1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
Commission file number 0-12751
DeVRY INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3150143
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Tower Lane, Oakbrook Terrace, Illinois 60181
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(630) 571-7700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X
Number of shares of Common Stock, $0.01 par value, outstanding at
April 24, 2001: 69,744,416
Total number of pages: 22
2
DeVRY INC.
FORM 10-Q INDEX
For the Quarter Ended March 31, 2001
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at
March 31, 2001, June 30, 2000,
and March 31, 2000 3-4
Consolidated Statements of Income
for the quarter and nine months ended
March 31, 2001, and 2000 5
Consolidated Statements of Cash Flows
for the nine months ended
March 31, 2001, and 2000 6
Notes to Consolidated Financial
Statements 7-15
Item 2. Management's Discussion and
Analysis of Results of Operations
and Financial Condition 16-19
Part II. Other Information
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 22
3
PART I - Financial Information
Item 1 - Financial Statements
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
March 31, June 30, March 31,
2001 2000 2000
----------- ----------- -----------
(Unaudited) (Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 26,868 $ 25,851 $ 33,995
Restricted Cash 58,345 19,395 49,595
Accounts Receivable, Net 115,049 25,362 92,708
Inventories 4,130 6,371 3,532
Deferred Income Taxes 3,526 3,526 2,656
Prepaid Expenses and Other 3,451 1,459 4,109
------- ------- -------
Total Current Assets 211,369 81,964 186,595
------- ------- -------
Land, Buildings and Equipment
Land 42,501 38,516 38,491
Buildings 119,728 101,689 100,141
Equipment 136,173 113,586 108,904
Construction In Progress 10,128 6,403 3,135
------- ------- -------
308,530 260,194 250,671
Accumulated Depreciation (117,829) (101,393) (96,132)
------- ------- -------
Land, Buildings and
Equipment, Net 190,701 158,801 154,539
------- ------- -------
Other Assets
Intangible Assets, Net 79,853 74,134 74,946
Deferred Income Taxes 1,166 2,032 -
Perkins Program Fund, Net 9,746 8,316 7,829
Other Assets 2,928 1,832 1,405
------- ------- -------
Total Other Assets 93,693 86,314 84,180
------- ------- -------
TOTAL ASSETS $495,763 $327,079 $425,314
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
March 31, June 30, March 31,
2001 2000 2000
----------- ---------- -----------
(Unaudited) (Unaudited)
LIABILITIES
Current Liabilities
Accounts Payable $ 33,039 $ 31,827 $ 35,272
Accrued Salaries, Wages &
Benefits 30,725 24,715 26,355
Accrued Expenses 8,646 7,041 8,078
Advance Tuition Payments 9,382 15,507 10,069
Deferred Tuition Revenue 130,684 10,095 108,417
------- ------- -------
Total Current Liabilities 212,476 89,185 188,191
------- ------- -------
Other Liabilities
Revolving Loan - - 13,000
Deferred Income Tax Liability - - 323
Deferred Rent and Other 12,425 12,755 11,985
------- ------- -------
Total Other Liabilities 12,425 12,755 25,308
------- ------- -------
TOTAL LIABILITIES 224,901 101,940 213,499
------- ------- -------
SHAREHOLDERS' EQUITY
Common Stock, $0.01 par value,
200,000,000 Shares Authorized,
69,742,851, 69,642,087 and
69,605,007, Shares Issued and
Outstanding at March 31, 2001,
June 30, 2000 and March 31,
2000, Respectively 698 697 696
Additional Paid-in Capital 63,893 63,012 61,463
Retained Earnings 204,921 160,996 149,210
Accumulated Other Comprehensive
Income 1,350 434 446
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 270,862 225,139 211,815
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $495,763 $327,079 $425,314
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
5
DEVRY INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except for Per Share Amounts)
(Unaudited)
For The Quarter For The Nine Months
Ended March 31, Ended March 31,
--------------------- ----------------------
2001 2000 2001 2000
--------------------- ----------------------
REVENUES:
Tuition $137,836 $117,496 $400,189 $343,332
Other Educational 11,131 12,358 33,987 37,444
Interest 242 278 817 886
------- ------- ------- -------
Total Revenues 149,209 130,132 434,993 381,662
------- ------- ------- -------
COSTS AND EXPENSES:
Cost of Educational Services 81,292 72,569 241,015 216,333
Student Services and 41,325 35,518 121,893 105,131
Administrative Expense
Interest Expense 89 355 278 1,364
------- ------- ------- -------
Total Costs and Expenses 122,706 108,442 363,186 322,828
------- ------- ------- -------
Income Before Income Taxes 26,503 21,690 71,807 58,834
Income Tax Provision 10,466 8,393 27,882 22,839
------- ------- ------- -------
NET INCOME $ 16,037 $ 13,297 $ 43,925 $ 35,995
======= ======= ======= =======
EARNINGS PER COMMON SHARE
Basic $0.23 $0.19 $0.63 $0.52
===== ===== ===== =====
Diluted $0.23 $0.19 $0.62 $0.51
===== ===== ===== =====
The accompanying notes are an integral part of these consolidated
financial statements.
6
DEVRY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For The Nine Months
Ended March 31,
--------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 43,925 $ 35,995
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 20,656 15,484
Amortization 2,885 2,777
Provision for Refunds and
Uncollectible Accounts 21,742 18,611
Deferred Income Taxes 866 66
Loss on Disposals and Adjustments to
Land, Buildings and Equipment 282 49
Changes in Assets and Liabilities:
Restricted Cash (38,950) (28,684)
Accounts Receivable (111,197) (96,550)
Inventories 2,261 3,143
Prepaid Expenses And Other (3,470) (2,688)
Perkins Program Fund Contribution
and Other (1,662) (581)
Accounts Payable 1,212 3,896
Accrued Salaries, Wages,
Expenses and Benefits 7,615 6,178
Advance Tuition Payments (6,125) (3,359)
Deferred Tuition Revenue 120,589 103,272
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 60,629 57,609
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital Expenditures (52,838) (30,490)
Payments for Purchases of Businesses, Net
of Cash Acquired (8,572) (38,487)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (61,410) (68,977)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Exercise of Stock Options 882 517
Proceeds From Revolving Credit Facility 24,000 40,000
Repayments Under Revolving Credit Facility (24,000) (27,000)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 882 13,517
Effects of Exchange Rate Differences 916 (2)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,017 2,147
Cash and Cash Equivalents at Beginning
of Period 25,851 31,848
------- -------
Cash and Cash Equivalents at End of Period $ 26,868 $ 33,995
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Period $ 237 $ 1,329
Income Taxes Paid During the Period 29,700 25,384
The accompanying notes are an integral part of these consolidated
financial statements.
7
DEVRY INC.
Notes to Consolidated Financial Statements
For the Quarter and Nine Months Ended March 31, 2001
NOTE 1: INTERIM FINANCIAL STATEMENTS
The interim consolidated financial statements include the
accounts of DeVry Inc. (the Company) and its wholly-owned
subsidiaries. These financial statements are unaudited but,
in the opinion of management, contain all adjustments,
consisting only of normal, recurring adjustments, necessary
to present fairly the financial condition and results of
operations of the Company.
The interim consolidated financial statements should be read
in conjunction with the consolidated financial statements and
notes thereto contained in the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 2000 and in conjunction
with the Company's quarterly reports on Form 10-Q for the quarters
ended September 30, 2000 and December 31, 2000, each as filed
with the Securities and Exchange Commission.
The results of operations for the nine months ended
March 31, 2001, are not necessarily indicative of results
to be expected for the entire fiscal year.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies should be read in conjunction
with the Company's Annual Report on form 10-K for the fiscal
year ended June 30, 2000.
Restricted Cash
- ---------------
A significant portion of revenues is received from students who
participate in government financial aid and assistance programs.
Restricted cash represents amounts received from the United States and
state governments under various student aid grant and loan programs.
Restricted funds are held in separate bank accounts. These funds
are either received subsequent to the completion of the authorization
and disbursement process for the benefit of the student or, in a
limited number of instances, just prior to that authorization. Once
the authorization and disbursement process to the student has been
completed, the funds are transferred to unrestricted accounts and
these funds then become available for use in current operations.
This transfer generally occurs within the period of the academic term
for which such funds were authorized, with no term being more than
16 weeks in length.
8
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
- -------------------
Tuition revenue is recognized ratably on a straight line basis over
the applicable academic term. The provisions for refunds and
uncollectible accounts also are recognized in the same straight
line fashion as revenue to most appropriately match the tuition
revenue in that term. These provisions are included in the Cost
of Educational Services in the Consolidated Statements of Income.
Estimates of the Company's expected exposure to uncollectible
accounts and refunds are determined at the onset of each academic
term based upon actual experience in previous terms and monitored
and adjusted as necessary within the term. If a student leaves school
prior to completing a term, federal, state and Canadian provincial
regulations and accreditation criteria permit the Company to retain
only a set percentage of the total tuition received from such
student, which varies with, but generally equals or exceeds, the
percentage of the term completed by such student. Amounts received
by the Company in excess of such set percentages of tuition are
refunded to the student or the appropriate funding source. All
refunds issued are charged fully to refund expense during the
applicable academic term. Related reserves are $17,037,000,
$9,352,000 and $13,841,000 at March 31, 2001, June 30, 2000 and
March 31, 2000, respectively.
Textbook sales and other educational product sales, including training
services and the Becker/Conviser CD-ROM product are included in
Other Educational Revenues in the Consolidated Statements of Income.
Textbook and other educational product revenues are recognized when
the sale occurs, generally at the start of each academic term. Revenue
from training services, which is generally short-term in duration,
is recognized when the training service is provided, without
consideration for when payment is received. Also included in Other
Educational Revenues are receivable interest billings from various
student deferred tuition payment plans. Interest charges are generally
billed monthly and are recognized when billed. In addition, fees from
international licensees of the Becker/Conviser programs are included
in Other Educational Revenues and recognized into income when realized.
9
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition, continued
- ------------------------------
Enrollment and application fees for the Company's educational programs
represent less than 1 percent of the Company's revenues. These
fees are included in Other Educational Revenues and are recognized
in the next academic period after which there is no further right
to use or refund. Upon the Company's adoption of SAB 101 in the
fourth quarter of this fiscal year, enrollment fees will be deferred
and amortized over the full expected period of student attendance
as described in Note 2, Recent Accounting Pronouncements.
Perkins Program Fund
- --------------------
The Company is required, under federal aid program regulations, to
make contributions to the Perkins Student Loan Fund at a rate equal
to 33% of new contributions by the federal government. As previous
borrowers repay their Perkins loans, their payments are used to
fund new loans, thus creating a permanent revolving loan fund.
The Company carries its investment in such contributions at
original values, net of allowances for losses on loan collections, of
$2,578,000, $2,346,000 and $2,208,000 at March 31, 2001, June 30, 2000
and March 31, 2000, respectively.
The allowance for future loan losses is based upon an analysis of
actual loan losses experienced since the inception of the program.
The federal contributions to this revolving loan program do not
belong to the Company and are not recorded on the Company's
financial statements. Upon termination of the program by the
federal government or withdrawal from future participation by the
Company, subsequent student loan repayments would be divided
between the federal government and the Company in proportion to
their relative cumulative contributions to the fund.
Internal Software Development Costs
- -----------------------------------
The Company capitalizes certain internal software development costs
which are amortized using the straight line method over the
estimated lives of the software not to exceed 5 years. Capitalized
costs include external direct costs of materials and services
consumed in developing or obtaining internal-use software and payroll
and payroll related costs for employees who are directly associated
with the internal-use software project. Capitalization of such
costs ceases no later than the point at which the project is
substantially complete and ready for its intended purpose.
10
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Comprehensive Income
- --------------------
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" establishes standards for reporting and
display of comprehensive income and its components in the financial
statements. The components of comprehensive income, other than
those included in net income, were immaterial for the quarter and
nine months ended March 31, 2001.
Earnings Per Common Share
- -------------------------
Basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding during the
period. Shares used in this computation were 69,721,000 and 69,592,000
for the third quarters ended March 31, 2001 and 2000, respectively,
and 69,689,000 and 69,490,000 for the nine months ended March 31, 2001
and 2000, respectively. Diluted earnings per share is computed by
dividing net income by the weighted average number of shares assuming
dilution. Dilutive shares reflect the additional shares that would be
outstanding if dilutive stock options were exercised during the period.
Shares used in this computation were 70,697,000 and 70,321,000
for the quarters ended March 31, 2001 and 2000, respectively, and
70,678,000 and 70,324,000 for the nine months ended March 31, 2001
and 2000, respectively.
Recent Accounting Pronouncements
- --------------------------------
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin 101 ("SAB 101"). Adoption of SAB 101 is
required by the Company's fourth quarter of fiscal 2001. SAB 101
requires the deferral of certain fees and other charges over the period
of service (student enrollment). Based on its analysis, enrollment
fee income will be deferred and recognized over the period of
expected future student enrollment. SAB 101 permits the deferral
of certain direct enrollment costs to the extent of deferred
enrollment fee revenues. Therefore, although revenues will be reduced
somewhat by the deferral, net income, financial position and cash
flows will not be significantly affected. Also, in accordance with
the EITF, the Company expects that total reported revenue will be
reduced by approximately 3 to 4 percent by the provision for student
refunds that is currently reported as an expense in Cost of Educational
Services. This also will not significantly affect net income,
financial position and cash flows.
11
NOTE 3: ACQUISITIONS
On January 5, 2001, using its available cash balances, the Company
acquired for approximately $8.6 million, substantially all of the
tangible operating assets, trademarks and trade names of Argentum
Inc. and Xerxes Inc., which do business as Stalla Seminars ("Stalla").
Stalla, which is based outside of Cleveland, Ohio, develops and
markets exam preparation materials for the Chartered Financial Analyst
professional certification as administered by the Association
for Investment Management and Research.
This acquisition was accounted for under the purchase method of
accounting. Accordingly, the purchase price was allocated
to the tangible and identifiable intangible assets acquired
based on their estimated fair values, with any residual purchase
price allocated to goodwill. The intangible assets are being
amortized using the straight line method primarily over a 25-year
period for financial reporting purposes and will be deducted for
tax reporting purposes over shorter statutory lives.
The Company's previous acquisitions have also been accounted for
using the purchase method of accounting. In July 1999, the
Company acquired, for cash, Conviser-Duffy CPA Review for
approximately $12.9 million and Denver Technical College for
approximately $25.8 million.
NOTE 4: REVOLVING LOAN AGREEMENT
In October, the Company and its banks renegotiated the revolving loan
agreement; extending the term of the agreement to February 1, 2003,
increasing the permissible level of capital spending and adjusting
one of the financial covenants.
12
NOTE 5: SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131") effective with the year ended June 30, 1999.
SFAS 131 establishes standards for the way that public business
enterprises report certain information about operating segments
in the financial reports. Operating segments are defined as
components of an enterprise about which separate financial
information is available that is evaluated on a regular basis by
the chief operating decision maker, or decision making group, in
accessing performance of the segment and in deciding how to
allocate resources to an individual segment. SFAS 131 also
establishes standards for related disclosures about products and
services, geographic areas and major customers.
The Company's principal business is providing post-secondary education.
The services of our operations are described in more detail in Note 1
under "Nature of Operations" in Form 10-K for the year ended June 30,
2000. In the past, the Company aggregated its operations into
a single reportable segment. Effective with the third quarter of
fiscal 2001, the Company will present two reportable segments: the
undergraduate operations (Undergraduate) and graduate and
professional examination review operations including Keller Graduate
School of Management and Becker Conviser Professional Review
(Graduate and Professional).
These segments are based on the method by which management evaluates
performance and allocates resources. Such decisions are based upon
each segment's operating income, which is defined as income before
interest expense, amortization and income taxes. Intersegment sales
are accounted for at amounts comparable to sales to nonaffiliated
customers, and are eliminated in consolidation. The accounting
policies of the segments are the same as those described in Note 1 -
Summary of Significant Accounting Policies in Form 10-K for the year
ended June 30, 2000.
The consistent measure of segment profit excludes interest expense,
amortization and certain corporate related depreciation. As such,
these items are reconciling items in arriving at income before income
taxes. The consistent measure of segment assets excludes deferred
income tax assets and certain depreciable corporate assets. Additions
to long-lived assets have been measured in this same manner.
Reconciling items are included as corporate assets.
Following is a tabulation of business segment information for the
three months and nine months ended March 31, 2001 and 2000, as well
as for each of the years ended June 30, 2000, 1999 and 1998.
Corporate information is included where it is needed to reconcile
segment data to the consolidated financial statements.
13
NOTE 5: SEGMENT INFORMATION (continued)
For the Quarter Ended For the Nine Months Ended
March 31, March 31,
-------------------------- --------------------------
2001 2000 2001 2000
-------------------------- --------------------------
Revenues:
Undergraduate $130,609,000 $114,239,000 $377,280,000 $329,150,000
Graduate and Professional 19,012,000 16,112,000 58,589,000 52,983,000
Intersegment Elimination (412,000) (219,000) (876,000) (471,000)
-------------------------- --------------------------
Total Consolidated Revenues $149,209,000 $130,132,000 $434,993,000 $381,662,000
-------------------------- --------------------------
Operating Income:
Undergraduate $24,706,000 $21,680,000 $64,986,000 $54,405,000
Graduate and Professional 3,050,000 1,459,000 10,508,000 9,111,000
Reconciling Items:
Amortization Expense (1,021,000) (927,000) (2,885,000) (2,776,000)
Interest Expense (89,000) (355,000) (278,000) (1,364,000)
Depreciation and Other (143,000) (167,000) (524,000) (542,000)
-------------------------- --------------------------
Total Consolidated Income
before Income Taxes $26,503,000 $21,690,000 $71,807,000 $58,834,000
-------------------------- --------------------------
Segment Assets:
Undergraduate $403,147,000 $325,727,000 $403,147,000 $325,727,000
Graduate and Professional 73,479,000 80,439,000 73,479,000 80,439,000
Corporate 19,137,000 19,148,000 19,137,000 19,148,000
-------------------------- ---------------------------
Total Consolidated Assets $495,763,000 $425,314,000 $495,763,000 $425,314,000
-------------------------- ---------------------------
Additions to Long-lived Assets:
Undergraduate $14,011,000 $8,191,000 $51,612,000 $54,569,000
Graduate and Professional 8,917,000 900,000 9,798,000 14,408,000
--------------------------- --------------------------
Total Consolidated Additions
to Long-lived Assets $22,928,000 $9,091,000 $61,410,000 $68,977,000
--------------------------- --------------------------
Depreciation Expense:
Undergraduate $6,917,000 $5,134,000 $18,917,000 $14,132,000
Graduate and Professional 437,000 289,000 1,160,000 830,000
Corporate 193,000 174,000 579,000 522,000
--------------------------- --------------------------
Total Consolidated Depreciation $7,547,000 $5,597,000 $20,656,000 $15,484,000
--------------------------- --------------------------
Amortization Expense:
Undergraduate $264,000 $261,000 $794,000 $795,000
Graduate and Professional 757,000 666,000 2,091,000 1,981,000
--------------------------- --------------------------
Total Consolidated Amortization $1,021,000 $927,000 $2,885,000 $2,776,000
--------------------------- --------------------------
14
NOTE 5: SEGMENT INFORMATION (continued)
For the Year Ended June 30,
------------------------------------------
2000 1999 1998
------------------------------------------
Revenues:
Undergraduate $435,392,000 $365,691,000 $305,773,000
Graduate and Professional 72,327,000 55,623,000 48,257,000
Intersegment Elimination (895,000) (679,000) (559,000)
------------------------------------------
Total Consolidated Revenues $506,824,000 $420,635,000 $353,471,000
------------------------------------------
Operating Income:
Undergraduate $71,291,000 $59,110,000 $45,927,000
Graduate and Professional 12,600,000 6,744,000 7,476,000
Reconciling Items:
Amortization Expense (3,706,000) (1,675,000) (1,590,000)
Interest Expense (1,409,000) (300,000) (913,000)
Depreciation and Other (702,000) (769,000) (417,000)
------------------------------------------
Total Consolidated Income
before Income Taxes $78,074,000 $63,110,000 $50,483,000
------------------------------------------
Segment Assets:
Undergraduate $225,913,000 $182,009,000 $144,217,000
Graduate and Professional 81,256,000 59,476,000 61,560,000
Corporate 19,910,000 19,206,000 18,115,000
------------------------------------------
Total Consolidated Assets $327,079,000 $260,691,000 $223,892,000
------------------------------------------
Additions to Long-lived Assets:
Undergraduate $64,362,000 $41,661,000 $28,987,000
Graduate and Professional 15,022,000 3,158,000 2,858,000
------------------------------------------
Total Consolidated Additions
to Long-lived Assets $79,384,000 $44,819,000 $31,845,000
------------------------------------------
Depreciation Expense:
Undergraduate 19,642,000 14,475,000 10,921,000
Graduate and Professional 1,207,000 870,000 911,000
Corporate 696,000 764,000 565,000
------------------------------------------
Total Consolidated Depreciation $21,545,000 $16,109,000 $12,397,000
------------------------------------------
Amortization Expense:
Undergraduate $1,059,000 $63,000 $63,000
Graduate and Professional 2,647,000 1,612,000 1,527,000
------------------------------------------
Total Consolidated Amortization $3,706,000 $1,675,000 $1,590,000
------------------------------------------
15
NOTE 5: SEGMENT INFORMATION (continued)
The Company conducts its educational operations in the United States,
Canada, Europe, the Middle East and the Pacific Rim. International
revenues, which are derived principally from Canada, were less than
10% of total revenues for the periods ended March 31, 2001 and 2000
and for the years ended June 30, 2000 and 1999. Revenues and long-
lived assets by geographic area are as follows:
For the Quarter Ended For the Nine Months Ended
March 31, March 31,
-------------------------- --------------------------
2001 2000 2001 2000
-------------------------- --------------------------
Revenues from Unaffiliated Customers:
Domestic Operations $142,264,000 $122,984,000 $416,067,000 $362,571,000
International Operations 6,945,000 7,148,000 18,926,000 19,091,000
-------------------------- ---------------------------
Consolidated $149,209,000 $130,132,000 $434,993,000 $381,662,000
========================== ==========================
Long-lived Assets:
Domestic Operations $274,016,000 $227,872,000 $274,016,000 $227,872,000
International Operations 10,378,000 10,847,000 10,378,000 10,847,000
-------------------------- --------------------------
Consolidated $284,394,000 $238,719,000 $284,394,000 $238,719,000
========================== ==========================
For the Year Ended June 30,
------------------------------------------
2000 1999 1998
------------------------------------------
Revenues from Unaffiliated Customers:
Domestic Operations $480,894,000 $399,412,000 $332,405,000
International Operations 25,930,000 21,223,000 21,066,000
-----------------------------------------
Consolidated $506,824,000 $420,635,000 $353,471,000
==========================================
Long-lived Assets:
Domestic Operations $232,831,000 $175,474,000 $149,661,000
International Operations 12,284,000 6,276,000 4,511,000
------------------------------------------
Consolidated $245,115,000 $181,750,000 $154,172,000
==========================================
No one customer accounted for more than 10% of the Company's consolidated
revenues.
16
Item 2 - Management's Discussion and Analysis of Results of Operations and
Financial Condition
- ---------------------------------------------------------------------------
Certain information contained in this quarterly report may constitute forward
looking statements made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such statements may involve risks
and uncertainties that could cause actual results to differ materially from
the forward-looking statements. Potential risks and uncertainties include,
but are not limited to, dependence on student financial aid, state and
provincial approval and licensing requirements, and the other factors detailed
in the Company's SEC filings, including those discussed under the heading
entitled "Risk Factors" in the Company's Registration Statement on Form S-3
(No. 333-22457) filed with the Securities and Exchange Commission.
The following discussion of the Company's results of operations and financial
condition should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto as included in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2000, and in
conjunction with the Company's quarterly reports on Form 10-Q for the periods
ended September 30, 2000, and December 31, 2000, each as filed with the
Securities and Exchange Commission. All references to per share amounts have
been restated to reflect the June 19, 1998, two-for-one stock split.
Because of the somewhat seasonal pattern of the Company's enrollments and its
term starting dates, which affect the results of operations and the timing of
cash inflows, the Company's management believes that comparisons of its results
of operations should be made to the corresponding period in the preceding year.
Comparisons of financial position should be made to both the end of the
previous fiscal year and to the end of the corresponding period in the
preceding year. Because of the seasonality of student enrollments, the
Company's second and third quarters have historically represented the periods
of highest revenues and net income within a fiscal year.
Results of Operations
- ---------------------
Total consolidated revenues increased by $19.1 million, or 14.7%, compared to
last year. Tuition revenues, that are the largest component of total revenues,
increased by $20.3 million, or 17.3%, in the quarter compared to the third
quarter of last year. Other Educational Revenues, composed primarily of the
sale of books and supplies, including the Becker Conviser CD-ROM product,
declined slightly for the quarter, continuing the trend of the first six
months. Interest income, that has historically been less than 0.5% of
revenues, remained just below last year's levels as the amount of cash
available for investment was generally below the levels available last year.
For the first nine months, the increase in total consolidated revenues was
$53.3 million, or 14.0%, while the increase in the tuition revenue component
of the total was $56.9 million, or 16.6%. Other Educational Revenues declined
by $3.5 million, or 9.2%, from the nine months of last year because of the
continued effect of the outsourcing of some DeVry Institute bookstores to
Follett Higher Education Group. Interest income was just below last year's
level as a result of generally declining interest rates available on the
Company's short-term investments and somewhat lower cash balances available
for investment.
17
Undergraduate segment revenues increased by 14.3% and 14.6% for the third
quarter and nine months, respectively. In the Undergraduate segment,
enrollments for the fall term increased by 9.3% and by 10.5% for the spring
term. Contributing to record revenues and enrollments was the opening of a
new DeVry Institute in Tinley Park, Illinois, in July, 2000 and a new
DeVry Institute in Orlando, Florida, in November, 2000. In addition, tuition
rates were increased approximately 6% effective with the summer term that began
in July, 2000. Partly offsetting the increased tuition revenue was the lower
Other Educational Revenues reflecting the outsourcing of certain DeVry
Institute bookstores to Follett Higher Education Group. As of the end of the
third quarter, a total of nine bookstores had been outsourced. At those
bookstores that Follett has contracted to run for DeVry, the Company receives
a commission from Follett based upon the level of sales instead of the Company
reporting the higher sales amount and accompanying cost of sales.
In the Graduate and Professional segment, revenues increased by 18.0% and 10.6%
for the third quarter and nine months, respectively. Enrollments at the Keller
Graduate School increased by 16.4% for the term that began in February, 2001.
In addition, tuition rates were increased by more than 5% for the term that
began in September, 2000. Partly offsetting these increases were lower
revenues at Becker-Conviser Professional Review as enrollments in its CPA
examination review course declined somewhat because of numerous state
implementations of the "150 hour rule", requiring CPA candidates in those
states to have completed 150 hours of college credit, generally a fifth year
of college, before they are eligible to sit for the exam. However, in the
third quarter, although the "150 hour rule" continued to affect enrollments
as it did in the first half, the acquisition of the Stalla CFA seminar business
almost totally reduced the effect of this decline, so that total revenues
increased at a higher rate than in the first half of the year.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 entitled "Revenue Recognition in Financial Statements"
("SAB 101"). This bulletin provides the SEC staff's views on applying
generally accepted accounting principles to selected revenue recognition
issues, including the recognition of fee income. The SEC has subsequently
issued interpretive guidance and SAB 101 will be implemented by the Company
in the fourth quarter of the current fiscal year. Based on its analysis,
enrollment fee income will be deferred and recognized over the period of the
expected future student enrollment. SAB 101 permits the deferral of certain
direct enrollment costs to the extent of deferred enrollment revenues.
Therefore, although reported revenues will be reduced somewhat by the deferral,
net income, financial position and cash flow will not be significantly
affected. Also, in accordance with the EITF, the Company expects that
total revenue will be reduced by the provision for student refunds that is
currently included as an expense in Cost of Educational Services. This also
will not significantly affect net income, financial position and cash flows.
The Company's cost of Education Services increased at a rate less than the rate
of increase in revenues for both the quarter and the year-to-date.
Contributing to the lesser rate of growth in this expense category is the
outsourcing of bookstore sales at nine DeVry Institutes. The Company does not
report cost of books sold at those Institutes that do not operate their own
bookstore, reporting instead commission income based upon the level of sales
at those locations and no corresponding cost of sales.
18
Student Service and Administrative Expense continued to increase at a rate
somewhat higher than revenue growth for the quarter as it did in the first
half of the year. Spending on marketing for the Company's newly opened
operating locations whose revenues have not yet reached their full level and
marketing in advance of future DeVry Institute and Keller Graduate School
openings is contributing to the increase.
Also, in response to the growing size and complexity of its educational program
offerings, the Company began this year to design and develop a new student
information system to better support the educational process and supporting
activities. Information system development costs related to this project and
to other system initiatives, including the cost of staff and outside consulting
services, have increased from last year. In accordance with accounting
principles for software development costs, certain wage and outside service
costs are being capitalized. At the end of March, 2001 total capitalized costs
were approximately $1.2 million. Capitalized costs will begin to be amortized
in future periods as portions of the project become operational.
In the Undergraduate segment, the operating income margin for the third quarter
was almost identical with the third quarter of last year but was somewhat
higher for the nine months than it was a year ago. Although the outsourcing
of bookstore sales to Follett has improved operating margins in all periods,
increased marketing and computer information system maintenance costs reduced
much of this gain in the third quarter. Also, approximately $1.6 million of
currency conversion losses with respect to DeVry Canada were incurred in the
third quarter as the Canadian dollar declined from $0.67 to $0.63 vs. the U.S.
dollar.
In the Graduate and Professional segment, opening of new Keller Graduate School
centers and enrollment growth at existing centers plus the addition of the
Stalla Seminars CFA exam review program as a part of the Becker/Conviser course
offerings has contributed to a 77% increase in operating margin in the third
quarter vs. the prior year, increasing operating margins for the nine months
slightly above the level of last year.
Amortization expense has increased slightly from last year because the
acquisition of Stalla Seminars, accounted for with the purchase method of
accounting, consisted largely of intangibles that are being amortized over
their expected useful lives.
The reduced interest expense for the third quarter and nine months compared to
last year reflects the Company's generally debt free financial position except
for brief periods between operating cycle inflows.
The effective tax rate on income in the third quarter increased to 39.5%
compared to 38.7% in the third quarter last year, bringing the rate for the
nine months to 38.8%. The higher effective tax rate in the third quarter is
caused by the tax rate applicable to the future utilization of certain deferred
tax assets decreasing as a result of an enacted statutory reduction in Canadian
income tax rates.
Net income of $16.0 million, or $0.23 per diluted share, increased by 20.6% for
the third quarter. For the nine months, net income of $43.9 million, or $0.62
per diluted share, increased by 22.0%.
19
Liquidity and Capital Resources
- -------------------------------
Cash generated from operations reached $60.6 million for the first nine months,
up $3.0 million from the same period a year ago. Contributing to the higher
cash flow from operations were higher net income, the increased non-cash charge
for depreciation and amortization included in this net income and accrued wages
and expenses. These increases are all related to the greater volume of
revenues and related activities as the Company continues to grow.
Partly offsetting these higher sources were an increase in restricted cash, a
decrease in the amount of issued but outstanding checks and the combination of
all accounts receivable related items including the provision for refunds and
doubtful accounts, advance tuition payments, deferred tuition revenues and
accounts receivable from students and various financial aid programs. The
increased accounts receivable level reflects higher student enrollments
generating higher tuition billings to be collected and an increase of average
receivables per DeVry Institute student of 4+% vs. a year ago. The increase
in average receivable per student at DeVry Institutes is less than the rate of
the summer term increase in tuition rates. The March 31, 2001 Balance Sheet
reflects receivable levels from DeVry Institute enrollments for the spring term
that began on March 12th. Receivable collections are heaviest at the start of
every term and receivable levels measured this close to a term start can be
volatile and not necessarily indicative of the real increase in receivables
which is best measured at June 30th.
Capital spending for the nine months reached a record $52.8 million, up more
than $22.0 million from the same period last year. Included in this capital
spending is ongoing construction of a new DeVry Institute in Seattle;
renovation and expansion of the Columbus Institute; classroom, laboratory and
administrative equipment and furniture for the newly opened Orlando, Florida,
and Tinley Park, Illinois campuses plus improvements and replacements at all of
the Company's operating locations. The rate of future capital spending may
remain at historically high levels depending upon new campus openings being
owned or leased. The decision to own rather than lease is based upon an
analysis of the alternative financing opportunities at each location.
At the beginning of January, 2001 the Company completed the acquisition of
Stalla Seminars for approximately $8.6 million in cash. Stalla Seminars
develops and markets exam preparation materials for the Chartered Financial
Analyst certification and is included in the Graduate and Professional segment.
In both the first and second quarters of this fiscal year, the Company borrowed
$6 million under its revolving line of credit agreement to meet cyclical
operating needs prior to the cash inflows from the start of DeVry Institute's
summer and fall term. These temporary borrowings were fully repaid by the end
of each quarter. In the third quarter, the Company borrowed $12 million to
fund the Stalla acquisition and to meet its cyclical operating needs until the
inflow of cash from the start of DeVry Institute's spring term. This borrowing
was fully repaid by the end of the quarter. The Company believes that current
balances of unrestricted cash, cash generated from operations and, if needed,
its revolving loan facility will be sufficient to fund its operations for the
foreseeable future.
20
Item 5 - Other Information
- --------------------------
In November, 2000 three graduates of DeVry Institute's Chicago campus filed a
class-action complaint that alleges DeVry graduates do not have appropriate
skills for employability in the computer information systems field. The
Company believes that this lawsuit is frivolous and completely without merit.
Costs incurred to-date related to this lawsuit have been minimal. The Company
has made no provision in its financial statements for the cost of the lawsuit
and believes that any future costs will not have a material effect on its
results of operations or financial position.
In January, 2001 the Company acquired, for cash, the Stalla Seminars CFA Review
business as a complement to its Becker Conviser Professional Review.
In January, 2001 the Company announced several key management promotions
designed to provide the organizational resources necessary to accomplish the
Company's growth and quality goals. These promotions included:
O. John Skubiak to executive vice president
Michael J. LaForte, Jr. to senior vice president
Norman M. Levine to senior vice president.
In April, 2001 the Company reached an agreement to purchase approximately 17
acres of land in Houston, Texas, as the site for a future DeVry Institute
campus.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits and Financial Statements Schedules
(2) Supplemental Financial Statement
The supplemental valuation schedule for the Company and its
subsidiaries is included on page 21 of this Form 10-Q.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the quarter
ended March 31, 2001.
21
DEVRY INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended June 30, 2000, 1999 and 1998
(Dollars in Thousands)
Charged to
Balance at Charged to Other Balance at
Description of Allowances Beginning Costs and Accounts Deductions End of
and Reserves of Period Expenses <FN>1 <FN>2 Period
- ---------------------------------------------------------------------------------------------------------
2000
- ----
Deducted from accounts receivable
for refunds $117 $16,235 $ - $16,235 $117
Deducted from accounts receivable
for uncollectible accounts 6,367 7,586 620 5,338 9,235
Deducted from notes receivable for
uncollectible notes 4 - - - 4
For loss on disposition of inventory 89 45 - 22 112
For loss on DeVry capital contributions
to Perkins loan program 2,080 266 - - 2,346
1999
- ----
Deducted from accounts receivable
for refunds $124 $14,314 - $14,321 $117
Deducted from accounts receivable
for uncollectible accounts 4,596 5,513 - 3,742 6,367
Deducted from notes receivable for
uncollectible notes 42 5 - 43 4
For loss on disposition of inventory 65 47 - 23 89
For loss on DeVry capital contributions
to Perkins loan program 1,879 201 - - 2,080
1998
- ----
Deducted from accounts receivable
for refunds $305 $12,701 - $12,882 $124
Deducted from accounts receivable
for uncollectible accounts 5,651 3,118 - 4,173 4,596
Deducted from notes receivable for
uncollectible notes 50 - - 8 42
For loss on disposition of inventory 63 10 - 8 65
For loss on DeVry capital contributions
to Perkins loan program 1,714 165 - - 1,879
- -----------------------------------------------------
[FN]
[FN]1 Opening balances of acquired businesses.
[FN]2 Write-offs of uncollectible amounts or inventory.
</FN>
22
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: APRIL 30, 2001 /s/ Ronald L. Taylor
-----------------------------
Ronald L. Taylor
President and Chief Operating
Officer
Date: APRIL 30, 2001 /s/Norman M. Levine
---------------------------------
Norman M. Levine
Senior Vice President Finance and
Chief Financial Officer