Perdoceo Education Corp (PRDO) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Career Education Corporation, second quarter 2009 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. John Springer, Senior Vice President, Finance and Investor Relations. Mr. Springer, you may begin.

Thank you, Christine. Good morning, everyone, and thank you for joining us on our second quarter 2009 earnings call. With me on the call this morning are Gary McCullough, our President and Chief Executive Officer, and Michael Graham, our Chief Financial Officer. Following remarks made 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 be available on our site. If we don't get to your question during the call, please call our investor relations department at 847-585-3899.

Please note that our financial and operating results for the second quarter 2009 and 2008 includes operating losses associated with schools currently being taught out as well as other significant items that impact year-over-year comparability. Unless otherwise noted, the operating and financial measures discussed on this call will be on a nonGAAP basis that exclude these items. A reconciliation of the items to our announced GAAP results can be found as an exhibit in last night's news release, which is also available on our Web site under Investor Relations tab.

Now before I turn the call over to Gary, let me remind you that yesterday's press release and remarks made 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 future 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 31st, 2008 and our quarterly and other filings with the Securities and Exchange Commission. Except as expressly required by the Securities Laws, we undertake no obligation to update those risk factors or to publicly 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.

Thanks, John and good morning, everyone. Thank you for joining us on this morning's call as we discuss results from the second quarter of 2009. When my remarks are concluded, I'll turn the call over to Michael Graham, Executive Vice President and Chief Financial Officer. Mike will provide more detail on our second quarter results at that time. As a reminder, the financial results I will be discussing exclude the impact of our Transitional segment and certain other significant items, as detailed in last night's release. Overall, second quarter results represent another level of meaningful improvement in our financial performance and demonstrate the continued progress of the turn around strategy we began in 2007.

As we enter 2009 our goal was to again generate meaningful and consistent revenue growth across the Company. Doing so was instrumental in driving ongoing operating income and operating margin improvement and maintaining progress towards achieving our 2010 milestone objectives. In the second quarter we delivered revenue growth of 9%. This was driven by an accelerated rate of total student population growth. As of July 31st, total student population was 15% higher than at the same point in 2008. For perspective, these are the highest rates of growth both in revenue and population since 2005.

While clearly helped by the current environment, these results also reflect the impact of actions we have taken over the last several quarters across the Company. These actions fall into three broad categories. First, we've continued to support the areas that have consistently generated growth for us, specifically our health education and international segments. Second, we made important changes to curriculum, academic calendar and student payment programs within our Culinary Arts and Art and Design institutions. These changes were necessary to reverse the decline in student population, revenue and operating income we experienced following the contraction in the student private loan market early last year. And third, we took additional steps to generate more consistent growth in AIU and CTU. This was important because they carry our highest incremental operating margins.

In the second quarter we continued to make progress on all three of these fronts. As a result, second quarter operating income was 70% higher than in the second quarter of 2008, and operating margins expanded by over 300 basis points. As you may recall, our 2010 milestones are to deliver between $225 million and $270 million in operating income. Over the last four quarters we've achieved $171 million in operating income. Given this and given that we have continued to identify areas of potential improvement in the Company, I remain confident in our ability to achieve these milestones.

Now let me walk you through more detail in the second quarter across our segments. It's hard to say enough good things about the outstanding results we've continued to have with Health Education. Health now represents more than 20% of our total student population and it's our second largest segment in terms of operating income. In the second quarter our Health Education team achieved another record performance. Together they delivered 41% of new start-- new student start growth versus the second quarter of 2008, 27% student population growth as of July 31st, versus the same period a year ago. And Health also delivered over 20% operating margins for the second consecutive quarter excluding net investments and start ups. With a strong student outcome and growing market demand, Health Education will be a key element of our future growth. Expansion in Health is an investment with high returns and we see significant opportunity to expand our presence in new locations. In doing this, we will continue to leverage existing real estate where possible.

During the second quarter we had our first student starts in two new school-- two new Health schools. Sanford-Brown Institute, San Antonio, which is a new location for us, and Gibbs, Boston, which represents the third Transitional School that is being converted to a Health school. We are targeting the opening of four to six additional Health Education schools by end the of the year for a total of six to eight new schools in 2009.

Our international institutions, in fact an institute of Marangoni delivered double-digit growth in student population, which resulted in 21% revenue growth in the second quarter excluding currency impacts. At both schools, we have invested additional space to accommodate their growing student populations.

In the Culinary Art and Design-- and Art and Design segments we are starting to see the initial benefits from changes we have implemented in curriculum, academic calendars and student payment plans. First off within Culinary. New students starts in Culinary were up 56% in the second quarter. This was the highest second quarter start in Culinary history. Due to the strong new student start performance in both the first and second quarters, as of July 31st, student population was up 6% versus the same period in 2008. This is the first year-over-year increase in student population in Culinary in almost two years. We view this as an important milestone because improving capacity utilization is critical to future margin improvement. This performance improvement is not only a credit for the strong execution by Brian Williams and his team, but it's also a strong statement on the value of the Le Cordon Bleu curriculum in the marketplace.

It's because of the strength of our team and Le Cordon Bleu brand that we made a decision to acquire the educational rights for the Le Cordon Bleu brand North America brand as announced in a separate release yesterday. Even through the challenges this business has face with a contraction in the student-- private lending market, outcomes in the Culinary business have remained strong. Culinary student retention the high. Job placement employer satisfaction remains solid. And Culinary continues to have a low-- a low default rate. However to continue to drive the business forward obtain the full brand rights to what we believe is the preeminent brand if the Culinary education space was important. Despite the challenges we face in the business we remain confident in and committed to Culinary education.

But as a Company we never fully committed to Le Cordon Bleu brand due to the uncertainty of being able to use the name in the future. Recall we've licensed the LCB name at a significant cost for approximately ten years. Late last year we exercised our unilateral right to renew the license. However in only a few years we'd be faced with the renegotiating of the license on the business, we expect will be bigger and on a brand, we would have spent our own resources to continue to build, in affect driving this value up more over time. Owning the brand and perpetuity will enable consistent branding of our schools. Today only seven of our 17 Culinary schools use Le Cordon Bleu as part of their name. For example, our Chicago schools known as the Cooking and Hospitality Institute of Chicago, while in the Phoenix area, the school is called the Scottsdale Culinary Institute.

With the assurance of being able to use the Le Cordon Bleu name we will move to more consistent school and brand nomenclature. More consistent branding will also enhance our ability to drive greater efficiency and marketing (inaudible). For instance today because of our branding and consistency, we are limited to local versus national media purchases. And of course we'll continue to maintain and grow our partnership with Le Cordon Bleu International. And through our agreement we've secured the right of first refusal should the balance of the Le Cordon Bleu assets be made available for purchase at a later time.

Turning now to Art and Design. Last quarter we mentioned that our IADT institutions, which make up about 70% of Art and Design student population, were about one quarter behind Culinary in implementing their own curriculum, academic calendar and student payment plan changes. Within IADT these changes include a curriculum realignment, which will allow for greater blended learning opportunities, an important future growth area within IADT. In addition, in the second quarter we revised the academic calendars at ten of our IADT campuses. These changes were aimed at better aligning the calendar to historical student academic progress, while also providing additional funding options for our students. Excluding the impact of calendar shifts, which added starts to the second quarter, new students starts in Art and Design were up 27% in the quarter.

Our University Institutions had another strong quarter financially. As of July 31st, total student population was 17% higher than at the same point in 2008, due to improved levels of student-- new student start and higher retention levels. New students starts were up 10% in the quarter and revenue grew 13%, while operating margins increased by nearly 600 basis points. On our last quarterly call, we discussed the sub-par new student start performance at our University Institutions in the first quarter. The poor performance was primarily caused by a breakdown in alignment and poor execution by our centralized admissions resources in the campus admission teams.

To help address this cross functional breakdown, I made the decision in the second quarter to move all the admissions resources, both the peer qualifier group and the school admissions teams, under Deb Lenart, our University SVU leader. This was intended to insure better levels of alignment and single point accountability for performance. We continue to address issues and refine our admissions operations in the second quarter. We add new admissions staff during the quarter and we're continuing to do so here in the third quarter. We launched enhanced skills and leadership training to improve both new and seasoned admissions advisor performance. And while we made progress in admissions during the quarter, it's clear that we still must improve to deliver sustainable consistent student start growth.

In Colorado Technical University, which now makes up more than 25% of our student population, we returned to double-digit student start growth in the second quarter. CTU's overall 12% new student start performance, along with improved student retention, enabled a 22% increase in student population as of July 31st. CTUs revenue increased 23% in the quarter versus 2008, leading to 500 basis point increase in operating margin. I remain confident that CTU is capable of achieving double-digit start growth in the third and fourth quarters of 2009.

AIUs performance in the second quarter continued to improve as demonstrated by it's 10% increase in student population and it's 150 basis point in margin improvement in the quarter. Several important AIU events took place during the quarter. First AIU completed the transition of it's accreditation to the higher learning commission of NCA. As I explained last quarter, this was the right long-term move for AIU. However in the short room-- excuse me, in the short run, AIU will continue to be constrained in introducing new programs until early 2010. In June, Steve Tober was appointed CEO of AIU. Steve joined AIU as Chief Operating Officer in October o f2008 and has both the strategic and leadership skills necessary to improve AIUs performance.

AIU also has made progress in addressing deficiencies in admissions-- in it's admission operations during the quarter. The school made progress in hiring new admission reps, however it's become clear that AIU-- at AIU even more training is necessary to improve the effectiveness of the entire AIU admissions organization, and that training is underway. And where necessary, Steve and team will continue to make leadership changes to improve results. AIU's results and new student starts, while improved, remain below our expectations. I anticipate continued choppy results for the balance of the year as Steve and his team continued to develop the organization for better results.

Before I close I want to take a moment to mention the frequently discussed vital role our industry plays in the overall economy, especially in light of fact that the new administration has highlighted the importance of post secondary education. I'm proud that CEC institutions have the wherewithal and the flexibility to identify workforce needs, develop innovative market-driven programs and fund new career-focused schools to help bridge education gaps and make our country and our students more competitive. Our industry continues to face the challenges -- excuse me, continues to face challenges in the form of new student financing, 9010 and a new three year (inaudible) default rate provision in the higher education opportunity act. I'll continue to work with others in our industry and with members of Congress and the Administration to address the President's challenge and do what's best for our students and for our schools. With that said, I'll turn the call over now to Mike who will provide detail on the financial results for the second quarter.

Thanks, Gary. Let me begin by providing further financial details on the second quarter results and on our Le Cordon Bleu transaction and then spend some time commenting on our cash flow and share repurchase program. As you review our results for the second quarter, let me again remind you that there are a number of one time items impacting year-over-year comparability for the second quarter, which are detailed in the table within last night's press release and exhibits and are available on our Web site careered.com under Investor Relations tab. For the second quarter of 2009 operating income included Transitional School operating losses of $28.1 million or $0.21 per share which included a $20 million pretax charge or $0.15 per share associated with two vacated facilities. As we previously mentioned, we would take advantage of opportunity [specs] in real estate before the end of the lease term in cases where we found the right economics. In one of these facilities we exited over $40 million in lease obligations for a $13 million cash settlement.

Also this year included in corporate and other in the second quarter, our pretax severance charges of $1.5 million or $0.01 per share. In the Q2 of 2008, there were Transitional operating losses of $6.1 million or $0.04 per share, and pretax severance charges of $1 million or $0.01 per share, those are within the operating segments. Unless otherwise noted in my discussion of our earnings and results during the remainder of this call, we'll exclude these items.

Now the second quarter results. As Gray said revenue increased by 9% and operating income was $40.7 million in the second quarter, up 70%. EPS was $0.29 in the second quarter, up 52% versus $0.19 in the second quarter of last year. Our operating income through the first six months of this year is $93.3 million, a 39% growth over the last six months of -- the first six months of 2008. Our operating margins through last six months 10.8%, which represent as 270 basis point improvement in operating margin over the same period 2008.

For the University segment, second quarter revenue was $198.3 million, 13% higher than last year. Operating income was $42.8 million, 56% higher than last year's second quarter. And operating margin was 21.6% in the quarter up 590 basis points from last year's second quarter.

Revenue for AIU was $104.2 million, up 7% from the second quarter of 2008, reflecting the 11% increase in student population. AIUs operating profit in the quarter $25.1 million as compared to $17.2 million in last year's second quarter. Operating margins increased 650 basis points to 24.1% versus 17.6% last year.

Our revenue for CTU was $87.1 million, up 23% from last year's second quarter behind a 22% increase in student population. CTU operating profit was $18.8 million in the quarter, up 64.5% from last year. And operating margin 21.6%, up 540 basis points from last year.

Culinary Arts continued it's improvement trend with increases in new student starts and in student population. The new student starts were up 56% and student population was up 6% against last year. Second quarter 2009 revenue for our Culinary Arts segment was $74.2 million, down 4.7% from the second quarter of 2008 reflecting lower revenue per student associated with the mix shift towards the 21-month program. Culinary Arts operating loss was $1.5 million, as compared to an operating profit of $400,000 in the second quarter of last year. As disclosed in our Form 10-Q, the Culinary bad debt expense increased to 9.2% in the second quarter from 4.7% in last year's second quarter. This increase was driven by the higher usage of our internal payment plans by students in the 15-month program, which currently account for the majority of the core Culinary student population. As we move forward, our goal to is transition more of the population to the 21-month program, which lowers the reliance on our internal payment plan.

Let me provide you a few more details on the purchase of the Le Cordon Bleu brand rights. The total consideration for the transaction is estimated to be approximately $135 million and it consists of $25 million of cash and 3 million shares of our common stock due at closing, which we anticipate to happen before the end of the third quarter. And an earn out payment equals the 6% of Culinary Arts qualifying revenues over the next 30 months. From a balance sheet perspective, this $135 million purchase price will be recorded as an intangible asset. So from an ongoing income statement perspective by owning the brands rights we will no longer subject to the annual royalty fee, which will result in additional savings of $15 million to $20 million, which is incremental to the 2010 milestones that Gary previously referenced of $225 million to $270 million.

As Gary said, Health Education had another strong quarter with second quarter 2009 revenue for the segment at $73.4 million, up to 27% from second quarter 2008, driven by a 20%-- 7% increase in student population and a 41% increase in new student starts. Operating income was $13.5 million in the quarter as compared to $3.6 million in operating income in the second quarter of 2008. Operating margins were 18.4% in the second quarter which include approximately $1.6 million in operating losses associated with our start ups. Excluding start ups, Health operating margins were 20.6% in the second quarter. As we look forward we expect operating losses associated with the new Health start ups to be about $5 million in the third quarter of 2009 and $10 million in the fourth quarter.

Art and Design revenue $64.1 million in the second quarter with operating income of $6 million. As we noted last quarter the IADT calendar alignment would result in additional start dates in this second quarter. We estimate that the impact of the shift was approximately 1000 additional new student starts contributing approximately $3 million in additional revenue and $2 million in additional operating income. As we look forward the third quarter will have approximately 250 fewer starts and the fourth quarter will have approximately 750 fewer new student starts as a result of the calendar shift. Excluding these shifts, Art and Design revenue was down 4% in the quarter and operating income was $4 million, 11% lower than last year's second quarter.

For the second quarter of 2009, our International segments revenue was $26.3 million, up 6% for the second quarter last year, but importantly up 21% in local currencies reflecting higher student population. International's operating income was $3.1 million in the second quarter versus $3.2 million in last year's second quarter, with the current year results including unfavorable foreign exchange impact of approximately $2.1 million. Finally corporate costs were $23.1 million in the second quarter, up from $15.2 million in the second quarter of last year. The increase was primarily related to adjustments and estimates for our share-based compensation programs and for other annual performance-based compensation, those adjustments totaling $5.6 million, the majority of which we do no not expect to recur during the second half of 2009,. So we believe corporate expense going forward should revert back closer to levels of the first quarter of 2009.

Now let me update you on our internal student payment plans. The total balances outstanding on our internal student payment programs as of June 30th, 2009 were approximately $31 million as compared to $24 million at the end of the first quarter. Overall, we continue to have strong processes for addressing student payment programs and these balances remain very manageable relative to the free cash flow of the Company. Bad debt expense as a percentage of revenue was 3.4%, up 100 basis points from last year's second quarter reflecting the higher use of internal student payment plans in Culinary and Art and Design. The majority of which are reserved at our 48% bad debt rate which we've discussed in previous quarters. As I mentioned earlier in my remarks, we expect to mitigate the increase in bad debt expense over time as we transition more students to the 21-month Culinary program.

Our overall student receivable collection efforts remains strong with our annualized DSO at 14 days up slightly from 13 days a year ago. Our operating cash flow remains very strong while funding student payment plans the operating losses experienced in our Transitional schools and the cash portion of charges associated with the real estate rationalization. For the six months ended June 30th, 2009 our operating cash flow was $51.7 million. And remember this includes the $13 million in cash paid for the exited real estate I mentioned earlier. Our capital expenditures were $30.1 million or 3.4% of revenue. We continue to anticipate capital expenditures closer to the 4% level of revenue, as we move through the year as we invest in the start up schools. Free cash flow, defined as cash flow from operations less CapEx, was $21.6 million for the second quarter of 2009.

Turning to our share repurchase program, during the second quarter of 2009 the Company repurchased 4.8 million shares for approximately $100 million at an average price of $20.69 per share. As you recall, during the last nine months of 2008 and early in 2009 we did not repurchase our shares due to the change in control provisions. As the Company resolved that issue late in the first quarter of 2009, we entered the second quarter intending to purchase shares at a higher level in essence to catch up. When the owners of Le Cordon Bleu required shares as part of the deal, we viewed the recently acquired shares as nearly equivalent to cash and committed to the proposed deal. On a net basis, after the issuance of shares at closing, we will have the affect of reducing outstanding shares by 1.8 million. As a reminder, the Company has returned almost $750 million to shareholders through the repurchase program since 2005. And with yesterday's announcement that our Board of Directors authorized the use of an additional $200 million to repurchase shares, our total availability has increased to $255.5 million.

Let me close with an update on Transitional schools. As of now we anticipate all but one of the remaining schools will complete their teach outs in 2009. We anticipate the remaining charges to be approximately $55 million to $65 million, weighted towards the fourth quarter of the year. With that, we would like to open up the call for your questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) The first question comes from [Chris Shuttler] from William Blair & Company. Please go ahead.

Hi, guys, good morning.

Good morning, Chris.

In the Health and Culinary segment just wondering if you guys can provide us with some sense of same-store growth there? Or maybe what kind of contribution the new schools are having to your growth?

We haven't broke out that detail in the past. For Culinary, it's primarily growth within the core schools that we've had. We've had openings this year of Le Cordon Bleu St. Louis and last year of Le Cordon Bleu Boston. So of the 17 schools in the Culinary group only two are new, so the bulk of the growth relates to existing schools. For Health again we have over 27 schools in Health and so the Transitional schools gives Boston just opening and the two schools in [Melvo] and Vienna which were converted last year, which were converted in the second quarter, pretty much comp off of last year's number. So most of the growth that you're seeing in Health is organic.

Okay, great. And I guess moving on to the University segment a couple of questions there. On the advertising expense, it sounded like after reading through the 10-Q, that a lot of the incremental add dollars in the quarter were spent in University. So just wondering if you can give us a little bit of more color there terms of how much is being spent on legion and how much is being spent on branding these days?

Sure. This is Gary talking. We've had the other conversations in the past where we indicated that the vast majority of our spending was on lead generation, primarily through leading aggregators. We're at a period in our history where we look at that and we realize that it's not been as affective as it has-- as it once was at one point in time. And so we are making a pivot from almost a sole reliance towards advertising and marketing spending with lead aggregators to brand building types of activities and search engine optimization types of activities as well. And so we're in that pivot, we did spend incrementally, we expect to spend incrementally in those areas as we prove them out and become better as it. And as that happens, we expect that advertising spending will return to a more normal level. But at this point, we are making that pivot as we're seeking to learn and become more effective in our marketing spend.

And I wouldn't draw the conclusion that the advertising spend was all University. I think given the start in Culinary at 56%, given the start in Health at 41%, we obviously invested behind those businesses to drive those greater results. So we did have incremental spending in most of the SVUs on a year-over-year basis, but the bulk of the spending historically has been in University so you have the increase in University.

Okay. Then finally on the enrollment counts or training efforts that you talked about that are underway at AIU, maybe you can just give us a little bit more color there, what types of things are you looking at that could be improved? What kind of opportunities do you see?

Sure. With AIU in particular, we have gone through quite a challenging period as you know with AIU being on probation coming through that period. And what we see culturally that has emerged overtime is an organization that focus very well and is very good at providing service and providing counseling to potential new students. In some cases we don't find that our admissions advisors actually know how to get those potential new students to enroll. And as part of their jobs that's something we expect them to do. So we're working with them to enhance their ability to, for lack of a better term, close when they've got a potential student online, and so that's what we're working. So we've engaged both internal and external resources to provide more coaching and training so we can find a better balance between both our counseling capability and our enrollment capability.

Okay. And you're comfortable with the head count numbers right now?

I am comfortable that we have made progress on this front. We continue to add new enrollment counselors, so I'm comfortable we've made progress. But I believe we will continue to add new enrollment counselors as we move forward.

Okay, thanks, guys.

Welcome.

The next question comes from Jerry Herman from Stifel Nicolaus. Please go ahead.

Thanks, good morning, everybody.

Good morning, Jerry.

Big picture question and first here, Gary can you guys talk about how you will or when you will update or confirm the 2010 goal that you talked about in your investor day?

Sure. As I said we laid out goals in early 2008 and we are committed to delivering the goal that we laid out. We-- Mike and I have talked about this, it's our intention that early next year, which will be about two years after we initially laid those out, we'll pull together and get another analyst and investor day and help you understand where we are and where we're going.

Okay, great thanks. And Mike I'm wondering if you could maybe talk a little bit about Culinary and profitability there? Obviously excluding the absence of the royalty payment that'll help you out, but given the volume trends has Culinary turned the corner? And maybe some additional color on your expectations there.

Yes, I think, excuse me, I think Culinary is doing a good job and has turned a corner. I think we're looking that-- start looking towards the fourth quarter you'll start seeing some low-single-digit, mid-single-digit operating margin from Culinary plus the increase of 5% or 6% for the royalty. And remember the 6% is only on qualifying Culinary revenue, so it's not on all revenue, housing and interest income, things like that aren't included. So we should be approaching, with the adjustment, at least a 10% margin as we exit the year. Given the strong enrollment trends it'll still take some time to move to the 21-month student, which is our intention to lengthen out the program. And we'll continue to have this high bad debt charge at 48% until we get more evidence of the collection results after the students graduate. Remember the first cohort on a 15-month program, that started on our program maybe last year in the second quarter won't graduate out until later in the year. So we don't have a lot of evidence on the payments, it will be a while there.

I think the operating leverage is good. I think the business, exclusive of the bad debt, the fixed cost of the business and the variable cost of the business are well controlled. And we'll see as the revenue comes in that will continue to gain the leverage. That said, given the amount of loans, given the amount of real estate we have, we are very bullish on the business, that's why we bought the brand rights. We have to be cautious, it'll take us a little more time to work through the 15-21 month shift.

Great, and then just one final hopefully easy question. D&A, the depreciation and amortization numbers through the first half of the year, it's roughly $34 million, that should be representative of the full year on an sort of annualized basis? And the follow-up question is what about next year? Can you give us any color whatsoever on D&A for next year?

The D&A is pretty much straight forward. We're continuing to spend CapEx at traditional levels. The start up investments we make in the fourth quarter and third quarter will not amortize that heavily obviously. And so you will have the CapEx for next year. It's hard to guide next year in terms of depreciation and amortization right now, I hate to do that because we don't give the guidance so I'd rather hold back on that until we get towards those 2010 investor meeting to give you some more clarity.

Okay, great. Thanks guys.

Thank you.

The next question comes from Amy Junker from Robert W. Baird. Please go ahead.

Hi, thanks. Gary given AIU has one of the largest schools enrolling students with GI Bill benefits, can you talk a little bit about your expectations for growth from that demographic following the new GI Bill launch on August 1? And following up on that have you seen any more interest from Veterans given the increased benefits there?

I-- first of all I would say that both AIU and CTU benefit from having a large percentage of their new students and students that are military veterans and we feel great about that and we continue to drive that program. We have participated-- we've announced we're participating in the yellow ribbon programs are out, we'll fully do that. I can't say today that we've seen a remarkable increase based upon our participation, we thought it was the right thing to do. We'll continue to track, but it hasn't really impacted the percentage of students that enroll.

Great, thanks that's helpful. And then just one comment on the Health business. Can you just help us maybe understand kind of expectations going forward, obviously very strong and you've got the start ups, just maybe directionally how we should be thinking about it for the remainder of this year into 2010?

Sure, I'll take this one. When we look at-- first of all we're obviously pleased with what we are seeing. And we've seen significant growth in the business. It's clear that in some parts of our business we are approaching the limit of the capacity of our schools. And that really is based upon, not just physical capacity, but our ability to make sure that those students who enroll have the opportunity to find job opportunities in the markets that we are serving. And so where that's the case, we'll continue to operate at or about our capacity in those programs. We'll continue to work to add new programs that are higher end programs in those areas as well.

In some markets we see the capacity to add additional schools, so in some places we have a single school, we'll add additional schools, we'll take advantage of those opportunities. But candidly as we go forward we think there's just more geographic scale that we can gain in the business. Most of your business is east of the Mississippi, that-- we've got a couple of schools that are west. But as we look at a map, we think there is more geographic expansion, so we've identified going forward a number of markets that we'll continue to organically grow into. And if the opportunity presents itself, and there's the right asset, we would consider making an acquisition in those areas.

Great, it's helpful. Thank you.

The next question comes from Gary Bisbee from Barclays Capital. Please go ahead.

Hi, guys nice job on the quarter.

Thank you, Gary.

I guess if I could just ask first question on margins, obviously Healthcare continues to be terrific and University, and I guess the online piece in particular, also really strong. For each of those how should we think about the ability to get further leverage going forward? I guess a question on each. In Healthcare you said $5 million and $10 million of costs from the start ups in the next two quarters. Is it safe to assume than that there was less than $5 million, maybe a couple of million in this quarter? And as it relates to online, how much more staffing of reps are you going to need given that you've-- you had the hire some more people, I was surprised the margin went up so much this quarter. And just any-- can you give us any sense how that could trend in the back half? Thanks.

Sure, I think on the first question about Health, we did signal last quarter that we thought that the Healthcare losses for the start up would be in a range of $15 million to $20 million, and now we're saying $15 million. So it was no more than $5 million in the quarter, and I think your estimate of couple million dollars is directionally correct. I think from a, from a rev stand point, from a margin stand point, I think what you're seeing in our business is some very good cost discipline and some very good work by our Company. If you look at our educational services and facilities line, taking out Transitional, we grew our educational cost, or academic and occupancy costs, by 0%.

If you look at our-- at G&A cost exclusive of depreciation, if you look at advertising, which we talked about the-- you see the increase there in bad debt which is variable, we kept the remainder of the cost, when you back out that one time item for the corporate side, almost flat. So we're seeing a dramatic improvement in operating leverage from the fruits of the labor, the turn around efforts over the last couple year of cost controls and we're getting the benefit of that. From the rev standpoint, I think you will see some margin pressure on AIU as we continue to add reps, as we continue to make sure that we spend money on the media mix bask towards non-lead aggregator sources, and we have a desire to ramp up the rev scene higher than we have. So I would imagine you'll see some pressure going forward on margins for AIU based on the spending levels.

And then on-- just to follow up on the cost commentary you just gave, aside from lower losses obviously Transitional schools over the next year, are there further cost levers to pull or has an awful lot of what's happened of the opportunity already been realized?

I would say we've gotten a lot of opportunity out this business. As you know our cost per start was around $5500, two years ago, down near $4000 now. We still have opportunities, we have brought in some people that are very talented on a procurement effort a centralized purchasing effort to gain more synergies, our benefits plans have been consolidated, there's still more room there. Our occupancy, we talked about excess real estate and the opportunity that we have as real estate rolls off to get to smaller spaces, makes a lot of sense for us. There's still businesses within the portfolio that don't perform as well as others that we're putting our turn around working to. You saw what we did with the Culinary business, right after that we did a lot of good work with our team on the Art and Design business, now we're putting our efforts towards our colleges business. Our college business for schools in the Art and Design business and we also barrack within the University. We'll keep working on underperforming business and institutions to them participate in the growth we see. So I wouldn't say it's done, but I would say we did harvest a lot of the gains that were in front of us.

Okay, and can you give us any more specific sense over what time period we might see sort of the majority of Culinary students transition from 15 to 21. The reason I ask is revenue per student really wasn't down very much in the quarter. I'd expect it would be quite a bit more as that transition happens. Is that going to take place over the next year or more quickly?

Probably year because remember we only initiated in January and to date right now there's still four schools of the 17 that are not approved for the 21-month program, so we're still moving schools in. You've probably-- right now we probably have somewhere in the range of 15% to 20% of our students on the 21-month program because the bulk of the students and the bulk of the revenue continues to be the carry forward the 21-- the 15-month existing students in the program. So I think you're going to see that for at least a year as we transition out. We're allowing students into 15-months and we're allowing students in the 21-month depending on their level of pace in the program and their ability to succeed. So part of it is in the hand of the student and their selection versus what we may try to drive them towards.

And then just last question on the Le Cordon Bleu transaction I appreciate the strategic rationale, and obviously it'll be immediately creative to the P&L, but how do you think about it from IRR perspective? Is there a hurdle rate that you're targeting in something like this? And can you tell us what it is, and if you think this transaction hits it? Thanks a lot.

We like the internal rate of return. I think-- we looked at it from both standpoints. I think-- I don't want to go through the points that Gary gave you on the strategic ones, but those are strong strategic points including the opportunity if the seller ever wants to move out of the international business for us to expand this success worldwide and build off the franchise that [under control] has built. If you look at the rate of returns, obviously we use our own weighted average cost of capital. The way to look at it a little bit is for the next 30 months for two-and-a-half years we're paying almost the same thing we'd be paying. And so the use of cash and common stock at call it roughly $80 million or $85 million something like that, gets us the additional two or two-and-a-half years, which at $20 million a year is a good pay back, it gives us perpetuity, and so you discount that back and it gets us all the other strategic options. So it is-- is it MPV positive, definitely. On our hurdle rates, is it a really important deal for us and it gives us a lot more optionality with that business in terms of growing it rather than investing in a brand that we were renting.

Thank you.

The next question comes from Andrew Fones from UBS. Please go ahead.

Yes, thank you. Only to ask a question about the leverage particularly kind of looking at advertising spend and thinking about the things driving your G&A over the next couple of quarters. I guess last year you were pulling costs out, so I'm just wondering what the normal seasonality is for G&A, how we should think about your marketing effort ahead of what is typically the big enrollment quarter in Q4? Thanks.

We'll try to answer that a little bit, maybe it's easier if you give call to John Springer to get some more details. But our advertising from the seasonal basis we typically have had some fourth quarter reductions in advertising on a year-- on a quarter-over-quarter pacing basis. Based on the trends in the business and the investment we've made, we probably will not see that in the fourth quarter this year, we'll continue to spend and invest in the businesses. For the most part the remainder of the P&L is not seasonal. You do have to make sure that as you model you remember our international businesses are dark for the third quarter, the students are not in session in July and August, and so that affects the seasonality and it'll bring some losses to the third quarter. But in terms of pacing, other spend, encourage you to give John a call and we can go through some more of your models with you.

Okay, thanks. And then in terms of the buy back, obviously you've got the reauthorization there. Just wondering whether we should view how aggressive you were during the second quarter as a sense of how you might be viewing your current stock price or whether it was mindful of the fact that Le Cordon Bleu was coming along and you just wanted to kind of bind the stock ahead of that?

No, we did not buy the stock in front of Le Cordon Bleu transactions. I said it was a catch-up. We've been out of the marketplace last year and we decided as a Company to be more aggressive. We believe fully in those 2010 milestones and we believe the stock price over time will reflect the underlying trends of the business and will reflect those milestone as we get closer. As Gary said, we've delivered in the last four quarters $171 million off of the business with the low side of $225 million on that milestone. So we feel very comfortable we're going to make. So obviously as we buy back shares, we believe it's a good investment for our shareholders to do that. Exclusive of the shares that we provided to Le Cordon Bleu we probably purchased around $40 million of shares in the first quarter and net of the shares to be issued somewhere around $40 million in the second quarter. We continue to be interested in buying back the shares and we have the additional authorization to do so.

Thank you.

(Operator Instructions) The next question comes from Trace Urdan from Signal Hill. Please go ahead.

Thanks. I wonder if I could start by just following up on Gary's question about Cordon Bleu and ask, it sounded like the license-- the rights that you purchased are focused exclusively on offering education programs in the US, is it conceivable that someone could license the Cordon Bleu name and other capacities, products or branded merchandise, something like that?

Yes, we did buy in the education space for the US and Canada, which is consistent with what we have had for the past ten years. Andre Cointreau and his team continue to retain the rights to do other types of things. Frankly our business is the education space that's what we're focused on, and-- but you're right in that Andre and his team could continue to do things other than the education space.

And as far as-- Gary is his organization healthy from a financial stand point? Is there any reason to believe that he might be exiting the business at some point in the future or want to go ahead and monetize the brand more aggressively than he has in the past?

There is no reason to believe that they are anything but financially healthy. We, we-- in case they choose to get out of the business we have secured the right of first refusal on a go forward basis and so we feel great about that. We'd love to consolidate everything on a global basis at some point in the future. Andre, and my dealings with him, has proven to be very very mindful of the brand and not over extended the brand or doing something that could denigrate the brand. And so from every conversation that we have had with him, and all of my interactions with him, there's no reason for me to believe that he will doing anything but treat the brand with kid gloves, as they've always done.

And that's an-- and that's also an important part of the earn out payment, that over-- as partners with Andre over the next 30 months, we're all aligned to continue to grow our business and the brand in the right way.

Okay. Could you guys comment perhaps quantitatively on placement and what you're seeing with respect to placement in your various segments? And I'm interested particularly with respect to Culinary and how you think about sort of growth versus the placement rates in the markets you operate there?

Sure. First of all I'd say from a macro point of view, we haven't seen any significant declines in our placement rates and so we feel good about that. We're very mindful, one of the things that I am considered about and I know that we are concerned about in the industry, given what's happening broadly is our ability to continue to place students. But we have not seen, up til now, a significant integration in our ability to place students. With regard the Culinary, there's couple of things that we see are, first of all looking forward we've done a lot of work around what we should expect in the industry going forward. And this continues to be a space that is expected to grow and have terrific job opportunities going forward. We have continued to place students with the companies that we have relationships with at a pretty steady rate. So we've not seen a drop off in our Culinary placements either.

And again, quarter-over-quarter this year we've got an 8% increase in our total career services team and a 10% increase in our career services team within Culinary itself.

Okay and then just one housekeeping question, Mike the $20 million real estate write-off in the quarter was that-- does that fall in the educational services line, where do we see that?

Yes, it's in occupancy within the educational services line.

Okay so the 55 to 60 you're thinking of for the fourth quarter would be in the same place, presumably?

Yes.

Okay, thank you.

Thank you.

The next question comes from Sara Gubins from Banc of America. Please go ahead.

Hi, thank you. Could you talk about the cost associated with (inaudible) new programs in AIU and just the timing of when you might expect to incur those?

Just could-- you broke up a little bit Sara, could you repeat that for us?

Oh, I'm sorry. I'm just wondering about the cost associated with rolling out new programs in AIU, you mentioned that you'd be seeking to do that in early 2010.

Yes, let me just talk about what's going on with AIU. AIU has prepared a menu of new programs they would like to introduce. There are two governing bodies as it were that need to be dealt with in rolling out new programs. The first is obviously the Higher Learning Commission, which is a new accreditor. The Higher Learning Commission has guided our teams to not flood them with new programs but to do it in a way where there is pacing so they can take them, they can make sure that the relationship itself is on the right foot and move them forward. And so we have begun to-- the work with HLC to approve those new programs.

The other one is the State of Illinois, the Illinois Higher Education Board. And that frankly is turning out to be a bit of a challenge in Illinois, they are not staffed to levels that they would want to be staffed. We are working with the state to move through the new programs that we're submitting. But they have indicated to us that they will get to them as fast as they can. But we've got to work through both those governing bodies. In terms of cost, Mike will talk to you about that.

There's no real incremental cost of programs. We have a full team internally that develops programs for us and they've been developing programs. A lot of the programs that we develop are new but also we have transplants across different ground campuses, online to ground, ground to online. And the marketing costs related to new program launches and advertising and awareness for students is not material compared to the overall operating cost to value.

Okay, great. And then can you give us an update on employee turnover trends?

They continue to be very strong. We've had-- from a rep standpoint, we continue to decline. We've had over 1000 basis point improvement year-over-year in rep turnover. And from a Company standpoint, we've had about a 1300 basis point improvement year-over-year on turnover. So we've done great work, our HR team, Gary's leadership, everything else, we've done a great job retaining our key employees within the Company.

The only thing I would add to that is one of the things that we did last year was we added employee turnover and reduction in employee turnover to our incremental compensation program. So at every school and at every one of our functional areas, folks who are part of our executive compensation programs, have a part of their compensation tied to the reduction of employee turnover.

And do you think there's much more room for improvement there or are you now kind of at industry norms?

I think there's room for improvement.

Okay. And then last question, I'm just wondering about your acquisition, your appetite for acquisitions. You mentioned, I think in your comments earlier, that you might be interested in looking at some acquisitions in Healthcare, I'm wondering if there are other areas that you're actively looking at?

Yes, I don't want to make this into a bigger, a bigger comment than it was intended to be. As we look at-- my comment was related to Healthcare, as we look at ways to grow that business there certainly we see geographic expansion as a way to do that and we've identified quite a number of potentially robust markets that stretch out to California from east to west. And so we'll continue to do that. What we have recognized is that there are potentially quality assets that are out there in various places and so we would not rule that out as a way to grow the Healthcare business. In general our focus continues to be on driving our core businesses forward, because we don't think at this point in time we're still operating at a level that we can be satisfied with.

Makes sense, thank you.

Thank you.

The next question comes from Jeff Milber from BMO Capital Markets. Please go ahead.

Thanks, it's Jeff Silber. I know it's late, just some quick numbers questions. I know I'm looking at apples and oranges here, but when I look at Culinary Arts and you have the huge growth in starts and just the small growth in population was it a big graduating class, is it a timing difference? If you could just help walk me through that, that'd be great.

I think you have timing issues that you've got the start in May, middle of May, so you don't have a full quarter. You do have the revenue shift from 21 months to 15. You have the use of granting programs. We talked in the past about part of our strategy is to give some grants to students, which will hurt the RPS a bit. So all that weighs in on it. I think you'll see the revenue increase as we go forward. But it's not necessarily a large graduating classes but it's more the timing of the start and also the price per student.

I'm sorry I was actually comparing population growth and start growth not revenue growth.

Yes. I'm thinking you do have seasonal issues that this is one of the biggest starts for Culinary, or it's one of the smallest starts for Culinary because you have the high school programs that come through in July and September.

All right, I can follow up online. Just in terms of any other calendar issues going forward, you mentioned in terms of are the Art and Design vertical, anything else we need to be aware of over the next couple of quarters for comparative purposes?

The only thing that we see is we-- we're looking at the timing of some of our international masters programs and start dates that may straddle October 1st. So you may see some starts from international shifting Q3 to Q4, obviously a small part of our business but important. But we may see some noise there that we'll give you more color on next quarter.

Okay, great. You mentioned something in your prepared remarks on the Le Cordon Bleu transaction, about 1.8 million share reduction. What was that exactly?

It-- we bought that 4.8 million shares in the quarter and we're going to grant 3 million to Andre as part of the transaction. So the net decrease in outstanding after close will be 1.8 million shares.

Got it, okay. And then in terms of the share counts you use for next quarter, if you can help us in terms of when you made the repurchase in the second quarter so we can model share count for the third quarter?

Sure the share count is exactly laid out in the 10-Q, so you'll see the dates are given by month and the number of shares bought in the 10-Q.

Sorry, I missed that, I'll take a look at it. Thanks so much.

Sure.

Thank you, Jeff.

The next question comes from Kelly Flynn from Credit Suisse. Please go ahead.

Thanks. My initial questions relate to your internal lending program. Can you tell us how much of it's Culinary and basically break down what other schools are included, students are included in that and kind of a percentage on each, if possible?

Well, I would say this, we have lending programs that go-- student payment programs go across all of our businesses. So in the University business, in Health, all the businesses we do provide student extended payment plans, in-school payment plans for all students. Given the GAAP between the businesses, the vast majority of our financing on our balance sheet relates to Culinary. Art and Design, we rolled out the program about a quarter late and we put new programs into place here at the beginning of the second quarter which helped the start growth. And so the bulk of the, the bulk of the lending that we have on the balance sheet right now is Culinary. We haven't broken out mix between businesses. But given the dollar value of what we lend on a GAAP basis, Stafford and Pell, you can say that almost all of it's Culinary.

Okay, great. And then following up on that, can you update us on what you're seeing with private loan availability and your students overall reliance on private loans as a percentage of sales, if you will? And then, in light of that answer, how should we think about how your internal lending program will grow or shrink going forward? Thanks.

Sure. If you-- in the 10-K we give you break out of cash receipts by funding source. This year in the quarter about 2.5% of our students financing was from third party lenders, so that's the residual after Sallie Mae and the other lenders have left the marketplace. We continue to have private lenders in the market and we think that that level will continue. We've seen some new interest in lenders, but everyone's very cautious at this point in time. We continue to think it's in our best interest if we pair up our lending with student success factors that we've done in Culinary and Art-- now Art and Design that continue to lend. The balance at the end of this quarter was $31 million, I think you can see that balance grow by another $30 million to $50 million by the end of this year.

Okay, great. And then changing gears, Gary you mentioned that you thought University trends would be choppy for the rest of the year, can you give us any more color on what you mean by choppy?

Yes, I am-- what I meant to add specifically with regard to AIU, when I look at the challenges against some of the cultural challenges that Deb Lenart and Stephen Tober are facing there, some of the things that we've learned to make that admissions organization a more competitive organization, I expect that AIU will continue to be choppy. I'm very satisfied with what I'm seeing at CTU. CTU even most recently has turned in some of its finest days and weekends ever. And so I feel good about them being on track. But I don't, at this point in time, have the same level of confidence in AIUs ability to do it day in and day out.

Okay, but do you have any specific cautionary remarks on enrollment trends, I mean anything that would help us out with modeling? Don't want to get ahead of ourselves here on the model. As far as are you saying you expect deceleration or you're just saying you don't really know?

Honestly I'd be hesitant to guide you in any specific way. I think that ultimately I just don't think that they'll be as consistent as we want them to be, and that's what I was trying to tell you.

Okay, got it. And then finally on bad debt, you gave us nice detail on a few segments, but can you talk about just generally outside of Culinary, what's going on there? I mean some other companies are saying just dropouts are not as likely to pay and that's impacting-- how-- what else is going on there besides Culinary rising?

If you-- we give the detail in the 10-Q, if you look the University bad debt has remained basically flat. Students have gained additional Stafford and are in a good shape there. Our Health business, the trend is much reduced again additional Stafford additional Pell, students getting placed, making their payments. Art and Design is up and Culinary is up. If you also look at the 10-Q where we talk about write-offs versus charge-- versus expense you can see that the amount of write-off that we took in the quarter is not materially different than what we've had historically. So we're not seeing a great deal of default trend accelerating at this time. I think placements are good and students are making their payments under their plans, so I think we haven't seen material decays in our numbers. Our bad debt has gone up mostly because just of our shift in usage and the high bad debt rates that we're assigning to the program until we have clarity of payment.

Okay, thank you very much for all that.

Thank you.

The next question comes from Corey Greendale from First Analysis. Please go ahead.

Hi, good morning.

Morning, Corey.

I had a couple of brand questions. On AIU, Gary I hear what you're saying about the internal challenges but obviously the brand has been through a lot in terms of the probation. What gives you the comfort that these are all internal issues that you can resolve and not some broader issue with the brand that's going to be tougher to resolve?

Sure, Corey, this is a question I think that I was asked the very first time I spoke with investors and analysts. The reality is this, AIU has weathered a pretty significant storm. And even in the midst of that storm, when we were being sold against by other competitors in the market place, when it was unclear whether AIU would move through probation in a satisfactory way, we were enrolling new students. So I think certainly that the last couple of years have impaired AIU, we're working through that and if AIU continues to put distance between the issues that it faced and it's current place in the marketplace-- we know a number of things about AIU. First of all, interest remains high in AIU. We have a significant number of leads, we have not been as good at converting them as we would like to be in converting them. But lead volume remains strong, interest remains strong. We have not done as a good job at articulating what AIU is in the marketplace as we will going forward, we're working on that currently and have been for awhile.

But AIU continues to have strong interest, continues to enroll new students at an increasing pace. And we've got to continue to put distance between AIU and where it's been. The other thing we know is that AIU students, when they enroll based upon their experience with what has been a recognized online platform now in the industry are very, very satisfied with their experience with AIU, the challenge of the work and what they get out of it. What we haven't done is harness the energy of those graduates we have out there to help them-- to help them help us enroll new students based upon their good experience. So all those things are things that we just haven't been good at and will continue to improve on.

Okay. And my other question was about the Le Cordon Bleu branding. Is the plan to discard the other brands like [Sheik] and California Culinary or go with some combination of Le Cordon BLeu, or is it still in the works with what you're going to do there?

Discard is a pretty harsh word, but we do intend to move toward a more uniform branding using Le Cordon Bleu as part of that name. And again when I go to campuses, when we deal with potential students in the marketplace, they understand the value of the Le Cordon Bleu programs, you'll talk to those students or potential students, you'll ask them why they came or why they're interested, they'll speak to Le Cordon Bleu. So we will utilize what we recognize as a strong asset. We've done a lot of testing with regard to the value of the name and what it brings. And off the charts is the mostly regarded well known name that we have in our portfolio and that exists in the industry. And so we will use it, you-- over the next 12 months or so you will see the names of our schools change as we get those approved state-by-state.

If I could throw in just one more quick one. On the Culinary are students actually, if I'm reading between the lines there, are students actually not selecting the longer program as frequently as you had expected them to? And if that's true, are you going to try to actively shift them or will you still let students kind of select which one they prefer, and if they may end up preferring the 15-month program to a large degree?

We'll always let them select. And it's also-- it's complicated because you need to lay in the course load and the sequencing in a morning, afternoon or evening course. So you also need to have a certain amount of, call it critical mass of students, in a program to start the program in the 21-month. So that's part of the delay. We allow them to select in either way. If a student does have financial need obviously the 21-month program they have more eligibility for Stafford and Pell grants in terms of timing, the financial gap to them is a little bit less, so we do encourage those students that have a higher financial need to try to look harder at the 21-month program. But we allow them right now towards either program, but we're encouraging, because of student success, more students to go to 21-months.

Thank you very much.

Thank you.

The next question comes from Arvin Bhatia from Sterne Agee. Please go ahead.

Thank you and congrats on the quarter.

Thank you.

Couple of questions, first one is I wanted to take the acquisition question a little bit further just in terms of the multiples, from what we hear there is more activity going on in the private side and I wonder if you are seeing more of that? And what you are seeing on acquisition multiples? That's my first question and then I have a follow up.

I mean acquisition wise, obviously as one of the largest and best capitalized Companies in the industry, we do get a lot of interest from relative sellers about their businesses. We have seen a lot of flow lately and we're very very disciplined in what we look at, as Gary said. We always look, we always think about it, but we're very very disciplined in terms of our model. And that said multiples, I can't comment on multiples until the transactions actually close. So you have the public company multiples that are out there. Until we see some of these potential private deals or private sellers close on their transactions, it's hard to comment on multiples.

Okay. But directionally, just looking at the initial offers, are they-- the multiples directionally down or kind of steady?

Hard to tell. Really it's hard to say. I think there's a lot of supply in the marketplace and there's a certain amount of demand, which have caused multiples to adjust into a market clearing rate. But the market right now has not hit a clearing rate for any of the transactions out there.

A big picture question for you guys, as you think about 2010, and ignoring the fact that you've got obviously a lot of growth coming from your Healthcare, international, et cetera. Just for the industry overall, would you think given where we are in terms of the recession ,the unemployment et cetera, will 2010 growth rates will they accelerate, stay steady or would you expect growth but maybe not as strong as 2009? Ignoring again the fact that you're transitioning in a few of your verticals.

I understand the intent of your question, Arvin, but I'll be honest with you, I don't know how to predict that in terms of what's happening in the industry. Here's what I'll tell you, we've stepped back, we've really looked hard at our business, we continue to be clearer, clearer and clearer about where we want to play and what we need to do. So our-- we're focused on our business. In the spaces that we're operating in we feel good about the long-term potential. And so we've looked out five and ten years, we try to understand with all the best available data that exists that we can get our hands on, what we-- what the prognosis is for the spaces that we're in or spaces that we might be interested in being in. And based upon that, I think we're in a terrific industry that does good work over the course of time. But I really can't predict how the balance of this year and next year is going to play out from an industry perspective. So again, I'm sorry, I can't answer your question directly.

No problem. Thank you, guys.

Thank you.

The final question comes from Mark Marostica from Piper Jaffray. Please go ahead.

Thank you, it's actually Mark Skitovich from Rosica. I just wanted to talk about composition of G&A, advertising up 120 bips year-over-year, admissions down 130, just given the depressed ad market and some of the shortcomings you saw in the admissions front, just I guess we expected to see an opposite trend taking place here. Wonder if you could just maybe provide some clarity there and whether you'll be spending more on the admissions front going forward? And then as it relates to advertising, just probably a bit more tangible picture on what you're doing on the branding, the brand building front and you also mentioned search engines optimization at the expense of [legion], that'd be helpful. Thanks.

Sure, I think like everyone else in the industry has commented, we are seeing softness in different media channels and we've taken advantage of that. But given that our mix is heavy on lead aggregators in University, we're not seeing that sort of same kind of softness as companies that may advertise nationally, especially in terms of their air time, ours is more local and ours is more [legion]. We have seen some decreases on media costs, we've seen some increases on paper clicks across the industry. So it's mixed. But you're seeing a good deal of advanced spending from us versus the rate is more volume driven. I'll let Gary talk a little bit more about the branding.

Sure. With regard particularly in University with what we're doing, the reality is we have not drawn the differences, or have not highlighted the differences, that exist between our institution. And so we candidly didn't have that type of talent in our Company prior to this and we didn't have from an agency point of view the agency help that we would need to do some of these things as well. We were dealing with things mostly on a one off basis and virtually all of our spending was on [legion]. We've recently begun to work with an advertising agency that is helping our team. Some of them recently hired into our organization work through resource that would help position the-- our different businesses in the marketplace a part from one another.

We are working on therefore branding them whether it's their Web site, whether it's print or TV or other media, position them in a much more consistent fashion than they had been previously because we were doing things on a much more local basis. We are doing more program specific advertising as we think about driving people towards certain programs that we know to be advantageous to us as a Company and where the demand lies in the market place, we are doing much more program specific marketing. And we are again moving some of our internet moneys towards more search engine optimization so that we get to the people who really will be terrific potential students in our business because they've demonstrated an interest in being there and they've worked through getting to us. And so all those things are in the works.

In some cases it's learning as we go forward to find out what will be most affective because with different businesses they respond differently to some of those tools, and so we're working to understand what will be our-- what will be most affective for our different schools. In doing that, we are spending incrementally because we don't want to not do the things that we know to be, that know to work for our business, but we do recognize we have to make those changes. And so as we learn more, we'll begin to shift moneys into those spaces that are most affective for the businesses. The learning has begun, I expect over the next several months we will learn more and we'll optimize our messages. And then as we get into next year, we'll get to a more reasonable level of spending or a more optimal level of spending as we go forward. So a lot of learning going on and we hope to draw conclusions as we put the plan together for 2010.

Okay, grat. And then just one final question on Culinary, what is job placement today? And also unrelated to that, is there some number of students, some level of students that gets you to sustain profitability there?

We've never given out placement rates, we have said that placement rates are the highest of any of the institutions we have in the Culinary business, and it continues to be. So in terms of profitability, as we said, looking at the population we have today carried forward to the rest of the year, we will be in the profitable mode in the fourth quarter exclusive the LCB transaction which will get us to north of 10% operating margins. And as we go through next year and continue to get the operating leverage, we'll continue to be profitable. So I think we're moving out of the business that's breakeven, we're moving in a profitable nature come fourth quarter.

Okay, great. Thanks, guys.

Gentlemen that concludes the question-and-answer session for today. Please go ahead with any concluding comments.

Sure this the Gary again. Listen in March of 2008, as we've discussed, we had an investor and analyst day in Atlanta, and on that day we communicated goals for 2010. We said then that we would deliver operating income of between $225 million and $270 million by 2010. On that day we were just beginning to deal with the impact of the changes that we were beginning to see in the student private lending market and we knew those would negatively affect the business. We were also at that point in time dealing with AIU sacks probation and other reputational issues and operational challenges. We discussed the ramifications on that day also of the teach outs that we had previously announced and we determined that through those teach outs it was going to be challenging period in 2008 and through 2009.

Through all of that we've been open and candid about our progress. We knew that the challenges that we faced will be difficult to model, difficult to predict in some cases how they would fall. Again so we elected to be as open and honest as we could be about the progress we were making. Our work isn't complete here as an organization, but I think the results that we delivered in the second quarter do reflect the progress we've made in furthering the strategy that we laid out then. And based upon what I'm seeing, based upon the moves that we're making, based upon the terrific work that's been done by our teams on our campuses and in our schools, I feel great about our ability to achieve the milestones that we have for 2010. So with that we'll conclude the call. Want to thank you for your interest in Career Education. And if you've got any other follow-up questions or issues you want to deal with, feel free to all John Springer at our Investor Relations department. Thanks.

Thank you for participating in the Career Education Corporation's second quarter 2009 earnings conference call. This concludes the conference for today. You may all disconnect at this time.