EDMC-2013.09.30-10-Q

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	September 30, 2013			June 30, 2013			September 30, 2012
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	163,307		$	130,695		$	211,956
Restricted cash	273,037			271,340			277,376
Total cash, cash equivalents and restricted cash	436,344			402,035			489,332
Student receivables, net of allowances of $181,230, $174,760 and $239,315 (Note 6)	340,858			206,406			234,777
Notes, advances and other receivables	63,887			32,547			30,856
Deferred income taxes	76,927			76,927			102,668
Prepaid income taxes	28,350			20,854			15,789
Other current assets	35,619			32,850			50,897
Total current assets	981,985			771,619			924,319
Property and equipment, net (Note 4)	503,350			525,625			626,337
Other long-term assets (Note 6)	67,063			48,524			52,621
Intangible assets, net (Note 5)	300,141			300,435			329,658
Goodwill (Note 5)	669,090			669,090			963,550
Total assets	$	2,521,629		$	2,315,293		$	2,896,485
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt (Note 8)	$	11,977		$	12,076		$	12,076
Revolving credit facility (Note 8)	—			75,000			—
Accounts payable	32,493			32,559			30,168
Accrued liabilities (Note 7)	147,355			157,417			154,342
Unearned tuition	421,721			113,371			168,601
Advance payments	89,235			95,675			238,957
Total current liabilities	702,781			486,098			604,144
Long-term debt, less current portion (Note 8)	1,272,788			1,273,164			1,450,583
Deferred income taxes	70,419			70,316			110,053
Deferred rent	196,020			201,202			198,449
Other long-term liabilities	32,636			34,414			46,429
Shareholders’ equity:
Common stock, at par	1,437			1,435			1,434
Additional paid-in capital	1,799,788			1,794,846			1,781,345
Treasury stock, at cost	(328,605		)	(328,605		)	(328,605		)
Accumulated deficit	(1,213,450		)	(1,203,936		)	(949,053		)
Accumulated other comprehensive loss	(12,185		)	(13,641		)	(18,294		)
Total shareholders’ equity	246,985			250,099			486,827
Total liabilities and shareholders’ equity	$	2,521,629		$	2,315,293		$	2,896,485



	For the Three Months Ended September 30,
	2013			2012
Net revenues	$	580,380		$	609,564
Costs and expenses:
Educational services	357,688			381,296
General and administrative	172,169			174,492
Depreciation and amortization	38,605			44,145
Total costs and expenses	568,462			599,933
Income before interest and income taxes	11,918			9,631
Interest expense, net	31,866			31,452
Loss before income taxes	(19,948		)	(21,821		)
Income tax benefit	(10,434		)	(8,728		)
Net loss	$	(9,514	)	$	(13,093	)
Loss per share: (Note 2)
Basic	$	(0.08	)	$	(0.11	)
Diluted	$	(0.08	)	$	(0.11	)
Weighted average number of shares outstanding: (Note 2)
Basic	124,657			124,478
Diluted	124,657			124,478



	For the Three Months Ended September 30,
	2013			2012
Net loss	$	(9,514	)	$	(13,093	)
Other comprehensive income (loss)
Net change in interest rate swaps:
Periodic revaluation of interest rate swaps, net of tax benefit of $495 and $1,287	(840		)	(2,182		)
Reclassification adjustment for interest recognized in consolidated statement of operations, net of tax expense of $1,150 and $1,043	1,950			1,768
Net change in unrecognized loss on interest rate swaps, net of tax	1,110			(414		)
Foreign currency translation gain	346			157
Other comprehensive income (loss)	1,456			(257		)
Comprehensive loss	$	(8,058	)	$	(13,350	)



	For the Three Months Ended September 30,
	2013			2012
Cash flows from operating activities:
Net loss	$	(9,514	)	$	(13,093	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization of property and equipment	37,087			42,616
Amortization of intangible assets	1,518			1,529
Bad debt expense	45,063			48,931
Amortization of debt issuance costs	3,618			1,280
Share-based compensation	4,174			3,613
Non cash adjustments related to deferred rent	(4,441		)	(3,622		)
Amortization of deferred gains on sale-leaseback transactions	(563		)	—
Changes in assets and liabilities:
Restricted cash	(1,697		)	(9,496		)
Receivables	(58,003		)	(91,299		)
Reimbursements for tenant improvements	73			1,202
Inventory	(377		)	(1,654		)
Other assets	(1,688		)	(1,144		)
Purchase of loans	(3,315		)	—
Accounts payable	904			(21,896		)
Accrued liabilities	(16,322		)	10,624
Unearned tuition	(12,992		)	52,324
Advance payments	143,682			136,662
Total adjustments	136,721			169,670
Net cash flows provided by operating activities	127,207			156,577
Cash flows from investing activities:
Expenditures for long-lived assets	(17,332		)	(20,541		)
Reimbursements for tenant improvements	(73		)	(1,202		)
Net cash flows used in investing activities	(17,405		)	(21,743		)
Cash flows from financing activities:
Payments under revolving credit facility	(75,000		)	(111,300		)
Issuance of common stock	770			—
Principal payments on long-term debt	(3,043		)	(2,885		)
Net cash flows used in financing activities	(77,273		)	(114,185		)
Effect of exchange rate changes on cash and cash equivalents	83			299
Net change in cash and cash equivalents	32,612			20,948
Cash and cash equivalents, beginning of period	130,695			191,008
Cash and cash equivalents, end of period	$	163,307		$	211,956
Cash paid (received) during the period for:
Interest (including swap settlement)	$	38,475		$	22,044
Income taxes, net of refunds	(2,477		)	1,059
	As of September 30,
Noncash investing activities:	2013			2012
Capital expenditures in current liabilities	$	7,606		$	9,050



	Common Stock at Par Value (b)		Additional Paid-in Capital		Treasury Stock (b)			Accumulated Deficit			Accumulated Other Comprehensive Loss				Total
	(In thousands)
Balance at June 30, 2012	$	1,434	$	1,777,732	$	(328,605	)	$	(935,960	)	$	(18,037	)		$	496,564
Exercise of stock options including tax benefit	—		3		—			—			—				3
Share-based compensation	1		17,111		—			—			—				17,112
Net loss	—		—		—			(267,976		)	—				(267,976		)
Other comprehensive loss	—		—		—			—			4,396				4,396
Balance at June 30, 2013	1,435		1,794,846		(328,605		)	(1,203,936		)	(13,641		)	(a)	250,099
(Unaudited)
Exercise of stock options	2		768		—			—			—				770
Share-based compensation	—		4,174		—			—			—				4,174
Net loss	—		—		—			(9,514		)	—				(9,514		)
Other comprehensive income	—		—		—			—			1,456				1,456
Balance at September 30, 2013	$	1,437	$	1,799,788	$	(328,605	)	$	(1,213,450	)	$	(12,185	)	(a)	$	246,985

The accompanying unaudited consolidated financial statements of Education Management Corporation ("EDMC" and, together with its subsidiaries, the "Company") have been prepared by the Company’s management in accordance with generally accepted accounting principles for interim financial information and applicable rules and regulations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the accompanying interim financial statements have been reflected. The consolidated statements of operations for the three months ended September 30, 2013 and 2012 are not necessarily indicative of the results to be expected for future periods. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013 (the “Annual Report on Form 10-K”) as filed with the Securities and Exchange Commission (“SEC”). The accompanying consolidated balance sheet at June 30, 2013 and consolidated statement of shareholders' equity for the fiscal year ended June 30, 2013 have been derived from the consolidated audited balance sheet and statement of shareholders' equity included in the 2013 Annual Report on Form 10-K.

The Company is among the largest providers of post-secondary education in North America, with approximately 125,560 enrolled students as of October 2013. The Company offers campus-based education through four different education systems and through online platforms at three of its four education systems, or through a combination of both. These four education systems comprise the Company's reportable segments, which are The Art Institutes, Argosy University, Brown Mackie Colleges and South University. Refer to Note 14, "Segment Reporting" for additional information.

The Company is committed to offering quality academic programs and strives to improve the learning experience for its students to help them achieve their educational goals across the spectrum of in-demand careers. The curriculum is designed with a strong emphasis on applied career-oriented content and is primarily taught by faculty members who possess practical and relevant professional experience in their respective fields.

On June 1, 2006, EDMC was acquired by a consortium of private equity investment funds led by Providence Equity Partners, Goldman Sachs Capital Partners and Leeds Equity Partners (collectively, the “Sponsors”). The acquisition was accomplished through the merger of EM Acquisition Corporation into EDMC, with EDMC surviving the merger (the "Transaction") and was financed by equity invested by the Sponsors and other investors, cash on hand and secured and unsecured borrowings. Refer to Note 8, "Short-Term and Long-Term Debt" for more information.

In July 2013, the FASB clarified the presentation of an unrecognized tax benefit when a net operating loss or tax credit carryforward exists. The clarification requires that an unrecognized tax benefit be presented as a reduction of a deferred tax asset for a net operating loss or tax credit carryforward when settlement of the unrecognized tax benefit using those carryforwards is available pursuant to existing tax law. Adoption of the FASB clarification did not have any impact on the Company’s financial statements.

Effective in September 2012, the Company adopted the Education Management Corporation 2012 Omnibus Long-Term Incentive Plan (the “2012 Omnibus Plan”), which replaced the Education Management Corporation Omnibus Long-Term Incentive Plan (the "2009 Omnibus Plan") that was adopted in April 2009 and became effective upon the completion of the Initial Public Offering. The 2009 Omnibus Plan and the 2006 Stock Option Plan, which it replaced, are now frozen. The 2012 Omnibus Plan may be used to issue stock options, stock appreciation rights, restricted stock, restricted stock units and other forms of long-term incentive compensation. As of September 30, 2013, approximately 3.2 million shares of Common Stock remain reserved for issuance under the 2012 Omnibus Plan.

Performance-based stock options vest upon the greater of the percentage of the Company's common stock sold by certain investment funds affiliated with Providence Equity Partners and Goldman Sachs Capital Partners (together, the "Principal Stockholders") or on certain return on investment hurdles achieved by the Principal Stockholders. As of September 30, 2013, the Company continues to defer the recognition of any expense on its outstanding performance-based stock options until the relevant performance conditions become probable of being met.

There were 226,667 shares of Common Stock issued as a result of stock options exercised during the three months ended September 30, 2013. The table below presents outstanding share units and unrecognized compensation expense, net of expected forfeitures, for each type of award at September 30, 2013. Also presented is the number of stock options that are exercisable as of November 2, 2013 and the amount of restricted stock that vests on November 2, 2013.



Asset Class	September 30, 2013			June 30, 2013			September 30, 2012
Leasehold improvements	$	572,632		$	570,286		$	556,902
Technology and other equipment	319,806			324,403			309,989
Furniture and equipment	164,405			163,595			158,800
Software	102,161			98,537			86,876
Library books	44,550			44,248			43,028
Buildings and improvements	25,708			25,566			75,206
Land	5,496			5,495			16,725
Construction in progress	23,262			19,601			17,985
Total	1,258,020			1,251,731			1,265,511
Less accumulated depreciation and amortization	(754,670		)	(726,106		)	(639,174		)
Property and equipment, net	$	503,350		$	525,625		$	626,337

Depreciation and amortization expense related to property and equipment was $37.1 million and $42.6 million, respectively, for the three months ended September 30, 2013 and 2012. Included in these amounts is $4.3 million and $8.5 million of amortization expense on software assets, respectively. Amortization expense on software assets for the three months ended September 30, 2012 included $4.6 million in accelerated amortization resulting from the write off of a software asset that no longer had a useful life.

During the fiscal year ended June 30, 2013, the Company completed five sale-leaseback transactions with unrelated third parties for net proceeds of $65.1 million. Concurrent with these sales, the Company entered into agreements to lease the properties back from the purchasers over initial lease terms ranging from three to 15 years. The Company classified these leases as operating and considers them normal leasebacks with no other continuing involvement.

In connection with the Transaction, the Company recorded approximately $2.6 billion of goodwill, which was allocated to its four reporting units: The Art Institutes, Argosy University, Brown Mackie Colleges and South University. On April 1 of each fiscal year, the Company formally evaluates the carrying amount of goodwill for each of its reporting units. In addition, the Company also performs an evaluation on an interim basis if it determines that recent events or prevailing conditions indicate a potential impairment of goodwill. A significant amount of judgment is involved in determining whether an indicator of impairment has occurred between annual impairment tests. These indicators include, but are not limited to, overall financial performance such as adverse changes in recent forecasts of operating results, industry and market considerations, the Company's market capitalization, updated business plans and regulatory and legal developments. There were no interim impairment indicators in the current quarter; therefore, the Company concluded that it was more-likely-than-not that the fair value of each reporting unit with a goodwill balance exceeded its respective carrying value at September 30, 2013.

The Company also evaluates indefinite-lived intangible assets annually on April 1 for impairment and on an interim basis if it determines that recent events or prevailing conditions indicate these assets could be potentially impaired. The Company concluded that it was more-likely-than-not that the fair value of its indefinite-lived intangible assets exceeded their respective carrying values at September 30, 2013 as there were no interim impairment indicators noted in the current quarter. Intangible assets other than goodwill consisted of the following amounts (in thousands):



	September 30, 2013					June 30, 2013					September 30, 2012
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
The Art Institutes trade name	$	190,000	$	—		$	190,000	$	—		$	218,000	$	—
Licensing, accreditation and Title IV program participation	95,862		—			95,862		—			95,862		—
Curriculum and programs	44,069		(32,831		)	43,575		(32,596		)	39,845		(29,412		)
Student contracts, applications and relationships	39,511		(37,659		)	39,511		(37,381		)	39,511		(36,548		)
Favorable leases and other	19,418		(18,229		)	19,424		(17,960		)	19,441		(17,041		)
Total intangible assets	$	388,860	$	(88,719	)	$	388,372	$	(87,937	)	$	412,659	$	(83,001	)

Trade names are often considered to have useful lives similar to that of the overall business, which generally means such assets are assigned an indefinite life for accounting purposes. State licenses and accreditations of the Company’s schools, as well as their eligibility for Title IV program participation, are periodically renewed in cycles ranging from every one to up to every ten years depending upon government and accreditation regulations. Because the Company considers these renewal processes to be a routine aspect of the overall business, these assets are assigned indefinite lives.

The Company records student receivables at cost less an estimated allowance for doubtful accounts, which is determined on a monthly basis based on the likelihood of collection considering students' historical payment experience based on their enrollment status. For example, receivables from students who are out-of-school are reserved for at a higher rate than the receivables from students that are in-school. When certain criteria are met, which is generally when receivables age past the due date by more than four months, and internal collection measures have been taken without success, the accounts of former students are placed with a collection agency. Student accounts that have been placed with a collection agency are reserved for at a high rate and are written off after collection attempts have been unsuccessful.

Student receivables include $42.7 million (net of $28.3 million allowance), $24.3 million (net of $27.9 million allowance), and $17.5 million (net of $23.7 million allowance) recorded in other long-term assets on the accompanying balance sheets at September 30, 2013, June 30, 2013 and September 30, 2012, respectively. These amounts relate to the extension of credit to students for amounts due beyond one year, which helps students fund the difference between total tuition and fees and the amount covered by various sources of financial aid, including amounts awarded under Title IV programs, private loans and cash payments. During fiscal 2013, the Company extended the repayment period for financing made available to students from a maximum of 36 months beyond graduation to a maximum of 42 months beyond graduation. The majority of applicable accounts incur interest charges that accrue each month on unpaid balances except for those accounts that have been placed into collections. The gross current and non-current student receivables by student status were as follows (in thousands):

The first day of The Art Institutes' campus-based fall academic term was September 30, 2013 in the current year; typically, the fall term does not begin until October. Because the academic terms for The Art Institutes usually begin and end within the same fiscal quarter, the early start date resulted in higher in-school student receivables and unearned tuition and lower advance payments on the consolidated balance sheet at September 30, 2013 compared to September 30, 2012 and other reporting periods. Accordingly, the Company excluded the impact of non-cash accounting transactions related to the September 30, 2013 academic term within the accompanying consolidated statement of cash flows, which had no impact on the Company’s total cash flow from operations for the quarter ended September 30, 2013.

The Company commenced a new student lending program in fiscal 2013 under which it purchases loans awarded and disbursed to its students from a private lender. The Company has awarded $4.7 million of aid under this program as of September 30, 2013, of which $3.3 million in loans were purchased during the quarter ended September 30, 2013. These loans are recorded in other long-term assets, net of the allowance for loan losses.

Over the past several fiscal years, the Company has completed restructuring plans intended to improve operational efficiencies at all of its education systems. The Company recorded a charge of $1.6 million in the quarter ended September 30, 2013 consisting of employee severance charges, primarily at the Argosy University segment and the Company's corporate office. During the quarter ended September 30, 2012, the Company recorded a $9.1 million charge, of which $7.5 million related to employee severance costs, primarily at The Art Institutes segment, and $1.6 million related to a lease abandonment charge at one of the Company's operations offices. At September 30, 2013, the remaining liability for all restructuring plans was $4.5 million, consisting primarily of employee severance amounts expected to be paid through the end of fiscal 2014 and net rent charges to be paid through the remainder of the terms of the abandoned leases.

The Company had outstanding letters of credit of $353.0 million at September 30, 2013, the largest of which is issued to the U.S. Department of Education, which requires the Company to maintain a letter of credit due to its failure to satisfy certain regulatory financial ratios after giving effect to the Transaction. The amount of this letter of credit was $348.6 million at September 30, 2013, which equals 15 percent of the total Title IV aid received by students that attended the Company’s institutions during the fiscal year ended June 30, 2012.

As of September 30, 2013, in order to fund its current letter of credit obligation to the U.S. Department of Education, the Company utilized all $200.0 million of capacity under two cash secured letter of credit facilities, in connection with which the Company classifies $210.0 million as restricted cash to satisfy the 105 percent collateralization requirement, and $148.6 million of letter of credit capacity under its $328.3 million revolving credit facility, which expires on June 1, 2015. The cash secured letter of credit facilities currently mature on July 8, 2014 or earlier if the existing revolving credit facility is terminated. Any future reduction in the usage of the cash secured letter of credit facilities will reduce the amount of cash that is classified as restricted cash on the consolidated balance sheet.

There were $75.0 million of borrowings outstanding at June 30, 2013 under the $328.3 million revolving credit facility. These borrowings were repaid in full on July 1, 2013. There were no borrowings outstanding under the revolving credit facility at September 30, 2013 and 2012. After adjusting for outstanding letters of credit, which decrease availability under the revolving credit facility, the Company had $175.3 million of additional capacity under the revolving credit facility at September 30, 2013 available for borrowings or issuance of letters of credit.

The interest rate on amounts outstanding under the revolving credit facility at June 30, 2013 was 6.25 percent, which is equal to the prime rate as defined under the credit facility plus a margin of 3.00 percent. The applicable margin for borrowings under the revolving credit facility can change depending on the Company's leverage ratios and credit ratings. Education Management LLC ("EM LLC"), an indirect wholly-owned subsidiary of the Company, is obligated to pay a per annum commitment fee on undrawn amounts under the revolving credit facility, which is currently 0.375 percent and varies based on certain leverage ratios. EM LLC must also pay customary letter of credit fees for outstanding letters of credit under the revolving credit facility. The revolving credit facility is secured by certain of the Company’s assets and is subject to the Company’s satisfaction of certain covenants and financial ratios, which are described further below.



	September 30, 2013			June 30, 2013			September 30, 2012
Senior secured term loan facility, due in June 2016 ("Tranche C-2 Loan")	$734,433			$736,454			$742,518
Senior secured term loan facility, due in March 2018, net of discount of $2,745, $2,898 and $3,355 ("Tranche C-3 Loan")	341,570			342,364			344,750
Senior cash pay/PIK notes due 2018, net of discount of $26,368 and $27,712 ("PIK Notes")	208,658			206,242			—
8.75% senior notes	—			—			375,000
Other	104			180			391
Total long-term debt	1,284,765			1,285,240			1,462,659
Less current portion	(11,977		)	(12,076		)	(12,076		)
Total long-term debt, less current portion	$	1,272,788		$	1,273,164		$	1,450,583

Cash interest on the PIK Notes accrues at the rate of 15.0 percent per annum and is payable semi-annually on March 30 and September 30. For any interest period after March 30, 2014 up to and including July 1, 2018, interest in addition to the cash interest payable will be paid by increasing the principal amount of the outstanding PIK Notes (“PIK Interest”). Additionally, the PIK Notes are required to be paid at a premium of 13.0 percent at their contractual maturity, which is being treated as an original issuance discount for accounting purposes. Including PIK Interest and the original issuance discount, the annual effective interest rate on the Senior Notes is 19.8 percent. The Tranche C-3 Loan bears interest at a rate equal to the greater of

The indenture and credit agreement governing the senior secured credit facilities and PIK Notes, respectively, contain a number of covenants that, among other things, restrict, subject to certain exceptions, EM LLC’s ability to incur additional indebtedness, pay dividends and distributions on or repurchase capital stock, create liens on assets, repay subordinated indebtedness, make investments, loans or advances, make capital expenditures, engage in certain transactions with affiliates, amend certain material agreements, change its lines of business, sell assets and engage in mergers or consolidations. In addition, EM LLC is required to satisfy and maintain a maximum total leverage ratio and a minimum interest coverage ratio under the senior secured credit facilities on a quarterly basis. EM LLC met the requirements of these two financial covenants for the twelve month period ended September 30, 2013.

The Company has historically utilized interest rate swap agreements, which are contractual agreements to exchange payments based on underlying interest rates, to manage the floating rate portion of its term debt. The Company currently holds two interest rate swap agreements, one of which was entered into with an affiliate of one of the Sponsors, that are for notional amounts of $312.5 million each and effectively fix future interest payments at a rate of 6.26 percent through June 1, 2015. Because both interest rate swaps are deemed to be highly effective for accounting purposes, they qualify for cash flow hedge accounting treatment and changes in their fair values are recorded in other comprehensive income or loss. The Company uses Level Two inputs to value its interest rate swaps as defined in Note 10, "Fair Value of Financial Instruments," which includes obtaining quotes from counter-parties that are based on LIBOR forward curves and assessing non-performance risk based upon published market data.

At September 30, 2013, there was a cumulative unrealized loss of $11.6 million, net of tax, related to the Company's interest rate swaps included in accumulated other comprehensive loss on the accompanying consolidated balance sheet. The loss would be recognized in the consolidated statement of operations immediately if the interest rate swaps ever failed to meet certain cash flow hedge requirements. The fair values of the interest rate swap liabilities were $18.5 million, $20.2 million and $30.6 million at September 30, 2013, June 30, 2013 and September 30, 2012, respectively, and were recorded in other long-term liabilities on the accompanying consolidated balance sheets. Over the next twelve months, the Company estimates that approximately $7.9 million, net of tax, will be reclassified from accumulated other comprehensive loss to the consolidated statement of operations based on current interest rates and underlying debt obligations at September 30, 2013.

when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's own assumptions of what market participants would use. The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below.



	September 30, 2013						June 30, 2013					September 30, 2012
	Carrying Value		Level Two		Level Three		Carrying Value		Level Two		Level Three	Carrying Value		Level One		Level Two
Recurring:
Interest rate swap liabilities	$	18,467	$	18,467	$	—	$	20,232	$	20,232	—	$	30,557	$	—	$	30,557
Disclosure only:
Variable rate debt	1,076,003		1,026,579		—		1,078,818		962,134		—	1,087,268		—		928,421
Fixed rate debt	208,762		—		221,801		206,422		—		206,422	375,391		296,641		—

The fair value of the Company’s variable rate debt was based on each instrument’s trading value at the dates presented. The fixed rate debt at September 30, 2012 reflects the Company's 8.75% senior notes that were retired in connection with a refinancing transaction described in Part II, Item 8 "Financial Statements and Supplementary Data," Note 8, "Short-Term and Long-Term Debt" of the June 30, 2013 Annual Report on Form 10-K. The fixed rate debt at September 30, 2013 and June 30, 2013 reflects the Company's PIK Notes that were issued in connection with this refinancing transaction. There is currently no observable trading for the Company's PIK Notes; therefore, the fair value of the fixed rate PIK Notes was estimated using the performance of the Company's other debt while also considering current market conditions. Student accounts receivable, notes receivable and the revolving credit facility have fair values that approximate their carrying values. The fair value of the private loans the Company purchased from a private lender as described in Note 6, "Student Receivables," also approximates carrying value, which the Company has estimated in its allowance for loan losses.

The Company uses the asset and liability method to account for income taxes. 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. Deferred tax assets should be reduced by a valuation allowance if, based upon the weight of the available evidence, it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized. Future realization of deferred tax assets ultimately depends upon the existence of sufficient taxable income of the appropriate character in either the carry back or carry forward period under applicable tax law.

The Company assesses the realizability of its deferred tax assets on a quarterly basis by considering the relative impact of all available evidence, both positive and negative, to determine whether, based upon the weight of that evidence a valuation allowance is needed. This evaluation requires the use of considerable judgment and estimates that are subject to change. Excluding deferred tax liabilities related to indefinite-lived intangible assets, which are not scheduled to reverse, the Company is in a net deferred tax asset position at September 30, 2013.

The Company incurred cumulative losses before taxes in the three most recent fiscal years ended June 30, 2013 due to long-lived asset impairment charges recorded in fiscal 2013 and 2012, most of which was not deductible. Absent these impairment charges, the Company would have recorded pre-tax earnings in fiscal 2013 and 2012. Management considered the cumulative loss for book purposes and concluded that it was more-likely-than-not that the Company's deferred tax assets would

The Company's effective tax rate was a benefit of 52.3 percent and 40.0 percent for the three months ended September 30, 2013 and 2012, respectively. The current fiscal quarter reflects a deferred tax benefit of approximately $3.2 million recorded as a discrete item resulting from the July 2013 enactment of Pennsylvania House Bill No. 465, which, among other things, changes how revenues from the sale of services are taxed in Pennsylvania. The effective tax rate differed from the combined federal and state statutory rates due to valuation allowances, expenses that are non-deductible for tax purposes, and the accounting related to uncertain tax positions. There have been no material adjustments to liabilities relating to uncertain tax positions since the last annual disclosure for the fiscal year ended June 30, 2013.

Washington v. Education Management Corporation. On May 3, 2011, a qui tam action captioned United States of America, and the States of California, Florida, Illinois, Indiana, Massachusetts, Minnesota, Montana, New Jersey, New Mexico, New York and Tennessee, and the District of Columbia, each ex rel. Lynntoya Washington and Michael T. Mahoney v. Education Management Corporation, et al. (“Washington”) filed under the federal False Claims Act in April 2007 was unsealed due to the U.S. Department of Justice's decision to intervene in the case. Five of the states listed on the case caption

The case, which is pending in federal district court in the Western District of Pennsylvania, relates to whether the Company's compensation plans for admission representatives violated the Higher Education Act of 1965, as amended ("HEA"), and U.S. Department of Education regulations prohibiting an institution participating in Title IV programs from providing any commission, bonus or other incentive payment based directly or indirectly on success in securing enrollments to any person or entity engaged in any student recruitment or admissions activity during the period of July 1, 2003 through June 30, 2011. The complaint was initially filed by a former admissions representative at The Art Institute of Pittsburgh Online Division and a former director of training at EDMC Online Higher Education and asserts the relators are entitled to recover treble the amount of actual damages allegedly sustained by the federal government as a result of the alleged activity, plus civil monetary penalties. The complaint does not specify the amount of damages sought but claims that the Company and/or students attending the Company's schools received over $11 billion in funds from participation in Title IV programs and state financial aid programs during the period of alleged wrongdoing.

On May 11, 2012, the Court ruled on the Company's motion to dismiss case for failure to state a claim upon which relief can be granted, dismissing the claims that the design of the Company's compensation plan for admissions representatives violated the incentive compensation rule and allowing common law claims and the allegations that the plan as implemented violated the rule to continue to discovery. The Company believes the case to be without merit and intends to vigorously defend itself.

Sobek v. Education Management Corporation. On March 13, 2012, a qui tam action captioned United States of America, ex rel. Jason Sobek v. Education Management Corporation, et al. filed under the federal False Claims Act on January 28, 2010 was unsealed after the U.S. Department of Justice declined to intervene in the case. The case, which is pending in the federal district court in the Western District of Pennsylvania, alleges that the defendants violated the U.S. Department of Education's regulation prohibiting institutions from making substantial misrepresentations to prospective students, did not adequately track student academic progress and violated the U.S. Department of Education's prohibition on the payment of incentive compensation to admissions representatives. The complaint was filed by a former project associate director of admissions at EDMC Online Higher Education who worked for South University and asserts the relator is entitled to recover treble the amount of actual damages allegedly sustained by the federal government as a result of the alleged activity, plus civil monetary penalties. The complaint does not specify the amount of damages sought but claims that the Company's institutions were ineligible to participate in Title IV programs during the period of alleged wrongdoing.

In August 2013, the parties to the action, along with the U.S. Department of Justice, participated in a private mediation in which the relator and defendants reached an agreement in principle regarding the financial terms of a potential settlement. The agreement between the parties remains subject to approval by the U.S. Department of Justice. Significant terms remain to be negotiated, and there is no certainty that a final agreement will be reached. The settlement amount agreed to by the parties under the terms of the agreement in principle would be paid by the Company's insurer and the Company would pay an immaterial amount of attorneys' fees incurred by the relator. The ultimate dismissal of the action, should a final settlement be reached, is subject to the Court's approval.

On May 21, 2012, a shareholder derivative class action captioned Oklahoma Law Enforcement Retirement System v. Todd S. Nelson, et al. was filed against the directors of the Company in state court located in Pittsburgh, PA. The Company is named as a nominal defendant in the case. The complaint alleges that the defendants violated their fiduciary obligations to the Company's shareholders due to the Company's violation of the U.S. Department of Education's prohibition on paying incentive compensation to admissions representatives, engaging in improper recruiting tactics in violation of Title IV of the HEA and accrediting agency standards, falsification of job placement data for graduates of its schools and failure to satisfy the U.S. Department of Education's financial responsibility standards. The Company previously received two demand letters from the plaintiff which were investigated by a Special Litigation Committee of the Board of Directors and found to be without merit.

The Company and the director defendants filed a motion to dismiss the case with prejudice on August 13, 2012. In response, the plaintiffs filed an amended complaint making substantially the same allegations as the initial complaint on September 27, 2012. The Company and the director defendants filed a motion to dismiss the amended complaint on October 17, 2012. On July 16, 2013, the Court dismissed the claims that the Company engaged in improper recruiting tactics and mismanaged the Company's financial well-being with prejudice and found that the Special Litigation Committee could conduct a supplemental investigation of the plaintiff's claims related to incentive compensation paid to admissions representatives and graduate placement statistics. The Special Litigation Committee filed a supplemental report on October 15, 2013, finding no support for the incentive compensation and graduate placement statistic claims. The Court tentatively set argument on the defendants' supplemental motion to dismiss the case for December 3, 2013.

On August 3, 2012, a shareholder derivative class action captioned Stephen Bushansky v. Todd S. Nelson, et al. was filed against certain of the directors of the Company in federal district court in the Western District of Pennsylvania. The Company is named as a nominal defendant in the case. The complaint alleges that the defendants violated their fiduciary obligations to the Company's shareholders due to the Company's use of improper recruiting, enrollment admission and financial aid practices and violation of the U.S. Department of Education's prohibition on the payment of incentive compensation to admissions representatives. The Company previously received a demand letter from the plaintiff which was investigated by a Special Litigation Committee of the Board of Directors and found to be without merit. The Company believes that the claims set forth in the complaint are without merit and intends to vigorously defend itself. The Company and the named director defendants filed a motion to stay the litigation pending the resolution of the Oklahoma Law Enforcement Retirement System shareholder derivative case or, alternatively, dismiss the case on October 19, 2012. On August 5, 2013, the Court granted the Company's motion to stay the case in light of the ruling on the defendants' motion to dismiss the Oklahoma Law Enforcement Retirement System case.

On May 24, 2013, the Company received a subpoena from the Office of Inspector General of the U.S. Department of Education requesting policies and procedures related to Argosy University's attendance, withdrawal and return to Title IV policies during the period of July 1, 2010 through December 31, 2011 and detailed information on a number of students who enrolled in Argosy University's Bachelor's of Psychology degree program. The Company plans to cooperate with the Office of Inspector General in connection with its investigation. However, the Company cannot predict the eventual scope, duration or outcome of the investigation at this time.

In January 2013, The New England Institute of Art received a civil investigative demand from the Commonwealth of Massachusetts Attorney General requesting information for the period from January 1, 2010 to the present pursuant to an investigation of practices by the school in connection with marketing and advertising job placement and student outcomes, the recruitment of students and the financing of education. The Company previously responded to a similar request that The New England Institute of Art received in June 2007 and intends to cooperate with the Attorney General in connection with its investigation. However, the Company cannot predict the eventual scope, duration or outcome of the investigation at this time.

In September 2012, the Company received a subpoena from the State of Colorado Attorney General's office requesting documents and detailed information for the period of January 1, 2006 through the present. The subpoena is primarily focused on the programs offered by the College of Psychology and Behavioral Sciences at the Denver, Colorado campus of Argosy University. Argosy University also received in September 2012 demand letters from an attorney representing three former students in the Doctorate of Counseling Psychology program alleging that the students were unable to find internships necessary to complete the program in Denver, Colorado and that the campus claimed that the program would lead to licensure in Colorado, among other things. The Company intends to cooperate with the Attorney General's investigation. However, the Company cannot predict the eventual scope, duration or outcome of the investigation at this time.

In August 2011, the Company received a subpoena from the Attorney General of the State of New York requesting documents and detailed information for the time period of January 1, 2000 through the present. The Art Institute of New York City is the Company's only school located in New York though the subpoena also addresses fully-online students who reside in the State. The subpoena is primarily related to the Company's compensation of admissions representatives and recruiting activities. The relators in the Washington qui tam case filed the complaint under the State of New York's False Claims Act though the state has not announced an intention to intervene in the matter. The Company intends to cooperate with the investigation. However, the Company cannot predict the eventual scope, duration or outcome of the investigation at this time.

In December 2010, the Company received a subpoena from the Office of Consumer Protection of the Attorney General of the Commonwealth of Kentucky requesting documents and detailed information for the time period of January 1, 2008 through December 31, 2010. The Company has three Brown Mackie College locations in Kentucky. The Kentucky Attorney General announced an investigation of the business practices of proprietary post-secondary schools and that subpoenas were issued to six proprietary colleges that do business in Kentucky in connection with the investigation. The Company intends to continue to cooperate with the investigation. However, the Company cannot predict the eventual scope, duration or outcome of the investigation at this time.

In October 2010, Argosy University received a subpoena from the Florida Attorney General's office seeking a wide range of documents related to the Company's institutions, including the nine institutions located in Florida, from January 2, 2006 to the present. The Florida Attorney General has announced that it is investigating potential misrepresentations in recruitment, financial aid and other areas. The Company is cooperating with the investigation, but has also filed a suit to quash or limit the subpoena and to protect information sought that constitutes proprietary or trade secret information. The Company cannot predict the eventual scope, duration or outcome of the investigation at this time.

In December 2011, the Company received a letter from the City Attorney of the City of San Francisco, California requesting information related to student recruitment and indebtedness, including recruiting practices and job placement reporting, among other issues, by The Art Institute of San Francisco and the seven other Art Institutes located in California. The Company intends to cooperate with the investigation. However, the Company cannot predict the eventual scope, duration or outcome of the investigation at this time.

On March 20, 2013, the Company received a subpoena from the Division of Enforcement of the Securities and Exchange Commission requesting documents and information relating to the Company's valuation of goodwill and its bad debt allowance for student receivables. The Company received a second subpoena from the Division of Enforcement on May 13, 2013 which requests documents and information related to the letters of credit posted with the U.S. Department of Education. The Company intends to cooperate with the SEC in its investigation. The Company cannot predict the eventual scope, duration or outcome of the investigation at this time.

The Company is a defendant in certain other legal proceedings arising out of the conduct of its business. Additionally, the Company is subject to compliance reviews by various state and federal agencies which provide student financial aid programs, with respect to which noncompliance may result in liability for educational benefits paid as well as fines and other corrective action. In the opinion of management, based upon an investigation of these matters and discussion with legal counsel, the ultimate outcome of such other legal proceedings and compliance reviews, individually and in the aggregate, is not expected to have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.

The PIK Notes described in Note 8, "Short-Term and Long-Term Debt," are fully and unconditionally guaranteed by EDMC and all of EM LLC’s existing direct and indirect domestic restricted subsidiaries, other than any subsidiary that directly owns or operates a school, or has been formed for such purposes, and subsidiaries that have no material assets (collectively, the “Guarantor Subsidiaries”). All other subsidiaries of EM LLC, either direct or indirect, (the “Non-Guarantor Subsidiaries”) do not guarantee the PIK Notes.

The following tables present the condensed consolidated financial position of EM LLC, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and EDMC as of September 30, 2013, June 30, 2013 and September 30, 2012. The results of operations and comprehensive income (loss) and the condensed statements of cash flows for the three months ended September 30, 2013 and 2012 are presented for EM LLC, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and EDMC.



	EM LLC			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			EM LLC Consolidated			EDMC		Eliminations			EDMC Consolidated
Assets
Current:
Cash and cash equivalents	$	153,744		$	130		$	5,120		$	—		$	158,994		$	4,313	$	—		$	163,307
Restricted cash	48,197			—			224,840			—			273,037			—		—			273,037
Student and other receivables, net	(176		)	(13		)	404,934			—			404,745			—		—			404,745
Other current assets	29,971			525			110,400			—			140,896			—		—			140,896
Total current assets	231,736			642			745,294			—			977,672			4,313		—			981,985
Property and equipment, net	62,153			5,861			435,336			—			503,350			—		—			503,350
Inter-company balances	412,738			(30,021		)	(552,298		)	—			(169,581		)	169,581		—			—
Other long-term assets	3,653			—			63,410			—			67,063			—		—			67,063
Investment in subsidiaries	750,950			—			—			(750,950		)	—			73,474		(73,474		)	—
Intangible assets, net	1,038			25			299,078			—			300,141			—		—			300,141
Goodwill	7,328			—			661,762			—			669,090			—		—			669,090
Total assets	$	1,469,596		$	(23,493	)	$	1,652,582		$	(750,950	)	$	2,347,735		$	247,368	$	(73,474	)	$	2,521,629
Liabilities and shareholders’ equity (deficit)
Current:
Current portion of long-term debt	$	11,875		$	—		$	102		$	—		$	11,977		$	—	$	—		$	11,977
Other current liabilities	70,144			3,717			616,943			—			690,804			—		—			690,804
Total current liabilities	82,019			3,717			617,045			—			702,781			—		—			702,781
Long-term debt, less current portion	1,272,788			—			—			—			1,272,788			—		—			1,272,788
Other long-term liabilities	39,083			216			189,357			—			228,656			—		—			228,656
Deferred income taxes	2,233			399			67,404			—			70,036			383		—			70,419
Total liabilities	1,396,123			4,332			873,806			—			2,274,261			383		—			2,274,644
Total shareholders’ equity (deficit)	73,473			(27,825		)	778,776			(750,950		)	73,474			246,985		(73,474		)	246,985
Total liabilities and shareholders’ equity (deficit)	$	1,469,596		$	(23,493	)	$	1,652,582		$	(750,950	)	$	2,347,735		$	247,368	$	(73,474	)	$	2,521,629



	EM LLC			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			EM LLC Consolidated			EDMC			Eliminations			EDMC Consolidated
Assets
Current:
Cash and cash equivalents	$	(10,777	)	$	139		$	141,110		$	—		$	130,472		$	223		$	—		$	130,695
Restricted cash	46,982			—			224,358			—			271,340			—			—			271,340
Student and other receivables, net	134			253			238,565			—			238,952			1			—			238,953
Other current assets	27,488			570			102,573			—			130,631			—			—			130,631
Total current assets	63,827			962			706,606			—			771,395			224			—			771,619
Property and equipment, net	65,018			5,984			454,623			—			525,625			—			—			525,625
Inter-company balances	653,504			(31,016		)	(791,213		)	—			(168,725		)	168,725			—			—
Other long-term assets	5,059			—			43,465			—			48,524			—			—			48,524
Investment in subsidiaries	741,069			—			—			(741,069		)	—			81,532			(81,532		)	—
Intangible assets, net	1,101			28			299,306			—			300,435			—			—			300,435
Goodwill	7,328			—			661,762			—			669,090			—			—			669,090
Total assets	$	1,536,906		$	(24,042	)	$	1,374,549		$	(741,069	)	$	2,146,344		$	250,481		$	(81,532	)	$	2,315,293
Liabilities and shareholders’ equity (deficit)
Current:
Current portion of long-term debt and revolving credit facility	$	86,850		$	—		$	226		$	—		$	87,076		$	—		$	—		$	87,076
Other current liabilities	51,558			3,018			344,397			—			398,973			49			—			399,022
Total current liabilities	138,408			3,018			344,623			—			486,049			49			—			486,098
Long-term debt, less current portion	1,273,214			—			—			—			1,273,214			(50		)	—			1,273,164
Other long-term liabilities	41,519			248			193,849			—			235,616			—			—			235,616
Deferred income taxes	2,233			399			67,301			—			69,933			383			—			70,316
Total liabilities	1,455,374			3,665			605,773			—			2,064,812			382			—			2,065,194
Total shareholders’ equity (deficit)	81,532			(27,707		)	768,776			(741,069		)	81,532			250,099			(81,532		)	250,099
Total liabilities and shareholders’ equity (deficit)	$	1,536,906		$	(24,042	)	$	1,374,549		$	(741,069	)	$	2,146,344		$	250,481		$	(81,532	)	$	2,315,293



	EM LLC		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			EM LLC Consolidated			EDMC			Eliminations			EDMC Consolidated
Assets
Current:
Cash and cash equivalents	$	152,499	$	148		$	6,106		$	—		$	158,753		$	53,203		$	—		$	211,956
Restricted cash	42,763		—			234,613			—			277,376			—			—			277,376
Student and other receivables, net	199		(681		)	266,112			—			265,630			3			—			265,633
Other current assets	36,970		798			131,586			—			169,354			—			—			169,354
Total current assets	232,431		265			638,417			—			871,113			53,206			—			924,319
Property and equipment, net	66,174		7,541			552,622			—			626,337			—			—			626,337
Inter-company balances	722,172		(29,017		)	(795,285		)	—			(102,130		)	102,130			—			—
Other long-term assets	16,219		791			35,611			—			52,621			—			—			52,621
Investment in subsidiaries	852,712		—			—			(852,712		)	—			331,386			(331,386		)	—
Intangible assets, net	1,914		36			327,708			—			329,658			—			—			329,658
Goodwill	7,328		—			956,222			—			963,550			—			—			963,550
Total assets	$	1,898,950	$	(20,384	)	$	1,715,295		$	(852,712	)	$	2,741,149		$	486,722		$	(331,386	)	$	2,896,485
Liabilities and shareholders’ equity (deficit)
Current:
Current portion of long-term debt	$	11,850	$	—		$	226		$	—		$	12,076		$	—		$	—		$	12,076
Other current liabilities	48,773		3,686			539,610			—			592,069			(1		)	—			592,068
Total current liabilities	60,623		3,686			539,836			—			604,145			(1		)	—			604,144
Long-term debt, less current portion	1,450,418		—			165			—			1,450,583			—			—			1,450,583
Other long-term liabilities	54,993		345			189,540			—			244,878			—			—			244,878
Deferred income taxes	1,530		515			108,112			—			110,157			(104		)	—			110,053
Total liabilities	1,567,564		4,546			837,653			—			2,409,763			(105		)	—			2,409,658
Total shareholders’ equity (deficit)	331,386		(24,930		)	877,642			(852,712		)	331,386			486,827			(331,386		)	486,827
Total liabilities and shareholders’ equity (deficit)	$	1,898,950	$	(20,384	)	$	1,715,295		$	(852,712	)	$	2,741,149		$	486,722		$	(331,386	)	$	2,896,485



	EM LLC			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			EM LLC Consolidated			EDMC			Eliminations			EDMC Consolidated
Net revenues	$	—		$	2,217		$	578,163		$	—		$	580,380		$	—		$	—		$	580,380
Costs and expenses:
Educational services	21,377			2,812			330,753			—			354,942			2,746			—			357,688
General and administrative	(18,847		)	(497		)	194,259			—			174,915			(2,746		)	—			172,169
Depreciation and amortization	6,939			150			31,516			—			38,605			—			—			38,605
Total costs and expenses	9,469			2,465			556,528			—			568,462			—			—			568,462
Income (loss) before interest and income taxes	(9,469		)	(248		)	21,635			—			11,918			—			—			11,918
Interest expense (income), net	31,922			—			(55		)	—			31,867			(1		)	—			31,866
Equity in subsidiaries	10,227			—			—			(10,227		)	—			(9,515		)	9,515			—
(Loss) Income before income taxes	(31,164		)	(248		)	21,690			(10,227		)	(19,949		)	(9,514		)	9,515			(19,948		)
Income tax expense (benefit)	(21,649		)	(130		)	11,345			—			(10,434		)	—			—			(10,434		)
Net (loss) income	$	(9,515	)	$	(118	)	$	10,345		$	(10,227	)	$	(9,515	)	$	(9,514	)	$	9,515		$	(9,514	)

Net change in unrecognized loss on interest rate swaps, net of tax	$	1,110		$	—		$	—		$	—		$	1,110		$	1,110		$	(1,110	)	$	1,110
Foreign currency translation gain	346			—			346			(346		)	346			346			(346		)	346
Other comprehensive income	1,456			—			346			(346		)	1,456			1,456			(1,456		)	1,456
Comprehensive (loss) income	$	(8,059	)	$	(118	)	$	10,691		$	(10,573	)	$	(8,059	)	$	(8,058	)	$	8,059		$	(8,058	)



	EM LLC			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			EM LLC Consolidated			EDMC			Eliminations			EDMC Consolidated
Net revenues	$	—		$	2,421		$	607,143	$	—		$	609,564		$	—		$	—		$	609,564
Costs and expenses:
Educational services	34,800			2,645			343,851		—			381,296			—			—			381,296
General and administrative	(11,578		)	(3,339		)	189,409		—			174,492			—			—			174,492
Depreciation and amortization	11,598			151			32,396		—			44,145			—			—			44,145
Total costs and expenses	34,820			(543		)	565,656		—			599,933			—			—			599,933
Loss before interest and income taxes	(34,820		)	2,964			41,487		—			9,631			—			—			9,631
Interest expense (income), net	30,859			—			599		—			31,458			(6		)	—			31,452
Equity in subsidiaries	26,317			—			—		(26,317		)	—			13,099			(13,099		)	—
(Loss) Income before income taxes	(39,362		)	2,964			40,888		26,317			(21,827		)	13,105			13,099			(21,821		)
Income tax (benefit) expense	(26,263		)	1,185			16,350		—			(8,728		)	—			—			(8,728		)
Net (loss) income	$	(13,099	)	$	1,779		$	24,538	$	26,317		$	(13,099	)	$	13,105		$	13,099		$	(13,093	)

Net change in unrecognized loss on interest rate swaps, net of tax	$	(414	)	$	—		$	—	$	—		$	(414	)	$	(414	)	$	414		$	(414	)
Foreign currency translation gain	157			—			157		(157		)	157			157			(157		)	157
Other comprehensive (loss) income	(257		)	—			157		(157		)	(257		)	(257		)	257			(257		)
Comprehensive (loss) income	$	(13,356	)	$	1,779		$	24,695	$	26,160		$	(13,356	)	$	12,848		$	13,356		$	(13,350	)



Pennsylvania		25-1119571
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



		PAGE
PART I — FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS	3
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42
ITEM 4	CONTROLS AND PROCEDURES	42

PART II — OTHER INFORMATION

ITEM 1	LEGAL PROCEEDINGS	43
ITEM 1A	RISK FACTORS	43
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	43
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	43
ITEM 4	MINE SAFETY DISCLOSURES	43
ITEM 5	OTHER INFORMATION	43
ITEM 6	EXHIBITS INDEX	44

SIGNATURES		45



Consolidated Balance Sheets	4
Consolidated Statements of Operations	5
Consolidated Statements of Comprehensive Loss	6
Consolidated Statements of Cash Flows and Supplemental Cash Flow Information	7
Consolidated Statements of Shareholders’ Equity	8
Notes to Consolidated Financial Statements	9



	Treasury	Net outstanding
Balance at June 30, 2012	18,902,140	124,477,807
Issued for stock-based compensation plans	—	123,717
Balance at June 30, 2013	18,902,140	124,601,524
Issued for stock-based compensation plans	—	226,667
Balance at September 30, 2013	18,902,140	124,828,191



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


(a)	The balance in accumulated other comprehensive loss at September 30, 2013, June 30, 2013 and September 30, 2012 was comprised of $(11.6) million, $(12.7) million and $(18.1) million of cumulative unrealized losses on interest rate swaps, net of tax, respectively and $(0.6) million, $(0.9) million and $(0.2) million of a cumulative foreign currency translation loss, respectively.


(b)	There were 600,000,000 authorized shares of par value $0.01 common stock at September 30, 2013, June 30, 2013 and September 30, 2012. There were 124,477,807 outstanding shares of common stock, net of 18,902,140 shares in treasury, at September 30, 2012. Common stock outstanding and treasury stock balances and activity were as follows for the periods indicated.



	As of September 30, 2013			As of November 2, 2013
	Outstanding (in 000s)	Unrecognized Compensation Expense (in millions)		Exercisable/Released (in 000s)	Weighted Average Exercise Price / Share Price
Time-based stock options	10,400	$	22.1	5,000	$	3.59
Restricted stock units	2,800	7.4		732	$	3.30
Performance-based stock options	1,800	4.1		—	N/A
Total	15,000	$	33.6	5,732



	June 30, 2012		Impairment Charge			June 30, 2013
The Art Institutes	$	861,619	$	(294,460	)	$	567,159
Argosy University	63,445		—			63,445
South University	38,486		—			38,486
Total goodwill	$	963,550	$	(294,460	)	$	669,090



Fiscal years	Amortization Expense
2014 (remainder)	$	5,175
2015	5,152
2016	3,796
2017	105
2018	51



Balance June 30, 2012	$	250,282
Bad debt expense	171,850
Amounts written off	(213,884		)
Balance June 30, 2013	208,248
Bad debt expense	45,063
Amounts written off	(36,124		)
Balance September 30, 2013	$	217,187


1.	BASIS OF PRESENTATION


4.	PROPERTY AND EQUIPMENT


5.	GOODWILL AND INTANGIBLE ASSETS


6.	STUDENT RECEIVABLES