Good day, ladies and gentlemen. And welcome to the ThirdQuarter 2007 Career Education Earnings Conference Call. My name is Amanda, andI'll be your operator for today. At this time, all participants are in alisten-only mode. We will conduct a question-and-answer session towards the endof this conference. (Operator Instructions) As a reminder, this conference is being recorded for replaypurposes. I would now like to turn the call over to Ms. Karen King. Pleaseproceed ma'am.

Thank you. Good morning, everyone and thank you for joiningus on our third quarter 2007 earnings call today. I am Karen King, VicePresident, Investor Relations and with me today are Gary McCullough, ourPresident and Chief Executive Officer, Michael Graham, Chief Financial Officer,Steve Fireng, Group President for our University, Academy and College Segments,and Paul Ryan, Group President for our Culinary and Health Education Segments. I want to apologize for the delay on the call this morning.We were dialed in and the conference center dropped our call. Following a briefpresentation by management, the call will be open for analyst and investorquestions. This conference call is being webcast live on the InvestorRelations section of our website at careered.com. The replay will also beavailable on our site. If we are unable to answer your questions during thecall, please call our Investor Relations department at 847-585-3899. Before I turn the call over to Gary, let me remind you thatyesterday's press release and presentations made by our executives may includeforward-looking statements as defined in the Private Securities LitigationReform Act of 1995. These statements are based on information currentlyavailable to us and involve risks and uncertainties that could cause our actualresults, performance and business prospects and opportunities to differmaterially from those expressed in or implied by these statements. These risks and uncertainties include, but are not limitedto those factors identified in our third quarter earnings release and in ourannual report on Form 10-K for the year ended December 31, 2006 and from timeto time in our other filings with the Securities and Exchange Commission. Except as expressly required by securities laws, weundertake no obligation to update such factors or to publicly announce theresults of any of these forward-looking statements to reflect future events,developments or change circumstances or for any other reason. Now, let me turn the call…

Thanks, Gary. I'm really excited about being part of theCareer Education team and I'm glad that I had the opportunity to participate inthe renewal of our company. As Gary indicated, we are making steady progressand we believe we are reaching important inflexion points as shown in manytrends underlying key areas of our business. We are encouraged by the continuing improvement in ouroperating metrics. Key improvements this quarter include our new student startsboth for the third quarter and for October showed double-digit growth. Our population has steadily inclined each quarter and hasreached high single-digit growth a level, which we last experienced in early2006. We've continued to see improvements in our retention rateand we have achieved a reduction in student acquisition costs driven byimproved conversion and show rates, along with modest reductions in advertisingand admission spending. We are making progress on our strategy and puttingpending litigation behind us. Finally, we are pleased with the performance our acquisitionof Istituto Marangoni and the face of development of our 2007 startupsincluding Kitchen Academy in Sacramento, the academy in St Antonio, the academyin Sacramento and Le Cordon Bleu in Dallas. While we recognize that we still face many challenges. Weare aggressively addressing each challenge and are optimistic about ourpotential for continued improvement in the upcoming quarters. Now, let meprovide you with some details on our third quarter results. The third quarter of 2006 revenue of $404 million was down5.6% from third quarter of 2006. This is an improvement in trend versus a 10.5decrease in the second quarter of 2007. While we are experiencing an overall decline in consolidatedrevenue, due primarily to population declines in our AIU brand and our collegessegment. Our growth in overall starts and population is beginning to have ameaningful impact in improving our overall financial performance. For our online business, student revenue for…

Thanks, Mike. Last quarter, I indicated that we were workingfor a process that would yield a five-year plan. We shared that plan with ourboard of directors very recently and our working will corporate their feedbackand ideas. By design our process focused on clearly understanding ourcurrent businesses, their issues and their potential. There are a few thingsthat emerged from our planning that I would like to share at this point. With regard to growing our core institution, we continue tobelieve there is strength in the diversity of our business mix. We believeculinary arts, allied health, art and design and the key subject areas(inaudible) and CTU continue represent a robust opportunities. That said, we are working to ensure that our schools offercurriculum that is consistent with the mission of the institution and that wedo not dilute the brand with add on program that have little or nothing to dowith the focus of the institution. We're also taking a hard look at programsthat are not cost effective. Further, I expect overtime that we will reduce the number ofbrands in our portfolio. Several of our divisions have begun work to review andsharpen their brands. For example, AIU has undergone a significanttransformation as an institution as the result of implementing the SACSrecommendations. The institution is better for it and will reposition thebrand early next year, pending its successful outcome in December. Consistentwith AIU's brand positioning, we must focus time and resources on reversing thedecline in its 100% online programs. We'll also continue to build on the success of IBT online,which launched during the third quarter. And of course, we'll continue to rollout hybrid programs to our on-ground institutions. We've also looked at individual school performance and in anumber of cases we were dissatisfied with what we saw. Simply put, we wereunable to meaningfully differentiate ourselves…

(Operator Instructions) Your first question is from the lineof Amy Junker with Robert Baird. Please proceed.

Good morning. I guess just a quick question on, first Gary,some of the replacements that you've made. You talked about the three adds thatyou did at the executive level. Have you also made some replacements maybe moreat the midlevel area, is there more turnover additions we can expect and in theface of all of that, how would you kind of describe the morale?

Amy, thanks for your question. We have not or at least Ihave not made changes deeper in the organization, there is an ordinary turnoverthat we've seen in our organization. As I said on previous calls, we're workingto reduce turnover. I will tell you that coming through the planning processthat we've come through gave me an opportunity to really see some of ouryounger leaders in action and we've got strength in the lower levels but wealso have areas, I think, of opportunity to continue to strengthen the lowerlevels and so, we'll work at that over the next couple of quarters.

Thanks. And just one other if I could and then I'll pass itover. Just on the schools that are up for sale that you're looking at, I guess,if and maybe it's too early to discuss this but, I guess what gives you theconfidence that it might make sense at this point to continue some of thosecampuses, where 12 months ago, the decision was made to put those up for sale? Has something changed, have you seen improvement in any ofthose schools or what's your thought process there?

Yes. It's a fair question. I wasn't here 12 months ago I cantell you though, that the team in place that has been managing that businesshas done a terrific job. As you can imagine, it's got to be very, verydifficult to be up for sale but yet have to run the organization. I think theyhave done a tremendous job. Mike described also in his commentary, the fact that ourlosses this quarter were less than they were before and there's a mixed bag inthat group of schools. There are some that are performing reasonably well thatand that we believe still can be turned, but there are some that really havedeeper losses. And so I think we owe it to the team underground that's beenworking them to look closely at the work they have done, determine which onescan continue to be viable and which ones can't and make that decisionexpeditiously.

Great. Thank you.

Thank you.

Your next question comes from the line of Mark Marosticawith Piper Jaffray. Please proceed.

Thanks. Good morning. I wanted to first ask about theculinary business, I noticed the stock growth accelerated quite a bit in thequarter and I was hoping to get a little more color as to that dynamic?

Well, we have seen -- when you look year-over-year culinarymargins particularly, as Gary and Mike both have mentioned, it's impacted inthe third quarter by the some startup activity. In addition, as I mentioned last quarter there's one schoolin culinary that is dragging down the overall financial performance of thedivision when we look at that. We recently appointed a veteran culinarypresident from within our own system. She has a proven track record and she'sjust been appointed to that school and clearly she's focused on an execution ofa well-defined turnaround plan at that one school. I would also mention that in the third quarter we also tooka one-time expense of $1 million that was related to our Le Cordon Bleu licensingfee. And in the agreement, when we hit a certain student population benchmarkin our hospitality and restaurant program, it triggered a payout to Le CordonBleu that fortunately we exceeded that number in the third quarter to have tomake that one-time payout. When you factor in the startup costs, the one-time Le CordonBleu program fee and when you look at the one under-performing school, theremaining schools are performing at a much higher level. The start trend wehave seen I think positive starts in most all of the schools, as I mentionedthe one school is significantly dragging us down.

Great. Thanks for the color on that, Paul. One follow-upquestion unrelated to culinary perhaps is the admissions headcount reductionsthat you talked about in the press release. I don't think you mentioned it onthe call, but could you give us a sense for how many individuals were cut andwhat your target level of admissions headcounts will be and what it is attoday?

Mark, this is Steve. I'll give you a little bit of justbroad on the admissions. One of the things we've undertaken, we've talked alittle bit on the calls is to really change the admission structure. There's been different people have called, we have a peerprocess at CTU where we've changed the job from making a lot of calls to maybehaving a group that makes a lot of calls and does live transfers to itsadmissions advisors. So although the number of reps could decline, the overallprocess is changed to give those inquiries or those live transfers toadmissions people so they don't have to spend 60% of their time making calls. So really the change is really a structural, deliberatechange due to a change in our admissions structure.

Okay. Great. And can you give us some sense as to what yourcurrent admissions headcount is today and what your target headcount inadmissions is and over what time period?

Currently, we have approximately 2400 admissions repsthroughout the system, not only in this business but all the businesses. As LenMariani works through his new programs, we will continue to address what theoptimal level is but we feel very comfortable right now at 2400 reps.

Okay. Fair enough. Thank you.

Your next question comes from the line of Jerry Herman.Please proceed, sir.

Thanks. Good morning, everybody. Hey, Mike I just wanted togive clarification on the mechanics of the fourth quarter and how it relates tothe discontinued operations. As I understand it, you guys will pull thoseschools back in make decisions on what to do with them. On a go-forward basis you will have some amortization ofD&A, which should run 18 months or whatever, $2 million Bucks a month. Andthen you will then the present value of the lease liability will be recorded asa one-time?

I'm not sure if, it would be a nonrecurring type charge. Itwould be recorded in the individual month that the school we want dark. So notall teach-outs would be 18 months, so it wouldn't be discreet necessarily toone quarter. But each time a teach-out is completed you could recognizethat liability in the month that we complete the teach-out or if we dosubdivide that space, bring that space dark and put it on the market and don'tuse that space, there is a possibility you could recognize that a little bit inadvance at the end of the teach-out period.

And the way that we'll see that is based on your commentaryas opposed to a specific line item in any individual quarter?

You would not see it as a line item within the P&L, butit would be clearly disclosed in the press release and clearly be disclosed inthe 10-Q. As we go forward, we would probably look at a press release scheduleto make sure that the details are fully laid out for you.

Okay. Great. And in light of that, I guess you guys havelost maybe for the discontinued ops have lost maybe a dime on a year to datebasis and in light of what I would expect to be some increase dilution as of --from pulling those back in. How does that impact your opening program for '08, it soundslike you're actually getting more aggressive and accepting an even higher levelof startup losses in '08. Is that true?

I think that we intend to continue to open new locations.Our startup activity has intensified and will continue because we see a lot ofgrowth opportunities in our five core brands. The business has been running for the last year and the lastseveral years. Obviously, the Gibbs portfolio and we've been unable to run thatwith our management team, so I don't think the Gibbs management team getsdistracted by the startup activities. And we can fully execute the plan to move these schoolseither in a teach-out and sale change the format or continue to operate themwithout big distractions to our startup program.

And just one last follow-up and I'll turn it over. Themargins in the online business, you know, it was good to see that CTU showedsome progress here. AIU, hopefully the prospect's better. Can we havereasonable confidence at this juncture that the online margins have troughed?

Yes. I mean just, I mean you noted on the CTU margins, Imean we are very pleased with the progress. We talked about that during thelast call, you know, that we felt like with the increased population that we'regoing to soon start seeing the margins. And we've obviously had a better costper start in our revenue per student particularly on those associate degree hascontinued. You know, in terms of AIU, we have a couple differentdynamics going on there, obviously, we've somewhat stabilized the population,although we are still seeing increased number as a percentage in our associatedegree population. So while we lowered the price and we anniversary, we haveseen an increase of our percentage of our students in the associate degree. Soin Q3 of '06, we had 44% in associate degree and this quarter, we hadapproximately 55% of our associate degree. So we do have that dynamic. Theother, we'll continue kind of working post SACS pending a successful outcome,we'll continue kind of spending those dollars to re-brand. We don't feel like we have to spend significantly more moneyin the marketing side because we feel like there will be some positive withleave conversions, although there could be spending earlier in the year to kindof re-launch the brand. So really kind of is dependent on how fast AIU canrebuild that population.

Great. Thanks. I'll turn it over.

Thank you, Jerry.

Your next question comes from the line of Jeff Silber withBMO Capital Markets. Please proceed sir.

Thank you so much. I wanted to clarify the data you justgave to Jerry. The 55% and 44% that's your associates as a percentage of yourAIU Online population or your total online population?

That's total AIU Online population.

And do you have the same data for the total online population?

I actually have, I'll give you the CTU Online population.You know we have 60% of our population at CTU as associate degree, 30% isbachelor's degree and 10% is master's degree at CTU Online.

Okay. Great. That's helpful. That's all I needed. Going backto an earlier comment in the introduction about conversion show rate andretention improving, I was wondering if we can just get a little bit of coloraround that and if possible some quantification of that as well and what you'redoing to improve those metrics?

Let me start with just some stats for you and then I'll letmy partners here to talk about the steps they are taking. Show rate, we haveimproved our show rate by about 500 basis points from last year's third quarterand we've stabilized our show rate from last year's second -- this year'ssecond quarter. So we're in good position there. Our retention rates are down from middle of last year byabout 200 basis points and we've also stabilized retention rate from secondquarter to third quarter. So our matches have improved and they have beensustained.

Yes. This is Steve. I'll give you a couple. Certainly, thechange in our admissions process has helped our overall student acquisitioncost. You know, so we really feel like we'll be able to optimize and thatadmissions process as Len evaluates the admissions process throughout thecompany could be rolled out more broadly. Right now, it's really defined at CTUOnline but it's been a huge impact. In terms of the show rate, a lot of it has to do withpricing and also target marketing to make ensure that we're going after somepricing, obviously better packaging. We're packaged stronger at the start date,which when you have a higher package start, you're going to obviously getbetter retention for those students. And then the other thing is really beginning to target moreof the bachelor's and master's degree students from a targeting vendors,obviously kind of pushing our associate degree and moving them up to bachelor'sand master's degrees as well has had an impact.

Okay. And then shifting back to AIU Online, assuming you geta clean bill of health from SACS. I know you haven't detailed exactly what youplan on doing in terms of marketing or re-branding but can you give us maybesome examples of some of the things you're thinking of in order to get thatprogram back on the right track?

Well, I'll give you. The first really thing is just we havevery, very strong outcomes at AIU. If you look at retention rates, studentsatisfaction, so some of the metrics, so really putting those metrics out therefor the perspective students to show that, boy, when you go to AIU, there's strongoutcomes with the students. The second thing is really targeting our local groundcampuses are and rebuild the image. As you've seen our local AIU groundcampuses have been probably -- extremely hit by this probation and we have astrategy where we'll do some branding TV type of advertising. We're going to be very visible in PR campaigns locally andreally zero in on those local markets and then we'll broaden that out more ofon a national basis as we kind of rebuild and reposition the AIU brand.

Great. If I could sneak one more in just on the tax rate, itwas a little bit lower than we had thought. If you could just tell us why andwhat we should be looking for in the fourth quarter? Thanks.

Sure. Tax accounting, you need to book to an annualizedrate. The annualized rate now at the end of the third quarter is 34.5 and weanticipate that will be our annual rate for the year. During the year, we've been booking based on an estimate ofour pretax income which has a combination of tax-free income from investmentsand also lower taxed income from foreign entities. As the third quarter ended and as we took a look at ouraccounting, we believe that given that some of our operating earning has fallenand our interest and our foreign earnings have increased, we'll have more of ablended lower rate and we've made the cumulative adjustment here in thequarter.

Okay. That's fair enough. Thanks again.

Your next question comes from the line of Sara Gubins withMerrill Lynch. Please proceed.

Hi. Thank you. Good morning.

Good morning.

How indicative are the month of October student starts forthe rest of the quarter? Is there anything that you think is eitherparticularly low or high in those numbers?

I'm not. I am not sure I understand the question.

I guess what I'm wondering is the third quarter studentstarts came in a bit below the 14% growth that had been reported at the monthof July. And for example, university student start growth was well below, Ithink it was 21% in the month of July. So I'm trying to understand if I look at the student startgrowth that you reported in the month of October. How indicative you think thatis for what we'll actually see for fourth quarter start growth?

Yes. I mean, certainly, you know there's a couple ofdifference things going on, there is some seasonality to the overall business.You know, also bear in mind; AIU in particular was really focused in on theirSACS visit was really focused in on readying themselves for the visit. And so, you know obviously the October start was came theweek before, the week of the visits when SACS was there. So there is a drivingforce in the university group based on kind of, the timing of the SACS visitand the readiness of the SACS visit.

Okay. And then in health education, I notice that jumped upto almost 30% start growth in the month of October. Are you seeing any changein trends there or is it sort of the same as what you've been seeing earlier inthe year?

Well, I believe there's some seasonality there. Number one,but more importantly to me is, we have a seasoned leadership team right now,both on the division level, as well as the school. The issues that created problems for us in 2006, I reallybelieve we're seeing some positive results of that and that comes in reallywhat I consider two areas. One is the leadership in our admissions departmentsis much more stable this year than we were in previous years and our repturnover is improved significantly while we still have opportunities in both ofthose areas. I really believe that's the positive results that I'mseeing, you know, from the group relative to better show rates, betterconversion rates and obviously, better starts.

Thank you.

Just one more thing on the starts side, online -- like ajust give kind a OEG group, you know, like the academy, if you look at theacademy, one of the dynamics is they are moving to versus having four starts ayear, having eight starts a year. So sometimes you'll see, you saw kind of the third quarterjump and the four, you know on October start might have been a little bit down,but if you -- because they have moved to more starts, there is a, kind of achange in their start calendar versus kind of what they have done. I just wanted to make that clarification give an example ofthe academy that could change the trend on an October start.

Great. Thank you. Mike, can you talk a little bit about yourexpectations for revenue per student trends in online? I understand why it'sbeen so negatively impacted through the course of this year. If you get off of probation for AIU, what's the expectationfor what we'll see in terms of revenue per start, either declines or growthinto next year?

I think I'll let Steve handle it in more detail. Obviously,coming off the probation will take some time to rebuild the population andrebuild -- renew the brand. And you don't have the same dynamic of CTU with the2 plus 2 programs and the different changes and the noise. So the baselineprogram and the programs are strong. Steve, I'll give you a chance to give morecolor.

Yes. There's -- in AIU if you, you know one of the dynamicof AIU pending a successful outcome is offering new programs, especially at thebachelor's and master's and also revising programs. As you're aware during this probation period, AIU has beenunable to add any new programs or substantially change any of their currentprograms that they offer today. So one of the strategies post probation thatAIU is going to be able to do is be able to add programs and really center onthose programs in the bachelor's and the master's degree level. So we can kind of leverage those profit at those at thosetwo-degree levels. So that's a big change that AIU will be able to do postprobation.

Great. Thanks. And then last quick question, what are yourplans for price increases or any update on recent price increases across thegroup?

Sarah, this is Gary. At this point we don't have priceincreases planned for 2008. We are going through our 2008 planning cycle, whichwill conclude during this quarter. We'll be looking for opportunities forpricing as they present themselves. We'll take them. But at this point, wehaven't planned anything.

Great. Thanks a lot.

You're welcome. Thank you.

Your next question comes from the line of Chris Shutler withWilliam Blair and Company. Please proceed.

Hi guys, good morning.

Good morning.

First question is on the AIU price decrease that put in lastyear. Just wondering, if you can give us some rough sense of what kind ofdecline in the average revenue per students we would have been talking aboutabsent that price decrease.

So you're asking, if we would have kept the same pricing, ifwe would have experienced any revenue decline, keeping the same pricing?

Right. I guess I'm assuming, based on our calculations weare figuring average revenue per student in university was down around 20% inthe quarter. Would that have been low single digits, high single digits, ordouble digits, if…

The only dynamic you would have had and it's probably about4 to 5% of our associate degree students take a part-time program. So you wouldhave -- you would have some impact on just the part-time population, if youdidn't have just the price. You know bear in mind also, though you also have AIU as youknow less revenue days, which does have an impact on that. And you probablywould not experience the increased retention that you would have got. So thatmight have offset, the RPS issues that you're experiencing.

Okay. So the, the mix shift at CTU is probably accountingfor low single-digits in terms of the average revenue per student decline, isthat fair?

You know part-time. Yes. The part-time option?

Yes.

Yes.

Okay. In terms of the school in discontinued ops, is thereany opportunity in your view to co-late, I'm sorry, co-locate other schoolsmaybe health or culinary under these schools?

Yes. There's an opportunity to do that, we'll be evaluatingthat those opportunities during the quarter.

Okay. And Gary can you talk about Gibbs for a minute. Justwhat kind of trends you're seeing at that school? I know the New York schoolstill going through some regulatory issues but as you view that school, how wasyour opinion of all from when you first arrived to now?

I'm sorry. I can you say that again, I can barely hear you?

I apologize. Can you hear me now?

Yes. That's better.

Great. Just In terms of Gibbs I am just wondering if can yougive us some sort of sense how you are thinking in that school has evolved fromwhen you first arrived, Gary to now?

I think Gibbs is a fantastic brand and I have thought thatsince before I even arrived, so I start there. I think the question is or theissue is that we've had uneven performance across the business and I thinkagain, the team that's been managing the business has done a good job ofrecognizing that of making cost changes, of making programmatic changes. And so, what we're going to do at this point of time is sitdown with the team understand where they are understand what else we could dothere. We've been looking at a variety of markets where we would like to openschools. You know, even in other programs like healthcare or likeculinary and some other markets that the Gibbs school of existing are marketsthat have come up as markets would be interested in. And so that's where we think there could be viability inco-locating but again, I'll look at the schools and I'll sit down with the teamand look to go forward. I think they have made operational improvements thatare terrific and we want to make sure that before we do anything radical that,we might regret over the long haul that, we really understand the story ofGibbs going forward. So I've got an open mind as it relates to the brand thedisposition of the schools.

Okay. Fair enough. And then final question for Paul, maybeyou could just comment. Health obviously saw some nice increase in starts inthe month of October. Just what are the key drivers of growth in that division? And how sustainable in your mind are they and are youbumping up into any sort of capacity constraints at this point? Thanks.

, : So having stabilized that, I think the division team and thepresidents of the schools have done a significant job in doing that. We, as welook forward and with our strategies, we continue to -- we will continue to putin some higher end programs that obviously generates interest in the schools, thatwill continue to afford us the opportunity to grow these schools. From a capacity standpoint, that's knots really an issue maybe in one school, I'm trying to think off the top of my head but not really. Wehave plenty of capacity in healthcare and that's a matter of scheduling, whichthe division team has worked with the schools this year to give us moreefficiency. That's why we're seeing margin improvements from astandpoint of our academic expenses, because we've taken a lot of linearprograms and moved them into more modular programs to give us the opportunityto have more space to put either new programs or expand the population whichthe school currently has.

And to the point of the management team over 80% of theindividual schools within that group experienced start growth in the month ofOctober, which shows that it's not one school, it's across the board.

Okay. Great. Thank you.

Thank you.

(Operator Instructions) Your next question comes from theline of Jennifer Childe with Bear Stearns. Please proceed.

Thanks. I felt like this has been asked a couple of timesbut perhaps not answered directly. When do you expect revenue per studentwithin the university segment to bottom?

You know, I think really the big bottom begins when we startbeginning to see those. If you're talking about AIU it's really two things.It's when those students that increase the amount of associate degree studentsbegin to graduate and begin to start going into the bachelor's degree studentsand I would tell you that's in the first half of 2008, when those studentsbegin to increase. So really the increase occurs when the associate degreegrowth starts moving into the bachelor's degree students. And then the realityof it is, is that we're working on a repositioning of the AIU brand andalthough it's too early to tell how long that is going to take in terms of turnthat brand around. We have a lot of strategies in the first half of the year toreposition it but we'll have to see how long it takes to rebuild thatpopulation.

Shouldn't you be getting more of a tailwind from theanniversarying of the tuition cuts?

You actually, you would if we wouldn't have had an increaseas a percentage of our overall population in the associate degree. So youanniversaried out the current population but at the same time your percentageof your over all population in the associate degree program was increasing atthe same time. So I mentioned, you know going from 44% of our population to55%. So that increase in a percent of population is actually going to offsetsome of the, that benefit you would get by anniversarying it.

Okay. Maybe if I can just sneak in a related one. Now thatCTU and AIU margins are, online are essentially equivalent as CTU becomes abigger part of the overall mix and presumably that margin expands. Can we expectthe overall online margin to improve?

Yes. I mean, yes. Our expectation is, as CTU becomes abigger mix, we've seen improvement at CTU Online this quarter. We feel like wecan continue to see improvement at CTU in the coming months and as long asthat, as long as that trend continues, we expect it is. You will see anincrease in margins in the online businesses.

Jennifer, this is Gary. You're asking a very fair question.You know, we have seen the margin expansion of the CTU. We expect that we'll beable to leverage that, continue to grow CTU. At the same time, we absolutelyhave to address the eroding margins that we've seen at AIU. And ideally, we'll see that begin to turn, as Stevementioned, you know, as we get into the mid part of '08 when students whomatriculate into the bachelor's degree program. So it's a fair question. Iwould say putting a date on it, I would tell you that I think it's the secondquarter of '08. We'll really begin to see a turn as we go into mid-year.

Okay. Thanks a lot.

Good question. Thank you.

As a reminder, ladies and gentlemen, that is one questionper caller. Your next question comes from the line of Jeff Lee with SignalHill. Please proceed sir.

Hi. Good morning. We've talked about the drivers for theclaims in average revenue at the university group. What's behind the declinesin average revenue in the Culinary College and Health Education segment and thenwhen you expect those drivers to dissipate?

I'm sorry? Culinary health.

Yes.

I'm trying to frame the question. Could I have it againplease?

Yes. Sure. Now this quarter average revenue per studentdeclining at Culinary Division about 2%, decline about 3.4% at the HealthEducation Group and then at the College group, we have a declining about 1%.What's behind those declines in average revenue per student?

The only thing that I - I've got to go back and look at thatto be honest with you. I'm looking at culinary. I have not had any mix changesor any of those things in my revenue per student. The only thing that could be bringing it down would be theKitchen Academy group because of the startups that we've done. That is a littlebit lower. It's a lower tuition, so that does have a slight impact on the RPS.That's it from the culinary.

Yes. On the college side, it's very simple. We've had acouple schools offer some part-time options for the students although it's on avery limited scale. There is a shift because student's demands and studentsdesires have changed off of some part-time options. So some of the collegeshave been able to use that part-time to assist in retaining students andrecruiting students. That's really the smaller change, although it's a smallchange, that's really the change for the college division.

And then finally, from a health standpoint, I think its justmore of noise. I think we're down 2%, but if you look last quarter in thesecond quarter we were up about 1%. So given the number of schools, populationof different programs, its probably just noise in the mix.

Okay. Great. Thank you.

Thank you. Jeff.

Your next question comes from the line of Gary Bisbee withLehman Brothers. Please proceed sir.

Good morning guys. The question relates to the onlinebusiness, and you've talked about this mix to associate's degree, just acrossboth AIU and CTU. I believe, I guess I'm trying to gauge how and why you'reconfident that you can have an improved mix back towards the more expensive andhigher margin programs in bachelor and graduate. When I look across all of the big for-profit companies,obviously we're seeing a massive mix shift that follows associates that mirrorswhat you've seen and I think we've seen that at other companies. It seems to me that the low cost associate programs seems tobe for the industry very much the easiest place to grow today. How are youconfident that's going to move back and help ultimately revenue per studentmargins?

Well, two things. First of all, we have experience in movingour associate degree to bachelor's degree students at AIU. We've done it sinceinception and as we've noted before, approximately 50% of our associate degreegraduates continue on to their bachelor's degree program, and so even thoughwhen that's fluctuate -- when the associate degree graduates have fluctuated upor down. That percentage has remained relatively flat. We have putinto same strategies that we've put into AIU at CTU and have a lot ofconfidence with the interest in talking to our current associate degreestudents at CTU and have a lot of confidence that we should over time have asimilar percentage of associate degree graduates continuing on to bachelor'sdegree. So we have a very successful track record at AIU.

Your final question comes from the line of Corey Greendalewith First Analysis. Please proceed.

Hi. Good morning.

Good morning.

Good morning.

I'm hoping this can pass for one question, but it's kind ofa three-part on the university segment. The first part is on AIU Online starts.Steve, this quarter we entered the queue were up, excuse me, down 11%. Lastquarter they were up 9%. Which of those more accurately reflects the directionof that business?

Well, I think it's you know, the overall. As I've saidbefore, the third quarter was really the focus. We were getting ready for ourvisit and there was a lot of focus and emphasis in that. So I think, you kindof have to blend the two together to prior get more of an accurate. You know over the kind of period of time, you know reallyright now it's focusing on resolving the final SACS recommendations and butbear in mind we did have, you know we continue to see some increases with -- inour October start for AIU as well.

Okay. And on the university segment margins, first of all isit fair to assume -- there's still a lower number of revenue-generating days atAIU, so revenue could still be down sequentially and margin could still be downsequentially there for that reason. Is that correct?

That's correct. If you look at our past history at AIU,you've seen the trend as the year progresses, based on the number of revenuedays that the revenue and profit will go down as the quarter's progressthroughout the year.

Okay. And on the groundside of the university segment, isthat calculated -- those are losing a fair amount of money. What's causing thatand what are the prospects for getting that into the black, just the on groundcampuses?

Yes. There's kind of two different stories on the, we aretalking about AIU first; they have been significantly impacted with their localrepresentation on the AIU groundside. And getting ready for SACS, they have alot of work to do. They put a lot of focus and energy resolving the SACSconcerns and as our recent result, they did a wonderful job in resolving basedon the visit. So really the turn on the AIU side is rebuilding therepresentation and the brand positioning locally for those AIU grounds schools,because you have it kind of across the board. You know, at CTU you have kind of a mixed bag, you have twothings going on you have one that we're really kind of pushing the 100% online,even from the ground side, so you have kind of -- you have schools kind oftalking about 100% online and hybrid and things like that. And then we do have a couple schools that are doing verywell. We have a couple schools that are not doing very well on the CTUgroundside. So really it's focusing on those couple ground schools that are notdoing as well as we would to, need them to do.

Thank you.

And ladies and gentlemen, that concludes our question andanswer session for today. At this time, I would now like to turn the call backover to Mr. Gary McCullough. Please proceed, sir.

Thank you, all for participating on our call this morning.We appreciate your questions. I would just summarize by saying that we areworking on building a strong foundation for the future of our company and doingthat's going to take patience it going to take hard. We'll need to collaborate more. We'll have to execute betterthan we have and frankly with we have to change the way we've operated. We'reputting into place what I believe to be a strong, talented management team. We've got a clearer plan of action for the future and we'vegot certainly the resources within our company necessary for us to achieve ourpotential. I wanted to say that. I want to thank you again for yourtime and your interest in our company. With that, we'll conclude our call.

Ladies and gentlemen, thank you for your participation intoday's conference. That concludes the presentation. You may now disconnect.Have a good day.