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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended: JUNE 30, 2001
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Commission file number: 0-12751
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DeVRY INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-3150143
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
ONE TOWER LANE, SUITE 1000, OAKBROOK TERRACE, ILLINOIS 60181
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number; including area code (630) 571-7700
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Securities registered pursuant to section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
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(Title of class)
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]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
SEPTEMBER 4, 2001 - $402,443,000
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State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The market value was computed using the
closing sale price of the common stock on the date indicated. Shares of common
stock held directly or controlled by each director and executive officer have
been excluded in that such persons may be deemed to be affiliates.
SEPTEMBER 4, 2001 - 69,787,382 shares of common stock, $0.01 par value
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents incorporated by reference and the Part of
the Form 10-K (e.g. Part I, Part II, etc.) into which the document is
incorporated:
Certain portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on November 13, 2001, are incorporated into
Part III of this Form 10-K to the extent stated herein.
Exhibit Index located on Pages 114-117 Total number of pages, 124
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DeVry INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED JUNE 30, 2001
TABLE OF CONTENTS
PAGE #
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PART I
Item 1 - Business 3
Item 2 - Properties 47
Item 3 - Legal Proceedings 53
Item 4 - Submission of Matters to a Vote of Security Holders 54
- Executive Officers 55
PART II
Item 5 - Market for Common Equity and
Related Stockholder Matters 62
Item 6 - Selected Financial Data 63
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 63
Item 8 - Financial Statements and Supplementary Data 81
Item 9 - Changes in and Disagreements with Accountants 81
PART III
Item 10 - Directors and Executive Officers 109
Item 11 - Executive Compensation 109
Item 12 - Security Ownership of Beneficial Owners and Management 109
Item 13 - Certain Relationships and Transactions 109
PART IV
Item 14 - Exhibits, Financial Statements and Reports on Form 8-K 110
- Financial Statements 110
- Financial Statement Schedules 110
- Exhibits 110
- Reports on Form 8-K 110
- Signatures 112-113
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PART I
Certain information contained in this Annual Report on Form 10-K may
constitute forward-looking statements made pursuant to the safe harbor
provision of the Private Securities Litigation Reform Act of 1995. Such
statements may involve risks and uncertainty 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
Securities and Exchange Commission ("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 SEC.
ITEM 1 - BUSINESS
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DeVry Inc. (the "Company") is incorporated under the laws of the State of
Delaware. The Company, through its wholly-owned subsidiaries, owns and
operates DeVry Institutes of Technology ("DeVry Institutes"), the
undergraduate segment; and a graduate and professional segment which
includes Keller Graduate School of Management ("Keller Graduate School")
and Becker Conviser Professional Review ("Becker").
In fiscal 1999, the holding company for the degree-granting operations was
renamed from Keller Graduate School of Management, Inc. to DeVry
University, Inc., to better reflect the nature of this higher education
system. DeVry Institutes; DeVry Canada, Inc.; and Keller Graduate School
of Management are a part of DeVry University. DeVry Institutes and Keller
Graduate School collectively form one of the largest private, degree-
granting, regionally accredited higher education systems in North America.
Becker prepares candidates for the Certified Public Accountant ("CPA"),
Certified Management Accountant ("CMA") and Chartered Financial Analyst
("CFA") professional certification examinations.
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In July 1999, the Company completed its acquisition of substantially all of
the net tangible operating assets, trademarks and other intangible assets
of the Denver Technical College ("DTC"). At the time of its acquisition,
DTC offered diploma and undergraduate degree programs in electronics,
computer technology, business and medical technology to approximately 1,700
students on campuses in Denver and Colorado Springs, Colorado. Effective
July 2001, Denver Technical College was integrated into DeVry Institute of
Technology. All new students starting with the July 2001 term are being
enrolled in DeVry Institute programs and no further enrollments are being
accepted to the original DTC programs. Students currently enrolled in the
original DTC programs can continue their enrollment until they finish their
programs.
In July 1999, the Company also completed its acquisition of certain
tangible operating assets, trademarks and other intangible assets of
Conviser Duffy CPA Review ("Conviser Duffy"). Conviser Duffy, which had
operated as a unit of Harcourt General, Inc., was a nationally known
training firm preparing approximately 12,000 students annually to pass the
CPA certification exam.
As a complement to its Becker Conviser Professional Review operation, in
January 2001, the Company acquired the operations of Stalla Seminars
("Stalla"), a leading provider of review courses and study materials for
the CFA certification exams.
The amounts of revenue and identifiable long-lived assets of the Company's
U.S. and foreign operations are presented in Note 9 to the Consolidated
Financial Statements, "Segment Information". Also presented in this
footnote are selected financial results and elements of financial position
for the Company's operating segments.
Undergraduate Segment
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The DeVry Institutes were founded by Dr. Herman DeVry and for more than 70
years have provided career-oriented technology-based education to high
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school graduates in the United States and Canada. The first DeVry
Institute was opened in Chicago in 1931 as an electronics school. Today,
the DeVry Institutes are located on nineteen campuses in the United States
and three campuses in Canada.
Originally offering only programs in electronics, DeVry introduced the
computer information systems curriculum in 1979. As the number of high
school graduates in the U.S. declined during the 1980's, the DeVry
Institutes expanded their program offerings and delivery schedule into the
evening hours to serve larger numbers of working adults. In the summer of
1986, a bachelor's degree program in business operations was introduced.
That fall, the DeVry Institutes introduced the telecommunications
management program, followed by the introduction of an accounting program
in the spring of 1988. In 1994, the DeVry Institutes introduced the
technical management degree completion program. In 1997, the business
operations program was redefined and is now the business administration
program. In response to the increasing employment demands of the
information technology field, in 1998 a one year Information Technology
program was first offered at the Toronto-area campuses to bachelor's level
college graduates of any discipline and is now also offered at most
institutes in the United States. The Information Technology program is
designed for the already bachelor's-level graduate seeking career
opportunities in IT. The program is structured around a core of
technology-oriented specialty courses, with an emphasis on applying
computer technology to solve business problems.
In fiscal 2000, the Institutes introduced a new bachelor's degree program
in computer engineering technology, ("CET"). This program is aimed at
helping students develop skills and knowledge in software engineering,
operating systems, data structures and algorithms, and distributed computer
systems. Other programmatic initiatives developed during the past several
years include new delivery formats, such as weekend class schedules,
compressed and accelerated course schedules and technology-assisted
delivery options including online courses.
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In fiscal 2001, the DeVry Institutes announced two new educational program
delivery initiatives. The bachelor of business administration degree
program is the first DeVry Institute program to be offered in a fully
online format. Additional programs will be added in an online format in the
future. The online format allows DeVry to better serve place-bound
students and others whose schedules prevent them from attending classes in
person.
The second new delivery initiative is the formation of DeVry University
Centers. In fiscal 2001, the Institutes opened the first adult-learner
DeVry University Center in conjunction with the existing Keller Graduate
School in the downtown Chicago area. This center is aimed at providing
both undergraduate and graduate education convenient to working adults. At
this expanded former Keller center, the DeVry Institutes now offer selected
accelerated undergraduate degree programs formatted and oriented to adult
students with the option to combine online with on-site coursework.
Additional DeVry University Centers will be opened in fiscal 2002.
In addition to its programmatic expansion and new delivery method
initiatives, DeVry Institutes began a facility improvement and expansion
program in 1991 to attract and retain increased student enrollment. This
improvement and expansion program includes facility renovations, expansion
and openings of new campuses.
In July 1998, a new campus was opened in Fremont, California, and in
November 1998, a new campus was opened in Long Island City, New York. In
November 1999, a new campus opened in West Hills, California, the third
DeVry Institute campus in the Los Angeles area. In July 2000, a new campus
opened in Tinley Park, Illinois, the third DeVry Institute campus in the
Chicago area. In July 2000, the Company acquired the operations of Denver
Technical College with two campuses in Colorado, the Company's first
campuses in that state. In November 2000, a new campus was opened in
Orlando, Florida, the first DeVry Institute in that state. Further
expansion was accomplished with the completion of a technology center
addition to the urban Chicago campus. A renovation and expansion program
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at the Columbus, Ohio, Institute that began in fiscal 2000 has just been
completed. The expansion of the New York City campus into its third floor
leased space was also recently completed, bringing that campus to its full
facility size. In July 2001, a new campus was opened in the Seattle,
Washington, area, the first DeVry Institute in that state.
At the beginning of the spring 2001 semester, which was the final semester
in the Company's fiscal year 2001, approximately 46,792 full and part-time
students were enrolled in the Company's undergraduate day, evening and
online programs.
In response to the new curricula offerings, facility expansions and
improvements initiated in the past several years, fiscal 2001 marks the
eleventh consecutive year that total cumulative enrollment has increased
from the prior year. Cumulatively, total student enrollment for the three
semesters of fiscal 2001 increased by 10.9% compared with fiscal 2000. In
the ten years since fiscal 1991, cumulative annual total student enrollment
at DeVry Institutes has increased by approximately 106%. The Company's
undergraduate operations accounted for approximately 86% of the Company's
revenues in fiscal 2001.
Classes began in July for DeVry Institutes' summer 2001 semester. This is
the first semester in the Company's fiscal year 2002. The start of this
term marked the thirty second consecutive term in which total undergraduate
enrollments exceeded the prior year level. Historically, the summer
semester has been the period of lowest undergraduate enrollment during the
year.
Changing demographics in the United States are expected to continue to
benefit the Company's future undergraduate enrollment. After a period of
nearly two decades during which the number of graduating high school
seniors declined by 25 percent to approximately 2.4 million, 1995 marked
the beginning of a slow but steady increase in the number of high school
graduates resulting from the "baby boom echo". The National Center for
Education Statistics forecasts that the number of graduating high school
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seniors will increase to more than 3.1 million by 2008. The forecasted
rate of increase in the number of high school graduates in many of the
states in which the Company's undergraduate programs are offered is greater
than the forecasted national rate of increase, further contributing to
future enrollment growth opportunities.
Total enrollment in all U.S. degree granting institutions is expected to
rise at a rate that is higher than the rate of increase in high school
graduates. In addition to the increasing number of high school graduates,
the Department of Education's National Center for Education Statistics
reports that the percentage of high school graduates who currently enroll
in college in the 12 months subsequent to their graduation has increased to
more than 65% from less than 55% only twenty years ago. In addition,
higher rates of enrollment growth for students age 25 and older, for female
students, for part-time students and for minorities is expected to continue
to contribute to DeVry Institutes' undergraduate enrollment growth in the
coming years.
In today's information-driven economy, a higher education degree is
extremely important. The U.S. Department of Labor estimates that only 25%
of working adults posses a college degree. In 1980, the pay difference
between someone with a high school education versus a college education was
50%. Today, that difference is over 100%. Students recognize this wage
gap and are seeking the skills and degrees necessary to enhance their
future career and earnings potential.
Approximately 25% of recent new student enrollees at the U.S. DeVry
Institutes had some prior college experience. DeVry Institutes estimate
that more than 45% of its new student enrollees are 25 years of age or
older. In 1994, to attract the growing number of adults returning to
college, DeVry Institutes introduced a bachelor of science degree
completion program in technical management which focuses on business and
management skills vital to career advancement for students who already have
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an associate degree. In response to the growing demand for computer and
systems professionals, in 1998 DeVry Institutes began to offer an advanced
1 year program in Information Technology to current bachelor's degree
holders seeking career change and enhancement opportunities.
Some DeVry programs are being offered on weekends to serve the working
adult student and DeVry Institutes also offer several programs in an
accelerated delivery format with a shorter term length and time to
completion. While these programs present an intensive and demanding
experience, they enable students to still fulfill other responsibilities
while pursuing their educational objectives.
Distance delivery of education is becoming increasingly prominent. The
DeVry Institutes' approach to distance learning is to focus on the quality
of education, not the technical feasibility of the delivery system. Some
classroom-based courses have a distance education component for learning
enhancement. Starting in September 2000, DeVry Institutes began offering
over the Internet its complete bachelor of business administration degree,
with concentrations in business information systems, e-commerce, project
management and accounting. Enrollment for this online degree program is
open to students at least 21 years of age who have already completed 24
semester credit hours of qualifying college-level work. DeVry Institutes
plans to offer its one year Information Technology program online beginning
in the fall of 2001. Other distance learning initiatives are being
explored, both as total program offerings and as an adjunct to current
classroom and laboratory instruction to further enhance student learning
opportunities.
Each of the DeVry Institutes' programs is designed to integrate general
education and technology or business. The DeVry Institutes' general
education courses develop skills and competencies that help graduates
enhance both their professional and personal capabilities. Businesses
require graduates who can fit into an organization, work collaboratively,
have an understanding of how business works, communicate clearly and have
the in-depth technical knowledge to get the job done. Laboratory courses
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throughout each curriculum provide the opportunity to translate classroom
learning into a practical, hands-on experience that better prepares the
student for the workplace.
At the DeVry Institutes, classes are generally offered in morning,
afternoon or evening sessions which help students maintain a part-time job.
This availability of part-time employment and government-provided financial
aid partially offsets the competitive advantage of those schools with lower
tuition levels. Each curriculum is generally consistent at all of the
DeVry Institutes, with content variations introduced to meet local
employment market needs. This common curriculum is another competitive
advantage that allows students to transfer, if necessary, to a DeVry
Institute at a different location without interrupting their studies.
To facilitate student success, DeVry Institutes devote significant
resources to libraries and academic support services which can assist
students in any phase of their educational program. In addition, DeVry
Institutes encourage students to participate in campus activities and offer
student success or problem solving strategy courses aimed at preparing
students to assume responsibility for their learning and growth through
practical strategies and methods for realizing success. In response to
these efforts and higher required minimum admission and placement scores on
its computerized entrance examination, retention rates have generally
increased for students in the early terms of their program, where students
are most likely to discontinue their studies.
Graduate and Professional Segment
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Keller Graduate School of Management
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Keller Graduate School was founded in 1973 and offers practitioner-based
graduate management programs leading to a master's degree. In addition to
the Master of Business Administration ("MBA") program, which Keller began
offering in 1977, Keller introduced a Master of Project Management ("MPM")
degree program in 1991 and a Master of Human Resource Management ("MHRM")
degree program in 1993. In 1995, Keller began offering a Health Services
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Management ("HSM") concentration within its MBA program. In 1997, Keller
Graduate School introduced a Master of Telecommunications Management
("MTM") program to meet the need for expertise in this growing field. The
MTM program was developed in conjunction with the DeVry Institutes, which
offer an undergraduate telecommunications program. In 1998, Keller began
offering two new programs, the Master of Information Systems Management
("MISM") and the Master of Accounting and Financial Management ("MAFM").
The MAFM program offers students a choice of three professional
certification exam-preparation emphases: Certified Public Accountant,
Certified Management Accountant or Chartered Financial Analyst. These exam-
preparation concentrations were developed in conjunction with the Becker
Conviser Professional Review.
Concentrations in entrepreneurship, electronic commerce, international
business and marketing are among those that have been developed to broaden
the scope and appeal of Keller's original MBA program. In fiscal 2002,
Keller will begin offering its MBA program with a Certificate in Education
Management, designed to prepare students to be effective educational
leaders.
Also new for fiscal 2002, Keller Graduate School has been granted approval
to offer a 7th degree program, the Master of Public Administration ("MPA").
The MPA consists of three tracks: Government Management, Nonprofit
Management, and Public Health Management. The MPA incorporates the same
practitioner focus as Keller's other programs and is designed for students
who want to become successful managers in the not-for-profit or government
arenas. All of the Keller programs and concentrations are aimed at
satisfying the need for advanced education in high demand areas.
Keller emphasizes practitioner orientation, excellence in teaching and
service to working adults, offering classes in the evenings and on
weekends. At the start of the June 2001 term, classes were being offered
at 42 locations nationwide, including the Online Education Center.
Additional teaching centers are planned to be opened in fiscal 2002.
Twelve of Keller's teaching sites are co-located on DeVry Institute
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campuses. Also, one classroom teaching site and the Online Education
Center are located in the Company's corporate headquarters in Illinois. In
addition, some Keller teaching sites host Becker CPA Review classes where
space and location are appropriate.
Keller Graduate School's faculty members are practicing professionals who
bring their expertise to the classroom, emphasizing theory and practices
that will best serve students in their work as managers. Critical
competencies in areas such as business communications, technology, quality
and international issues are woven throughout the curricula. Keller's
curricula are regularly reviewed for relevance to both students and
employers.
In addition to its expanding network of teaching locations, Keller Graduate
School began offering its graduate programs online in September 1998. The
Online Education Center now extends delivery of all of the master's degree
programs to students who reside beyond the geographic reach of local
centers, whose schedules preclude attending weekly classes onsite and/or
who cannot find their desired course at the Keller center near where they
live or work.
At the start of the June 2001 term, which falls primarily in the Company's
fiscal year 2002, Keller Graduate School had 6,683 course-takers, an
increase of nearly 1,400 from the previous June. Historically, the June
term has been the period of lowest enrollment during the year.
Keller also provides customized educational and training programs through
its Center for Corporate Education ("CCE"). CCE helps organizations
achieve superior performance through work force development, drawing on
faculty and curriculum resources at Keller Graduate School and DeVry
Institutes.
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Becker Conviser Professional Review
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In June 1996, the Company acquired the Becker CPA Review. At the time of
acquisition, Becker was a leading international training firm preparing
students to take the national Certified Public Accountant and Certified
Management Accountant examinations.
Between 1996 and 1999, Becker acquired several regional CPA review firms,
strengthening its presence in the east coast market. In July 1999, the
Company acquired the operations of Conviser Duffy CPA Review. Conviser was
a national provider of CPA review courses, serving approximately 12,000
students annually at more than 200 locations. With the Conviser Duffy
acquisition, Becker teaching sites now include numerous college campuses
throughout the United States. The combined CPA course operations are now
known as Becker Conviser CPA Review.
For the May 2001 CPA examination, Becker offered CPA review classes at
approximately 300 locations including over 40 international sites, serving
approximately 30,000 students annually. To reach students for whom class
attendance is not practical because of location or schedule, Becker offers
the complete CPA review course conveniently packaged on CD-ROM or in an
online format. The CD-ROM and online products are interactive, bridging
the gap between classroom study and self study. The structured lesson plan
emphasizes the "work and remember" teaching system which has been so
successful in the Becker classroom environment.
Becker's proprietary course materials and teaching methods, which include
CD-ROM based presentation materials coupled with live classroom
instruction, result in pass rates on the CPA exam for Becker students which
the Company believes are substantially higher than the national average
pass rate, producing nearly one half of all students passing the CPA exam.
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In the spring of 2000, Becker offered a pilot version of its own CFA review
course for the Level 1 examination. In January 2001, the Company acquired
Stalla Seminars as a complement to its own review courses. Stalla is a
leading provider of CFA review courses and study materials, offering
classroom seminars in selected cities in the United States and in major
financial centers around the world. Stalla also offers CFA exam study
materials in print and video format as a supplement to its classroom based
seminars or for use in independent study. The number of candidates seeking
the Chartered Financial Analyst professional designation now total
approximately 80,000 annually for all three exam levels, more than half of
which are taking the Level 1 exam.
Competition
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Undergraduate Segment
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The postsecondary education market is highly fragmented and competitive
with no single institution having a significant market share. There are
more than 10,000 institutions in the United States that offer postsecondary
education. The Company believes that it is one of the largest private,
degree-granting, regionally accredited, higher education school systems in
North America. The undergraduate DeVry Institutes compete with traditional
publicly supported and independent two-year and four-year colleges, other
for-profit schools and alternatives to higher education, such as employment
and military service. Also, some large corporations have begun to offer
their employees accredited college courses that may be applied toward
degrees.
In each market, local community colleges and state universities continue to
provide alternatives to students for whom lower tuition cost is a high
priority. In addition, some educational institutions are reaching out to
partner with local businesses to expand their educational reach. Many are
also recognizing the growing need for new and updated programs in high
employment demand occupations such as information systems, computer
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networking and electronics. There are also a growing number of traditional
universities expanding their offerings into the online format, including
some who are forming for-profit subsidiaries as a way to serve this market
segment.
A growing competitive force has been the opportunity for high school
graduates to immediately secure gainful employment without further
education. Non-skilled positions (fast food, retail, etc.) garner more
than minimum wage in most of the DeVry Institutes's local campus markets.
Positions that require some skill set (including high school vocational
training) such as clerical work or the trades offer even more of a
competitive challenge. In addition, after several years of downsizing, the
U.S. military has begun to more aggressively seek new recruits. Most
recently, an economic slowdown in some high technology fields may affect
the perceptions of prospective students about the desirability of an
education and career opportunities in these fields.
There are also competitive pressures from community colleges, traditional
universities and technical colleges that include industry-specific
certification programs, mostly aimed at the computer information area.
Proprietary and community colleges are offering these industry-specific
certification programs and other short-term certificate programs as a
pathway to the job market.
Tuition at independent not-for-profit institutions is, on average, higher
than the tuition at the DeVry Institutes. Publicly supported colleges may
offer programs similar to those of the DeVry Institutes at a lower tuition
level due to government subsidies, government and foundation grants, tax-
deductible contributions and other financial sources not available to for-
profit schools. Publicly supported colleges may also benefit from
regulatory approvals not available to private schools. For example, in
Florida, legislation now permits community colleges to offer baccalaureate
degrees in affiliation with other public or private universities,
increasing educational opportunities to students without immediate access
to a four-year college campus. Other for-profit schools offer programs
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that compete, to a limited extent, with those of the DeVry Institutes.
According to Company surveys of prospective students, the most common
alternative to attending a DeVry Institute is attending a four-year
college.
The DeVry Institutes believe their competitive strengths include career-
oriented curricula developed with regular structured employer input that
helps ensure graduates learn skills that will be marketable to employers;
faculty with related industry experience; the demonstrated effectiveness of
their career services activities in obtaining education-related employment
for DeVry Institute graduates; their national brand name recognition and
market presence through national advertising and student recruitment;
accreditations granted to the institutes; authorization by various states
to grant degrees; modern facilities; well-equipped laboratories; evening,
weekend and online class schedules; and a semester schedule that allows
attendance year-round, thereby permitting earlier graduation. Only a
limited number of traditional colleges offer a bachelor's degree program
that can be completed in three years. This results in a significant
financial advantage to DeVry students who are able to enter the work force
one year earlier than if they had attended a traditional four-year
institution.
Graduate and Professional Segment
---------------------------------
Keller Graduate School of Management
------------------------------------
Keller Graduate School competes for students in a market consisting of
students seeking management skills in business and technology, additional
certification or degree credentialing and educational formats oriented to
working adults. In every market in which KGSM operates, there are numerous
local graduate schools of business as well as adult education and training
companies aimed at the same market segment. In addition to the local and
regional competition, there are several institutions now offering working
adult graduate degree programs on a national level, much like Keller
Graduate School does. There is also the increasing pressure from a growing
list of competitors providing management degree programs online.
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Keller differentiates itself in the marketplace by stressing a practitioner
approach to education, excellence in teaching by a faculty of practicing
professionals and a high level of service to the adult student. The
average Keller student is over 30 years of age. To help improve student
performance, satisfaction and retention, Keller utilizes an innovative
teaching technique called System Supported Teaching and Learning (SSTL)TM.
This instructional process focuses on providing students and their
instructors with more frequent feedback and correctives using quizzes and
retests. The process is outcomes driven and is applied to problem-based
core courses in which student learning can be most significantly improved.
Keller offers five 10-week terms each year. Classroom-based courses meet
once a week, either in the evening or on Saturday. This schedule allows
students with heavy travel or other demands on their time to fit courses
into their schedules. In addition, in most markets, Keller is able to
offer flexibility in course scheduling, a greater choice of elective
courses and a more convenient location than its competitors. Keller also
offers an accelerated format of its MBA program on Saturdays at some
locations for students who wish to complete their degree more quickly and
without disrupting their work week. As the market for adult education
programs has expanded in recent years, other schools have implemented
multi-location evening and weekend programs. However, enrollments at
Keller continue to increase, demonstrating the recognition it has earned as
an innovator in providing quality practical education.
With educational centers in an expanding number of states and multiple
locations within most of these states, Keller offers distributed access
points throughout the country to adults who may be transferred from one
part of the country to another by their employer or who capitalize upon
personal career opportunities in other locations. Additionally, with the
inclusion of all of its programs in a distance delivery format, Keller has
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expanded its availability to all qualified students without regard to their
location or daily schedule. By delivering courses both on-site, in an
expanding number of sites, and online, Keller Graduate School benefits from
the competitive advantage of enhancing student satisfaction and success
with this scheduling and format flexibility.
Becker Conviser Professional Review
-----------------------------------
Becker competes with other methods of CPA exam preparation including self-
study; firm-sponsored courses; courses offered by colleges and
universities; and courses offered by other private training companies.
According to reports by the National Association of State Boards of
Accountancy, two-thirds of first-time CPA candidates and more than half of
repeat candidates reported participating in a review course in the six
months prior to taking the exam. Courses offered by colleges and private
competitors generally have a lower total course cost to help attract
students.
Becker differentiates itself from its competitors by providing more
classroom hours of instruction, extensive and constantly updated review and
practice test materials and experienced, qualified instructors for each of
the areas of specialty included in the exam. In addition, Becker's CD-ROM
and online courses offer a wider range of study alternatives than other
course providers. Becker's CPA courses undergo regular review and revision
to stay current with the latest accounting practice. The high success rate
of students who take the Becker review course and the numbers of students
enrolling after taking other review courses or independent study, but not
passing the CPA exam, are testimony to the quality and value of the Becker
methodology. In each of the past several exams, the top CPA exam score
world-wide was awarded to a Becker course graduate, including an online
course graduate.
CPA, CMA and CFA exam candidates can also take the Becker review course
content and methodology in conjunction with their Keller Graduate School
MBA or MAFM programs in most states in which Keller offers classes, earning
19
full graduate academic credit. These credits can also be used to fulfill
the 150 hour rule educational requirement to sit for the CPA exam in those
states where the 150 hour rule has been enacted. This provides both Becker
and Keller with an important competitive advantage. To further extend the
marketing and operational benefits of joint operation, Becker offers
classes at many of the Keller Graduate School locations. Becker classes
are also offered on several DeVry Institute campuses.
The CFA review course is taught live in a classroom setting in selected
large markets around the world. In the CFA exam preparation market, much
like the CPA exam preparation market, Becker competes with courses offered
by other training companies and student self study. Plans for expanding
the number of classroom locations by utilizing current Becker CPA sites, or
delivery by CD-ROM and/or online, are being considered to help reach more
potential exam takers.
Student Recruiting
------------------
Undergraduate Segment
---------------------
Students at the DeVry Institutes are recruited by admissions
representatives at on-campus admissions offices and by field student
recruiters. Field student recruiters are an important nationwide element
of the recruiting process because a significant portion of the DeVry
Institutes' students come from outside the immediate area in which the
DeVry Institute campus they attend is located. The percentage of
enrollment coming from these two recruiting sources varies campus by
campus, depending largely on the school's location and the size of the
local market area. Overall, admissions representatives currently generate
over 70% of DeVry Institutes' total enrollments. The DeVry Institutes
employ over 550 admissions representatives and field recruiters throughout
the United States and Canada. In order to recruit students in certain
states and Canadian provinces, representatives and recruiters must be
licensed or authorized by the appropriate regulatory agency. Regulations
20
governing student participation in U.S. federal financial assistance
programs prohibit the payment of commissions, bonuses or incentives for
student recruitment. The Company believes that its method of
representative and recruiter compensation complies with the regulations.
Admissions representatives are salaried, full-time Company employees. They
are located at each DeVry campus and work with potential applicants who
respond to the Company's advertising or otherwise learn of the school.
Admissions representatives generally work with older students, many of them
working adults wanting to attend class in the evening or on weekends,
recently unemployed adults seeking to improve their job skills as a way to
re-enter the workforce and students transferring to DeVry from nearby
community colleges. Each of the DeVry Institutes has entered into
articulation agreements with nearby community colleges to facilitate the
enrollment of their students seeking to transfer course credits into a
DeVry program. Approximately 25% of new students recently enrolled at the
U.S. DeVry Institutes had some prior college experience.
Field student recruiters are salaried, full-time Company employees. Field
recruiters meet individually with prospective students who are contacted
primarily through high school, club and youth group presentations. These
student recruiters visited more than 8,500 high schools in North America
last year and made presentations on career choices and the importance of a
college education. These presentations offer a service to high school
educators by providing a resource for educating students on careers in
technology related fields. The outcome of these presentations is the
collection of career surveys from high school juniors and seniors. These
surveys provide a large and important source of leads for student
recruitment.
Field recruiters also receive student inquiries generated by direct mail
and television advertising in the particular recruiter's territory.
Follow-up interview sessions with prospective students are generally held
in the student's home with the student and his or her parents. Recruiting
opportunities also exist to U.S. military veterans with military-specific
21
technical training. Veterans are attracted to DeVry's practical career-
oriented education, and DeVry's locations across the U.S. are often near
the home area to which the veteran will relocate. DeVry Institutes' has a
long history of providing educational services to former military personnel
and the success of the Keller Graduate School and DeVry Institute distance
education programs should help in securing a place for meeting the
education needs of current military personnel.
In support of its admissions representatives and field recruiters, DeVry
Institutes advertise on television and radio, in magazines and newspapers,
on various Internet sites, and utilize telemarketing and direct mail to
reach prospective students. Prospective students are also frequently
referred by their employers, alumni or currently enrolled students. In
addition to these more traditional recruiting methods, DeVry's own Internet
site provides another avenue for students to receive information about
DeVry and apply for admission.
To be admitted to a DeVry Institute program in the United States, an
applicant must be either a high school graduate, have a General Education
Development ("GED") certificate or hold a degree from an accredited
postsecondary institution. Applicants must also complete an interview with
a DeVry admissions representative. Students seeking admission to the DeVry
online program complete their application process by telephone, fax and
e-mail with a central Admissions Office staff dedicated to serving these
applicants. In Canada, an applicant must meet either the same criteria as
in the U.S. or meet "mature student" criteria. Applicants must also meet
minimum admissions and placement examination scores which vary depending on
the program to which they are applying. In 1996, the DeVry Institutes
implemented the Computerized Placement Tests ("CPT") which were designed in
collaboration with The College Board and Educational Testing Service.
These exams help DeVry Institutes serve the needs of their students by
better assessing applicants' achievement levels and developmental needs
during the admission process. Since its introduction, minimum admission
and placement scores on the CPT have been raised several times in an effort
to better select and serve those students most likely to successfully
22
complete their educational program. Submission of ACT or SAT examination
scores deemed appropriate for the desired program or the submission of
acceptable grades in qualifying college-level work completed at an approved
postsecondary institution can also be used to meet DeVry Institute
admission requirements.
To assist students who live distant from the DeVry Institute campus that
they attend, DeVry Institutes help students secure local living
arrangements. While DeVry Institutes have no dormitory facilities, lists
of nearby available private apartments or rooms are maintained for
students' convenience. In addition, some DeVry Institutes maintain
furnished apartments for shared rental by students. Students pay their
housing rental and fees to DeVry who contracts with the property owner.
Thus, DeVry becomes the students' landlord and students are assured of a
fixed rental charge per month, similar to more traditional dormitory or
apartment arrangements at other colleges.
Graduate And Professional Segment
---------------------------------
Keller Graduate School Of Management
-------------------------------------
Keller Graduate School recruits students through direct mail, radio
advertising, telemarketing, print advertising and referrals from employers,
alumni or current students. Keller's own Internet site and ads on other
web sites are also becoming a valuable source of applicant inquiries.
Keller employs on-campus admissions representatives at each teaching center
who meet with, counsel and evaluate admission qualifications of prospective
students. To be admitted to a Keller program, applicants must hold a
baccalaureate degree from a U.S. institution that is accredited by or in
candidacy status with a regional accrediting agency. Foreign applicants
must hold a degree recognized to be equivalent to a U.S. bachelors' degree.
Applicants must also achieve acceptable scores on either the Graduate
Management Admission Test ("GMAT"), the Graduate Record Examination ("GRE")
23
or Keller's alternative admission test, designed and validated by
Educational Testing Service. All admissions decisions are based on
evaluation of a candidate's academic credentials, entrance test scores and
a personal interview.
Becker Conviser Professional Review
-----------------------------------
Becker markets its courses directly to potential students and to selected
employers, e.g., the large national and regional accounting and financial
services firms. Alumni referrals, direct mail, print advertising and a
network of on-campus recruiters at colleges and universities across the
country generate the new students who take the CPA, CMA or CFA review
courses. The Becker Internet site provides another source of information
to interested applicants. Becker also enrolls many students who have
previously completed a competitor's course or a self-study program but were
then unable to pass the exam.
According to data published by the National Association of State Boards of
Accountancy, the number of CPA examination candidates has generally
declined from the all-time high of approximately 144,000 in 1990 to less
than 117,000 in 1998 but rebounding to approximately 127,000 in 1999 as
applicants sought to beat the deadline in states about to enact the 150
hour rule. A major reason for the decline in the number of CPA exam
candidates is the continuing implementation of the 150 hour requirement.
To date, most states and U.S. territories have passed a form of the
legislation that requires 150 semester units (the equivalent of five years
of college) before a candidate may sit for the CPA exam. This has the
effect of delaying enrollment in Becker's review class by some students in
those states. By the end of 2001, the 39 jurisdictions that will have
implemented the 150-hour requirement will account for over 65% of the total
pool of candidates for the CPA examination.
In response to the 150 hour requirement, many of the top colleges and
universities have designed their accounting programs to add a fifth year,
either with a master of accounting curriculum or in connection with their
24
MBA programs. To capitalize on the opportunity, Keller Graduate School of
Management introduced its Master of Accounting and Financial Management
program in 1998. The MAFM program includes tracks for CPA, CMA, and CFA
candidates and culminates with a Becker Conviser review course.
To further overcome the recruiting challenges of the 150 hour laws, Becker
has introduced the CPA review course on CD-ROM and online for students who
are unable to attend classroom based instruction. With the acquisition of
Stalla Seminars, the CFA exam course is planned to be offered in an
expanded number of classroom locations and an online program is under
development.
Accreditation and Approvals
---------------------------
Accreditation is a process for recognizing educational institutions and the
programs offered by those institutions for achieving a level of quality
that entitles them to the confidence of the educational community and the
public they serve. In the United States, this recognition is extended
primarily through nongovernmental, voluntary, regional or specialized
accrediting associations. Accredited institutions are subject to periodic
review by accrediting bodies to ensure that these institutions maintain the
levels of performance, evidence institutional and program improvement,
demonstrate integrity and fulfill other requirements established by the
accrediting body.
Although regional accreditation in the United States is a voluntary process
designed to promote educational quality and improvement, it is an important
strength of the DeVry Institutes and Keller Graduate School, providing
significant advantages over most other for-profit colleges. College and
university administrators depend on the accredited status of an institution
in evaluating transfers of credit and applications to graduate schools.
Employers rely on the accredited status of an institution when evaluating a
candidate's credentials, and parents and high school counselors look to
accreditation for assurance that an institution meets quality educational
25
standards. Moreover, accreditation is necessary for students to qualify
for eligibility for federal financial assistance. Also, most scholarship
commissions restrict their awards to students attending accredited
institutions.
DeVry Institute and Keller Graduate School are each accredited by the
Higher Learning Commission of the North Central Association of Colleges and
Schools ("NCA"), one of the six regional collegiate accrediting agencies
recognized by the U.S. Department of Education. The North Central
Association is the same accrediting agency that accredits other four-year
publicly supported and independent colleges and universities in the North
Central region. Keller Graduate School was first awarded its NCA
accreditation status in 1977 and DeVry Institutes was first awarded NCA
accreditation status in 1981. The DeVry Institutes and Keller
accreditations were last reaffirmed by the Higher Learning Commission of
The North Central Association in 1992 for the maximum ten year period.
A scheduled interim progress monitoring visit was conducted at the DeVry
Institutes in May 1997. The next comprehensive Institute evaluation visit
is scheduled for August 2002. The required NCA self-study process that
precedes the visit is well underway, coordinated by DeVry Institutes' Vice
President of Academic Affairs and involving a Steering Committee of
institute presidents and deans, supported by faculty and staff throughout
the entire system.
The next comprehensive evaluation visit by the NCA to Keller Graduate
School is scheduled for April 2002. The required Keller self-study process
is currently underway.
Until recently, under Canadian law, the Canadian DeVry Institutes were not
permitted to grant degrees. However, students at the Canadian Institutes
could transfer to DeVry Institutes in the U.S. to complete their degree
requirements. In 1995, the Alberta Department of Advanced Education, the
State of Arizona and the Higher Learning Commission of the North Central
Association of Colleges and Schools approved the DeVry Institute in Phoenix
26
to offer its bachelor of science degree-completion program on the Calgary
campus. This allowed students attending classes at the Calgary campus to
complete their degree studies without relocating to a campus in the United
States. Students attending one of the Toronto-area campuses could transfer
to Calgary to participate in this program rather than transferring to a
DeVry campus in the United States. This year, DeVry became the first
private, for-profit institution in Canada to be provincially accredited to
grant baccalaureate degrees. In February 2001, the province of Alberta
authorized DeVry/Calgary to offer bachelor of technology degree programs in
electronics engineering technology and computer information systems, as
well as a bachelor of business operations degree program.
Accreditations of the DeVry Institutes and Keller in the United States and
of the DeVry Institutes in Canada are as follows:
UNITED STATES CANADA
------------- ------
Higher Learning Commission of the DeVry Calgary's bachelor of
North Central Association of technology in electronics
Colleges and Schools. engineering technology, bachelor
of technology in computer
Eligible Electronics Engineering information systems and bachelor
Technology Programs are separately of business operations is
accredited by the Technology accredited by the Alberta
Accreditation Commission of the Private Colleges and
Accreditation Board for Engineering Accreditation Board.
and Technology (TAC of ABET).
The Electronics Engineering
Technology and the Electronics
and Computer Technology programs
are accredited by the Canadian
Technology Accreditation Board
(CTAB).
In the United States, each DeVry Institute is approved to grant associate
and bachelor's degrees by the respective state in which it is located.
27
Keller Graduate School is authorized to operate and award degrees under
authority of the Illinois Board of Higher Education and the appropriate
approval boards in the other states in which it has operations.
State and Provincial Approval and Licensing
-------------------------------------------
Authorizations from state or provincial licensing agencies or ministries
are required to recruit students, operate the Company's schools and exam
preparation courses, and grant degrees. Many states and provinces require
for-profit postsecondary education institutions to post surety bonds for
licensure. The Company has posted approximately $6 million of surety bonds
with state and local regulatory authorities in the U.S. and more than $1
million (CDN) of surety bonds with regulatory agencies in Canada. Certain
states have set standards of financial responsibility different from those
prescribed by federal regulation. The Company believes it is currently in
material compliance with state and Canadian provincial regulations. If the
Company were unable to meet the tests of financial responsibility for a
specific state, and could not otherwise demonstrate that it was financially
responsible, it could be required to cease operations in that state. To
date, the Company has successfully demonstrated its financial
responsibility where required.
Tuition and Fees
----------------
Effective with the summer 2001 term, tuition at DeVry Institutes in the
United States for two semesters (one academic year) ranged from $8,740 to
$10,075. Variations in tuition depend on term of enrollment and the
particular campus attended. Based upon current tuition rates, for a
student enrolled in DeVry Institutes' five term Electronics Technician
program, total tuition cost would range from $21,950 to $25,100. For a
student enrolled in the nine term Computer Information Systems program,
total tuition cost based upon current rates would range from $39,430 to
$45,100. Students enrolled on less than a full time basis are charged
somewhat lower tuition. DeVry's tuition rates are substantially below the
average tuition at four-year independent institutions, which last year
28
averaged over $16,300 per two term academic year, but DeVry's tuition rates
are substantially higher than the average at four-year publicly supported
institutions which last year averaged only $3,500 per two term academic
year. DeVry's increase in tuition from summer 2000 was approximately six
percent. This increase approximates the rate of increase at many other
postsecondary education institutions.
Tuition for DeVry Institutes' online Business Administration program is
$350 per credit hour. Based upon the current tuition rate, the total
program cost would be $44,125.
Effective with the summer 2001 term tuition in Canada ranged from $7,750 to
$8,355 (CDN) for a two semester academic year, an increase of more than
five percent from summer 2000. Variations in tuition depend upon the
campus attended and the term of enrollment.
Certain DeVry Institute programs, such as its one year Information
Technology program, are charged at a total program price, not on an
individual term basis.
Effective with the September 2001 term, Keller Graduate School tuition per
classroom course (four quarter credit hours) ranges from $1,185 to $1,515,
depending on the location in which the student is enrolled. This compares
to tuition rates from $1,125 to $1,425 implemented in September 2000. The
price for courses taken online is $1,620.
The price of the complete classroom Becker CPA review course is $1,790,
which includes an enrollment fee. The complete CPA review course on CD-ROM
is priced at $1,530. The complete online review course is priced $1,935.
Discounts from these tuition rates are offered under various enrollment
promotions at college campuses and for students employed by participating
accounting firms. Tuition rates may be increased later in the year to be
effective with the spring 2002 exam cycle.
29
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
the student, which varies with, but generally equals or exceeds, the
percentage of the term completed by the student. Amounts received by the
Company in excess of such set percentages of tuition are refunded to the
student or the appropriate financial aid funding source.
In addition to the tuition amounts described above, students at the DeVry
Institutes and Keller Graduate School must purchase textbooks and supplies
as part of their educational program.
Financial Aid and Financing Student Education
---------------------------------------------
Students attending the DeVry Institutes finance their education through a
combination of family contributions, individual resources (including
earnings from full- or part-time employment), financial aid (including
Company-provided financial aid) and tuition reimbursement from their
employers.
The Company believes that more than 70% of the U.S. DeVry Institutes'
students receive some government-sponsored financial aid and that a similar
percentage of the students attending the Canadian DeVry Institutes receive
some government-sponsored financial assistance. A 1996 National
Postsecondary Student Aid Study found that approximately 80% of full-time
students attending private four-year institutions received some form of
financial aid.
The DeVry Institutes assist their undergraduate students in locating part-
time employment. Data from the National Center for Education Statistics
indicates that almost half of all full-time college students between the
ages of 16 and 24 are employed. The Company believes that a substantially
greater percentage of its full-time students are employed to help finance
their costs of education. On the basis of a financial aid application
completed by the student and the student's family, the DeVry Institutes
30
develop an assistance package for students who require financial aid.
Government-sponsored financial aid is of great importance to the Company
because historically, almost 70% of the DeVry Institutes' U.S. tuition,
book and fee revenues have been financed by government-provided financial
aid received by its students.
The Company believes that approximately 30% of Keller Graduate School
students receive government-sponsored financial aid while approximately 70%
of Keller students are believed to receive some tuition reimbursement
assistance from their employers. Students attending the Becker CPA, CMA or
CFA review courses are not eligible for financial aid, but many of them
receive partial or full tuition reimbursement from their employers.
The government-provided financial aid and assistance programs in which many
of the Company's students participate are subject to political and
governmental budgetary considerations. In the United States, the Higher
Education Act guides the federal government's support of postsecondary
education. The Act was most recently reauthorized in the fall of 1998,
redefining and extending the numerous financial aid programs currently in
existence. There is no assurance, however, that federal funding will be
continued at its present level or in its present form. A reduction in
funding levels to financial aid programs could result in lower enrollments
or an increased amount of Company-provided financial aid to its students.
Extensive and complex regulations in the United States and Canada govern
all of the government grant, loan and work study programs in which the
Company and its students participate. Regulations and standards that an
institution must satisfy in order for its students to participate in
federal financial assistance programs include, among others, maximum
student loan default rates; limits on the proportion of an institution's
revenue that can be derived from federal aid programs; prohibition of
certain types of incentive payments to student recruiters; standards of
financial responsibility and administrative capability requirements.
31
In 1998, the Department of Education introduced a new standard of financial
responsibility test. The standard is based upon a composite score of three
ratios which are designed to measure various aspects of an educational
institution's financial stability. These ratios include an equity ratio
which measures the institutions capital resources, a primary reserve ratio
which measures an institution's ability to fund its operations from current
resources and a net income ratio which measures an institution's ability to
operate profitably.
The Company believes that, based upon its computations, it has demonstrated
a high level of financial stability as measured by these tests. Failure to
achieve these financial responsibility standards or otherwise demonstrate,
within the regulations, its ability to continue to provide the educational
services it offers could result in the Company being required to post a
letter of credit to permit its students to continue to participate in
federal financial assistance programs. In addition to the regulations and
standards which must be met by the institution, student recipients of
financial aid must maintain satisfactory progress toward completion of
their program of study and an appropriate grade point average.
Institutions that participate in Title IV financial aid programs must
disclose information about student completion rates to current and
prospective students. The federal Student-Right-To-Know Act defines the
cohort of students on which the institution must report as "first-time,
full-time degree-seeking" students. The DeVry Institutes have increased
admission requirements and added student support services aimed at
improving student completion rates. Completion rates, as defined by the
Student-Right-To-Know Act, at each of the U.S. DeVry Institutes generally
fall within the range of completion rates, as published by U.S. News and
World Report, 2001 America's Best Colleges, at selected four-year urban
public colleges in the areas in which DeVry Institutes operate. DeVry also
admits many students who previously attended another college and who are
not included in these completion rate statistics. Completion rates for the
students entering DeVry with previous college experience are generally
higher than for first-time students.
32
The Company maintains a staff at its Oakbrook Terrace headquarters to
review, interpret and establish procedures for compliance with regulations
governing financial assistance programs. Because financial assistance
programs are required to be administered in accordance with the standard of
care and diligence of a fiduciary, any regulatory violation could be the
basis for disciplinary action, including the initiation of a suspension,
limitation or termination proceeding against the Company. Changes in or
new interpretations of applicable laws, rules or regulations could have an
adverse effect on the Company in the future.
In the United States, the Company has completed and submitted all required
audits of compliance with federal financial assistance programs for fiscal
2000, and its independent accountants are currently conducting the required
audits of the one year period ending June 30, 2001. Following the
completion of the fiscal 2000 financial aid audit, the Company posted
letters of credit of one year duration for approximately $0.9 million with
the Department of Education relating to untimely processing of student
refunds at two institutes.
The Department of Education may periodically conduct site visits at any of
the Company's locations as a part of its program of periodic review of the
administration of student financial assistance programs. No such visit is
currently in progress or recently completed. Although the Company has no
reason to believe that any proceeding against the Company is presently
contemplated, if such a proceeding were initiated against the Company and
resulted in a substantial curtailment of the Company's participation in
government grant or loan programs, the Company could be adversely affected.
In Canada, the DeVry Institutes' Toronto-area campuses were notified at the
end of August 1995, that the Ontario Ministry of Education and Training had
temporarily suspended the processing of new financial aid applications from
DeVry students pending review of inaccuracies found in applications filed
by some students. A Ministry audit of these applications, with DeVry's
full cooperation, began in September 1995, and was subsequently completed.
Effective with the spring 1996 term, which began in March 1996, the
33
Ministry conditionally reinstated approval for the processing of financial
aid applications. As a result of these actions, the results of operations
of the Company's Canadian operations were adversely affected. During the
third quarter of fiscal 1999, the Company successfully concluded the
resolution of all outstanding issues with the Ontario Ministry of Education
and Training, including payment of the remaining portion of the refund of
amounts believed to have been inappropriately disbursed. DeVry's Toronto-
area campuses are now unconditionally reinstated as participants in the
Ontario Province's student financial aid programs.
In Canada, the Toronto-area campuses have completed and submitted the
required annual audit of Ontario Student Assistance Program administration
for fiscal 2000 and the Company's independent accountants are prepared to
begin the required audit for fiscal 2001.
The following is a description of the U.S. and Canadian financial aid
programs in which the Company's students participate:
UNITED STATES GOVERNMENT FINANCIAL AID PROGRAMS The following U.S.
Department of Education financial aid programs under Title IV of the Higher
Education Act are utilized by the Company's students in the United States:
(1) Federal Pell Grant ("Pell"), (2) Federal Supplemental Educational
Opportunity Grant ("SEOG"), (3) Federal Family Education Loan Program
("FFELP"), (4) William D. Ford Federal Direct Student Loan Program
("FDSL"), (5) Federal Perkins Direct Student Loan program ("Perkins") and
(6) Federal Work Study ("FWS").
GRANTS These funds, made available by the government to all eligible
students who demonstrate financial need, do not have to be repaid.
The Company's undergraduate students are eligible to participate in
the Pell and SEOG Grant programs. Eligible students can receive a
Pell grant ranging in amount from $400 to $3,750 per year. SEOG is a
supplement to the Pell grant, available to only the neediest students
because SEOG funds are limited in amount at each institution based
upon a federally-determined formula. In addition to these federal
34
assistance funds, DeVry is required to make a 25% institutional
matching contribution of all federal SEOG funds. The institutional
matching contribution may be satisfied, in whole or in part, by DeVry
Institutes' scholarship funds, discussed separately in this section,
or by externally provided scholarship grants.
LOANS Students at the DeVry Institutes participate in the Stafford
and PLUS programs within the FFELP, FDSL and in the Perkins loan
program. Under the FDSL program, students or parents borrow directly
from the Department of Education rather than from commercial lenders
under terms that are generally the same as for loans under the FFELP.
STAFFORD LOANS A subsidized Stafford loan, awarded on the basis
of student financial need, is a low interest loan with interest
charges and principal repayment not scheduled to begin until six
months after a student no longer attends school on at least a
half-time basis. An unsubsidized Stafford loan may be awarded to
students who do not meet the needs test and incurs interest
charges from the time the loan is disbursed; however, the
interest payment may be deferred until the principal payments
begin.
PLUS LOANS A PLUS loan enables parents of a dependant student to
borrow for the cost of their children's education. These loans
are not based on financial need, they are not subsidized and
interest charges and repayment begin upon receipt of the loan.
PERKINS LOANS A Perkins loan is a low interest loan available to
only those students who demonstrate exceptional financial need.
Funding for this program is provided, in part, by the Department
of Education and, in part, by the participating institution. As
loans are repaid, the principal and interest from these
35
repayments is returned to the pool of funds available for future
loans to students at that institution. New funding from the
Department of Education is limited in amount based upon federally
determined rules.
Historically, over 80% of the financial aid received by students
attending the Company's U.S. DeVry Institutes has been provided by
federal student loans.
Students at Keller Graduate School currently participate in the FDSL
and FFELP, which represent 100% of the federal financial aid received
by these students.
WORK STUDY Work opportunities, both on or off-campus, under FWS are
offered on a part-time basis by the U.S. DeVry Institutes to
undergraduate students who demonstrate financial need. Work Study
wages are paid partly from federal funds and partly from qualified
employer funds.
STATE FINANCIAL AID PROGRAMS In addition to the various federal loan and
grant programs, state grant and loan assistance may be received by eligible
students attending DeVry Institutes in Arizona, California, Colorado,
Florida, Georgia, Illinois, Ohio, New Jersey and New York.
"90/10 RULE" This U.S. Department of Education regulation affects only
for-profit postsecondary institutions, such as the Company. Under this
regulation, students attending a for-profit institution that derives more
than 90% of its revenues from federal financial assistance programs in any
year are not able to participate in these programs for the following year.
This regulation is commonly referred to as the "90/10 rule." Prior to
1999, the rule permitted only 85% of revenues to be collected from federal
financial assistance programs. When the limit was increased to 90%, the
definition of revenues was modified to exclude revenue funded by
36
institutional scholarships. Final data for fiscal 2001 are not yet
complete but, in fiscal 2000, the U.S. Institute system derived less than
70% of its revenues from these programs, ranging from a low of
approximately 50% to a high of approprimately 76% at individual institutes.
Each of the DeVry Institutes, (except for those that currently operate as
an additional location of an established Institute) is established as a
separate institution under the Higher Education Act ("HEA") provisions and
must separately meet the criteria for the "90/10 rule" and loan default
rates.
Keller Graduate School derives approximately 30% of its revenues from these
defined financial aid programs.
CANADIAN GOVERNMENT FINANCIAL AID PROGRAMS Canadian students, other than
students from Quebec, are eligible for loans under the Canada Student Loan
Plan, which is financed by the Canadian government but administered at the
provincial level. Canadian Student Loans are available to students who are
Canadian citizens or permanent residents of Canada enrolled at approved
postsecondary institutions. Students from Quebec are eligible for loans
under the Quebec Student Loan Plan. The loans are interest-free while the
student is in school, and repayment begins six months after the student
leaves school. Canada Study Grants for students whose financial needs and
special circumstances cannot otherwise be met, tax-free withdrawals from
retirement savings plans, tax-free education savings plans, loan repayment
extensions and interest relief on loans are also available to qualified
applicants to help finance their educations. All other forms of government
financial aid in Canada, both loans and grants, are financed and
administered by the provinces.
Postsecondary institutions whose students participate in the Ontario
Student Loan program are now required to make available to prospective
students information about graduation rates and student loan default rates.
In addition, postsecondary institutions whose student default rates exceed
certain thresholds will be required to provide the Ontario Ministry of
37
Education and Training with a security deposit for loan default losses that
might exceed the regulatory threshold. For DeVry's Toronto-area
Institutes, the most recently released Ontario Student Loan default rate
was 14.7% and is below the level at which there is required loan loss
sharing. This compares to an overall default rate for Ontario
postsecondary institutions of 15.7%
COMPANY-PROVIDED FINANCIAL ASSISTANCE The Company's EDUCARD Plan is
available to students attending the U.S. DeVry Institutes. Similar
installment payment plans are available for the Canadian DeVry Institutes.
The EDUCARD Plan is an installment loan program designed to assist students
unable completely to cover educational costs with student and family
contributions, federal and state grants and loans. The installment loan
feature of the EDUCARD Plan is available to a student only after other
student financial assistance has been applied toward the payment of
tuition, books and fees and is available only for those purposes.
Repayment of EDUCARD Plan balances is negotiated in accordance with the
financial circumstances of the particular student, but is typically on a
monthly basis with all balances required to be paid within 12-24 months
following a student's graduation or termination of study. The receivable
balance related to Company-provided financial aid at the U.S. DeVry
Institutes at June 30, 2001, was approximately $22.1 million. Amounts owed
by students under the EDUCARD Plan are subject to a monthly interest charge
of 1% of the average outstanding balance.
In September 2000, several DeVry Institutes began offering a supplementary
loan program with funding from private lenders. This new program is aimed
at students whose eligibility for federal and state funded financial aid is
not sufficient to cover all their costs of education. This program, with a
limited DeVry risk sharing for loan defaults, has longer repayment periods,
lower monthly payments and generally lower interest rates on borrowings
than offered by EDUCARD, is intended as an alternative to the current
EDUCARD program. The DeVry Institutes expect that this program will be
expanded to additional DeVry Institute campuses in the future.
38
In addition to the student financial assistance provided by the EDUCARD
Plan, the U.S. and Canadian DeVry Institutes offer numerous scholarships to
current high school graduates. For the 2002 academic year, the Institutes
are offering scholarships valued at more than $5 million. Scholarship
offers have been made to high school graduates in previous years and are
expected to be offered in the future. To attract students who attend
community or junior colleges, the U.S. DeVry Institutes also offer a
limited number of scholarships to recent graduates from accredited
community/junior colleges. The DeVry Institutes have also provided funds
in the form of institutional grants which help those students most in need
of financial assistance.
At Keller, students who wish to defer tuition payment may choose from
several deferred payment plans and students eligible for tuition
reimbursement plans may be able to have their tuition billed directly to
their employer.
The Congress has from time to time provided various tax benefits related to
educational expenses incurred by graduate and undergraduate students.
Educational expenses paid by an employer on behalf of an employee generally
are excludable from the employee's income if provided under a qualified
educational assistance plan. At present, the maximum annual exclusion is
$5,250. This exclusion, which had been set to expire, has now been made
permanent.
Student Loan Defaults
---------------------
The Company believes that, historically, federal student loans represented
more than 80% of the federal aid received by students at the U.S. DeVry
Institutes and 100% of the federal aid received by students at Keller
Graduate School. For a variety of reasons, high student loan default rates
on federal student loans are most often found in proprietary institutions,
institutions having large minority student populations and community
colleges, all of which tend to have a higher percentage of low income
students enrolled than do four-year publicly supported and independent
39
colleges and universities. In 1989, the U.S. Department of Education
instituted strict regulations that penalize educational institutions whose
students have high loan default rates. These regulations were further
tightened by the 1992 Higher Education Reauthorization Act. Any individual
institution with a FFELP or FDSL cohort default rate exceeding 20% for the
year is required to develop a default management plan in order to reduce
defaults, although the institution's operations and its students' ability
to utilize student loans are not restricted. Any individual institution
with a FFELP or FDSL cohort default rate of 25% or more for three
consecutive years is ineligible for participation in these loan programs
and cannot offer student loans administered by the U.S. Department of
Education for the fiscal year in which the ineligibility determination is
made and for the two succeeding fiscal years. In addition, students
attending an institution whose cohort default rate has exceeded 25% for
three consecutive years will be ineligible for Pell grants. Any
institution with a FFELP or FDSL cohort default rate of 40% or more in any
year is subject to immediate limitation, suspension or termination
proceedings from all federal aid programs. No DeVry Institute has ever had
a FFELP cohort default rate of 25% or more for three consecutive years nor
a cohort default rate of 40% or more in any one year.
The Company carefully monitors its students' loan default rate. To help
reduce student loan default rates, the Department of Education requires
that all educational institutions wait 30 days before disbursing funds to
first-time, first-year undergraduates to prevent potential early-term
dropouts from defaulting on their loans. Students who leave school in the
early part of their educational program typically default on their loans at
a higher rate than those students who remain and complete the course.
Another significant factor in controlling student loan default rates is the
servicing and collection efforts by lenders and guaranty agencies. The
Company assists the efforts of these lenders and agencies by contacting its
students who are delinquent in their loan repayments and advising them of
their responsibilities and rights to deferments or collection forbearance
if they are eligible.
40
According to preliminary, pre-published reports by the U.S. Department of
Education, the U.S. DeVry Institutes had FFELP student loan cohort default
rates for 1999 (the latest year for which statistics are available) ranging
from 0.9% to 14.5%. The weighted average DeVry Institute system's FFELP
cohort default rate is preliminarily reported at less than 10.0%. The
reported rates for 1999 reflect the proportion of former students who were
due to begin repaying their loans during that year but who were in default
by the end of 2000. Preliminary cohort default rates are subject to
revision by the Department of Education as new data becomes available and
are subject to appeal by schools contesting the accuracy of the data. For
1998 (the latest year for which "final" statistics are available), the U.S.
DeVry Institutes' weighted average FFELP cohort default rate was 12.7%. No
DeVry Institute is subject to any restrictions or termination under the
student loan program.
Students who attend the U.S. DeVry Institutes also participate in the
Federal Perkins loan program. The program, including the responsibility
for collection of outstanding loans, is administered by the institution.
Any institution with a Perkins loan cohort default rate exceeding 15% must
establish a default reduction plan. Any institution with a Perkins loan
cohort default rate between 20% and 30% will receive a reduced annual
federal contribution to the program. If the Perkins loan cohort default
rate exceeds 30%, the institution will not receive any new federal
contribution to the program. However, new loans to eligible students may
continue to be made from the pool of funds created by monthly repayments on
previous loans.
The DeVry Institutes Perkins loan cohort default rates for 2000 (the latest
year for which statistics are available) range from 12.5% to 25.7%. The
U.S. DeVry Institutes weighted average Perkins loan cohort default rate was
approximately 17.7%. For 1999, the DeVry Institutes' Perkins loan default
rates ranged from 11.6% to 22.8%, and the U.S. DeVry Institutes weighted
average Perkins loan cohort default rate was approximately 18.2%. Several
institutes received reduced new funding for the Perkins loan program
because their default rates exceeded the 20.0% regulatory thresholds. At
41
these institutes, new loans continue to be granted but at lower levels than
if the full amount of new federal funding were received. Because of the
relatively small amounts of funding available for this program relative to
other available financial aid programs, the reduced level of funding has
not had a material effect on the availability of total financial aid
available to DeVry students. Student counseling and additional collection
efforts, including the assistance of outside loan service agencies, have
been implemented and have, in part, contributed to the current reduction in
the weighted average default rate.
Career Services
---------------
The Company believes that the employment of its graduating students is
essential to its ability to attract and retain students. Currently, there
are approximately 150 career services professionals located at the U.S.
DeVry Institutes, working with students in the areas of career choice
activity, resume preparation and job interviewing. The staff also
maintains contact with local and national employers to determine job
opportunities and arrange interviews. In many cases, company hiring
representatives conduct interviews at an institute campus.
The shortage of skilled employees has placed an increased premium on
educated workers in our economy as evidenced by the widening gap in wages
of college vs. high-school graduates to more than 100% from approximately
50% in 1980. It is estimated that 85% of the jobs in the United States
currently require education or training beyond high school, up from only
65% as recently as 1991.
DeVry Institutes attempt to gather accurate data on the number of their
graduates employed in education-related positions within six months
following graduation. To a large extent, the reliability of such data is
dependent on the quality of information that graduates report to the DeVry
Institutes. At the U.S. DeVry Institutes, there were more than 46,000
graduates over the ten-year period ending October 2000, who were eligible
for career services assistance (i.e. excluding graduates who continued
42
their education, students from foreign countries not legally eligible to
work in the U.S., etc.). Of the nearly 45,000 graduates who actively
pursued employment or were already employed, more than 93% held positions
in their chosen fields within six months of graduation.
Full and part-time U.S. undergraduate degree and diploma program graduates
for the three classes which ended in calendar year 2000, and for the three
classes which ended in calendar year 1999, were employed in their chosen
field within six months of graduation, based on data reported to the DeVry
Institutes, as follows:
THE U.S. DEVRY INSTITUTES' UNDERGRADUATE EMPLOYMENT STATISTICS<FN1>
--------------------------------------------------------------
Percent of
Graduates
Who
Number of Actively
Graduates Pursued
Who Number of and
Actively Graduates Obtained
Pursued Employed Employment
Employment in and Those Percent
Number or Were Education Who were Of Net
of Net Already Related Already Graduates
Graduates<FN2>Employed<FN3>Positions Employed<FN3>Employed<FN2>
--------- -------- --------- -------- --------
Calendar Year
2000 Graduating
Classes (2/00,
6/00, 10/00) 6,212 6,060 5,740 94.7% 92.4%
Calendar Year
1999 Graduating
Classes (2/99,
6/99, 10/99) 5,622 5,499 5,230 95.1% 93.0%
-------------------------------
<FN>
<FN1>Does not include graduates of the one year post-baccalaureate
Information Technology program.
<FN2>Net graduates exclude students continuing their education, students
from foreign countries who are legally ineligible to work in the United
States and students ineligible for employment because of extreme
circumstances.
<FN3>Does not include students who actively pursued employment for less
than 6 months and did not obtain employment.
</FN>
43
The 2000 graduates achieved average annual starting compensation that
varied by program of study, ranging from $31,410 to $47,947. Individual
compensation levels vary depending upon the graduate's experience, program
of study and geographic area of employment.
In Canada, for the three classes which ended in calendar year 2000, over
93% of eligible graduates who actively pursued employment had obtained
employment or were already employed in their chosen field within six months
of graduation. This includes those students who received diplomas, who
received bachelor's degrees through the DeVry Phoenix Institute's degree
completion program in Calgary and those students who completed their degree
requirements at a U.S. DeVry Institute, but does not include graduates of
the one year Information Technology program.
The majority of employers of the DeVry Institutes' graduates are in the
electronics or information processing industries. The Company believes
that no single employer has hired more than 5% of the DeVry Institutes'
graduates in recent years. Major employers of the DeVry Institutes'
graduates include the following companies: Accenture, Applied Materials,
AT&T, Cellular One, Eastman Kodak, EDS, General Electric Company, Hewlett-
Packard, IBM, Intel Corp, MCI, Motorola and Xerox.
Keller Graduate School maintains a career services office to assist current
and past graduates. This office offers a full range of services designed
to enhance each individual's career development skills and is available to
graduates, at no charge, on a lifetime basis.
Seasonality
-----------
The Company's business is somewhat seasonal. Highest enrollment and
revenues at the DeVry Institutes and Keller typically occur during the fall
back-to-school period which corresponds to the second and third quarters of
the Company's fiscal year. Slightly lower enrollment is experienced in the
spring, and the lowest enrollment generally occurs during the summer
44
months. Becker Conviser experiences higher enrollments for its courses
beginning in June and July, the period leading to the fall CPA exam, than
for its classes beginning in December and January leading to the spring CPA
exam.
Results of operations reflect both this seasonal enrollment pattern and the
pattern of student recruiting activity costs that precede the start of
every term. Revenue, income before interest and taxes and net income by
quarter for each of the past two fiscal years are included in Note 10 to
the Company's Consolidated Financial Statements, "Quarterly Financial
Data."
Administration and Employees
----------------------------
Each of DeVry Institutes' campuses is managed by a president and has a
staff of academic deans, faculty and academic support staff, career service
and student service personnel and other professionals. Each campus also
has an admissions director who reports to the Company's vice president of
new student recruiting. Each Keller Graduate School center is managed by a
center director and has admissions representatives and appropriate academic
and administrative support staff. Becker Conviser is managed by a central
administrative staff headquartered in Oakbrook Terrace and by regional
administrative staff which supports instructors and coordinates local
recruiting efforts.
The Company has more than 4,000 regular full- and part-time employees.
Over 450 of these employees are located at the corporate headquarters in
Oakbrook Terrace, Illinois. In addition, the Company employs more than
1,500 students during peak periods as faculty assistants and in other part-
time positions. None of the Company's employees is represented by a union.
The Company believes that its relationships with its employees are
satisfactory.
45
Faculty
-------
Each DeVry Institute's campus president hires academic deans and faculty
members in accordance with criteria established by the Company, accrediting
standards and applicable state law. Most faculty members teaching in
technical areas have related industry experience. The DeVry Institutes have
initiated sabbatical and other leave programs to allow faculty to engage in
developmental projects or consulting opportunities to maintain and enhance
their currency and teaching skills. Faculty members are evaluated each
semester based on student comments and observations by an academic dean.
There are more than 1,000 full and part-time faculty member employees among
all of DeVry Institutes' campuses. More than 85% of DeVry Institutes'
full-time faculty member employees hold advanced academic degrees. In
addition, DeVry Institutes engage adjunct and visiting faculty, as needed,
mostly in the evening programs, who teach on a part-time basis while
maintaining their employment in their technical field of specialty.
Keller Graduate School faculty members are practicing business
professionals who are engaged to teach on a course-by-course basis. A
multi-session training course is used to train and develop new faculty
throughout Keller's national system. Over the past several years, Keller
has begun selectively utilizing full-time faculty to respond to student
demand in areas of rapidly growing enrollment and to meet licensing
approval requirements in certain states. Less than 10% of Keller's
instructors, excluding staff members who regularly teach, are full-time
employees. More than 90% of Keller's faculty have advanced degrees.
Keller drew upon almost 700 active faculty who taught courses as needed
throughout the past year. Becker's faculty, numbering more than 500 each
term, are primarily practicing professionals who teach part-time on a
course-by-course basis.
Trademarks and Service Marks
----------------------------
The Company owns and uses numerous trademarks and service marks including
"DeVry Institute of Technology" and variants thereof. All trademarks,
service marks and copyright registrations associated with the Company's
46
businesses are registered in the name of the Company or one of its
subsidiaries and expire over various periods of time. The Company
vigorously defends against infringements of its trademarks, service marks
and copyrights.
47
ITEM 2 - PROPERTIES
--------------------
DeVry Institutes
----------------
DeVry Institute campuses are located in both suburban communities and urban
neighborhoods. They are easily accessible to major thoroughfares. Each
Institute campus includes teaching facilities, admissions and
administrative offices. Teaching facilities are housed in modern buildings
that include classrooms, laboratories, libraries, bookstores and student
lounges. Electronics laboratories include PC-based instrumentation and
microprocessor development/circuit simulation systems along with analog and
digital oscilloscopes, digital multimeters, power supplies, signal
generators and other equipment. Computer laboratories include both stand-
alone and networked PC-compatible workstations that support all curricula
areas. Resources available to students include access to a central
mainframe owned and operated by a third party, UNIX and numerous software
packages supporting a variety of business, engineering and scientific
applications. Connections to the Internet and World Wide Web are included
through the computer laboratories as a part of the program curriculum.
Telecommunications laboratories provide central office simulation, PBX
administration, inter-networking and teaching LAN environments.
None of the DeVry Institute campuses which are owned by the Company are
subject to a mortgage or other indebtedness.
In Calgary (Alberta), Canada, the Company leased a new build-to-suit campus
of approximately 70,000 square feet to replace its former location.
Classes were first offered in this new and larger facility in July 1998,
the start of the summer term.
In the Toronto-area, the Company consolidated its operations into its two
newer campuses in Scarborough and Mississauga, Ontario. Additional space
was leased in both Scarborough and Mississauga to accommodate this
consolidation. Effective with the summer 1998 term, classes were no longer
offered at the original North York location.
48
In New York, the Company completed renovation of the first two floors of a
leased site in Long Island City. Classes were offered for the first time
in November 1998, the start of the fall term. Initially occupying
approximately 96,000 square feet, expansion construction on the third floor
was completed in fiscal 2001, increasing the campus size by 59,000 square
feet.
A parcel of land was purchased in the fourth quarter of fiscal 1997 in the
San Fernando Valley (West Hills), California, for construction of a third
campus in the Los Angeles area. Purchase of an adjoining parcel of land,
necessary to complete the site, was completed in August 1997. Construction
was completed on this 105,000 square foot Company-owned facility and
classes were first offered beginning in November 1999 for the fall term.
In Phoenix, Arizona, Pomona, California, and Kansas City, Missouri, the
Company leases additional space in adjacent office buildings in order to
house some administrative functions, permitting space within the campus
building to be used for additional classrooms and laboratories. These
expansions were necessary to accommodate increased student enrollments.
At the Chicago DeVry Institute, construction began in 1998 on a 53,000
square foot expansion. Located on the same Company owned property, and
adjacent to the existing facility, this expansion, which became available
during for the fall 1999 term, permits further enrollment growth and an
enhanced environment for the students, faculty and staff.
In fiscal 1999, the Company purchased approximately 16.9 acres of land in
Tinley Park (Chicago), Illinois, for construction of a 65,000 square foot
DeVry Institute. Construction was completed and classes were offered for
the first time in the summer 2000 term.
Renovation and expansion of the Columbus DeVry Institute was begun in 1999.
This project, now complete, increases the campus size to approximately
114,000 square feet and replaces the modular space previously in use.
49
The owner of the Addison (suburban Chicago) Institute acquired an adjacent
parcel of land and constructed approximately 20,000 square feet of
additional classroom and administrative space to accommodate increased
enrollments. This additional space was completed and occupied for the
summer 2000 term. In September 2001, the Company completed acquisition of
the property from its landlord.
In Orlando, Florida, the Company completed construction on a leased campus
of approximately 72,000 square feet and classes were offered for the first
time in the fall of 2000.
In Seattle, Washington, the Company acquired approximately 11 acres of land
and completed construction of an approximately 100,000 square foot
Institute with classes offered for the first time in the summer of 2001.
In July 2001, the Company completed the purchase of an approximately 17
acre site in the Houston, Texas, area for the future construction of a new
DeVry Institute.
In July 2001, the Company completed the purchase of its Pomona, California,
Institute which had been occupied under a lease.
Renovation is currently underway at an approximately 87,000 square foot
leased site in Crystal City, Virginia, (Washington D.C. area) for a new
DeVry Institute with classes expected to be offered for the fall term of
fiscal 2002.
The Company has signed a lease for a 103,000 square foot facility to be
built to its specifications for a new DeVry Institute campus in Miramar,
Florida, for occupancy in fiscal 2003.
The Company is nearing completion of lease negotiations on an existing
103,000 square foot facility in the Philadelphia, Pennsylvania, area.
Occupancy, following completion of renovation, is scheduled for fiscal
2003.
50
Additional DeVry Institute facility renovations and expansions may be
undertaken in the future to improve and expand operations.
The table below sets forth certain information regarding each of the
properties at which the DeVry Institutes and DTC conducted educational
operations at June 30, 2001:
UNDERGRADUATE CAMPUSES
----------------------
Full and
June 2001 Part-Time
Area Students
(Approximate Attending
Square Feet) Spring 2001 Ownership
------------ ----------- ---------
Phoenix, Arizona 120,200 3,379 Owned
Orlando, Florida 72,000 461 Leased
Alpharetta (Atlanta), Georgia 65,000 1,523 Leased
Decatur (Atlanta), Georgia 107,500 2,824 Owned
Chicago, Illinois 160,000 4,023 Owned
Addison (Chicago), Illinoi 110,000 3,824 Owned(1)
Tinley Park, Illinois 65,000 1,138 Owned
Kansas City, Missouri 74,500 2,549 Owned
Columbus, Ohio 114,000 3,370 Owned
North Irving (Dallas), Texas 95,250 3,395 Leased
Long Island City, New York 155,000 1,775 Leased
Pomona (Los Angeles), California 100,500 3,740 Owned(2)
Long Beach (Los Angeles),
California 98,240 2,945 Leased
West Hills, (Los Angeles),
California 105,000 1,038 Owned
Fremont (San Francisco),
California 99,000 2,190 Owned
North Brunswick, New Jersey 99,000 3,771 Owned
Denver, Colorado(3) 98,000 1,459 Owned
Calgary, Alberta, Canada 70,000 1,389 Leased
Ontario, Canada Toronto-Area 105,400 1,925 Leased
Other - 74 -
------
46,792
======
---------------------------
(1) Acquired in September 2001.
(2) Acquired in July 2001.
(3) Includes 28,000 square foot leased facility in Colorado Springs,
Colorado.
51
Keller Graduate School
----------------------
Keller teaching centers are housed in modern buildings whose locations are
chosen primarily for their convenience to students. Keller centers, which
mostly range in size from approximately 4,000 to more than 10,000 square
feet, include teaching facilities, admissions and administrative offices.
Each Keller facility has an information center designed to enhance
students' success and to support coursework requiring data and information
beyond that provided in course texts and packets. The information centers
include personal computers; all software required in courses; Internet
access; alternate texts; sample business plans; popular business
periodicals; videos of selected courses; a career services video and texts;
and access to more than three hundred electronic data-bases.
During fiscal 2001, Keller opened six new teaching centers. Additional new
centers are planned for opening in fiscal 2002 and beyond.
At the start of the April 2001 term, the last complete term in fiscal 2000,
approximately 7,944 course-takers were enrolled in Keller's classroom and
distance education programs. The table below sets forth certain
information regarding each of the properties at which Keller conducted
educational operations in the April, 2001, term:
52
KELLER GRADUATE SCHOOL CENTERS
------------------------------
April 2001
Ownership
----------
Phoenix, Arizona (2)
Scottsdale, Arizona Leased
Mesa, Arizona Leased
Denver, Colorado Leased
Chicago Loop, Illinois Leased
Chicago/O'Hare, Illinois Leased
Schaumburg, Illinois Leased
Lincolnshire, Illinois Leased
Oakbrook Terrace, Illinois (1)
Lisle, Illinois Leased
Tinley Park, Illinois Leased
Elgin, Illinois Leased
Merrillville, Indiana Leased
Tysons Corner, Virginia Leased
Crystal City, Virginia Leased
Bethesda, Maryland Leased
Milwaukee, Wisconsin Leased
Waukesha, Wisconsin Leased
St. Louis, Missouri Leased
St. Louis, Missouri (downtown) Leased
Kansas City, Missouri (2)
Kansas City, Missouri (downtown) Leased
Decatur, Georgia (2)
Atlanta, Georgia Leased
Alpharetta, Georgia (2)
Atlanta/Buckhead, Georgia Leased
Gwinnett, Georgia Leased
Pomona, California (2)
Long Beach, California (2)
Irvine, California Leased
San Diego, California Leased
Fremont, California (2)
West Hills, California (2)
Tampa Bay, Florida Leased
Orlando, Florida (south) (2)
Orlando, Florida Leased
Miami, Florida Leased
Seattle, Washington (2)
Cleveland, Ohio Leased
Columbus, Ohio (2)
Dallas, Texas (2)
Distance Learning (1)
--------------------------
(1)Operates at the Company's corporate headquarters location
(2)Operates on a DeVry Institute campus
53
Becker
------
Becker is headquartered at the Company's corporate headquarters in Oakbrook
Terrace, Illinois. Classes are conducted in leased facilities, fewer than
twenty of which are leased on a full-time basis. The remainder of the
classes are conducted in facilities which are leased on an as-needed basis,
allowing classes to be expanded or relocated as enrollments require.
Becker classes are also currently offered on several DeVry Institute
campuses and at Keller Graduate School centers where the location and
facility availability are appropriate.
Corporate
---------
The Company's administrative offices are located in approximately 111,000
square feet of leased space in an office tower in Oakbrook Terrace,
Illinois. In addition, the Company leases more than 45,000 square feet of
storage and other miscellaneous use space plus additional office space in
an adjacent building. Additional office and miscellaneous use space were
added during the past year to accommodate the Company's expanding
operations and further space may need to be leased in the future.
The Company's leased facilities are occupied under leases whose remaining
terms range from one to 15 years. A majority of these leases contain
provisions giving the Company the right to renew its lease for additional
periods at various rental rates.
ITEM 3 - LEGAL PROCEEDINGS
--------------------------
The Company is subject to occasional lawsuits, investigations and claims
arising out of the normal conduct of its business. Neither the Company nor
any of its subsidiaries is currently a party to any legal proceeding which
The Company believes is material. Although the outcomes of these lawsuits
cannot be predicted with certainty, the Company believes the resolution of
these matters will not have a material effect on the Company's financial
position, results of operations or liquidity.
54
In fiscal 1996, the Ontario Ministry of Education and Training temporarily
suspended and later conditionally reinstated the processing of financial
aid applications for students attending the Company's Toronto-area schools.
During the third quarter of fiscal 1999, the Company successfully concluded
the resolution of all outstanding issues with the Ontario Ministry of
Education and Training, including the full refund of amounts believed to
have been inappropriately disbursed. DeVry's Toronto-area campuses now
have full and unconditional status as a participant in the Province's
student financial aid programs.
In November 2000, three graduates of one of DeVry Institute's Chicago-area
campuses filed a class-action complaint that alleges DeVry graduates do not
have appropriate skills for employability in the computer information
systems field. The complaint was subsequently dismissed by the court, but
has been amended and refiled, this time including a current student from a
second Chicago-area campus.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year.
55
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The name, age and current position of
each executive officer of the Company
are:
Name, Age and Office Business Experience
-------------------- -------------------
Dennis J. Keller . . . . . . 60 Mr. Keller co-founded Keller
Graduate School in 1973. From the
Chariman of the Board and Chief inception of the Company, Mr.
Executive Officer Keller has been Chairman of the
Board and Chief Executive Officer.
Mr. Keller is a graduate of
Princeton University and holds a
Masters degree in Business
Administration from the University
of Chicago Graduate School of
Business.
Ronald L. Taylor . . . . . .57 Mr. Taylor co-founded Keller
Graduate School in 1973 and has
Director, President and Chief been a director since its
Operating officer inception. Mr. Taylor was Dean of
Keller Graduate School from its
inception until 1981, when he
became President and Chief
Operating Officer of KGSM. Mr.
Taylor is a graduate of Harvard
University and holds a Master of
Business Administration degree from
Stanford University.
Marilynn J. Cason. . . . . . 58 Senior Vice President, General
Counsel and Corporate Secretary
Senior Vice President, General Ms. Cason joined the Company in
Counsel and Corporate Secetary 1989 with responsibility for the
Company's legal affairs and human
resources. In her current position
as a Senior Vice President, Ms.
Cason has responsibility for
facilities planning, purchasing and
management information systems in
addition to her responsibilities
for legal affairs and human
resources.
56
Name, Age and Office Business Experience
-------------------- -------------------
Michael J. LaForte . . . . . 55 Mr. LaForte joined the Company in
1996. Prior to joining DeVry, Mr.
Senior Vice President LaForte served as executive vice
president of XL/Datacomp. Mr.
LaForte is responsible for the
overall operations of DeVry
University which includes the DeVry
Institutes and Keller Graduate
School.
O. John Skubiak. . . . . . . 55 Mr. Skubiak joined Keller Graduate
School more than 25 years ago as an
Executive Vice President admissions representative. In his
current position as Executive Vice
President of the Company, Mr.
Skubiak has responsibility for the
Company's marketing and its overall
educational operations.
Norman M. Levine . . . . . . 58 Mr. Levine has been with the
Company since 1982 and its Chief
Senior Vice President and Financial Officer since 1989. He
Chief Financial Officer became a Senior Vice President in
January 2001, assuming the added
responsibility for the Company's
tax planning and compliance.
Jack L. Calabro. . . . . . . 59 Mr. Calabro joined DeVry in 1999 as
Vice President of Human Resources.
Vice President, Human Resources Prior to joining DeVry, Mr. Calabro
was vice chancellor of human
resources at City Colleges of
Chicago and vice president of human
resources at Helene Curtis
Industries.
57
Name, Age and Office Business Experience
-------------------- -------------------
Thomas F. Donini . . . . . . 51 Mr. Donini joined DeVry in 1982,
serving in a variety of recruiting
Vice President, New Program positions and appointed to Vice
Development President, DeVry Institute Field
Recruitment in 1999. Mr. Donini is
currently responsible for
development of new recruiting
programs focusing on high schools,
business, community colleges,
military and international
students.
James A. Dugan . . . . . . . 55 Mr. Dugan joined the Company in
1980 serving in a number of
Vice President, Regional operating positions at the Phoenix
Operations DeVry Institute, most recently as
its president. In his current
position, Mr. Dugan is responsible
for the operation of several of the
U.S. DeVry Institutes.
George W. Fisher . . . . . . 49 Mr. Fisher joined the Company as
Vice President, Canadian Operations
Vice President, Regional in 1985. His responsibilities
Operations currently include operations of
several DeVry Institutes in the
U.S. and Canada and new DeVry
Institute campus development.
Jerome E. Hellman. . . . . . 53 Mr. Hellman joined the Company in
2001. He is responsible for
Vice President, Process Management Process Management for DeVry
University, including the
reengineering and standardization
of processes and implementation of
the Company's new student
information system now being
developed. Prior to joining the
Company, Mr. Hellman worked in
project and process management
positions, most recently at
Internet start-up, GFTS, and at
Bank One before that.
58
Name, Age and Office Business Experience
-------------------- -------------------
Timothy Joyce. . . . . . . . 40 Mr. Joyce joined the Company in
August 2000 as Controller. Prior
Controller to joining the Company, Mr. Joyce
was Vice President and Controller
of THK America, a manufacturer and
distributor of electronic devices,
in Schaumburg, Illinois.
Bruno LaCaria. . . . . . . . 59 Mr. LaCaria joined the Company in
August 1998 as Vice President and
Vice President, Chief information chief information officer. Prior
Officer to joining the Company, Mr. LaCaria
was the Director of Information
Systems at the University of
Pittsburgh.
Patrick L. Mayers. . . . . . 61 Dr. Mayers joined Keller Graduate
School in 1978 as Dean of Academic
Vice President, Academic Affairs Affairs. Dr. Mayers served as Vice
President of Academic Affairs for
Keller until 1997 at which time he
became the Vice President of
Academic Affairs for the DeVry
Institutes.
Gerald Murphy. . . . . . . . 54 Mr. Murphy joined the Company in
1995 as a Vice President with
Vice President, Campus Operations responsibility for the operation of
several of the DeVry Institutes in
the U.S. and Canada, following
which he was responsible for new
DeVry Institute location and
program development. Mr. Murphy is
currently responsible for the
oversight of all the U.S. DeVry
Institutes.
59
Name, Age and Office Business Experience
-------------------- -------------------
Sharon Thomas-Parrott. . . . 50 Ms. Thomas-Parrott joined the
Company in 1982 after several years
Vice President, Government as an officer in the U.S.
Relations Department of Education's Office of
Student Financial Assistance. She
served the Company in several
student finance positions before
being elected to her position which
currently includes responsibility
for student finance, corporate
communications, government and
public relations.
Jane Perlmutter. . . . . . . 53 Dr. Perlmutter joined the Company
in 1997 as a Vice President with
Vice President, Educational responsibility for the operation of
Development several U.S. DeVry Institutes. Dr.
Perlmutter's responsibilities now
include student retention
management and staff development.
Prior to joining the Company, Dr.
Perlmutter managed the Bellcore
Training & Education Center in
Lisle, Illinois.
Timothy H. Ricordati . . . . 45 Dr. Ricordati is Dean of the Keller
Graduate School and is now also
Vice President responsible for the Company's
University Center and Online
Education operations. Prior to his
position of Dean, Dr. Ricordati was
national director of operations for
Keller Graduate School.
Kenneth Rutkowski. . . . . . 54 Mr. Rutkowski joined the Company in
1985 as Director of Operations and
Vice President, Operations Administrative Services and was
Services and Administration promoted to his current position in
1991. His current responsibilities
include managing the Company's real
estate and various administrative
functions.
60
Name, Age and Office Business Experience
-------------------- -------------------
Vijay Shah . . . . . . . . . 50 Mr. Shah joined the Company in 1977
progressing from representative in
Vice President, New Student a DeVry Institute admissions office
Recruiting to director of admissions. He has
been DeVry's National Director of
Admissions since 1989 and was
promoted to Vice President,
Admissions in 1994. Mr. Shah is
now responsible for all new student
recruiting at the DeVry Institutes,
including both the admissions
offices and the field sales
representatives.
Edward J. Steffes. . . . . . 51 Mr. Steffes joined the Company in
1984 as director of marketing and
Vice President, Marketing was promoted to his current
position in 1986. Mr. Steffes is
responsible for the Company's
advertising and sales promotion.
Raul Valdes-Pages. . . . . . 51 Mr. Valdes-Pages joined the Company
in July 1999. In his current
Vice President, New Program position, he is responsible for
Development developing new product and program
initiatives. Prior to joining the
Company, Mr. Valdes-Pages was
president of Denver Technical
College.
Thomas J. Vucinic. . . . . . 54 Mr. Vucinic has been the general
manager of the Becker Conviser
Vice President Professional Review since 1997.
Prior to that, Mr. Vucinic was the
Company's Director of Financial
Planning and Analysis.
Gerald J. Wawrzynek. . . . . 46 Mr. Wawrzynek has been with the
Company since 1987. He is
Vice President responsible for the Company's tax
planning and compliance and its
acquisition analysis.
61
Name, Age and Office Business Experience
-------------------- -------------------
Fred Weber . . . . . . . . .53 Dr. Weber joined the Company in
2001. Mr. Weber is responsible for
Vice President, Regional the operation of several of the
Operations U.S. DeVry Institutes. Prior to
joining the Company, Dr. Weber was
at Follett Higher Education Group,
last serving as Senior Vice
President of Strategic Planning and
Communications.
62
PART II
-------
ITEM 5 - MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
----------------------------------------------------------
(a) Market Information
----------------------
The Company's common stock is listed on the New York Stock Exchange and the
Chicago Stock Exchange under the symbol "DV."
The following table sets forth the high and low sales price information by
quarter for the past two years.
FISCAL 2000 FISCAL 2001
--------------------- ---------------------
HIGH LOW HIGH LOW
--------------------- ---------------------
First Quarter $24.81 $18.00 $39.63 $27.25
Second Quarter 23.94 15.63 41.50 28.00
Third Quarter 30.50 16.06 38.29 30.05
Fourth Quarter 31.75 22.50 36.15 28.08
(b) Approximate Number of Security Holders
--------------------------------------
There were 784 holders of record of the Company's common stock as of
September 12, 2001. The number of holders of record does not include
beneficial owners of its securities whose shares are held by various
brokerage firms and other financial institutions. The Company believes
that there are over 10,000 beneficial holders of its common stock.
Dividends
---------
The Company is a holding company and, as such, is dependent on the earnings
of its subsidiaries for funds to pay cash dividends. Cash flow from the
Company's subsidiaries may be restricted by law and is subject to some
restrictions by covenants in the subsidiaries= debt agreements. The
63
Company has not paid any dividends on its common stock and expects for the
foreseeable future to retain all of its earnings from operations for use in
the Company's business. From time to time, the board of directors will
review the Company's dividend policy. Any payment of dividends will be at
the discretion of the board of directors and will be dependent on the
earnings and financial requirements of the Company and other factors as the
board of directors deems relevant.
ITEM 6 - SELECTED FINANCIAL DATA
--------------------------------
Selected financial data for the Company for the last five years are
included in the exhibit, "Five-Year Summary - Operating, Financial and
Other Data", on page 111 of this report.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------
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 appearing
elsewhere in this report.
Fiscal Year Ended June 30, 2001 vs. Fiscal Year Ended June 30, 2000
-------------------------------------------------------------------
Fiscal 2001 set new records for financial performance. Total consolidated
revenues increased by $77.6 million, or 15.8%, compared to last year.
Tuition revenues, which are the largest component of total revenues,
increased by $80.1 million, or 18.1%, from the previous fiscal year.
Tuition revenue for previous years has been restated to consistently
reflect the categorization of tuition refunds as a reduction in tuition
revenue rather than as a component of Cost of Educational Services,
consistent with the Securities and Exchange Commission's Staff Accounting
Bulletin 101 ("SAB 101") entitled "Revenue Recognition in Financial
Statements" and associated guidance.
64
In the fourth quarter, the Company applied the accounting and disclosure
provisions of SAB 101. SAB 101 requires the deferral of certain fees and
other charges over the period of service (student enrollment). Prior to
fiscal 2001, the Company recognized enrollment fees in the next academic
period after which the applicant had no further right to use or refund.
Additionally, tuition refunds were reported as a Cost of Educational
Services and have been restated as previously discussed. In accordance
with the transition provisions of SAB 101, as of the start of fiscal 2001,
the Company deferred approximately $0.7 million of certain fees. This
deferred revenue will be recognized in future periods based upon our
historical experience of expected future student attendance. Additionally,
as of the start of the fiscal year, the Company has elected to defer
certain direct costs associated with new student enrollment activities but
limited to the extent of revenue deferral. These costs will be
subsequently amortized over the same period of expected future student
attendance used to recognize deferred revenues. As revenues from
enrollment fees and related costs were deferred in equal amounts as of the
start of the fiscal year, net income and cash flow from operations were not
affected. At June 30, 2001, the Company has approximately $0.7 million of
deferred revenue and related costs recorded on its balance sheet,
approximately the same amount as of the start of the fiscal year.
Other Educational Revenues is composed primarily of the sale of books and
supplies, including the Becker Conviser CPA Review course on CD-ROM and
other CPA review study materials, and interest or payment deferral charges
on students' outstanding receivable balances. Although there were more
students enrolled in the Company's educational programs and they purchased
more books and materials than in the past year, Other Educational Revenues
declined by $2.2 million, or 4.9%, from last year because of the continued
outsourcing of DeVry Institute bookstore management which is discussed more
fully below.
Interest income on the Company's short-term investments of cash balances
decreased to $1.2 million because of the somewhat lower cash balances that
were available for investment during the year.
65
Undergraduate segment revenues increased by 15.9% from last year. Fiscal
2001 marked the 11th consecutive year at DeVry Institutes in which
cumulative total student enrollment for the three semesters during the year
has increased from the prior year, up 10.9%. Enrollment increases at DeVry
Institutes reflect the opening of a new campus in Tinley Park, Illinois, in
July 2000. This is the third DeVry campus in the Chicago-area. Also, in
November 2000, a new DeVry Institute campus opened in Orlando, Florida, the
first DeVry campus in that state. Enrollment at the previously opened
institutes also increased somewhat during the year. A tuition rate
increase of approximately 6% was implemented at the start of the summer
term and was effective for the entire fiscal year, further contributing to
the increased revenues. During the year, DeVry Institutes began to offer
its Business Administration degree program via distance education on a
limited basis. The start of this first undergraduate distance education
program offering did not significantly contribute to enrollments or
revenues during the year.
The DeVry Institutes entered into an agreement with Follett Higher
Education Group ("Follett") during fiscal 2000 to manage some of the on-
campus institute bookstores and provide Internet ordering capability to
DeVry students at these campuses. The wider range of ancillary merchandise
and experienced retail store management available from Follett is believed
to provide an improved level of student service. The institutes receive a
commission from Follett based upon the level of bookstore sales at these
campuses. At fiscal year-end, Follett was managing nine institute
bookstores, including those at the two new institutes opened during the
year, compared to four institute book stores under Follett management at
the previous June year-end. Sales at the institute bookstores under
Follett management, net of commissions paid to DeVry, were approximately
$11.0 and $1.5 million, respectively, in fiscal 2001 and 2000. In July
2001, Follett began managing two additional institute bookstores.
Responsibility for managing additional DeVry Institute campus bookstores
may be transferred to Follett in the future, based upon the needs of each
institute campus.
66
In the Graduate and Professional segment, revenues increased by 15.8%.
Enrollment at the Keller Graduate School increased because of six new
teaching centers that were opened during the year, bringing the total to
42, and because of enrollment increases at previously opened Keller centers
and the Online Education Center. Tuition rates were increased
approximately 5% effective with the term that started in September. In
January 2001, the Company acquired the Stalla Seminars CFA exam review
program as a complement to its Becker Conviser Professional Review
programs, further increasing revenues in the Graduate and Professional
segment. However, enrollments and revenues in the CPA review program
continue to be negatively affected by additional state implementations of
the "150 hour rule" that requires CPA exam candidates to have completed 150
hours of college credit, generally a fifth year of college, before they are
eligible to sit for the CPA exam.
In fiscal 2001, Cost of Educational Services increased by $34.9 million, or
12.9%. Cost of Educational Services includes the cost of faculty and
related staff, which represents approximately 60% of this expense category.
Also included in this expense category are the costs of facilities,
supplies, bookstore and other educational materials cost of sales, student
education-related support activities and the provision for uncollectible
student accounts. Assets employed in the Undergraduate segment increased
by approximately $63.6 million from last year as the Company continued its
investment in new and expanded facilities and equipment for students and
staff. Additions of $10.2 million to long-lived assets in the Graduate and
Professional segment, largely from the acquisition of Stalla Seminars, was
offset by a reduction in current assets, primarily cash, held in this
segment. As a result of the additions to facilities and equipment included
in the increase in assets employed, depreciation expense, most of which is
included in the Undergraduate segment Cost of Educational Services
category, increased by $6.6 million from last year.
67
Although costs increased generally in support of increased enrollments and
new operating locations in both the Undergraduate and the Graduate and
Professional segments, the consolidated Cost of Educational Services
increased at a rate substantially less than the rate of increase in tuition
revenues. The lesser rate of cost growth is due almost entirely to the
elimination of the cost of sales on books and supplies at the institute
bookstores now managed by Follett. The Company now reports commission
income in Other Educational Revenues with no corresponding cost of sales.
Economies of scale, as enrollment increased at most existing operating
locations, further contributed to the lower rate of cost increase.
Student Services and Administrative Expense increased by $25.9 million, or
18.3%, from last year. Student Services and Administrative Expense
includes the costs of new student recruiting, general and administrative
costs and expenses associated with curriculum development. The increased
spending reflects marketing costs associated with generating higher student
enrollments in the Company's educational programs for the terms that began
in fiscal 2001 and for the summer term of fiscal 2002, which began in July.
Generally, expenditures for new student recruitment occur in time periods
that precede the time periods in which there is revenue generated by these
new student enrollments.
Also, in response to the growing size and complexity of its educational
program offerings, the Company began 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 support and improvement initiatives, have increased
from last year. In accordance with accounting principles for internal
software development costs, certain wage and outside consulting service
costs are being capitalized. Indirect expenses related to the project,
such as training and employee communications, are charged to expense as
incurred. At the end of June, total capitalized costs were approximately
68
$2.4 million, while approximately $1.6 million of systems development costs
were charged to expense as incurred. Amortization of capitalized system
development costs will begin in future periods as portions of the project
become operational.
In the Undergraduate segment, the operating income margin for the year
improved from 16.9% last year to 17.3% in the current fiscal year because
of the effect of the outsourcing of certain low margin bookstore operations
to Follett and because of economies of scale as increased enrollments were
absorbed into the existing cost structure. Partially offsetting these
gains was an approximately $0.5 million currency conversion loss with
respect to DeVry Canada as the value of the Canadian dollar declined
relative to the U.S. dollar during the year.
In the Graduate and Professional segment, operating margins increased from
17.9% in fiscal 2000 to 20.3% in fiscal 2001 because of increased
enrollments at the Keller Graduate School and the January 2001 acquisition
of Stalla Seminars CFA review program. Partially offsetting these gains
were the effects on earnings of first year operating losses at the six new
Keller Graduate School teaching centers opened during the year and an
increase in amortization expense of approximately $0.2 million related to
goodwill incurred in the acquisition of Stalla Seminars.
The Company's earnings from operations in fiscal 2001 - before interest and
taxes - were a record $96.3 million, increasing by 21.2% from last year.
Operating margins, which have steadily increased during each of the past
several years, reached 17.0% this year, up from 16.2% last year.
Contributing to the increase in margins has been the outsourcing of the low
margin bookstore sales and operating economies from increased student
enrollments.
Interest expense decreased by $1.0 million from last year as the Company
operated through most of the year either debt free or with very low levels
of debt despite record capital spending and the acquisition, for cash, of
Stalla Seminars.
69
Taxes on income for the year were affected by a change in tax rates
applicable to the Company's Canadian operations. During the fourth
quarter, Canadian Customs and Revenue received Royal Assent to reduce
federal and certain provincial income tax rates in future periods. The
effect of this change in enacted tax rates through the end of the third
quarter of the fiscal year was $634,000. Without the change in enacted tax
rates, tax expense for the total year would have been reduced by $855,000.
Further reduction in provincial enacted income tax rates are expected in
future periods. The effect of these future expected reductions, had they
been enacted in the fiscal year ended June 30, 2001, would have been to
reduce the carrying value of the net deferred tax assets by an additional
$369,000. The cumulative impact of these reductions will be reflected in
the quarter(s) when the rates are enacted by Royal Assent.
Net income of $57.8 million, or $0.82 per share (diluted), was a record for
any year, increasing by 20.9% from last year.
Fiscal Year Ended June 30, 2000, vs. Fiscal Year Ended June 30, 1999
--------------------------------------------------------------------
Fiscal 2000 was another year of record financial performance. Total
consolidated revenues increased by $84.3 million, or 20.7%, compared to
last year. Tuition revenues, which are the largest component of total
revenues, increased by $75.4 million, or 20.5%, from last year.
Other Educational Revenues, composed primarily of the sale of books and
supplies, including the Becker Conviser CPA Review course on CD-ROM and
other CPA review study materials, and interest or payment deferral charges
on students' outstanding receivable balances, increased by $8.6 million, or
23.6%, from last year because of the increased number of students attending
the Company's educational programs.
Interest income on the Company's short-term investments of cash balances
increased slightly to $1.5 million because of somewhat higher cash balances
that were available for investment during most of the year.
70
Undergraduate segment revenues increased by 19.4% from last year. Fiscal
2000 marked the 10th consecutive year at DeVry Institutes in which
cumulative total student enrollment for the three semesters during the year
has increased, up 14.5% from the previous year. Enrollment increases at
DeVry Institutes reflect the opening of a new campus in West Hills,
California; continued enrollment increases in previously opened sites; and
enrollments at Denver Technical College's two Colorado campuses, which were
acquired in July 1999. Tuition revenue also increased because of tuition
rate increases of approximately 6.2% at DeVry Institutes, which occurred in
the spring semester of fiscal 1999 and were in effect for all of fiscal
2000. At DeVry Institutes, tuition increases have historically been
implemented effective with the spring term that begins in March. In fiscal
2000, the timing of the tuition increase was realigned to become effective
with the summer term, which corresponds with the beginning of a new
financial aid year and is consistent with the pattern of DeVry Institutes'
high school recruiting program. As a result, tuition revenues for the
final four months of the fiscal year were almost $8 million lower than they
would have been if the historical tuition increase pattern had applied.
The provision for tuition refunds, which has been restated as a deduction
from tuition revenues rather than as a component of Cost of Educational
Services, decreased slightly as a percentage of tuition revenue from fiscal
1999. This is believed to result from higher admission standards in the
Undergraduate segment and increased academic support and student service
quality initiatives that result in improved student retention and
contribute to increased operating margins.
The DeVry Institutes have entered into an agreement with Follett Higher
Education Group ("Follett") to manage several of the on-campus institute
bookstores and also to provide Internet order capability to students at
these campuses. The wider range of ancillary merchandise and experienced
retail store management available from Follett should provide an improved
level of service to DeVry Institute students. At fiscal year-end, Follett
was managing four institute bookstores and began managing a fifth store in
July. The institutes receive a commission from Follett based upon the
level of sales at these campuses. Responsibility for managing additional
71
DeVry Institute campus bookstores may be transferred to Follett in the
future, reducing reported revenues but with no significant effect on net
income.
In the Graduate and Professional segment, revenues increased by 30.0%.
Enrollment increases occurred at both Keller Graduate School and Becker
Conviser CPA Review. Enrollments were increased by the opening of five new
Keller Graduate School teaching centers, enrollment growth at existing
teaching centers and growth in enrollments at the Online Education Center.
Also, an approximately 5% price increase was implemented at Keller Graduate
School in September. In addition, the acquisition of Conviser Duffy CPA
Review operations in July 1999 further added to the revenue growth in this
segment, increasing enrollments in the CPA review courses to more than
30,000 per year while sales of the review course on CD-ROM also continued
to grow.
In fiscal 2000, Cost of Educational Services increased by $47.8 million, or
21.5%, from last year. Cost of Educational Services includes the cost of
faculty and related staff, which represents approximately 60% of this
expense category. Also included in this expense category are the costs of
facilities, supplies, bookstore sales, other student education-related
support activities and the cost of provisions for uncollectible student
accounts.
Increases to the Undergraduate segment Cost of Educational Services include
the acquisition of the Denver Technical College and its costs of operation.
New operating locations, including DeVry Institute's West Hills,
California, campus (opened in November 1999) typically incur expenses
greater than their revenues during the first year of operation. Higher
wage, benefit, supply, service and facility expenses associated with the
growing number of students enrolled at the existing DeVry Institute
locations also contributed to the higher costs. Assets employed in the
Undergraduate segment increased by almost $44 million reflecting the
acquisition of Denver Technical College and spending on expansion and
72
improvement at the DeVry Institutes. As a result of the additions to
facilities and equipment included in the increased assets employed,
depreciation expense, most of which is included in Cost of Educational
Services, increased by $5.2 million, or 35.7%, from the previous year.
Increases to the Graduate and Professional segment Cost of Educational
Services include the July 1999 acquisition of Conviser Duffy CPA Review and
its costs of operation. Costs also increased for the five new Keller
Graduate School teaching centers opened during the year, where expenses
typically, much like at new DeVry Institutes, are higher than revenues
during the first year of operation.
Student Services and Administrative Expense increased by $20.4 million, or
16.8% from fiscal 1999. Student Services and Administrative Expense
includes the costs of new student recruiting, general and administrative
costs and expenses associated with curriculum development. The increased
spending primarily reflects marketing costs associated with generating
higher student enrollments in the Company's educational programs for the
terms that began in fiscal 2000 and for the summer term of fiscal 2001,
which began in July. Generally, expenditures for new student recruitment
occur in time periods that precede the time periods in which there is
revenue generated by these new student enrollments.
Administrative efforts and required remediation associated with correcting
Y2K computer processing deficiencies were generally completed before the
start of the calendar year. Subsequent to the start of the year, only
minor modifications were required and there was no measurable adverse
effect on the Company's operations. Incremental spending on Y2K-related
issues was charged to expense as incurred and was not material relative to
overall revenues or expenses.
Undergraduate segment Student Services and Administrative Expense increased
because of the marketing and administrative expenses associated with the
acquisition of Denver Technical College. Additional marketing costs were
also incurred for the new DeVry Institute in Tinley Park, Illinois, opened
73
in July 2000, and for the new DeVry Institute in Orlando, Florida,
scheduled to open in November 2000. All marketing costs are expensed as
incurred, and the level of spending reflects efforts toward new student
enrollment, revenues from which will not be recognized until future
periods. Amortization expense of intangible assets, primarily resulting
from goodwill created by purchase accounting, is included in the Student
Services and Administrative Expense category. The increase from last year
of approximately $1.0 million is the result of amortization related to
goodwill incurred in the acquisition of Denver Technical College.
In the Graduate and Professional segment, Student Services and
Administrative Expense increased because of the marketing and
administrative expenses associated with the acquisition of Conviser Duffy
CPA Review. As the year progressed, economies were achieved from the
combination of their operations into the Becker CPA Review operation.
Also, costs associated with the five new Keller teaching centers opened
during the year further contributed to the increased spending. Assets
employed in the Graduate and Professional segment increased by almost $22
million largely as a result of the acquisition of Conviser Duffy CPA
Review. Amortization expense increased by approximately $0.8 million from
last year as the result of additional amortization related to goodwill
incurred in that acquisition.
In the Undergraduate segment, operating margins increased slightly from
16.8% in fiscal 1999 to 16.9% in fiscal 2000 as the benefits from economies
of scale fully offset the added costs related to expansion. In the
Graduate and Professional segment, operating margins increased from 12.5%
in fiscal 1999 to 17.9% in fiscal 2000. Enrollment growth at Keller
Graduate School and the acquisition and integration of Conviser Duffy into
the Becker operations contributed to the high rate of margin increase.
The Company's earnings from operations in fiscal 2000 - before interest and
taxes - were a record $79.5 million, increasing more than 25% from the
previous year. Operating margins, which have increased steadily in each of
the past several years, increased again, to 16.2% in fiscal 2000, up from
74
15.6% and 15.1% in fiscal 1999 and 1998, respectively. Although
depreciation and amortization charges have both increased at a rate greater
than the increase in tuition revenues, operating margins have continued to
increase because of higher new student enrollments, improved student
retention, greater facility utilization, continued operating improvement
and cost controls. Operating margins were further enhanced by synergies
and operating economies from the two acquisitions at the start of the year,
particularly the acquisition of Conviser Duffy, whose operations were being
integrated into Becker CPA Review.
Interest Expense increased by $1.1 million from the prior year, as debt was
incurred in July to fund the Company's two acquisitions, which were both
made for cash. By year-end, all borrowings had been fully repaid.
Net income of $47.8 million, or $0.68 per share (diluted), was a record for
any year, increasing by more than 23% from fiscal 1999.
Liquidity and Capital Resources
-------------------------------
The Company's primary source of liquidity is the cash received from student
payments for tuition, books and fees. These payments include funds
originating as student and family educational loans; other financial aid
under various federal, state and provincial loan and grant programs; and
student and family resources.
The pattern of cash receipts is somewhat cyclical. The level of accounts
receivable from which cash payments are collected reaches a peak
immediately after the billing of tuition, books and fees. In the
Undergraduate segment, this occurs at the beginning of each semester, which
begin in July, November and March. Collections of these receivables are
heaviest in the first two months of the term. Collections during this
period exceed payments for operating expenses applicable to that period and
generally provide sufficient cash flow for the balance of the semester's
operations. Accounts receivable reach their lowest level just prior to the
start of the next semester, dropping to their lowest point in the year at
75
the end of June. The end of June corresponds to both the end of the spring
semester and the end of a financial-aid year, at which time substantially
all financial aid for the previous 12 months has been disbursed to
students' accounts. In the Graduate and Professional segment, both Keller
Graduate School and Becker Professional Review experience similar cyclical
patterns in cash receipts and disbursements but based upon their respective
academic term cycle.
At June 30, 2001, total Company accounts receivable, net of related
reserves, were approximately $25.7 million. Included in this receivable is
an increase in receivables owed by the higher number of students enrolled
in the Company's academic programs and an increase in the average level of
receivable per student compared to last year, resulting from higher term
tuition charges and an increase to Company provided interim student
financing under DeVry Institute's EDUCARD program and deferred payment
plans at Keller Graduate School. Reserves for uncollectible accounts have
been increased proportionally to reflect the higher level of risk
associated with the higher student receivable balances. To help reduce the
level of Company provided student financing, several DeVry Institutes
participate in a supplementary loan program with funding from private
lenders. This program, with limited Company default risk sharing, is aimed
at students whose eligibility for federal and state funded financial aid is
not sufficient to cover all their costs of education.
At year-end, there was no net balance in accounts receivable that was owed
to the Company by the various federal student financial aid programs
administered by the Department of Education and state agencies. At June
30, 2000, such balances included in accounts receivable totaled $6.1
million. Similar receivables have occurred at other times in the past and
can occur again.
The Company is highly dependent upon the timely receipt of financial aid
funds in both its U.S. and Canadian operations. The Company estimates that
historically, approximately 70% of its Undergraduate segment's tuition,
bookstore and fee revenues have been financed by government-provided
76
financial aid to students. More recently, Keller Graduate School students
have begun to make increased use of student loan offerings that now
represent over 30% of Keller's revenues. These financial aid and
assistance programs are subject to political and governmental budgetary
considerations. There is no assurance that such funding will be
maintained.
Extensive and complex regulations in the United States and Canada govern
all of the government financial assistance programs in which the Company's
students participate. The Company's administration of these programs is
periodically reviewed by various regulatory agencies. Any regulatory
violation could be the basis for disciplinary action, including initiation
of a suspension, limitation or termination proceeding against the Company.
Under the terms of the Company's participation in governmental financial
aid programs, certain cash received from the U.S. Department of Education
is maintained in restricted 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 process 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. At June 30, 2001, cash in the amount of $20.5
million was held in restricted bank accounts, in part, to provide funds for
the disbursements completed in the latter part of the just completed
undergraduate spring term, and in part, to provide funds in anticipation of
financial aid disbursements which occur at the start of DeVry Institutes'
and Keller Graduate School's summer term. At June 30, 2000, cash in
restricted bank accounts equaled $19.4 million.
77
Cash generated from operations in fiscal 2001 reached a record $85.2
million, increasing more than 17% from last year. Higher earnings, and the
increased non-cash source of depreciation included in these earnings,
accounted for the increased cash flow.
Capital expenditures in fiscal 2001 reached a new record of $74.6 million.
In just the past three years, the Company has invested over $160 million
for expansion and facility improvements, replacement and improvement of
school laboratories, and for teaching and administrative equipment.
Contributing to the record capital expenditures was spending for the fiscal
2001 opening of new DeVry Institutes in Tinley Park, Illinois, and Orlando,
Florida. Renovation and expansion continued at the New York and Columbus,
Ohio, institutes. Spending was nearly completed during the year in
preparation for the July 2001 opening of the DeVry Institute in Seattle,
Washington, and spending was initiated for the expected November 2001
opening of the new DeVry Institute in Crystal City, Virginia.
In addition to record capital expenditures, in January 2001, the Company
acquired, for $8.6 million of cash, the assets and operations of Stalla
Seminars, a leading provider of Chartered Financial Analyst exam review
courses and study materials.
For fiscal 2002, capital expenditures are expected to remain at
historically high levels, equal to and possibly exceeding the spending
levels in fiscal 2001, as the Company continues its expansion and
improvement program in both the Undergraduate and the Graduate and
Professional segments. New operating locations, changing and improving
both operating and instructional technology and maintaining existing
facilities are integral parts of the Company's operating plan and are
expected to require a continuing substantial capital investment in the
coming years.
In October 2000, the Company and its banks amended the revolving loan
agreement; extending its term to February 2003, and modifying two of the
78
financial debt covenants. At fiscal 2001 year-end, there were no
borrowings under the revolving loan agreement except for approximately $0.9
million in outstanding letters of credit.
In July 2001, the Company borrowed $35 million under its $85 million
revolving line of credit to meet cyclical needs prior to the cash inflows
associated with the start of DeVry Institutes's summer term, to finance the
purchase of land for a future DeVry Institute site in Houston Texas, and to
purchase the DeVry Institute campus in Pomona, California, which had been
occupied under a lease. Repayment of a portion of these borrowings began
in August from the normal inflow of summer term cash receipts. Future
borrowings and/or repayments will be based on the Company's cyclical cash
flow cycle and amounts required for capital spending and possible future
acquisitions.
In August 2001, the Company's banks waived the level of capital
expenditures for fiscal 2001 that exceeded the financial covenant limit of
$70 million. The Company and its banks are discussing further amendments
to the revolving loan agreement to extend its term, increase or remove the
capital expenditure limit and modify other covenants as necessary to permit
increased flexibility of Company operations.
The Company's interest rate on bank borrowings is a floating rate of prime
or LIBOR plus 0.35%, at the Company's option, and will remain at that level
based on continued achievement of certain financial ratios. Interest rates
are adjustable quarterly, based upon these financial ratios. At the
present time, the Company does not have an interest rate swap or other form
of protection against increases in the floating rate but does fix the
interval of interest rate adjustments on most of its borrowings for periods
of up to three months to eliminate some of the possible variability in
rates. The Company periodically evaluates its need for interest rate
protection in light of projected changes in interest rates and projected
borrowing levels.
79
The Company believes that current balances of unrestricted cash, cash
generated from operations and, if necessary, the revolving loan facility
will be sufficient to fund its current operations and growth plans for the
foreseeable future.
EFFECT OF NEW ACCOUNTING STANDARDS
----------------------------------
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 and 142, entitled "Business
Combinations" ("FAS 141") and "Goodwill and Other Intangible Assets" ("FAS
142"), respectively.
FAS 141 requires companies to use the purchase method of accounting for all
business combinations initiated after June 30, 2001, and eliminates use of
the pooling-of-interests method of accounting for business combinations.
To-date, all of the Company's acquisitions have been accounted for using
the purchase method of accounting. FAS 141 also establishes criteria that
must be used to determine whether acquired intangible assets should be
recognized separately from goodwill in the Company's financial statements.
FAS 142 details the method by which companies will account for goodwill and
intangible assets after a business combination has been completed. This
accounting standard provides that goodwill arising from a business
combination will no longer be amortized and charged to expense over time.
Instead, the goodwill must periodically be tested for impairment. If the
fair value of the related reporting unit is less than its carrying amount,
an impairment loss is recognized.
As permitted by FAS 142, the Company intends to adopt this standard
effective with the start of its new fiscal year, beginning July 1, 2001.
Before the issuance of its first quarter financial statements, the Company
must complete an assessment of the categorization of its existing
intangible assets and goodwill in accordance with the new criteria and
report them appropriately. Intangible assets with indefinite lives will
not be subject to amortization, but will instead be periodically reviewed
80
for impairment. Intangible assets with finite lives will continue to be
subject to amortization over their expected useful lives. Additionally,
the Company will determine the appropriate reporting units and allocate
assets, liabilities and goodwill to each of these units as required.
Within six months of adoption, the Company must complete a valuation of the
goodwill in each reporting unit to determine if there has been any
impairment. The Company is currently in the process of performing the
necessary assessments and allocations and has not yet determined the effect
on earnings, if any, from potential transition adjustments. Currently, the
Company incurs amortization expense related to goodwill and certain
indefinite lived intangible assets of more than $3.0 million per year that
is expected to be discontinued upon adoption of FAS 142. Under current tax
regulations, the Company's goodwill is amortizable and deductible for
income tax purposes.
81
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
The following financial and supplemental schedule statements of the Company
and its subsidiaries are included below on pages 82 through 108 of this
report:
10K
Report Page
-----------
Consolidated Balance Sheets at
June 30, 2001 and 2000 82-83
Consolidated Statements of Income for the
years ended June 30, 2001, 2000 and 1999 84
Consolidated Statements of Cash Flows for
the years ended June 30, 2001, 2000 and 1999 85
Consolidated Statements of Shareholders'
Equity for the years ended June 30, 2001,
2000 and 1999 86
Notes to Consolidated Financial Statements 87-106
Schedule II. - Valuation and Qualifying Accounts 107
Report of Independent Accountants 108
Schedules other than the one listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown
on the financial statements or notes thereto.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
------------------------------------------------------------------------
There were no changes in or disagreements with accountants on accounting and
financial disclosure.
82
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30,
2001 2000
-------- --------
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 29,213 $ 25,851
Restricted Cash 20,484 19,395
Accounts Receivable, Net 25,664 25,362
Inventories 4,899 6,371
Deferred Income Taxes 5,221 3,526
Prepaid Expenses and Other 3,146 1,459
------- -------
Total Current Assets 88,627 81,964
------- -------
Land, Buildings and Equipment:
Land 42,583 38,516
Buildings 122,433 101,689
Equipment 145,056 113,586
Construction In Progress 20,808 6,403
------- -------
330,880 260,194
Accumulated Depreciation (125,796) (101,393)
------- -------
Land, Buildings and Equipment, Net 205,084 158,801
------- -------
Other Assets:
Intangible Assets, Net 78,852 74,134
Deferred Income Taxes 4,658 2,032
Perkins Program Fund, Net 9,753 8,316
Other Assets 4,701 1,832
------- -------
Total Other Assets 97,964 86,314
------- -------
TOTAL ASSETS $391,675 $327,079
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
83
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30,
2001 2000
-------- --------
LIABILITIES:
Current Liabilities:
Accounts Payable $ 34,573 $ 31,827
Accrued Salaries, Wages and Benefits 23,782 24,715
Accrued Expenses 10,891 7,041
Advance Tuition Payments 14,179 15,507
Deferred Tuition Revenue 10,957 10,095
------- -------
Total Current Liabilities 94,382 89,185
------- -------
Other Liabilities:
Revolving Loan - -
Deferred Rent and Other 12,622 12,755
------- -------
Total Other Liabilities 12,622 12,755
------- -------
TOTAL LIABILITIES 107,004 101,940
------- -------
COMMITMENTS & CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common Stock, $0.01 Par Value, 200,000,000
Shares Authorized,69,755,491 and
69,642,087 shares Outstanding
at June 30, 2001 and 2000, Respectively 698 697
Additional Paid-in Capital 64,481 63,012
Retained Earnings 218,772 160,996
Accumulated Other Comprehensive Income 720 434
------- -------
TOTAL SHAREHOLDERS' EQUITY 284,671 225,139
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $391,675 $327,079
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
84
DEVRY INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except for Per Share Amounts)
For The Year Ended
June 30,
--------------------------------
2001 2000 1999
-------- -------- --------
REVENUES:
Tuition $523,995 $443,859 $368,487
Other Educational 43,012 45,238 36,614
Interest 1,170 1,492 1,220
------- ------- -------
Total Revenues 568,177 490,589 406,321
------- ------- -------
COSTS AND EXPENSES:
Cost of Educational Services 304,532 269,663 221,856
Student Services and
Administrative Expense 167,330 141,443 121,055
Interest Expense 400 1,409 300
------- ------- -------
Total Costs and Expenses 472,262 412,515 343,211
------- ------- -------
Income Before Income Taxes 95,915 78,074 63,110
Effect of Canadian Tax Rate Change
on Income Tax Provision 634 - -
Income Tax Provision 37,505 30,293 24,280
------- ------- -------
NET INCOME $ 57,776 $ 47,781 $ 38,830
======= ======= =======
EARNINGS PER COMMON SHARE
Basic $0.83 $0.69 $0.56
==== ==== ====
Diluted $0.82 $0.68 $0.55
==== ==== ====
The accompanying notes are an integral part of these consolidated
financial statements.
85
DEVRY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For The Year Ended June 30,
---------------------------
2001 2000 1999
-------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $57,776 $47,781 $38,830
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 28,132 21,545 16,109
Amortization 3,904 3,706 1,675
Provision for Refunds and
Uncollectible Accounts 29,663 24,186 20,284
Deferred Income Taxes (4,321) (3,159) (4,461)
Loss on Disposals and Adjustments to Land,
Buildings and Equipment 137 33 52
Changes in Assets and Liabilities, Net of
Effects from Acquisitions of Businesses:
Restricted Cash (1,089) 1,516 (3,891)
Accounts Receivable (29,719) (34,641) (22,378)
Inventories 1,492 304 (1,250)
Prepaid Expenses And Other (1,687) (17) 1,342
Perkins Program Fund Contribution
and Other (4,755) (695) 392
Accounts Payable 2,746 451 4,887
Accrued Salaries, Wages,
Expenses and Benefits 3,405 4,703 887
Advance Tuition Payments (1,328) 2,079 2,777
Deferred Tuition Revenue 862 4,950 (688)
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 85,218 72,742 54,567
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (74,552) (40,797) (44,819)
Payments for Purchases of Businesses, Net
of Cash Acquired (8,572) (38,587) -
------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES (83,124) (79,384) (44,819)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options 982 659 341
Proceeds from Revolving Credit Facility 24,000 40,000 -
Repayments Under Revolving Credit Facility (24,000) (40,000) (10,000)
------ ------ ------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 982 659 (9,659)
Effects of Exchange Rate Differences 286 (14) (122)
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,362 (5,997) (33)
Cash and Cash Equivalents at Beginning
of Year 25,851 31,848 31,881
------ ------ ------
Cash and Cash Equivalents at End of Year $29,213 $25,851 $31,848
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Year $324 $1,545 $298
Income Taxes Paid During the Year, Net 38,859 31,590 27,243
The accompanying notes are an integral part of these consolidated
financial statements.
86
DEVRY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)
Common Stock
------------------ Accumulated
Additional Other
Amount Paid-in Retained Comprehensive
$.01 Par Capital Earnings Income Total
------------------ -------- ------------- -------
Balance at June 30, 1998 $693 $60,608 $ 74,385 $570 $136,256
Comprehensive Income:
Net Income in 1999 38,830 38,830
Foreign Currency
Translation (122) (122)
-------
Comprehensive Income 38,708
-------
Proceeds from exercise
of stock options 1 340 341
---------------------------------------------------
Balance at June 30, 1999 694 60,948 113,215 448 175,305
Comprehensive Income:
Net Income in 2000 47,781 47,781
Foreign Currency
Translation (14) (14)
-------
Comprehensive Income 47,767
-------
Proceeds from exercise
of stock options 3 656 659
Tax benefit from exercise
of stock options 1,408 1,408
----------------------------------------------------
Balance at June 30, 2000 697 63,012 160,996 434 225,139
Comprehensive Income:
Net Income in 2001 57,776 57,776
Foreign Currency
Translation 286 286
-------
Comprehensive Income 58,062
-------
Proceeds from exercise
of stock options 1 981 982
Tax benefit from exercise
of stock options 488 488
---------------------------------------------------
Balance at June 30, 2001 $698 $64,481 $218,772 $720 $284,671
===================================================
The accompanying notes are an integral part of these consolidated
financial statements.
87
DEVRY INC.
Notes to Consolidated Financial Statements
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
DeVry Inc. (the Company), through its wholly owned subsidiaries, including
DeVry University, operates an international system of degree-granting,
career-oriented higher education schools and a leading international training
firm. DeVry University is one of the largest regionally accredited higher
education systems in North America. Its DeVry Institutes award associate and
bachelor's degrees in electronics, computer information systems, business
administration, accounting, technical management and telecommunications
management. The DeVry Institutes are located on 18 campuses in the United
States and three campuses in Canada. A 19th U.S. campus opened in July 2001
and a 20th is scheduled to open in November 2001. Keller Graduate School of
Management awards master's degrees in business administration, accounting and
financial management, information systems management, human resource
management, project management and telecommunications management. Keller
Graduate School classes are offered at 42 locations in the United States,
including the Online Education Center. Several additional locations are
scheduled to open in fiscal 2002. Becker Conviser Professional Review (Becker
Conviser) is the leading international training firm preparing students to
pass the Certified Public Accountant (CPA), Certified Management Accountant
(CMA) and Chartered Financial Analyst (CFA) examinations. Currently, the CPA
exam review Course is offered at approximately 300 locations worldwide.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany balances and transactions
have been eliminated in consolidation. Becker Conviser accounts are
consolidated based on an April 30 fiscal year end, which is its natural year
end based on its business cycle. There were no events occurring at Becker
Conviser during the intervening period through June 30 that materially
affected the financial position or results of operations of the Company.
Unless indicated, or the context requires otherwise, references to years
refer to the Company's fiscal years then ended.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents can include time deposits, commercial paper,
municipal bonds and bankers acceptances with original maturities of three
months or less or that are highly liquid and readily convertible to a
known amount of cash. These investments are stated at cost, which
approximates market, due to their short duration or liquid nature. The
Company limits the amount of credit exposure with any one investment
instrument or with any one financial institution. The Company
periodically evaluates the credit-worthiness of the security issuers
and financial institutions with which it invests.
88
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial Aid and Restricted Cash
---------------------------------
Financial aid and assistance programs, in which most of the Company's
students participate, are subject to political and governmental budgetary
considerations. There is no assurance that such funding will be maintained
at current levels. Extensive and complex regulations in the United States
and Canada govern all of the government financial assistance programs in
which the Company's students participate. The Company's administration of
these programs is periodically reviewed by various regulatory agencies.
Any regulatory violation could be the basis for disciplinary action, including
the initiation of a suspension, limitation or termination proceeding against
the Company.
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.
Revenue Recognition
-------------------
Tuition revenue is recognized ratably on a straight line basis over the
applicable academic term. The provision for refunds, which is reported as
a reduction to Tuition Revenue in the Consolidated Statements of Income, and
the provision for uncollectible accounts, which is included in the Cost of
Educational Services in the Consolidated Statements of Income, also are
recognized in the same straight line fashion as revenue to most appropriately
match the tuition revenue in that term.
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
89
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition, continued
------------------------------
student or the appropriate funding source. All refunds issued are charged
fully to refund expense during the applicable academic term. Related reserves
are $12,364,000 and $9,352,000 at June 30, 2001 and June 30, 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.
In the fourth quarter, the Company adopted the provisions of the Securities
and Exchange Commission's Staff Accounting Bulletin 101 ("SAB 101")
entitled "Revenue Recognition in Financial Statements" and associated
guidance. SAB 101 requires the deferral of certain fees and other charges
over the period of service (student enrollment). Additionally, tuition
refunds, which were previously reported as a Cost of Educational Services,
are now classified as a reduction in net revenue, with prior period
information restated to conform to this classification. In accordance with
SAB 101, the Company deferred approximately $700,000 of enrollment fees
as of July 1, 2000. This deferred revenue is recognized in subsequent
periods as student services are provided. Additionally, as permitted by
SAB 101, the Company elected to defer certain direct costs of activities
associated with these fees, limited to the extent of the revenue deferral
as of July 1, 2000. These costs are subsequently amortized over the
periods in which student services are provided. As deferred revenue and
equivalent deferred costs are recorded as of July 1, 2000, reported net
income and cash flows are not affected by the adjustments required to adopt
the guidance of SAB 101. At June 30, 2001, the Company has approximately
$700,000 of deferred revenue and an equivalent amount deferred costs
recorded associated with these fees.
Inventories
-----------
Inventories consist mainly of textbooks, electronics kits and supplies held
for sale to students enrolled in the Company's educational programs.
Inventories are valued at the lower of cost (first-in, first-out) or market.
90
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Land, Buildings and Equipment
-----------------------------
Land, buildings and equipment are recorded at cost. Cost includes additions
and those improvements that increase the capacity or lengthen the useful
lives of the assets. Repairs and maintenance costs are expensed as incurred.
Assets under construction are reflected in Construction In Progress until
they are ready for their intended use. Interest is capitalized as a
component of cost on major projects during the construction period.
Depreciation is computed using the straight line method over estimated
service lives ranging from three to 31 years.
Intangible Assets
-----------------
Intangible assets relate mainly to acquired business operations. These assets
consist of the fair value of certain identifiable assets acquired and
goodwill, which represents the excess of the purchase price over the fair
value of assets acquired and liabilities assumed (Note 3). Amortization is
computed using the straight line method over the assets' estimated useful
lives, generally 25 years.
At each balance sheet date, the Company evaluates the realizability of
goodwill and other long-lived assets based upon the expectations of the
operating results for each subsidiary having a material goodwill balance.
Based upon its most recent analysis, the Company believes that there is no
impairment of goodwill or other intangible assets at June 30, 2001 and 2000.
The Company expenses all new school opening costs as incurred.
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 $2,592,000 and $2,346,000 at June 30, 2001 and 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.
91
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 software development project.
Capitalization of such costs ceases no later than the point at which the
project is substantially complete and ready for its intended purpose.
Fair Value of Financial Instruments
-----------------------------------
The carrying amount reported in the Consolidated Balance Sheets for cash and
cash equivalents, restricted cash, accounts receivable, accounts payable,
accrued expenses, and advanced and deferred tuition payments approximate fair
value because of the immediate or short-term maturity of these financial
instruments.
Foreign Currency Translation
----------------------------
The financial position and results of operations of the Company's foreign
subsidiary are measured using the local currencies as the functional
currencies. Assets and liabilities of the foreign subsidiary and other
foreign operations are translated to U.S.dollars using exchange rates in
effect at the balance sheet dates. Income and expense items are translated
at monthly average rates of exchange. The resultant translation adjustments
are included in the component of Shareholders' Equity designated as
Accumulated Other Comprehensive Income. Transaction gains or losses during
the years ended June 30, 2001, 2000 and 1999, were not material.
Income Taxes
------------
Income taxes are provided by applying statutory rates to income recognized
for financial statement purposes. Deferred income taxes are provided for
temporary differences between the financial reporting and income tax bases
of assets and liabilities. Effects of statutory rate changes are recognized
for financial reporting purposes in the year in which enacted by law.
92
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 69,704,000, 69,525,000 and 69,361,000 in 2001, 2000 and
1999, 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 70,662,000, 70,390,000 and 70,454,000 in 2001, 2000 and
1999, respectively.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Stock-based Compensation
------------------------
The Company has elected to continue to account for its stock-based awards in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB Opinion No. 25"), and has provided the pro
forma disclosures as required by FASB Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123"),for
the years ended June 30, 2001, 2000 and 1999, in Note 7.
Comprehensive Income
--------------------
The Company's only item that meets the definition for adjustment to arrive at
comprehensive income is the change in cumulative translation adjustment.
Changes in cumulative translation adjustment are included in the Consolidated
Statements of Shareholders' Equity.
Recent Accounting Pronouncements
--------------------------------
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 and 142, entitled "Business
Combinations" ("FAS 141") and "Goodwill and Other Intangible Assets"
("FAS 142"), respectively.
FAS 141 requires companies to use the purchase method of accounting for all
business combinations initiated after June 30, 2001 and eliminates use of the
pooling-of-interests method of accounting for business combinations. All of
the Company's acquisitions to-date have been accounted for using the purchase
93
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements, continued
--------------------------------
method of accounting. FAS 141 also establishes criteria that must be used to
determine whether acquired intangible assets should be recognized separately
from goodwill in the Company's financial statements.
FAS 142 details the method by which companies will account for goodwill and
intangible assets after a business combination has been completed. This
accounting standard provides that goodwill arising from a business combination
will no longer be amortized and charged to expense over time. Instead,
goodwill must be periodically tested for impairment. If the carrying amount of
the reporting unit containing the goodwill exceeds the fair value of that
reporting unit, an impairment loss is recognized in an amount equal to that
excess.
As permitted by FAS 142, the Company intends to adopt this standard effective
with the start of its new fiscal year, beginning July 1, 2001. Before the
issuance of its first quarter financial statements, the Company must complete
an assessment of the categorization of its existing intangible assets and
goodwill in accordance with the new criteria and report them appropriately.
Intangible assets with indefinite lives will not be subject to amortization,
but will instead be periodically reviewed for impairment. Amortization of
intangible assets with finite lives will continue over the expected economic
lives of the intangible assets. Within six months of adoption, the Company
must complete a valuation of the goodwill to determine if there is an
impairment. Based upon the Company's preliminary analysis, it does not appear
that there will be any impairment in the value of the Company's goodwill.
The Company expects the cessation of amortization related to goodwill and
certain identifiable intangible assets with infinite lives to increase its
pre-tax earnings by more than $3.0 million per year.
Reclassifications
-----------------
Certain previously reported amounts have been classified to conform to current
presentation format. This includes tuition refunds, which were previously
reported as a Cost of Educational Services and are now classified as a
reduction in net revenue.
NOTE 2: 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.
94
NOTE 2: ACQUISITIONS (continued)
On July 1, 1999, the Company acquired substantially all of the tangible
operating assets, trademarks and trade names and assumed certain liabilities
of the Denver Technical College ("DTC"). These assets were purchased, for
approximately $25.6 million in cash, from Educational Development Corporation
and its stockholders. On this same date, the Company acquired certain land
and buildings used by DTC from Niagara Limited Partnership for cash. DTC is
one of the largest technical colleges in Colorado. The college offers
undergraduate programs in electronics, computer technology and business at
campuses in Denver and Colorado Springs.
On July 2, 1999, Becker CPA Review acquired certain tangible operating
assets, trademarks and trade names of Conviser Duffy CPA Review Course
("Conviser Duffy"). These assets were purchased, for approximately $13.0
million in cash, from a unit of Harcourt General, Inc. Conviser Duffy is
a nationally known training firm preparing students to pass the CPA exam.
Funding for the DTC and Conviser Duffy acquisitions was obtained
through borrowings under the Company's revolving credit facility (Note 5).
The acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the purchase prices were allocated to the tangible
and identifiable intangible assets acquired and liabilities assumed 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 over periods of six to 25 years for financial reporting purposes and
are being deducted for tax reporting purposes over statutory lives. The
purchase price allocation for Stalla will be finalized in the first quarter
of fiscal 2002. The Company's intended early adoption of SFAS 142 will
affect the amortization of these assets for financial reporting purposes
beginning in fiscal year 2002 (Note 1-Recent Accounting Pronouncements).
The results of DTC and Conviser Duffy for the full year have been included
In the Company's Statement of Income for the year ended June 30, 2000.
Pro forma information for the year ended June 30, 2000, is not provided, as
the acquisitions occurred in close proximity to the beginning of the year.
Pro forma information for the year ended June 30, 1999, is not provided
because there is no significant effect on the Company's consolidated results
of operations and financial position.
95
NOTE 3: INTANGIBLE ASSETS
Intangible assets that were not yet fully amortized at June 30 consist
of the following:
2001 2000
--------- ---------
Trademarks $ 2,521,000 $ 2,521,000
License and Non-compete Agreements 3,100,000 3,100,000
Trade Names 17,465,000 17,465,000
Intellectual Property 17,425,000 17,425,000
Goodwill and Other 51,140,000 42,588,000
91,651,000 83,099,000
---------- ----------
Accumulated Amortization (12,799,000) (8,965,000)
---------- ----------
$78,852,000 $74,134,000
========== ==========
NOTE 4: INCOME TAXES
The components of income (loss) before income taxes are as follows:
For the Year Ended June 30,
---------------------------------------
2001 2000 1999
----------- ---------- ----------
U.S. $100,064,000 $81,953,000 $69,973,000
Foreign (4,149,000) (3,879,000) (6,863,000)
----------- ---------- ----------
Total $ 95,915,000 $78,074,000 $63,110,000
=========== ========== ==========
The net income tax provisions (benefits) related to the above results are as
follows:
For the Year Ended June 30,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
Current Tax Provision:
U.S. Federal $35,560,000 $28,062,000 $24,134,000
State and Local 6,900,000 5,390,000 4,607,000
---------- ---------- ----------
Total Current 42,460,000 33,452,000 28,741,000
Deferred Tax Provision:
U.S. Federal (2,493,000) (878,000) (1,431,000)
State and Local (1,558,000) (841,000) (1,769,000)
Foreign (1,125,000) (1,440,000) (1,261,000)
---------- ----------- ----------
Total Deferred (4,321,000) (3,159,000) (4,461,000)
---------- ---------- ----------
Net Income Tax Provision $38,139,000 $30,293,000 $24,280,000
========== ========== ==========
96
NOTE 4: INCOME TAXES (continued)
The income tax provisions differ from those computed using the statutory
United States federal rate as a result of the following items:
For the Year Ended June 30,
---------------------------------------------------------
2001 2000 1999
---------------------------------------------------------
Income Tax at
Statutory Rates $33,570,000 35.0% $27,326,000 35.0% $22,089,000 35.0%
Higher Rates on
Foreign Operations 532,000 .6% (191,000) (0.2%) (318,000) (0.5%)
State Income Taxes 3,334,000 3.5% 2,835,000 3.6% 2,372,000 3.8%
Other 703,000 0.7% 323,000 0.4% 137,000 0.2%
---------------------------------------------------------
Income Tax Provision $38,139,000 39.8% $30,293,000 38.8% $24,280,000 38.5%
=========================================================
Deferred income tax assets (liabilities) result primarily from the recognition
of the tax benefits of net operating loss carryforwards and from temporary
differences in the recognition of various expenses for tax and financial
statement purposes. These assets and liabilities are composed of the
following:
For the Year Ended June 30,
--------------------------------------
2001 2000 1999
---------- --------- ---------
Loss Carryforwards $ 6,155,000 $5,885,000 $4,427,000
Employee Benefits 3,220,000 2,795,000 2,388,000
Receivable Reserves and
Other 4,779,000 3,186,000 2,148,000
---------- --------- ---------
Gross Deferred Tax Assets 14,154,000 11,866,000 8,963,000
Depreciation and Other 2,138,000 (2,957,000) (3,290,000)
Amortization (6,413,000) (3,351,000) (3,274,000)
---------- --------- ---------
Gross Deferred Tax
Liabilities (4,275,000) (6,308,000) (6,564,000)
---------- --------- ---------
Net Deferred Taxes $ 9,879,000 $5,558,000 $2,399,000
========== ========= =========
Based on the Company's expectations for future operating earnings, management
believes that, more likely than not, operating income in respective
jurisdictions will be sufficient to recognize fully all deferred tax assets.
97
NOTE 4: INCOME TAXES (continued)
During the Company's fourth quarter, Canadian Customs and Revenue received
Royal Assent to reduce federal and certain provincial income tax rates in
future periods. The effect of this change in enacted rates was to reduce the
value of the Company's net deferred tax assets as recorded at March 31, 2001
by $634,000. Further reduction in provincial enacted income tax rates are
expected in future periods. The effect of these future expected reductions,
had they been enacted in the fiscal year ended June 30, 2001, would have
been to reduce the carrying value of the deferred tax assets and the tax
benefit recorded by an additional $369,000. The cumulative impact of these
reductions will be reflected in the quarter(s) when the rates are enacted by
Royal Assent.
Deferred income tax provisions (benefits) result primarily from temporary
differences in the recognition of various expenses for tax and financial
statement purposes. The sources and tax effects of these differences are
as follows:
For the Year Ended June 30,
-------------------------------------
2001 2000 1999
--------- --------- ---------
Recognition of Operating
Loss Carryforwards ($270,000) ($1,271,000) ($2,951,000)
Excess (Tax) Book
Depreciation and
Amortization (2,033,000) (443,000) (1,241,000)
Excess of Amounts Expensed
for (Book) Tax Purposes
Over Amounts Deductible
for Book (Tax) Purposes (2,018,000) (1,445,000) (269,000)
--------- --------- ---------
Deferred Tax Provision ($4,321,000) ($3,159,000) ($4,461,000)
========= ========= =========
The Company has net operating loss carryforwards in various tax jurisdictions
expiring at various times through the years ending June 30, 2008.
NOTE 5: REVOLVING LOAN AGREEMENT
All of the Company's borrowings and letters of credit under its revolving
loan agreement are through DeVry University. This agreement consists of a
revolving credit facility in an aggregate amount not to exceed $85,000,000.
The agreement was amended in May 1999 to extend its term. The agreement was
also amended in November 1999, removing certain restrictions on future
acquisitions. The agreement was amended again in October 2000 to extend its
term and adjust certain financial covenants. All borrowings and letters of
98
NOTE 5: REVOLVING LOAN AGREEMENT, continued
credit under the revolving loan agreement mature in February 2003, and no
installment payments are required. There were no outstanding borrowings under
the revolving loan agreement at June 30, 2001 and June 30, 2000. Letters of
credit outstanding at June 30, 2001 were $902,000. As of June 30, 2000 there
were no letters of credit outstanding under this agreement. As of June 30,
2001, outstanding borrowings under the revolving loan agreement bear interest,
payable quarterly, at either the prime rate or a Eurodollar rate plus 0.35%,
at the option of the Company. Outstanding letters of credit under the revolving
loan agreement are charged an annual fee equal to 0.35% of the undrawn face
amount of the letter of credit, payable quarterly. Both interest rate and
letter of credit fees are adjustable quarterly, based upon the Company's
achievement of certain financial ratios.
The Company's revolving line of credit agreement contains a covenant limiting
the amount of capital expenditures the Company and its subsidiaries may make
in any fiscal year. The Company exceeded this limitation in fiscal 2001,
creating an Event of Default as defined by the loan agreement. In August 2001,
the lenders waived this default for fiscal year 2001.
The bank financing agreement contains certain other covenants that, among
other things, require maintenance of certain financial ratios as defined
in the agreement. None of these covenants negatively impacts the Company's
liquidity or capital resources.
In July 2001, the Company borrowed $35 million under its revolving line of
credit to meet cyclical needs prior to the cash inflows associated with the
start of DeVry Institutes' summer term, to finance the purchase of land for
a future DeVry Institute site in Houston Texas and to purchase the DeVry
Institute campus in Pomona, California, which had been occupied under a lease.
NOTE 6: EMPLOYEE BENEFIT PLANS
Profit Sharing Retirement Plan
All employees who meet certain eligibility requirements can participate in
the Company's 401(k) Profit Sharing Retirement Plan. The Company contributes
to the plan an amount up to 2.0% of the total eligible compensation of
employees who make contributions under the plan. Matching contributions
under the plan were approximately $2,096,000, $1,709,000 and $1,275,000
in 2001, 2000 and 1999, respectively. In addition, the Company's board of
directors may also make discretionary contributions for the benefit of all
eligible employees. Provisions for discretionary contributions under the
plan were approximately $4,350,000, $3,257,000 and $3,210,000 in 2001, 2000
and 1999, respectively.
99
NOTE 6: EMPLOYEE BENEFIT PLANS, continued
Employee Stock Purchase Plan
Under provisions of the DeVry Employee Stock Purchase Plan, any eligible
employee may authorize the Company to withhold up to $25,000 of annual
earnings to purchase common stock of the Company on the open market at 100%
of the prevailing market price. The Company pays all brokerage commissions
and administrative fees associated with the plan. These expenses were
insignificant for the years ended June 30, 2001, 2000 and 1999.
NOTE 7: SHAREHOLDERS' EQUITY
Stock Option Plans
------------------
The Company maintains four stock-based award plans: the Amended and Restated
Stock Incentive Plan, established in 1988, the 1991 Stock Incentive Plan,
the 1994 Stock Incentive Plan and the 1999 Stock Incentive Plan. Under these
plans, directors, key executives and managerial employees are eligible to
receive incentive stock or nonqualified options to purchase shares of the
Company's common stock. The Amended and Restated Stock Incentive Plan, the
1994 Stock Incentive Plan and the 1999 Stock Incentive Plan are administered
by a Plan Committee of the board of directors. Plan Committee members are
granted automatic, nondiscretionary annual options. The 1991 Stock Incentive
Plan is administered by the board of directors. Options under all four plans
are granted for terms of up to 10 years and vest over periods of one to five
years. The option price under the plans is the fair market value of the shares
on the date of the grant.
At June 30, 2001, 3,696,867 authorized but unissued shares of common stock
were reserved for issuance under the Company's stock option plans.
100
NOTE 7: SHAREHOLDERS' EQUITY, continued
Stock Option Plans, continued
------------------
A summary of activity under the stock option plans is as follows:
Options Outstanding
------------------------
Weighted
Shares Average
Available Number Exercise
for Grant Outstanding Price
--------- ----------- --------
Balance at June 30, 1998 1,114,392 1,571,988 $7.30
Options Granted (607,448) 607,448 $21.33
Options Exercised - (116,895) $4.56
Options Canceled 70,335 (70,335) 16.38
--------- --------- -----
Balance at June 30, 1999 577,279 1,992,206 $11.42
Options Authorized 1,500,000 - -
Options Granted (237,500) 237,500 $21.44
Options Exercised - (245,529) $4.20
Options Canceled 39,969 (39,969) $19.75
--------- --------- -----
Balance at June 30, 2000 1,879,748 1,944,208 $13.05
Options Granted (312,350) 312,350 $32.37
Options Exercised - (118,099) $9.68
Options Canceled 30,174 (30,174) $20.08
Options Expired (8,990) - -
--------- --------- -----
Balance at June 30, 2001 1,588,582 2,108,285 $16.31
========= ========= =====
A summary of outstanding and exercisable stock options as of June 30, 2001,
is as follows:
Options Outstanding Options Exercisable
---------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number of Contractual Exercise Number of Exercise
Prices Shares Life Price Shares Price
-----------------------------------------------------------------------------
$1.66- 3.69 402,100 2.78 $3.29 402,100 $3.29
$5.06-11.53 401,564 4.75 $9.09 352,084 $8.76
$12.63-19.81 275,638 6.16 $14.40 180,498 $14.25
$20.75-28.88 718,383 7.42 $21.42 233,028 $21.45
$29.94-38.81 310,600 9.19 $32.38 250 $29.94
-------------------------------------------------------------
$1.66-38.81 2,108,285 6.13 $16.31 1,167,960 $10.26
=============================================================
101
NOTE 7: SHAREHOLDERS' EQUITY, continued
Pro Forma Disclosure
--------------------
As permitted under SFAS 123, the Company has elected to continue to follow
APB Opinion No. 25 in accounting for stock-based awards. Under APB Opinion
No. 25, the Company generally recognizes no compensation expense with respect
to such awards, since the exercise price of the common stock options awarded
is equal to the fair market value of the underlying security on the date of
the grant.
Pro forma information regarding net income and earnings per share is required
by SFAS 123 for awards granted after June 30, 1995, as if the Company had
accounted for its stock-based awards under the fair value method of SFAS 123.
The fair value of the Company's stock-based awards was estimated as of the
date of grant using the Black-Scholes option pricing model. The Black-Scholes
model was developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. This model also requires highly
subjective assumptions, including future stock price volatility and expected
time until exercise, which greatly affect the calculated grant date fair
value. The weighted average estimated grant date fair value, as defined
by SFAS 123, for options granted at market price under the Company's stock
option plans during fiscal 2001, 2000 and 1999 was $16.04, $12.27 and $9.98
per share, respectively. The fair value of the Company's stock option awards
was estimated assuming no expected dividends and the following weighted
average assumptions:
2001 2000 1999
------ ------ ------
Expected Life (in Years) 7.00 7.00 5.90
Expected Volatility 50.30% 46.40% 39.70%
Risk-free Interest Rate 6.03% 6.17% 5.46%
Had the Company recorded compensation based on the estimated
grant date fair value, as defined by SFAS 123, for awards granted
under its stock option plans, the Company's net income and net
income per share would have been reduced to the pro forma amounts
below for the years ended June 30, 2001, 2000 and 1999 (dollars in
thousands except for per share amounts):
2001 2000 1999
------- ------- -------
Net Income as Reported $57,776 $47,781 $38,830
Pro Forma Net Income $55,822 $46,211 $37,569
Diluted Earnings Per Common Share
as Reported $0.82 $0.68 $0.55
Pro Forma Diluted Earnings
Per Common Share $0.79 $0.66 $0.53
102
NOTE 7: SHAREHOLDERS' EQUITY, continued
Pro Forma Disclosure, continued
--------------------
The pro forma effect on net income and earnings per common share for 2001,
2000 and 1999 is not necessarily representative of the pro forma effect on
net income in future years because it is not required to take into
consideration pro forma compensation expense related to grants made prior
to fiscal year 1996.
NOTE 8: COMMITMENTS AND CONTINGENCIES
The DeVry Institutes, Keller Graduate School and Becker Conviser lease certain
equipment and facilities under non-cancelable operating leases, some of which
contain renewal options, escalation clauses and requirements to pay taxes,
insurance and maintenance costs. Future minimum rental commitments for all
non-cancelable operating leases having a remaining term in excess of one year
at June 30, 2001, are as follows:
Year Ended
June 30, Amount
---------- ------------
2002 $26,300,000
2003 27,670,000
2004 25,630,000
2005 23,240,000
2006 21,810,000
Thereafter 150,240,000
The Company recognizes rent expense on a straight line basis over the term of
the lease, although the lease may include escalation clauses that provide for
lower rent payments at the start of the lease term and higher lease payments
at the end of the lease term.
Rent expenses for the years ended June 30, 2001, 2000 and 1999, were
$31,940,000, $24,290,000 and $20,690,000, respectively.
The Company is subject to occasional lawsuits, investigations and claims
arising in the normal conduct of its business. Neither the Company nor any
of its subsidiaries is currently a party to any material legal action.
During 1996, the Ontario Ministry of Education and Training temporarily
suspended, and later conditionally reinstated, the processing of financial
aid applications for students attending the Company's Toronto-area schools.
In 1999, the Company obtained full unconditional reinstatement as a
participant in the Province's student financial aid programs.
103
NOTE 9: 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 assessing
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". The Company presents 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.
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.
104
NOTE 9: SEGMENT INFORMATION, continued
Following is a tabulation of business segment information for each of the
years ended June 30, 2001, 2000 and 1999. Corporate information is included
where it is needed to reconcile segment data to the consolidated financial
statements.
For the Year Ended June 30,
------------------------------------------
2001 2000 1999
------------------------------------------
Revenues:
Undergraduate $488,007,000 $421,211,000 $352,832,000
Graduate and Professional 81,373,000 70,273,000 54,165,000
Intersegment Elimination (1,203,000) (895,000) (676,000)
----------- ----------- -----------
Total Consolidated Revenues $568,177,000 $490,589,000 $406,321,000
=========== =========== ===========
Operating Income:
Undergraduate $84,315,000 $71,291,000 $59,110,000
Graduate and Professional 16,507,000 12,600,000 6,744,000
Reconciling Items:
Amortization Expense (3,904,000) (3,706,000) (1,675,000)
Interest Expense (400,000) (1,409,000) (300,000)
Depreciation and Other (603,000) (702,000) (769,000)
----------- ----------- -----------
Total Consolidated Income
before Income Taxes $95,915,000 $78,074,000 $63,110,000
=========== =========== ===========
Segment Assets:
Undergraduate $289,648,000 $225,913,000 $182,009,000
Graduate and Professional 79,082,000 81,256,000 59,476,000
Corporate 22,945,000 19,910,000 19,206,000
----------- ----------- -----------
Total Consolidated Assets $391,675,000 $327,079,000 $260,691,000
=========== =========== ===========
Additions to Long-lived Assets:
Undergraduate $72,918,000 $64,362,000 $41,661,000
Graduate and Professional 10,206,000 15,022,000 3,158,000
----------- ----------- -----------
Total Consolidated Additions
to Long-lived Assets $83,124,000 $79,384,000 $44,819,000
=========== =========== ===========
Depreciation Expense:
Undergraduate 25,926,000 19,642,000 14,475,000
Graduate and Professional 1,564,000 1,207,000 870,000
Corporate 642,000 696,000 764,000
----------- ----------- -----------
Total Consolidated Depreciation $28,132,000 $21,545,000 $16,109,000
=========== =========== ===========
Amortization Expense:
Undergraduate $1,059,000 $1,059,000 $63,000
Graduate and Professional 2,845,000 2,647,000 1,612,000
----------- ----------- -----------
Total Consolidated Amortization $3,904,000 $3,706,000 $1,675,000
=========== =========== ===========
105
NOTE 9: 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 years ended June 30, 2001, 2000 and 1999. Revenues and long-lived assets
by geographic area are as follows:
For the Year Ended June 30,
------------------------------------------
2001 2000 1999
------------------------------------------
Revenues from Unaffiliated Customers:
Domestic Operations $542,611,000 $465,278,000 $385,724,000
International Operations 25,566,000 25,311,000 20,597,000
----------- ----------- -----------
Consolidated $568,177,000 $490,589,000 $406,321,000
=========== =========== ===========
Long-lived Assets:
Domestic Operations $293,365,000 $232,831,000 $175,474,000
International Operations 11,295,000 12,284,000 6,276,000
----------- ----------- -----------
Consolidated $304,660,000 $245,115,000 $181,750,000
=========== =========== ===========
No one customer accounted for more than 10% of the Company's consolidated
revenues.
106
NOTE 10: QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly data for the years ended June 30, 2001 and 2000,
are as follows. Previously reported quarterly revenues in fiscal 2001 have
been restated to reflect the reclassification and revenue deferral associated
with the adoption of SAB 101 (Note 1-Revenue Recognition). The quarterly
revenues for fiscal 2000 have also been restated to reflect the SAB 101 related
reclassification. Pro forma information regarding the change in accounting
principle related to the deferral of revenue has not been provided for fiscal
2000 because it does not differ materially from the reported amounts.
(Dollars in thousands, except for per share amounts)
2001 Quarter `
---- ------------------------------------- Total
First Second Third Fourth Year
------- ------- ------- ------- -------
Revenues $130,448 $145,948 $144,363 $147,418 $568,177
Income Before Interest
and Taxes 19,895 25,598 26,592 24,230 96,315
Net Income 12,166 15,722 16,037 13,851 57,776
Earnings Per Common Share
Basic 0.17 0.23 0.23 0.20 0.83
Diluted 0.17 0.22 0.23 0.20 0.82
2000 Quarter `
---- ------------------------------------- Total
First Second Third Fourth Year
------- ------- ------- ------- -------
Revenues $114,192 $129,283 $125,803 $121,311 $490,589
Income Before Interest
and Taxes 16,789 21,364 22,045 19,285 79,483
Net Income 9,907 12,791 13,297 11,786 47,781
Earnings Per Common Share
Basic 0.14 0.18 0.19 0.17 0.69
Diluted 0.14 0.18 0.19 0.17 0.68
107
DEVRY INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended June 30, 2001, 2000 and 1999
(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
---------------------------------------------------------------------------------------------------------
2001
---------
Deducted from accounts receivable
for refunds $117 $18,184 - $18,086 $215
Deducted from accounts receivable
for uncollectible accounts 9,235 11,119 - 8,205 12,149
Deducted from notes receivable for
uncollectible notes 4 - - - 4
For loss on disposition of inventory 112 74 - 54 132
For loss on DeVry capital contributions
to Perkins loan program 2,346 246 - - 2,592
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
<FN>
<FN>1 Opening balances of acquired businesses.
<FN>2 Write-offs of uncollectible amounts or inventory.
</FN>
108
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of DeVry Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the
financial position of DeVry Inc. and its subsidiaries at June 30, 2001
and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 2001, in conformity
with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule
listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on
our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Chicago, Illinois
August 10, 2001
109
PART III
--------
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
----------------------------------------------------------------------
Information regarding directors and nominees for directors of the Company
is included in the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 13, 2001, and is incorporated herein by
reference. Information regarding executive officers is included on pages
55 through 61 in Part I of this Form 10-K.
Information regarding compliance with Section 16(a) filings is included in
the Proxy Statement for the Annual Meeting of Stockholders to be held
November 13, 2001, and is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
--------------------------------
Information regarding compensation of executive officers of the Company is
included in the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 13, 2001, and is incorporated herein by
reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------
Information regarding security ownership of certain beneficial owners and
management is included in the definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on November 13, 2001, and is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
---------------------------------------------------------
Information regarding certain relationships and related transactions is
included in the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 13, 2001, and is incorporated herein by
reference.
110
PART IV
--------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements
The required financial statements of the Company and its subsidiaries
are included in Part II, Item 8, on pages 82 through 108 of this Form
10-K.
(2) Supplemental Financial Statement Schedules
The required supplemental schedule of the Company and its subsidiaries
is included in Part II, Item 8 on page 107 of this Form 10-K.
(3) Exhibits
A complete listing of exhibits is included on pages 114 through 117 of
this Form 10-K.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
fourth quarter of its fiscal year ending June 30, 2001.
111
FIVE-YEAR SUMMARY - OPERATING, FINANCIAL AND OTHER DATA
(Dollars in Thousands Except for Per Share Amounts)
YEAR ENDED JUNE 30, 2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------
OPERATING:
Revenues $568,177 $490,589 $406,321 $340,770 $295,828
Depreciation 28,132 21,545 16,109 12,397 9,676
Amortization of Intangible Assets 3,904 3,706 1,675 1,590 1,586
Earnings Before Interest and Taxes (EBIT) 96,315 79,483 63,410 51,396 42,704
EBIT as a Percent of Revenues 17.0% 16.2% 15.6% 15.1% 14.4%
Interest Expense 400 1,409 300 913 2,848
Net Income 57,776 47,781 38,830 30,724 24,186
Change from Prior Year in Net Income 20.9% 23.1% 26.4% 27.0% 25.7%
Diluted Earnings Per Common Share (EPS) 0.82 0.68 0.55 0.44 0.35
Shares Used in Calculating Diluted EPS
(In Thousands) 70,662 70,390 70,454 70,144 68,170
FINANCIAL POSITION:
Cash and Cash Equivalents 29,213 25,851 31,848 31,881 38,865
Total Assets 391,675 327,079 260,691 223,892 208,652
Total Funded Debt - - - 10,000 33,000
Total Shareholders' Equity 284,671 225,139 175,305 136,256 105,270
OTHER SELECTED DATA:
Cash Provided by Operating Activities 85,218 72,742 54,567 47,599 42,427
Capital Expenditures 74,552 40,797 44,819 31,845 28,807
DeVry University Fall Term
Student Enrollment 54,482 49,351 43,458 38,031 34,596
Number of Undergraduate Campuses 21 19 16 15 14
Number of Keller Graduate School Centers 42 36 31 26 20
Shares Outstanding at Year-end
(in Thousands) 69,755 69,642 69,414 69,305 69,008
Closing Price of Common Stock
at Year-end 36.12 26.44 22.38 21.94 13.50
Price Earnings Ratio on Common Stock<FN>1 44 39 41 50 39
<FN>
<FN>1 Computed on trailing four quarters of earnings per common share.
</FN>
112
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
DeVRY INC.
Date: September 24, 2001 By /s/Dennis J. Keller
-------------------
Dennis J. Keller
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and dates indicated below.
Signature Title Date
--------- ----- ----
/s/Dennis J. Keller
-------------------
Dennis J. Keller Chairman, Chief Executive
Officer and Director 9/24/01
/s/Ronald L. Taylor
-------------------
Ronald L. Taylor President, Chief Operating
Officer and Director 9/24/01
/s/Norman M. Levine
-------------------
Norman M. Levine Senior Vice President, Chief
Financial Officer, and
Principal Accounting Officer 9/24/01
/s/Ewen M. Akin
---------------
Ewen M. Akin Director 9/20/01
/s/Charles A. Bowsher
---------------------
Charles A. Bowsher Director 9/19/01
113
SIGNATURES (CONTINUED)
----------
Signature Title Date
--------- ----- ----
/s/David S. Brown
-----------------
David S. Brown Director 9/21/01
/s/Robert E. King
-----------------
Robert E. King Director 9/19/01
/s/Frederick A. Krehbiel
------------------------
Frederick A. Krehbiel Director 9/21/01
/s/Thurston E. Manning
----------------------
Thurston E. Manning Director 9/20/01
/s/Robert C. McCormack
----------------------
Robert C. McCormack Director 9/20/01
/s/Julie A. McGee
-----------------
Julie A. McGee Director 9/21/01
/s/Hugo J. Melvoin
------------------
Hugo J. Melvoin Director 9/24/01
/s/Harold T. Shapiro
-------------------- 9/24/01
Harold T. Shapiro Director
114
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
------ ------- ------------- ---------------
2(a) Agreements regarding Exhibit 2 to the
purchase of Denver Technical Company's Form 8-K
College assets dated as of Filed July 16, 1999
July 1, 1999
3(a) Certificate of Amendment of Exhibit 3(a) to the
Restated Certificate of Company's Form 10-K
Incorporation of the for the year ended
Registrant June 30, 1995
3(b) Certificate of Amendment of Exhibit 3.1 to the
Restated Certificate of Company's Form S-3,
Incorporation of the #333-22457 dated
Registrant February 27, 1997
3(c) Amended and Restated By-Laws Exhibit 3(d) to
of the Registrant Amendment #1 of the
Company's Form S-1
#33-40151 dated
May 21, 1991
4(a) Amended and Restated Exhibit 4(c) to the
Financing Agreement, dated Company's Form 10-K
as of June 12, 1996, between for the year ended
Keller Graduate School of June 30, 1996.
Management, Inc., certain
financial institutions and
Bank of America Illinois
4(b) First Amendment, dated as of Exhibit 4(d) to the
June 6, 1997, to Amended and Company's Form 10-K
Restated Financing Agreement for the year ended
between Keller Graduate June 30, 1997
School of Management, Inc.,
certain financial
institutions and Bank of
America Illinois.
115
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
------ ------- ------------- ---------------
4(c) Second Amendment, dated as Exhibit 4(e) to the
of March 23, 1998 to Amended Company's Form 10-K
and Restated Financing for the year ended
Agreement between Keller June 30, 1998
Graduate School of
Management, Inc., certain
financial institutions and
Bank of America National
Trust and Savings
Association.
4(d) Third Amendment dated as of Exhibit 4(d) to the
May 11, 1999 to Amended and Company's Form 10-K
Restated Financing Agreement for the year ended
between Keller Graduate June 30, 1999
School of Management, Inc.,
certain financial
institutions and Bank of
America National Trust and
Savings Association.
4(e) Fourth Amendment dated as of Exhibit 4(e) to the
December 3, 1999 to Amended Company's Form 10-K
and Restated Financing for the year ended
Agreement between DeVry June 30, 2000
University, Inc., certain
financial institutions and
Bank of America National
Trust and Savings
Association.
4(f) Fifth Amendment dated as of
August 1, 2001 to Amended
and Restated Financing
Agreement between DeVry
University, Inc., certain
financial institutions and
Bank of America, N.A. 118-122
10(a) Registrant's Amended and Exhibit 10.1 to the
Restated Stock Incentive Company's Form S-3
Plan #333-22457 dated
February 27, 1997
10(b) Registrant's 1991 Stock Exhibit 10.3 to the
Incentive Plan Company's Form S-3
#333-22457 dated
February 27, 1997
116
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
------ ------- ------------- ---------------
10(c) Registrant's 1994 Stock Exhibit 10.2 to the
Incentive Plan Company's Form S-3,
#333-22457 dated
February 27, 1997
10(d) Registrants' 1999 Stock Exhibit 10(d) to
Incentive Plan the Company's Form
10-K for the year
ended June 30, 2000
10(e) DeVry Inc. Amended and Exhibit 10(d) to
Restated Profit Sharing the Company's Form
Retirement Plan dated 10-K for the year
effective as of July 1, 1992 ended June 30, 1996
10(f) First Amendment to DeVry Exhibit 10(e) to
Inc. Amended and Restated the Company's Form
Profit Sharing Retirement 10-K for the year
Plan ended June 30, 1996
10(g) Amendment to DeVry Inc. Exhibit 10(f) to
Amended and Restated Profit the Company's Form
Sharing Retirement Plan 10-K for the year
ended June 30, 1997
10(h) Amendment to DeVry Inc. Exhibit 10(g) to
Amended and Restated Profit the Company's Form
Sharing Retirement Plan 10-K for the year
ended June 30, 1997
10(i) Amendment to DeVry Inc. Exhibit 10(h) to
Amended and Restated Profit the Company's Form
Sharing Retirement Plan 10-K for the year
ended June 30, 1997
10(j) Employee Stock Purchase Plan Exhibit 10(f) to
the Company's Form
S-3, #33-58636
dated February 22,
1993
10(k) First Amendment to Employee Exhibit 10(h) to
Stock Purchase Plan the Company's Form
10-K for the year
ended June 30, 1993
117
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
------ ------- ------------- ---------------
10(l) Deferred Compensation Plan Exhibit 10(k) to
the Company's Form
10-K for the year
ended June 30, 1999
10(m) Form of Indemnification Exhibit 10(d) to
Agreement between the the Company's Form
Registrant and its Directors S-1, #33-40151
dated April 24, 1991
10(n) Employment Agreement between Exhibit 10(f) to
the registrant and each of the Company's Form
Dennis J. Keller and Ronald 10-K for the year
L. Taylor ended June 30, 1991
21 Subsidiaries of the
Registrant 123
23 Consent of Pricewaterhouse-
Coopers LLP, independent
accounts 124