our consolidated level. Our financial statements did not satisfy the financial responsibility standards for fiscal 2009 on a consolidated basis and will not for the foreseeable future. We are required by the U.S. Department of Education to post a letter of credit and are subject to provisional certification and additional financial and cash monitoring of our disbursements of Title IV funds due to our failure on a consolidated basis to satisfy the financial responsibility standards after the completion of the Transaction resulting from the amount of debt we incurred to complete the Transaction. The amount of this letter of credit is currently set at 10% of the Title IV program funds received by students at our schools during the prior fiscal year. As a result, we posted an $87.9 million letter of credit in October 2006. Due to increases in the aggregate amount of Title IV funds received by our students, we currently post a $120.5 million letter of credit with the U.S. Department of Education. The letter of credit, provisional certification and financial and heightened cash monitoring will be in effect until at least June 2010 and are likely to continue beyond that date. The implementation of heightened cash monitoring has not materially impacted our cash flows from operations.

~~Investment~~ Return ~~funds~~of Title IV Funds. Institutions ~~associated~~ that ~~with~~receive orTitle IV ~~designated~~funds bymust follow requirements that ensure the ~~Sponsors~~return ~~collectively~~to ~~own~~the ~~approximately~~federal ~~78.2%~~student financial aid programs of ~~our~~all ~~capital~~unearned ~~stock.~~funds ~~While~~of ~~the~~a ~~Sponsors~~student who withdraws from a program. If refunds are not ~~under~~properly ~~common~~calculated ~~control~~and timely paid, institutions ~~either~~are ~~directly~~subject orto ~~indirectly,~~adverse ~~were~~actions by the U.S. Department ~~Sponsors~~of toEducation. ~~act~~We ~~collectively~~posted ~~they~~a ~~would~~letter ~~have~~of ~~control~~credit ~~over~~ for three of our ~~decisions~~schools tobecause ~~enter~~our ~~into~~fiscal ~~any~~2008 ~~corporate~~independent audit ~~transaction~~indicated ~~and~~that ~~have~~such ~~the~~schools ~~ability~~had toexceeded ~~prevent~~federal thresholds ~~any~~for ~~transaction~~allowable ~~that~~number ~~requires~~of ~~the~~late ~~approval~~refunds during at least one of ~~stockholders.~~its ~~For~~two ~~example,~~most ~~the~~recent ~~Sponsors~~fiscal ~~could~~years. ~~collectively~~Our ~~cause~~independent usaudits for tofiscal ~~make~~2009 ~~acquisitions~~are ~~that~~currently ~~increase~~in ~~the amount~~process. ofWe ~~indebtedness~~have ~~that~~instituted practices isand ~~secured~~procedures orat ~~that~~recently isacquired ~~senior~~schools to expedite ~~the~~refunds ~~senior~~of ~~subordinated~~federal ~~notes~~program orfunds, toincluding ~~sell~~payment ~~assets.~~of refunds by electronic fund transfers.

~~Additionally,~~ Administrative ~~the~~Capability Requirements. Regulations ~~Sponsors~~of ~~are in~~ the U.S. Department ~~business~~ of ~~making~~Education ~~investments~~specify inextensive ~~companies~~criteria ~~and~~an institution ~~may~~must ~~from~~satisfy ~~time~~ to ~~time~~establish ~~acquire~~that ~~and~~it ~~hold~~has ~~interests~~the ~~in businesses that~~requisite ~~compete~~ “administrative ~~directly~~capability” orto ~~indirectly~~participate ~~with~~in Title IV usprograms. ~~One~~These orcriteria ~~more~~require, ofamong ~~the~~other things, ~~Sponsors may also pursue acquisition opportunities~~ that ~~may~~the beinstitution ~~complementary~~comply towith ~~our~~all ~~business~~applicable ~~and,~~federal student asfinancial aaid ~~result~~regulations, ~~those~~have ~~acquisition~~capable ~~opportunities~~and ~~may~~sufficient personnel ~~not be available~~ to ~~us.~~administer SoTitle IV ~~long~~programs, ashave acceptable ~~investment~~ methods ~~funds~~of ~~associated~~defining ~~with~~and ormeasuring ~~designated by~~ the ~~Sponsors~~satisfactory ~~collectively~~academic progress ~~continue~~of toits ~~own~~students, ~~directly~~provide orfinancial ~~indirectly,~~aid acounseling ~~significant~~to its ~~amount~~students ofand ~~the~~submit ~~outstanding~~all ~~shares~~reports ofand ~~our~~financial ~~common~~statements required ~~stock,~~by the ~~Sponsors~~regulations. ~~will~~If ~~collectively continue to be able to strongly~~an ~~influence or effectively control our decisions.~~

Failure of our schools to comply with extensive regulations could result in financial penalties, restrictions on our operations, or loss of external financial aid funding for our students.

Approximately 70% of our net revenues in fiscal 2005, 2006 and 2007 were derived from federal student financial aid programs pursuant to Title IV of the Higher Education Act of 1965, as amended (“Title IV programs”). Our participation in the Title IV programs is subject to certification and oversight by the U.S. Department of Education and is further conditioned by approvals granted by other agencies as well as subject to independent certification by the U.S. Department of Education. Each of our schools must also obtain and maintain approval to enroll students, offer instruction and grant credentials from the state oversight agency in the state in which the school is located. Such approval is also a precondition to the ability of our students to participate in the Title IV programs. Participation in the Title IV programs also requires each school to be accredited by an accrediting agency recognized by the U.S. Department of Education as a reliable authority on institutional quality and integrity. Accreditation is, in turn, conditioned on each school maintaining applicable state authorization. Our schools must also comply with the requirements of any loan guarantee agencies which guarantee certain federal student loans made to our schools’ students, the requirements of such state grant programs as may be available to our students, and the requirements of specialized accrediting agencies which oversee institutional quality in particular program areas. As a result, our schools are subject to extensive regulation and review by these agencies which cover virtually all phases of our operations. These regulations also affect our ability to acquire or open additional schools, add new educational programs or substantially change existing programs, or change our corporate or ownership structure. The agencies that regulate our operations periodically revise their requirements and modify their interpretations of existing requirements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Regulations.”

If one of our schools were to violate or fail to meet any of these regulatory requirements, we could suffer financial penalty, limitations on our operating activities or termination of the school’s ability to grant degrees and certificates or the school’s eligibility to receive federal student financial aid funds on behalf of its students. A significant portion of our students rely on federal student financial aid funds to finance their education. We cannot predict with certainty how all of these requirements will be applied or interpreted by a regulatory body, or whether each of our schools will be able to comply with all of the requirements in the future.

~~Congress~~ institution ~~may~~fails ~~change~~to satisfy any of these criteria, the U.S. Department ~~law~~of orEducation ~~reduce~~may ~~funding~~require ~~for~~the repayment of federal student financial aid ~~programs~~funds, ~~which~~transfer ~~could~~the ~~harm~~institution from ~~our~~the ~~student~~advance system of payment of Title IV program ~~population~~ funds ~~and~~to ~~revenue.~~the cash monitoring or reimbursement method of payment, 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.

~~Political~~ Restrictions ~~and~~on ~~budgetary~~Operating ~~concerns~~Additional ~~can~~ Schools. The ~~significantly~~HEA ~~affect~~generally ~~the~~requires ~~Title~~that IVcertain educational ~~programs~~institutions ~~and~~be ~~other~~in ~~laws~~full ~~governing~~operation ~~the~~for ~~federal~~two ~~student~~years before ~~financial~~applying ~~aid~~to ~~programs.~~participate ~~The~~in Title IV programs. However, ~~are~~under ~~made~~the ~~available~~HEA ~~pursuant~~and applicable regulations, an institution that is certified to ~~the~~participate ~~provisions~~in ofTitle IV programs ~~the~~may ~~Higher~~establish ~~Education~~an ~~Act~~additional oflocation ~~1965,~~and asapply ~~amended~~to ~~(“HEA”),~~ participate ~~and~~in ~~the~~Title IV ~~HEA~~programs ~~must~~at bethat ~~reauthorized~~location bywithout reference to the ~~Congress~~two-year ~~approximately~~requirement ~~every~~if ~~six~~such ~~years.~~additional location ~~Independent~~satisfies ofall ~~reauthorization,~~other ~~Congress~~applicable ~~must~~requirements. ~~annually~~In addition, ~~appropriate~~a ~~funds~~school tothat ~~fund~~undergoes ~~the~~a ~~Title~~change IVof ~~programs.~~ownership resulting ~~The~~in ~~last~~a ~~reauthorization~~change of control (as defined under the HEA) ~~occurred~~must in be ~~1998.~~reviewed ~~Reauthorization~~and ~~may~~recertified ~~result~~for participation in ~~numerous~~Title IV programs ~~legislative~~under ~~changes,~~its ~~including~~new ~~funding reductions~~ownership. ~~Congress~~All ~~may~~of ~~also~~our ~~impose~~schools ~~certain~~are currently ~~requirements~~provisionally ~~upon~~certified due to the ~~state~~Transaction. orDuring the ~~accrediting~~time ~~agencies~~when ~~respecting~~a ~~their~~school ~~approval~~is ofprovisionally ~~our~~certified, ~~schools.~~it ~~Any~~may be subject to summary adverse action byfor ~~Congress~~a material violation of ~~that~~ Title IV ~~significantly~~program ~~reduces~~requirements ~~funding~~and ~~for~~may ~~the~~not ~~federal~~establish additional ~~student~~locations ~~financial~~without ~~aid~~prior ~~programs~~approval orfrom the U.S. Department ~~ability~~ of ~~our~~Education. ~~schools~~However, orprovisional certification ~~students~~does tonot ~~participate~~otherwise inlimit ~~these~~an ~~programs~~institution’s access ~~would~~to ~~have~~Title IV aprogram ~~material~~funds. ~~adverse~~Our ~~effect~~expansion plans are based, in part, on our ~~student~~ability ~~population~~to add additional locations and acquire ~~revenue~~schools that can be recertified. ~~Legislative~~The ~~action~~ U.S. Department ~~may~~of ~~also~~Education ~~increase~~has ~~our~~informed ~~administrative~~us ~~costs~~that ~~and~~it ~~require~~will not usseek to ~~modify~~impose ~~our~~growth ~~practices~~restrictions inon ~~order~~any ~~for~~of our schools toas a ~~comply~~result ~~fully~~of ~~with~~the ~~applicable requirements~~Transaction.

~~During~~ The “90/10 Rule”. Under a provision of the ~~September~~HEA ~~2007~~commonly ~~budget~~referred ~~reconciliation~~to ~~process~~as the “90/10 Rule”, an ~~Congress~~institution ~~passed~~will ~~legislation~~cease ~~which~~to be eligible to participate in Title IV programs if, ~~among~~on ~~other~~a ~~things~~cash accounting basis, ~~decreases~~more ~~private~~than 90% ~~lender~~of ~~and~~its ~~guaranty~~revenues for each of two consecutive fiscal years ~~agency~~ were ~~yields~~derived from Title IV programs. If an institution loses its Title IV eligibility under the 90/10 Rule, it may not reapply for ~~participation~~eligibility inuntil the ~~FFEL~~end ~~program~~of two fiscal years. Institutions which fail to satisfy the 90/10 Rule for one fiscal year are placed on provisional certification. For our schools that disbursed federal financial aid during fiscal 2009, ~~decreases~~the percentage ~~student~~of ~~interest~~revenues ~~rates~~derived from Title IV programs on ~~Stafford~~a cash ~~loans~~accounting basis ranged from approximately 55% to 86%, with a weighted average of approximately 70% as compared to a weighted average of approximately 65% in fiscal 2008. We anticipate that our 90/10 rates will continue to increase in fiscal 2010 due to recent increases in grants from the Pell program and other Title IV loan limits, ~~repayment~~coupled ~~obligations~~with decreases ~~for~~in ~~students~~the ~~who~~availability ~~receive~~of state grants and private loans and ~~pursuant~~the inability of households to ~~Title~~pay IVcash ~~programs~~due to the current economic climate. ~~The~~While ~~legislation~~our ~~has~~consolidated 90/10 ~~not~~rate for ~~been~~fiscal ~~sent~~2010 is projected to remain under the ~~President~~90% threshold, ~~for~~ we ~~signature.~~project Inthat ~~addition,~~some ~~Congress~~of isour ~~considering~~institutions ~~legislation~~will exceed the 90% threshold if we do not continue to ~~address~~successfully ~~alternative,~~implement certain ~~non-Title~~changes IVto ~~program~~these ~~loans~~institutions asduring ~~well~~the fiscal year which would decrease their 90/10 rate, such as ~~lender~~increases in international and ~~educational~~military ~~institution~~students ~~relationships~~and certain internal restructuring designed to achieve additional operational efficiencies. WeIn prior years, we have ~~not~~successfully addressed 90/10 ~~assessed~~rate issues ~~what~~when ~~impact,~~they ifhave ~~any~~arisen through similar changes to operations. Additionally, the ~~pending~~revised ~~legislation~~rules ~~passed~~included in the new by HEA ~~Congress~~reauthorization include relief through June 30, if2011 from ~~adopted~~a as$2,000 ~~law~~increase in the annual Stafford loan availability for undergraduate students which became effective July 1, 2008. We anticipate that our 90/10 rate will ~~have~~increase onsubstantially in fiscal 2012 in the event that relief from this additional $2,000 is not extended beyond June 30, 2011, which would adversely affect our ~~business.~~ability to comply with the 90/10 Rule.

If The weU.S. House doof ~~not~~Representative Committee on Education and ~~meet~~ Labor ~~specific~~passed ~~financial~~a ~~responsibility~~bill ~~ratios~~in ~~and~~July 2009 which, among other ~~compliance~~things, would ~~tests~~extend ~~established~~relief byfrom the ~~U.S.~~recent ~~Department~~$2,000 ofincrease ~~Education~~in undergraduate ~~our~~Stafford / Direct ~~schools~~loans ~~may~~until July 1, ~~lose~~2012, ~~eligibility~~would tonot deem an institution ineligible to participate in ~~federal~~Title IV ~~student~~programs ~~financial~~for ~~aid~~violating ~~programs~~the 90/10 Rule until it violated the rule for three consecutive fiscal years, and would not place an institution on provisional certification for violating the 90/10 Rule until it violated the rule for two consecutive fiscal years. The bill is subject to further consideration and revision by the House and Senate and has not been enacted into law.

To Restrictions ~~participate~~on inPayment ~~the~~of ~~federal~~Bonuses, ~~student~~Commissions ~~financial~~or ~~aid~~Other Incentives. An ~~programs,~~institution anparticipating ~~institution~~in the ~~must~~ Title IV ~~either~~programs ~~satisfy~~may ~~certain~~not ~~quantitative~~provide ~~standards~~any ofcommission, ~~financial~~bonus ~~responsibility~~or other onincentive anpayment ~~annual~~based ~~basis,~~directly or ~~post~~indirectly aon ~~letter of credit~~ success in ~~favor~~securing ofenrollments ~~the~~or ~~U.S.~~financial ~~Department~~aid ofto ~~Education~~any ~~and~~person ~~possibly accept other conditions and/~~or ~~limitations on its participation~~entity engaged in ~~the~~any ~~federal~~ student ~~financial~~recruiting ~~aid~~or ~~programs.~~admission Asactivities ofor ~~June 30,~~in making ~~2007,~~decisions weregarding ~~believe~~the ~~that~~awarding ~~all~~ of ~~our~~Title IV ~~schools~~program funds. ~~satisfied~~Effective ~~their~~July ~~required~~2003, ~~quantitative~~the ~~measures~~U.S. Department of Education ~~financial~~published ~~responsibility;~~regulations ~~nine~~to ~~schools~~attempt ~~were required~~ to ~~post~~clarify ~~letters~~this so-called of“incentive ~~credit~~compensation” ~~for other reasons~~law. The regulations

We were required by the U.S. Department of Education to post a $87.9 million letter of credit in October 2006 and are subject to provisional certification and additional financial and cash monitoring on our disbursements of Title IV funds due to EDMC’s failure on a consolidated basis to satisfy the financial responsibility standards after the completion of the Transaction. The amount of this letter of credit is currently set at 10% of the Title IV funds received by students at our schools during our most recent fiscal year. The U.S. Department of Education’s evaluation of our schools financial responsibility on the basis of EDMC’s consolidated financial statements may continue through future annual reviews, and result in continuation of the letter of credit, provisional certification, and financial and cash monitoring in future years. Any conditions and/or limitations on our participation in the federal student financial aid programs in addition to the letter of credit, provisional certification and additional financial and cash monitoring could adversely affect our net income and student population. Although the initial letter of credit will expire in March 2008, there can be no assurance that the letter of credit requirement will not be extended or that additional restrictions will not be imposed in the future, including an increase of the percentage or dollar amount of the letter of credit. Our inability to obtain a required letter of credit in the future could result in a loss of access to the student financial assistance programs which would adversely affect our net income and student population. At June 30, 2007, we have posted a total of $89.0 in letters of credit to the U.S. Department of Education.

~~rates~~ identify in12 ~~excess~~compensation ofarrangements ~~specified~~that ~~rates in~~ the U.S. Department ~~Federal~~of ~~Perkins~~Education ~~Loan~~has ~~Program,~~determined ~~which~~are is not ain violation ~~material~~of ~~federal~~the ~~student~~incentive ~~aid~~compensation ~~program~~law, ~~for~~including the payment ~~Company~~and oradjustment ~~its institutions.~~of ~~Additionally~~salaries, abonuses ~~school~~and iscommissions ~~ineligible~~in certain tocircumstances. ~~participate~~The inregulations ~~the~~do ~~federal~~not ~~student~~establish ~~financial~~clear criteria ~~aid~~for ~~programs~~compliance ifin itall ~~derives~~circumstances, ~~more~~and ~~than~~the U.S. Department ~~90%~~ of ~~its~~Education ~~revenue~~has ~~from~~announced ~~these~~that ~~Title~~it IVno longer ~~programs~~will inreview ~~any~~and ~~fiscal~~approve ~~year.~~individual ~~Though we believe our~~ schools ~~do not exceed~~’ ~~the~~ compensation ~~specified~~plans ~~rates~~prior ~~for~~to ~~student~~their ~~default~~implementation. ~~for~~Although ~~our~~we cannot ~~material~~provide ~~programs~~any orassurances that the ~~percentage~~U.S. Department of Education ~~revenue~~will ~~limitation~~not ~~test,~~find ~~loss~~deficiencies ofin ~~eligibility~~our tocompensation ~~participate~~plans, we inbelieve ~~the~~that ~~federal~~our ~~student~~current ~~financial~~compensation ~~aid~~plans ~~programs~~are byin ~~one~~compliance with ofthe ~~our~~HEA ~~schools~~and ~~could~~the ~~have~~regulations apromulgated ~~material~~by ~~adverse~~the ~~effect~~ U.S. Department onof ~~our student population and revenue~~Education.

~~Additionally, in~~ ~~the~~ State Authorization ~~event~~and ofAccreditation a bankruptcy filing by any of our schools, such schools would not be eligible to receive Title IV program funds, notwithstanding the automatic stay provisions of federal bankruptcy law, which would make any reorganization difficult.Agencies

If Each of our U.S. campuses, including our campuses that provide online programs, is authorized to offer education programs and grant degrees or diplomas by the state in which such school is physically located. The level of regulatory oversight varies substantially from state to state. In some U.S. states, the schools doare ~~not~~subject ~~maintain~~to ~~their~~licensure by the state ~~authorizations~~education agency and also by a separate higher education ~~accreditations~~ agency. Some states have sought to assert jurisdiction over online educational institutions that offer educational services to residents in the state or that advertise or recruit in the state, ~~they~~notwithstanding the lack of a physical location in the state. State laws may ~~not~~establish standards for instruction, qualifications of faculty, location and nature of facilities, financial policies and responsibility and other operational matters. State laws and regulations may limit our ability to obtain authorization to operate in certain states or ~~participate~~to inaward degrees ~~federal~~or ~~student~~diplomas ~~financial~~or ~~aid~~offer new degree programs. Certain states prescribe standards of financial responsibility that are different from those prescribed by the U.S. Department of Education. If we are found not to be in compliance with an applicable state regulation and a state seeks to restrict one or more of our business activities within its boundaries, we may not be able to recruit or enroll students in that state and may have to cease providing services and advertising in that state, which could have a material adverse effect on our student enrollment and revenues.

A Each ~~school that grants degrees, diplomas, or certificates must be authorized by the relevant agencies~~ of ~~the~~our ~~state~~U.S. schools ~~in which it~~ is ~~located~~accredited ~~and,~~by ina ~~some~~national or ~~cases,~~ regional ~~other states where the school is deemed to be operating. State authorization and~~ accreditation ~~by an accrediting~~ agency recognized by the U.S. Department of Education, ~~also~~and ~~are~~some ~~required~~educational ~~for an institution to participate in the federal student~~programs ~~financial~~ are ~~aid~~also ~~programs~~programmatically accredited. The ~~failure~~level byof ~~one~~regulatory oversight orand ~~more~~standards ofcan ~~our~~vary ~~schools~~based toon ~~maintain~~the ~~their~~agency. ~~state~~Certain accreditation ~~authorizations~~agencies ~~and~~prescribe ~~accreditations~~standards ~~could~~that ~~have~~are adifferent from ~~material~~those ~~adverse~~prescribed ~~effect~~by onthe ~~our business~~U.S. Department of Education.

If ~~regulators~~a doschool does not ~~approve~~meet ~~transactions~~its ~~involving~~accreditation aor ~~change~~state requirements, ofits ~~control~~ accreditation and/or ~~change~~state licensing incould ~~our~~be ~~corporate~~limited, ~~structure~~modified, wesuspended ~~may~~or ~~lose~~terminated. Failure ~~our~~to ~~ability~~maintain tolicensure or institutional accreditation ~~participate~~ makes ina ~~federal~~school ~~student~~ineligible ~~financial~~to ~~aid~~participate in Title IV programs.

If we Certain ~~or one~~ of ~~our schools experiences a change of ownership or control under~~ the ~~standards of applicable~~ state ~~agencies,~~authorizing ~~accrediting~~ agencies orand ~~the U.S. Department of Education, we or the schools governed by such agencies must seek the approval of~~accrediting ~~the relevant~~ agencies. ~~The~~with ~~failure~~jurisdiction ofover ~~any of~~ our schools toalso ~~reestablish~~have requirements ~~its~~that ~~state authorization~~may, ~~accreditation or U.S. Department of Education certification would result~~ in acertain ~~suspension~~instances, oflimit ~~operating~~our ~~authority or suspension or loss of federal student~~ability ~~financial~~ to ~~aid~~open ~~funding, which could have~~ a ~~material~~new ~~adverse effect on our student population and revenue. Further~~school, ~~such~~acquire aan ~~change~~existing ~~of ownership or control could result in the imposition of growth restrictions on our schools~~school, ~~including~~establish ~~limitations on~~an ~~our~~ additional ~~ability~~location toof ~~open~~an ~~new~~existing ~~campuses~~school or ~~initiate~~add new educational programs. ~~Such growth restrictions could have a material adverse impact on our student population and revenue and future growth plans.~~

~~Loss~~ Canadian Regulation ~~of or reductions in state grants~~ and ~~the~~Financial ~~availability of alternative loans for our~~Aid ~~students could negatively impact our revenues from students.~~

In The ~~fiscal~~Art ~~2007,~~Institute ~~approximately~~of 3%Vancouver ofis ~~our~~subject ~~net~~to ~~revenues~~regulation ~~were~~in ~~indirectly~~the Province ~~derived~~of ~~from~~British ~~state~~Columbia ~~grant~~and ~~programs.~~in ~~State~~the ~~grant~~provinces ~~programs~~in ~~are~~which ~~generally~~it recruits ~~subject~~students. toDepending ~~annual~~on ~~appropriation~~their byprovince ~~the~~of ~~state~~residence, ~~legislature~~our Canadian ~~which~~students may ~~lead~~receive toloans under the ~~state~~federally ~~eliminating~~funded Canada Student Loan Program and/or ~~significantly~~ provincial ~~decreasing~~funding ~~the~~from ~~amount~~their province of ~~state~~residence. ~~aid~~Canadian schools must meet eligibility standards to ~~students~~administer atthese programs ~~our~~and ~~schools~~must comply with all relevant statutes, rules, regulations and requirements. We believe that The ~~loss~~Art Institute of ~~access~~Vancouver currently holds all necessary registrations, approvals and permits and meets all eligibility requirements to administer these ~~state~~governmental ~~grants~~financial byaid ~~our~~programs. ~~students~~If The Art Institute of Vancouver cannot meet these and other eligibility standards or fails to comply with applicable requirements, it could have a material adverse effect on our business, ~~due~~results toof operations, ~~enrollment~~cash ~~losses~~flows ator ~~our~~financial ~~schools~~condition.

~~Federal, state and Canadian financial aid grants have not kept up with~~ ~~increases~~ The inBritish ~~the~~Columbia ~~cost~~government, ofthrough ~~living~~its ~~and~~Ministry ~~the growth~~ of Advanced ~~tuition rates. As a result~~Education, anregulates ~~increasing~~private ~~number~~career ofcolleges ~~our~~through ~~students~~an arms ~~who~~length ~~need~~accreditation ~~additional~~and ~~funds~~registration tobody ~~attend~~called ~~our~~the Private ~~schools~~Career ~~rely~~Training onInstitutions ~~alternative~~Agency ~~loans~~of toBritish ~~fund~~Columbia (“PCTIA”) ~~tuition~~and ~~payments.~~provides ~~During~~financial ~~fiscal~~assistance ~~2007, alternative~~to ~~loans~~ eligible to students atthrough ~~our~~the ~~schools~~StudentAid ~~represented~~BC ~~approximately 23% of our net revenue. The loans are credit-based, so not all potential students~~ (~~and co-borrowers~~“SABC”) ~~satisfy the qualification standards~~. ~~Third party lenders may impose terms on these loans~~ ~~which~~ The ~~make~~student ~~them~~aid ~~less~~program ~~attractive~~includes toa ~~our~~federal ~~students~~component orunder ~~may impose additional restrictions on~~ the Canada ~~availability~~Student ofLoan ~~loans~~Program ~~to our students or schools. Increasing interest rates~~ and ~~fees~~a asprovincial ~~well~~portion administered asthrough the ~~inability~~provincial ofSABC ~~some~~program. ofIn ~~our~~order ~~students~~ to ~~meet their~~ ~~repayment~~ maintain ~~obligations may limit~~ the ~~use~~right ofto ~~alternative~~administer ~~loans.~~student assistance, The ~~inability~~Art Institute of ~~our~~Vancouver ~~students~~must toabide ~~obtain~~by ~~alternative~~the ~~loans~~rules, ~~from~~regulations ~~third party lenders could have a material adverse effect on our business due to enrollment losses at our schools.~~and

~~Failure~~ administrative tomanuals ~~comply~~and ~~with~~Memorandum ~~extensive~~of ~~Canadian~~Agreements ~~regulations~~with ~~could affect~~ the Canada ~~ability~~Student ofLoan ~~our~~Program ~~schools~~and inthe ~~Canada~~SABC toStudent ~~participate in~~Loans ~~Canadian financial aid programs~~Plan.

~~Our~~ Institutions ~~schools~~cannot ~~located~~automatically acquire student aid in designation ~~British~~through ~~Columbia~~the ~~and~~acquisition ~~Ontario~~of ~~derive~~other astudent ~~significant~~aid eligible ~~percentage~~institutions. In the event of ~~their~~a ~~revenue~~change ~~from~~of ~~Canadian~~ownership, including ~~governmental~~a ~~financial~~change ~~programs.~~in ~~These~~controlling ~~schools~~interest, ~~must~~the ~~meet~~Ministry ~~eligibility~~of Advanced ~~standards~~Education toas ~~administer~~well ~~these~~as ~~programs~~SABC require evidence that the institution has continued capacity and ~~must~~a formal undertaking to comply with ~~extensive~~registration ~~statutes, rules,~~and ~~regulations~~student ~~and~~aid eligibility requirements. IfGiven ~~our~~that ~~Canadian~~the ~~schools~~Province ~~cannot~~of ~~meet~~British ~~these~~Columbia and PCTIA periodically revise their respective regulations and other requirements ~~eligibility~~and ~~standards~~change ortheir ~~fail~~respective tointerpretations ~~comply~~of existing ~~with~~laws ~~applicable~~and ~~requirements~~regulations, itwe ~~could~~cannot ~~have~~assure ayou ~~material~~that ~~adverse~~the provincial ~~effect~~government onand ~~our~~PCTIA ~~business~~will ~~and~~agree ~~results~~with our interpretation of ~~operations~~each requirement.

~~Additionally, the~~ Canadian ~~and~~schools ~~various~~are ~~provincial~~required ~~governments continuously~~to ~~review~~audit ~~the~~their ~~legislative,~~administration ~~regulatory and other requirements relating to~~ of student ~~financial~~aid ~~assistance~~ programs ~~due~~annually toor ~~political~~as ~~and~~otherwise ~~budgetary~~directed ~~pressures.~~by ~~Although we do not currently anticipate a significant reduction in the funding for~~SABC. ~~these~~ We ~~programs,~~believe ~~any change~~ that ~~significantly~~we ~~reduces~~have ~~funding~~complied orwith ~~the ability of our schools to participate in~~ these ~~programs could have a material adverse effect on our business and results of operation~~requirements.

~~If we fail to demonstrate “administrative capability” to the U.S. Department of~~ ~~Education, our business could suffer.~~ Employees

~~Regulations adopted~~ by At ~~the~~June 30, ~~U.S.~~2009, ~~Department~~we ofemployed ~~Education~~approximately ~~specify~~11,300 ~~criteria~~full time anemployees, ~~institution~~of ~~must~~whom ~~satisfy~~approximately to2,700 ~~establish~~were ~~that~~faculty members, itand ~~has~~approximately ~~the~~2,100 part-time ~~requisite~~employees, ~~“administrative~~of whom ~~capability”~~approximately to1,800 ~~participate~~were infaculty ~~the~~members. ~~Title~~In IVaddition, ~~programs.~~we also ~~These~~employed ~~criteria~~approximately ~~require~~5,600 ~~among~~adjunct ~~other~~faculty ~~things~~members at June 30, ~~that~~2009. Adjunct faculty members are employed on a ~~the~~ term-to-term basis, ~~institution:~~while part-time faculty members work a regular part-time schedule.

~~• comply with all applicable federal student financial aid regulations;~~ Competition

• The post-secondary education market is highly fragmented and competitive. Our schools compete for students with traditional public and private two-year and four-year colleges and universities and other for-profit providers, including those that offer distance learning programs. Many public and private colleges and universities, as well as other for-profit providers, offer programs similar to those we offer. Public institutions receive substantial government subsidies, and both public and private institutions have ~~capable~~access to government and foundation ~~sufficient~~grants, ~~personnel~~tax-deductible contributions and other financial resources generally not available to ~~administer~~for-profit providers. Accordingly, public and private institutions may have facilities and equipment superior to those in the ~~federal~~for-profit sector ~~student~~and often can offer lower effective tuition prices. Some of our competitors in both the public and private sectors also have substantially greater financial ~~aid~~and ~~programs;~~other resources than we do.

• Seasonality in ~~have~~Results ~~acceptable methods~~ of ~~defining and measuring the satisfactory academic progress of its students;~~Operations

• Our ~~provide~~quarterly ~~financial~~revenues ~~aid~~and ~~counseling~~income fluctuate primarily as a result of the pattern of student enrollments at our schools. The seasonality of our business has decreased over the last several years due to ~~its~~an increased percentage of students; ~~and~~enrolling in online programs, which generally experience fewer seasonal fluctuations than campus-based programs. Our first quarter is typically our lowest revenue recognition quarter due to student vacations.

• Availability of ~~submit all reports and financial statements required by the regulations.~~Reports

If We anmake ~~institution~~available ~~fails~~financial information, news releases and other information on our Web site at www.edmc.com. Information contained on our Web site is not part of this Form 10-K or our other filings with the Securities and Exchange Commission. There is a direct link from the Web site to ~~satisfy~~our Securities and Exchange Commission filings, where our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any ofamendments to these ~~criteria~~reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge as soon as reasonably practicable after we file such reports and amendments with, or furnish them to, the USecurities and Exchange Commission.S. Investors ~~Department~~may also contact Investor Relations at 210 Sixth Avenue, 33 rd Floor, Pittsburgh, Pennsylvania 15222 or call (412) 562-0900 to obtain a hard copy of ~~Education~~these ~~may:~~reports without charge.

• require the repayment of federal student financial aid funds;

• 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.

If one or more of our schools loses or is limited in its access to, or is required to re-pay, federal student financial aid funds due to a failure to demonstrate administrative capability, our business could be materially adversely affected.

Government and regulatory agencies may conduct compliance reviews, bring claims or initiate litigation against us.

The post-secondary education industry is highly regulated. From time to time, we may be subject to program reviews, investigations, claims of non-compliance, or lawsuits by governmental agencies or third parties, which may allege statutory violations, regulatory infractions, or common law causes of action. If the results of the investigations are unfavorable to us or if we are unable to successfully defend against third-party lawsuits, we may be required to pay material monetary damages or be subject to material fines, penalties, injunctions or other censure that could materially and adversely affect our business. We also may be limited in

~~our~~ITEM ~~ability to open new schools or add new program offerings and may be adversely impacted by the negative publicity surrounding an investigation or lawsuit~~1A. ~~Even~~ ifRISK we adequately address the issues raised by an agency investigation or successfully defend a third-party lawsuit, we may have to devote significant money and management resources to address these issues, which could harm our business. FACTORS

The ~~personal~~following ~~information~~risks ~~that~~comprise all the material risks of which we ~~collect~~are aware; however, these risks and uncertainties may not be the ~~vulnerable~~only toones ~~breach,~~we ~~theft~~face. Additional risks and uncertainties not or presently ~~loss~~known to us or that ~~could~~we currently deem immaterial may also adversely affect our ~~reputation~~business ~~and~~or ~~operations~~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.

Possession and use of personal information in our operations subjects us to risks and costs that could harm our business. Our schools collect, use and retain large amounts of personal information regarding our students and their families, including social security numbers, tax return information, personal and family financial data, and credit card numbers. We also collect and maintain personal information of our employees in the ordinary course of our business. Some of this personal information is held and managed by certain of our vendors. Although we use security and business controls to limit access and use of personal information, a third party may be able to circumvent those security and business controls, which could RISKS ~~result~~ RELATED inTO aOUR ~~breach~~HIGHLY ofREGULATED student or employee privacy. In addition, errors in the storage, use or transmission of personal information could result in a breach of student or employee privacy. Possession and use of personal information in our operationsINDUSTRY also subjects us to legislative and regulatory burdens that could require notification of data breaches and restrict our use of personal information. There can be no assurance that a breach, loss or theft of personal information will not occur. A major breach, theft or loss of personal information regarding our students and their families or our employees that is held by us or our vendors could have a material adverse effect on our reputation and results of operations and result in further regulation and oversight by federal and state authorities and increased costs of compliance.

~~ITEM~~ Failure of ~~1B.~~our ~~UNRESOLVED~~schools ~~STAFF~~to ~~COMMENTS~~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.

~~None~~ A majority of our net revenues are indirectly derived from federal student financial aid programs pursuant to Title IV of the Higher Education Act of 1965, as amended (“Title IV programs”). Our participation in Title IV programs is subject to certification and oversight by the U.S. Department of Education and is further conditioned upon approvals granted by other agencies. Each of our schools also must obtain and maintain approval to enroll students, offer instruction and grant credentials from the state authorizing agency in the state in which the school is located. Such approval is also a precondition to the ability of our students to participate in Title IV programs. Participation in Title IV programs also requires each school to be accredited by an accrediting agency recognized by the U.S. Department of Education as a reliable authority on institutional quality and integrity. Accreditation is, in turn, conditioned upon the maintenance of applicable state authorization. Our schools also must comply with the requirements of any loan guarantee agencies that guarantee certain federal student loans made to our schools’ students, the requirements of such state financial aid programs as may be available to our students and the requirements of specialized accrediting agencies which oversee educational quality in particular program areas. Further, the Education Finance Loan program that we introduced in August 2008 may require us to obtain licenses, registrations or other forms of regulatory approval. As a result, our schools are subject to extensive regulation and review by these agencies which cover virtually all phases of our operations. These regulations also affect our ability to acquire or open additional schools, add new educational programs, continue offering the Education Finance Loan program, substantially change existing programs or change our corporate or ownership structure. The agencies that regulate our operations periodically revise their requirements and modify their interpretations of existing requirements. See “Business — Accreditation”, “Business — Student Financial Assistance”, “Business — Federal Oversight of Title IV Programs”, “Business — State Authorization and Accreditation Agencies” and “Business — Canadian Regulation and Financial Aid”.

If any of our schools were to violate or fail to meet any of these legal and regulatory requirements, we could suffer monetary liabilities or assessments, limitations on our operating activities, loss of accreditation, limitations on our ability to add new schools or offer new programs, termination of or limitations on the school’s ability to grant degrees and certificates, or limitations on or suspension or termination of the school’s eligibility to participate in federal student financial aid programs. A significant portion of our students rely on federal student financial aid funds to finance their education. We cannot predict with certainty how all of these requirements will be applied or interpreted by a regulatory body or whether each of our schools will be able to comply with all of the applicable requirements in the future.

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.

Our schools are required to seek recertifications from the U.S. Department of Education periodically in order to participate in Title IV programs. The current provisional certifications of 35 of our schools expire between June 30, 2009 and December 31, 2009, and our applications for recertifications are due for submission three months in advance of each expiration. The provisional certifications for our other schools expire beginning on June 30, 2011. The U.S. Department of Education will also review our schools’ continued certifications in the event that we

~~ITEM~~ undergo 2a change of ownership and control pursuant to U.S. Department ~~PROPERTIES~~of Education regulations. In addition, the U.S. Department of Education may take emergency action to suspend any of our schools’ certification without advance notice if it receives reliable information that a school is violating Title IV requirements and determines that immediate action is necessary to prevent misuse of Title IV funds. If the U.S. Department of Education were to decide not to renew or to withdraw our certification to participate in Title IV programs at any time, our students no longer would be able to receive Title IV program funds, which would have a material adverse effect on our enrollments, revenues and results of operations.

~~Our~~ Congress may ~~corporate~~change ~~headquarters~~eligibility ~~are~~standards ~~located~~or inreduce ~~Pittsburgh,~~funding ~~Pennsylvania.~~for ~~At June 30, 2007, our schools were located in major metropolitan areas in 25~~federal ~~states~~ student ~~and~~financial ~~two~~aid ~~Canadian provinces. Typically~~programs, anor ~~Art~~other ~~Institute~~governmental ~~occupies~~or regulatory anbodies ~~entire~~may ~~building~~change orsimilar ~~several~~laws ~~floors~~ or ~~portions~~regulations relating ofto ~~floors~~other instudent afinancial ~~building.~~aid ~~Argosy~~programs, ~~University~~which ~~campuses,~~could reduce the ~~Brown~~growth ~~Mackie~~of ~~Colleges~~our ~~and~~student ~~South~~population ~~University schools are smaller~~ and ~~typically located in office or commercial buildings~~ revenue.

We ~~currently~~ Political ~~lease~~and ~~most~~budgetary ofconcerns ~~our~~can ~~administrative~~significantly affect Title IV programs and ~~educational~~other ~~facilities~~laws ~~under~~and ~~operating~~regulations ~~lease~~governing federal ~~arrangements~~and state student financial aid programs. WeTitle IV programs ~~own~~are amade ~~student~~available ~~housing~~pursuant ~~facility~~to inthe ~~Fort~~provisions ~~Lauderdale~~of the HEA, ~~Florida~~ and ~~buildings~~the ~~occupied~~HEA must be reauthorized by ~~The~~Congress ~~Art~~approximately every ~~Institutes~~six years. Independent of ~~Pittsburgh~~reauthorization, ~~Colorado~~Congress ~~and~~must annually ~~Seattle,~~appropriate funds for Title IV programs. In August by 2008, ~~Western~~the ~~State~~most ~~University~~recent ~~College~~reauthorization of ~~Law~~the inHEA ~~Fullerton~~was enacted, continuing ~~California~~the Title IV HEA programs through at least September 30, by2014. ~~Argosy~~Future ~~University~~reauthorizations or appropriations may result in ~~Egan~~numerous legislative changes, including ~~Minnesota~~those that could adversely affect our ability to participate in the Title IV programs and ~~Sarasota,~~the ~~Florida,~~availability of Title IV and bynon-Title IV funding sources for our students. Congress also may impose certain requirements upon the state ~~Brown~~or ~~Mackie~~accrediting ~~College~~agencies inwith ~~Lenexa,~~respect ~~Kansas~~to their approval of our schools. AtAny ~~June 30,~~action ~~2007,~~by weCongress ~~owned~~or ~~approximately~~the 0U.6S. ~~million~~Department ~~square~~ of ~~feet~~Education ofthat ~~real~~significantly ~~property~~reduces ~~and~~funding ~~leased~~for ~~approximately~~the ~~3.6 million~~federal student ~~square~~financial ~~feet.~~aid ~~Most~~programs or the ability of our ~~leases~~schools or students to participate in these programs would have ~~remaining~~a ~~terms~~material adverse ~~ranging~~effect ~~from~~on ~~less~~our ~~than~~student ~~one~~population ~~year~~and revenue. Legislative action also may increase our administrative costs and require us to 10modify ~~years.~~our practices in order for our schools to comply fully with applicable requirements.

~~Many~~ In ofSeptember ~~our~~2007, ~~facility~~President ~~leases~~Bush ~~contain~~signed ~~provisions~~into ~~prohibiting~~law alegislation which, ~~change~~among inother ~~control~~things, ofdecreases ~~the~~private ~~lessee~~lender orand ~~permitting~~guaranty agency ~~the~~yields ~~landlord~~for toparticipation ~~terminate~~in the Federal Family Education ~~lease~~ Loan ~~upon~~(“FFEL”) aprogram, ~~change~~decreases instudent ~~control~~interest rates ofon ~~the~~Stafford ~~lessee.~~loans ~~Based~~and ~~primarily~~limits ~~upon~~repayment ~~our~~obligations ~~belief~~for students ~~that~~who ~~(1)~~receive loans pursuant to Title weIV ~~maintain~~programs. Decreased ~~good~~yields ~~relations~~could ~~with~~discourage ~~the~~Title IV ~~substantial~~lenders ~~majority~~from continuing ofto ~~our~~provide ~~landlords~~private, ~~(2)~~federally guaranteed Title ~~most~~IV ofloans to our ~~leases~~students. ~~are~~The atnew ~~market~~HEA ~~rates~~reauthorization includes new notification and ~~(3) we~~certification ~~have~~requirements ~~historically~~for ~~been~~ private ~~able~~non-Title IV toprogram ~~secure~~educational ~~suitable~~loans ~~leased~~and ~~property~~makes them atsubject ~~market~~to ~~rates~~the ~~when~~Truth ~~needed,~~in weLending ~~believe~~Act ~~that~~requirements ~~these~~and potential ~~provisions~~liabilities, ~~will~~which ~~not,~~could ~~individually~~adversely oraffect inprivate lenders’ ~~the~~ability ~~aggregate,~~to ~~have~~make asuch ~~material~~loans ~~adverse~~and ~~effect~~thereby onaffect our students’ ~~business~~ability orto ~~financial~~access ~~position.~~private student loans.

~~ITEM~~ Because 3a significant percentage of our revenue is derived from Title IV and private loan programs, any action by Congress that significantly reduces Title IV program funding, the availability or attractiveness of private loans or the ability of our schools or students to participate in Title IV programs could have a material adverse effect on our business, results of operations or financial condition. ~~LEGAL~~Legislative ~~PROCEEDINGS~~action also could increase our administrative costs and require us to adjust our practices in order for our schools to comply fully with Title IV program requirements.

In If ~~June~~we do ~~2007,~~not ~~The~~meet ~~New~~specific ~~England~~financial ~~Institute~~responsibility ofratios ~~Art~~and ~~(“NEIA”) received a civil investigative demand letter from the Massachusetts State Attorney~~other ~~General~~ compliance ~~requesting~~tests ~~information~~established inby ~~connection with~~ the ~~Attorney~~U.S. ~~General’s~~Department ~~review~~ of Education, ~~alleged~~our ~~submissions~~schools ofmay ~~false~~lose ~~claims~~eligibility ~~by NEIA~~ to ~~the~~participate ~~Commonwealth~~in federal ofstudent ~~Massachusetts~~financial ~~and~~aid ~~alleged~~programs, ~~unfair~~which ~~and~~may ~~deceptive~~result ~~student~~in ~~lending and marketing practices engaged~~a in reduction ~~by the school. NEIA responded to the request for information~~ in ~~August~~our ~~2007,~~student enrollment and wean ~~intend~~adverse toeffect ~~fully~~on ~~cooperate~~our results ~~with~~of ~~the Attorney General’s office in connection with its investigation~~operations.

~~The~~ To ~~Art~~participate ~~Institute~~in offederal ~~Portland~~student ~~and~~financial ~~our~~aid ~~schools~~programs, ~~located~~an institution, inamong ~~Illinois~~other ~~have~~things, must either satisfy certain ~~received~~ quantitative ~~requests~~standards ~~for~~of ~~information~~financial ~~from~~responsibility ~~the~~on ~~Attorney~~an ~~General~~annual basis ofor ~~their~~post ~~respective~~a ~~states~~letter ~~addressing~~of ~~the~~credit ~~relationships~~in ~~between~~favor of the U.S. Department ~~schools~~of Education and ~~providers~~possibly ofaccept ~~loans~~other conditions toor ~~students~~limitations ~~attending~~on its participation in the ~~schools.~~federal student Wefinancial ~~have~~aid ~~responded~~programs. toAs ~~the~~of ~~requests~~June 30, ~~for~~2009, ~~information~~we ~~and~~did ~~intend~~ not tomeet ~~fully~~the ~~cooperate~~required ~~with~~quantitative ~~the~~measures ~~Attorneys~~of ~~General~~financial responsibility inon ~~their~~a ~~investigations.~~consolidated basis.

In We ~~addition to the matters described above, we~~ are arequired ~~defendant~~by ~~in certain legal proceedings arising out of~~ the ~~conduct~~U.S. Department of ~~our~~Education ~~business.~~to Inpost a ~~the~~letter ~~opinion~~ of ~~management,~~credit ~~based~~and ~~upon~~are ansubject ~~investigation~~to ofprovisional ~~these claims and~~certification ~~discussion~~ and ~~with~~additional ~~legal~~financial ~~counsel,~~and ~~the~~cash ~~ultimate~~monitoring ~~outcome~~ of ~~such~~our disbursements ~~legal~~of ~~proceedings,~~Title IV ~~individually~~funds ~~and~~due into ~~the~~our ~~aggregate,~~failure ~~will~~on ~~not have~~ a consolidated ~~material~~basis ~~adverse~~to ~~effect~~satisfy onthe ~~our~~financial ~~consolidated~~responsibility standards ~~financial~~after ~~position,~~the ~~results~~completion of ~~operations~~the orTransaction ~~liquidity.~~resulting from

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is no established public trading market for our ownership interests. Education Management Holdings LLC, which is wholly owned by Education Management Corporation, owns all of our outstanding ownership interests. We have not paid dividends over the past two fiscal years and we do not expect to pay dividends in the foreseeable future. The agreements governing our indebtedness limit our ability to pay dividends.

~~ITEM~~ the 6amount of debt we incurred to complete the Transaction. ~~SELECTED~~The amount ~~FINANCIAL~~of ~~DATA~~this letter of credit is currently set at 10% of the Title IV program funds received by students at our schools during the prior fiscal year. As a result, we posted an $87.9 million letter of credit in October 2006. Due to increases in the aggregate amount of Title IV funds received by our students, we currently post a $120.5 million letter of credit with the U.S. Department of Education. Outstanding letters of credit reduce the availability under our revolving credit facility.

~~The~~ We ~~following~~expect ~~table~~to ~~sets~~continue ~~forth~~to ~~selected~~not ~~historical~~satisfy ~~consolidated~~the ~~financial~~U.S. Department ~~data as~~ of Education’s ~~the~~quantitative ~~dates~~measure ~~and~~of financial responsibility for the ~~periods~~foreseeable ~~indicated~~future. ~~The~~As ~~Predecessor~~a ~~financial~~result, we ~~data~~ expect ~~contain~~each ~~information~~of ~~relating~~our schools to ~~Education~~be ~~Management~~required ~~Corporation~~to ~~prior~~continue toon provisional ~~the~~certification ~~consummation~~for ofadditional ~~the~~three-year ~~Transaction~~periods. The current ~~Successor~~provisional ~~financial~~certifications ~~data~~of ~~contain~~35 ~~information~~of ~~relating~~our toschools ~~Education~~expire between ~~Management~~June 30, ~~LLC~~2009 ~~after~~and ~~consummation~~December 31, ~~of the Transaction~~2009. ~~The~~ ~~selected~~ Provisional ~~historical~~certification ~~consolidated~~for ~~balance~~our ~~sheet~~other ~~data~~schools atexpire beginning on June 30, ~~2006~~2011. ~~and~~We ~~2007~~expect ~~and~~that ~~consolidated~~the ~~statement~~ U.S. Department of ~~operations~~Education’s ~~data~~evaluation ~~for~~of ~~the~~our ~~fiscal~~schools’ ~~year~~financial responsibility ~~ended~~on ~~June 30,~~the ~~2005,~~basis ~~the~~of ~~periods~~our ~~from~~consolidated ~~July 1,~~financial statements ~~2005~~will continue through ~~May 31,~~future ~~2006~~annual reviews and may ~~June 1~~ result ~~through~~in ~~June 30,~~continuation ~~2006,~~of ~~and~~ the ~~fiscal~~requirement ~~year~~that ~~ended~~we ~~June 30,~~maintain ~~2007~~a letter ~~have~~of ~~been~~credit, ~~derived~~provisional ~~from~~certification ~~Education~~and ~~Management~~financial ~~LLC’s~~ and cash ~~Education~~monitoring ~~Management~~in ~~Corporation’s~~future ~~audited~~years. ~~consolidated~~Any ~~financial~~conditions ~~statements~~or ~~and related notes~~limitations ~~appearing~~ on ~~elsewhere~~our participation in ~~this~~the ~~Form~~federal ~~10-K.~~student ~~The~~financial ~~selected~~aid programs ~~historical~~in ~~consolidated~~addition ~~statement~~to ~~of operations data for~~ the ~~years~~letter ~~ended~~of ~~June 30~~credit, ~~2003~~provisional certification and ~~2004~~additional financial and ~~the~~cash ~~consolidated~~monitoring ~~balance~~could adversely ~~sheet~~affect atour ~~June 30,~~net ~~2003~~income and ~~2004~~student ~~presented~~population. ~~in this table have~~We ~~been~~ expect ~~derived~~to ~~from~~be ~~audited~~required ~~consolidated~~to ~~financial~~renew ~~statements~~the ~~not~~letter ~~included~~of incredit ~~this~~at ~~Form~~the 10~~-K.~~% level ~~The~~for ~~results~~as oflong ~~operations~~as ~~for~~our ~~any~~schools ~~period~~remain ~~are~~provisionally ~~not~~certified, although ~~necessarily~~the ~~indicative~~U.S. Department of ~~the~~Education ~~results~~could toincrease the beamount ~~expected~~substantially. ~~for~~There ~~any~~can ~~future~~be ~~period.~~no ~~The~~assurance ~~selected~~that ~~historical~~the ~~consolidated~~ U.S. Department ~~financial~~of ~~data~~Education ~~set~~will ~~forth~~not ~~below~~require ~~should~~further restrictions beas ~~read~~a incondition ~~conjunction~~of ~~with,~~the ~~and~~renewal ~~are~~of ~~qualified~~our bycertification. Any ~~reference~~failure to, ~~“Management’s~~meet ~~Discussion~~specific ~~and~~financial ~~Analysis~~responsibility ofratios ~~Financial~~and other ~~Condition~~compliance ~~and~~tests ~~Results~~established by the U.S. Department of ~~Operations”~~Education ~~and~~could ~~the~~affect ~~consolidated~~our ~~financial~~students’ ability to access ~~statements~~ student ~~and~~financial ~~related~~assistance ~~notes~~programs, ~~thereto~~which ~~appearing~~would ~~elsewhere~~adversely affect inour ~~this~~net ~~Form 10-K.~~income and student population.

An institution may lose its eligibility to participate in some or all of the federal student financial aid programs if defaults by its students on their federal student loans exceed specified rates. Certain of our schools have default rates in excess of specified rates in the Federal Perkins Loan Program, which is not a material federal student aid program for us or any of our institutions. Though we believe our schools do not exceed either the specified rates for student default for our material programs or the percentage of revenue limitation test, loss of eligibility to participate in the federal student financial aid programs by one or more of our schools could have a material adverse effect on our student population and revenue.

The consumer credit markets in the United States have recently suffered from increases in default rates and foreclosures on mortgages. Providers of federally guaranteed student loans have also experienced recent increases in default rates. Any increase in interest rates could contribute to higher default rates with respect to repayment of our students’ education loans. Such higher default rates may adversely impact our eligibility to participate in Title IV programs, which could result in a significant reduction in our student population and our profitability.

In the event of a bankruptcy filing by any of our schools, the schools filing for bankruptcy would not be eligible to receive Title IV program funds, notwithstanding the automatic stay provisions of federal bankruptcy law, which would make any reorganization difficult to implement. In addition, our other schools may be held to be jointly responsible for financial aid defaults experienced at the bankrupt schools.

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.

Regulations adopted by the U.S. Department of Education specify criteria an institution must satisfy to establish that it has the requisite “administrative capability” to participate in Title IV programs. These criteria require, among other things, that the institution:


	•	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.

	Predecessor												Successor			Combined			Successor
	Years Ended June 30,									July 1,2005throughMay 31,			June 1throughJune 30,			CombinedYear EndedJune 30,			YearEndedJune 30,
	2003 (1)			2004 (2)			2005 (3)			2006			2006			2006 (4)			2007
	(dollars in millions)
Statement of Operations Data:
Net revenues	$	640.0		$	853.0		$	1,019.3		$	1,095.8		$	74.4		$	1,170.2		$	1,363.7
Costs and expenses:
Educational services		417.5			546.1			640.4			649.8			64.7			714.5			801.6
General and administrative		125.3			167.0			203.8			273.3			26.0			299.3			314.5
Amortization of intangible assets		4.4			6.9			6.5			4.0			1.7			5.7			19.3
Total costs and expenses		547.2			720.0			850.7			927.1			92.4			1,019.5			1,135.3
Income (loss) before interest and income taxes		92.8			133.0			168.6			168.7			(18.0	)		150.7			228.4
Interest (income) expense, net		1.3			2.5			(0.2	)		(5.3	)		14.1			8.8			169.1
Income (loss) before income taxes		91.5			130.5			168.8			174.0			(32.1	)		141.9			59.3
Provision (benefit) for income taxes		35.2			53.5			67.2			73.6			(12.4	)		61.2			27.1
Net income (loss)	$	56.3		$	77.0		$	101.6		$	100.4		$	(19.7	)	$	80.7		$	32.2
Balance Sheet Data:
Cash and cash equivalents (excludes restricted cash)	$	89.0		$	116.7		$	172.0								$	263.3		$	250.7
Total assets		577.6			828.0			956.0									3,945.5			3,949.0
Total debt, including current portion		38.5			128.6			70.4									2,110.0			2,030.0
Total shareholders’ equity		427.8			528.7			666.0									1,282.8			1,311.1
Statement of Cash Flows Data:
Net cash flows provided by (used in):
Operating activities	$	79.4		$	166.3		$	192.5		$	301.7		$	(22.4	)	$	279.3		$	179.4
Investing activities		(108.4	)		(239.9	)		(98.1	)		(56.4	)		(3,534.1	)		(3,590.5	)		(110.8	)
Financing activities		24.3			102.0			(39.0	)		(43.2	)		3,445.5			3,402.3			(80.8	)
Effect of foreign exchange on cash		1.6			(0.6	)		(0.2	)		0.0			0.1			0.1			(0.4	)
Other Data:
EBITDA (5)	$	137.7		$	188.3		$	252.7		$	231.6		$	(10.6	)	$	221.0		$	318.9
Capital expenditures (6)		80.8			82.3			74.9			57.9			7.7			65.6			96.1
Enrollment at beginning of fall quarter (7)		43,784			58,828			66,179			72,471						72,471			80,324
Campus locations (at period end)(8)		42			66			70			71			71			71			78
Ratio of earnings to fixed charges (9)		6.6	x		7.7	x		9.2	x		9.4	x					4.8	x		1.3	x

If an institution fails to satisfy any of these criteria, or any other of the legal and regulatory requirements of Title IV programs, the U.S. Department of Education may:

~~(1)~~• ~~Fiscal~~require ~~2003~~the ~~results~~repayment ~~for~~of ~~Argosy~~federal ~~University~~student ~~reflect~~financial aaid ~~change~~funds inimproperly ~~accounting~~disbursed; ~~estimate~~• ~~due~~transfer tothe ~~our~~institution ~~evaluation~~from ~~and~~the ~~adjustment~~“advance” system of payment of federal student financial aid funds to the ~~useful~~“reimbursement” ~~lives~~system ~~for~~of ~~our~~payment ~~property~~or ~~and~~“cash ~~equipment~~monitoring”; • place the institution on provisional certification status; or • commence a proceeding to ~~more~~impose ~~closely~~a ~~reflect~~fine ~~actual~~or ~~usage.~~to ~~The~~limit, ~~useful~~suspend ~~life~~or ~~adjustment~~terminate ~~decreased~~the ~~income~~participation ~~before~~of ~~interest~~the ~~and~~institution ~~taxes~~in byTitle ~~$3.2~~IV ~~million~~programs.

If one or more of our schools loses or is limited in its access to, or is required to repay, federal student financial aid funds due to a failure to demonstrate administrative capability or to comply with other requirements of Title IV programs, our business could be materially adversely affected.

If our institutions do not comply with the 90/10 Rule, they will lose eligibility to participate in federal student financial aid programs.

Regulations promulgated under the HEA require all for-profit education institutions to comply with the 90/10 Rule, which imposes sanctions on participating institutions that derive more than 90% of their total revenue on a cash accounting basis from Title IV programs. An institution that derives more than 90% of its total revenue on a cash accounting basis from the Title IV programs for each of two consecutive fiscal years loses its eligibility to participate in Title IV programs and is not permitted to reapply for eligibility until the end of the following two fiscal years. Institutions which fail to satisfy the 90/10 Rule for one fiscal year are placed on provisional certification. Compliance with the 90/10 Rule is measured at the end of each of our fiscal years. For those of our institutions that disbursed federal financial aid during fiscal 2009, the percentage of revenues derived from Title IV programs ranged from approximately 55% to 86%, with a weighted average of approximately 70% as compared to a weighted average of approximately 65% in fiscal 2008. We anticipate that our 90/10 rates will continue to increase in fiscal 2010 due to recent increases in grants from the Pell program and other Title IV loan limits, coupled with decreases in the availability of state grants and private loans and the inability of households to pay cash due to the current economic climate. While our consolidated 90/10 rate for fiscal 2010 is projected to remain under the 90% threshold, we project that some of our institutions will exceed the 90% threshold if we do not continue to successfully implement certain changes to these institutions during the fiscal year which would decrease their 90/10 rate, such as increases in international and military students and certain internal restructuring designed to achieve additional operational efficiencies. In prior years, we have successfully addressed 90/10 rate issues when they have arisen through similar changes to operations. Additionally, the revised rules included in the new HEA reauthorization include relief through June 30, 2011 from a $2,000 increase in the annual Stafford loan availability for undergraduate students which became effective July 1, 2008. We anticipate that our 90/10 rate will increase substantially in fiscal 2012 in the event that relief from this additional $2,000 is not extended beyond June 30, 2011, which would adversely affect our ability to comply with the 90/10 Rule. Continued decreases in the availability of state grants would also adversely impact our ability to comply with the 90/10 Rule because state grants generally are considered cash payments for purposes of the 90/10 Rule. We continue to monitor the compliance with the 90/10 Rule by each of our institutions and assess the impact of increased financial aid received by our students under the current rule. If any of our institutions violates the 90/10 Rule, its ineligibility to participate in Title IV programs for at least two years would have a material adverse effect on our enrollments, revenues and results of operations.

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.

Each of our U.S. campuses, including our campuses that provide online programs, is authorized to offer education programs and grant degrees or diplomas by the state in which such school is physically located. The level of regulatory oversight varies substantially from state to state. In some U.S. states, the schools are subject to licensure by the state education agency and also by a separate higher education agency. Some states have sought to

~~(2)~~ assert ~~South~~jurisdiction ~~University~~over online educational institutions that offer educational services to residents in the state or that advertise or recruit in the state, notwithstanding the lack of a physical location in the state. State laws may establish standards for instruction, qualifications of faculty, location and nature of facilities, financial policies and responsibility and other operational matters. State laws and regulations may limit our ability to obtain authorization to operate in certain states or to award degrees or diplomas or offer new degree programs. Certain states prescribe standards of financial responsibility that are different from those prescribed by the U.S. Department ~~Brown~~of ~~Mackie~~Education. ~~Colleges~~In addition, each of our U.S. schools is accredited by a national or regional accreditation agency recognized by the U.S. Department of Education, and some educational programs are ~~included~~also programmatically asaccredited. The level of ~~their~~regulatory ~~respective~~oversight and ~~acquisition~~standards ~~dates~~can ~~during~~vary ~~fiscal~~based ~~2004~~on the agency. Certain accreditation agencies prescribe standards that are different from those prescribed by the U.S. Department of Education. If we are found not to be in compliance with an applicable state regulation and a state seeks to restrict one or more of our business activities within its boundaries, we may not be able to recruit or enroll students in that state and may have to cease providing services and advertising in that state, which could have a material adverse effect on our student enrollment and revenues.

~~(3)~~ If ~~Fiscal~~one ~~2005~~of ~~results~~our ~~include~~schools ~~non-cash~~does not meet its accreditation or applicable state requirements, ~~pretax~~its ~~charges~~accreditation and/or ofstate licensing ~~approximately~~could $4be limited, modified, suspended or terminated.2 Failure ~~million~~to ~~related~~maintain licensure in the state where it is physically located or institutional accreditation would make such school ineligible to ~~fixed~~participate ~~asset~~in ~~impairments~~Title IV programs, which could have a material adverse effect on our student enrollment and revenues. ~~Also~~Further, ~~cumulative~~requirements ~~adjustments~~for programs offered by our schools that are accredited by national accrediting agencies with respect to retention rates, graduation rates and employment placement rates may be more difficult to satisfy due to the current economic recession in the U.S. If programmatic accreditation is withdrawn or fails to be renewed for ~~lease~~any ~~accounting~~of ~~recorded~~the individual programs at any of our schools, enrollment in ~~fiscal~~such ~~2005~~program ~~increased~~could ~~pretax~~decline, ~~expense~~which bycould have ~~approximately~~a ~~$3.8~~material ~~million~~adverse impact on student enrollment and revenues at that school.

~~(4) Our combined results for the year ended June 30, 2006 (“fiscal 2006”) represent the sum~~ Loss of ~~the~~or ~~Predecessor~~reductions ~~period~~in ~~results~~state ~~from~~financial ~~July~~aid 1,programs 2005 through May 31, 2006 and the Successor period results from June 1, 2006 through June 30, 2006. This combination does not comply with generally accepted accounting principles (“GAAP”) or with the rules for ~~unaudited~~our students ~~pro~~could ~~forma~~negatively ~~presentation,~~impact ~~but it is presented because we believe it provides the most meaningful comparison of~~ our ~~results.~~revenues ~~Fiscal 2006 results include $32.2 million in compensation costs resulting~~ from ~~the implementation of Statement of Financial Accounting Standards (SFAS) No~~ students. 123R “Share-Based Payment”. In implementing SFAS No. 123R, we adopted the modified prospective method and, therefore, results of operations in prior fiscal periods were not restated. Additionally, fiscal 2006 includes $40.1 million of merger costs incurred as a result of the Transaction, including $30.2 million of accounting, placement, other financing, investment banking, legal and other professional fees and costs and $9.9 million of employee compensation and payroll taxes.

~~(5)~~ In ~~EBITDA,~~fiscal ~~a measure to be used by management to measure operating performance~~2009, isapproximately ~~defined~~3% asof our net ~~income~~revenues ~~plus~~were indirectly ~~interest~~derived ~~expense~~from ~~(income),~~state ~~net,~~financial ~~taxes,~~aid ~~depreciation and amortization~~programs. ~~EBITDA~~State grant isprograms ~~not~~are agenerally ~~recognized~~subject ~~term under GAAP and does not purport~~ to beannual anappropriation ~~alternative~~by the tostate ~~net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally~~legislature, ~~EBITDA~~which ismay ~~not~~lead ~~intended~~ to bethe ~~a measure of free cash flow available for management~~state’s eliminating ~~discretionary~~or ~~use,~~significantly asdecreasing it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Management believes EBITDA is helpful in highlighting trends because EBITDA excludes the ~~results~~amount of ~~decisions~~state ~~that are outside the control of operating management and can differ significantly from company~~ aid to ~~company~~students ~~depending~~at onour ~~long-term~~schools. ~~strategic~~Recently ~~decisions~~several ~~regarding~~states ~~capital structure, the tax jurisdictions~~ in which ~~companies~~we have ~~operate~~schools ~~and~~have ~~capital~~substantially ~~investments.~~decreased Inor ~~addition,~~eliminated ~~EBITDA provides more comparability between~~ the amount ~~historical results~~ of ~~EDMC~~grants ~~and~~available ~~results~~to ~~that~~students ~~reflect~~who ~~purchase~~attend ~~accounting~~for-profit post ~~and~~secondary ~~the new capital structure~~institutions. ~~Management~~The ~~compensates~~loss ~~for the limitations~~ of ~~using~~access ~~non-GAAP~~to ~~financial~~these ~~measures~~state grants by ~~using~~our ~~them~~students tocould ~~supplement~~have ~~GAAP results to provide~~ a ~~more~~material ~~complete~~adverse ~~understanding~~effect ofon our ~~the factors and trends affecting the~~ business ~~than~~due ~~GAAP results alone. Because not all companies use identical calculations, these presentations of EBITDA may not be comparable~~ to ~~other~~enrollment ~~similarly~~losses ~~titled~~at ~~measures~~our ~~of other companies~~schools. ~~EBITDA is calculated as follows:~~

	Predecessor										Successor			Combined		Successor
	Years Ended June 30,							July 1,2005throughMay 31,			June 1throughJune 30,			Year EndedJune 30,		YearEndedJune 30,
	2003		2004		2005			2006			2006			2006		2007
	(in millions)
Net income (loss)	$	56.3	$	77.0	$	101.6		$	100.4		$	(19.7	)	$	80.7	$	32.2
Interest (income) expense, net		1.3		2.5		(0.2	)		(5.3	)		14.1			8.8		169.1
Provision for income taxes		35.2		53.5		67.2			73.6			(12.4	)		61.2		27.1
Depreciation and amortization, including amortization of intangible assets (a)		44.9		55.3		84.1			62.9			7.4			70.3		90.6
EBITDA	$	137.7	$	188.3	$	252.7		$	231.6		$	(10.6	)	$	221.0	$	318.9

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.

( If we or one of our schools experiences a) ~~Depreciation~~change ~~and~~of ~~amortization~~ownership ~~includes~~or control ~~non-cash~~under ~~charges~~the ~~related~~standards of applicable state agencies, accrediting agencies or the U.S. Department of Education, we or the schools governed by such agencies must seek the approval of the relevant agencies. Transactions or events that could constitute a change of control include significant acquisitions or dispositions of shares of our stock, internal restructurings, acquisition of schools from other owners, significant changes in the composition of a school’s board of directors or certain other transactions or events, several of which are beyond our control. The failure of any of our schools to ~~property~~reestablish its state authorization, accreditation or U.S. Department of Education certification following a transaction involving a change of ownership or control would result in a suspension of operating authority or suspension or loss of federal student financial aid funding, which could have a material adverse effect on our student population and ~~equipment~~revenue. Further, ~~impairments~~such a change of ownership or control could result in the imposition of growth restrictions on our schools, including limitations on our ability to open new campuses or initiate new educational programs. Restrictions on growth such as these could have a material adverse impact on our student population and revenue ~~write-offs~~and future growth plans. The ~~year~~potential ~~ended~~adverse ~~June~~effects of ~~30,~~a ~~2005~~change of control also ~~include~~could ~~$19.5~~influence ~~million~~future ~~related~~decisions toby EDMC ~~cumulative~~and ~~adjustments~~its ~~for~~shareholders ~~changes~~regarding inthe ~~lease~~sale, ~~accounting~~purchase, transfer, issuance or redemption of EDMC’s stock.

(6) Capital expenditures represent net cash paid for property and equipment, leasehold improvements, online curriculum development, software and other assets.

(7) Represents the number of students enrolled in our schools as of the first week in October of the preceding calendar year. Excludes students enrolled at The National Center for Paralegal Training (“NCPT”), which has completed instruction for all programs. NCPT had 45 students enrolled at the beginning of the fall quarter of fiscal 2003 and no students at the beginning of the fall quarters of 2004.

~~(8)~~ Government and ~~Brown~~regulatory ~~Mackie College-Dallas~~ and ~~Brown~~accrediting ~~Mackie~~agencies ~~College-Fort~~may ~~Worth~~conduct ~~discontinued accepting new enrollments effective August 4~~compliance reviews, ~~2005~~bring ~~and~~claims ~~the~~or ~~completion~~initiate oflitigation ~~instruction~~against ~~for all students at each school in June 2006. Upon completion of the instruction of students enrolled at August 4~~us, ~~2005,~~which may ~~each~~adversely ~~school~~impact ~~closed.~~our ~~Brown~~licensing ~~Mackie~~or ~~College-Los~~accreditation ~~Angeles~~status, ~~Brown Mackie College-Orange County, Brown Mackie College-San Diego~~ and thereby ~~Brown~~adversely ~~Mackie~~affect ~~College-Denver~~our ~~discontinued~~results ~~new enrollments in fiscal 2006. We established a degree site~~ of ~~Argosy University at each location which assumed the non-diploma Brown Mackie College class offerings~~ operations. ~~The Brown Mackie College location closed once current students completed their classes.~~

~~(9)~~ From ~~For~~time ~~purposes~~to oftime, ~~calculating~~we ~~the~~may ~~ratio~~be ofsubject ~~earnings~~ to ~~fixed~~program ~~charges~~reviews, ~~earnings~~audits, investigations, ~~consist~~claims of ~~income~~non-compliance ~~before~~or ~~income~~lawsuits ~~taxes~~by governmental ~~plus~~or ~~fixed~~accrediting ~~charges~~agencies or third parties, which may allege statutory violations, regulatory infractions or common law causes of action. ~~Fixed~~If ~~charges~~the ~~include~~results ~~interest~~of ~~expense~~any such proceedings are unfavorable to us, ~~whether~~we ~~expensed~~may lose or ~~capitalized~~have limitations imposed on our accreditation, ~~amortization~~state oflicensing, ~~debt~~state ~~issuance~~grant ~~cost~~or Title IV program participation, be required to pay monetary damages or be subject to fines, penalties, injunctions or other censure that could materially and ~~the~~adversely ~~portion~~affect ofour ~~rental~~business. ~~expense~~We ~~representative~~also ofmay be limited in our ability to open new schools or add new program offerings and may be adversely impacted by the ~~interest~~negative publicity ~~factor~~surrounding an investigation or lawsuit. ~~During~~Even if we adequately address the ~~period~~issues ~~June~~raised 1by ~~through~~an ~~June~~agency 30review or investigation or successfully defend a third-party lawsuit, ~~2006~~we may suffer interruptions in cash flows due to, among other things, transfer from the ~~Successor’s~~advance ~~fixed~~funding ~~charges~~to ~~exceeded~~the “reimbursement” ~~earnings~~or ~~(losses)~~“heightened bycash monitoring” ~~$16~~method of Title IV program funding, and we may have to devote significant money and management resources to address these issues, which could harm our business.1 Additionally, ~~million~~we may experience adverse collateral consequences, including declines in the number of students enrolling at our schools and the willingness of third parties to deal with us or our schools, as a result of any negative publicity associated with such reviews, claims or litigation.

Our regulatory environment and our reputation may be negatively influenced by the actions of other post-secondary education institutions.

In recent years, there have been a number of regulatory investigations and civil litigation matters targeting post-secondary education institutions. These investigations and lawsuits have alleged, among other things, deceptive trade practices, false claims against the United States and non-compliance with state and U.S. Department of Education regulations. These allegations have attracted adverse media coverage and have been the subject of federal and state legislative hearings. Allegations against the overall student lending and post-secondary education sectors may impact general public perceptions of educational institutions, including us, in a negative manner. Adverse media coverage regarding other educational institutions or regarding us directly could damage our reputation, reduce student demand for our programs, adversely impact our revenues and operating profit or result in increased regulatory scrutiny.

We do not have significant experience in processing student loans through the Direct Loan program and, if we are required to process all or a substantial portion of our students’ federal loans through this program, we could experience increases to our administrative costs and delays to the receipt of federal loan proceeds.

Loans to students at our U.S. schools under the FFEL/Direct loan program represented approximately 69.9% of our net revenues in fiscal 2009. President Obama has introduced a budget proposal and a committee in the U.S. House of Representative has approved a bill that would require all new federal student loans after July 1, 2010 to be made through the Direct Loan program. While all of our schools are eligible to participate in the Direct Loan program, as of June 30, 2009 only Brown Mackie College — Tucson and The Art Institute of Tucson actively participated in the program. While we anticipate that each of our U.S. based schools will participate in the Direct Loan program by June 30, 2010, processing all or a significant portion of our students’ federal loans through this program will require a substantial change to our systems and operating procedures, which could cause increases to our administrative costs and delays to our receipt of federal student loan proceeds.

~~ITEM~~ RISKS RELATED 7TO ~~MANAGEMENT’S~~OUR ~~DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~BUSINESS

~~Overview~~ 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.

We The ~~are among the largest providers of post-secondary~~ education infinance ~~North~~industry ~~America,~~has ~~with~~been ~~more~~experiencing ~~than~~and ~~80,300~~may continue ~~active~~to ~~students~~experience asproblems ofthat ~~the~~have ~~fall~~resulted ofin ~~2006. We offer~~fewer ~~education~~ overall ~~through~~financing ~~four~~options ~~different~~for ~~education~~some ~~systems (The Art Institutes, Argosy University, the Brown Mackie Colleges and South University) and through online platforms at three~~ of our ~~four education systems. Our schools offer~~ students ~~a wide variety of programmatic and degree choices in a flexible learning environment~~. ~~Our~~Factors ~~curriculum is designed with a distinct emphasis on applied career-oriented content and is primarily taught by faculty members~~ that could ~~possess~~impact ~~practical~~the ~~and~~general ~~relevant~~availability ~~professional experience~~of inloans ~~their~~to ~~respective~~our ~~fields.~~ students include:

~~Education~~• ~~Management LLC~~changes isin aoverall ~~wholly~~economic ~~owned~~conditions ~~subsidiary~~or ofoverall ~~Education~~uncertainty ~~Management~~or ~~Holdings~~disruption ~~LLC~~in capital markets, ~~which~~in iseither ~~wholly~~case ~~owned~~causing bylenders ~~Education~~to ~~Management~~cease ~~Corporation.~~making Onstudent ~~June 1~~loans, ~~2006~~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, ~~EDMC~~including ~~was~~Sallie ~~acquired~~Mae; by• achanges ~~consortium~~in applicable laws or regulations, such as provisions of ~~private~~the ~~equity~~recently-enacted ~~investment~~HEA ~~funds~~reauthorization ~~led~~that byimpose ~~Providence~~new ~~Equity Partners~~disclosure and ~~Goldman~~certification ~~Sachs~~requirements ~~Capital~~with ~~Partners~~respect ~~(together~~to private educational loans, ~~the~~that ~~“Sponsors”).~~could ~~The~~have ~~acquisition~~the ~~was~~effect ~~accomplished~~of ~~through~~reducing the ~~merger~~availability of EMeducation ~~Acquisition~~financing, ~~Corporation~~including ~~into~~as ~~EDMC~~a result of any lenders choosing to provide fewer loans or to stop providing loans altogether in light of increased regulation, ~~with~~or ~~EDMC~~which ~~surviving~~could increase the ~~merger~~costs ~~(the~~of ~~“Transaction”).~~student ~~Although EDMC~~loans; ~~continued~~or as• determinations by lenders to reduce the ~~same~~number ~~legal~~of ~~entity~~loans, ~~EDMC~~or ~~contributed~~to ~~substantially~~cease ~~all~~making ofloans ~~its~~altogether, ~~assets~~to ~~and~~students ~~liabilities~~attending or planning to ~~Education~~attend ~~Management~~certain ~~LLC~~types inof ~~connection~~schools, ~~with~~particularly ~~the~~for-profit ~~Transaction~~institutions.

~~Pursuant~~ During fiscal 2009, revenues derived indirectly from private loans to ~~the~~students ~~terms~~at our schools, excluding loans under our Education Finance Loan program, represented approximately 13.1% of ~~the~~our ~~merger~~net ~~agreement~~revenues, ~~all~~as ~~outstanding~~compared ~~shares~~to approximately 22.3% of ~~EDMC’s~~our net ~~common~~revenues ~~stock~~in ~~were~~fiscal ~~cancelled~~2008. inWe ~~exchange~~estimate ~~for~~that ~~$43.00~~net ~~per~~revenues ~~share~~ derived inindirectly ~~cash~~from ~~paid~~private byloans ~~investment~~to ~~funds~~students ~~designated~~attending byour schools ~~the~~will ~~Sponsors~~represent approximately 6% of net revenues in fiscal 2010. ~~The~~These ~~Sponsors,~~loans ~~together~~are ~~with~~provided ~~certain~~pursuant ~~other~~to ~~investors,~~private ~~became~~loan programs and are made available to eligible students at our schools to fund a portion of the ~~owners~~students’ costs of education ~~EDMC.~~not ~~The~~covered ~~Transaction~~by ~~was~~federal ~~accounted~~and ~~for~~state asfinancial aaid ~~purchase~~grants due to increases in ~~accordance~~tuition ~~with~~and ~~Statement~~the cost of ~~Financial~~living. ~~Accounting~~Private ~~Standards~~ loans ~~(“SFAS”)~~are Nomade to our students by institutions and are non-recourse to us and our schools. ~~141~~ Approximately 79% of the private loans in fiscal 2009, ~~“Business~~or ~~Combinations”~~approximately $206.5 million of private loans, were offered by Sallie Mae and its affiliates and serviced by its affiliated loan servicer.

~~The~~ During ~~largest~~fiscal ~~component~~2009, ofadverse ~~our~~market ~~revenue~~conditions isfor ~~tuition~~consumer student ~~collected~~loans ~~from~~have ~~our~~resulted ~~students~~in ~~which~~providers isof ~~presented~~private inloans reducing the ~~statements~~attractiveness and/or decreasing the availability of ~~operations~~private ~~after~~loans ~~deducting~~to ~~refunds~~post-secondary students, ~~scholarships~~including ~~and~~students ~~other~~with ~~adjustments.~~low ~~Net~~credit ~~revenues~~scores ~~consist~~who ofwould ~~tuition~~ not ~~and~~otherwise ~~fees,~~be eligible for credit-based private loans. In order to provide student ~~housing~~loans ~~fees,~~to ~~bookstore~~certain ~~sales,~~of ~~restaurant~~our ~~sales~~students inwho ~~connection~~do not ~~with~~satisfy ~~culinary~~the ~~programs,~~new ~~workshop~~standard ~~fees~~underwriting, ~~finance~~we ~~charges~~pay ~~related~~credit enhancement fees to ~~credit~~certain ~~extended~~lenders to(including ~~students~~Sallie ~~and~~Mae) ~~sales~~based on ofthe ~~related~~principal ~~study~~balance ~~materials,~~of ~~reduced~~each ~~for~~loan ~~student~~disbursed ~~refunds and~~by ~~scholarships~~the lender. An Weagreement ~~recognize~~we ~~revenue~~entered oninto with Sallie Mae to provide loans to certain students who received a ~~pro~~private ~~rata~~loan ~~basis~~from ~~over~~Sallie ~~the~~Mae prior ~~term~~to ofApril 17, ~~instruction~~2008 orand ~~occupancy~~are orcontinuing ~~when~~their ~~cash~~education but iswho ~~received~~do innot ~~the~~satisfy ~~case~~Sallie ofMae’s ~~certain~~current ~~point-of-sale~~standard underwriting ~~revenues~~criteria expires in June 2010. ~~The~~There ~~amount~~can ofbe ~~tuition~~no assurance ~~revenue~~that ~~received~~we ~~from~~will ~~students~~be ~~varies~~able ~~based~~to onextend the current agreement ~~average~~ or ~~tuition~~enter ~~charge~~into ~~per~~a ~~credit~~new ~~hour~~agreement on acceptable terms, ~~average~~if ~~credit~~at ~~hours~~all. ~~taken~~If we ~~per~~were ~~student,~~unable ~~type~~to ofdo ~~program~~so, ~~specific~~we ~~curriculum~~would ~~and~~attempt ~~the~~to ~~average~~assist ~~student~~these students ~~population.~~in ~~Bookstore~~their ~~and~~pursuit ~~housing~~of ~~revenues~~alternate ~~are~~financing ~~largely~~options, including athrough ~~function~~our ofEducation ~~the~~Finance ~~average~~Loan ~~student population~~program.

The ~~two~~consumer ~~main~~credit ~~determinants~~markets ofin ~~our~~the ~~revenue~~United ~~are~~States ~~average~~have ~~student~~recently ~~population~~ suffered ~~and~~from ~~tuition~~increases ~~rates.~~in ~~Factors~~default ~~impacting~~rates ~~our~~and ~~average~~foreclosures ~~student~~on mortgages, ~~population~~which ~~include~~in ~~the~~some ~~number~~cases ofhave ~~continuing~~called ~~students~~into ~~attending~~question ~~school at~~ the continued ~~beginning~~financial viability of acertain ~~period~~student loan providers and ~~the~~has ~~number~~resulted ofin ~~new~~fewer ~~students~~providers ~~entering~~of ~~school~~student ~~during such period~~loans. ~~We believe that~~Providers ~~the size~~ of ~~our~~federally guaranteed student ~~population~~loans atand ~~our~~alternative ~~campuses~~or isprivate student ~~influenced~~loans byhave ~~the~~also ~~number~~experienced ofrecent ~~graduating~~increases ~~high~~in ~~school~~default rates. ~~students,~~Adverse ~~the~~market ~~attractiveness~~conditions offor ~~our~~consumer ~~program~~and ~~offerings,~~federally guaranteed ~~the~~student ~~quality~~loans ofhave ~~the~~resulted ~~student~~in ~~experience,~~providers ~~the effectiveness~~ of ~~our marketing efforts,~~private ~~changes~~ loans inreducing ~~technology,~~ the ~~persistence~~attractiveness and/or decreasing ~~of our students,~~ the ~~length~~availability of ~~the~~private ~~education~~loans ~~programs~~to post-secondary students, ~~our~~including ~~overall~~students ~~educational~~with ~~reputation~~low ~~and~~credit ~~general~~scores ~~economic~~who ~~conditions.~~would not Weotherwise ~~seek~~be toeligible ~~grow~~for ~~our~~credit-based ~~average~~private ~~student~~loans. Prospective ~~population~~students ~~through~~may ~~offering~~find ~~additional~~that ~~programs~~these atincreased financing ~~existing~~ costs ~~schools~~make ~~and~~borrowing ~~through~~prohibitively ~~establishing~~expensive ~~new~~and ~~school~~abandon ~~locations, whether through acquisition~~ or delay ~~new~~enrollment ~~facility~~in ~~start~~post-~~up.~~secondary ~~With~~education ~~regard~~programs. toCertain private ~~tuition~~lenders ~~rates, historically we~~ have ~~been~~also ~~able~~required tothat ~~pass~~we ~~along~~pay ~~cost~~them ~~increases~~new ~~through increases in tuition. Average~~or ~~tuition rates~~ increased byfees ~~approximately 5.0% and 6.0%~~ in ~~fiscal~~order ~~2007~~to ~~and~~provide ~~fiscal~~private ~~2006,~~loans ~~respectively.~~to prospective students.

The majority of our students rely on funds received under various government-sponsored student financial aid programs, especially Title IV programs, to pay a substantial portion of their tuition and other education-related expenses. For the last three completed fiscal years approximately 70% of our net revenues were indirectly derived from Title IV programs. Because of the dependence on government sponsored programs, we participate in industry groups and monitor the impact of newly proposed legislation on our business.

~~Our~~ While ~~quarterly~~we ~~revenues~~are ~~and~~taking ~~income~~steps ~~fluctuate~~to ~~primarily~~address ~~as a result of~~ the ~~pattern~~private ofloan ~~student~~needs ~~enrollments.~~of ~~Student~~ our ~~enrollment at the Art Institute schools has typically peaked in the fall (fiscal second quarter)~~students, ~~when~~ the ~~largest~~inability ~~number~~ of ~~recent~~our ~~high~~students ~~school~~to ~~and~~finance ~~college graduates traditionally begin post-secondary~~ their education ~~programs.~~could ~~Our~~cause ~~first quarter is typically~~ our ~~lowest~~student ~~revenue~~population ~~recognition~~to ~~quarter~~decrease, ~~due~~which could tohave ~~student~~a ~~vacations.~~material ~~The~~adverse ~~seasonality~~effect ofon our ~~business~~financial ~~has~~condition, results ~~decreased over the last several years due to an increased percentage~~ of ~~students~~operations ~~enrolling~~and incash ~~online programs~~flows.

~~Educational services expense, the largest component of our operating expense,~~ ~~consists~~ We recently ~~primarily~~introduced ~~of costs related to~~ the ~~development,~~Education ~~delivery~~Finance ~~and~~Loan ~~administration of our education programs. Major cost components are faculty compensation~~program, ~~salaries of administrative and student services staff, costs of educational materials,~~which ~~facility~~ could ~~occupancy~~have costs, information systems costs, bad debt expense and depreciation and amortization of property and equipment. Many of these items are relatively fixed in nature and are not subject to volatile input pricing. We anticipate these expenses to decrease as a ~~percentage~~material ofadverse ~~revenue~~effect ~~in the future due to continued leverage~~ on our ~~fixed~~financial ~~cost~~condition, results ~~base as our schools grow through the introduction~~ of ~~new~~operations ~~programs at our existing schools~~ and ~~continued~~cash ~~growth in the number of students taking classes online~~flows.

~~The~~ In ~~second~~August ~~largest~~2008, ~~expense~~we ~~line~~introduced ~~item,~~the ~~general and~~Education ~~administrative~~Finance ~~expense~~Loan program, ~~consists~~which ofenables ~~marketing~~students ~~and~~who ~~student~~have ~~admissions~~exhausted ~~expenses~~all ~~and~~available government-sponsored ~~certain~~or ~~central~~other ~~staff~~aid ~~departmental~~and ~~costs~~have ~~such~~been asdenied ~~executive~~a ~~management,~~private loan ~~finance~~to ~~and~~borrow ~~accounting,~~a ~~legal,~~portion ~~corporate~~of ~~development~~their tuition and other ~~departments that do not~~educational ~~provide~~ expenses ~~direct~~at ~~services to~~ our ~~students.~~schools Wenot ~~have~~covered ~~centralized~~by ~~many~~other offinancial ~~these~~aid sources ~~services~~if tothey ~~gain~~or ~~consistency~~a inco-borrower ~~management~~meet ~~reporting,~~certain ~~efficiency~~eligibility ~~in administrative effort~~ and underwriting ~~cost control~~criteria. ~~With~~During ~~regard~~fiscal ~~to the marketing component~~2009, weapproximately ~~have~~1.0% ~~seen a change in~~of ~~the~~ our ~~way~~net werevenues ~~market~~were toderived ~~and attract inquiries~~ from ~~prospective~~loans ~~students~~under as the ~~Internet~~Education Finance ~~has~~Loan ~~become an increasingly important way of reaching students~~program. ~~Internet~~We ~~inquiries,~~estimate ~~which~~that ~~generally~~additional ~~cost less than leads from traditional media sources like~~disbursements ~~television~~ under ~~and~~this ~~print,~~program ~~convert~~during atfiscal a2010 ~~lower~~will ~~rate~~be ~~than traditional media sources~~approximately $75 million.

~~Results~~ We will bear the risks of ~~Operations~~collection with respect to these loans from students who do not meet eligibility and underwriting standards of other commercial lenders. As a result, we expect that our allowance for doubtful accounts and bad debt expense will increase. Factors that may impact our ability to collect these loans include general economic conditions, compliance with laws applicable to the origination, servicing and collection of loans, the quality of our loan servicers’ performance and the priority that borrowers under these loans, particularly students who did not complete or were dissatisfied with their programs of study, attach to repaying these loans as compared to other obligations. We also expect our accounts receivable and days sales outstanding to increase from prior years. In addition, because of restrictions imposed under our existing debt arrangements or otherwise, this program, or any enlargement or extension of this program, could adversely affect our ability to make investments and incur indebtedness for the financing of other aspects of our business, including acquisitions.

~~The~~ Approximately ~~following~~1% ~~table~~of our student population currently ~~sets~~ participates ~~forth~~in the Education Finance Loan program, and a number of factors may contribute to fewer students participating in the program in the future than we currently expect. Students may believe that loans under this program are undesirable, or we may find that fewer students qualify for the ~~periods~~program ~~indicated~~than we anticipate. If other loans are not available to finance these students’ education, they may choose not to attend our schools. In addition, because the ~~percentage~~documents ~~relationship~~governing ofour ~~certain~~debt arrangements ~~statements~~contain limitations on the amount of ~~operations~~investments ~~items~~we may tomake ~~net~~under ~~revenues~~the Education Finance Loan program, student demand for loans under the program may exceed the applicable limit from time to time. Finally, if the lender participating in the program decides to discontinue its involvement, we may not be able to engage substitute lenders or initiate a direct financing or lending program in a timely manner on similar terms, if at all.

	Predecessor				Successor		Combined (1)		Successor
	Year endedJune 30, 2005		Period fromJuly 1, 2005throughMay 31, 2006		Period fromJune 1, 2006throughJune 30, 2006		Period fromJuly 1, 2005throughJune 30, 2006		Year endedJune 30, 2007
Net revenues	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:
Educational services	62.8	%	59.3	%	86.9	%	61.1	%	58.8	%
General and administrative	20.0	%	24.9	%	34.9	%	25.6	%	23.1	%
Amortization of intangible assets	0.6	%	0.4	%	2.3	%	0.5	%	1.4	%
Total costs and expenses	83.4	%	84.6	%	124.1	%	87.2	%	83.3	%
Income (loss) before interest and income taxes	16.6	%	15.4	%	(24.1	%)	12.8	%	16.7	%
Interest (income) expense, net	0.0	%	(0.5	%)	18.9	%	0.7	%	12.4	%
Income (loss) before income taxes	16.6	%	15.9	%	(43.0	%)	12.1	%	4.3	%
Provision for (benefit from) income taxes	6.6	%	6.7	%	(16.7	%)	5.2	%	2.0	%
Net income (loss)	10.0	%	9.2	%	(26.3	%)	6.9	%	2.3	%

Federal, state and local laws and public policy and general principles of equity relating to the protection of consumers apply to the origination, servicing and collection of the loans that we purchase under this program. Any violation of the various federal, state and local laws, including, in some instances, violations of these laws by parties not under our control, may result in losses on the loans that we purchase or may limit our ability to collect all or part of the principal or interest on the loans that we purchase. This may be the case even if we are not directly responsible for the violations by such parties.

~~(1)~~ Federal ~~Our~~or ~~combined~~state ~~results~~financial ~~for~~regulators also might delay or suspend the ~~fiscal~~Education ~~year~~Finance ~~ended~~Loan ~~June~~program 30for a variety of reasons, ~~2006~~including ~~represent~~as ~~the~~a ~~sum~~result of ~~the~~concerns ~~Predecessor~~that ~~period~~the ~~results~~program exposes ~~from~~our ~~July~~bank 1,partners ~~2005~~to ~~through~~unacceptable ~~May~~risks. 31Finally, depending ~~2006~~on ~~and~~the terms of the ~~Successor~~loans, ~~period~~state ~~results~~consumer ~~from~~credit regulators ~~June~~may 1,assert ~~2006~~that ~~through~~our ~~June~~activities ~~30,~~in ~~2006.~~connection ~~This~~with ~~combination~~the Education ~~does~~Finance ~~not~~Loan ~~comply~~program ~~with~~require ~~GAAP~~us to obtain one or ~~with~~more licenses, ~~the~~registrations ~~rules~~or ~~for~~other ~~unaudited~~forms ~~pro~~of ~~forma~~regulatory ~~presentation~~approvals, any ~~but~~of itwhich ismay ~~presented~~not ~~because~~be weable ~~believe~~to itbe ~~provides~~obtained ~~the~~in ~~most~~a ~~meaningful~~timely ~~comparison~~manner, if ofat ~~our results~~all.

Our business may be adversely affected by a general economic slowdown or recession in the U.S. or abroad.

The U.S. and other industrialized countries currently are experiencing reduced economic activity, increased unemployment, substantial uncertainty about their financial services markets and, in some cases, economic recession. In addition, homeowners in the United States have experienced a significant reduction in wealth due to the decline in residential real estate values across much of the country. These events may reduce the demand for our programs among students, which could materially and adversely affect our business, financial condition, results

~~Year~~ of ~~Ended~~operations ~~June 30,~~and ~~2007~~cash ~~Compared~~flows. These adverse economic developments also may result in a reduction in the number of jobs available to our graduates and lower salaries being offered in connection with ~~Combined~~available ~~Period~~employment, ~~from~~which, ~~July 1~~in turn, ~~2005~~may result ~~through~~in ~~June 30~~declines in our placement and persistence rates. In addition, ~~2006~~these ~~(Fiscal~~events could adversely affect the ability or ~~2006)~~ willingness of our former students to repay student loans, which could increase our student loan cohort default rate and require increased time, attention and resources to manage these defaults. Further, the inability of students to pay their tuition and fees in cash has, along with other factors, resulted in a significant increase to our 90/10 rate.

~~Net~~ The current ~~Revenues~~unprecedented 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.

~~Revenues~~ The ~~for~~credit ~~fiscal~~and ~~2007~~equity ~~increased~~markets ~~16.5%~~of toboth ~~$1,363.7~~mature ~~million,~~and ~~compared to~~developing $1 economies have experienced extraordinary volatility,~~170.2~~ ~~million~~asset erosion ~~for~~and ~~the~~uncertainty ~~same~~in ~~period~~the alast year ~~ago~~, ~~primarily~~leading ~~resulting~~to governmental ~~from~~intervention ain ~~12.7%~~the ~~growth~~banking sector in ~~average~~the ~~total~~United States ~~student~~and ~~enrollment~~abroad ~~and~~on an ~~approximate~~unprecedented 5scale.0% ~~increase~~Until inthese ~~tuition~~market disruptions ~~rates.~~diminish, ~~Tuition~~we ~~revenue~~may ~~generally~~not ~~varies~~be ~~based~~able onto access the ~~average~~capital markets ~~tuition~~to ~~charge~~obtain ~~per credit~~funding ~~hour,~~needed ~~average~~to ~~credits~~refinance ~~per~~our ~~student~~existing indebtedness ~~and~~or ~~the~~expand ~~average~~our ~~student population~~business. ~~Average~~In ~~student~~addition, ~~enrollment~~changes ~~for~~in ~~fiscal~~the capital ~~2007~~or ~~increased~~other tolegal ~~approximately~~requirements ~~77,200~~applicable ~~students~~to ~~compared~~commercial lenders tomay ~~approximately~~affect ~~68,500~~the ~~students~~availability ~~for~~or increase the ~~same~~cost ~~period~~of borrowing ~~last~~under ~~year.~~our Wesenior ~~derived 91~~secured credit facilities.2% ofIf ~~our~~we ~~net~~are unable ~~revenues~~to ~~from~~obtain ~~tuition~~needed ~~and~~capital ~~fees~~on ~~paid~~terms byacceptable to us, we may have to limit our growth initiatives or ontake ~~behalf~~other ~~of,~~actions that materially adversely affect our ~~students~~business, infinancial condition, ~~both~~results ~~fiscal~~of ~~2007~~operations and ~~fiscal~~cash ~~2006~~flows.

~~Bookstore~~ We ~~and housing revenue is largely a function of the average student population. Net housing revenues increased by 19.3% to $59.8 million in fiscal~~may ~~2007~~ have ~~compared~~difficulty toopening ~~$50.1~~additional ~~million~~new inschools ~~fiscal 2006~~ and ~~revenues~~growing ~~from~~our online ~~bookstore~~academic ~~sales~~programs, ~~(which includes supplies~~ and ~~other~~we ~~items)~~may inbe ~~fiscal~~unable ~~2007 grew by 14.7%~~ to ~~$46.1 million~~achieve ~~compared~~the anticipated toreturn ~~$40.2~~on ~~million~~our ~~in fiscal 2006~~investment.

~~Educational~~ We ~~Services~~anticipate continuing to open new schools in the future. Establishing new schools poses unique challenges and requires us to make investments in management, capital expenditures, marketing expenses and other resources. When opening a new school, we are required to obtain appropriate state or provincial and accrediting agency approvals. In addition, to be eligible for federal student financial aid programs, a school has to be certified by the U.S. Department of Education. Further, our debt agreements include limitations on the amount of capital expenditures we may make on an annual basis. Our failure to effectively manage the operations of newly established schools or service areas, or any diversion of management’s attention from our core school operating activities, could harm our business.

~~Our educational services expense increased by $87.1 million, or 12.2%, to~~ ~~$801.6~~ We ~~million~~anticipate insignificant ~~fiscal~~future ~~2007~~growth from ~~$714.5~~online ~~million~~courses inwe offer ~~fiscal 2006, due primarily~~ to ~~the incremental costs incurred to support higher student enrollment~~students. ~~Educational~~As ~~services~~of ~~expense~~June 30, ~~includes faculty and certain administrative compensation~~2009, ~~rent~~we ~~and~~offer fully ~~other~~ online ~~facility~~programs ~~operating~~at ~~costs,~~The ~~cost~~Art Institute of ~~sales~~Pittsburgh, ~~bad debt~~Online Division, ~~and~~Argosy ~~depreciation~~University and ~~amortization~~South University. AsWe aplan ~~percentage~~to continue ofto ~~net~~introduce ~~revenue,~~new ~~educational~~online ~~services~~programs ~~expense~~at ~~decreased~~these ~~228~~schools ~~basis points over~~ in the ~~same period a year ago~~future. ~~During~~The ~~fiscal~~success ~~2006, we incurred non-cash equity based compensation expense associated with SFAS No. 123R, which is a component~~ of ~~personnel~~any ~~costs,~~new ofonline ~~$13.1~~programs ~~million,~~and ~~compared~~classes depends ~~to no expense~~ in ~~fiscal~~part ~~year~~on ~~ended~~our ~~June~~ability ~~30,~~to ~~2007.~~expand ~~After adjusting for~~ the ~~effect~~content of ~~non-cash~~our ~~equity~~ programs, ~~based~~develop ~~compensation~~new ~~expense~~programs ~~incurred~~ in ~~fiscal~~a ~~2006,~~cost-effective ~~educational~~manner ~~services~~and meet ~~expenses~~the ~~decreased~~needs ~~118 basis points as a percentage~~ of ~~net~~our ~~revenue~~students in ~~fiscal~~a ~~2007~~timely manner. WeThe ~~experienced~~expansion of aour ~~reduction~~existing inonline ~~personnel and facility expenses~~programs, ~~including~~the ~~rent,~~creation of 62new online ~~basis~~ classes ~~points~~and asthe adevelopment ~~percentage~~ of ~~net revenue compared to fiscal 2006 despite continued investment in~~ new ~~campuses~~fully ~~and~~ online programs. ~~Rent~~may ~~expense~~not be ~~associated~~accepted ~~with~~by ~~schools~~students ~~during~~or the ~~fiscal~~online ~~year~~education ~~ended~~market ~~June 30,~~for ~~2007 totaled $105.0 million, or~~many ~~7.7% of net revenue~~ reasons, including as ~~compared~~a toresult ~~$90.3 million, or 7.7%~~ of ~~net~~the ~~revenue,~~expected increased competition in the ~~same~~online ~~period~~education amarket ~~year~~or ~~ago.~~because ~~Depreciation~~of ~~and~~any problems ~~amortization~~with ~~included~~the inperformance ~~education~~or ~~services~~reliability ~~expense~~of ~~decreased~~our 22online program ~~basis~~infrastructure. ~~points~~In asaddition, a ~~percentage~~general ofdecline ~~net revenues~~ in ~~fiscal 2007.~~ ~~Bad~~ Internet ~~debt~~use ~~expense~~for ~~remained~~any ~~flat~~reason, inincluding ~~fiscal~~due ~~2007 compared~~ to ~~the~~security ~~prior~~or privacy ~~year~~concerns, atthe ~~2.0%~~cost of ~~net~~Internet ~~revenues.~~service ~~The~~or ~~remaining~~changes ~~decrease~~in government regulation of 34Internet ~~basis~~use ~~points~~may asresult ~~a percentage of net revenue~~ in ~~fiscal~~less ~~2007~~demand for ~~compared~~online toeducational ~~the~~services, ~~same~~in ~~period~~which acase ~~year~~we ~~ago~~may ~~was~~not ~~primarily driven by~~be ~~continued~~ able ~~operating~~to ~~leverage~~grow onour ~~other~~online ~~costs,~~programs ~~including non-facilities professional fees and services~~ as ~~well as supplies~~planned.

~~General~~ 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 ~~Administrative~~in a cost-effective manner.

~~General~~ We ~~and~~continually ~~administrative~~seek ~~expense~~to ~~was~~improve ~~$314.5~~the ~~million~~content ~~for fiscal 2007, an increase~~ of ~~5.1%~~our ~~from $299.3 million in fiscal 2006. As a percentage of net~~existing ~~revenue,~~ academic ~~general~~programs and ~~administrative~~develop ~~expense~~new ~~decreased~~programs ~~252~~in ~~basis~~order ~~points as compared~~ to ~~the same period a year ago. During fiscal 2006, we incurred non-cash equity based compensation expense associated with SFAS No. 123R, which is a component of~~meet ~~personnel~~ changing ~~costs,~~market ~~of $19~~needs.1 ~~million,~~Revisions ~~compared~~ to noour ~~expense~~existing inacademic programs ~~fiscal year ended June 30, 2007. We also incurred legal~~ and ~~professional fees related to~~ the ~~Transaction~~development of ~~$29.8 million.~~new ~~After~~programs ~~adjusting~~may ~~for~~not ~~the~~be ~~effect of non-cash equity based~~accepted ~~compensation~~ by ~~expense~~existing ~~associated~~or ~~with~~prospective ~~SFAS~~students ~~No. 123R~~or ~~incurred~~employers in ~~the~~all instances. ~~prior~~If ~~year~~we ~~period~~cannot asrespond ~~well~~effectively asto ~~transaction-related~~market ~~costs~~changes, our ~~general~~business ~~and~~may ~~administrative~~be ~~expense~~adversely ~~increased~~affected. ~~168~~Even ~~basis~~if ~~points~~we asare aable ~~percentage of net revenue compared~~ to ~~the same period~~ a develop ~~year~~acceptable ~~ago.~~new ~~Continued~~programs, ~~investment~~we inmay ~~marketing~~not ~~and~~be ~~admissions~~able ~~personnel~~to ~~resulted~~introduce these innew anprograms ~~increase~~as ofquickly ~~114~~as ~~basis~~students ~~points~~require inor ~~personnel~~as ~~expenses~~ quickly as aour ~~percentage~~competitors ofare ~~net~~able ~~revenue as compared~~ to ~~the~~introduce ~~prior~~competing ~~year~~programs. ~~Additionally, higher investment in advertising~~Our ~~drove~~ efforts ~~an 81 basis point increase as compared~~ to ~~the~~introduce ~~prior year. Consulting and advisory expenses resulted in an increase of 47 basis points as~~ a ~~percentage~~new ~~of net revenue~~ academic

~~compared~~ program tomay ~~prior~~be ~~year~~conditioned ~~primarily~~or ~~due~~delayed toby ~~the~~requirements ~~impact~~to ofobtain federal, ~~incurring~~state aand ~~full~~accrediting ~~year~~agency ~~of the $5~~approvals.0 ~~million~~The indevelopment of ~~advisory~~new ~~fees~~programs ~~payable to the Sponsors~~ and ~~Leeds Equity Partners~~classes, ~~which~~both ~~commenced~~conventional onand ~~June 1~~online, ~~2006.~~is subject ~~These~~to ~~increases~~requirements ~~were~~and ~~partially~~limitations ~~offset~~imposed by ~~continued~~the U.S. Department ~~operating~~of ~~leverage on administrative personnel expenses~~Education, ~~which~~state ~~contributed~~licensing toagencies aand the 92relevant ~~basis~~accrediting ~~point~~bodies. ~~decrease~~The asimposition ~~a percentage~~ of ~~net~~restrictions on ~~revenue~~the ~~compared~~initiation toof ~~the prior~~new ~~year.~~educational ~~The~~programs ~~remaining~~by ~~decrease~~any of 18our regulatory ~~basis~~agencies ~~points~~may asdelay asuch ~~percentage~~expansion ofplans. ~~net~~If ~~revenue~~we ~~compared~~do tonot respond ~~the~~adequately ~~prior~~to ~~year~~changes ~~was~~in ~~primarily~~market ~~driven~~requirements, byour ability ~~continued~~to ~~operating~~attract ~~leverage~~and onretain ~~other~~students ~~costs,~~could ~~including~~be ~~employee~~impaired ~~relations~~ and ~~other~~our financial ~~general~~results ~~and~~could ~~administrative expenses~~suffer.

~~Amortization~~ Establishing new academic programs or modifying existing academic programs also may require us to make investments in specialized personnel and capital expenditures, increase marketing efforts and reallocate resources away from other uses. We may have limited experience with the subject matter of ~~Intangible~~new programs ~~Assets~~and may need to modify our systems and strategy. If we are unable to increase the number of students, offer new programs in a cost-effective manner or otherwise manage effectively the operations of newly established academic programs, our results of operations and financial condition could be adversely affected.

~~Amortization of intangibles increased $13.6 million to $19.3~~ ~~million~~ Our marketing inand ~~fiscal~~advertising ~~2007,~~programs asmay ~~compared~~not tobe ~~$5.7 million~~effective in attracting ~~fiscal~~prospective ~~2006~~students, ~~due~~current tostudents ~~the~~or ~~impact~~potential employers of ~~the~~our ~~Transaction~~graduates.

~~Income~~ In ~~before~~order ~~Interest~~to maintain and ~~Income~~increase ~~Taxes~~our revenues and margins, we must continue to attract new students in a cost-effective manner. Over the last several fiscal years, we have increased the amounts spent on marketing and advertising, and we anticipate that this trend will continue. If we are unable to successfully advertise and market our schools and programs, our ability to attract and enroll new students could be adversely impacted and, consequently, our financial performance could suffer. We use marketing tools such as the Internet, radio, television and print media advertising to promote our schools and programs. Our representatives also make presentations at high schools. If we are unable to utilize these advertising methods in a cost-effective manner or if our other costs limit the amount of funds we can contribute to advertising, our profitability and revenue may suffer. Additionally, we rely on the general reputation of our schools and referrals from current students, alumni and employers as a source of new students. Among the factors that could prevent us from successfully marketing and advertising our schools and programs are the failure of our marketing tools and strategy to appeal to prospective students or current student and/or employer dissatisfaction with our program offerings or results and diminished access to high school campuses.

~~Income~~ A decline ~~before interest and taxes (operating income) increased by $77.7 million to $228.4 million~~ in ~~fiscal~~the ~~2007~~overall ~~from~~growth ~~$150.7~~of ~~million~~enrollment in ~~the prior year. The~~post-secondary ~~corresponding~~ institutions ~~margin~~could ~~increased~~cause ~~approximately~~us ~~387 basis points~~ to ~~16.7%~~experience ~~for~~lower ~~the~~enrollment ~~fiscal~~at our ~~year~~schools, aswhich ~~compared~~would tonegatively ~~12.8%~~impact ~~for~~our ~~the prior year due to the factors described above~~future growth.

~~Interest~~ According ~~Expense~~to the U.S. Department of Education, ~~Net~~enrollment in degree-granting, post-secondary institutions is projected to grow 11.7% over the ten-year period ending in the fall of 2017 to approximately 20.1 million students. This growth compares with a 24.0% increase reported in the prior ten-year period ended in 2007, when enrollment increased from 14.5 million students in 1997 to 18.0 million students in 2007. While enrollment growth in the ten-year period ended 2007 was accompanied by a 23.7% increase in high school graduates from 2.7 million students in 1997 to 3.3 million students in 2007, the U.S. Department of Education is not projecting any significant growth in the number of high school graduates through 2017.

We Our substantial ~~incurred~~leverage ~~net~~could ~~interest~~adversely ~~expense~~affect ~~for~~our ~~fiscal~~ability ~~2007~~to ofraise additional ~~$169.1~~capital ~~million compared~~ to ~~net~~fund ~~interest~~our ~~expense~~operations, oflimit ~~$8.8 million~~our inability to ~~fiscal~~ react ~~year~~to ~~2006,~~changes ~~which~~in ~~included~~the ~~interest~~economy ~~income~~or ofour ~~$7.8~~industry ~~million.~~and ~~The~~expose ~~increase~~us ~~in net~~ to interest ~~expense~~rate isrisk ~~due primarily~~ to the ~~debt~~extent ~~incurred in connection with the Transaction and related amortization~~ of ~~financing~~our ~~costs.~~variable rate debt.

~~Provision~~ The ~~for~~following ~~Income~~chart ~~Taxes~~shows our level of consolidated indebtedness at June 30, 2009 (in thousands):

Income tax expense for the twelve months ended June 30, 2007 was $27.1 million as compared to $61.2 million for the same period a year ago. Our effective tax rate was 45.7% for the twelve months ended June 30, 2007 as compared to 43.1% for the same period a year ago. The increase in the effective rate for fiscal 2007 as compared to the prior fiscal year was primarily due to the impact of valuation allowances established against state deferred tax assets and deferred tax expense resulting from the elimination of a portion of the valuation allowance previously established against deferred tax assets associated with Canadian net operating loss carry forwards that were utilized during the year. The effective rates differed from the combined federal and state statutory rates primarily due to increases in valuation allowances against state deferred tax assets and expenses that are non-deductible for tax purposes.


Revolving credit facility(1)	$	100,000
Senior secured term loan facility		1,126,827
83/4% senior notes due 2014		375,000
101/4% senior subordinated notes due 2016		385,000
Capital leases		622
Mortgage debt of consolidated entity		1,194

Total	$	1,988,643

Net Income

Net income decreased by $48.5 million to $32.2 million in fiscal 2006 from $80.7 million the year ago period due to the factors described above.

Combined Period from July 1, 2005 through June 30, 2006 (Fiscal 2006) Compared with Year Ended June 30, 2005

Net Revenues

Revenues for fiscal 2006 increased 14.8% to $1,170.2 million, compared to $1,019.3 million for the same period a year ago, primarily resulting from a 9.8% growth in average total student enrollment and an approximate 6.0% increase in tuition rates. Tuition revenue generally varies based on the average tuition charge per credit hour, average credits per student and the average student population. Average student enrollment for fiscal 2006 increased to 68,474 students compared to 62,384 students for the same period last year. We derived 91.2% and 90.6% of our net revenues from tuition and fees paid by, or on behalf of, our students in fiscal 2006 and fiscal 2005, respectively.

~~Bookstore~~(1) ~~and~~Upon ~~housing~~the ~~revenue~~closing isof ~~largely~~the Transaction, we entered into a ~~function~~$300.0 ofmillion ~~the~~revolving ~~average~~credit ~~student~~facility ~~population~~with a six-year maturity. ~~Net~~The ~~housing revenues~~revolving ~~increased~~credit byfacility ~~14.2%~~was increased to $50322.15 million in ~~fiscal~~February ~~2006~~2008. ~~compared~~As toof June 30, 2009, we had an aggregate of $43137.98 million in ~~fiscal~~outstanding ~~2005~~letters ~~and~~of ~~revenues~~credit, ~~from~~including ~~bookstore~~$121.1 ~~sales~~million ~~(which~~of ~~include~~letters ~~supplies~~of ~~and~~credit ~~other~~issued ~~items)~~to inthe ~~fiscal~~U.S. ~~2006~~Department ~~grew~~of byEducation ~~9.0%~~due primarily to ~~$40~~our failure to satisfy certain regulatory financial ratios after giving effect to the Transaction.~~2 million.~~ Outstanding letters of credit reduce the availability under our revolving credit facility.

~~Educational~~ Our ~~Services~~high degree of leverage could have important consequences to how we operate our business, including:

~~Our~~• ~~educational~~making ~~services~~it ~~expense~~more ~~increased~~difficult byfor ~~$74.1~~us ~~million, or 11.6%,~~ to ~~$714.5~~ ~~million~~make inpayments ~~fiscal~~on ~~2006~~our ~~from~~indebtedness; ~~$640.4~~• ~~million~~increasing inour ~~fiscal~~vulnerability ~~2005, due primarily~~ to ~~the~~general ~~incremental~~economic ~~costs incurred to support higher student enrollment. Educational services expense includes faculty~~ and ~~certain~~industry ~~administrative~~conditions; ~~compensation,~~• ~~rent~~requiring ~~and other~~a ~~facility~~substantial ~~operating~~portion ~~costs, cost~~ of ~~sales,~~cash ~~bad~~flows ~~debt,~~from ~~and~~operations ~~depreciation~~to ~~and~~be ~~amortization.~~dedicated ~~Educational services expense as a percentage of net revenue decreased approximately 170 basis points~~ to ~~61.1%~~the inpayment ~~fiscal 2006 from 62.8% in fiscal 2005. A cumulative lease accounting adjustment~~ of ~~$3.8~~principal ~~million that was recorded in March 2005 accounted for 30 basis points of this decrease~~ and ainterest ~~reduction~~on inour ~~fixed~~indebtedness, ~~asset~~therefore ~~impairments~~reducing ~~and~~our ~~write-offs~~ability ofto ~~$1.8 million~~use ~~from~~our ~~$2.7~~cash ~~million~~flows ~~in fiscal 2005~~ to ~~$0.9~~ ~~million~~fund inour ~~fiscal~~operations, ~~2006~~capital ~~contributed~~expenditures aand 19future ~~basis~~business ~~points~~opportunities; ~~reduction~~• asincreasing athe ~~percentage~~likelihood of ~~net~~our ~~revenue.~~not ~~Further~~satisfying, ~~continued leverage~~ on ~~administrative personnel and facilities drove~~ a ~~100~~consolidated basis, ~~points~~the ~~improvement~~U.S. asDepartment aof ~~percentage~~Education’s ofannual ~~net~~responsibility ~~revenue~~requirements and ~~supply store~~subjecting ~~margins~~us ~~grew from 34.0 % in fiscal 2005~~ to ~~37.5 %~~ inletter ~~fiscal 2006 which drove improvement in supply store costs~~ of 24 ~~basis~~credit ~~points~~and asprovisional acertification ~~percentage~~requirements offor ~~net~~the ~~revenue.~~foreseeable ~~These~~future; ~~decreases~~• ~~were~~exposing ~~primarily~~us ~~offset~~to by the ~~effect~~risk of ~~non-cash~~ ~~share based compensation which~~ increased byinterest ~~$13.1~~rates ~~million, or 110 basis points~~ as acertain ~~percentage~~ of ~~net~~our ~~revenue.~~borrowings, ~~Bad~~including ~~debt~~borrowings ~~expense~~under ~~decreased~~our 79senior ~~basis~~secured ~~points~~credit asfacilities, awill ~~percentage~~bear ofinterest ~~net~~at ~~revenue~~variable ~~compared~~rates; to• ~~the~~restricting ~~prior~~us ~~year~~from ~~due~~making tostrategic aacquisitions ~~continued~~or ~~strength in~~causing ~~accounts~~us ~~receivable~~to ~~collections~~make asnon-strategic ~~well~~divestitures; as• ~~increases~~limiting ~~in alternative loans received by~~ our ~~students~~ability ~~which are used~~ to ~~pay~~obtain ~~tuition.~~additional ~~These~~financing ~~private~~for ~~loans~~working ~~are~~capital, ~~made~~capital toexpenditures, ~~our~~program ~~students~~development, bydebt ~~financial~~service ~~institutions~~requirements, acquisitions and ~~are~~general ~~non-recourse~~corporate toor ~~the institution. The~~other ~~use~~purposes; ofand ~~these~~• ~~loans~~limiting by our ~~students~~ability ~~results~~to inadjust ~~the~~to ~~reduction~~changing ofmarket ~~student~~conditions ~~receivable~~and ~~balances.~~placing ~~Other~~us ~~components~~at ~~of educational services decreased as~~ a ~~percentage~~competitive ofdisadvantage ~~net~~compared ~~revenue,~~to ~~including~~our ~~supplies,~~competitors ~~travel~~who ~~and~~are ~~other~~less ~~operating expenses~~highly ~~as a result of cost control efforts~~leveraged.

~~General~~ In addition, we and ~~Administrative~~our subsidiaries may be able to incur substantial additional indebtedness in the future, subject to the restrictions contained in our senior secured credit facilities and the indentures governing our Notes. If new indebtedness is added to our current debt levels, the related risks that we now face could intensify.

~~General and administrative expense~~ was $299.3 million for fiscal 2006, an increase of 46.9% from $203.8 million in fiscal 2005. The increase was primarily due to merger costs, compensation (including SFAS No. 123R expense), higher advertising, and telecommunications ~~expenses.~~ We As a percentage of net revenue, general and administrative expense increased 560 basis points over fiscal 2005. The primary drivers of this increase were Transaction-related costs for legal and professional fees and severance payments ofmay ~~$37.9~~ not ~~million~~be inable ~~fiscal~~to ~~2006,~~generate orsufficient ~~320 basis points, and non-~~cash ~~share-based compensation expense which was $19.1 million in fiscal 2006 compared~~ to ~~$1.2~~service ~~million~~all ~~in fiscal 2005, an increase~~ of ~~150 basis points. Additionally, we increased~~ our ~~investment~~ debt inobligations ~~advertising~~and bymay ~~$27.6~~be ~~million,~~forced anto ~~increase~~take ofother ~~157~~actions ~~basis points. These increases were offset by a reduction~~ in ~~fixed~~an effort ~~asset~~to ~~impairments~~satisfy ~~and~~our ~~write-offs~~obligations ~~from~~under ~~$1.4~~such ~~million in fiscal 2005 to zero in fiscal 2006~~indebtedness, which ~~contributed to a 15~~ ~~basis~~ may ~~points~~not ~~reduction~~be ~~as a percentage of net revenue~~successful. ~~The remaining decreases were driven by operating leverage on telecommunications, audit, travel and supplies costs.~~

~~Amortization~~ Our ability to make scheduled payments on our indebtedness, or to refinance our obligations under our debt agreements on acceptable terms, if at all, will depend on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to the financial and business risk factors described in this Form 10-K, many of ~~Intangible~~which ~~Assets~~are beyond our control. We cannot assure you that we will be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay the opening of new schools, acquisitions or capital expenditures, sell assets, seek to obtain additional equity capital or restructure our indebtedness. We also cannot assure you that we will be able to refinance any of our indebtedness or obtain additional financing on acceptable terms, if at all, particularly because of our high levels of debt and the debt incurrence restrictions imposed by the agreements governing our debt.

~~Amortization of intangibles decreased $0.8 million to $5.7 million in fiscal 2006, as compared to $6.5 million in fiscal 2005. The decrease was~~ ~~due~~ Our debt toagreements ~~certain~~contain ~~intangible~~restrictions ~~assets~~that ~~becoming~~limit ~~fully~~our ~~amortized~~ flexibility in ~~fiscal~~operating ~~2006,~~our ~~partially offset by higher amortization expense relating to the increase in the fair market value of intangible assets as a result of the Transaction~~business.

~~Income~~ Our ~~before~~senior ~~Interest~~secured credit facilities and ~~Income~~the ~~Taxes~~indentures governing the Notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit certain of our subsidiaries’ ability to, among other things:

~~Income~~• ~~before~~incur ~~interest~~additional ~~and~~indebtedness ~~taxes~~or ~~(operating~~issue ~~income)~~certain ~~decreased~~preferred by $17.9 million to $150.7 million in fiscal 2006 from $168.6 million in the prior year period. The corresponding margin decreased approximately 375 basis points to 12.8% for the fiscal year as compared to 16.6% for the prior year due to the factors described above. shares;

~~Interest~~• ~~Expense~~pay dividends on, ~~Net~~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.

~~Interest~~ In ~~expense~~addition, ~~for~~under ~~fiscal~~our ~~2006~~senior ~~was~~secured ~~$16.6~~credit ~~million~~agreement, ~~partially~~we ~~offset~~are required byto ~~interest~~satisfy ~~income~~and ofmaintain $7specified financial ratios and other financial condition tests.8 ~~million~~Our ability to meet those financial ratios and tests can be affected by events beyond our control, ~~resulting~~and we cannot assure you that we will meet those ratios and tests. A breach of any of these covenants could result in $8a default under the senior secured credit agreement.8 Upon the ~~million~~ occurrence of ~~net~~an ~~interest~~event ~~expense~~of ~~compared~~default under the senior secured credit agreement, the lenders could elect to ~~net~~declare ~~interest~~all ~~income~~amounts outstanding ofunder ~~$0.2 million~~the insenior ~~fiscal~~secured ~~year~~credit ~~2005~~agreement immediately due and payable and terminate all commitments to extend further credit. ~~The~~If ~~increase~~we inwere ~~net~~unable ~~interest~~to ~~expense~~repay ~~was~~those ~~due~~amounts, the ~~primarily~~lenders under the senior secured credit facilities could proceed against the collateral granted to them to secure that indebtedness. Certain of our subsidiaries have pledged a significant portion of our assets as collateral under the ~~new~~senior secured ~~debt~~credit ~~incurred~~agreement. ~~and~~If ~~amortization~~the lenders accelerate the repayment of ~~financing~~borrowings, ~~costs~~we ~~related~~cannot assure you that we will have sufficient assets to ~~the~~repay ~~Transaction~~our indebtedness under our senior secured credit facilities, as well as our unsecured indebtedness. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Indebtedness”.

~~Provision~~ Failure to ~~for~~keep ~~Income~~pace ~~Taxes~~with changing market needs and technology could harm our ability to attract students.

~~Our~~ The ~~effective~~success ~~tax~~of ~~rate~~our ~~was~~schools 43depends to a large extent on the willingness of prospective employers to employ our students upon graduation.1% ~~for~~Increasingly, ~~fiscal~~employers ~~2006~~demand that their new employees possess appropriate technological skills and also appropriate “soft” skills, such as ~~compared~~communication, critical tothinking 39and teamwork skills.8% ~~for~~These skills can evolve ~~fiscal~~ rapidly ~~2005~~in a changing economic and technological environment. Accordingly, ~~The~~it ~~change~~is inimportant ~~the~~that ~~tax~~our ~~rate~~educational asprograms evolve ~~compared~~in response to those economic and technological changes. The expansion of existing academic programs and the ~~prior~~development of ~~year~~new ~~was~~programs ~~primarily~~may ~~due~~not tobe anaccepted ~~increase~~by incurrent ~~permanent~~or ~~items~~prospective students ~~(specifically~~or ~~nondeductible~~the ~~costs~~employers ~~incurred~~of ~~with~~our ~~respect~~graduates. Even if our schools are able to ~~the~~develop ~~Transaction)~~acceptable ~~and~~new ~~valuation~~programs, ~~allowances~~our ~~that~~schools ~~were~~may ~~recorded~~not be ~~against~~able to begin offering those new programs as quickly as ~~deferred~~ required ~~tax~~by ~~assets~~prospective ~~associated~~employers ~~with~~or ~~state~~as ~~net~~quickly ~~operating~~as ~~loss~~our competitors ~~carry~~offer ~~forwards~~similar programs. ItIf ~~was~~we ~~determined~~are ~~that~~unable itto adequately isrespond noto ~~longer~~changes ~~“more~~in ~~likely~~market ~~than~~requirements ~~not”~~due ~~that~~to regulatory ~~these~~or ~~deferred~~financial ~~tax~~constraints, ~~assets~~unusually ~~will~~rapid technological changes or other factors, our ability to attract and retain students could be ~~realized~~impaired, asthe arates ~~result~~at ofwhich ~~anticipated~~our graduates ~~state~~obtain ~~tax~~jobs ~~net~~involving ~~operating~~their fields of study could ~~losses~~ suffer ~~arising~~and ~~from~~our ~~interest~~results ~~expense~~of onoperations ~~acquisition-related~~and ~~debt.~~cash flows could be adversely affected.

~~The effective tax rate differed from the combined federal and state statutory rates due primarily~~ Failure to ~~the~~obtain ~~valuation~~additional ~~allowance~~capital ~~related~~in to the ~~deferred~~future ~~tax~~could ~~assets arising from operating losses, expenses that are non-deductible for tax~~adversely ~~purposes,~~ effect ~~and~~our ~~the~~ability ~~tax impact of the expensing of equity compensation pursuant~~ to ~~SFAS No~~grow. ~~123R.~~

~~Net~~ We ~~Income~~believe that funds from operations, cash, investments and borrowings under our revolving credit facility will be adequate to fund our current operating plans for the foreseeable future. However, we may need additional debt or equity financing in order to finance our continued growth. The amount and timing of such additional financing will vary principally depending on the timing and size of acquisitions and new school openings, the willingness of sellers to provide financing for future acquisitions and the amount of cash flows from our operations. To the extent that we require additional financing in the future and are unable to obtain such additional financing, we may not be able to fully implement our growth strategy.

~~Net income decreased by $20.9 million~~ Failure to ~~$80.7~~effectively ~~million~~manage inour ~~fiscal~~growth ~~2006~~could ~~from~~harm ~~$101.6 million in the prior year period due to the factors described~~our ~~above~~ business.

~~Liquidity~~ Our ~~and~~business ~~Funds~~recently has experienced rapid growth. Growth and expansion of ~~Capital~~our ~~Resources~~operations may place a significant strain on our resources and increase demands on our management information and reporting systems, financial management controls and personnel. We may not be able to maintain or accelerate our current growth rate,

Our primary source of cash is tuition collected from our students. We finance our operating activities primarily from cash generated from operations. Acquisitions have historically been financed through cash generated from operations as well as borrowing on our revolving credit facility. We believe that cash flow from operations, supplemented from time to time with borrowings under our $300.0 million revolving credit agreement, will provide adequate funds for ongoing operations, planned expansion to new locations, planned capital expenditures and debt service during the next twelve months.

Net working capital is calculated based on total current assets less total current liabilities. Advanced payments and amounts outstanding under our revolving credit facility are directly offset in cash and cash equivalents and do not contribute to the change in net working capital. At June 30, 2007, our working capital deficit was approximately $42.7 million, compared to a working capital deficit of $34.1 million at June 30, 2006. The $8.6 million increase in the working capital deficit as compared to the same period a year ago is primarily a result of higher capital expenditures, business acquisitions and required payments of debt and interest during fiscal 2007, partially offset by higher cash flows from operations.

Operating cash flows

Cash provided by operating activities for the fiscal year ended June 30, 2007 was $179.4 million, a decrease of $99.9 million compared to the twelve month period ended June 30, 2006. Increased operating cash flows as compared to the prior year period was more than offset by an increase in net interest expense of $160.3 million related to the debt incurred in connection with the Transaction.

Days sales outstanding (DSO) in receivables was 19.5 days at June 30, 2007 compared to 18.1 days at June 30, 2006. Net accounts receivable can be affected significantly by the changes in the start dates of academic terms from reporting period to reporting period. There were no significant changes to the start dates of academic

~~terms~~ effectively inmanage ~~session~~our asexpanding ~~compared~~operations toor ~~the~~achieve ~~prior year. We calculate DSO by dividing net accounts receivable by average daily revenue for the preceding quarter.~~planned ~~Quarterly~~ growth ~~average~~on ~~daily revenue is determined by taking the total net revenue for~~ a ~~quarter~~timely ~~and~~or ~~dividing~~profitable ~~by the number of days in a quarter~~basis. InIf anwe ~~effort~~are unable to manage ~~provide~~ our ~~students~~growth ~~with financing for the cost of tuition~~effectively, we ~~have~~may ~~established~~experience operating ~~relationships~~ inefficiencies ~~with~~and ~~alternative~~our ~~loan~~net ~~providers.~~income ~~Alternative loans, which are non-recourse to us,~~ may ~~help~~be ~~bridge~~materially ~~the funding gap created by tuition rates that rise faster than federally-guaranteed student loans~~adversely affected.

~~The~~ Capacity constraints ~~level~~or ofsystem ~~accounts~~disruptions ~~receivable~~to ~~reaches~~our aonline ~~peak immediately after the billing~~computer of networks ~~tuition~~could ~~and~~have ~~fees~~a atmaterial ~~the~~adverse ~~beginning~~effect ofon ~~each~~our ~~academic~~ability ~~period. Collection of these receivables is heaviest at the start of each academic period. Additionally, federal financial aid proceeds for continuing students can be received up~~ to ~~ten days prior~~ to attract ~~the~~and ~~start~~retain ~~of an academic quarter~~students.

~~Investing~~ The ~~cash~~performance and reliability of the program infrastructure of ~~flows~~ our schools’ online operations is critical to the reputation of these campuses and our ability to attract and retain students. Any computer system error or failure, or a sudden and significant increase in traffic on our computer networks that host our schools’ online operations, may result in the unavailability of our schools’ online operations’ computer networks. In addition, any significant failure of our computer networks could disrupt our on campus operations. Individual, sustained or repeated occurrences could significantly damage the reputation of our schools’ online operations and result in a loss of potential or existing students. Additionally, our schools’ online computer systems and operations are vulnerable to interruption or malfunction due to events beyond our control, including natural disasters and network and telecommunications failures. Any interruption to our schools’ online computer systems or operations could have a material adverse effect on the ability of our schools’ online operations to attract and retain students.

~~Capital expenditures were $96.1 million, or~~ ~~7.0% of net revenue for the year ended June 30, 2007, compared to $65.6 million, or 5.6% of net revenue for the same period a year ago.~~ The personal ~~increase~~information ofthat ~~capital~~we ~~expenditures~~collect asmay abe ~~percentage~~vulnerable ~~of net revenue was primarily due~~ to ~~the fact we~~ ~~invested~~ breach, ~~both~~theft inor ~~new~~loss ~~facilities~~that ~~and~~could inadversely ~~the~~affect ~~expansion of existing facilities during the year. We typically conduct a significant portion of~~ our ~~capital purchases in the months leading up to the start of an academic quarter. Reimbursements for tenant~~reputation ~~improvements~~ and ~~represent cash received from lessors based on the terms of lease agreements to be used for leasehold improvements~~operations.

We Possession ~~lease~~and ~~most~~use of personal information in our ~~facilities~~operations subjects ~~under~~us ~~operating~~to ~~lease~~risks ~~agreements~~and costs that could harm our business. WeOur schools ~~anticipate~~collect, ~~that~~use ~~future~~and ~~commitments~~retain onlarge ~~existing~~amounts ~~leases~~of ~~will~~personal information beregarding ~~satisfied~~our ~~from~~students ~~cash~~and their families, including ~~provided~~ social ~~from~~security ~~operating~~numbers, ~~activities~~tax return information, personal and family financial data and credit card numbers. We also ~~expect~~collect and tomaintain ~~extend~~personal information of our employees in the ordinary ~~terms~~course of ~~leases~~our business. Our computer networks and the networks of certain of our vendors that ~~will~~hold ~~expire~~and manage confidential information on our behalf may be vulnerable to unauthorized access, computer hackers, computer viruses and other security threats. Confidential information also may become available to third parties inadvertently when we integrate or convert ~~enter~~computer networks into ~~similar~~our ~~long~~network ~~term~~following ~~commitments~~an acquisition ~~for~~of ~~comparable~~a ~~space~~school or in connection with upgrades from time to time.

~~Financing~~ Due ~~cash~~to ~~flows~~the sensitive nature of the information contained on our networks, such as students’ grades, our networks may be targeted by hackers. A user who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in our operations. Although we use security and business controls to limit access and use of personal information, a third party may be able to circumvent those security and business controls, which could result in a breach of student or employee privacy. In addition, errors in the storage, use or transmission of personal information could result in a breach of student or employee privacy. Possession and use of personal information in our operations also subjects us to legislative and regulatory burdens that could require notification of data breaches and restrict our use of personal information. As a result, we may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by these breaches. A major breach, theft or loss of personal information regarding our students and their families or our employees that is held by us or our vendors could have a material adverse effect on our reputation and results of operations and result in further regulation and oversight by federal and state authorities and increased costs of compliance.

~~Borrowings under our $300.0 million revolving credit facility are available to satisfy certain year-end regulatory financial ratios, finance~~ ~~acquisitions and fund working capital needs resulting from the seasonal pattern of cash receipts throughout the year.~~ We ~~borrowed~~may not ~~$90.0~~be ~~million~~able ~~and~~to ~~$160.0~~retain ~~million~~our onkey ~~the~~personnel ~~revolving~~or ~~credit~~hire ~~facility at June 30, 2007~~ and ~~June~~retain additional ~~30,~~personnel ~~2006,~~needed ~~respectively,~~for ~~in order~~us to ~~satisfy~~sustain ~~year-end~~and ~~regulatory~~grow ~~financial ratios. All borrowings were repaid on the first~~ our business ~~day~~as ~~of the next fiscal year from cash on hand at fiscal year-end~~planned. ~~We did not borrow against the revolving credit facility at any other point~~ ~~during fiscal 2007 or fiscal 2006.~~

We Our ~~have~~success ~~issued~~depends, ~~letters~~in ~~of credit~~large topart, ~~the~~upon ~~U.S.~~our ~~Department~~ability ofto ~~Education~~attract and ~~for~~retain ~~approximately~~highly ~~$89.0~~qualified ~~million~~faculty, ~~including~~school apresidents ~~$87~~and administrators and corporate management.9 ~~million~~We ~~letter~~may ofhave ~~credit~~difficulty locating ~~due~~and tohiring ~~our~~qualified ~~failure~~personnel, toand ~~satisfy~~retaining ~~certain~~such personnel ~~regulatory~~once ~~financial~~hired. ~~ratios~~In ~~after~~addition, ~~giving~~key ~~effect~~personnel tomay ~~the~~leave ~~Transaction~~and subsequently compete against us. ~~Outstanding~~The ~~letters~~loss of the services of any ~~credit~~ of ~~reduced~~our key personnel, many of whom are not party to employment agreements with us, or our ~~availability~~failure to ~~borrow~~attract ~~funds~~and ~~under~~retain ~~the~~other qualified ~~revolving~~and ~~credit~~experienced ~~facility.~~personnel ~~Including~~on ~~the~~acceptable ~~letters~~terms ofcould impair ~~credit~~our ~~issued~~ability to ~~the~~successfully ~~U.S. Department~~sustain ofand ~~Education~~grow our business, ~~$92.0~~which ~~million~~could ofhave ~~letters~~a ofmaterial ~~credit~~adverse ~~were~~effect ~~outstanding~~on atour results ~~June 30,~~of ~~2007~~operations.

As a result of the Transaction, we are highly leveraged and our debt service requirements are significant. At June 30, 2007, we had $2,030.0 million in aggregate indebtedness outstanding, including short-term debt under the revolving credit facility, with additional borrowing capacity of $118.0 million under our revolving credit facility after giving effect to outstanding letters of credit. We expect our cash flows from operations, combined with availability under the revolving credit facility, to provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending for a period that includes the next 12 months.

~~Contractual~~ If ~~obligations~~we are not able to integrate acquired schools, we may experience operational inefficiencies.

~~The~~ From ~~following~~time ~~table~~to ~~describes~~time, ~~our~~we ~~commitments~~engage atin ~~June 30,~~acquisitions ~~2007~~of ~~under~~schools. Integrating ~~various~~acquired ~~contracts~~operations ~~and~~into ~~agreements~~our institutions involves ~~(in thousands):~~ significant risks and uncertainties, including:

	Total amountscommitted		Payments due by fiscal year
			2008		2009-2010		2011-2012		Thereafter
Revolving credit facility (1)	$	90,000	$	90,000	$	—	$	—	$	—
Term loan (2)		1,176,113		37,094		23,700		20,738		1,094,581
Senior notes (3)		375,000		—		—		—		375,000
Senior subordinated notes (4)		385,000		—		—		—		385,000
Mortgage debt of consolidated entities (5)		1,622		194		436		508		484
Capital leases		2,244		833		1,337		74		—
Total short-term and long-term debt		2,029,979		128,121		25,473		21,320		1,855,065
Interest payments (6)		1,111,962		182,294		317,837		293,529		318,302
Operating leases (7)		672,976		110,007		171,996		134,375		256,598
Unconditional purchase obligations (8)		13,539		13,539		—		—		—
Total commitments		3,828,456		433,961		515,306		449,224		2,429,965


	•	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.

~~(1)~~ Our inability ~~Loans~~to onoperate ~~our~~one ~~revolving~~or ~~facility,~~more ifof ~~any,~~our ~~mature~~schools onor ~~June~~locations 1,due to ~~2012.~~a Asnatural ~~the~~disaster, ~~$90.0~~terrorist ~~million~~act ofor ~~borrowing~~widespread ~~outstanding~~epidemic ~~under~~or to ~~our~~restore ~~revolving~~a ~~credit~~damaged ~~facility~~school ~~was~~or ~~repaid~~location onto ~~July~~its 2,prior ~~2007,~~operational level wecould ~~have~~materially ~~included~~hurt itour inoperating ~~the table above as a 2008 repayment~~results.

~~(2)~~ A ~~Our~~number ~~term~~of ~~loan~~our ~~under~~schools are located in Florida and elsewhere in the ~~senior~~southeastern ~~credit~~United ~~facility~~States ~~matures~~in onareas ~~June~~prone 1to hurricane damage, ~~2013~~which may be substantial. We also have a number of schools located in California in areas vulnerable to earthquakes. One or more of these schools may be unable to operate for an extended period of time in the event of a hurricane, earthquake or other natural disaster which does substantial damage to the area in which a school is located. In addition, we may not be in a position to devote sufficient resources to a damaged school in order for it to re-open in a timely fashion or at the same level of operation as existed prior to the damage. Further, a regional or national outbreak of influenza or other illness easily spread by human contact could cause us to close one or more of our schools for an extended period of time. The failure of one or more of our schools to operate for a substantial period of time could have a material adverse effect on our results of operations.

~~(3)~~ We ~~Our~~have ~~senior~~a ~~notes~~significant ~~are~~concentration ~~due~~of ~~June~~admissions representatives 1for our fully online schools in two geographically separate locations. A natural disaster or terrorist act which affected one of these locations could result in our inability to contact prospective students for our fully online programs for an extended period of time, ~~2014~~which would result in a significantly lower number of new students enrolling in our programs.

~~(4)~~ We operate ~~Our~~in ~~senior~~a ~~subordinated~~highly ~~notes~~competitive ~~are~~industry, ~~due~~and ~~June~~competitors 1,with greater ~~2016~~resources could harm our business.

~~(5)~~ The post-secondary education market is highly fragmented and competitive. Our ~~mortgage~~schools ~~debt~~compete for students with traditional public and private two-year and four-year colleges and universities and other for-profit providers, including those that offer online learning programs. Many public and private colleges and universities, as well as other for-profit providers, offer programs similar to those we offer. We expect to experience additional competition in the future as more colleges, universities and for-profit providers offer an increasing number of ~~consolidated~~online ~~entities~~programs. ~~matures~~Public oninstitutions receive ~~January~~substantial 2government subsidies, ~~2014~~and public and private institutions have access to government and foundation grants, tax-deductible contributions and other financial resources generally not available to for-profit providers. Accordingly, public and private institutions may have instructional and support resources superior to those in the for-profit sector, and public institutions can offer substantially lower tuition prices. Some of our competitors in both the public and private sectors also have substantially greater financial and other resources than we do.

~~(6)~~ We could ~~Interest~~experience ~~payments~~an ~~are~~event ~~based~~of ondefault ~~either~~under ~~the~~our ~~fixed~~senior ~~rate~~secured credit oragreement ~~the~~if ~~variable~~Goldman ~~rate~~Sachs asCapital ofPartners, ~~June~~Providence Equity 30Partners and Leeds Equity Partners (collectively, ~~2007~~the “Sponsors”) ~~and~~cease ~~assume~~to ~~that~~own ~~repayments~~an ~~are~~aggregate inof ~~accordance~~at ~~with~~least 35% of the ~~loan~~voting ~~agreements~~interests ~~without~~of ~~giving~~EDMC’s outstanding capital stock, and such an event of default could adversely effect toour liquidity ~~mandatory~~and ~~prepayments~~financial position.

~~(7)~~ Under ~~Our~~the ~~operating~~current ~~lease~~terms ~~obligations~~of ~~extend~~our ~~through~~senior ~~2020~~secured credit agreement, an event of default would occur if the Sponsors cease to own, collectively, at least 35% of the voting interests of our outstanding capital stock. This event of default could be triggered during the term of the senior secured credit agreement either by future sales or transfers of our capital stock by any of the Sponsors or by additional issuances of voting capital stock by us. Our ultimate parent

(8) We have various contractual obligations that extend through 2014 for services.

Contingencies

In June 2007, NEIA received a civil investigative demand letter from the Massachusetts State Attorney General requesting information in connection with the Attorney General’s review of alleged submissions of false claims by NEIA to the Commonwealth of Massachusetts and alleged unfair and deceptive student lending and marketing practices engaged in by the school. NEIA responded to the request for information in August 2007, and we intend to fully cooperate with the Attorney General’s office in connection with its investigation.

The Art Institute of Portland and our schools located in Illinois have received requests for information from the Attorney General of their respective states addressing the relationships between the schools and providers of loans to students attending the schools. We have responded to the requests for information and intend to fully cooperate with the Attorneys General in their investigations.

In addition to the matters described above, we are a defendant in certain legal proceedings arising out of the conduct of our business. In the opinion of management, based upon an investigation of these claims and discussion with legal counsel, the ultimate outcome of such legal proceedings, individually and in the aggregate, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

~~Indebtedness~~ entity, Education Management Corporation, is currently pursuing an initial public offering of its common stock which will result in dilution to the collective ownership interest of the Sponsors.

As Because we cannot control when future transactions by any of ~~June 30,~~the Sponsors ~~2007~~will occur, we ~~have~~cannot ~~$2,030.0 million~~assure you that one or more Sponsors will not engage in ~~aggregate~~transactions ~~indebtedness~~that ~~outstanding~~trigger an event of default under the current terms of our senior secured credit agreement, ~~with~~or ~~$128.1~~that ~~million~~we ~~included~~will inbe ~~short-term~~able to amend this provision of ~~liabilities.~~ our Wesenior ~~also~~secured ~~have~~credit anagreement ~~additional~~prior ~~$118~~to any such sale or transfer.~~0 million~~ If an event of ~~borrowing~~default ~~capacity~~occurs ~~available~~as ~~under~~a ~~our~~result ~~revolving~~of ~~credit~~a ~~facility~~future sale or transfer by any of the Sponsors, ~~after~~the ~~giving~~lenders ~~effect~~could elect to declare all amounts outstanding ~~letters~~under ofthe senior secured credit. ~~Our~~agreement ~~liquidity~~to ~~requirements~~be ~~are~~immediately ~~significant~~due and ~~include~~payable ~~debt service~~ and ~~capital~~terminate all ~~expenditures,~~commitments asto extend further ~~described~~credit. It is possible that we would not be in a position at that time to refinance the ~~sections~~amounts due ~~below.~~under the senior secured credit agreement on economical terms, or at all, or repay the amounts due to the lenders, and the lenders then could proceed against the collateral securing our indebtedness.

~~Senior~~ If ~~Secured~~we expand ~~Credit~~in ~~Facilities~~the future into new markets outside the United States, we would be subject to risks inherent in non-domestic operations.

~~Overview.~~ If ~~Our~~we ~~senior~~acquire ~~secured~~or ~~credit~~establish ~~facilities~~schools ~~consist~~in ofnew amarkets ~~$1,185.0 million~~outside ~~term~~the United ~~loan~~States, ~~facility~~we ~~and~~will aface ~~$300.0 million~~risks ~~revolving~~that ~~credit~~are ~~facility.~~inherent ~~The~~in non-domestic ~~revolving~~operations, ~~credit~~including ~~facility~~the ~~includes~~complexity ~~borrowing~~of operations ~~capacity~~ across ~~available~~borders, ~~for~~currency ~~letters~~exchange ofrate ~~credit~~fluctuations, ~~and~~monetary policy ~~for~~risks, ~~borrowings~~such onas ~~same-day~~inflation, ~~notice~~hyperinflation and deflation, and ~~referred~~potential topolitical asand economic instability in the countries ~~swing~~into ~~line~~which ~~loans.~~we expand.

~~Interest~~ITEM ~~Rate and Fees~~1B. ~~Borrowings~~UNRESOLVED ~~under~~STAFF the senior secured credit facilities bear interest at a rate equal to LIBOR plus an applicable margin or, at our option, an applicable margin plus an alternative base rate determined by reference to the higher of (x) the prime rate as published in The Wall Street Journal or (y) the federal funds rate plus 1/2 of 1.0%. The initial applicable margin for borrowings under the revolving credit facility was 1.25% with respect to base rate borrowings and 2.25% with respect to LIBOR borrowings and, under the term loan facility, 1.50% with respect to base rate borrowings and 2.50% with respect to LIBOR borrowings. The applicable margin for borrowings under the senior secured credit facilities has been reduced subject to our attainment of certain leverage ratios, as discussed below. COMMENTS

~~On February 13, 2007 we amended and restated our $1,185.0 million senior secured term loan facility to decrease the interest rate on the outstanding~~ ~~indebtedness to LIBOR plus an applicable margin spread of 2~~ None.~~0% from LIBOR plus an applicable margin spread of 2.5%. The amended and restated senior secured term loan facility also includes a provision that requires us to pay a premium equal to 1% of~~ the outstanding loan balance in connection with any future amendment that results in an additional margin reduction prior to February 13, 2008. The amendment and restatement of the senior secured term loan facility was accounted for under Emerging Issues Task Force 96-19 “Debtor’s Accounting for a Modification or Exchange of Debt Instruments” in which the old and new debt agreements were not considered “substantially different”.

~~The~~ITEM ~~applicable margin spread was further reduced to 1~~2.~~75%~~ on May 18, 2007 as a result of our leverage ratio falling below 5.5 to 1.0 as of March 31, 2007. The interest rate, including applicable margin, on the senior secured term loan facility was 7.125% at June 30, 2007. PROPERTIES

We Our ~~utilize~~corporate ~~interest~~headquarters ~~rate swap agreements, which~~ are ~~contractual~~located ~~agreements~~in ~~to exchange payments based on underlying interest rates~~Pittsburgh, ~~to manage the variable rate portion of our term debt~~ Pennsylvania. OnAt June 630, ~~2006~~2009, weour ~~entered~~schools ~~into~~were ~~two~~located ~~five-year interest rate swap agreements, for a total notional amount of $750 million,~~ in ~~order to~~ ~~hedge~~ major ametropolitan ~~portion~~areas ofin ~~our~~28 U.S. ~~exposure~~states toand ~~variable~~one ~~interest payments associated with the senior secured credit facilities~~Canadian province. ~~The~~Typically, ~~interest~~an ~~rate~~Art ~~swaps~~Institute ~~are~~occupies ~~for~~an ~~$375.0~~entire building ~~million~~or ~~effective~~several ~~July 1,~~floors ~~2006~~or ~~and~~portions ~~$375.0~~of ~~million~~floors ~~effective~~in ~~July 3,~~a ~~2006~~building. ~~Under the~~ ~~terms~~ Argosy ofUniversity ~~the interest rate swaps~~campuses, wethe ~~receive~~Brown ~~payments~~Mackie ~~based~~Colleges onand ~~variable~~South University ~~interest~~schools ~~rates~~are ~~based~~smaller ~~on the three month LIBOR~~ and ~~make~~typically ~~payments~~located ~~based~~in onoffice or acommercial ~~fixed rate of 5~~buildings.~~397%.~~

In We ~~addition~~currently tolease ~~paying~~most ~~interest~~of onour ~~outstanding~~administrative ~~principal~~and educational facilities under ~~the~~operating ~~senior~~lease ~~secured~~arrangements. ~~credit~~We ~~facilities~~own a student housing facility in Fort Lauderdale, weFlorida ~~are~~and ~~required~~buildings occupied toby ~~pay~~The aArt ~~commitment~~Institutes ~~fee~~of Pittsburgh, Colorado and to Seattle, ~~the~~by ~~lenders~~Western ~~under~~State ~~the~~University ~~revolving~~College ~~credit~~of ~~facility~~Law in Fullerton, ~~respect~~California, ofby ~~the~~Argosy ~~unutilized~~University ~~commitments~~in ~~thereunder.~~Egan, ~~The~~Minnesota and ~~initial~~Sarasota, ~~commitment~~Florida, ~~fee~~and ~~rate~~by isthe ~~0.50% per~~Brown ~~annum.~~Mackie ~~The~~College ~~commitment~~in Lenexa, ~~fee~~Kansas. ~~rate~~At ~~may~~June 30, be2009, ~~reduced~~we toowned approximately 0.~~375%~~6 million ~~subject~~square tofeet ~~our~~of ~~attaining~~real ~~certain~~property and leased ~~leverage~~ approximately ~~ratios~~5.2 million Wesquare ~~must~~feet ~~also~~of ~~pay~~office ~~customary~~and educational ~~letter~~facilities. Most of ~~credit~~our ~~fees.~~leases have remaining terms ranging from less than one year to 10 years.

~~Payments.~~ Many Weof ~~are~~our ~~required~~facility toleases ~~pay~~contain ~~installments~~provisions onprohibiting a change in control of the ~~loans~~lessee ~~under~~or permitting the ~~term~~landlord ~~loan~~to terminate ~~facility~~the inlease ~~quarterly~~upon ~~principal~~a ~~amounts~~change ~~equal~~in tocontrol 0of the lessee.~~25%~~ Based ofprimarily ~~their~~upon ~~initial~~our ~~total~~belief ~~funded~~that ~~principal~~(1) we ~~amount~~maintain ~~calculated~~good relations aswith the substantial majority of ~~the~~our ~~closing~~landlords, (2) most ~~date~~of ~~through~~our ~~April~~leases 1are at market rates and (3) we have historically been able to secure suitable leased property at market rates when needed, we believe that these provisions ~~2013~~ will not, ~~with~~individually or in the ~~remaining~~aggregate, ~~amount~~have ~~payable~~a material adverse effect on ~~June~~our 1,business ~~2013.~~or financial position.


ITEM 3.	*LEGAL PROCEEDINGS*

In June 2007, The New England Institute of Art (“NEIA”) received a civil investigative demand letter from the Massachusetts State Attorney General requesting information in connection with the Attorney General’s review of alleged submissions of false claims by NEIA to the Commonwealth of Massachusetts and alleged unfair and deceptive student lending and marketing practices engaged in by the school. In February 2008, the Attorney General informed NEIA that it does not plan to further pursue its investigation of the false claims and deceptive marketing practices. NEIA intends to fully cooperate with the Attorney General in connection with its investigation of NEIA’s student lending practices.

We The ~~are~~Art ~~required~~Institute toof ~~make~~Portland ~~additional~~and ~~principal~~our ~~payments~~schools ~~beginning~~located in ~~the first fiscal quarter of 2008 based~~ on Illinois ~~excess~~have ~~cash~~received ~~flow~~requests ~~generated~~ for ~~the~~information ~~preceding~~from ~~fiscal year, as defined in~~ the Attorney ~~senior~~General ~~secured~~of ~~term~~their ~~loan~~respective ~~agreement.~~states ~~This~~addressing ~~mandatory~~the relationships ~~prepayment~~between ~~will be $22.3 million in~~ the ~~first~~schools ~~quarter~~and providers of ~~fiscal~~loans ~~2008 relating~~ to students ~~cash~~attending ~~generated during~~ the ~~year ended June 30, 2007~~schools. ~~This~~We ~~amount~~have ~~has~~responded ~~been~~to ~~included~~the requests infor ~~current~~information ~~liabilities~~and onhave ~~our~~fully ~~June 30,~~cooperated ~~2007~~with ~~balance sheet. We cannot estimate~~ the Attorneys ~~additional~~General ~~principal~~in ~~amounts,~~their ~~if any~~investigations, and we ~~may~~will becontinue to ~~required~~do toso ~~pay~~should ~~after~~the ~~fiscal~~investigations ~~2008~~continue.

~~Principal~~ In ~~amounts~~addition ~~outstanding~~to ~~under~~ the ~~revolving~~matters ~~credit~~described ~~facility~~above, we are ~~due~~a defendant in certain legal proceedings arising out of the conduct of our business. In the opinion of management, based upon an investigation of these claims and discussion with legal counsel, ~~payable~~ the ultimate outcome of such legal proceedings, individually and in ~~full~~the aggregate, is not anticipated to have a material adverse effect on ~~June~~our 1consolidated financial position, ~~2012.~~results of operations or liquidity.

~~Certain~~ITEM ~~Covenants and Events of Default~~4. ~~The~~SUBMISSION ~~senior~~OF ~~secured~~MATTERS ~~credit~~TO ~~agreement~~A ~~contains~~VOTE aOF ~~number~~SECURITY ~~of covenants that, among other things, restrict, subject to certain exceptions, our ability to:~~ HOLDERS

~~• incur additional indebtedness;~~ None.

~~• create liens on assets;~~ PART II

•ITEM ~~engage~~5. inMARKET ~~mergers~~FOR orTHE ~~consolidations;~~REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

• There ~~sell~~is ~~assets;~~no established public trading market for our ownership interests. Education Management Holdings LLC, which is wholly-owned by Education Management Corporation, owns all of our outstanding ownership interests. We have not paid dividends over the past two fiscal years and we do not expect to pay dividends in the foreseeable future. The agreements governing our indebtedness limit our ability to pay dividends.

• pay dividends and distributions or repurchase our capital stock;

• make investments, loans or advances;

• make capital expenditures;

• repay subordinated indebtedness (including the senior subordinated notes);

• make certain acquisitions;

• engage in certain transactions with affiliates;

• enter into certain restrictive agreements;

• amend agreements governing our subordinated indebtedness (including the senior subordinated notes) and our constitutive documents;

• change the nature of our business; and

• change the status of Education Management Holdings LLC as a passive holding company.

In addition, the senior secured credit agreement requires us to maintain the following financial covenants:

• a maximum total leverage ratio; and

• a minimum interest coverage ratio.

The senior secured credit agreement also contains certain customary affirmative covenants and events of default. The agreement also has a cross-default provision to debt with a principal amount of greater than $50 million, which would cause the term loan to be prepaid or redeemed.

Senior Notes and Senior Subordinated Notes

We issued $375.0 million 8.75% senior notes and $385.0 million 10.25% senior subordinated notes on June 1, 2006. The senior notes mature on June 1, 2014 and the senior subordinated notes mature on June 1, 2016. The indentures governing the senior notes and senior subordinated notes limit our (and most or all of our subsidiaries’) ability to:

• incur additional indebtedness;

•ITEM ~~pay~~6. ~~dividends~~SELECTED onFINANCIAL ~~or make other distributions or repurchase our capital stock;~~DATA

• The ~~make~~following ~~certain~~table ~~investments;~~sets forth selected historical consolidated financial data as of the dates and for the periods indicated. The Predecessor financial data contains information relating to Education Management Corporation prior to the consummation of the Transaction, and the Successor financial data contains information relating to Education Management LLC after consummation of the Transaction. The selected historical consolidated balance sheet data at June 30, 2008 and 2009 and consolidated statement of operations and statement of cash flows data for the fiscal years ended June 30, 2007, 2008 and 2009 have been derived from Education Management LLC’s audited consolidated financial statements and related notes appearing elsewhere in this Form 10-K. The selected historical consolidated statement of operations and statement of cash flows data for the fiscal year ended June 30, 2005 and for the periods from July 1, 2005 through May 31, 2006 and June 1, 2006 through June 30, 2006 and the consolidated balance sheet data at June 30, 2005, 2006 and 2007 presented in this table have been derived from audited consolidated financial statements not included in this Form 10-K. The results of operations for any period are not necessarily indicative of the results to be expected for any future period. The selected historical consolidated financial data set forth should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and related notes that appear elsewhere in this Form 10-K.

• enter into certain types of transactions with affiliates;


	Predecessor						Successor
				Period from			Period from
	Year			July 1, 2005			June 1, 2006
	Ended			through			through
	June 30,			May 31,			June 30,			Year Ended June 30,
	2005(1)			2006			2006			2007			2008			2009
				(in millions)
Statement of Operations Data:
Net revenues	$	1,019.3		$	1,095.8		$	74.4		$	1,363.7		$	1,684.2		$	2,011.5

Costs and expenses:
Educational services		564.2			590.9			59.0			729.9			901.3			1,067.7
General and administrative		202.4			273.3			26.0			314.9			419.1			512.5
Depreciation and amortization		84.1			62.9			7.4			90.5			100.3			112.3

Total costs and expenses		850.7			927.1			92.4			1,135.3			1,420.7			1,692.5

Income (loss) before interest and income taxes		168.6			168.7			(18.0	)		228.4			263.5			319.0
Interest expense (income), net		(0.2	)		(5.3	)		14.1			169.1			157.7			153.6

Income (loss) before income taxes		168.8			174.0			(32.1	)		59.3			105.8			165.4
Provision for (benefit from) income taxes		67.2			73.6			(12.4	)		27.1			41.1			61.2

Net income (loss)	$	101.6		$	100.4		$	(19.7	)	$	32.2		$	64.7		$	104.2

Balance Sheet Data:
Cash and cash equivalents (excludes restricted cash)	$	172.0					$	263.3		$	250.7		$	236.0		$	321.6
Total assets		956.0						3,945.5			3,949.0			4,054.3			4,243.9
Total debt, including current portion		70.4						2,110.0			2,030.0			2,021.4			1,988.6
Total members’ equity		666.0						1,282.8			1,311.1			1,351.2			1,444.5
Statement of Cash Flows Data:
Net cash flows provided by (used in):
Operating activities	$	192.5		$	301.7		$	(22.4	)	$	179.4		$	151.3		$	293.0
Investing activities		(98.1	)		(56.4	)		(3,534.1	)		(110.8	)		(157.3	)		(173.1	)
Financing activities		(39.0	)		(43.2	)		3,445.5			(80.8	)		(8.5	)		(33.7	)
Other Data:
EBITDA(2)	$	252.7		$	231.6		$	(10.6	)	$	318.9		$	363.8		$	431.3
Capital expenditures for long lived assets	$	74.9		$	57.9		$	7.7		$	96.1		$	150.9		$	150.7
Student enrollment at beginning of fall quarter		66,179			72,471						80,324			95,990			110,800
Campus locations at period end(3)		70			71			71			78			88			92
Ratio of earnings to fixed charges(4)		9.2	x		9.4	x					1.3	x		1.5	x		1.8	x

• use assets as security in other transactions; and

• sell certain assets or merge with or into other companies.

Subject to meeting certain qualifications, the indentures governing the senior notes and senior subordinated notes will permit us and our restricted subsidiaries to incur additional indebtedness, including secured indebtedness. The senior notes include a cross-default provision to debt with a principal amount of greater than $50.0 million, which would cause the senior notes to be prepaid or redeemed.

Covenant Compliance

Under the senior secured credit facilities, we are required to satisfy a maximum total leverage ratio, a minimum interest coverage ratio and other financial conditions tests. As of June 30, 2007, we were in compliance with the financial and non-financial covenants. Our continued ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet those ratios and tests.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP measure used to determine our compliance with certain covenants contained in the indentures governing the senior notes and senior subordinated notes and in our senior secured credit facilities. Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance under the indentures governing the senior notes and senior subordinated notes and our senior secured credit facilities. We believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors to demonstrate compliance with our financing covenants.

The breach of covenants in our senior secured credit facilities that are tied to ratios based on Adjusted EBITDA could result in a default under that agreement, in which case the lenders could elect to declare all amounts borrowed due and payable. Any such acceleration would also result in a default under our indentures governing the senior notes and senior subordinated notes. Additionally, under our senior secured credit facilities and the indentures governing the senior notes and senior subordinated notes, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Adjusted EBITDA.

Adjusted EBITDA does not represent net income (loss) or cash flow from operations as those terms are defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. While Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation. Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters that we may consider not to be indicative of our ongoing operations. In particular, the definition of Adjusted EBITDA in the senior credit facilities and the indentures allows us to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net income (loss). However, these are expenses that may recur, vary greatly and are difficult to predict. Further, our debt instruments require that Adjusted EBITDA be calculated for the most recent four fiscal quarters. As a result, the measure can be disproportionately affected by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent four-quarter period or any complete fiscal year.

The following is a reconciliation of net income (loss), which is a GAAP measure of our operating results, to Adjusted EBITDA as defined in our debt agreements, and the calculation of the fixed charge coverage ratio, net debt and net debt to Adjusted EBITDA ratio under the indentures governing the senior notes and senior subordinated notes. The terms and related calculations are defined in the indentures governing the senior notes and senior subordinated notes (in millions).


(1)		Fiscal 2005 results include a $19.5 million charge related to cumulative adjustments for changes in lease accounting recorded in depreciation and amortization expense in the consolidated statement of operations. This amount was substantially offset by a cumulative credit of $15.7 million related to the amortization of a deferred rent credit recorded in educational services expense in the consolidated statement of operations.

(2)		EBITDA, a measure used by management to measure operating performance, is defined as net income plus net interest expense (income), income taxes, depreciation and amortization. EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, EBITDA is not intended to be a measure of free cash flow available for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Our obligations to make interest payments and our other debt service obligations have increased substantially as a result of the indebtedness incurred to finance the Transaction and to pay related expenses in June 2006. Management believes EBITDA is helpful in highlighting trends because EBITDA excludes the results of decisions that are outside the control of operating management and can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. Further, until fiscal 2009 we used EBITDA less capital expenditures as a financial target for purposes of determining cash bonuses granted pursuant to our MICP, as described under Part III — Item 11, Executive Compensation — Compensation Discussion and Analysis — Cash Bonuses. In addition, management believes that EBITDA provides more comparability between the historical results of EDMC and results that reflect purchase accounting and the new capital structure. Management compensates for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, these presentations of EBITDA may not be comparable to other similarly titled measures of other companies. EBITDA is calculated as follows:

	For the yearended June 30,2007
	Predecessor						Successor
Net income	$	32.2
				Period from			Period from
Interest expense, net		169.1
	Year			July 1, 2005			June 1, 2006
Provision for income taxes		27.1
	Ended			through			through
Depreciation and amortization (1)		90.5
	June 30,			May 31,			June 30,			Year Ended June 30,
EBITDA		318.9
	2005			2006			2006			2007		2008		2009
Reversal of impact of unfavorable lease liabilities (2)		(1.7	)
Net income (loss)	$	101.6		$	100.4		$	(19.7	)	$	32.2	$	64.7	$	104.2
Advisory and transaction costs (3)		5.5
Interest (income) expense, net		(0.2	)		(5.3	)		14.1			169.1		157.7		153.6
Severance and relocation		3.9
Provision for (benefit from) income taxes		67.2			73.6			(12.4	)		27.1		41.1		61.2
Capital taxes		0.5
Depreciation and amortization(a)		84.1			62.9			7.4			90.5		100.3		112.3
Adjusted EBITDA—Covenant Compliance	$	327.1
EBITDA(b)	$	252.7		$	231.6		$	(10.6	)	$	318.9	$	363.8	$	431.3

(1) Depreciation and amortization includes non-cash charges related to fixed asset impairments.


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

(b)		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 Capital Resources”.

(2) Represents non-cash reduction to rent expense due to the amortization on $7.3 million of unfavorable lease liabilities resulting from fair value adjustments required under SFAS No. 141 as part of the Transaction.


(3)		The Art Institute of Toronto announced in June 2007 that it will no longer accept new students and that it will close after all current students complete their respective programs. Prior to announcing the closing, approximately 250 students attended The Art Institute of Toronto.

(4)		For purposes of calculating the ratio of earnings to fixed charges, earnings are defined as income before income taxes plus fixed charges. Fixed charges include interest expense, whether expensed or capitalized, amortization of debt issuance costs and the portion of rental expense representative of the interest factor. Earnings were inadequate to cover fixed charges by $32.1 million for the period from June 1, 2006 through June 30, 2006.

(3) Represents $5.0 million of advisory fees incurred under a management advisory agreement with the Sponsors and Leeds Equity Partners along with legal and professional services costs as a result of the Transaction.

Our covenant requirements and actual ratios for the year ended June 30, 2007 are as follows:

	Covenant Requirements	Actual Ratios
Senior secured credit facility
Minimum Adjusted EBITDA to consolidated interest expense ratio	1.40x	1.94x
Maximum consolidated total debt to Adjusted EBITDA	8.00x	5.44x

Regulations

U.S. Department of Education regulations require Title IV program funds received by our schools in excess of the tuition and fees owed by the relevant students at that time to be, with these students’ permission, maintained and classified as restricted funds until they are billed for the portion of their education program related to those funds. Funds transferred through electronic funds transfer programs are held in a separate cash account and released when certain conditions are satisfied. These restrictions have not significantly affected our ability to fund daily operations.

Education institutions participating in Title IV programs must satisfy a series of specific standards of financial responsibility. The U.S. Department of Education has adopted standards to determine an institution’s financial responsibility to participate in Title IV programs. The regulations establish three ratios: (i) the equity ratio, intended to measure an institution’s capital resources, ability to borrow and financial viability; (ii) the primary reserve ratio, intended to measure an institution’s ability to support current operations from expendable resources; and (iii) the net income ratio, intended to measure an institution’s profitability. Each ratio is calculated separately, based on the figures in the institution’s most recent annual audited financial statements, and then weighted and combined to arrive at a single composite score. Such composite score must be at least 1.5 for the

~~institution~~ITEM ~~to be deemed financially responsible without conditions or additional oversight~~7. ~~If an institution fails to meet any of these requirements, the U.~~MANAGEMENT’S. ~~Department~~DISCUSSION ofAND ~~Education~~ANALYSIS ~~may~~OF ~~set~~FINANCIAL ~~restrictions~~CONDITION onAND ~~our~~RESULTS ~~eligibility~~OF ~~to participate in Title IV programs.~~ OPERATIONS

~~Regulations promulgated under the HEA also require all proprietary education institutions to comply with the 90/10 Rule, which prohibits participating~~ schools from deriving 90% or more of total revenue from Title IV programs in any year. An institution that violates the 90/10 Rule becomes immediately ineligible to participate in the Title IV programs, and may not reapply for eligibility until the ~~following fiscal year.~~ Overview

~~Use~~ We are among the largest providers of ~~Estimates~~post-secondary education in North America, with approximately 110,800 active students as of October 2008. We offer academic programs to our students through campus-based and online instruction, or through a combination of both. We are committed to offering quality academic programs and continuously strive to improve the learning experience for our students. We target a large and diverse market as our educational institutions offer students the opportunity to earn undergraduate and graduate degrees, including doctoral degrees, and certain specialized non-degree diplomas in a broad range of disciplines. These disciplines include design, media arts, health sciences, psychology and behavioral sciences, culinary, fashion, business, legal, education and information technology. Each of our schools located in the United States is recognized by a national or regional accreditation agency and by the U.S. ~~Critical~~Department ~~Accounting~~of ~~Policies~~ Education, enabling students to access federal student loans, grants and other forms of public and private financial aid. Our academic programs are designed with an emphasis on applied content and are taught primarily by faculty members who, in addition to having appropriate academic credentials, offer practical and relevant professional experience in their respective fields. Our net revenues for fiscal 2009 were $2,011.5 million.

~~General~~ Education Management LLC is a wholly-owned subsidiary of Education Management Holdings LLC, which is wholly-owned by EDMC. On June 1, 2006, EDMC was acquired by a consortium of private investors led by the Sponsors. The acquisition was accomplished through the merger of an acquisition company into EDMC, with EDMC surviving the Transaction. Although EDMC continued as the same legal entity, EDMC contributed substantially all of its assets and liabilities to Education Management LLC in connection with the Transaction.

In Since ~~preparing~~the Transaction in June 2006, we have undertaken multiple initiatives to increase our ~~financial~~penetration ~~statements~~of addressable markets in ~~conformity~~order ~~with~~to ~~accounting~~enable us to accelerate our growth and expand our ~~principles~~ market ~~generally~~position. ~~accepted~~We inhave ~~the~~opened ~~United~~20 ~~States~~new locations, ~~judgments~~acquired ~~and~~two schools, ~~estimates~~developed ~~are~~36 ~~made~~new ~~about~~academic ~~the~~programs ~~amounts~~and ~~reflected~~introduced inover 600 ~~the~~new ~~consolidated~~or ~~financial~~existing ~~statements~~academic programs to locations that ~~affect~~had ~~the~~not previously ~~reported~~offered ~~amounts~~such ofprograms. ~~assets,~~The ~~liabilities,~~compound ~~net~~annual ~~revenues~~enrollment growth ~~and~~rate ~~expenses~~at ~~during~~our ~~the reporting~~schools ~~period~~was 19.6% Asbetween ~~part~~July of2006 and July 2009. During the ~~financial~~same ~~reporting~~time ~~process~~period, ~~our~~the ~~management~~compound ~~collaborates~~annual enrollment togrowth ~~determine~~rate ~~the~~for ~~necessary~~schools ~~information~~owned onor ~~which~~operated tofor ~~base~~one year ~~judgments~~or more was 18.2%. We have made significant capital investments in technology and ~~develop~~human ~~estimates~~resources, ~~used~~particularly in marketing and admissions, designed to ~~prepare~~facilitate future enrollment growth while enhancing the ~~consolidated~~effectiveness ~~financial~~of ~~statements~~our marketing efforts. ~~Historical~~We have also upgraded our infrastructure, ~~experience~~ student interfaces and ~~available~~student ~~information~~support ~~are~~systems ~~used~~ to ~~make~~enhance ~~these~~the student ~~judgments~~experience, ~~and~~while ~~estimates~~providing greater operational transparency. ~~However,~~We ~~different~~have ~~amounts~~made ~~could~~considerable beinvestments ~~reported~~in ~~using~~our online ~~different~~education ~~assumptions~~platform, ~~and~~which has resulted in ~~light~~strong enrollment growth. The number of ~~changes~~students enrolled in ~~facts~~fully online ~~and~~academic ~~circumstances.~~programs ~~Therefore,~~has ~~actual~~grown ~~amounts~~more ~~could~~than ~~differ~~five-fold since ~~from~~ July 2006 ~~the~~to ~~estimates~~approximately ~~reflected~~26,200 students in July 2009. ~~the~~We ~~condensed~~expect ~~consolidated~~to ~~financial~~continue ~~statements~~to ~~appearing~~pursue ~~elsewhere~~a indisciplined approach ~~this~~to ~~Form~~opening ~~10-K.~~new school locations in attractive target markets.

~~Our~~ The ~~management~~largest ~~makes~~component ~~judgments~~of ~~and~~our ~~estimates~~net onrevenues anis ~~ongoing~~tuition ~~basis~~collected from ~~that~~our ~~include~~students, ~~but~~which ~~are~~is ~~not~~presented ~~limited~~in ~~to,~~our ~~revenue~~statements ~~recognition~~of operations after deducting refunds, ~~allowance~~scholarships ~~for~~and ~~doubtful~~other ~~accounts,~~ adjustments. ~~valuations~~Net revenues consist of ~~goodwill~~tuition and ~~indefinite-lived~~fees, ~~intangible~~student housing ~~assets~~fees, ~~valuations~~bookstore ofsales, ~~acquired~~restaurant ~~finite-lived~~sales ~~intangible~~in ~~assets~~connection with culinary programs, workshop fees, finance charges related to credit extended to students and ~~loss~~sales ~~contingencies~~of related study materials. ~~Further~~Net ~~description~~revenues are reduced for student refunds and scholarships. We recognize revenue on a pro rata basis over the term of ~~how~~instruction ~~these~~or ~~estimates~~occupancy ~~are~~or ~~developed~~when cash is ~~provided~~received ~~below~~in the case of certain point-of-sale revenues. The amount of tuition revenue received from students varies based on the average tuition charge per credit hour, average credit hours taken per student, type of program, specific curriculum and average student population. Bookstore and housing revenues are largely a function of the average student population.

The two main drivers of our net revenues are average student population and tuition rates. Factors affecting our average student population include the number of continuing students attending our schools at the beginning of a period and the number of new students entering our schools during such period. We believe that the ~~following~~size ~~critical~~of ~~accounting~~our ~~policies~~student ~~comprise~~population at our campuses is influenced by a number of factors. These include the number ~~more~~of individuals seeking post-secondary education, the ~~significant~~ attractiveness ~~judgments~~of ~~and~~our ~~estimates~~program ~~used~~offerings, inthe quality of the student ~~preparation~~experience, the effectiveness of our marketing efforts, the ~~consolidated~~persistence ~~financial~~of ~~statements.~~our students, the length of the education programs and

Purchase Accounting

As previously discussed, the Transaction was completed on June 1, 2006 and was financed by a combination of equity invested by the Sponsors and other investors, borrowings under our senior secured credit facility, the issuance of senior notes due 2014 and senior subordinated notes due 2016 and EDMC’s cash on hand. These funds, net of proceeds from the exercise of outstanding stock options, were used to purchase all EDMC’s shares of common stock that were issued and outstanding immediately prior to the completion of the Transaction. The purchase price included the $3.4 billion purchase of the outstanding common stock and settlement of stock options outstanding, and transaction costs of $105.0 million, of which $59.6 million was allocated to the cost of issuing debt and $45.4 million was included in the overall purchase price. Under business combination accounting, the total purchase price was allocated to our net tangible and identifiable intangible assets based on their estimated fair values established by an independent appraisal firm as of June 1, 2006. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The preliminary allocation of the purchase price for property and equipment, intangible assets and deferred income taxes was based upon valuation data at the date of the Transaction and the estimates and the assumptions are no longer subject to change. Refinements were made during the allocation period, which were not material.

Revenue Recognition and Receivables

We bill tuition and housing revenues at the beginning of an academic term and recognize the revenue on a pro rata basis over the term of instruction or occupancy. For most of our programs, the academic and fiscal quarters are the same; therefore, unearned revenue is not significant at the end of a fiscal quarter. However,

~~Argosy~~ our ~~University~~overall ~~and~~educational ~~Brown~~reputation. ~~Mackie~~We ~~College~~seek ~~and~~ to agrow ~~lesser~~our ~~degree~~average student ~~South~~population ~~University~~by ~~and~~offering ~~certain~~additional ~~Art Institutes have educational~~ programs ~~with~~at ~~starting~~existing schools and ~~ending~~ ~~dates~~by ~~that~~establishing ~~differ~~new ~~from~~school ~~our fiscal quarters. Therefore~~locations, atwhether through ~~the~~new ~~end~~facility start-up ofor acquisition. ~~the fiscal quarter~~Historically, we have ~~revenue~~been ~~from~~able ~~these~~to ~~programs~~pass ~~that~~along ~~has~~the rising ~~not~~cost ~~yet~~of ~~been~~providing ~~earned~~quality ineducation ~~accordance~~through ~~with~~increases ~~the~~in tuition. ~~Securities~~Average ~~and~~tuition ~~Exchange~~rates ~~Commission’s~~increased ~~Staff~~by ~~Accounting~~approximately 6% in ~~Bulletin~~ fiscal ~~No. 104,~~2009 ~~“Revenue~~and ~~Recognition~~5% in ~~Financial~~fiscal ~~Statements”~~2008.

~~Refunds~~ We ~~are~~believe ~~calculated~~that ~~and~~several ~~paid~~factors influence the number of individuals seeking post-secondary education programs. According to the U.S. Department of Education, enrollment in degree-granting, ~~accordance~~post-secondary institutions is projected to grow 11.7% over the ten-year period ending in the fall of 2017 to approximately 20.1 million students. This growth compares with ~~federal~~a 24.0% increase reported in the prior ten-year period ended 2007, ~~state~~when enrollment increased from 14.5 million students in 1997 to 18.0 million students in 2007. Enrollment growth in the ten-year period ended 2007 was accompanied by a 23.7% increase in high school graduates from 2.7 million students in 1997 to 3.3 million students in 2007. The U.S. Department of Education, while projecting that the number of high school graduates will remain at approximately 3.3 million students per year through 2017, estimates that enrollment in degree-granting, post-secondary institutions by students 18-24 years of age will increase 8.3% from 10.8 million students in 2007 to 11.7 million students in 2017. Moreover, the U.S. Department of Education projects even faster growth rates for students 25 years of age and ~~accrediting~~older, ~~agency~~up ~~standards~~17.0% from 7.0 million students in 2007 to 8.2 million students in 2017.

In addition to the number of high school graduates available to matriculate into post-secondary education, we believe that several other factors influence demand for post-secondary education. The ~~trade~~wage ~~receivable~~gap ~~balances~~between ~~are~~college ~~comprised~~degree ofand ~~individually~~non-college degree ~~insignificant~~workers ~~amounts~~provides ~~due~~an ~~primarily~~important ~~from~~economic ~~students~~incentive ~~throughout~~to pursue post-secondary education. According to the U.S. Census ~~United~~Bureau, ~~States~~in 2008, the median weekly earnings for workers 25 years of age and ~~Canada.~~older ~~Our~~with a Bachelor’s ~~accounts~~ degree ~~receivable~~was ~~balances~~approximately at66% ~~each~~higher ~~balance~~than ~~sheet~~for ~~date~~high ~~consist~~school graduates of ~~amounts~~the ~~related~~same toage ~~revenue~~with ~~from~~no ~~current~~college orexperience, ~~former~~and ~~students~~the average unemployment rate in 2008 for ~~classes~~persons ~~which~~aged ~~have~~25 ~~occurred~~and orolder with ~~prior~~a ~~periods~~Bachelor’s degree was half that of ~~occupancy~~those inwithout ~~our~~a college ~~housing~~degree. ~~facilities~~A ~~for~~greater ~~which~~number ~~payment~~of ~~has~~jobs ~~not~~also ~~been~~require ~~received;~~ post-secondary oreducation. ~~obligations~~The U.S. Department of Labor — ~~current~~Bureau ~~students~~of ~~for~~Labor ~~tuition,~~Statistics ~~housing~~projects ~~and~~that ~~other~~the growth ~~items~~rate ~~related~~for total job openings from 2006 to ~~academic~~2016 ~~terms~~for occupations inthat ~~progress~~require post-secondary education is over 15%, nearly double the growth rate for ~~which~~occupations ~~payment~~that ~~has~~do not require ~~been~~post-secondary ~~received~~education.

We A ~~determine~~majority of our ~~allowance~~students ~~for~~rely ~~doubtful~~on ~~accounts~~funds ~~for~~received ~~most~~under ~~locations~~various government-sponsored ~~primarily~~student byfinancial ~~categorizing~~aid ~~gross~~programs, ~~receivables~~especially Title IV ~~based~~programs, ~~upon~~to ~~the~~pay ~~enrollment~~a ~~status~~substantial portion of their ~~(in~~ tuition and other education-~~school~~related vsexpenses. ~~out-of-school)~~Because of the dependence ~~student~~on ~~and~~government-sponsored ~~establishing~~programs, awe ~~reserve~~participate ~~based~~in industry ongroups and monitor the ~~likelihood~~impact of ~~collection~~newly inproposed legislation ~~consideration~~on our business. Some of our ~~historical~~students ~~experience.~~also ~~Student~~rely ~~accounts~~upon funds ~~are~~received ~~monitored~~from ~~through~~private anlenders ~~aging~~to ~~process~~pay ~~whereby~~a ~~past~~portion ~~due~~of ~~accounts~~their tuition ~~are~~and related expenses. Net revenues derived indirectly ~~pursued~~ from private loans to students at our schools represented approximately 13.1% ~~When~~of ~~certain~~our ~~criteria~~net ~~are~~revenues ~~met~~in ~~(primarily~~fiscal ~~aging~~2009, ~~past~~as compared ~~the~~to ~~due~~approximately ~~date~~22.3% byin ~~more~~fiscal ~~than~~2008. ~~four~~The ~~months)~~number ~~and~~of students ~~internal~~who ~~collection~~obtain ~~measures~~a ~~have~~private ~~been~~loan ~~taken~~has ~~without~~decreased ~~success,~~substantially due to increases in the ~~accounts~~availability of ~~former~~federal student aid and decreases in the financial options available to our students ~~are~~as a ~~placed~~result ~~with~~of antightened ~~outside~~credit ~~collection~~standards ~~agency~~and other factors. In ~~Student~~ response, ~~accounts~~we implemented the Education Finance Loan program in August ~~collection~~2008 ~~are~~to ~~fully~~enable ~~reserved~~students ~~and~~who ~~evaluated~~have onexhausted aall ~~case~~available government-~~by-case~~sponsored ~~basis~~or ~~before~~other ~~being~~aid ~~written~~and ~~off.~~have Ifbeen ~~current~~denied ~~collection~~a ~~trends~~private loan ~~differ~~to ~~significantly~~borrow ~~from~~a ~~historical~~portion ~~collections,~~of antheir ~~adjustment~~tuition ~~would~~and beother ~~required~~educational expenses toat our ~~allowance.~~schools if they or a co-borrower meet certain ~~Historically,~~ eligibility ~~however~~and underwriting criteria. During fiscal 2009, revenues ~~the~~derived ~~allowance~~indirectly ~~for~~from ~~doubtful~~the ~~accounts~~Education ~~has~~Finance ~~been~~Loan program ~~within~~represented ~~our~~approximately ~~estimate~~1.0% of ~~uncollectible~~our ~~accounts.~~net revenues.

~~Leases~~ Our quarterly net revenues and income fluctuate primarily as a result of the pattern of student enrollments. The seasonality of our business has decreased over the last several years due to an increased percentage of students enrolling in online programs, which generally experience less seasonal fluctuations than campus-based programs. Our first fiscal quarter is typically our lowest revenue recognition quarter due to student vacations.

We Educational ~~lease~~services ~~most of our administrative and educational facilities under operating lease agreements. Before entering into a lease~~expenses, anthe ~~analysis~~largest iscomponent ~~performed~~of toour ~~determine whether a lease should be classified as a capital or an~~ operating ~~lease according to SFAS No. 13~~expenses, ~~“Accounting~~consist ~~for~~primarily ~~Leases”,~~of ascosts ~~amended.~~related ~~Our~~to ~~lease agreements typically contain tenant improvement allowances and rent holidays.~~the ~~Tenant improvement allowances are recorded as a leasehold improvement asset (which is included in Property and Equipment~~ development, ~~net)~~delivery ~~when the leasehold asset is placed in service~~ and ~~both~~administration ~~the~~of ~~tenant~~our ~~improvement~~education programs. ~~asset~~Major ~~and~~cost ~~related~~components ~~deferred~~are ~~rent~~faculty ~~liability~~compensation, ~~are~~ salaries ~~amortized on a straight-line basis over the shorter~~ of ~~the~~administrative ~~term of the lease or useful life of the asset as additional depreciation expense~~ and astudent ~~reduction~~services ~~to rent expense~~staff, ~~respectively.~~costs ~~For~~of educational ~~leases that contain a rent holiday~~materials, ~~total~~facility ~~rent payments~~occupancy ~~are recognized straight-line over the entire lease term. Lease agreements sometimes contain quantifiable rent escalation clauses~~costs, ~~which are accounted for on a straight-line basis over the life of the lease. Our lease terms generally range~~information ~~from~~ systems ~~one to ten years with one or more renewal options. For leases with renewal options~~costs, webad ~~record~~debt ~~rent~~ expense onand aprivate ~~straight-line~~loan ~~basis over the original lease term, exclusive of the renewal period~~fees. ~~When a renewal occurs, we record rent expense~~We ~~over~~ anticipate ~~the~~that ~~new~~these ~~term.~~expenses ~~Rent is expensed~~ as wea ~~gain~~percentage ~~“possession and/or control” over the new space regardless~~ of ~~whether~~net ~~the facility is substantially complete or whether a build out occurs because rent capitalization during construction ceased~~revenues on will ~~January 1,~~decrease ~~2006~~over time due to ~~updated~~continued ~~accounting~~leverage ~~rules. We also lease space from time to time~~ on aour ~~short-term~~fixed cost ~~basis in order to provide specific courses or programs.~~ base

Long-Lived Assets

Property and equipment are recorded at their estimated cost less accumulated depreciation. The remaining estimated useful lives of property and equipment existing at the time of the Transaction were reevaluated on a prospective basis using the fair values determined by an independent third party appraiser. These remaining useful lives ranged from one year to 20 years across all asset classes with the exception of buildings, whose useful lives ranged from 15 to 40 years.

~~Our~~ through ~~depreciation~~the ~~policies~~introduction ~~for~~of ~~assets~~new ~~acquired~~programs ~~after~~at our existing schools and continued growth in the ~~Transaction~~number ~~are~~of asstudents ~~follows:~~taking classes online.

• The ~~Buildings~~second ~~are~~largest ~~depreciated~~expense ~~over~~line ~~the~~item, ~~estimated~~general ~~useful~~and ~~life~~administrative expenses, consists of 30marketing ~~years~~and ~~using~~student admissions expenses and certain central staff departmental costs such as executive management, finance and accounting, legal, corporate development and other departments that do not provide direct services to our students. We have centralized many of these services to gain consistency in management reporting, efficiency in administrative effort and cost control. With regard to the marketing ~~straight-line~~component ~~method~~of our expenses, we have seen a change in the way we market to and attract inquiries from prospective students as the Internet has become an increasingly important way of reaching students. However, Internet inquiries, which generally cost less than leads from traditional media sources such as television and print, convert to applications at a lower rate than inquiries from traditional media sources.

~~• Leasehold improvement and capitalized lease costs are amortized over the shorter~~ Results of ~~the original lease term, exclusive of any renewal periods, or their estimated useful lives, which is generally seven to 15 years.~~Operations

• For ~~The~~the ~~remainder~~fiscal ofyears ~~our~~indicated ~~property~~the ~~and~~following ~~equipment~~table ispresents ~~depreciated~~the percentage ~~over~~relationship ~~estimated~~of ~~useful~~our ~~lives~~statement ~~ranging~~of ~~from~~operations ~~three~~items to net ~~seven years using the straight-line method~~revenues.

~~Accelerated depreciation methods are~~ generally used for income tax purposes. We evaluate the recoverability of property and equipment with finite lives whenever events or changes in circumstances indicate the carrying amount of such assets may not be fully recoverable in accordance ~~with~~ CONSOLIDATED STATEMENTS ~~SFAS~~OF ~~No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”.~~ OPERATIONS

We account for goodwill and other identifiable intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. We evaluate the recoverability of goodwill and other indefinite-lived intangible assets attributable to each reporting unit at least annually and additionally when potential impairment indicators exist, as required under SFAS No. 142. Management reviews amortizable intangible assets for impairment when indicators of impairment exist, as defined by SFAS No. 144. Management’s judgment is used to determine the financial projections used to assess the fair value of each reporting unit, which if greater than the carrying value would indicate the intangible asset is not impaired. In the period in which the carrying value exceeds the fair value, the resulting impairment is recorded as an operating expense in the statement of operations.


	For the Fiscal Year
	Ended June 30,
	2009			2008			2007

Net revenues		100.0	%		100.0	%		100.0	%
Costs and expenses:
Educational services		53.1	%		53.5	%		53.5	%
General and administrative		25.5	%		24.9	%		23.1	%
Depreciation and amortization		5.6	%		6.0	%		6.6	%

Total costs and expenses		84.2	%		84.4	%		83.2	%

Income before interest and income taxes		15.8	%		15.6	%		16.8	%
Interest expense, net		7.6	%		9.4	%		12.4	%

Income before income taxes		8.2	%		6.2	%		4.4	%
Provision for income taxes		3.0	%		2.4	%		2.0	%

Net income		5.2	%		3.8	%		2.4	%

~~We evaluate the recoverability of~~ property and equipment and intangible assets with finite lives whenever events or changes in circumstances indicate the carrying amount of any such assets may not be fully recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Changes in circumstances may include economic conditions or operating performance. When impairment indicators arise from changing conditions, we perform an evaluation based upon assumptions about Year ~~the~~ Ended ~~estimated future cash flows. If the projected undiscounted future cash flows are less than the carrying value~~June 30, we2009 ~~determine~~(Fiscal ~~the~~2009) Compared ~~fair~~with ~~value of~~ the ~~asset based upon a discounted cash flow model or a third-party valuation. When utilizing a~~ ~~discounted~~ Year ~~cash~~Ended ~~flow model to determine fair value~~June 30, if2008 ~~the~~(Fiscal ~~discounted cash flows are less than the carrying value of the asset, an impairment loss is recognized. See Note 2 to the accompanying audited consolidated financial statements for additional~~2008) ~~information regarding the estimates for useful lives and fair market values of as a result of business combination accounting.~~

~~Capitalization~~ All basis point changes are presented as a percentage of ~~Internally~~net revenues ~~Developed~~in ~~Software~~each ~~Costs~~year of comparison.

~~Statement of Position 98-1 (SOP 98-1), “Accounting for the Costs of Computer Software Developed or Obtained for~~ Internal Use,” requires the capitalization of direct costs incurred in connection with developing or obtaining software for internal use, including external direct costs of materials and services and payroll and payroll-related costs for ~~employees who are directly associated with and devote time to an internal use software development project. We capitalize our online curriculum development costs under this standard.~~ Net revenues

~~Income~~ Net ~~Taxes~~revenues for fiscal 2009 increased 19.4% to $2,011.5 million, compared to $1,684.2 million in fiscal 2008. Average student enrollment increased 17.4% from fiscal 2008 to fiscal 2009 due primarily to the opening of new school locations, the growth in our fully online programs and the introduction of new academic programs. In addition, tuition rates increased approximately 6% in fiscal 2009 compared to fiscal 2008. These factors were partially offset by a lower average credit load taken by students. The decrease in credit load was primarily the result of growth in the number of students enrolled in fully online programs, in which students typically take a lesser credit load. Average student enrollment for fiscal 2009 was approximately 107,700 students, an increase of 15,800 students compared to fiscal 2008. None of this growth was from the acquisitions of educational institutions. Tuition revenue generally varies based on the average tuition charge per credit hour, average credits per student and the average student population. We derived approximately 91.7% and 91.1% of our net revenues from tuition and fees paid by, or on behalf of, our students in fiscal 2009 and fiscal 2008, respectively.

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”, which requires the use of the asset and liability method. Under this method, deferred tax assets and liabilities result from (i) temporary differences in the recognition of income and expense for financial and federal income tax reporting requirements, and (ii) differences between the recorded value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. SFAS No. 109 also requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred income tax asset will not be realized.

At Bookstore ~~June 30,~~and ~~2007,~~housing werevenue ~~had~~is ~~state~~largely ~~net~~a ~~operating~~function ~~loss carry forwards~~ of ~~approximately $89.5 million~~the ~~available~~ average tostudent ~~offset~~population. ~~future~~Net ~~taxable~~housing ~~income~~revenues ~~and~~increased aby $4.5 million, ~~related~~or ~~deferred~~5.9%, ~~tax~~to ~~asset of~~ $681.2 million. ~~The carry forwards expire at varying dates beginning~~ in fiscal ~~2008~~2009 compared ~~through~~to fiscal ~~2026~~2008. WeRevenues ~~have~~from ~~determined~~bookstore ~~that~~sales, ~~it is currently “more likely than~~which ~~not”~~ include ~~that~~supplies ~~the~~and ~~deferred~~other ~~tax~~items, ~~assets~~grew ~~associated~~to ~~with~~ $8468.7 9 million ofin fiscal ~~our~~2009 ~~state~~compared ~~net operating loss carry forwards will not be realized. As a result, we have established a valuation allowance equal~~ to ~~the gross deferred tax asset balance of~~ $657.1 2 million ~~related~~in tofiscal ~~these net operating loss carry forwards. In addition~~2008, ~~certain of our state net operating losses may be subject to annual limitation due to these states’ adoption of the ownership change limitations imposed by Internal Revenue~~an ~~Code~~ increase ~~Section 382 or similar state provisions, which could result in the expiration~~ of ~~these state net operating loss carry forwards before they can be utilized~~20. 4%.

~~At June 30, 2007, we had Canadian net operating loss carry forwards of approximately $23.9 million available to offset~~ future taxable income and a related deferred tax asset of $7.8 million. The carry forwards expire at varying dates beginning in fiscal 2009 through fiscal 2016. The significant increase over the balance at June 30, 2006 was due to a return-to-provision adjustment related to the write-down of the assets of the Canadian operations to fair market value as a result of the Transaction. At June 30, 2007, we had additional Canadian deferred tax assets of $0.6 million related to Educational ~~temporary~~ services items. We have determined that it is currently “more likely than not” that the deferred tax assets related to our Canadian net operating losses and temporary items will not be realized. As a result, we have established aexpenses valuation allowance equal to the gross deferred tax assets. Under SFAS No. 109, as a result of the purchase accounting associated with the Transaction, the release of the valuation allowance against the Canadian deferred tax assets upon utilization of those deferred tax assets will reduce goodwill and correspondingly increase the deferred tax provision.

~~Accrued~~ Educational ~~Health~~services ~~Insurance~~expenses increased by $166.4 million, or 18.5%, to $1,067.7 million in fiscal 2009 due primarily to the incremental costs incurred to support higher student enrollment. As a percentage of net revenues, educational services expenses decreased by 43 basis points. Salaries and ~~Incentive~~benefits ~~Compensation~~decreased by 73 basis points from the prior year primarily due to operating leverage at existing onground campuses partially offset by an increase in these costs for our fully online programs. Rent expense associated with schools was $148.3 million in fiscal 2009 and $131.3 million in the prior fiscal year, representing a decrease of 42 basis points. Additionally, costs related to insurance, employee relations and travel and training decreased 38 basis points in fiscal 2009 compared to fiscal 2008. These decreases were partially offset by an increase in bad debt expense as a percentage of net revenues from 2.5% in the prior fiscal year to 3.6% in the current year, or an increase of 110 basis points. The increase in bad debt expense was primarily due to larger receivable balances, higher delinquency rates and an increase in the proportion of our receivables from out-of-school students, which are reserved for at a higher rate than in-school students. In addition, allowances recorded in connection with our new Education Finance Loan program and worsening economic conditions also had a negative impact on bad debt expense. We also experienced a 25 basis point increase from the prior year in fees paid to private lenders to originate loans obtained by our students. The remaining net decrease of 25 basis points in the current fiscal year was driven by other costs, none of which were individually significant.

~~We are self-insured for health care benefits provided to our employees, requiring us to exercise significant judgment to~~ ~~record the estimated liability. We record an accrual for known claims~~ General and anadministrative ~~estimate for incurred but not yet reported claims based upon information received from third parties, including professional actuaries.~~ expenses

We General ~~maintain~~and ~~cash~~administrative ~~bonus~~expenses ~~programs~~were ~~for~~$512.5 million ~~some~~in fiscal 2009, an increase of ~~our~~22.3% ~~employees~~from fiscal 2008. ~~The~~As ~~expense~~a percentage ~~for~~of net revenues, general and administrative expenses ~~these~~ increased ~~bonus~~59 basis ~~plans~~points iscompared ~~based~~with ~~upon~~the ~~our~~prior ~~financial~~fiscal year, ~~performance~~primarily asdue ~~well~~to asan ~~other~~increase ~~factors~~in personnel costs of 119 basis points from continued investment in marketing and admissions representatives. ~~All~~Advertising ~~payments~~costs ~~under~~also ~~these~~increased ~~bonus~~by 13 basis ~~plans~~points ~~either~~against ~~are~~the ~~subject~~prior toyear, ~~our~~due ~~Board~~primarily to marketing of ~~Directors’~~fully ~~approval~~online orprograms ~~approval~~representing bya ~~senior~~greater percentage ~~management~~of our total costs. Corporate costs, such as consulting, legal, and audit, along with operating leverage on other costs, resulted in a 73 basis point decrease from the prior year.

~~Share-Based~~ Depreciation and ~~Payment~~amortization expense

~~Effective~~ Depreciation ~~July 1,~~and ~~2005,~~amortization weexpense ~~adopted~~on ~~the~~long-lived ~~fair~~assets ~~value recognition~~was ~~provisions of SFAS No~~ $112.3 ~~123R,~~million ~~“Share-Based Payment”, using the modified prospective transition method; therefore, we have not restated results~~ for ~~prior periods. Under this transition method, stock-based compensation expense for the combined~~ fiscal ~~year ended June 30~~2009, ~~2006~~an ~~includes~~increase ~~compensation expense for all stock-based compensation awards granted prior to, but not yet vested as~~ of ~~July 1,~~12.0% ~~2005, based on the grant date fair value estimated in accordance with the~~from ~~original provisions of SFAS No~~ $100.3 ~~123,~~million ~~“Accounting~~in ~~for~~fiscal ~~Stock-Based Compensation”~~2008. ~~Stock-based~~As ~~compensation~~a ~~expense~~percentage ~~for~~of ~~all stock-based compensation awards~~net revenues, ~~which~~depreciation ~~include stock options~~ and ~~restricted~~amortization ~~stock~~expense ~~units,~~decreased ~~granted after~~by ~~July~~ 37 1,basis ~~2005~~points iscompared ~~based~~to on the ~~grant-date~~prior ~~fair value estimated in accordance with the provisions of SFAS No. 123R. During the period from July 1~~year, ~~2005~~due ~~through~~primarily to ~~May 31, 2006, we recognized these compensation costs on~~ a ~~straight~~non-~~line basis~~recurring ~~over the requisite service period of the awards, which is generally the option vesting term~~$5.5 million ~~Prior~~impairment tocharge ~~the~~recorded at ~~adoption~~one of ~~SFAS~~our ~~No. 123R,~~schools ~~we recognized stock-based compensation expense~~ in ~~accordance~~the ~~with~~prior ~~Accounting Principles Board Opinion No~~year. ~~25, “Accounting for Stock Issued to Employees.”~~

~~As a result of the Transaction~~ Interest expense, ~~the vesting restrictions on all stock options and shares of restricted stock were removed. We accelerated the recognition of compensation expense under SFAS No. 123R to fully recognize the remaining~~net ~~compensation costs in the consolidated statement of operations on all equity instruments.~~

Net interest expense was $153.6 million in fiscal 2009, a decrease of $4.1 million from the prior fiscal year. The decrease in net interest expense is primarily related to a reduction in the average interest rate of the term loan during the current fiscal year, partially offset by interest incurred on $180.0 million outstanding on our revolving credit facility beginning in September 2008. We drew down on our revolving credit facility as a precautionary measure due to the state of the capital markets. We repaid $80.0 million of the amount outstanding on June 26, 2009 and the remaining $100.0 million on July 1, 2009. We typically draw against the revolving credit facility at the end of each fiscal year for regulatory purposes.

Provision for income taxes

Income tax expense for fiscal 2009 was $61.2 million as compared to $41.1 million in fiscal 2008. Our effective tax rate was 37.0% in fiscal 2009 versus 38.9% in fiscal 2008. The decrease in the effective tax rate for

~~In August 2006, EDMC’s board of directors approved the 2006 Stock Option Plan for executive~~ ~~management and key personnel. During~~ fiscal ~~2007,~~2009 ~~approximately 1.8 million options were granted under this plan. As EDMC’s shares are no longer publicly traded~~ as acompared ~~result~~to of the ~~Transaction,~~prior ~~under~~fiscal ~~SFAS~~year ~~No. 123R~~was ~~compensation expense~~primarily ~~related~~ due to ~~these~~a ~~grants~~decrease isin ~~not recognized until one of~~ the ~~conditions~~state ~~entitling~~tax ~~these~~provision ~~participants~~as toa ~~fair~~result ~~value for their shares becomes probable. Accordingly, we have not recognized compensation expense related to any~~ of restructuring ~~the~~plans ~~fiscal~~implemented ~~2007 grants~~ during ~~the~~fiscal ~~year~~years ~~ended June 30,~~ 2007. and 2008.

~~We use the~~ ~~Black-Scholes~~ Year Ended ~~option pricing model to determine the fair value of time-based stock options at the grant date. In order to value performance- and market-based options~~June 30, we2008 ~~use~~(Fiscal a2008) Compared ~~Monte~~with ~~Carlo simulation model based on~~ the ~~assumptions used in the~~ ~~time-based~~ Year ~~options’~~Ended ~~Black-Scholes model. Various inputs are utilized in the models~~June 30, ~~such~~2007 ~~as:~~(Fiscal 2007)

• All ~~Stock~~basis ~~price~~point onchanges ~~measurement~~are ~~date,~~presented as a change in the percentage of net revenues in each year of comparison.

~~• Exercise price defined in the award,~~ Net revenues

• Net ~~Expected~~revenues ~~dividend~~for ~~yield~~fiscal 2008 increased 23.5% to $1,684.2 million, compared to $1,363.7 million in fiscal 2007, primarily resulting from a 19.1% increase in average student enrollment, and an approximate 5% increase in tuition rates. These factors are slightly offset by a lower average credit load taken by students. Average student enrollment for fiscal 2008 increased to approximately 91,900 students, less than 1.0% of which was from the acquisitions of educational institutions, compared to approximately 77,200 students in fiscal 2007. The decrease in credit load was primarily the result of growth in the number of students enrolled in fully online programs, in which students typically take a lesser credit load. Tuition revenue generally varies based on ~~historical~~the ~~trend~~average tuition charge per credit hour, average credits per student and the average student population. We derived approximately 91% of ~~dividend~~our ~~payments~~net revenues from tuition and fees paid by, or on behalf of, our students in both the 2008 and 2007 periods.

• Bookstore ~~Risk-free~~and ~~interest~~housing ~~rate~~revenue ~~based~~is onlargely a ~~zero-coupon~~function ~~treasury~~of ~~bond~~the average ~~rate~~student population. Net housing revenues increased to $76.7 million in fiscal 2008 compared to $59.8 million in fiscal 2007, an increase of 28.3%. Revenues from bookstore sales, which include supplies and other items, grew to $57.2 million in fiscal 2008 compared to $47.3 million in fiscal 2007.

• Educational services ~~Expected term based on historical grant and exercise behavior, and~~expenses

• Educational ~~Expected~~services ~~volatility~~expenses ~~based~~increased onby ~~historical~~$171.4 million, or ~~grant~~23.5%, to $901.3 million in fiscal 2008 from $729.9 million in fiscal 2007, due primarily to the incremental costs incurred to support higher student enrollment. Educational services expenses decreased by one basis point as a percentage of net revenues. We experienced a reduction in personnel and ~~implied~~facility ~~stock~~expenses, ~~price~~excluding ~~volatility~~rent, of 64 basis points in fiscal 2008 despite continued investment in new campuses and online programs. These decreases were partially offset by an increase in bad debt expense of 46 basis points, due to an increase in the proportion of our ~~stock~~receivables from out-of-school students, which are reserved for at a higher rate than in-school students. As a percentage of net revenues, bad debt expense represented 2.5% in fiscal 2008 as compared to 2.0% in fiscal 2007. Rent expense associated with campuses, which increased as a percentage of net revenues by nine basis points, was $131.3 million in fiscal 2008 and $105.0 million ~~public~~in ~~peer~~fiscal ~~group~~2007. ~~stock~~The remaining net increase of eight basis points in fiscal 2008 was driven by other costs, none of which were individually significant.

~~These factors can significantly impact the fair values of stock options and~~ ~~associated~~ General and ~~compensation~~administrative ~~expense recognized over the requisite service periods. See Note 12 to the accompanying audited consolidated financial statements for a further discussion on share-based compensation.~~ expenses

~~New~~ General ~~Accounting~~and ~~Standards~~administrative expenses was $419.1 million for fiscal 2008, an increase of 33.1% from $314.9 million in fiscal 2007. As a percentage of net revenues, general and administrative expenses increased 179 basis points compared with fiscal 2007. Personnel costs increased 91 basis points in fiscal 2008 primarily as a result of continued investments in marketing and admissions. In addition, higher investment in advertising in our fully online programs and at our new campuses drove an increase of 104 basis points in fiscal 2008 compared to fiscal 2007. These increases as a percentage of net revenues were partially offset by a decrease in consulting and other professional services expenses of 18 basis points compared to the prior fiscal year. The remaining net increase of two basis points in fiscal 2008 was driven by other costs, none of which were individually significant.

~~On July 13, 2006, the Financial Accounting Standards Board~~ (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (“FIN 48”) which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position Depreciation ~~taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest~~ and ~~penalties,~~amortization ~~accounting in interim periods, disclosure, and transition. FIN 48 is effective for our fiscal year beginning~~expense ~~July 1, 2007. We are in the process of evaluating the potential impact of FIN 48.~~

On Depreciation ~~September 15,~~and ~~2006,~~amortization ~~the~~expense ~~FASB~~on ~~issued~~long-lived ~~SFAS No~~assets was $100.3 ~~157~~million for fiscal 2008, ~~“Fair~~an ~~Value~~increase ~~Measurements”~~of 10.7% ~~SFAS No~~from $90.5 million ~~157~~in ~~defines~~fiscal ~~fair~~2007. ~~value,~~Due ~~establishes~~to athe ~~framework~~fixed ~~for~~nature ~~measuring~~of these ~~fair~~expenses ~~value~~in ~~and~~relation ~~expands~~to ~~disclosures about~~net ~~fair~~revenues, ~~value~~we ~~measurements.~~experienced ~~SFAS~~a reduction ~~No. 157~~in isdepreciation ~~effective~~and ~~for~~amortization ~~our~~expense ~~fiscal~~of 68 basis ~~year~~points ~~beginning~~as ~~July 1,~~a ~~2007.~~percentage Weof ~~are~~net inrevenues, ~~the~~despite taking ~~process~~a of$5.5 million ~~evaluating~~impairment ~~the~~charge ~~potential~~at ~~impact~~one of ~~SFAS No.~~our schools ~~157,~~during iffiscal ~~any~~2008.

~~ITEM 7A. QUANTITATIVE~~ Interest expense, ~~AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~ net

We Net ~~are~~interest ~~exposed~~expense towas ~~market~~$157.7 million ~~risks~~ in ~~the~~fiscal ~~ordinary~~2008, ~~course~~a decrease of ~~business~~$11.4 million ~~that~~from ~~include~~fiscal ~~foreign currency exchange rates~~2007. WeThe ~~typically~~decrease ~~do not utilize forward or~~in ~~option~~ net ~~contracts~~interest onexpense ~~foreign~~is ~~currencies~~primarily orrelated ~~commodities. We are subject~~ to ~~fluctuations in~~ the ~~value~~decrease ofin the average ~~Canadian~~interest ~~dollar~~rate ~~relative~~of to the ~~U.S. dollar. We do not believe we are subject to material risks from reasonably possible near-~~term ~~change~~loan ~~in exchange~~during ~~rates.~~fiscal 2008.

~~The fair values of cash and cash equivalents,~~ accounts receivable, accounts payable and accrued expenses, to the extent the underlying liability will be settled in cash, approximated carrying values because of the short-term nature of these instruments. The derivative financial instruments are ~~carried at fair value, which is based on the amount we would pay to terminate the agreements. We do not use derivative instruments~~ Provision for ~~trading~~income ~~or speculative purposes. The fair value and carrying amounts of our long-term debt are approximately~~taxes ~~equivalent.~~

At Income ~~June 30,~~tax ~~2007,~~expense wefor ~~had~~fiscal ~~total~~2008 ~~long~~was ~~term~~$41.1 million ~~debt~~as ~~obligations~~ compared ofto $~~1,940~~27.0 1 million, ~~including~~in ~~$1,176~~fiscal 2007.0 ~~million~~Our ineffective ~~variable~~ tax rate ~~debt~~was 38.9% ~~Throughout~~in ~~2007,~~fiscal ~~$750.0~~2008 ~~million~~as ofcompared ~~the~~to ~~variable~~45.7% ~~rate~~in ~~debt~~fiscal 2007. ~~was~~The ~~hedged~~decrease ~~pursuant~~in tothe ~~interest~~effective tax rate ~~swap~~for ~~agreements.~~fiscal At2008 ~~June 30,~~as compared ~~2007,~~to ~~our~~fiscal ~~weighted~~2007 ~~average interest rate~~ was ~~8.13%~~primarily ondue ~~total~~to ~~outstanding~~the ~~debt. A~~impact ~~hypothetical~~of valuation ~~change~~allowances ofestablished ~~1.25%~~against incertain ~~interest~~state ~~rates~~deferred tax ~~from~~assets ~~June 30,~~as ~~2007~~a ~~levels~~result ~~would~~of ~~have~~an ~~increased~~internal orrestructuring ~~decreased~~in ~~interest~~fiscal 2007, ~~expense~~a bydecrease ~~approximately~~in ~~$5.4~~the ~~million~~state provision for ~~the~~fiscal ~~variable-rate~~2009 ~~debt~~and a decrease in ~~fiscal 2007.~~state deferred taxes.

~~On June 6, 2006 we entered into two five-year~~ interest rate swap agreements which fixed the interest rate for $750.0 million of our variable rate debt starting in July 2006. The interest rate swaps are for $375.0 million effective July 1, 2006 and $375.0 million effective July 3, 2006. The swap agreements expire on July 1, 2011. In fiscal 2007, we had variable rate debt of $426.0 million that was subject to market rate risk, as our interest payments fluctuated as the underlying interest rates changed as a Liquidity ~~result of market changes. Under the terms of the interest rate swaps, we receive payments based on variable interest rates based on the three month LIBOR~~ and ~~make~~Funds ~~payments based on a fixed rate~~ of ~~5.397%. The~~Capital ~~net receipt or payment from the~~Resources interest rate swap agreements is recorded in interest expense. The interest rate swaps are designated and qualify as cash flow hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. As such, the swaps are accounted for as an asset in the consolidated balance sheet at fair value, net of tax. The fair value of the swap agreements are estimated by a qualified third party based on current settlement prices and quoted market prices of comparable contracts. For the period ended June 30, 2007, we recorded an unrealized after-tax loss of $3.5 million in other comprehensive income (loss) related to the change in market value on the swap agreements. The loss balance of $1.1 million at June 30, 2007 related to the swaps may be recognized in the statement of operations if certain terms of the senior secured credit facility change, if the senior secured credit facility is extinguished or if the swap agreements are terminated prior to maturity.

We finance our operating activities primarily from cash generated from operations, and our primary source of cash is tuition collected from our students. We believe that cash flow from operations, supplemented from time to time with borrowings under our $322.5 million revolving credit facility, will provide adequate funds for ongoing operations, planned expansion to new locations, planned capital expenditures and debt service as well as acquisitions during the next twelve months.

Net working capital is calculated as total current assets less total current liabilities. Advance payments and amounts outstanding under our revolving credit facility do not contribute to any changes in net working capital as these liabilities are directly offset in current assets. We had working capital of $32.3 million at June 30, 2009, which compares favorably to a working capital deficit of $41.1 million at June 30, 2008. The change in working capital is primarily the result of a $39.5 million increase in net income in fiscal 2009 compared to fiscal 2008, which significantly improved our cash position at June 30, 2009 compared to June 30, 2008.

Operating cash flows

Cash provided by operating activities for the fiscal year ended June 30, 2009 was $293.0 million, an increase of $141.7 million, or 93.7%, compared to the year ended June 30, 2008. Increased operating cash flows in the current year were primarily related to increased net income, additional cash collected due to the timing of the number of academic starts during the fiscal year and lower cash interest payments.

Days sales outstanding (“DSO”) in receivables was 23.5 days at June 30, 2009 compared to 21.1 days at June 30, 2008. We calculate DSO by dividing net student and other receivables at period end by average daily net revenues for the most recently completed quarter. Net accounts receivable can be affected significantly by the changes in the start dates of academic terms from reporting period to reporting period. There were no significant changes to the start dates of academic terms in session as compared to the prior year. DSO increased slightly in the current year due to increased receivable balances, which were the result of deteriorating economic conditions and limitations on the availability of private loans to our students.

The level of accounts receivable reaches a peak immediately after the billing of tuition and fees at the beginning of each academic period. Collection of these receivables is heaviest at the start of each academic period. Additionally, federal financial aid proceeds for continuing students can be received up to ten days prior to the start of an academic quarter, which can result in fluctuations in quarterly cash receipts due to the timing of the start of academic periods.

In an effort to provide our students with financing for the cost of tuition, we have established relationships with alternative or private loan providers. Private loans help bridge the funding gap created by tuition rates that have risen more quickly than federally-guaranteed student loans. In addition, we introduced the Education Finance Loan program in August 2008, which enables students who have exhausted all available government-sponsored or other aid and have been denied a private loan to borrow a portion of their tuition and other educational expenses at our schools if they or a co-borrower meet certain eligibility and underwriting criteria.

We have accrued a total of $22.6 million as of June 30, 2009 for uncertain tax positions under FIN 48, excluding interest and the indirect benefits associated with state income taxes. We may have future cash payments

~~ITEM~~ relating 8to the amount accrued if we are ultimately unsuccessful in defending these uncertain tax positions. ~~FINANCIAL~~However, ~~STATEMENTS~~we ~~AND~~cannot reasonably ~~SUPPLEMENTARY~~predict ~~DATA~~at this time the future period in which these payments may occur, if at all.

~~INDEX~~ Investing cash ~~TO CONSOLIDATED FINANCIAL STATEMENTS~~ flows

Report of Independent Registered Public Accounting Firm		58
Consolidated Balance Sheets		59
Consolidated Statements of Operations		60
Consolidated Statements of Cash Flows		61
Consolidated Statements of Equity		63
Notes to Consolidated Financial Statements		64
Schedule II—Valuation and Qualifying Accounts		99
Supplemental Quarterly Information		100

Capital expenditures were $150.7 million, or 7.5% of net revenues, for the year ended June 30, 2009, compared to $150.9 million, or 9.0% of net revenues, for the same period a year ago. We expect capital expenditures in fiscal 2010 to be between 6% and 8% of net revenues. During fiscal 2009, we continued to invest both in new facilities and in the expansion of existing facilities. Reimbursements for tenant improvements represent cash received from lessors based on the terms of lease agreements to be used for leasehold improvements. We lease most of our facilities under operating lease agreements. We anticipate that future commitments on existing leases will be satisfied from cash provided from operating activities. We also expect to extend the terms of leases that will expire in the near future or enter into similar long-term commitments for comparable space.

Financing cash flows

Our $322.5 million revolving credit facility is available to draw upon in order to satisfy certain year-end regulatory financial ratios, fund working capital needs that may result from the seasonal pattern of cash receipts that occur throughout the year and finance acquisitions. In September 2008, we borrowed $180.0 million under the revolving credit facility as a precautionary measure due to the state of the capital markets, which remained outstanding until we repaid $80.0 million on June 26, 2009. On July 1, 2009, we repaid the remaining outstanding balance of $100.0 million, which existed in order to satisfy year-end regulatory financial ratios, under the revolving credit facility from cash on hand at June 30, 2009.

In March 2009, we executed an amendment to our senior secured credit facilities that removed a $175.0 million limitation on letters of credit issued pursuant to the revolving credit facility. Under the amended agreement, the issuing bank has discretion to issue letters of credit in excess of $175.0 million, and we may designate one or more additional issuing banks to issue letters of credit in excess of $175.0 million. The amendment also allows us to extinguish up to $400.0 million of our existing outstanding term loan prior to June 30, 2010 at less than par value pursuant to a specified auction procedure. We incurred $0.9 million in capitalizable fees related to the amendment in fiscal 2009. Subsequent to the end of fiscal 2009, we entered into an agreement with two new issuing banks to increase the amount available for letters of credit under the revolving credit facility from $175.0 million to $375.0 million and to increase the revolving credit facility capacity to $388.5 million.

At June 30, 2009, we had outstanding letters of credit issued to the U.S. Department of Education of approximately $121.1 million, including a $120.5 million letter of credit due to our failure to satisfy certain regulatory financial ratios after giving effect to the Transaction. Outstanding letters of credit reduce our availability to borrow funds under the revolving credit facility. Including those issued to the U.S. Department of Education, an aggregate of $137.8 million of letters of credit were outstanding at June 30, 2009.

As a result of the Transaction, we are highly leveraged, and our debt service requirements are significant. At June 30, 2009, we had $1,988.6 million in aggregate indebtedness outstanding, including short-term debt under the revolving credit facility. After giving effect to outstanding letters of credit and amounts drawn, we had $84.7 million of additional borrowing capacity on the revolving credit facility at June 30, 2009. We expect our cash flows from operations, combined with availability under the revolving credit facility, to provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending over the next twelve months.

Federal Family Education Loan Program and Private Student Loans

Approximately 81.5% and 13.1% of our net revenues were indirectly derived from Title IV programs under the Higher Education Act of 1965 and private loan programs, respectively, in fiscal 2009 compared to 70.2% and 22.3% from Title IV programs and private loan programs, respectively, in fiscal 2008. There have been significant recent developments that have impacted these programs.

The U.S. government has recently made additional financial aid available to students in order to meet rising post-secondary education and decreased availability of private loans. Effective July 1, 2008, the annual Stafford

~~Report~~ loans available for undergraduate students under the FFEL program increased by $2,000. Effective as of ~~Independent~~July 1, ~~Registered~~2008, the ~~Public~~maximum ~~Accounting~~amount ~~Firm~~of availability of a Pell grant increased to $4,731 per year from a maximum of $4,310 per year in fiscal 2008. The maximum Pell grant available to eligible students further increased effective July 1, 2009 to $5,350 per award year.

The ~~Board~~credit and equity markets of ~~Directors~~both mature and ~~Shareholders~~developing economies have experienced extraordinary volatility, asset erosion and uncertainty in the last year, leading to governmental intervention in the banking sector in the United States and abroad on an unprecedented scale. In particular, adverse market conditions for consumer student loans have resulted in providers of ~~Education~~private ~~Management~~loans ~~LLC~~reducing the attractiveness and/or decreasing the availability of private loans to post-secondary students, including students with low credit scores who would not otherwise be eligible for credit-based private loans. In order to provide student loans to certain of our students who do not satisfy the new standard underwriting, we pay credit enhancement fees to certain lenders (including Sallie Mae) based on the principal balance of each loan disbursed by the lender. An agreement we entered into with Sallie Mae to provide loans to certain students who received a private loan from Sallie Mae prior to April 17, 2008 and are continuing their education but who do not satisfy Sallie Mae’s current standard underwriting criteria expires in June 2010.

We The ~~have~~reliance ~~audited~~by ~~the~~students ~~accompanying~~attending ~~consolidated~~our ~~balance~~schools ~~sheets~~on ofprivate ~~Education~~loans decreased ~~Management~~substantially ~~LLC~~during ~~(the~~fiscal ~~Company)~~2009 asdue ofto ~~June 30, 2007 and 2006 and~~ the ~~consolidated~~increased availability ~~statements~~ of ~~operations,~~federal ~~shareholders’ equity~~aid, ~~and cash~~including ~~flows for~~ the ~~year ended June 30~~$2,000 ~~2007~~increase ~~and~~in Stafford ~~the~~loan ~~period~~availability ~~from~~for ~~June 1,~~undergraduate ~~2006~~students toas ~~June~~of July 301, ~~2006~~2008, and ~~the~~certain ~~consolidated~~operating ~~statements~~initiatives ofwe implemented ~~operations,~~over ~~shareholders’~~the ~~equity,~~past ~~and~~18 months. ~~cash~~Excluding ~~flows~~activity under ofour Education ~~Management~~Finance ~~Corporation~~Loan ~~and Subsidiaries~~program, ~~(Predecessor)~~approximately ~~for~~14% of the ~~period~~students ~~from~~attending ~~July 1,~~our ~~2005~~schools toreceived ~~May 31,~~a ~~2006~~private ~~and~~loan ~~for~~in fiscal ~~the~~2009 ~~year~~as ~~ended~~compared ~~June 30,~~to ~~2005.~~approximately ~~Our~~24% ~~audits also included the financial statement schedule listed~~ in ~~the~~fiscal ~~Index~~2008. ~~These financial statements and schedule~~We ~~are~~ anticipate ~~the~~that ~~responsibility of~~ the ~~Company’s~~net ~~management.~~revenues ~~Our~~we ~~responsibility~~receive isfrom toprivate ~~express~~loans and anthe ~~opinion~~number onof ~~these~~students ~~financial~~receiving ~~statements~~private ~~and~~loans ~~schedule~~will ~~based~~further decrease onin ~~our~~fiscal ~~audits~~2010.

We In ~~conducted~~response ~~our~~to ~~audits in accordance with~~ the ~~standards~~tightened ofcredit ~~the~~markets ~~Public~~facing ~~Company~~our ~~Accounting Oversight Board (United States).~~students, ~~Those~~ in ~~standards~~August ~~require~~2008 ~~that~~ we ~~plan~~introduced ~~and perform~~ the ~~audit~~Education toFinance ~~obtain~~Loan ~~reasonable~~program through ~~assurance~~a ~~about~~private ~~whether the financial statements are free of material misstatement~~lender. WeThe ~~were~~program ~~not~~enables ~~engaged~~students towho ~~perform~~have exhausted anall ~~audit~~available ofgovernment-sponsored ~~the~~or ~~Company’s~~other ~~internal~~aid ~~control over~~and ~~financial~~ have ~~reporting.~~been ~~Our~~denied ~~audits~~a ~~included~~private ~~consideration~~loan ofto ~~internal~~borrow ~~control over financial reporting as~~ a ~~basis~~portion ~~for~~of ~~designing~~their tuition ~~audit~~and ~~procedures~~other ~~that~~educational ~~are~~expenses ~~appropriate~~at inour ~~the~~schools ~~circumstances,~~if ~~but~~they ~~not~~or a ~~for~~co-borrower ~~the~~meet ~~purpose~~certain ofeligibility ~~expressing~~and ~~an opinion on the~~underwriting ~~effectiveness~~ criteria. ofUnder the ~~Company’s internal control over financial reporting. Accordingly~~program, we ~~express~~purchase noloans ~~such~~made ~~opinion.~~by ~~An audit also includes examining, on~~ a ~~test~~private lender ~~basis,~~to ~~evidence~~students ~~supporting~~who ~~the~~attend ~~amounts~~our ~~and~~schools. ~~disclosures~~During infiscal ~~the financial statements~~2009, ~~assessing~~ approximately ~~the~~1.0% ~~accounting~~of ~~principles~~our ~~used~~net ~~and~~revenues ~~significant~~were ~~estimates~~from ~~made by management, and evaluating~~ the ~~overall~~Education Finance ~~financial~~Loan ~~statement presentation~~Program. We ~~believe~~estimate that ~~our~~additional ~~audits~~disbursements under ~~provide~~this aprogram ~~reasonable~~during ~~basis~~fiscal ~~for~~2010 ~~our~~will ~~opinion.~~be approximately $75 million.

In The ~~our~~Education ~~opinion,~~Finance ~~the~~Loan ~~financial~~program ~~statements~~adversely ~~referred~~impacts toour liquidity ~~above~~and ~~present~~exposes ~~fairly,~~us ~~in all~~to ~~material~~new ~~respects,~~and ~~the~~greater ~~consolidated~~credit ~~financial~~risk ~~position~~because we ofown ~~Education~~loans ~~Management~~to ~~LLC~~our atstudents. ~~June 30,~~This ~~2007~~financing ~~and~~provides ~~2006,~~for payments ~~and~~to ~~the~~us ~~consolidated~~by ~~results~~our ofstudents ~~its~~over ~~operations~~an ~~and~~extended ~~its~~term, ~~cash~~which could ~~flows~~have ~~for~~a ~~the~~material ~~year~~adverse ~~ended~~effect ~~June 30,~~on ~~2007~~our ~~and~~cash ~~the~~flows ~~period~~ from ~~June 1,~~ operations. ~~2006~~In ~~to June 30~~addition, ~~2006,~~we ~~and~~have the ~~results~~risk of ~~Education~~collection ~~Management~~with respect ~~Corporation~~to ~~and~~these ~~Subsidiaries~~loans, ~~operations~~which ~~and~~resulted ~~their~~in ~~cash~~an ~~flows~~increase ~~for~~in ~~the~~our ~~period~~bad debt ~~from~~expense ~~July 1,~~as ~~2005~~a topercentage ~~May 31,~~of ~~2006,~~net ~~and~~revenues ~~for~~in ~~the~~fiscal ~~year~~2009 compared ~~ended~~to ~~June 30,~~prior ~~2005~~fiscal ~~in conformity~~years. ~~with~~While ~~U.S.~~we ~~generally~~are ~~accepted~~taking ~~accounting~~steps ~~principles.~~to address ~~Also,~~the inprivate loan needs of our ~~opinion~~students, the ~~related~~consumer lending ~~financial~~market ~~statement~~could ~~schedule,~~worsen. ~~when~~The ~~considered~~inability inof ~~relation~~our students to finance ~~the~~their ~~basic~~education ~~financial~~could ~~statements~~cause ~~taken~~our asstudent apopulation ~~whole~~to decrease, ~~presents~~which ~~fairly~~could inhave ~~all~~a material ~~respects~~adverse effect on our ~~the~~ financial ~~information~~condition, ~~set~~results ~~forth~~of ~~therein.~~operations and cash flows.

As described in Note 2, the Predecessor adopted Financial Accounting Standards Board Statement 123(R), “Share Based Payment”, during the period ended May 31, 2006.

/s/ ERNST & YOUNG LLP

Pittsburgh, Pennsylvania

September 18, 2007

~~EDUCATION MANAGEMENT LLC AND SUBSIDIARIES~~ Contractual obligations

~~CONSOLIDATED~~ The ~~BALANCE~~following ~~SHEETS~~table describes our commitments at June 30, 2009 under various contracts and agreements (in thousands):

(Dollars in thousands)

Payments Due by Fiscal Year

Total Amounts

Committed

2010

2011

2012

2013

2014

Thereafter

Revolving credit loans(1)

100,000

Filing Compare · Education Management LLC