Doug Craney Scott W. Steffey - Chief Executive Officer and President Colleen M.

O'Sullivan - Chief Financial Officer and Senior Vice President

Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division Jeffrey M.

Silber - BMO Capital Markets U.S. Trace A.

Urdan - Wells Fargo Securities, LLC, Research Division Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division Corey Greendale - First Analysis Securities Corporation, Research Division Peter P.

Appert - Piper Jaffray Companies, Research Division

Thank you, Adrienne. Good morning, everyone, and thank you for joining us on our second quarter 2013 earnings call.

With me on the call this morning are Scott Steffey, our President and Chief Executive Officer; and Colleen O'Sullivan, our Senior Vice President and Chief Financial Officer. Following remarks made by management, the call will be open for analysts and investor questions.

This conference call is being webcast live within the Investor Relations section of our website at careered.com. A replay of this call will be available on our site.

You can also contact our Investor Relations Department at (847) 585-3899. Before I turn the call over to Scott, let me remind you that yesterday's press release and remarks made today by our executives may include forward-looking statements as defined in Section 21E of the Securities Exchange Act.

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 Annual Report on Form 10-K for the year ended December 31, 2012, and our 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. In addition, the remarks today may refer to non-GAAP financial measures, which are intended to supplement, but not substitute, for the most directly comparable GAAP measures.

Our press release, which contains financial and other quantitative information to be discussed today, is available within the Investor Relations section of our website at careered.com. Now let me turn the call over to Scott Steffey.

Thanks, Doug. Welcome to the team.

Good morning, everyone, on the phone, and thanks for joining us. Today, I'd like to share with you some thoughts on topics that are core to our education business.

Following my comments, Colleen O'Sullivan, Senior Vice President and Chief Financial Officer, will provide additional detail and color on our second quarter results. We will then be happy to take your questions.

Since assuming my leadership role, I've been busy getting to know Career Education inside and out from the boardroom to our campuses. I've visited 14 campuses across 5 states and Europe so far.

I plan to continue visiting campuses regularly over the coming months. I've met with the leadership of most all of our campuses in the United States and Europe, as well as several layers of leadership at the University divisions, which is something that I enjoy doing as I find that campus presidents, division leaders and their teams often have some of the most valuable insights.

I've visited several back offices, technology and enrollment-based that serve various aspects of the company. I've visited admission offices, speaking with them about the challenges they face today as competition for prospective students is greater than ever.

I've connected with our employees through regular e-mail messages, town hall webcast with all employees, another which is scheduled for later this month, as well as one-on-one meetings regularly with my senior direct reports, in addition to 2 and 3 layers down within the organization. I've also spent time in Washington, D.C.

speaking with members of Congress, accreditors, regulators and industry leaders and have spoken with a number of existing and potential investors. I've also been working strictly to assess my core team, and I've already made some changes, which I believe will better position us for the future.

On some of those changes, Diane Auer Jones has assumed the role of Senior Vice President and Chief External Affairs Officer. Diane has been heavily involved in our Washington, D.C.

outreach efforts during her entire Career Education tenure. As you may know, her experience includes serving as Assistant Secretary for Postsecondary Education in the U.S.

Department of Education during the administration of President George W. Bush and in various committee staff positions in Congress.

I'm confident she will continue to serve as well, as we advocate for our students and our schools. After determining we had a skilled professional already here in an interim role, I named Jennifer Camp our Chief Human Resource Officer.

Jen has been with Career Education for 5 years and has proven to be an outstanding partner to leaders across the organization. I am also pleased that in June, we were able to add Lysa Hlavinka Clemens to our leadership team as Senior Vice President of Strategic Initiatives.

Lysa's 20-year career in private sector education began with the University of Phoenix and includes several years when she and I worked together at Strayer Education. She was actually my first senior hire there.

So I know the level of experience, professionalism and integrity she brings to us at Career Education. Lysa has assumed leadership of our ongoing reengineering initiatives, which I'll discuss more later.

She's also overseeing our Transitional Schools group, which is now led by Vice President Julia Leeman, since I appointed her to that permanent position in May. Julia has been with Career Education for more than 9 years and has great deal of experience in successive leadership roles with our health school.

I'm looking to strengthen and enhance our operational focus of our ethics and compliance regulatory operations, legal and audit functions. These are areas -- these areas of opportunities work in a more integrated manner, and I'm in the midst of a comprehensive review of these functions to determine how best to align them for optimal performance, efficiency and student service.

Needless to say, it's been a very busy couple of months, but the time has been extremely helpful in my transition into this leadership role. I've mentioned them before, but I'd like to reiterate the goals I've outlined for Career Education and its family of institution which include: strive for the highest level of academic excellence for the students we serve; create an environment of utmost professionalism and integrity; and improve operational efficiency in everything we do.

These goals are further enforced by our principles of acting with a sense of urgency, always placing student's interest first, fostering academic innovation, embracing accountability and integrity and viewing challenges as opportunities to build respect and trust. I believe strongly in these goals and principles as being foundational to the cultural turnaround of this organization.

Before I share additional thoughts on the operating segments, let me speak to the progress we have made on a number of fronts, which will have impact to the entire enterprise as a whole. First, let me touch on legal settlements.

The most significant legal issues Career Education has faced recently have been in New York Attorney General's inquiry, along with the securities shareholders litigation and derivative litigation. I mentioned on our last call that we are making progress on our legal matters, and that optimistically, we can get those issues behind us.

As a discussed in our earnings release and Form 10-Q that was filed last night, our second quarter results include a $10 million charge related to reaching a preliminary agreement as to the monetary component with the Attorney General of the State of New York. We are in the process of negotiating the remaining terms of the settlement, including certain injunctive provisions.

We look forward to resolving the situation after many months of cooperative discussion with representatives of the AG's office. We also have the mediator's proposal, which has been accepted related to both our derivative and security litigation matters.

We believe that insurance proceeds will cover all of the costs regarding both the derivative and security matters. While settlements are not final, I believe that they will be finalized later this year.

Now turning to one of the exciting things happening on the education front of Career Education today, the full-scale rollout of our intellipath adaptive learning platform. We've alluded to our technological advancement and pilot courses in previous quarters, and over that time, we've been carefully examining the early results and making refinements.

We have moved from piloting certain adaptive learning courses to a broad rollout within Colorado Technical University and American InterContinental University. Each term, the University's academic teams have been building new learning maps to power the adaptive courses, training instructors on the technology in launching more courses with intellipath's adaptive learning technology.

As we disclosed last week, students in more than 11,000 course enrollments at AIU and CTU have used this innovative adaptive learning engine since the fall of 2012. The use of this exciting engine is not limited to AIU and CTU.

Our Career Schools is beginning with International Academy of Design and Technology and soon extending to the Cordon Bleu, Sanford-Brown and others are piloting the technology in general education courses. While others in higher education are experimenting with adaptive technology courses mainly focused on math, we've got thousands of students who have already taken adaptive courses that go far beyond math, such as English composition and accounting.

Intellipath's adaptive learning engine uses continual real-time assessments of student knowledge and skills to determine what content, applications and practice problems will be presented to the student in what order. As of the end of June, students of adaptive learning courses at Career Education schools have tallied some impressive totals.

They've completed more than 6 million assessment questions, over 648,000 lessons, more than 61,000 determined knowledge assessment tests and over 212,000 practice and revision lessons. I'm especially proud of the job our academic leaders have done in training our faculty on this new technology.

As we know, you can have great new classroom technology, but if your faculty don't embrace it and use it effectively, the students don't experience -- the positive student experiences that you're looking for don't follow through. Faculty members across the Career Education family of schools have been trained and have taught more than 300 sections with intellipath's adaptive learning.

The pilot study at AIU showed adaptive learning technology working in both English composition and math classes. Students randomly assigned to adaptive learning sections showed positive result, including a 13.6% decline in withdrawals, a 4% increase in persistence and a 6.8% improvement in final course score.

Armed with these findings, AIU has expanded the use of adaptive learning technology into history, accounting, business and economic classes with plans to expand across the curriculum. CTU's pilot study focused primarily on student and faculty engagement and satisfaction.

Survey showed that 94% of faculty and 87% of students involved in intellipath learning expressed a belief that the technology enriched the experience and contributed towards student achievement. CTU has now expanded the use of intellipath into additional math courses and college readiness courses and business management.

We have done this with our Dublin-based technology partner, CCKF, which developed the analytical engine that powers intellipath's adaptive learning. I've had the opportunity to meet with some of the leadership at CCKF.

I'm joining its board, and we'll be meeting with them later within the next few weeks. Our teams have spent more than 1 year working with CCKF to integrate their systems into ours and to incorporate our extensive course content, much of it our own self published coursework through the creation of learning maps tailored to the adaptive learning system.

The process continues today as we continue to expand its reach each term. The engine behind the intellipath adaptive learning assesses what each student knows coming into the course and creates a customized learning map, adjusting course content along the way as it determines where students are having trouble or where they might need a greater challenge to remain engaged.

I find the technology incredibly promising. It empowers instructors with greater insight into each student.

The faculty dashboard provides information into how the entire class is doing at an instant. Rather than waiting for the results of the next paper or exam, the instructor can instantly see who is struggling and intervene with one-on-one assistance.

It's too early to tell the effect this may have on the performance of our University and Career Schools, but we're confident from what we're seeing so far that this innovation is already having a positive impact on student learning. And better student outcomes will inevitably lead to better overall performance for our schools.

I look forward to providing you with intellipath updates as we have more information to share in the months ahead. Let me turn into rightsizing and reengineering.

As I discussed last quarter, we continue to implement the results of an intense operational review, which established critical initiatives aimed at rightsizing our organization for our current and expected student population levels and reengineering systems and processes to be more efficient and effective. Nothing is more important for the near-term turnaround and growth prospects of Career Education than rightsizing and reengineering the organization.

Some of these reengineering initiatives include process changes and resulting workforce reduction in human resources and finance, and some of those that have already been implemented. As I mentioned earlier, Lysa Clemens, who joined CEC in June, has taken on the leadership role in assisting the organization's move through the implementation phase of the remaining initiatives.

She's partnering with each of the leaders within the organization to drive the changes necessary, which will result in achieving the saving targets I've mentioned last quarter. We still expect and are on-track to achieve permanent cost reductions of $25 million or more for 2013 with full year benefits in 2014.

As part of this process, we also must rebuild our culture and maintain an organization focused on academic excellence for the students we serve, integrity professionalism in the workplace and operational efficiency across our domestic footprint. Now I'd like to share some quarterly highlights from our education groups.

First, the Career Schools. Overall, new student starts were down 3% for the quarter compared to the same quarter last year.

Nonetheless, our Career Schools are showing signs of stabilization, with all -- overall application -- excuse me, with overall applications up 9.1% versus the prior year and the overall student attrition rate improving 10 basis points. The rate at which we convert prospective students to new students starts showed positive improvements in both our Design and Technology and Culinary Arts segment, as compared to the prior year-to-date.

And our Health Education group experienced a 5% increase in new student starts as compared to the prior year, the first increase in new student starts since the third quarter of 2010. Within Culinary, the reintroduction of the associates program has produced positive results in the mix of students entering this program, as compared to our certificate program has continued to increase to the current year-to-date.

Over 35% of our current culinary students are now enrolled in an associates degree program. We are seeing improvements in career placements for graduates across the Career Schools.

We continue to make progress to enhance critical operations and academic processes across our Career Schools, focusing on new student intake initiatives, new programs and reengineering efforts, which we expect to positively impact the fourth quarter of 2013, all of 2014. On the University side.

We continue to make operational improvements that we believe will set the stage for a positive back-to-school season. I'm pleased to share that some of the efforts that we took to enhance our marketing messages and student intake process, including changes to marketing campaigns and channels, as well as the experience a prospective student has from the initial point of contact with a representative, are taking hold.

As we entered the third quarter, we're seeing these operational changes having a positive impact, increasing the average number of student applicants on a daily basis, which we expect will have a positive effect on new student starts. We're closely monitoring the effectiveness of those changes and continue to evolve our marketing and student intake initiatives, refining each to best speak to and serve our student audiences.

Let me just pause for a moment and let you all know about a nomenclature change that I'm making. In the past, the company has referred to enrolls in a way that I prefer to and refer to and use the term applicants.

You will notice in the MDA of the 10-Q that where we had the term enrolls, I've put in, in parenthesis, applications or applicants. That's what I'm going to refer to on a going-forward basis instead of enrolls and what will the word enrollments is going to refer to new starts, and then total enrollments will refer to total population.

I think those are just more clarifying nomenclature changes from my standpoint. So let me return back to the University comment.

In addition to our focus on student intake, we remain committed to identify innovative program offerings and areas of differentiation in each of our institutions. Regarding AIU, we will be testing new pricing strategies in the coming months, which are aimed at providing students with varying alternatives to completing their course of studies in an affordable and efficient manner.

On another note, I'm also pleased that our universities posted a 100-point -- 100-basis-point improvement in student retention year-over-year. Retaining the students we have and moving them toward completion of their degrees is good for our schools and good for our students.

In May, CTU received recognition from the prestigious Society for Human Resource Management that its Bachelor of Science in Business Administration degree program with the concentration in human resource management fully aligns with the Society's HR curriculum guide book and templates, which yet another example of the way our schools tailor their programs to meet the needs of employers, thereby meeting the practical career-focused educational needs of our students. CTU also continues to grow in popularity among active military students.

According to a survey of Defense Department Information by Military Times Edge magazine, CTU is the 25th most popular university the nation in terms of where military students are choosing to use their tuition assistance benefits. We intend to continue serving these students well with flexible education that caters to the demand of their military careers.

Word of mouth recommendations among servicemen and women is powerful and only comes with exceptional student experiences. Now turning to International.

Our international institutions continue to perform very well. We expect the new student starts for the fall will be higher than last year, as the new student offerings and the demand for the degree offerings provided by our international institutions remained strong.

As you may recall, the false start for insight is the telling barometer for the year. All the information we have to date points to the institution being positioned for growth in 2010.

We have made -- or 2014, excuse me -- we've made excellent progress with integrating the operations of ESC Chambéry into our Paris-based INSEEC Group of schools and have initiatives underway to expand recruitment beyond France that are showing positive early results. We believe that the University of Monaco acquisition has the capability to show us much progress as INSEEC has in France, and that strategically positions us as a differentiated Career School destination for students around the world.

We also expect to significantly grow the online offering at the University of Monaco. Overall, the international institutions continue to perform well, meeting or exceeding our internal plans despite a sluggish economy in France.

Now the Transitional segment update. The Transitional Schools group continues to perform as we expected.

These schools are meeting their commitments to our students through the process of teaching out their campuses. Retention rates at our Transitional Schools continue to be higher from the year before, which speaks volumes to the commitment we are showing to follow a disciplined student-centered approach.

We must continue this quality approach while also managing our cost as we serve every student well until the end. Overall, Career Education is beginning to see signs that we're reducing our losses through our rightsizing and reengineering efforts.

We are actively taking cost out of the business as we become more efficient and adjust the organization size to serve a smaller overall student population. By controlling costs and improving the efficiency and effectiveness of our operations, I'm confident we are moving in the direction of breaking even or returning to profitability and the visibility of the business appears to be improving.

At the same time, that we are increasing our efficiencies, we're improving our processes. As I mentioned, we're already seeing positive signs from these initiatives in our university student intake process.

Another key part of our turnaround is centered on program and educational quality. It's things like intellipath that once again show how the private sector drives innovation.

That happened 15 years ago with our sector driving the development of online education, something that is now accepted across higher education. And now, we're seeing the same kind of revolutionary technology innovation with adaptive learning.

It's an exciting time to be part of an organization at the forefront of developing meaningful innovations like this. We're keeping a very watchful eye on external events such as the new requirements on expressed written consent and negotiated rulemaking, but we're unable to predict with certainty how these might affect our business.

We are proactively planning to make any necessary adjustment to our operations. Lastly, I want to mention that we continue to evaluate our options to access capital understanding that maintaining a sufficient financial responsibility ratio with the Department of Education is critical as we continue our turnaround strategy.

While SOAR focuses on capital structure, it's important to also mention that as I look over the next year, I feel comfortable with the current liquidity position of the company. Heading into our annual strategic planning period this fall, we are continuing to identify strategic alternatives, which will position the company for a return to sustainable growth.

Along those lines, we are making good progress towards extending or replacing our existing line of credit, examining the valuation or sale of certain assets, assessing our real estate footprint and evaluating our portfolio of campuses. Whatever decisions we may end up making will be reached balancing our short-term needs against our long-term strategies to return to growth.

At this point, no commitments have been made, but I wanted you to understand that this was something we're focused on and actively addressing. With that, I'll turn it over to Colleen to discuss further financial details on our results for the second quarter.

I look forward to answering your questions at the conclusion of her remarks.

Thanks, Scott. Good morning, everyone.

Let me first start by reminding you of a few items included in the press release and Form 10-Q issued last night. The second quarter results have several items impacting comparability to the prior year.

First, a $10 million or $0.10 per share charge related to the New York Attorney General investigation; $4 million or $0.04 per share of impairment charges related to our Le Cordon Bleu and Sanford-Brown trade name; and $2.5 million or $0.02 per share in severance and related expenses associated with our rightsizing and reengineering initiatives. The second quarter of last year's results included goodwill and asset impairment charges totaling $85.4 million or $1.24 per share, recorded primarily within our Health Education and Design and Technology segments.

In addition, during the quarter, we completed the teach-out of Sanford-Brown Landover, which had been reported within our Transitional segment. The results of operations for Sanford-Brown Landover are now reported in discontinued operations.

Now let me provide an overview of financial performance for the quarter. Revenue was $295 million, a decrease of 19% versus the prior year.

Operating loss was $64 million, driven by declining student populations across our domestic institutions, as well as the items I mentioned above. Overall, new student starts, excluding Transitional Schools, were down 19% from last year, while student population declined 20% versus the second quarter of 2012.

Turning to financial results by operating segment. First, the Career Schools Education Group.

In the second quarter, revenue of $108 million decreased 22%, reflecting a 3% decline in new student starts and 30% lower student population levels versus the prior year. Together, these institutions reported an operating loss of $52 million during the second quarter.

Despite these financial headwinds, progress has been made to enhance critical operational and academic processes across the education group. During the second quarter, we experienced an increase in applications over the prior year.

We anticipate further improvements as the impact of intake initiatives, new programs and reengineering efforts begin to take hold. Now moving to the University group, which include our predominantly online institutions, American InterContinental University and Colorado Technical University.

In the second quarter, new student starts declined 31% and 24% in AIU and CTU, respectively. As discussed in previous earnings calls, this metric is being impacted by our Readiness Opportunity program.

Excluding the impact of this program, new student starts were down 8% and 15%, respectively. As Scott discussed, we are expecting to see the positive impact of a number of initiatives in the second half of 2013.

For the second quarter, AIU revenue of $60 million was down 24% versus the second quarter of 2012. Student population during the quarter decreased 20%, compared to the second quarter of last year.

Revenue for CTU of $87 million was down 5% versus the second quarter of 2012, as a 9% reduction in student population offset modest increases in revenue per student. Operating margins in AIU and CTU were 1.7% and 19.1%, respectively.

Next, our International Education Group continues to perform well. In the second quarter, revenue increased 22% to $26 million.

Let me remind you the year-over-year comparison is impacted by our fiscal 2012 acquisitions of Luxury Attitude and the French business school, ESC Chambéry. Excluding this impact, international revenues would have been up 7%, as a result of higher average student population and moderate increases in revenue per student.

As a reminder, the majority of the programs offered by our international institutions follow a traditional school calendar. As such, ending population as of June 30 is low as students complete the courses of study.

Our expectation is that new student starts for the remainder of the year will continue to grow due to its strong program offerings, coupled with the synergies afforded by the prior year acquisition. Operating loss for the quarter was $4 million, declining from the prior year due to its sustained investments in programmatic accreditation.

Moving to our Transitional Schools segment. As Scott mentioned, these institutions continue to operate as expected and in line with our teach-out schedule.

Our expectation remains that this segment will incur operating losses between $70 million and $80 million for the year, excluding the impact of remaining lease obligation charges and other unusual items. As Scott also discussed, we remain on-track to reduce operating cost by $25 million or more in 2013, as a result of the implementation of initiatives identified to rightsize and reengineer our processes, which include reductions in both headcount-related and non-headcount-related costs.

As a result of decisions made in the second quarter, we recorded $2.5 million in severance and related costs. We anticipate additional severance and related expenses of up to $2 million to be recorded in the balance of 2013 as we finalize our decision surrounding additional initiatives.

As we exit 2013, we are anticipating that approximately 480 positions, both filled and unfilled, has been eliminated from the organization related to this program. Before we open the call for questions, let me update you on our financial position and liquidity.

As of June 30, 2013, the company had cash, cash equivalents and short-term investments of $242 million. Cash flow from operations for the 6 months ended June 30, 2013 was a $67 million net usage of cash, with capital expenditures of $10 million or 1.6% of revenue.

As we execute on our strategic imperatives, we expect that there will be continued pressure on our domestic operating cash flow in the short-term. However, as Scott mentioned, we do anticipate that we'll be able to satisfy the cash requirements associated with, among other things, our working capital needs, capital expenditures and lease commitments through at least the next 12 months, primarily with cash generated by operations and existing cash balances.

We continue to monitor the operating performance of the business closely and are in the process of implementing initiatives to further improve the financial position of the company, which include our continued focus on reducing our cost structure, improving processes for attracting, educating and placing our students, as well as commencing the process to extend or replace our existing credit facility, assisting the value or sale of certain assets, reviewing our real estate footprint and evaluating our portfolio of campuses. And so with that, operator, let's open up the call for questions.

I appreciate your comments about your analysis on some of the strategic issues. Scott, is there a venue or a way you're going to sort of unveil that plan with regard to what you might do with sales portfolio, real estate, capital structure, processes, et cetera?

Jerry, what I plan on doing right now -- as I've mentioned in my comments, we're entering a period where strategic planning period traditionally of the company. We have a board meeting coming up in September where we're going to be going through a number of issues and finalizing some of our thoughts.

And it will be post that time period where we still may have some things that we need to nail down and sell up as exactly we start to dot some i's and cross some t's. So it will be post that period that we'll look at how we go about communicating properly with everyone.

Great. And with regard to, Scott, your interaction with the various regulatory and legal bodies that impact your business.

Can you maybe give us an update in terms of sort of what your strategy has been there? Who you've met with?

What sort of feedback that you've gotten from those folks and how well they understand or don't understand what you're trying to do at the company?

Sure. I'm not going to go into exactly who I've met with, but what I'll say is that the conversations have gone pretty much as I would have expected.

And they've generally been in the context of sort of 2 camps. One camp of people that I don't have a long-standing relationship with, who I've met with and talked about the company's history and issues with regards to company's history.

And then I also had the opportunity to talk about my history. And how I have done things both at the State University of New York and at Strayer and what my track record has been on those fronts and talked about then the future, and whether from the parties that I'm meeting or from my self-talking about how it appears to be a good match for bridging the future to where the company is today.

The other camp is people that I've had long-standing relationships with, and those have been a lot of fun to reinvigorate and a lot of excitement and optimism for the future.

Okay, great. And then with regard to the operations of the business, I realize there's a lot of moving parts here.

But can you maybe provide some color in terms of when you might expect volumes and volumes starts to improve? I mean, I'm just looking at the numbers, they're sequentially getting worse.

But I realize, again, there's a lot going on or said differently, is there level of volume that you think about as being sort of breakeven?

I think the best way to answer that question. I've tried to say in my comments that we're making a lot of adjustments from a standpoint of our initial touching with students, how we're persisting with them and continuing and assisting them with their full education through the program.

And we're seeing some signs that are positive. We still got some very big issues to manage through, expressed written consent is a meaningful issue.

We don't know exactly how that's going to impact the business. We've done a whole lot from a standpoint of scenario planning and contingency planning around that issue.

And we feel pretty comfortable we're in good shape to address what the foreseeable potential circumstances are of that. So I'm not going to give a future look on it, but I -- from where I'm sitting, we're seeing some good progress taking place.

Again, as Jerry said, there are a lot of moving parts here. But is there any way you can help us model a little bit better in the near-term, giving a little bit more color by segment.

You've mentioned you we expect starts to be up in the International segment. Any trend data on the other segments would be helpful as well.

I appreciate that, Jeff, but right now, we're just not prepared to lay out a new model for the company or make any forward-looking statements. What we have said is that applications are up in our different segments.

And that's a positive sign.

All right, fair enough. Again, just a couple of tidbits here.

The readiness program in AIU and CTU, when are you going to anniversary the impact of that?

When are we going to anniversary the impact of that?

Yes, I guess, when did it began, if you could remind us on that.

I think it's September, October.

Great. And then, again, just some modeling questions.

Capital spending for the rest of the year, what are your plans?

Jeff, we're expecting somewhere between 2% and 3% of revenue from a CapEx perspective for the full year.

Okay. And I know tax rate might be difficult, but if you can give us a guesstimate or a range where it might come out?

We continue as our 10-Q showed to benefit our losses and with some discrete items, specifically in the second quarter that I've referred to in the 10-Q footnotes. It's difficult to call it, but we do anticipate it to be probably in the 40% to 50% benefit effective tax rate for the year.

Okay. All right, great.

And are there any discrete items that we should be aware about that are coming in the back half of the year?

As we've said previously, as my remarks today said, we have expectations for some additional severance here in the back half of '13 of up to $2 million. I think, as we've said previously, as our Transitional Schools wind down, there will be some potential remaining lease obligation charges, but for 2013, nothing significant expected from that perspective for the balance of the year.

I hope this isn't a repetitive question, but, Scott, I thought I heard you talking about applications being up. And I think I also heard you say in your prepared remarks, the conversion rates were improving.

And I'm wondering if you just put that in the context of the starts declines. Is this an issue of timing?

Is it different? Or are you seeing particular weakness in show rates?

Can you just reconcile those statements for us?

Sure. We have seen applications improve.

It is -- and we have seen conversion rates start to improve as well. A good portion of why it hasn't shown up so far is a timing issue.

There has been a slight show rate issue in one of the elements of Career Schools side that we think we have our hands on. But so we think we've got that moving in the correct direction.

But overwhelming preponderance is a timing issue.

Okay, can you elaborate on that show rate issue that you just mentioned?

Not really. I mean, it has to do with just some experimenting that's going on with some initial intake issues.

And then I think we need to get that a little bit better as to how we're doing some of our orientation and first touchwork in that area. So I don't see it as -- it's mostly I think an execution operational issue.

Okay. And then you come in and inherited a pretty large volume of various and sundry consumer lawsuits.

And I'm wondering how you're -- these are all this suits that sort of predate 2010, but they're kind of hanging out there. I'm wondering how whether you take in a fresh look at them strategically whether there's anything that resulting from your arrival at the company that you're doing differently from a standpoint of defending yourselves against these legal challenges?

We're continuing to be very diligent in managing these efforts. I'm happy to talk about what I considered to be the 3 big buckets that were overhanging the company quite a bit.

And we've done a great job, I think, there in terms of moving along. I don't have anything new to report on any of the other matters in front of us.

Scott, I'm wondering how you're thinking about tuition price levels and particularly, I know you said you're piloting some stuff at AIU. I was wondering if you could elaborate on that a little bit, and also comment on the Health Education segment in light of the 9010 considerations there?

Yes. I'm not ready to make any announcements with regards to any differences in tuition pricing other than we are looking at a variety of different options.

And I think we have a few things in a hopper that are different than what have been tried by some others in the industry. We're looking at some programmatic things that I think are very interesting that impact potential pricing offerings that we have and -- but I'm not ready to say anything more on that.

Did you have a second half for that question?

The second half was about the Health Education segment given that the...

With regards to the Health -- the upstart enrollment on the Health side, that's really be taken in the context of just increased demand that we're seeing in our various markets over there. That's just good basic increased demand that is taking place out in the various geographies that we're in.

From a 9010 standpoint, I've been looking at that very, very closely. We're in a good position right now.

So that's not something that gives me any concern.

Corey, I would just add, if you recall previously, we did make some adjustments back in 2012 in the Health side from a pricing perspective that is falling through now in 2013.

Yes, but provided those adjustments were up, is that correct?

Correct.

Okay. And it sounds like that hasn't, from Scott's comment it sounds like demand is at least improving a little bit, despite the fact the price was raised last year?

Right.

Right.

Okay, then the next question. The $25 million in cost savings this year, how much of that did you achieve in Q2?

What I said in my first call was that the preponderance of that was going to be realized in the back half of the year. That's still true.

We've made some great progress on it though and I'm not concerned about being able to reach the target that I've set out to everybody.

Okay. And Scott, I know all right I believe that when you came into the company high-priority was making sure that you had kind of all the generals and lieutenants within the company lined up that you have the right people to go into battle with.

Where are you in that process? Is that still high in your priority list?

Do you think you mostly have all the right people and the right space at this point?

Well, the players on the field is always the high priority for me. That comes with the job.

So what I'll say there is we're trying to become an organization of continuous improvement. If we need to augment the skill sets that we have here, I feel very comfortable that we're able to do that.

Lysa is a very good example of that. Having said that, I've got a very solid team that I'm very happy with and very proud of, but -- and so we're firing on all cylinders, but could I add additional strength to the team in the future, of course.

So Colleen, not as an investment want more but we always want more and the $25 million permanent cost reduction, just in the context of the revenue pressures that you guys are facing, it just seems like a really small number. Can you speak to that issue?

Just to keep in mind, as we said previously, we took other additional actions in the fourth quarter of 2012, both as a result of our announcement to close a number of campuses. But, in addition, some other actions to reduce cost.

So the $25 million we're referring to in these activities is the new initiative that we embarked on in January of this year. And so those are very focused on permanent reductions in our cost structure.

Obviously, as to your point, the revenue continues -- if it continues to fall, we always make adjustment from a variable cost perspective to mitigate that decline as best as possible. And I would also add, as Scott mentioned in the prepared remarks he said, that many of the actions are taking place here in the back half.

So that's what the number we're referring to would be impact to 2013. So as you look out on an annualized basis, it would be a larger number.

Got it okay. And then Scott, I want to be sure I understand the messaging in terms of the trend in starts.

Is your expectation that starts for the company are going to be positive by the end of this year?

What I'm indicating is that we're seeing a noteworthy increase that appears to be directly related to improvements that we're making on our initial student impact with students, with potential students, with our -- with various aspects of the company and how we're conducting our orientations, and how we're moving in through things like 21 Day. And that, that is promising but that is a promising development.

I'm also trying to put that in the context of things that we've got going on in the industry like, I've mentioned expressed written consent. So I'm not forecasting anything.

I'm just letting people know, given some transparency on what I'm seeing in the business that is directly related to improvements that we're making on the business.

Well, I guess, that concludes the need for any more Q&A. Thanks so much for joining us, and I look forward to talking to you next quarter.