UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

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

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

Commission File Number: 001-34466

EDUCATION MANAGEMENT CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania (State or other jurisdiction of incorporation or organization)		25-1119571 (I.R.S. Employer Identification No.)
210 Sixth Avenue, Pittsburgh, PA, 33rd Floor (Address of principal executive offices)		15222 (Zip Code)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

As of February 12, 2010, 142,826,146 shares of the registrant’s common stock were outstanding.

 

 

Table of Contents

INDEX

		PAGE
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS			2
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			37
ITEM 4. CONTROLS AND PROCEDURES			38
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			39
ITEM 1A. RISK FACTORS			39
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			39
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			39
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS			39
ITEM 5. OTHER INFORMATION			39
ITEM 6. EXHIBITS INDEX			39
SIGNATURES			40
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

		December 31,				June 30,				December 31,
		2009				2009				2008
		(Unaudited)								(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	310,037			$	363,318			$	312,522
Restricted cash			16,006				10,372				12,192
Total cash, cash equivalents and restricted cash			326,043				373,690				324,714
Receivables, net of allowances of $108,576, $83,691 and $70,416			80,863				122,272				57,693
Notes, advances and other			11,024				13,678				17,108
Inventories			12,572				9,355				9,680
Deferred income taxes			45,164				45,164				25,739
Other current assets			48,130				30,163				30,474
Total current assets			523,796				594,322				465,408
Property and equipment, net			618,953				580,965				525,070
Other long-term assets			66,857				58,945				56,822
Intangible assets, net			469,546				471,882				477,029
Goodwill			2,579,131				2,579,131				2,578,898
Total assets		$	4,258,283			$	4,285,245			$	4,103,227
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt		$	12,281			$	12,622			$	12,758
Revolving credit facility			—				100,000				180,000
Accounts payable			47,053				53,516				41,086
Accrued liabilities			147,176				163,485				91,875
Accrued income taxes			16,836				5,015				14,027
Unearned tuition			48,913				118,741				25,710
Advance payments			81,325				67,020				74,640
Total current liabilities			353,584				520,399				440,096
Long-term debt, less current portion			1,554,049				1,876,021				1,882,198
Deferred income taxes			177,396				187,583				164,939
Deferred rent			146,187				123,656				100,638
Other long-term liabilities			94,289				91,933				106,196
Shareholders’ equity:
Common Stock, par value $0.01 per share; 600,000,000 shares authorized; 142,823,731, 119,770,277 and 119,769,082 issued and outstanding at December 31, 2009, June 30, 2009 and December 31, 2008, respectively			1,428				1,198				1,198
Additional paid-in capital			1,743,386				1,338,316				1,338,302
Retained earnings			217,803				181,767				116,361
Accumulated other comprehensive loss			(29,839	)			(35,628	)			(46,701	)
Total shareholders’ equity			1,932,778				1,485,653				1,409,160
Total liabilities and shareholders’ equity		$	4,258,283			$	4,285,245			$	4,103,227

The accompanying notes are an integral part of these consolidated financial statements.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands except per share amounts)

		For the Three Months								For the Six Months
		Ended December 31,								Ended December 31,
		2009				2008				2009				2008
Net revenues		$	655,469			$	522,218			$	1,189,868			$	956,446
Costs and expenses:
Educational services			315,266				265,618				610,979				519,130
General and administrative			170,305				120,614				317,162				240,723
Management fees paid to affiliates			30,805				1,250				32,055				2,500
Depreciation and amortization			29,401				27,575				58,228				54,179
Total costs and expenses			545,777				415,057				1,018,424				816,532
Income before interest, loss on early retirement of debt and income taxes			109,692				107,161				171,444				139,914
Interest expense, net			30,390				40,455				66,719				78,614
Loss on early retirement of debt			44,762				—				44,762				—
Income before income taxes			34,540				66,706				59,963				61,300
Provision for income taxes			14,266				24,404				23,927				22,301
Net income		$	20,274			$	42,302			$	36,036			$	38,999
Earnings per share:
Basic		$	0.14			$	0.35			$	0.27			$	0.33
Diluted		$	0.14			$	0.35			$	0.27			$	0.33
Weighted average number of shares outstanding:
Basic			142,387				119,769				131,079				119,769
Diluted			143,143				119,769				131,457				119,769

The accompanying notes are an integral part of these consolidated financial statements.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)

		For the Six Months
		Ended December 31,
		2009				2008
Cash flows from operating activities:
Net income		$	36,036			$	38,999
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization of property and equipment			53,659				45,358
Bad debt expense			50,565				35,092
Amortization of intangible assets			4,569				8,821
Amortization of debt issuance costs			4,113				3,845
Loss on early retirement of debt			44,762				—
Share-based compensation			17,476				—
Non-cash adjustments related to deferred rent			1,436				(1,004	)
Purchase of private loans			(22,643	)			(41	)
Reimbursements for tenant improvements			7,421				11,543
Changes in assets and liabilities:
Restricted cash			(5,634	)			1,630
Receivables			(1,288	)			(2,348	)
Inventories			(3,193	)			(1,256	)
Other assets			(17,236	)			(12,829	)
Accounts payable			(1,373	)			(6,778	)
Accrued liabilities			(12,415	)			(21,815	)
Unearned tuition			(69,828	)			(43,444	)
Advance payments			13,997				14,622
Total adjustments			64,388				31,396
Net cash flows provided by operating activities			100,424				70,395
Cash flows from investing activities:
Expenditures for long-lived assets			(69,826	)			(78,346	)
Reimbursements for tenant improvements			(7,421	)			(11,543	)
Net cash flows used in investing activities			(77,247	)			(89,889	)
Cash flows from financing activities:
Borrowings under revolving credit facility			—				180,000
Payments under revolving credit facility			(100,000	)			(120,000	)
Retirement of senior subordinated notes			(355,465	)			—
Net proceeds from issuance of common stock, including stock option exercises			387,824				—
Principal payments on long-term debt			(6,343	)			(6,489	)
Debt issuance costs			(2,400	)			—
Net cash flows (used in) provided by financing activities			(76,384	)			53,511
Effect of exchange rate changes on cash and cash equivalents			(74	)			1,097
Net change in cash and cash equivalents			(53,281	)			35,114
Cash and cash equivalents, beginning of period			363,318				277,408
Cash and cash equivalents, end of period		$	310,037			$	312,522
Cash paid during the period for:
Interest (including swap settlement)		$	64,168			$	79,158
Income taxes			23,011				21,422

The accompanying notes are an integral part of these consolidated financial statements.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)

		Common Stock at Par Value				Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Total
Balance, June 30, 2008		$	1,198			$	1,338,302			$	77,362			$	(24,685	)		$	1,392,177
Comprehensive income:
Net income			—				—				104,405				—				104,405
Foreign currency translation			—				—				—				(1,147	)			(1,147	)
Unrealized loss on interest rate swaps, net of tax benefit of $5,709			—				—				—				(9,796	)			(9,796	)
Comprehensive income																			93,462	(a)
Other			—				14				—				—				14
Balance, June 30, 2009			1,198				1,338,316				181,767				(35,628	)(b)			1,485,653
(Unaudited)
Issuance of common stock including option exercises			230				387,594				—				—				387,824
Share-based compensation			—				17,476				—				—				17,476
Comprehensive income:
Net income			—				—				36,036				—				36,036
Foreign currency translation			—				—				—				771				771
Unrealized gain on interest rate swaps, net of tax expense of $2,891			—				—				—				5,018				5,018
Comprehensive income																			41,825
Balance, December 31, 2009		$	1,428			$	1,743,386			$	217,803			$	(29,839	)(b)		$	1,932,778

The accompanying notes are an integral part of these consolidated financial statements.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Nature of operations

Education Management Corporation and its subsidiaries (the “Company”) is among the largest providers of post-secondary education in North America, with approximately 136,000 active students as of October 2009. The Company offers education through four different education systems (The Art Institutes, Argosy University, Brown Mackie Colleges and South University) and through online platforms at three of the four education systems. The schools provide students a wide variety of programmatic and degree choices in a flexible learning environment. The curriculum is designed with a distinct emphasis on applied career-oriented content and is primarily taught by faculty members that possess practical and relevant professional experience in their respective fields.

Basis of presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared by 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 generally accepted accounting principles in the United States for annual financial statements. The unaudited consolidated financial statements included herein contain all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to present fairly the Company’s financial position as of December 31, 2009 and 2008, and the statements of operations for the three and six months ended December 31, 2009 and 2008 and the statements of cash flows for the six months ended December 31, 2009 and 2008. The statements of operations for the three and six months ended December 31, 2009 and 2008 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 prospectus dated October 1, 2009 for the fiscal year ended June 30, 2009 as filed with the Securities and Exchange Commission (“SEC”). The accompanying consolidated balance sheet at June 30, 2009 has been derived from the consolidated audited balance sheet included in the prospectus dated October 1, 2009 as filed with the SEC.

On September 30, 2009, the Company’s Board of Directors declared a 4.4737 for one split of the Company’s common stock, which was paid in the form of a stock dividend on September 30, 2009. In connection with this stock split, the Company amended and restated its articles of incorporation to, among other things, increase the Company’s number of authorized shares of common stock. The stock split also resulted in the issuance of approximately 93.0 million additional shares of common stock, increased the number of stock options outstanding and exercisable in all periods presented, changed earnings per share information and resulted in a reclassification of $0.9 million from additional paid-in capital to common stock on the accompanying consolidated balance sheets. All information presented in the accompanying consolidated financial statements and related notes has been adjusted to reflect the Company’s amended and restated articles of incorporation and stock split.

In November 2009, the Company guaranteed the indebtedness of Education Management LLC (“EM LLC”) and Education Management Finance Corp. (a wholly owned subsidiary of EM LLC) under the 8.75% senior notes due 2014 (“the Senior Notes”) and 10.25% senior subordinated notes due 2016 (the “Senior Subordinated Notes” and, together with the Senior Notes, the “Notes”).

The Company performed an evaluation of subsequent events through February 12, 2010, the date the financial statements were issued.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

Ownership

On June 1, 2006, the Company 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 the Company, with the Company surviving the merger (the “Transaction”). Pursuant to the terms of the merger agreement, all outstanding shares of the Company’s common stock were cancelled in exchange for cash. The Sponsors, together with certain other investors, became the owners of the Company.

The acquisition of the Company 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 EM LLC and the issuance by EM LLC and Education Management Finance Corp. of the Notes.

Initial public offering

In October 2009, the Company completed an initial public offering of 23.0 million shares of common stock, $0.01 par value, at a per share price of $18.00 (“the initial public offering”). Net proceeds to the Company, after transaction costs, totaled approximately $387.3 million. No Sponsor-owned shares were sold in connection with the initial public offering. After the consummation of the initial public offering, the equity funds controlled by the Sponsors owned approximately 69.2% of the Company’s outstanding common stock. Of the net proceeds from the initial public offering, $355.5 million was used to purchase $316.0 million of the Senior Subordinated Notes in a tender offer and $29.6 million was used to terminate a management agreement entered into with the Sponsors in connection with the Transaction.

In the quarter ended December 31, 2009, the Company recognized several non-recurring expenses in the consolidated statement of operations as a direct result of the initial public offering, including a $44.8 million loss related to the early retirement of indebtedness, $15.2 million of previously unrecognized stock-based compensation costs due to the removal of certain conditions that existed related to the option holders’ inability to obtain fair value for exercised options, and $29.6 million in advisory fees for the early termination of the management agreement with the Sponsors. In addition, the availability for borrowing under EM LLC’s revolving credit facility increased from $388.5 million to $442.5 million effective upon the closing of the initial public offering.

Seasonality

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

Reclassifications

Certain reclassifications of December 31, 2008 data have been made to conform to the December 31, 2009 presentation.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification^TM and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”), a replacement of FASB Statement No. 162”. All existing accounting standard documents are superseded by the Codification, which does not change or alter existing GAAP. Since the Company adopted SFAS No. 168 in the first fiscal quarter of 2010, any references to GAAP included in the Company’s historical public filings with the SEC are no longer included in the Company’s filings. The adoption of SFAS No. 168 had no impact on the Company’s consolidated financial statements.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

3. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed using the weighted average number of shares outstanding during the period. The Company uses the treasury stock method to compute diluted EPS, which assumes that vested restricted stock was converted into common stock and outstanding stock options were exercised and the resultant proceeds were used to acquire shares of common stock at its average market price during the reporting period.

Basic and diluted EPS were calculated as follows (in thousands, except per share amounts):

		For the Three Months								For the Six Months
		Ended December 31,								Ended December 31,
		2009				2008				2009				2008
Net income		$	20,274			$	42,302			$	36,036			$	38,999
Weighted average number of shares outstanding
Basic			142,387				119,769				131,079				119,769
Effect of stock-based awards			756				—				378				—
Diluted			143,143				119,769				131,457				119,769
Earnings per share:
Basic		$	0.14			$	0.35			$	0.27			$	0.33
Diluted		$	0.14			$	0.35			$	0.27			$	0.33

Time-based options to purchase 1.6 million shares of common stock were outstanding for the three and six months ended December 31, 2009 but were not included in the computation of diluted EPS because the effect of applying the treasury stock method would have been antidilutive. The Company’s time-based options were the only options included in the diluted EPS calculation, due to certain performance and market conditions not being met with respect to the Company’s performance-based options, as further described in Note 4. As a result, the Company’s performance-based options were contingently issuable at December 31, 2009. In addition, all stock options for the fiscal 2009 periods were contingently issuable, and therefore were not included in the computation of diluted EPS in those periods.

4. SHARE-BASED PAYMENT

Upon completion of the initial public offering in October 2009, the Company recognized $15.2 million of previously deferred stock-based compensation costs due to the removal of certain conditions that precluded participants from receiving fair market value for exercised options. During the quarter ended December 31, 2009, the Company recognized a total of approximately $17.5 million of stock-based compensation expense, $2.4 million of which was recorded in educational services expense and $15.1 million of which was recorded in general and administrative expense. All of the expense recognized in the quarter related to time-based options and restricted stock.

Less than 0.1 million of time-based options were exercised during the six-month period ended December 31, 2009.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

2006 Stock Option Plan

In fiscal 2007, the Company’s board of directors approved the 2006 Stock Option Plan (the “Option Plan”), which authorized equity awards to be granted for up to approximately 8.3 million shares of the Company’s common stock. Under the Option Plan, certain employees of the Company were granted a combination of time-based and performance-based options to purchase the Company’s common stock.

Time-based options vest ratably over the applicable service period, which is generally five years, on each anniversary of the date of grant. Performance-based options vest upon the attainment of specified returns on capital invested in the Company by Providence Equity Partners and Goldman Sachs Capital Partners (together, the “Principal Shareholders”). Time-based and performance-based options also generally vest upon a change in control or realization event, subject to certain conditions, and generally expire ten years from the date of grant.

At December 31, 2009, the Company considered the conditions entitling performance-based option holders to receive fair value for their shares to be less than probable. As such, compensation expense on all performance-based option grants is not recognized until one of the conditions entitling option holders to fair value for their shares becomes probable. Accordingly, the Company has not recognized compensation expense related to performance-based options granted since the Transaction. The total amount of unrecognized compensation cost over the vesting periods of time-based and performance-based options under the Option Plan, net of expected forfeitures, is $9.4 million and $9.3 million, respectively, at December 31, 2009.

Long Term Incentive Compensation Plan

In fiscal 2007, the Company adopted the Long-Term Incentive Compensation Plan (the “LTIC Plan”), which is accounted for as an equity-based plan. The LTIC Plan consists of a bonus pool that will be valued and paid in the Company’s common stock based on returns to the Principal Shareholders in connection with a change in control of the Company. Out of a total of 1,000,000 units authorized, approximately 802,000 units were outstanding under the LTIC Plan at December 31, 2009. Each unit represents the right to receive a payment based on the value of the bonus pool. As the contingent future events that would result in value to the unit-holders are not probable, no compensation expense has been recognized by the Company during any of the periods following the Transaction. The total amount of unrecognized compensation cost over the vesting periods of all units, net of expected forfeitures, is approximately $3.1 million at December 31, 2009.

Omnibus Long-Term Incentive Plan

In April 2009, the Company’s Board of Directors adopted the Omnibus Long-Term Incentive Plan (the “Omnibus Plan”), which became effective upon the completion of the initial public offering. Approximately 6.4 million shares of common stock have been reserved for issuance under the Omnibus Plan, which may be used to issue stock options, stock-option appreciation rights, restricted stock, restricted stock units and other forms of long-term incentive compensation.

During the quarter ended December 31, 2009, the Company granted 1.3 million time-vested stock options under the Omnibus Plan. The options vest over a four year period and have an exercise price of $18.00 per share, the price at which shares were sold to the public in the initial public offering. These options were valued using the Black-Scholes method, and the Company used an estimated stock price volatility assumption of 44% and an expected term assumption of 6.25 years. In addition, less than 0.1 million shares of restricted stock, which vest one year from the date of grant, were issued under the Omnibus Plan. These shares of restricted stock were valued at the closing price of a share of the Company’s common stock on the date of grant, which averaged $21.89 per share.

The total amount of unrecognized compensation cost over the vesting periods of all awards that have been issued under the Omnibus Plan, net of expected forfeitures, is $10.0 million at December 31, 2009.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following amounts (in thousands):

		December 31,				June 30,				December 31,
Asset Class		2009				2009				2008
Land		$	17,657			$	17,805			$	17,805
Buildings and improvements			73,683				74,171				73,798
Leasehold improvements and capitalized lease costs			372,578				329,449				306,500
Furniture and equipment			110,470				97,783				93,062
Technology and other equipment			193,148				170,818				153,256
Software			49,622				45,651				38,314
Library books			32,484				29,778				27,060
Construction in progress			57,178				43,470				14,863
Total			906,820				808,925				724,658
Less accumulated depreciation			(287,867	)			(227,960	)			(199,588	)
Property and equipment, net		$	618,953			$	580,965			$	525,070

Depreciation and amortization of property and equipment was $27.2 million and $23.2 million, respectively, for the three months ended December 31, 2009 and 2008. Depreciation and amortization of property and equipment was $53.6 million and $45.4 million, respectively, for the six months ended December 31, 2009 and 2008.

6. GOODWILL AND INTANGIBLE ASSETS

Goodwill

As a result of the Transaction, the Company recorded approximately $2.6 billion of goodwill. Goodwill is recognized as an asset in the financial statements and is initially measured as the excess of the purchase price of the acquired company over the amounts assigned to net assets acquired. In connection with the Transaction, property, equipment, intangible assets other than goodwill and other assets and liabilities were recorded at fair value. The remaining value was assigned to goodwill and represents the intrinsic value of the Company beyond its tangible and identifiable intangible assets. This is evidenced by the excess of the amount paid to acquire the Company over the values of these respective assets.

The Company formally evaluates the carrying amount of goodwill for impairment on April 1 of each fiscal year. During interim periods, the Company reviews forecasts, business plans, regulatory and legal matters and other activities necessary to identify events that may trigger more frequent impairment tests. During the six months ended December 31, 2009, the Company identified no such triggering events, and as a result, no impairments were recorded.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

Intangible Assets

Intangible assets consisted of the following amounts (in thousands):

		December 31, 2009								June 30, 2009								December 31, 2008
		Gross								Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization				Amount				Amortization
Tradename-Art Institute		$	330,000			$	—			$	330,000			$	—			$	330,000			$	—
Tradename-Argosy University			3,000				(1,194	)			3,000				(1,028	)			3,000				(861	)
Licensing, accreditation and Title IV program participation			112,179				—				112,179				—				112,179				—
Curriculum and programs			30,172				(16,007	)			27,974				(13,520	)			25,246				(11,333	)
Student contracts, applications and relationships			39,511				(33,284	)			39,511				(32,479	)			39,511				(28,292	)
Favorable leases and other			16,409				(11,240	)			16,351				(10,106	)			16,297				(8,718	)
Total intangible assets		$	531,271			$	(61,725	)		$	529,015			$	(57,133	)		$	526,233			$	(49,204	)

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 year to up to every ten years depending upon government and accreditation regulations. The Company considers these renewal processes to be a routine aspect of the overall business and assigned these assets indefinite lives.

Tradenames 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. However, the Argosy tradename was assigned a finite life at the date of the Transaction due to the potential for that tradename to be eliminated. As such, the same life was assigned to that asset, nine years, as was assigned to its existing student relationship’s economic life.

Amortization of intangible assets for the three months ended December 31, 2009 and 2008 was $2.2 million and $4.3 million, respectively. Amortization of intangible assets for the six months ended December 31, 2009 and 2008 was $4.6 million and $8.8 million, respectively.

Total estimated amortization on the Company’s existing intangible assets at December 31, 2009 for each of the years ending June 30, 2010 through 2014 and thereafter is as follows (in thousands):

		Amortization
Fiscal years		Expense
2010 (remainder)		$	4,026
2011			7,849
2012			6,783
2013			4,436
2014			2,668
Thereafter			1,605

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

7. ACCRUED LIABILITIES

Accrued liabilities consisted of the following amounts (in thousands):

		December 31,				June 30,				December 31,
		2009				2009				2008
Payroll and related taxes		$	35,449			$	77,894			$	25,974
Capital expenditures			22,904				8,032				4,324
Advertising			33,230				25,192				17,785
Interest			13,007				13,878				8,999
Benefits			9,842				8,597				8,277
Other			32,744				29,892				26,516
Total accrued liabilities		$	147,176			$	163,485			$	91,875

8. SHORT-TERM AND LONG-TERM DEBT

EM LLC increased the capacity on its revolving credit facility from $388.5 million to $442.5 million in connection with the completion of the initial public offering. In addition, EM LLC added two letter of credit issuing banks in August 2009, which increased the amounts available for letters of credit issued under the revolving credit facility from $175.0 million to $375.0 million. Outstanding letters of credit reduce availability of borrowings under the revolving credit facility.

Short-Term Debt:

No borrowings were outstanding at December 31, 2009 under the $442.5 million revolving credit facility as compared to outstanding balances of $100.0 million and $180.0 million, respectively, at June 30, 2009 and December 31, 2008. The interest rates on outstanding borrowings on the revolving credit facility at June 30, 2009 and December 31, 2008 were 3.75% and 2.31%, respectively. The applicable margin for borrowings under the revolving credit facility changes based on certain leverage ratios. EM LLC is obligated to pay a per annum commitment fee on undrawn amounts under the revolving credit facility, which is currently 0.375% and varies based on certain leverage ratios. The revolving credit facility is secured by certain of EM LLC’s assets and is subject to its satisfaction of certain covenants and financial ratios described in Item 2-“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Covenant Compliance”.

EM LLC had outstanding letters of credit of $157.2 million at December 31, 2009. The U.S. Department of Education requires the Company to maintain a $120.5 million letter of credit due to the Company’s failure to satisfy certain regulatory financial ratios after giving effect to the Transaction. The amount of the letter of credit is currently set at 10% of the Title IV aid received by students attending the Company’s schools during the prior fiscal year. The Company anticipates that the amount of the letter of credit will increase during the quarter ended March 31, 2010 based on Title IV aid received by the Company’s students during fiscal 2009. The majority of the remainder of the outstanding letters of credit relate to obligations to purchase loans under the Education Finance Loan program, which is further described in Note 12. The Company could incur $285.3 million of additional borrowings under the revolving credit facility at December 31, 2009.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

Long-Term Debt:

The Company’s long-term debt consisted of the following amounts (in thousands):

		December 31,				June 30,				December 31,
		2009				2009				2008
Senior secured term loan facility, due 2013		$	1,120,902			$	1,126,827			$	1,132,752
Senior notes due 2014 at 8.75%			375,000				375,000				375,000
Senior subordinated notes due 2016 at 10.25%			69,032				385,000				385,000
Capital leases			313				622				903
Mortgage debt of consolidated entity			1,083				1,194				1,301
Total long-term debt			1,566,330				1,888,643				1,894,956
Less current portion			12,281				12,622				12,758
Total long term debt, less current portion		$	1,554,049			$	1,876,021			$	1,882,198

In connection with the initial public offering, the Company purchased Senior Subordinated Notes with a face value of approximately $316.0 million. The Company recorded a loss of $44.8 million on the early retirement of the Senior Subordinated Notes, which was comprised of a premium to repurchase the debt over face value of $39.5 million and accelerated amortization on the prorated portion of deferred financing costs related to the Senior Subordinated Notes of $5.3 million.

The interest rate on the senior secured term loan facility, which equals LIBOR plus a margin spread of 1.75%, was 2.1% at December 31, 2009, 2.4% at June 30, 2009 and 3.3% at December 31, 2008.

9. DERIVATIVE INSTRUMENTS

EM LLC utilizes 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. Currently, EM LLC has two five-year interest rate swaps outstanding through July 1, 2011, each for a notional amount of $375.0 million. The interest rate swaps effectively convert a portion of the variable interest rate on the senior secured term loan to a fixed rate. EM LLC receives payments based on the three-month LIBOR and makes payments based on a fixed rate of 5.4%.

The fair value of the interest rate swaps was $46.5 million, $54.4 million and $73.7 million at December 31, 2009, June 30, 2009 and December 31, 2008, respectively, which was recorded in other long-term liabilities on the accompanying consolidated balance sheets. The Company recorded an unrealized after-tax gain(loss) of $4.1 million and $(21.1) million for the three months ended December 31, 2009 and 2008, respectively, and $5.0 million and $(22.0) million for the six months ended December 31, 2009 and 2008, respectively, in other comprehensive loss related to the change in market value of the swap agreements. Additionally, at December 31, 2009, there was a cumulative unrealized loss of $29.2 million, net of tax, related to these interest rate swaps included in accumulated other comprehensive loss on the Company’s accompanying consolidated balance sheet. This loss would be immediately recognized in the consolidated statement of operations if these instruments fail to meet certain cash flow hedge requirements.

During the three and six months ended December 31, 2009, the Company reclassified approximately $6.0 million and $11.7 million, respectively, from accumulated other comprehensive loss to the consolidated statement of operations, all of which was paid due to regularly recurring quarterly settlements of the interest rate swaps. Over the next twelve months, the Company estimates approximately $24.3 million will be reclassified from accumulated other comprehensive loss to the consolidated statement of operations based on current interest rates and underlying debt obligations at December 31, 2009.

The Company used “level two” inputs to value its interest rate swaps. These inputs are defined as other than quoted prices in active markets that are either directly or indirectly observable. The application of level two inputs includes obtaining quotes from counterparties, which are based on LIBOR forward curves, and assessing non-performance risk based upon published market data.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and fair values of financial instruments (in thousands):

		December 31, 2009								June 30, 2009								December 31, 2008
		Carrying				Fair				Carrying				Fair				Carrying				Fair
		Value				Value				Value				Value				Value				Value
Interest rate swap liabilities		$	46,511			$	46,511			$	54,421			$	54,421			$	73,724			$	73,724
Variable rate debt			1,120,902				1,048,043				1,126,827				1,031,047				1,132,752				702,306
Fixed rate debt			445,428				458,749				761,816				738,916				762,204				583,754

The fair values of cash and cash equivalents, accounts receivable, borrowings under the revolving credit facility, accounts payable and accrued expenses approximate carrying values. This is due to the short-term nature of these instruments. The derivative financial instruments are carried at fair value, which is based on the framework discussed in Note 9. The fair values of the Company’s debt instruments are generally determined based on each instrument’s trading value at each reporting date.

11. INCOME TAXES

The Company accounts for income taxes by 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. The Company regularly evaluates deferred income tax assets for recoverability and records a valuation allowance if it is more-likely-than-not that some portion of the deferred income tax asset will not be realized.

The Company’s effective tax rate was 41.3% and 39.9% for the three and six months ended December 31, 2009 and 36.6% and 36.4% for the three and six months ended December 31, 2008. The effective rates differed from the combined federal and state statutory rates primarily due to valuation allowances, expenses that are non-deductible for tax purposes, and accounting for 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, 2009.

12. CONTINGENCIES

In August 2009, a complaint was filed in the District Court for Dallas County, Texas against Argosy University, Education Management Corporation and Marilyn Powell-Kissinger, former President of the Dallas campus of Argosy University. In September 2009, the defendants removed the case to the United States District Court for the Northern District of Texas, Dallas division. The case was remanded back to State court in November 2009 by agreement after the plaintiffs amended their pleadings to specify their allegations and agreed to dismiss Ms. Powell-Kissinger as a defendant. The plaintiffs filed an amended complaint in state court in January 2010 adding three additional plaintiffs, among other things. The plaintiffs in the litigation are 18 former students who were enrolled in the Clinical Psychology doctoral program at the Argosy University Dallas campus. The complaint alleges that, prior to the plaintiffs’ enrollment and/or while the plaintiffs were enrolled in the program, the defendants violated the Texas Deceptive Trade Practices and Consumer Protection Act and made material misrepresentations regarding the importance of accreditation of the program by the Commission on Accreditation, American Psychological Association, the status of the application of the Dallas campus for such accreditation, the availability of loan repayment options for the plaintiffs, and the quantity and quality of the plaintiffs’ career options. Plaintiffs seek unspecified monetary compensatory and punitive damages.

In June 2009, a complaint was filed in the Twelfth Judicial Circuit of Tennessee by plaintiff The University of the South against defendants South University, LLC, Education Management LLC, and Education Management Corporation. In July 2009, defendants removed the case to the United States District Court for the Eastern District of Tennessee, Winchester Division. Plaintiff subsequently filed an amended complaint in which it alleges that defendants’ offering of psychology and interdisciplinary studies degrees under the South University name breaches a prior settlement and consent agreement entered into between the parties, and that the use of South University’s mark infringes on plaintiff’s federal and state trademark rights. Plaintiff also alleges that defendants’ actions constitute false designation of origin and unfair competition under federal law (Lanham Act) and unfair and deceptive trade practices under Tennessee state law. Plaintiff seeks an unspecified amount of damages, attorneys’ fees, and permanent injunction relief. In response to the amended complaint, Defendants Education Management LLC and Education Management Corporation filed a motion to dismiss the case against them for lack of personal jurisdiction. Their motion was granted and they were dismissed from the lawsuit. Defendant South University, LLC denies the allegations against it, and filed a counter-complaint alleging that plaintiff breached the settlement and consent agreement based on a failure of consideration and requesting declaratory judgment that plaintiff abandoned its mark and is engaging in trademark misuse, that the settlement and consent agreement has been terminated based on plaintiff’s abandonment of the asserted trademark, and that South University is not in breach of the contract, has not engaged unfair competition, and is not infringing on plaintiff’s mark. South University seeks damages in an unspecified amount, rescission of the Settlement and Consent Agreement, restitution, and attorneys’ fees. The plaintiff filed for a preliminary injunction against the defendant in November 2009 seeking, among other things, to enjoin the defendant from offering its psychology and interdisciplinary studies degree programs. The defendant’s brief in opposition to the motion for a preliminary injunction is due in February 2010. No trial date has been set for the lawsuit.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

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.

The Art Institute of Portland and the Company’s 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. The Company has responded to the requests for information and intends to fully cooperate with the Attorneys General in their investigations.

In August 2008, the Company introduced the Education Finance Loan program with a private lender, which enables students who have exhausted all available government-sponsored or other aid and have been denied a private loan to borrow funds to finance a portion of their tuition and other educational expenses. Under the Education Finance Loan program, the Company purchases loans that are originated by a private lender. As of December 31, 2009, the Company expects to purchase approximately $60.0 million of loans during the remainder of fiscal 2010 and 2011.

In addition to the matters described above, the Company is a defendant in certain legal proceedings arising out of the conduct of its 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, is not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

13. RELATED PARTY TRANSACTIONS

In September 2009, South University LLC, a wholly-owned subsidiary of the Company, renewed a long term leasing arrangement of two buildings from two separate entities owned by John T. South, who is one of the Company’s executive officers. Annual rent payments under this lease, which begins June 1, 2010, will approximate $2.2 million.

In connection with the Transaction and under the terms of an agreement between the Company and the Sponsors, the Company agreed to pay annual advisory fees of $5.0 million to the Sponsors. This agreement included customary exculpation and indemnification provisions in favor of the Sponsors and their affiliates. Upon the completion of the initial public offering, the Company terminated the agreement with the Sponsors and paid a non-recurring fee of $29.6 million. This has been included in management fees paid to affiliates in the accompanying consolidated statements of operations for the three and six months ended December 31, 2009.

An affiliate of one of the Sponsors participated as one of the joint book-running managers of the Company’s initial public offering. This affiliate was paid $5.5 million pursuant to a customary underwriting agreement among the Company and several underwriters. This fee was recorded as a reduction to additional paid-in capital in the consolidated balance sheet as it reduced the net proceeds received from the initial public offering.

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

In June 2006, the Company entered into a five-year interest rate swap agreement in the amount of $375.0 million with an affiliate of one of the Sponsors. The terms of this swap are discussed in Note 9.

14. GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION

On June 1, 2006, in connection with the Transaction, EM LLC and Education Management Finance Corp. issued the Notes. The Notes are fully and unconditionally guaranteed by 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 “Guarantors”). All other subsidiaries of EM LLC, either direct or indirect, do not guarantee the Notes (“Non-Guarantors”).

In November 2009, the Company became a guarantor of the Notes. The following tables present the condensed consolidated financial position of EM LLC, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and Parent (“EDMC”) as of December 31, 2009, June 30, 2009 and December 31, 2008. The results of operations for the three and six month periods ended December 31, 2009 and 2008 and the condensed statements of cash flows for the six month periods ended December 31, 2009 and 2008 are presented for EM LLC, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and Parent (“EDMC”).

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2009 (In thousands)

						Guarantor				Non-Guarantor								EM LLC												EDMC
		EM LLC				Subsidiaries				Subsidiaries				Eliminations				Consolidated				EDMC				Eliminations				Consolidated
Assets
Current:
Cash and cash equivalents		$	245,086			$	2,301			$	16,544			$	—			$	263,931			$	46,106			$	—			$	310,037
Restricted cash			531				—				15,475				—				16,006				—				—				16,006
Notes, advances and trade receivables, net			63				53				91,767				—				91,883				4				—				91,887
Inventories			—				90				12,482				—				12,572				—				—				12,572
Other current assets			29,377				624				63,293				—				93,294				—				—				93,294
Total current assets			275,057				3,068				199,561				—				477,686				46,110				—				523,796
Property and equipment, net			52,434				6,481				560,038				—				618,953				—				—				618,953
Intangible assets, net			2,952				68				466,526				—				469,546				—				—				469,546
Goodwill			7,328				—				2,571,803				—				2,579,131				—				—				2,579,131
Intercompany balances			1,144,441				(36,215	)			(1,508,694	)			—				(400,468	)			400,468				—				—
Other long-term assets			43,046				18,147				5,664				—				66,857				—				—				66,857
Investment in subsidiaries			1,712,211				—				—				(1,712,211	)			—				1,486,386				(1,486,386	)			—
Total assets		$	3,237,469			$	(8,451	)		$	2,294,898			$	(1,712,211	)		$	3,811,705			$	1,932,964			$	(1,486,386	)		$	4,258,283
Liabilities and shareholders’ equity (deficit)
Current:
Current portion of long-term debt		$	11,851			$	—			$	430			$	—			$	12,281			$	—			$	—			$	12,281
Accounts payable, accrued and other current liabilities			118,130				2,620				220,367				—				341,117				186				—				341,303
Total current liabilities			129,981				2,620				220,797				—				353,398				186				—				353,584
Long-term debt, less current portion			1,553,084				—				965				—				1,554,049				—				—				1,554,049
Other long-term liabilities			87,512				11,785				141,179				—				240,476				—				—				240,476
Deferred income taxes			(19,494	)			(9,521	)			206,411				—				177,396				—				—				177,396
Total liabilities			1,751,083				4,884				569,352				—				2,325,319				186				—				2,325,505
Total shareholders’ equity (deficit)			1,486,386				(13,335	)			1,725,546				(1,712,211	)			1,486,386				1,932,778				(1,486,386	)			1,932,778
Total liabilities and shareholders’ equity (deficit)		$	3,237,469			$	(8,451	)		$	2,294,898			$	(1,712,211	)		$	3,811,705			$	1,932,964			$	(1,486,386	)		$	4,258,283

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2009 (In thousands)

						Guarantor				Non-Guarantor								EM LLC												EDMC
		EM LLC				Subsidiaries				Subsidiaries				Eliminations				Consolidated				EDMC				Eliminations				Consolidated
Assets
Current:
Cash and cash equivalents		$	15,789			$	481			$	305,287			$	—			$	321,557			$	41,761			$	—			$	363,318
Restricted cash			789				—				9,583				—				10,372				—				—				10,372
Notes, advances and trade receivables, net			172				35				135,738				—				135,945				5				—				135,950
Inventories			—				—				9,355				—				9,355				—				—				9,355
Other current assets			19,056				1,213				55,058				—				75,327				—				—				75,327
Total current assets			35,806				1,729				515,021				—				552,556				41,766				—				594,322
Property and equipment, net			52,190				6,137				522,638				—				580,965				—				—				580,965
Intangible assets, net			3,119				61				468,702				—				471,882				—				—				471,882
Goodwill			7,328				—				2,571,803				—				2,579,131				—				—				2,579,131
Intercompany balances			1,880,889				(20,819	)			(1,859,626	)			—				444				(444	)			—				—
Other long-term assets			48,447				9,764				734				—				58,945				—								58,945
Investment in subsidiaries			1,590,364				—				—				(1,590,364	)			—				1,444,515				(1,444,515	)			—
Total assets		$	3,618,143			$	(3,128	)		$	2,219,272			$	(1,590,364	)		$	4,243,923			$	1,485,837			$	(1,444,515	)		$	4,285,245
Liabilities and shareholders’ equity (deficit)
Current:
Current portion of long-term debt		$	111,911			$	—			$	711			$	—			$	112,622			$	—			$	—			$	112,622
Accounts payable, accrued and other current liabilities			111,694				4,739				291,159				—				407,592				185				—				407,777
Total current liabilities			223,605				4,739				291,870				—				520,214				185				—				520,399
Long-term debt, less current portion			1,874,921				—				1,100				—				1,876,021				—				—				1,876,021
Other long-term liabilities			91,124				4,649				119,817				—				215,590				(1	)			—				215,589
Deferred income taxes			(16,022	)			72				203,533				—				187,583				—				—				187,583
Total liabilities			2,173,628				9,460				616,320				—				2,799,408				184				—				2,799,592
Total shareholders’ equity (deficit)			1,444,515				(12,588	)			1,602,952				(1,590,364	)			1,444,515				1,485,653				(1,444,515	)			1,485,653
Total liabilities and shareholders’ equity (deficit)		$	3,618,143			$	(3,128	)		$	2,219,272			$	(1,590,364	)		$	4,243,923			$	1,485,837			$	(1,444,515	)		$	4,285,245

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)

CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2008 (In thousands)

						Guarantor				Non-Guarantor								EM LLC												EDMC
		EM LLC				Subsidiaries				Subsidiaries				Eliminations				Consolidated				EDMC				Eliminations				Consolidated
Assets
Current:
Cash and cash equivalents		$	266,970			$	168			$	3,737			$	—			$	270,875			$	41,647			$	—			$	312,522
Restricted cash			1,216				—				10,976				—				12,192				—				—				12,192
Notes, advances and trade receivables, net			377				55				74,345				—				74,777				24				—				74,801
Inventories			—				—				9,680				—				9,680				—				—				9,680
Other current assets			13,256				539				42,418				—				56,213				—				—				56,213
Total current assets			281,819				762				141,156				—				423,737				41,671				—				465,408
Property and equipment, net			48,205				6,101				470,764				—				525,070				—				—				525,070
Intangible assets, net			444				63				476,522				—				477,029				—				—				477,029
Goodwill			8,075				—				2,570,823				—				2,578,898				—				—				2,578,898
Intercompany balances			1,735,137				(16,581	)			(1,718,112	)			—				444				(444	)			—				—
Other long-term assets			51,491				—				5,331				—				56,822				—				—				56,822
Investment in subsidiaries			1,480,514				—				—				(1,480,514	)			—				1,368,119				(1,368,119	)			—
Total assets		$	3,605,685			$	(9,655	)		$	1,946,484			$	(1,480,514	)		$	4,062,000			$	1,409,346			$	(1,368,119	)		$	4,103,227
Liabilities and shareholders’ equity (deficit)
Current:
Current portion of long-term debt		$	191,913			$	—			$	845			$	—			$	192,758			$	—			$	—			$	192,758
Accounts payable, accrued and other current liabilities			75,712				1,809				169,631				—				247,152				186				—				247,338
Total current liabilities			267,625				1,809				170,476				—				439,910				186				—				440,096
Long-term debt, less current portion			1,880,858				—				1,340				—				1,882,198				—				—				1,882,198
Other long-term liabilities			110,426				45				96,363				—				206,834				—				—				206,834
Deferred income taxes			(21,343	)			72				186,210				—				164,939				—				—				164,939
Total liabilities			2,237,566				1,926				454,389				—				2,693,881				186				—				2,694,067
Total shareholders’ equity (deficit)			1,368,119				(11,581	)			1,492,095				(1,480,514	)			1,368,119				1,409,160				(1,368,119	)			1,409,160
Total liabilities and shareholders’ equity (deficit)		$	3,605,685			$	(9,655	)		$	1,946,484			$	(1,480,514	)		$	4,062,000			$	1,409,346			$	(1,368,119	)		$	4,103,227