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Career Education Corp. (NASDAQ:CECO)

Q3 2008 Earnings Call

November 6, 2008 10:00 am ET

Executives

Michael Graham – Chief Financial Officer and Executive Vice President

Gary McCullough – President and Chief Executive Officer

John Springer – Vice President of Investor Relations

Analysts

Brandon Dobell – William Blair

Mark Marostica – Piper Jaffray

Corey Greendale – First Analysis Securities

Sara Gubins – Merrill Lynch

Trace Urdan – Signal Hill Group

Robert Craig – Stifel Nicolaus

Kevin Doherty – Banc of America Securities

Gary Bisbee – Barclays Capital

Jeffrey Silber – BMO Capital Markets

Amy Junker – Robert W. Baird

Operator

Good day ladies and gentlemen and welcome to the Career Education Third Quarter 2008 Earnings Conference Call. My name is [Onicka] and I will be the coordinator for today. (Operator Instructions). At this time I would now like to turn the presentation over to your host for today's call, Mr. John Springer, Vice President of Investor Relations. Please proceed, sir. Mr. Springer, you may proceed.

John Springer

Thank you, [Onicka]. Good morning everyone and thank you for joining us on Third Quarter 2008 Earnings Call. With me on the call this morning are Gary McCullough, our President and Chief Executive Officer, and Mike Graham, our Chief Financial Officer. Following a brief presentation by management the call will be open for analysts and investor questions. This conference call is being Web cast live on the Investor Relations section of our Web site at careered.com. The replay will also be available on our site.

If we are unable to answer your question during the call, please call our Investor Relations Department at (847) 585-3899. Now before I turn the call over to Gary, let me remind you that yesterday's press release and the presentations made this morning by our executives may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

These statements are based on information currently available to us, and involve risks and uncertainties that could cause our actual results, performance, and business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. These risks and uncertainties include, but are not limited to, those factors identified in our quarterly earnings release, our annual report on Form 10-K for the year ended December 31, 2007, and our quarterly and other filings with the Securities and Exchange Commission.

Except as expressly required by these Security laws, we undertake no obligation to update these risk factors or to publically announce the results of any of these forward-looking statements to reflect future events, developments, or changed circumstances, or for any other reason. Now let me turn the call over to Gary McCullough.

Gary McCullough

Thank you, John. And once again, thank you for joining us today on our Third Quarter 2008 Earnings Call. Before we go into specifics on our quarterly results, I want to provide a perspective on where we stand at this point in our corporate turnaround, a process we began just over a year ago.

We came into 2008 with a good plan and a solid understanding of the internal operational and cultural challenges facing us at the beginning of the year. Of course shortly after the year began, we were confronted with the headwind of a significant contraction in the student-lending environment. So in 2008 we have worked to manage through substantial challenges, and I'm proud of what our team has done through the first nine months of the year.

Our focus in 2008 has been on building a foundation for sustainable growth through improved organization effectiveness and efficiency. In doing this, we have been addressed to structural issues in our company that impacted our short-term financial performance. For example, we were teaching-out 14 unprofitable schools. The teach-outs are progressing well and we are ahead of our original plan. So we have continued to take aggressive actions to rationalize the company's real estate footprint.

We have disposed of just over 0.5 million square feet of excess real estate capacity since 2007. We've also worked to create a more unified culture performance to drive consistency in how we operate, and to allow us to create and leverage scale. This work is challenging, and I'd be less than honest if I didn't say that at times it seems we take two steps forward and one step back. However, these efforts have enabled us to keep accreditation and regulatory issues in check.

I give you this perspective because in March of this year we outlined a turnaround plan with specific 2010 milestones. Despite the student lending issues, and despite internal operational issues related to the admissions process in our university's segment, our third quarter results continue to show signs of progress and we remain on track to meet those 2010 milestones we previously shared.

A by-product of some of these actions, all of which we believe are in the best long-term interest of our company, can be complex financial statements that make it somewhat difficult to track and understand the operational progress we've made. Now let's talk about the third quarter performance.

Overall, third quarter revenue for the company was almost $406 million, down 5% from the third quarter of 2007. We recorded an operating loss of $8.8 million. Our results were negatively impacted by a variety of one-time charges, which Mike Graham will detail in his remarks. Excluding one-time charges, operating income in the quarter would have been $11.7 million. During the third quarter we generated $105 million of operating cash flow. Now we'll take a brief look at our business segment performance.

Our international business continued to post strong results. Starts increased 21% in international, while revenue and population we up 16% and 11% respectively year-over-year. The Health SVU had a very good quarter and is well positioned for continued growth. Third quarter starts in population were up 18% year-over-year. Operating margins in Health increased by 180 basis points.

Earlier this year we told you that two Gibbs campuses, Melville in New York and Vienna, Virginia, would be converted to Stanford Brown schools. Those conversions are complete. And despite teaching at a number of non-health related programs, third quarter starts at those campuses were up 25% versus 2007, and the population of both campuses is actually up year-over-year.

During the quarter we continue to consolidate brands behind the Stanford Brown name. We changed the Western Schools of Health and Business in the Pittsburgh area to Stanford Brown Institute. We've also continued to position the Health SVU for future growth with the launch of a new dental hygiene program. We've also made progress in our University SVU.

Our admissions process got back on track after being impacted by peer qualifier issues. As you may recall, peer is a two-step process where the representatives screens and qualifies leads who are contacted using a predictive dialer technology, and then passes the highest potential leads to a more experienced admissions representative. I'm please that we've addressed that the operational issues that impacted starts in both the second and third quarters, but I'm not satisfied with our results relative to the competitive marketplace.

In University, starts were up 8% in the quarter. In the University segment, excluding a calendar shift we previously discussed related to AIU, revenue was flat year-over-year. This marks the first time in nine quarters that the revenue in University did not decline year-over-year. At AIU starts were up 7% and population was up 1%. Revenue presumes the declines are moderating at AIU as a degree-mix shift to associate degree students are stabilizing. And excluding the calendar shift, operating profit at AIU was up over 40%.

CTU also continued to perform well. Starts were up 11% in the quarter versus 2007, while year-over-year population growth increased 12%. After addressing our peer qualifier issue, the last two starts at CTU have been the strongest in the school's history. There are two other items worth mentioning in the University SVU at this point

In the first quarter of 2009, we'll take tuition increases ranging up to 10%. In addition, AIU announced earlier today that it's filed an application to change the University's accreditation from the Southern Association of Colleges and Schools to the Higher Learning Commission of the North Central Association. This move reflects that the majority of AIU's nearly 20,000 students are served through the Higher Learning Commission's region.

Now as you know, our Culinary and Art and Design segments were the hardest hit by changes in the student lending markets. Third quarter results in both continue to reflect the new demand realities in both segments. During the third quarter I named Brian Williams as the Senior Vice President of our culinary segment. Brian had been leading that unit on an interim basis.

He's a nine-year veteran of our company and has deep experience across a range of our businesses. Further, Brian's a graduate of both AIU and our culinary programs. Brian and his team have embraced building a culture of student success within Culinary. They've put aggressive measures in place that enable them to detect and address student performance or attendance issues earlier than before.

Culinary faculty advisor programs and a new manager position focussed solely on new student success have enabled the Culinary SVU to improve student retention in both the second and third quarters. Consistent with our theme of strong student outcomes, their approach has given us greater confidence in our ability to use our balance sheet to provide funding to a greater number of students in Culinary without impacting either student retention or our loan default rates.

Culinary also continued to make progress in reducing costs. Excluding startups, in the third quarter culinary operating expenses were down 10% year-over-year. We recorded a one-time charge in the third quarter related to the California Culinary Academy to better align the school's real estate footprint with student demand and population. Finally, Culinary remains on track to rollout its 21-month program option during the first quarter of 2009.

The Art and Design segment continues to be a challenge. We have engaged in the task of driving greater consistency across what has historically been very independent organizations. While this work is in progress, it's become more urgent. During the quarter starts in Art and Design were down 12%, while student population was off 5%. I'm encouraged by a strong quarter-to-quarter and year-over-year increase in student retention, and I'm further encouraged by the growth in our Art and Design Online starts, which doubled during the third quarter versus 2007. Our online population in Art and Design increased to 800 students during the quarter, and we believe there's upside.

During the first nine months of the year our company's performance remains in line with our projections, and I'm confident we are taking the right steps and the right actions to lay a foundation for long-term success. With that, I'll turn it over to Mike.

Michael Graham

Thanks, Gary. I'd like to start by providing some more information regarding the non-comparable items during the third quarter. Following that I'll discuss our quarterly results, including financial highlights. As you review our third quarter results, please note there are a number of items impacting year-over-year comparability, which are highlighted in last night's press release. We have indicated a key initiative as part of the renewal of the company as a reduction of our real estate footprint.

This quarter we were able to close on several opportunities with favorable economic outcomes to the company. We incurred $10.9 million in lease exit expenses, and a $4.8 million charge non-cash asset impairment related to rationalization of our real estate, primarily related to a CCA San Francisco campus, within Culinary, and vacating a full floor in a Gibbs, New York facility. These moves reduced the overall square feet of our CCA, California Culinary Academy campus, from 245,000-square feet to 104,000-square feet.

While this campus is still larger than needed to serve the student population, we have reduced our annual culinary occupancy expense beginning in 2009 by approximately $3 million. Another non-comparable item was a $2 million non-cash impairment charge related to the write-off of trade names in the Health SVU, related to removing any of Western Schools of Health and Business careers and moving those to Stanford Brown.

And finally, a $3.2 million one-time income tax benefit related to the sale of the IADT Toronto School. Now let me give you some more details around the third quarter results. Overall revenue was $405.6 million in the third quarter, down 5% from the quarter last year. Excluding our schools within the transitional schools segment, which are currently being taught out, total revenue decreased 1%, primarily related to schools most heavily related impact by student lending markets.

We reported third quarter earnings per share break even in the third quarter, including the $0.09 of net non-comparable items recognized in the quarter. For the university segment on a reported basis, third quarter 2008 revenue was $172.9 million, and operating income was $27.3 million. As we mentioned in our first quarter call this year, the 2008 alignment of the AIU online and the AIU on-ground curriculum calendars resulted in a shift of earnings days for online from the first quarter to the third quarter, resulting in approximately $6 million of additional revenue and operating income in this year’s third quarter.

The financial results I’ll be discussing from here forward for University and for AIU exclude the impact of this calendar shift to be on a comparable basis. Revenue for the University for the quarter was $166.9 million, flat with last year’s third quarter.

Operating income was approximately $21.3 million, or growth of 26%, versus the third quarter 2007. Operating margin was 12.8% in the quarter, up 260 basis points from last year’s third quarter, driven primarily by reductions in admissions expense. Revenue for AIU was down 4% from the third quarter of last year due to declines in revenue per student related to ongoing degree-mix shifts. With population it was flat year-over-year.

AIU’s operating profit in the quarter was approximately $10.2 million, up 41% from last year’s third quarter. Total operating expenses were 8% lower, again driven by lower admissions costs. For CTU revenue was up 6% from the third quarter in 2007, as a 12% population growth more than offset a decline in revenue per student related to changes in degree mix.

CTU operating profit was $11.6 million in the third quarter, up 9% versus last year with an increase in operating margins from lower admissions expense and fixed cost leverage. For Culinary, third quarter 2008 revenue was $86 million, down 13% from third quarter 2007 revenue of $98.5 million, reflecting a 15% reduction in the population.

As noted in our press release, the 5% culinary starts that were reported in the quarter reflect a timing shift of our traditional fall start. In 2007 the fall start was in the fourth quarter and in 2008 the fall start is in the third quarter. This results in approximately 1,100 additional starts in September. Excluding this timing impact, starts would have been down 19%, and of course this impact will affect the comparability of our fourth quarter starts.

Culinary operating loss for the quarter was $10.4 million, including $14.5 million of real estate charges related to the CCA campus. Also impacting Culinary-operating income was a $4 million increase in our legal reserves within in this quarter. Excluding the legal reserve increase and the real estate charges, Culinary operating income would have been $8.1 million, down from $15.6 million in the third quarter of last year.

For the Health SVU, third quarter revenue was $58.1 million, up 12% from third quarter 2007 revenue of $51.9 million, driven by an 18% increase in both population and starts. Operating income was $3.3 million in the quarter, which includes the $2 million non-cash trade name impairment charge mentioned earlier, as well as a $1.3 million benefit from the settlement of an outstanding legal matter.

Excluding these two items operating income would be $4 million, up 55% from $2.6 million in the third quarter 2007. Strong revenue growth drove fixed cost leverage, resulting in a 190 basis point increase in operating margins to 6.9% after adjusting for the 2 items just mentioned. It gives the Vienna and Gibbs Melville transition to health education continue to progress well, and these schools combined experience break-even results in the third quarter despite teaching-out non-health programs.

Art and Design revenue was $61.8 million in the third quarter, down 10% from third quarter 2000 revenue of $68.4 million. Population was down 5%, and starts were down 12% in the quarter, reflecting the impact of reduced financing options for students. Operating income was $3.8 million in the quarter, down from $8.3 million in the third quarter of 2007 as lower revenue more than offset a 4% reduction in operating expenses year-over-year.

Finally for international, third quarter revenues were $12.6 million, up 16% from last year’s third quarter of $10.9 million. Included in international revenue in the quarter was a foreign currency benefit related to the dollar versus prior year of approximately $400,000. Starts were up 21%, contributing to a 13% increase in population versus third quarter 2007. The international SVU operating loss was $5.2 million in the third quarter, or $2.1 million greater than the $3.1 million operating loss last year.

Remember the international business operates a more traditional academic calendar without summer sessions; thus, has seasonally low summer student population in the third quarter. The year-over-year loss is a result of the seasonally low revenue against a higher fixed cost base. That higher fixed cost base supports the higher population in the schools, as well as $800,000 of unfavorable foreign currency impact.

Now let me update you on student lending activities. We’ve spent a great deal of time in the past quarters discussing our approach to student lending, including our focus on providing financing through our balance sheet to those students with the highest potential for successful outcomes. In the third quarter we remain consistent with our underwriting criteria and our processing efforts, and experience no disruptions in providing our financing alternatives to students.

For programs with lower relative funding gaps – Health and University – we're very pleased with our financing efforts and have not experienced a material impact in population or starts due to changes in the student lending market. Additionally, our international segment has no impact from lending issues as experienced in the domestic U.S. markets.

For the segments with higher overall funding gaps and with lending needs in more concentrated group of students, primarily culinary and art and design segments, we’ve been more measured in our approach. The year-over-year changes in population continue to be within our plan levels that we estimated at the beginning of the year, albeit at the lower end of the range. As Gary spoke to earlier, we invested additional resources to support students that are using our financing programs.

These support resources provide counseling and other help to students to ensure the student is meeting the obligations of in school payments, is continuing to meet satisfactory academic progress requirements, and can deal with any other challenges that might impair their ability to complete their program.

In the Culinary segment, with the addition of the Student Success Manager, we have directly addressed the particular needs of this group of students. Utilizing these campus-based resources, as well as the active monitoring by our Student Finance Organization, we’re confident that our process is accomplishing the objective. We will continue to monitor our Student Financing program over time, making changes where we feel appropriate.

As of September 30, 2008, we held approximately $16 million of gross outstanding balances under student financing agreements on our balance sheet. This includes new originations since April 1st, as well as carryover balances from programs we had in place before the contraction in the student loan market and the exit of Sallie Mae from recourse products, and this excludes balances on our previous Stillwater arrangements.

Our expectations for balances outstanding as of December 31, 2008 are in the range of $25 million to $35 million. Despite the reduced revenue due to the student loan market contraction and the one-time costs we have experienced this year for organizational reductions and removal of excess real estate, our operating cash flow remains very strong.

To the first nine months of the year operating cash flow was $158.9 million. Capital expenditures through the nine months ending September 30th were $39.9 million, or 3.1% of revenue, as compared to $41.1 million last year, and 3.4% of revenue for the comparable nine-month period. These expenditures include capital expenditures related to our 5 startup campuses opened in the last 12 months, or to be opened in early 2009.

Free cash flow, defined as cash flow from operations less capital expenditures, was $119.1 million for the year through September, very strong relative to our approximately 90 million averages common shares outstanding. DSO remained at 14 days. The company did not purchase any of its shares in the quarter at the direction of the Board of Directors, consistent with our disclosure in last quarter's call.

Cash and investments were $509 million as of September 30th, an increase of $78.4 million since the same time one year ago. Our investment quality remains high. During the quarter we moved investments to the U.S. Treasuries and similar instruments, and our holdings of auction-rate securities are less than 3% of our total cash in investments.

Before we turn the call over to your questions, let me quickly update you on our activities in teach-outs. As a reminder, looking forward to the fourth quarter we expect to complete teach-outs at three additional schools currently classified within our transitional school segment – IADT, Pittsburgh; Gibbs Piscataway; and Brooks College, Long Beach.

These schools will move into discontinued operations in the fourth quarter 2008, at which time we expect to record non-cash pre-tax charges of approximately $6.8 million, representing the remaining real estate obligation leases of these 3 schools. In addition, we have updated our estimates for the charges related to the remaining teach-outs, which we expect to be complete by the fourth quarter of 2009.

In the March Investor Day presentation, we provided you with an estimate of $55 million to $75 million of related real estate charges to be recognized in 2009, based on our then-estimates of discount rates and sublease income potential. As part of our 2009 business planning, we’ve refreshed both these assumptions in consultation with outside real estate investors. Given current and anticipated real estate market conditions, we believe sublease rates will be lower than our previous estimates.

We also believe the discount rate that we will use in 2009 will be lower than what we previously anticipated due to lower rich-straight environments. These changes will result in a revised estimate of $90 million to $100 million of real estate related charges to be recognized in 2009 for the completion of the teach-outs.

Let me remind you that these are non-cash charges to 2009 earnings, representing the recording of remaining operating lease obligations on our balance sheet, which are recognized on the closure of the school; however, the annual cash obligation net of any sublease income will be paid out over a very extended period, as we continue to fund our obligation under leases for the remaining lease term, the longest of which runs through 2023.

Again, this non-cash charge is subject to a high degree of estimation until the actual exit date. Additionally, as you would expect, we remain opportunistic in pursuing the exit of real estate to the extent attractive deals become available to us earlier than the completion date of a teach-out, the timing and magnitude of these charges will vary.

With that let me open up the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Robert Craig – Stifel Nicolaus.

Robert Craig – Stifel Nicolaus

Couple of questions for you. First off, regarding the peer issues, this first one where are you versus where you would like to be in terms of rep efficiency, and maybe if you could give us a sort of before and after photo of that kind of productivity since the implementation of the peer process?

Gary McCullough

Sure, Bob, this is Gary. I would tell you that we worked diligently through the peer issues. We believe those issues are behind us now and we’re very pleased with what we’re doing with the head count we’ve got. If you recall there was a question last quarter about because we had reduced head count, we thought that might be the leading cause of the diminishment in our starts, and the fact of the matter is, from last year we’re down about 19% in terms of admission representatives, yet you see the growth that we delivered in the university business on our starts.

And so we believe peer is behind us. We think we’re getting good efficiency out of the reps that we have, which is again what we had modeled in the program.

Robert Craig – Stifel Nicolaus

The University segment obviously helped in the quarter by the calendar shift, but I take it, and you mentioned this in the last call that there was some lingering negative impact from peer, and I know you won’t provide specific guidance, but could you give some indication directionally of what you’d expect in the fourth quarter from that division in terms of starts?

Gary McCullough

Sure I guess from a macro point of view, as we look forward, we think we’ll see continued very healthy starts at CTU. We believe that while we’ve got the issues behind us, we’ll see more variability at AIU.

Robert Craig – Stifel Nicolaus

Okay, but no percentage I take it?

Gary McCullough

No, Bob.

Robert Craig – Stifel Nicolaus

And the timing of the remaining teach-outs in 2009, some of those have happened a little sooner than we expected, would you anticipate those would be front-loaded or fairly even throughout the year?

Michael Graham

I would expect they would be more back-loaded than front-loaded. We’re doing a very good job of teaching out the classes and reducing the population, and to the extent that we have a small amount of population left in the school, we’re looking for other arrangements with other schools to accelerate the teach-out.

But again, for the most part, because the announcement of the teach-out was at the beginning of this year, and given the curriculum length, and traditionally two years in curriculum, most of the teach-outs will be towards the end of the year. We did talk at one time that for the AIU, L.A. campus, we thought that teach-out may go through 2010 and we’re working hard to see if we can have that teach-out complete by the end of 2009.

Robert Craig – Stifel Nicolaus

Last question, then I’ll turn it over. Could you tell us where you stand, or the Board stands, in terms of share repo, and if that’s not going to be re-fired up, how would you return cash to your owners? How do you think about that?

Gary McCullough

We continue to have the share repurchase authorization in place. We’ve at least initially took a conservative view of conserving cash as we've come through some of the student loan financing issues. I expect that we will have continued conversation with the Board around how to deal with the 20% trigger issue, but at this point we don’t have a resolution to that.

Operator

Your next question comes from Trace Urdan – Signal Hill Corp.

Trace Urdan – Signal Hill Corp.

I’m struck really by the different approach that you all seem to be taking with respect to student lending at the margin than some of the peer companies, and I’m wondering if you talk about it, maybe even specifically with respect to the Art and Design students? What is the process of identifying a student that you think is not going to be successful in the program, because the prepared remarks kind of implied that you were looking at the likelihood of their being able to prove academic success and employment success?

And I’m wondering if that’s the case, or if it really is about credit scores. Can you speak to that point a little bit?

Michael Graham

Sure I think it’s’ consistent with the messaging we’ve given in the last three quarters. As we looked at the lending environment, and remember the Culinary and Art and Design have some very large gaps and very large loan balances on a relative basis for the students, and based on knowing that Sallie Mae was anticipating a 44% discount rate, so we'll anticipate that the defaults are going to be at 44%.

And knowing that underneath Sallie Mae’s level that we as a company had historically provided financing to, that those students defaulting at some place 50% or more from an educational standpoint; although, they were graduating and getting placed they weren’t living up to their commitments of the loan. We felt it was prudent and we thought it was in the best interest of the company and the students that we would take a more stringent approach to some lending.

That said, what we have lent to is not students below the previous recourse level of Sallie Mae. We have lent to students in the highest part of the recourse level, and we’ve lent to every student available that Sallie Mae has left above the recourse level. So I think what you’re seeing is we were probably, call it over indexed, to some sub-prime students coming into this year. We made the decisions to move away from those students that would have a high likelihood of default.

And the students now that we have much better FICO scores than ever before. We hope will graduate and place even better, and we hope that their success will be very high in paying back their loans. That said we had a huge improvement in our culinary default rates in the last year, down to 8.5%, so we’re seeing improvement in our portfolio.

Gary McCullough

Trace, this is Gary. I’d say one additional thing. What we also did, particularly beginning in our culinary business, was put those resources in place that were necessary to ensure students that we might have expected to default, or might have expected to not complete the program, to ensure we gave them the support that they've needed.

They have continued to improve. We’re building a database of what that looks like, and as we continue to get comfortable with that student who might not have given us much support in the past, will move through the program and are making their in-school payments, we will open up to more students, but we needed the assurance that was going to be the case. We look at that, and the track record we’ve got right now going in our culinary business, we think we can reapply that model in our art and design business.

Trace Urdan – Signal Hill Corp.

I mean the Culinary intuitively makes a lot of sense, because we’ve all known for quite some time that the starting salary levels of students that graduate in that segment are very low, and that the cost equation doesn’t work out on paper the way it does in some of the other segments. I’m more struck by what seems to be the pull back in the Art and design segment.

And I guess I’m wondering if it doesn’t beg the question about pricing in those program areas, and whether there’s not something else that needs to be examined in those program offerings, given that you guys are retreating so significantly from what had been the enrolment base before.

Michael Graham

I think if you look at what we did going into the year, we had a lot of momentum on culinary that we had in place moving from a 15-month program to a 21-month program. For Art and Design, remember the complexity of the business. It is a series of International Academy of Design Technology schools. It is also schools from our previous college division and it’s an online component.

So within those three different business units combined in one SVU, we have not got as much traction as we did with our culinary business. I think we’re hoping that we’ll see the same type of attraction now as we continue to work the programs there. From a pricing standpoint, we’ve looked at grants, we’ve looked at scholarships, we’ve looked at our own scholarship money from our alumni. We’ve looked at different ways, and we’ve looked at the program in terms of how it maximizes title for our funding.

I think again, as you look at the three different businesses if you want to call it that across the SVU, more work to do to get a consistency. We have taken cost out of the business, which is good. Probably not as quickly as we need to, we’re still working on that, and especially in the lending environment, both Culinary and Art and Design as Gary said, when we see that we have a chance to retain students better and increase success, we lower our FICO scores, we will allow more less in-school payment, and more loan deferral.

We’ll allow bigger loan balances as long as it’s paired up with a great formula to help student success. Culinary has delivered on that, Art and Design are working their plans, and we’re looking forward to them as a company here linking that up and helping the funding issue more with programs that combine FICO scores with student success.

Trace Urdan – Signal Hill Group

Just one more follow up and then I’ll let you move on. So you think the comment about making that change when you see that potential for success, are you talking institutionally there, or is there some measure that you can see student-by-student as you’re talking to those prospects in extending credit to them?

Gary McCullough

I think the answer is both. One of the things we want to see is our ability to retain students, our ability to make sure we move them through the programs, and then should their outcomes at the other end where we can assist them to get jobs and continue to pay. And frankly we haven’t always been that diligent across the company, so we will do that. We also look at each student on a case-by-case basis and where we think there’s merit we’ll fund the student.

Michael Graham

I think on the enrolment process, I think a lot more people in the industry and the private loan industry have asked for co-borrowers, and we’re requiring co-borrowers in certain situations, it’s a different conversation with the student. And the student that is willing to ask the spouse, the parent, someone else, to be a co-borrower on a loan, they’re obviously very serious about their education.

And our program does require co-borrower denials, and we do have a dealing for co-borrowers. I think if that process brings in higher quality students with better success possibilities.

Operator

Your next question comes from Brandon Dobell – William Blair

Brandon Dobell – William Blair

Question first for Gary. As you look back, let’s call it the last two or three quarters, how satisfied or dissatisfied are you with key employee retention? I know that the headquarters management team has changed a lot, but as you look out across the different geographic locations and schools, are you satisfied with how the retention has been? Are you satisfied how with the compensation scheme, so you think those have aligned people correctly? Just more of an HR perspective on some of those key operations would be helpful.

Gary McCullough

Frankly I’m pleased with the results that we’ve had year-to-date. We’re down 17% in voluntary turnover in the company, that’s across the board. I feel terrific about that. That said, I still think our turnover rates are too high. As I told you and folks more than a year ago, when I came in I was alarmed by what I saw across each of the functions and each of the businesses, and so we’ve worked very hard and built into the compensation programs at the school level and all the way up to my level.

We’ve tied compensation to our ability to retain our employees. So we’re down 17% through the first nine months of the quarter. That’s good, but I still think we’re too high if from a macro point of view.

Brandon Dobell – William Blair

And then switching gears over to the enrolment advisor, kind of head count perspective, Nice to come on to year-on-year and it sounds like good leverage on those people from a productivity perspective. How do you guys think about starting to grow that head count number? At what level of starts or starts plus persistence do you think we should expect the head count between enrolment counselors and peer qualifiers to either stabilize or to start to turn upward?

You guys get a lot more productivity out of people there right now, or do you think that you’re confident enough in this stark trajectory that you need to start bolstering that workforce a little bit?

Michael Graham

I think from a headcount reduction standpoint, we’re just about done from the large head count reductions that you’ve seen, because that was all driven by the peer qualifier method, the two-step method, and by technology. So that’s in place across the online businesses. We probably have some more work to do on the on-ground businesses, and we can find some productivity, additionally with the part time workforce that we have in the peer model.

We will continue as they get more experienced in the model, because remember the model has just been rolled out in the last year and our turnover is down dramatically. We got more and more seasoned representatives on hand. So I think the productivity now comes less from head count reduction than it does from conversion rate, it does from show rate, and from stitch-ins, because we have more experienced people, more dedicated people, and strong people on the second half of the peer model.

So I don’t think we’ll see dramatic savings going forward through next year as we’ve seen this year. And I think from a variable standpoint, it would be our goal to gain operating leverage that as starts increase we would not increase the same rep level at the same rate, but the rep count level would grow slower than the overall start level, and we continue to get some efficiencies.

Brandon Dobell – William Blair

Okay and then final question. As you think about the process of matriculating students from associate's into bachelor's, kind of a crossover organization within the university in particular, any updated stats or commentary you can give us in terms of how those matriculation percentages are trending? Are you giving more discounts to students who make that transition from associate's to a bachelor's to keep them going? Just give more of your strategic positioning around that opportunity, Greg.

Gary McCullough

Sure, Brandon, if you recall, I think we’ve mentioned previously that in AIU, which has more experience in this two plus two program, their historic experience was about 50% matriculation from the associate degree into the bachelor's degree program. And that remains about consistent at this point in time as we don’t do anything significant from a pricing point of view to encourage that.

We think that the data because suggest that believe our program is strong and that the online experience in particular is a strong one, and they move through to the bachelors degree program. At CTU we’re seeing a matriculation rate about 10 points higher than that, so approaching 60%. Again, we don’t do anything significant to move them through, but that’s our experience today.

So we feel good about where we are. One of the things we do make sure that we do is in both cases, as students are moving through and finishing up their associate degree program, we certainly increase the volume to them to make sure they understand that a bachelor's degree is available to them at both institutions, and that’s all we’ve done at this point in time.

Operator

Your next question comes from Cory Greendale – First Analysis Securities

Cory Greendale – First Analysis Securities

I have a couple of questions about the culinary segment. First of all, how confident are you, or to what degree do you think the decrease in starts is entirely due to the funding issues versus students becoming more sensitive to the value proposition in this kind of environment?

Michael Graham

I would say we would attribute almost all of it to the lending environment and the tightening that we’ve had to do from the program. Interest in the program remains strong. Lead volume is much lower than the decline in starts, so we have seen a decrease in lead volume related to primarily the funding level, but the starts are different.

So, that would indicate that the interest is there but it’s tougher for gating for the student to get through student financing issues. So I think the culinary program continues to be of interest. We have the highest placement rates in the company, in the culinary business, and so we know the students are doing well. We had the lowest cohort default rate in the company in the culinary segment, so students that graduate and are placed do a very good job of living up to their obligations, so the outcomes are very strong in culinary. So I think it’s driven more along the student financing that on the upfront gating.

Cory Greendale – First Analysis Securities

And when you roll out the 21-month programs, is the expectation that basically all the students are going to go into those longer programs, or some smaller percentage, or do you have a guess at this point?

Gary McCullough

Yes, we’ll continue to keep the current program in place, the 15-month program versus the 21-month program. And we’re doing that because there are some students who do have a desire to get in and have the ability to get in and move through more quickly. But again, the majority of the students that we’ve seen at least at this point do tend to take longer and so we’ll be encouraging them to move to 21-month program, but we’ll continue to offer both.

Cory Greendale – First Analysis Securities

If I could ask Mike one question about the profitability in culinary. As the 21-month program is rolled out, presumably that affects the revenue per student in any given quarter, and it’s not transparently obvious. I know you’re making some efforts to cut costs there, but how profitable that business can be as that revenue per student in any given quarter comes down?

Can you just speak to the targets that you mentioned at the Investor Day for that segment, whether you’re still confident in that and whether that business will still be profitable in ’09 or if it’s going to take more to 2010 to get that culinary segment profitable?

Gary McCullough

Sure, and we’ve given the guidelines for 2010. I think we’re still confident in the culinary guidelines we gave. Probably the lower end of that range based on the student loan contraction that we’ve experienced. Through 2009 you will have call it the teach-out of the 15-month program and the rolling in of the 21-month program, which will drop the RPS.

That will continue to put pressure on culinary through next year. Remember that we anniversary out on April 1st the Sallie Mae recourse program, and so once we get behind that from a start standpoint, we would hope in the second half of the year that you’d see better trend versus the previous because you’ll get rid of the previous history.

So, we don’t give specific guidance for ’09. I can’t do that. I think 2009 will be a challenging year for culinary margin-wise, and we’ll continue to take costs out. We’ve taken a lot of costs out of the business. We’ve taken a lot of head count out of the business on a variable basis.

Structurally, we’re starting to take the real estate out of the business, including CCI. We’ve got start-ups in place from Dallas, from Boston that are doing well in kitchen academies. So we’re still confident in the business, and we also from a comparability standpoint will have those start-ups that will go through that ramp-up period and they typically will break even within 15 months. So that should also help boost us as we go forward ’09 to ’10.

Cory Greendale – First Analysis Securities

And just one last quick one, were there any unusual charges that ran through the corporate cost segment, and is that $16.9 million a good run rate to use?

Gary McCullough

There is nothing unusual that will answer it. The two influences are the previous year at this point in time the company was over 40% off of its bonus target. And this year, as we’ve talked about, we are on our plan. And so, we have from a company standpoint a higher bonus level. Second is we do charge out from the corporate level to the businesses within the segment allocation part of the corporate allocation, as revenues have fallen in some of those business units, corporate has more costs.

So it’s an absorption issue and a bonus draw-up issue, versus last year. Last year’s third quarter we did shore up our bonus, and as we discussed about a year ago, we did reverse accruals at this time for the bonus plan in ’07.

Operator

Your next question comes from the line of Jeff Silber – BMO Capital Markets.

Jeff Silber – BMO Capital Markets

Just wanted to go back to your internal lending program. And I know you’re not giving ’09 guidance, but given everything that you know now, do you expect that program to increase next year, stay the same, decrease? I’m just wondering what your current thoughts are.

Michael Graham

Current thoughts are it’s going to increase. The private lending market has tightened up as everyone knows, the tightening up with students with very high FICO scores, good parent co-borrowers. It’s our intention to lend to those students off our balance sheet. So we would anticipate to use our balance sheet for those. Additionally, these balances will grow.

We only had nine months in the program this year and remember that we did package up as many students as possible by April 1 under the former programs, so even your second quarter was dampened in terms of the volume. Currently, we have about $16 million. We’ll have $25 million to $30 million at the end of the year, and I would think the pace will increase as the students continue to come on the program.

And we’re also loosening up criteria, as we’ve done in culinary, and we’re paired up with another program, such as the Student Success Manager, so I think going into next year we will continue to loosen up as we get more visibility on the success profile, continue to loosen up our FICO scores and our underwriting to help students out.

Jeff Silber – BMO Capital Markets

And in terms of the 44% discount rate, is that something that we should be using going forward as well?

Michael Graham

Until further notice, the 44%, bad debt rate is the former discount rate used for Sallie Mae. Again, we don’t have underwriting data of how the Sallie Mae loans did perform in the past. Until we can get good solid verifiable data that we’re confident in and our auditors are confident in, we’re going to stick with the 44%.

I don’t think we’ll have more visibility until at least a year into the program, so I would anticipate that rate would continue through next year, and as soon as we get better verifiable data on the patterns of payment we’ll be able to update that. We hope its conservative, because of the success factors and the higher FICO scores and the better student we’re using, but we’ll stay with 44% through next year.

Jeff Silber – BMO Capital Markets

Just in terms of the current environment, I know the start date you gave us was through the end of September and I know the enrollment data was from the end of October. But a lot has changed over the past month or so. Are you seeing any change in terms of the mentality of your students based on what’s been happening over the past few weeks in terms of either their applying, enrolling, showing up, etc.?

Gary McCullough

There’s nothing concrete I could point to at this point, Jeff. I would tell you that we continue to see demand for our programs. Without sharing numbers, as I said in my prepared remarks, we moved through our own internal issues and we’ve seen consecutively the strongest starts in CTU’s history, so I think we’re seeing the demand. We’re seeing the execution on our part. There’s variability across the business as well. I use that as an example. I’m seeing continued demand and our job is to execute against that demand.

Gary McCullough

And I think also, as we looked across our third quarter, our business’s show rate was up, and attrition was down. So I think the value of the education, the softness of the economy, the show rate is higher after students are being packaged. Attrition is down. They want their education. Our October starts were not inconsistent with our expectations, so we did not see in October anything that would suggest concern to us just based on one month.

Operator

The next question is from Amy Junker – Robert W. Baird.

Amy Junker – Robert W. Baird

I just have a couple of quick ones. First, Mike, can you just talk a little bit about the operating margins within an AIU on the campuses? I’m wondering if it’s possible to see that eventually turn positive at some point, or if there’s something structural that would prevent that from happening?

Michael Graham

I think you have to look at it campus-by-campus. I think we had some conversation around this last quarter. From an AIU standpoint – we do have a London campus important to the business, but given where the pound is and the affordability for the student against the U.S. dollar and real estate issues in London that are historical for us, difficult to see us making significant progress against the operating losses we’ve been experiencing.

From our other campuses, we did look at L.A., and we’re teaching that one out. The remaining campuses – we’re pleased with their performance. We do have some capacity issues in a certain number of our campuses from a real estate standpoint that we’re dealing with. In the quarter, we had a little bit of margin compression on the ground businesses, because our Houston campus was obviously affected by Hurricane Ike, and so we probably had somewhere between a quarter and a half million dollar profitability compression there on that business.

Our plans for ’09 are currently being developed. I think as we outline the calendars, we have a better chance of success for those on-ground campuses. We’re confident the management team is taking cost out in line with the population. And I think the re-branding effort and the higher awareness effort gives us some confidence going into ’09 that those business will do better. I think it’s a matter of operating leverage in those campuses, so we need to get the population back, versus any more cost efforts.

Amy Junker – Robert W. Baird

And just a clarification on the L.A. campus. That’s not in the transition segment, that’s actually still in AIU or in the university segment?

Michael Graham

No, that is in transitional. But at the beginning of the year we made the decision to teach-out. It would be the highest under-performing campus and the largest loss that we had. I think L.A was accounted for about 50% of the ground loss in 2007 of our AU campuses.

Amy Junker – Robert W. Baird

And then just one other – the $90 million to $100 million charges you expect in '09 – can you give us kind of a rough thought on how that will break down between quarters? Is it going to near kind of when the T tax actually happens so it should be more back-end loaded?

Michael Graham

Yes. It's 100% with the teach-out. On the day of closure you take the charge, and so I believe that from where we're looking towards, like Gibbs, Piscataway, we are able to accelerate that and we took that into '08. I think that from a calendar standpoint, the majority of those closures, the majority of that charge will be back half loaded. Hard to say right now because we're year-out whether the student population drops enough between third quarter and fourth quarter, but most of those based on the carry-in population we have would be back-half loaded.

Operator

Your next question comes from Gary Bisbee – Barclays Capital.

Gary Bisbee – Barclays Capital

Sorry to pound on the culinary, but had a question there. I guess I'm wondering would your willingness to lend to some of these students potentially increase as the gap is much smaller under both with the enrolment increase and the new 21-month program? Is part of the issue just that the gap is so large and is relative to the total tuition cost that you're taking a lot more risk, and if it were much smaller you might be willing to take that risk, or is that not really a consideration right now?

Michael Graham

That is a consideration, and as the funding limits have increased it's dropped the amount of lending that the student needs from us. And we've got a cap, and we've said this before, that we've capped off our loan balances at about $9,000 per year for the student, and we made sure they had a four-blot of school payments, so to the extent that they're getting more Stamford loans or the additional Pell Grant that cuts their gap, and it gives us a better economic model to lend to them.

From a price standpoint again, we look at to the students who look at scholarships and we look at grant programs for them, and to the extent that we can use them more to help certain students within FICO scores that are more challenged. We do that right now and we'll continue to expand that as we align the student for graduation and placement.

Gary McCullough

Gary. One additional thought is if you recall, we began the discussion of the move to a 21-month program before we realized that even the full potential of the full amount of the issue we have with regard to student lending, is we have looked at where we were from a competitive point of view, we weren't satisfied that we had done our best with our more concentrated program by the student in terms of we are allowing them to access more funding, and therefore reducing the our-of-school payments because of the large gap.

And so we began that move, and certainly the changes we've seen in student lending have had us accelerate what we were doing to make sure that we were right by them. And you're correct, with some of the changes we've seen, with some of the increased loan limits and with the reduction in gap, we would feel more comfortable.

Gary Bisbee – Barclays Capital

Given the lead for what you're seeing, and obviously you've got a sense as to what the gap will drop to when you go to the 21-month program, what's your confidence level that – and you're going to have to work off the majority of the 15-month students, but you can have a reasonably positive ramp in enrolment in the 21-month program, or is it early enough that it's just way too hard to tell at this point?

Gary McCullough

It's pretty early at this point in time. We'll probably have more that we can talk about some time into the second quarter of next year. The 21-month program goes live in the first quarter, so we just don't have a date at this point.

Gary Bisbee – Barclays Capital

Switching gears, you mentioned, I think, up to a 10% price increase somewhere at University, did you say that was at CTU, or can you clarify what that was and when that goes into affect?

Gary McCullough

Sure. This is Gary again. It's at both universities, AIU and CTU, and it varies, the range varies whether it's in an associate's degree and a bachelor degree programs, but again, what we've said is we don't take a one-size-fits-all approach to pricing, and so we've looked at where we think there's the opportunity to do that, both on a local level and by programatically. And so I said ranging up to 10%, because that's the top end of where we'll be.

Michael Graham

And the price increases are both affected the fact that it's across two institutions on the 1st of January.

Gary Bisbee – Barclays Capital

And so is that likely to actually turn the revue per student declines there, which actually moderate quite a bit this quarter, is that likely to turn positive next year, or do you still think the mix shift is going to keep that form really growing?

Gary McCullough

I think the mix shift is somewhat stabilized as you look at the quarterly comparisons year-over-year. We're seeing now quarter-to-quarter, sequentially first, second, third quarter, we're seeing a stabilization of population, so I think we're expecting the population associate versus bachelor to stabilize going into next year. I think we'll get some benefit from CTU as the two plus two students move up to bachelor degree helping the RPS next year, and we'll have the price increases that should help the RPS going into next year.

Gary Bisbee – Barclays Capital

Is there any way to give us a sense of what the blended price increase could look like?

Michael Graham

Not at this point.

Gary McCullough

We didn't want to share that detail right now.

Gary Bisbee – Barclays Capital

And just one last one. I recently saw a couple of e-mail as part of the marketing campaign for AIU that was talking about a slowing paced program. Over the last few months I've seen this a couple times. Can you give us a sense if that has had any real success relative to the more accelerated higher cost program, or is that still right now in its infancy?

Gary McCullough

It's still in its infancy. Again, stepping back one of the things that we noted in our portfolio is that all of our programs were accelerated, and that frankly doesn't work for quite a number of our students. And so we've looked at what we can do to better appeal people who have interest in the programs, and when they find out that the demand and the speed of our program is significantly faster and higher than that of other programs, opt out and may choose to go someplace else.

So we're looking at how we mitigate that in our programs. It's not right for everybody.

Michael Graham

No data at this point in time.

Operator

Your next question comes from Sara Gubins – Merrill Lynch.

Sara Gubins – Merrill Lynch

Just following up on the price increases. Are you planning on any other price increases in the other divisions?

Gary McCullough

I think as we have spoke about it in the past calls, pricing is a institution-by-institution decision. From a university standpoint, we've talked about what we've done there. Our Health business continues to be in a high demand, outcomes are very good, the starts are very strong, the 90/10 issues are limited versus some of the other health institutions out there. So Health has the opportunity, obviously, to make sure that it has appropriate pricing.

From a Culinary and our Art and Design standpoint, with the gaps we're experiencing as the declining starts, we'd be very cautious about pricing right now in this environment. And in our international businesses, take annual price increases again, traditional calendar, so as the new students arrive in this September's term that we have traditional pricing within the international business.

Sara Gubins – Merrill Lynch

And about how much is it in international typically?

Michael Graham

We haven't disclosed that.

Sara Gubins – Merrill Lynch

In terms of the availability of third-party private loans, can you give any update on that, and whether or not you've seen any changes out of the last couple of months or the last few weeks?

Michael Graham

We have seen no changes to the third quarter from availability. The lender list we had remained consistent. We've seen no material changes in underwriting standards that we can discern, and no announcements from the lenders, including the last several weeks. I think, as every other institution around the country got – there was note from Sallie Mae to institutions to its students just indicating that they were reviewing their criteria – we got that note like everyone else did.

And again, to the extent that Sallie Mae, within the strong FICO bands that they are tightening up we stand by with our balance sheet and our programs to lend those students, because their very strong FICO score students.

Sara Gubins – Merrill Lynch

And then just a last question. In terms of advertising costs, do you expect that you'll continue to be able to get some declines in those on a year-over-year basis going forward?

Gary McCullough

Yes. We've just begun to see some moderation in advertising across – remember that the vast majority of our marketing effort is online, so we differ to some degree from folks who are out there who are benefiting from softness in the television media space, but we are seeing moderation both in the online tease and in our TV advertising space, particularly since the election is over and hopefully we'll see that continue going forward.

Operator

Your next question comes from Kevin Doherty – Banc of America Securities.

Kevin Doherty – Banc of America Securities

Just a followup on that last question. Just given the pricing, would the economics look more favorable that you'd actually shift some dollars back to the TV market, or is your strategy just completely from the mix you used to have in the past?

Gary McCullough

We've always had a balance of online and television media. We disproportionately had been developed or overdeveloped in the online space, that's just been a function of where the company has done things historically. We think there are opportunities to begin to shift that mix, but there's work to be done to make that mix-shift happen.

We are engaged in that work at this point in time, but we don't see a significant shift away from the online media at this point in time or in the near term, but we're continuing to look at what the best way to support our businesses going forward.

Kevin Doherty – Banc of America Securities

And just kind of a bright spot of your core operations, could you talk about the potential in the health education segment in this environment, and is this really an area where start growth can accelerate much further, is there really anything keeping a lid on that growth rate? Then maybe if you could just talk about how much capacity you picked up when you did convert some of those schools over.

Gary McCullough

Sure. From a macro point of view I would tell you that we're obviously very pleased with what we see going on in health. We believe there's continued, or will be more upside in health. Our issue right now going forward, we're not at capacity, but in certain of our campuses we are approaching capacity, and so we do have in some places waiting lists, and that speaks to what Mike said earlier.

We do have the capacity to price to moderate that, but we do have waiting lists income places, and so our challenge right now is to continue to invest in the business to expand geographic expansion, or to put more capacity in play, so when we're looking at both those opportunities as we go forward.

Michael Graham

To your question about the additional capacity, 2 schools, put that on a base of just over 20 schools in the health business, so that will give you an idea of the capacity that's been added by Melville and Vienna. And obviously, our startup plans continue. We do have startups in place right now for health that will help add capacity next year.

Operator

Your next question comes from Mark Marostica – Piper Jaffray.

Mark Marostica – Piper Jaffray

Question for you on AIU. You mentioned, Gary, the future variability in AIU, and I think you're speaking of online and fourth quarter. Can you give us a sense what that may be attributed to? Is it media issues and reputation, or is there something else we should be noting there?

Gary McCullough

I'm glad to clarify that, Mark. I was about to welcome you to the company, but we have just a number of things moving around. We've talked about [inaudible] the days going from one to the other, we are still working through locally what had been reputation issues, and so I'm just not as confident in the AIU starts going forward as I am at this point from a consistency point of view as I am in CTU.

So again, we're seeing variability in demand and issues we have to overcome on a case-by-case basis. So that's why I say that. I just want to make sure that we don't build expectations that we can't live up to as we go forward.

Mark Marostica – Piper Jaffray

And then related to the Art and Design and Culinary segments, you mentioned – obviously you're more stringent with regards to your FICO acceptance standards – when do you anniversary those more stringent standards?

Michael Graham

The recourse program from Sallie Mae ended April 1st of this year, so next year we anniversary off losing Sallie Mae and replacing with our own balance sheet program.

Mark Marostica – Piper Jaffray

And then relative to a previous question there concerning private loans. Where do you sit right now in terms of percentage of tuition revenue from private loans in addition to the $25 million to $35 million you contemplate having on the balance sheet by the end of the year?

Michael Graham

Sure. Through the nine months our total domestic revenue in a cash basis from private loans is approximately 12%, down from 18% from this time last year through nine months.

Mark Marostica – Piper Jaffray

Do you expect that next year to be about the same?

Michael Graham

I would expect that to decline, because more of our balance sheet will be used for the private loans, plus in the nine months you did have the one quarter of Sallie Mae and the first quarter of this year which contributes to that 12% year-to-date. I think that number will track down to between 10% and 11% over time.

Mark Marostica – Piper Jaffray

And then two last questions here. One, you may have mentioned it, Mike, but I didn't catch it. That data is a percentage of revenue in the quarter?

Michael Graham

Just over 3% I think. I don't have it. Yes. It's 2.8% this year versus 2.6% last year.

Mark Marostica – Piper Jaffray

And one last question. As you look out to '09 quarterlies, are there any start periods out of alignment in '09 versus '08 like you experienced with Culinary Q3 to Q4

Michael Graham

I don't know right now. We're doing our 2009 business plan. Give me the opportunity. We'll do the plan, and as we get into the first quarter call as we help people model the year, and as John Springer helps you with your models from an IR standpoint we'll try to anticipate that better and give out something in the first quarter guidance. That will be helpful for you I think.

Operator

At this time there are no additional questions. I would now like to turn the call back over to Mr. Gary McCullough for closing remarks.

Gary McCullough

Well today I want to thank you for your time and attention and your great questions for our third quarter earnings call here of 2008. We're working hard throughout CEC to position our company to more effectively serve the needs of our current and prospective students and graduates, and to position the company as we've said, for long-term sustainable growth.

When I said earlier in the call, I'm very proud of what we've done so far this year, but we've got a lot of work to do. We see that, and we'll remain on task. And I'm confident, I'm as confident as I've ever been, of our ability to continue to execute against the plan and deliver the 2010 milestones that we previously shared with you. We recognise there are a number of moving parts, which sometimes make it difficult to understand our results and to accurately model what's coming.

If you'd like to discuss our results in more detail, please call John Springer, Investor Relations. His number is (847) 585-3899. He's stand by to help you. We'll stand by to take any additional questions to help model what's coming, and to clarify anything that wasn't clear as move through this call.

Thanks again for taking the time to listen, and we appreciate your interest and your support of our company.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Thank you and have a good day.

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