Greetings ladies and gentlemen and welcome to the ITT Educational Services fourth quarter and year end 2009 earnings call. (Operator Instructions) As a reminder, this conference is being recorded. Joining us today from the management of ITT Educational Services we have Kevin Modany, Chief Executive Officer and Chairman, and Dan Fitzpatrick, Executive Vice President and Chief Financial Officer. Before we begin, ITT Educational Services, Inc. wishes to remind you that this conference may include forward-looking information. Actual results may differ from the information presented during this call. For additional information please review the section on forward-looking information contained in today’s news release or in the company’s public filings with the Securities and Exchange Commission. Mr. Modany, you may begin.

Thank you. Good morning ladies and gentlemen and thank you for joining us on this conference call to review our 2009 fourth quarter and full year results. Joining me as usual is on the call this morning is our Executive Vice President and Chief Financial Officer, Dan Fitzpatrick. We’re going to follow the abbreviated format that we introduced in our 2009 third quarter earnings call where we limit our prepared comments. We have a lot to talk about today and we provide a sufficient amount of time for you to pose your questions. Let me begin with an update on the advertising environment. We continue to experience a very favorable advertising environment, although we’re beginning to see some signs of stabilization in the year-over-year costs for each advertising placement. Advertising expenditures increased approximately 12% in the 2009 fourth quarter compared to the same prior year period. We believe that our advertising expenditures will increase approximately 15% in 2010 compared to 2009. The response rates to our advertising continue to be strong in 2009 fourth quarter and we believe that it will remain strong well into 2010. As of December 31, 2009, we had approximately 15% more recruiters than at the same point in 2008. An 80 basis point improvement in our persistence rate as of December 31, 2009 compared to the same date in the prior year was primarily due to improved student retention in the 2009 fourth quarter compared to the fourth quarter of ’08. Just to remind everyone, we reported in our 2009 third quarter earnings call that as of October 20, 2009, the graduate employment rate for our 2009 graduates was approximately 560 basis points below the rate for 2008 graduates at the same date in 2008. We are very pleased to report this morning that as…

Thanks, Kevin. I do not intend to review the financial results that were reported in our earnings release this morning. However, I will note that there were no material unusual items recorded in our 2009 fourth quarter financials. We are prepared to take any questions that you may have with regard to our 2009 fourth quarter financial results after our prepared comments. First, I’ll provide a very quick Federal student loan update. We continue to process Federal student loans for our students through the FFELP program without disruption. We expect to complete our integration of the direct loan program systems during the first quarter of 2010 in anticipation of the passage of proposed legislation that would eliminate the FFELP program effective July 1, 2010. Moving on to private student loans, as we announced in a Form 8-K yesterday afternoon, we entered into a guarantee agreement and related documents in connection with a new private education loan program for our students. The new private education loan program was structured and syndicated by Deutsche Bank. Under this program, a bank will make private education loans to our eligible students. Those loans will be sold by the bank to an unaffiliated trust. The trust has issued $300 million in senior debt to investors. We will also pay a portion of each private loan disbursed to us in exchange for a subordinated note from the trust. The trust will use the proceeds received in the issuance of the senior debt and the subordinated note to purchase the student loans from the bank. The trust payment of the senior debt will be secured by the student loans owned by the trust. Our payments to the trust in exchange for the subordinated note will be recorded on our balance sheet as a subordinated note receivable from…

Thanks, Dan. Before we begin the question and answer session, I’d like to make a few brief remarks related to the US Department of Education current negotiated rule making. While we realize that many of you have a lot of questions for us about our perspective on the DOE proposals, and may wish to ask us for an estimate of the impact of the most recent proposals that were released last Friday, we believe that it’s premature and inappropriate for us to speculate what the impact may be given where we are in the process. The same holds true on our perspective on whether the DOE has the authority to adopt certain regulations as proposed. When we have more clarity and certainty with respect to the final regulations that the DOE adopts, we will be better able to estimate the impact if any on our business. We thank you in advance for your understanding and patience as the DOE rule making process unfolds. This concludes our prepared remarks. Operator, if you would please open the lines for any questions.

Ladies and gentlemen, at this time we’ll be conducting our question and answer session. (Operator Instructions) Your first question comes from Andrew Steinerman – JPMorgan.

Could you just go over how bad debt is reserved for under the new PEAKS program and the effect on the P&L in 2010 and also is the PEAKS program replacing institutional loans?

Yes. The institutional loans will in fact be replaced. The way the program works is that it’s eligible for second year students, so therefore those students that would have had some internal borrowings in year one would effectively refinance through the PEAKS program in year two, so any reserve associated with that would obviously have hit bad debt initially and then any of the holdback or any reserve we would book relative to the subordinated note, that would be an offset to revenue.

Will this totally eliminate the institutional loan business or do you still see a fair amount of institutional loans made in 2010?

I think what you’re seeing in the internal goals that we talked about today is the 10 to 15 days. We still anticipate offering internal financing to first year students for what basically will be a first year student, there are some credit earned requirements for eligibility. Second year students then would be eligible for financing through the PEAKS program to have financing for their forward-looking studies as well as refinancing any institutional funding that was provided to them during their first year. The bad debt reserve, we talked about before in terms of our methodology for recording bad debt reserve. We will record a bad debt reserve against that first year institutional loan that we expect to provide. All of that then is therefore reflected in the 4% to 6% bad debt goal that we talked about just a few moments ago, as well as the 10 to 15 days. I know there’s been some speculation with regard to the impact of PEAKS on that bad debt rate on the DSO and I think everyone is correctly assuming that really is driving those numbers down. But it works out that second year students are in the PEAKS program, first year will continue to be on the balance sheet.

Just to close it out, same question. If you look at the way you’re [inaudible] the PEAKS program in reducing, I think you said it’s reducing revenues, if you looked at that as a reserve, would it be the same type of reserve similar to your institutional loan program, or would it not be?

There’s structures within the program that provide for at least that type of let’s say cushion in terms of performance. So the answer I guess that you’re looking for in terms of loan and portfolio performance and cushion would be yes, at least that amount. But when you talk about reflection in the P&L in terms of against revenue, it would not be at that amount. It’s just certain structural elements of the program that we put together that allow us to sort of provide cushion over and above the bad debt levels that we would see on our balance sheet.

Your next question comes from Gary Bisbee - Barclays Capital.

I guess following up on that question, what’s the cash flow impact here? So you’ll be taking a reserve against your revenue for the amount you’re effectively paying to the trust, but are you going to get the cash from the trust on the portion that you’ve not reserved for?

Yes, and let me try to explain it in simplified terms, and I’ll use terms that maybe will make sense to everybody. Where a student is obtaining a loan through the PEAKS program, if the loan value is say $1 for simplicity purposes, there’s some portion of that amount we will see in cash net and you can look at it as a discount if you want, although that’s not what it is. It’s moreso a note receivable because if there’s any reserve left over at the end of the loan program, we basically will get all that money back, so that’s where that note receivable comes from. So yes, there is a cash flow impact here, and that’s going to be reflected in our free cash flow goal of $450 million.

Do you have any sort of substantial data yet in terms of the repayment trends for the internal loan? I think one of the things that obviously continues to hurt your valuation is just a fear that maybe you’ve under reserved and we’d find that out at a later date. I guess with this, if you’re on the hook for the borrowings of the trust that’s taken on in the case that the repayment experience is much different than you think, it seems like that risk is still out there with this program. So is there anything you can tell us to get people comfortable that what you’ve been doing over the last 18 months, you still feel is the right rate?

I think we still have preliminary data, so I can’t point to years’ worth of data. But we’re starting to gather data in terms of collections and we touched on that a little in the last call saying we’re not immune to what others are seeing in that regard. Our collections on some of our receivables have ticked down a bit. What we can say fairly comfortably is that we’re well within our reserve ranges and I know we’ve talked again before about the fact that we’ve been as conservative with our accounting as the regulations would allow us to be. So we’re well inside of our ranges, so we feel very comfortable with that, but we will admit, it’s only been maybe a years’ worth of data at this point. So we feel comfortable there. When you flip that over and you talk about that experience and the fact that our reserve rates are more than enough to absorb anything that we’ve seen thus far on the performance on the institutional side, and what I was saying before to Andrew’s question, that the structure this program provides for at least that type of cushioning, that’s probably the most information we can provide at this point. It gives us a high degree of comfort and we believe we’re going to be in good shape here. We’ve stressed this structure well beyond, and I mean well beyond, historical performance that should provide for a very good result for us, and all of that, in terms of that reserving, that extra cushioning that we’re talking about, is reflective in those 2010 goals that we put out today.

One quick one on the fundamentals. Obviously you continue to have terrific student growth. Again, what most people thought, was going to be a ridiculously tough comp this quarter. How should we think about student growth in 2010? Are you very comfortable at this point [inaudible] that you would likely be ahead of that long term trend line that you pointed us to in the past?

I think that’s a great question and clearly the comps for us are very difficult. We had some outstanding performance in 2009 that we’re going to be bumping up against and some of that was comp against some incredible numbers in 2008. So the bar continues to rise for us. As we think about that, and although we’re not giving guidance in terms of the enrollment. I think it is appropriate to think about us trending more towards the comp on annual growth rates at historical growth rates that is in that 9% range or so, 8%, 9%, 10% range. So we are still working our way there I think over the next couple of quarters and that is not reflective of demand. We continue to see strong demand. We like the dynamics on the marketing side of things. When I mentioned in my prepared comments we received stabilization there, we’re still well below rates that we were experiencing in ’07 and even in ’08 so we’re holding on to those savings so we should do well. It’s just more so trending to comp [inaudible] growth rates, historical rates as a result of the comps more than anything else. Again, I’ll just tie it all back. That is reflected in those internal books.

Your next question comes from Sara Gubins – Bank of America.

In terms of your guidance for 2010, given that revenue may look a bit different from historical patterns given the new loan program, could you give us any sense of what you’re expecting in your guidance in terms of revenue growth?

There are a couple of things going on there in terms of the revenue and I think again, not giving guidance, but trying to give you some color. I’m sure you guys are doing your modeling. From a revenue per student perspective, if you try to play that out, the scenario is likely that we’re flat on revenue per student, and there’s probably a scenario where it could be a little bit down, quite frankly on a revenue per student basis. That’s going to be to driven two-fold. Number one, certainly this PEAKS program has an offset to revenue, but even more than that, and we talked about this in our call in October, we are anticipating increasing our scholarship levels. We’ve had some good success with some scholarship programs that we put out there that really are geared towards incentivizing students to continue to perform well and academically exceed previous levels of performance and those seem to be working fairly well so we built some of that into the model as well. Those two things, and again, I’m emphasizing the scholarship aspect of it moreso than anything else, will drive to a student revenue per student number that again is flat, maybe slightly down.

So presumably, you are expecting margin expansion next year even adjusting for the better bad debt than maybe we had all expected.

That’s correct.

Where would you expect that to come from?

We’re getting leverage still. We’re starting the year with a 30% census increase, population increase. You’re going to see leveraging there. There aren’t any specific operational changes or adjustments or efficiencies that I would point to. It really is going to be that pure leveraging that we get when we have enrollment increases. We did see a little bit in terms of fourth quarter, better utilization of our day time capacity. I’m not suggesting that’s built into the 2010 expectation, but there’s opportunities for us to continue to I guess obtain some efficiencies there, but for the most part, it’s a leveraging story, and again, you mentioned the bad debt, so clearly there’s some give back there as well.

I know you don’t want to talk too much about unnegotiated rule making, the process, but could you talk a bit about how you think about your debt service to income ratio is [inaudible], that’s one of the options that’s being discussed.

It’s really hard for us to speculate on that because I’m not exactly sure where it pulls out, but we’ve been very public with our commentary with regard to the way we set tuition pricing and we really truly have a model where we focus on the return on investment with students, and that’s the basis for setting everything that we think about. I just touched on the fact that we want to provide some additional scholarships to students. We’re getting good results academically and so that’s increasing our outcomes and the quality of our outcomes, so that’s a positive thing. We’re being mindful of what’s going on in the marketplace in terms of a deflationary market, the likes of which we’ve not seen for quite some time. Also the fact that there’s a little pressure on our starting salaries. I don’t think we need to make that sort of an adjustment this year, but I think it’s prudent to do so. We would be doing that irrespective of any kind of regulatory conversation that’s going on. Many may not believe that, but that’s absolutely true. So we’ve not changed our focus there. It’s ROI driven, it’s outcomes based. That’s the way we’ve run this institution for 40 years and we don’t have any intentions of changing there. Should there be regulatory constraints that make us and force us to think about it differently, then we’ll do that. We’ve complied with regulations again for 40 years. We’ll do it again if they change on us, but it’s just tough for us right now to give you guys the kind of specificity I’m sure you’d like to obtain when we don’t have any certainty in terms of where this thing plays itself out.

Your next question comes from Paul Ginocchio - Deutsche Bank Securities.

It’s Adrian for Paul. I was wondering if you could give us any update on your cohort default rates, if you could give us an idea about how ’08 is looking versus ’07?

It’s really early and so the most recent data we have is as of December. Right now it’s in line with prior year, but I’ll tell you, like ’08 was in line with ’07. In fact the numbers that we’re getting for the ’08 numbers right now are a little bit down from two years ago. So I don’t want anyone to take anything from that. It’s just way too early for us to kind of project forward where that likely lands. I will say though, and it gives us an opportunity a little bit to speak to the fact that we are absolutely enhancing default management services, doing things both internally and potentially externally. Those costs also are reflected in the 2010 internal goals to the extent that somebody would ask that question as a follow on. But we’re absolutely doing what we need to do there and we mentioned in October, there’s a lot that we can do there that we believe that can have a positive impact there, and we need to do some of that stuff. There are a lot of things going on in terms of the FFELP loans going to DL, what that means from the servicing perspective. So default management is a very important part of what we’ll be doing and focusing on in 2010.

Are you still looking for a 4% to 5% increase in tuition? I know that’s something you’ve spoken about in the past.

We may have a tuition increase in March, in fact we’ve already announced that and I mentioned that in October. I think the real question here though is, are we going to have a real tuition increase, a real pricing increase at the end of the day? With what we’re doing on the scholarship front, and we’ve touched on that a little bit and the fact that revenue per student is going to be flat, maybe slightly down, I think the real tuition increases is really, they’re likely to be very minimal increases there, quite frankly, at the end of the day. So you may see a sort of sticker price increase, but net net, our goals don’t reflect much of any, if any at all, tuition pricing increase, per se.

Your next question comes from Brandon Dobell - William Blair & Company, L.L.C.

From the conversion perspective of learning centers to campuses, anything there from a kind of regulatory or default rate management perspective that changes or is this the same ongoing logistics management exercise you would do for a campus? Was there more than just the performance of those institutions, was there any other benefit you got from making that conversion?

I’m sorry, I had a little bit of trouble hearing the first part of that. Were you asking about conversion rates?

No, when you convert a learning center to a campus, anything else just beyond the performance of that that goes into that decision? Is there some kind of other structural opportunity or benefit from making that choice?

No, not at all. Solely operational quite frankly, and we do our best market research in terms of what we think the market opportunity is in any particular geographic region. We completed those studies for these locations and thought that there was a great opportunity to take advantage of unconverted lead flow. That certainly proved to be the case. On what was not reflected in the market research that turned out to be the case, is that demand levels actually increased over historical or any kind of modeling that we did there. The performance was there, the census was there, and as a result, a learning site is not structured to have all of the student support services that you would typically see in a college, and that’s why we talk about that in terms of margin opportunities for us, but these markets are proving themselves out to be more than worthy for a full campus, so we view that as an extremely positive thing.

From a placement rate perspective, some good progress in the fourth quarter. Is that just reaching out to a broader range of companies? Is it different kinds of companies? I’m trying to get a feel for what are you doing to make those placement rates look a little bit better or trend better just given that you’ve got students who tend to not move after they graduate.

That’s still the case. We’re not looking at a lot of folks who are moving around the country, quite frankly. They stay in their local markets. I think I touched on this in the last call and maybe I’ll expand on it here. What we’re seeing in terms of the improved performance there on our career services front and ultimately in the employment rate front, is better execution on our part, better focus on delivering results on our part. I would say while we’re seeing slightly positive trends on the employment front, and I want to be very hesitant with the weight that I put on it, we’re just seeing a little bit of a more positive environment. The result that you’re seeing, the improvement that you’re seeing, is so much more related to our execution, and I give all the credit to our career services folks who are very focused in executing on delivering results for the students, so I think there’s some more opportunity for us to continue to improve on the way we’re executing there, and again, very tough market, things are still tough, it’s probably a better market than it was last quarter, but not by a whole lot.

Any sense for us relative to the cohort default rates, what the impact from forbearance, deferment, military deferments would kind of be on a rolling one or two year basis?

Nothing different than we’ve historically seen, quite frankly. It’s not like we’re utilizing forbearance or deferment in any more significant of a way than we’ve historically utilized that. Again, I think what we want to do there is focus on some of these default management practices, coming back to looking at contacting these students, making sure that all of the service and administration activities that are necessary to ensure repayment, ensuring that those are taking place. These loans, we have FFELP loans, they were moved around to a couple of different servicers. We’re kind of following our loans as they move from one servicer to another. This is probably a little known fact, but you need to kind of pay attention to where these are moving and then also make sure that the services are being provided. We take a very, very active role in following those notes around, making sure that activities are being performed, and then, on top of that, supplementing those activities so that we see payment on those loans as was intended.

Your next question comes from Andrew Fones – UBS.

I wanted to ask a question on CDRs as well. I guess we got the three year cohort default draft rate data from the Department of Education recently. I was wondering if you could comment at all as to typically we’ll see draft rates come down when we get the final official rates. Have you got any sense as to what kind of relative inflation there was in those default rates, at the draft level at three years relative to what the official rates could end up being?

Probably can’t give you a lot of clarity on that, but I think you do know that when we talk about adding a third year into the calculation, really that third year wasn’t worked at all in the way that the first two years are worked, so it’s really hard to indicate what type of an impact we can have there. We know that when we provide default management services there, we are able to mitigate losses, so there’s a downward trajection that’s likely. So what degree? It’s hard to say. Further, were there any appeals on any of those amounts and those defaults added? No, we didn’t look at those. When you look at appeals, we can see anywhere from a point or two reduction on a two year rate. Does that apply when you talk about the third year? I honestly don’t know because we haven’t yet dug into it and haven’t been able to appeal. So I think through additional services, through appeals, there’s opportunities for us to move it. There’s some other things that we’re doing. We feel confident that when the three year rates come out, we’ll manage those more than in line with expectations and standards that are set.

Just to kind of follow up on that in some of the comments you’re making, obviously I would expect that there’s a greater use of deferment in the two year rate than the three year rate. I guess my understanding is that there would still be some use of deferments in that third year and so do you have any sense as to the magnitude of that impact?

Not at this time.

Your next question comes from Jerry Herman - Stifel Nicolaus & Company, Inc.

Quest ion with regard to sources of funding for students, in particular for ’09. Kevin, can you give us sort of a snapshot of what that looked like in ’09, i.e. the components of the Title IV as well as the size of the private loan programs that were in place and maybe any portion of cash paid that might be involved?

I think if you’re looking back, probably around 85% from a Title IV perspective and a lot of that is coming from some of the increases on the Pell side. If you look forward, I think there’s probably opportunities for that to move even a little bit more, probably not a lot more, but it’s probably best to have a forward-looking view of that as opposed to kind of going backwards. You have to reflect in what PEAKS will do going forward. The other private loan program that we talked about before that’s disclosed, that’s still in place. So this should be more than sufficient funding from a third party perspective on the private side and then sort of you buckle in that Title IV piece we talked about and that ought to give you a sense kind of where we’re at. When you think about it from a 90/10 perspective, because the calculations are a little bit different, you’ve got the incremental unsub that doesn’t go in there, you’re probably looking in the 70s, somewhere in that range. I wanted to differentiate there in case somebody got the wrong idea in terms of the Title IV I was talking about versus the 90/10 calc.

I guess I was looking at the other side of it, i.e. in ’09 how much came from private loan and cash?

We’re typically not breaking that out in too much detail but probably, low teens, in that range.

Low teens in the combination of the two?

Yes, on the private side, is that what you were asking me?

That’s just the private loan side as opposed to the cash piece. You didn’t combine those two?

I’m sorry. The cash piece is mostly low single digits. If you add those three pieces, you get to a full pot.

You guys have grown a heck of a lot over the last two years and this relates to maybe an earlier question but your student volume is up 50% over the last couple of years. Your number of facilities is up at least 25%, so the simplistic math would indicate that your utilization rates are up a lot, 25 percentage points or what have you. The question is, are you in any way strained from a capacity point of view, and then the other side of that question is, what is the frequency of rejection of a student either because of financial aid or the frequency of closed out sections or what have you?

The first part of your question on the capacity strain, we absolutely have been more efficient with utilization of the space, but at this point we’re not at any level of capacity strain over and above what we’ve traditionally seen and I’ve talked about that 5 to 10 number of locations going through capacity expansion, and at this point we’re probably at the higher end of that scale than not. So we’ve definitely done a little bit of that. We’ve done some other things in terms of being more efficient with our scheduling. We’ve talked about that in the past so that’s reflective in some of the numbers you’re looking at there. Just more recently, and I’m talking very recently, literally this quarter, starting to better utilize that day time space which historically has been very underutilized. We’re talking about traditionally 70% or 75% of the census being in the evenings. That number is now working its way towards 65%. That may not sound like a lot but it is a lot. We can get better utilization there because that creates a lot of additional capacity for us. So we feel good about that right now. We’re always managing that. We’ll add space where necessary, but right now we feel like we’re in pretty good shape. What was the second part of your question?

Just in terms of the frequency of rejection of students getting in i.e. because of financial aid or because maybe sections closed out or any other reason for that matter?

We don’t typically break that out in any kind of level of detail but you know how our process works and we’ve got an admissions test and so there’s some percentage there that actually gets filtered out, then you get into financial aid and there’s some percentage there that gets filtered out. Once you make it through those two filters for the most part, you’re into class and there’s not a lot of capacity issues in terms of people not getting into classes from a capacity perspective. It happens but you would more see that reflective in their load, the number of courses carried, as opposed to somebody being pushed out or in, if that makes sense.

Just one final question with regard to your free cash flow which is obviously continuing to grow. For the most part you guys have focused on share repurchase. Can you just talk conceptually about how your thinking about free cash flow utilization and some of the alternatives that you guys are either looking more or less at? Clearly we’ve got expectations of generating cash flow well in excess of our need. We’re not looking at Cap Ex requirements, growth and maintenance north of historical levels when you think about them on a percentage of revenue basis, maybe 2 or 3 points, so we’re not looking at big numbers there. That leaves you with a lot of excess cash. We’ve historically shown that from a capital allocation strategy perspective, we have a preference for share buyback. I’m sure you didn’t miss that the Board just recently increased the repurchase authorization level by another 5 million shares. We had gotten down to only about 0.5 million remaining with the big share buyback we had in the fourth quarter. Our thinking at this particular point is pending market conditions that we likely continue that type of activity. We’ve kind of set the stage for it. That doesn’t prohibit us from considering other alternatives but I can tell you right now, there really isn’t anything on the horizon for us in terms of any other utilization of cash so that’s likely where we go, but we’ll evaluate the conditions and make a decision, whatever’s most appropriate.

Your next question comes from Kelly Flynn - Credit Suisse.

A couple question about the PEAKS program. The counter revenue item that you mentioned related to your upfront payments, can you give us a sense of how that would compare on a percentage basis with what otherwise would have been the bad debt assumptions, and basically is it a lot less or is it a roughly similar amount you’re paying up front?

I guess directionally we could tell you less than that, but we can’t really get into the details because that’s starting to get into some of the proprietary aspects of the structure.

What about the --

Are you still there?

I’m sorry, gentlemen. Your next question comes from Corey Greendale - First Analysis Corp.

Also on the PEAKS program, is there any particular credit criteria layered on top of the eligibility for people who have completed their first year or is everybody who completed their first year eligible to refinance into the program?

No, there are other underwriting criteria as well as established by the bank.

Can you give us a sense of how restrictive that would be?

Fairly similar to previous programs we’ve had in place. It should work for our student profile based upon where we set expectations for that demographic that we know how to serve very well.

Is there sort of pent up demand for this that you’ve have kind of a big cash flow benefit maybe in the first quarter because you’ve got a backlog of people who could refinance?

That’s a pretty good question in terms of the processing and the way we anticipate utilizing the program is second year students, and we’re talking about somebody entering their fourth academic quarter, there’s a repackaging or refinancing activity that needs to take place. So as those individuals come through, they’re going to get financed for their future periods, their second academic year, and in addition we’ll get refinanced for whatever balance they’re carrying, so there is a little bit of front end loading to this. I think that’s absolutely how you should be thinking about it.

So I guess following on that then, the free cash flow guidance you gave, is there anything that you consider to be a little bit kind of higher than run rate about that because you’ve got this up front benefit from the refinancing from pent up demand?

Yes, there would be definitely front end loaded, but if you’re asking sort of how we break that out.

What I mean is, if we’re looking up to 2011, should we be modeling with the $450 million as the new base line or is there some unsustainable benefit from that backlog of refinancing that happens?

There’s definitely some back log benefit there, and I think if you look at the [AOR 1231] net, we’re talking $90 million or so, something in that range. You’re going to see some of that stuff coming through during the 2010 year, so there’s a little bit of a reset there, absolutely.

Would you be reversing any of the bad debt reserves?

We’re going to be as conservative as the accounting pronouncements will allow us to be. You should just assume that however this falls out or however we expect it to fall out on the basis of any review of the situation that may have been completed, and you should assume we have done that, that we have reflected that into the 2010 goals.

Could you give us just a ballpark number of what the average debt level of the people graduated with in ’09?

We’re not going to give debt levels of our graduates and I think you can understand why we wouldn’t want to put them out there in the spotlight like that, but we can try to provide you some color there, and I think all of the data is out there for you to get fairly close. If you look at our grads, I think probably the first thing we need to be thinking is about 10% of the credits that they have going toward their degree basically are transferred in. So that’s something that’s not being earned while they’re on our meter, if you will. You have to discount for that. You have to sort of break it out and you look at sort of source of funding and I think that question was coming a little bit earlier from Jerry. If you break out just the borrowings component of that and you kind of look at just private pieces and you add it all up, you’re looking at somewhere in the high 60% or 70% range, probably in that range, so you can kind of utilize that, discounting for the credits earned, and probably get pretty close. Then I would just layer into that as you’re kind of looking at it going forward. My comments earlier about additional scholarships both internal and external, and the fact that we’re looking at revenue per student per year maybe flat, maybe slightly down in that model that we’ve given today. You can get pretty close to kind of a number that probably makes sense without us having to call somebody out with a balance.

That’s helpful and just one last quick one. Within the goal of 8 to 10 new locations this year, how many of those would be Daniel Webster, and can you just give us kind of a real broad brush picture of what your goals are for the geographic expansion of Daniel Webster, what the pace would be, and if there’s any specific parts of the country that you target first?

Again, I’ll give directional color here as opposed to any specifics, because we really aren’t going to be sure because we need to obtain all of the requisite regulatory approvals to do both for ITT Technical Institute expansion and Daniel Webster expansion but we just don’t have those details at this point. I think what you should expect to see though is the majority of those coming from ITT Technical Institute, and it could be all of them, quite frankly. The growth on the Daniel Webster side is going to be very measured and we’ve talked about this. We’re making fantastic progress with the… I guess what I’ll call cultural assimilation of that institution. Things are going really well there, great group of staff and faculty and everybody’s getting on board and I think that’s the important part of building the foundation for that institution so we can deliver the types of quality outcomes that we expect here within our organization. So we’re set there, then we start moving forward and we start executing on the strategy and the staff and the administration up there are very focused on that, but just as you boil it all down, it’s likely the material piece of that is coming from our current brand, ITT Technical Institute.

Your next question comes from Kelly Flynn - Credit Suisse.

I don’t know what happened. So I was asking you, and I don’t know if you answered this because I got cut off, but would you size the PEAKS revenue that you’re assuming as implied by your 2010 guidance?

Ask me that again.

Basically what should we assume the PEAKS program is going to be responsible for as a percentage of revenue in 2010?

In terms of cash – you’re thinking on a cash basis, so how much of $300 million goes through in 2010, is that what you’re asking?

Yes.

Without giving specifics because there’s so many variables there, we don’t know utilization rates, we don’t know approval rates yet, although we have a pretty good idea because underwriting is pretty similar. We’re probably looking at the loan capacity carrying us into 2011. Is it early in ’11, is it later in ’11? I don’t know. How much of that ends up coming through 2010? The majority, probably, quite frankly. We’re north of 50% on that. How much north of that? That’s when it starts to get a little fuzzy. But a good portion of that should come through as cash flow in 2010.

Related to cash flow, I know Gary asked this but maybe we could go back to this. The portion, the whole guarantee issue, you’re guaranteeing the loans, can you just walk us through what impact on the financial statements, if any, that has? Income statement, I don’t think there is, but income statement, balance sheet, cash flow. You mentioned I think that you don’t expect that to have to make any incremental cash payments associated with that guarantee but assuming some of these students are defaulting, where does that show up?

Basically the way the program is set up, if you think about the balance sheet aspects of this, obviously there’s a positive cash flow element there and some of that will come from some of that AR that’s going to be converted into the PEAKS program, which was our plan all along, so you’ll see some of that occur. There could be a note receivable from the trust for the portion that we “contribute” to the trust. Now we’ll book a reserve against that too, again we’re going to try to be as conservative as we possibly can be. Whatever the accounting pronouncements will allow us to do, we will be on the conservative side of that, and those conservative estimates are baked into the 2010 expectations. So you may see a note there, we may reserve against the whole thing, we’ll have to see. In terms of default performance, the way the program has been structured, again, I want to emphasize, we’ve stretched this thing well beyond historical performance levels. So our expectations in any scenario do not conclude with any kind of payments from our perspective that would have any kind of impact from a P&L perspective. So we’re not anticipating that in any scenario that we can see at this particular point. If we end up with a note receivable with a reserve against it, the reserve could be adjusted if we had to do that. But again hard to see a scenario right now where that would occur to be honest with you.

I think the note receivable relates to the upfront payment. I’m talking about the portion that you’re guaranteeing. If we use a $100 loan, let’s just assume 40% of the people are assumed to end up defaulting, are you only getting $60 in cash or where is that default risk showing up? How should we think about that?

The program itself is structured to factor in those default scenarios, so the default expectation and sort of that note receivable don’t necessarily correlate 1 for 1, so there’s some cushion even inherent in that. So performance on the portfolio, again, if this portfolio performs anywhere near expectations, it would be our expectation we’d get every amount of the note receivable back very easily. In fact, if the loan portfolio performs significantly worse than our historical experience, keeping in mind by the way we’re only talking about second year students and beyond, I’m using historical experience that includes first year, yet the portfolio only includes second year, and we’ve talked about this before. The majority of the people who discontinue our education, that occurs during the first academic year. So we’ve got 60% of students that start making their second academic year. Those are the people here, so it’s been filtered there. Then we filtered it or cushioned it well in excess of historical default rates with one year students. So I just can’t emphasize enough the cushioning that we’ve put into this structure in the program and once again just emphasizing all of that is reflected in that 2010 internal goal for APF that we put out.

Your next question comes from Robert Wetenhall – Royal Bank of Canada.

Switching gears a little bit, I wanted to see how much further do you think you can reduce your cost of educational services? You clipped off nearly 400 basis points which is great. I just wonder if this is due to better daytime utilization or what’s really driving that?

It’s mostly leveraging so when you talk about incremental students and the costs associated with servicing that incremental student at the higher levels that we expect, you pick something up. So we’ve talked a lot about how that exists in this model for all post-secondary education, not just for us. That’s where a lot of it is coming from. As we look forward again, we’re not anticipating any kind of major changes in the structure. What we do, how we service those students, if our enrollment is increasing, we have opportunities to see some leverage on that component of the financial statement.

Would you care to share a magnitude, is it another 100 or 200 basis points?

I think in total we can speak to the fact that probably in the 2010 goals, if you take all these pieces that we’ve talked about today and you put it all together, you’d probably land back at our historical margin expansion probably in the 100 to 150 basis point. That’s in total, that’s the cost of educational services as well as the student services line. So beyond that, we’re not going to break out the detail in terms of giving guidance or expectations, but again, we’ve given you enough color that you could come to that answer on your own.

Just thinking about the trust structure you’re using, I assume you’re selling the net receivables after a hair cut into the trust and the trust is funding the purchase of your net receivables which already have a hair cut for default by selling senior debt, so I’m not clear why you would go back and make a contribution back into the trust and take a sub note. What’s the purpose of that?

I think that’s where you’re getting confused. They’re not being sold at a discount. There’s not a haircut as you call it in terms of the transaction as far as the sales there. That subordinated note that we have from the trust, and again I’m explaining this only for terms of simplicity for everybody, because these are terms everybody understands. Where there are programs that exist out there, where there are discounts, where there’s a loan per dollar and somebody gets $0.75 and somebody would say that’s a $0.25 discount, in this scenario, that $0.25 would be a receivable that we would have coming back to us. So while we don’t have the cash for that note or student loan, it’s basically providing additional cushion inside of the structure of the portfolio. Does that make sense?

Kind of. I’m just trying to figure out – you’re taking gross receivables that you internally calculate. On your 12/31 balance sheet you show net receivables. You’re saying you’re moving the entire gross out into the trust.

That’s correct, you’ve got it.

We have time for one last question from Amy Junker - Robert W. Baird & Co. Inc.

On the PEAKS, is it possible to exit that deal should there be an opportunity to sell your receivables, is that something that you would entertain if that was an attractive option?

I suppose that could be engineered. We haven’t given that much consideration quite frankly because I’m sure as you would expect, we’ve looked at every option under the sun in terms of creating liquidity and creating a structure that works for the students and certainly from our perspective, I’m not talking about the students’ perspective although that absolutely was the prominent consideration, we were looking for the most economically advantageous transaction we could find and by far this definitely puts us in the most economically advantageous position versus selling receivables or anything along those lines. So I don’t foresee a scenario where that would occur to be honest, but if that ever did pop up then we certainly could probably entertain that.

One last one on your campuses as you open that up. Have you noticed any change in the productivity that you’ve seen at your newer campuses? Are they ramping to profitability faster than you’ve seen perhaps in the years prior? I’m wondering are you gaining greater efficiencies there either perhaps because of the economy or just as you’ve been doing this longer you’re getting better at it.

We actually have been seeing better performance in the new locations but I would tell you this much, it started a couple of years ago and I think if you go back to the tapes in terms of our transcripts, going back two or three years, we really put a new process in place there and our operations team had dedicated some resources to analyzing that and I would say that their execution improved quite considerably. So as a result we got better performance there, so yes, they’re performing better, but moreso related to execution than anything else. But that doesn’t say that across the board new or existing locations that we’re not obtaining some benefit from the market. I think everybody can see that. So I don’t want to discount that, but I’d prefer to reflect back to the executional improvements that were made that we picked up a couple of years ago, because I think we can carry those through.

Mr. Modany, we’re out of time for today. I would like to turn the floor back over to management for any additional comments.

Thank you very much, Operator. I just want to thank everyone for participating in the call today and we look forward to talking to you during our first quarter conference call that will occur in a couple of months. So thanks again.

This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.