1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
Commission file number 0-12751
DeVRY INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3150143
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Tower Lane, Oakbrook Terrace, Illinois 60181
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(630) 571-7700
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X
Number of shares of Common Stock, $0.01 par value, outstanding at
November 1, 2001: 69,795,064
Total number of pages: 22
2
DeVRY INC.
FORM 10-Q INDEX
For the Quarter Ended September 30, 2001
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at
September 30, 2001, June 30, 2000,
and September 30, 2000 3-4
Consolidated Statements of Income
for the quarter ended
September 30, 2001, and 2000 5
Consolidated Statements of Cash Flows
for the quarter ended
March 31, 2001, and 2000 6
Notes to Consolidated Financial
Statements 7-15
Item 2. Management's Discussion and
Analysis of Results of Operations
and Financial Condition 16-20
Part II. Other Information
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
3
PART I - Financial Information
Item 1 - Financial Statements
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, June 30, September 30,
2001 2001 2000
--------- --------- ---------
(Unaudited) (Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 50,127 $ 29,213 $ 30,635
Restricted Cash 25,060 20,484 22,519
Accounts Receivable, Net 67,936 25,664 66,725
Inventories 3,593 4,899 4,652
Deferred Income Taxes 5,221 5,221 3,526
Prepaid Expenses and Other 5,211 3,146 2,701
------- ------- -------
Total Current Assets 157,148 88,627 130,758
------- ------- -------
Land, Buildings and Equipment
Land 58,881 42,583 42,062
Buildings 169,190 122,433 113,119
Equipment 151,865 147,437 122,607
Construction In Progress 2,937 20,808 2,347
------- ------- -------
382,873 333,261 280,135
Accumulated Depreciation (127,899) (125,796) (107,324)
------- ------- -------
Land, Buildings and
Equipment, Net 254,974 207,465 172,811
------- ------- -------
Other Assets
Intangible Assets, Net 31,881 32,027 33,520
Goodwill 46,825 46,825 39,699
Deferred Income Taxes 3,955 4,658 2,035
Perkins Program Fund, Net 9,858 9,753 8,316
Other Assets 2,312 2,320 1,188
------- ------- -------
Total Other Assets 94,831 95,583 84,758
------- ------- -------
TOTAL ASSETS $506,953 $391,675 $388,327
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, June 30, September 30,
2001 2001 2000
--------- --------- ---------
(Unaudited) (Unaudited)
LIABILITIES
Current Liabilities
Accounts Payable $ 36,446 $ 34,573 $ 27,187
Accrued Salaries, Wages &
Benefits 30,159 23,782 28,155
Accrued Expenses 18,462 10,891 15,540
Advance Tuition Payments 8,078 14,179 6,916
Deferred Tuition Revenue 62,817 10,957 59,988
------- ------- -------
Total Current Liabilities 155,962 94,382 137,786
------- ------- -------
Other Liabilities
Revolving Loan 40,000 - -
Deferred Rent and Other 12,290 12,622 12,765
------- ------- -------
Total Other Liabilities 52,290 12,622 12,765
------- ------- -------
TOTAL LIABILITIES 208,252 107,004 150,551
------- ------- -------
SHAREHOLDERS' EQUITY
Common Stock, $0.01 par value,
200,000,000 Shares Authorized,
69,791,039, 69,755,491 and
69,679,874, Shares Issued and
Outstanding at September 30,
2001, June 30, 2001 and
September 30, 2000,
Respectively 698 698 697
Additional Paid-in Capital 64,773 64,481 63,311
Retained Earnings 232,850 218,772 173,162
Accumulated Other Comprehensive
Income 380 720 606
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 298,701 284,671 237,776
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $506,953 $391,675 $388,327
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
5
DEVRY INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except for Per Share Amounts)
(Unaudited)
For The Quarter Ended
September 30,
---------------------
2001 2000
-------- --------
REVENUES:
Tuition $144,759 $119,063
Other Educational 9,681 11,130
Interest 192 255
------- -------
Total Revenues 154,632 130,448
------- -------
COSTS AND EXPENSES:
Cost of Educational Services 83,127 73,338
Student Services and
Administrative Expense 48,116 37,215
Interest Expense 310 113
------- -------
Total Costs and Expenses 131,553 110,666
------- -------
Income Before Income Taxes 23,079 19,782
Income Tax Provision 9,001 7,616
------- -------
NET INCOME $ 14,078 $ 12,166
======= =======
EARNINGS PER COMMON SHARE
Basic $0.20 $0.17
======= =======
Diluted $0.20 $0.17
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
6
DEVRY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For The Quarter
Ended September 30,
-------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $14,078 $12,166
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 7,510 6,105
Amortization of Intangible Assets and Goodwill 146 915
Amortization of Other Assets 11 18
Provision for Refunds and
Uncollectible Accounts 8,530 7,249
Deferred Income Taxes 703 (3)
Loss on Disposals and Adjustments to
Land, Buildings and Equipment 199 (35)
Changes in Assets and Liabilities:
Restricted Cash (4,576) (3,124)
Accounts Receivable (50,773) (48,612)
Inventories 1,306 1,719
Prepaid Expenses And Other (2,534) (606)
Accounts Payable 1,873 (4,640)
Accrued Salaries, Wages,
Expenses and Benefits 13,948 11,939
Advance Tuition Payments (6,101) (8,591)
Deferred Tuition Revenue 51,860 49,893
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 36,180 24,393
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (55,218) (20,080)
------ ------
NET CASH USED IN INVESTING ACTIVITIES: (55,218) (20,080)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Exercise of Stock Options 292 299
Proceeds From Revolving Credit Facility 55,000 6,000
Repayments Under Revolving Credit Facility (15,000) (6,000)
------ ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 40,292 299
Effects of Exchange Rate Differences (340) 172
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 20,914 4,784
Cash and Cash Equivalents at Beginning
of Period 29,213 25,851
------ ------
Cash and Cash Equivalents at End of Period $50,127 $30,635
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Period $250 $83
Income Tax (Refunds)Payments During the Period, Net 1,600 (170)
The accompanying notes are an integral part of these consolidated
financial statements.
7
DEVRY INC.
Notes to Consolidated Financial Statements
For the Quarter Ended September 30, 2001
----------
NOTE 1: INTERIM FINANCIAL STATEMENTS
The interim consolidated financial statements include the accounts of DeVry
Inc. (the Company) and its wholly-owned subsidiaries. These financial
statements are unaudited but, in the opinion of management, contain all
adjustments, consisting only of normal, recurring adjustments, necessary to
present fairly the financial condition and results of operations of the
Company. The June 30, 2001 data which is presented is derived from audited
financial statements.
The interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission for the fiscal year ended June 30, 2001.
The results of operations for the three months ended September 30, 2001, are
not necessarily indicative of results to be expected for the entire fiscal
year.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Combinations and Intangible Assets
- -------------------------------------------
In July 2001, the Company adopted Financial Accounting Standards Board
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
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 and indefinite lived intangibles
arising from a business combination will no longer be amortized and charged to
expense over time. Instead, goodwill and indefinite lived intangibles must be
reviewed annually for impairment, or more frequently if circumstances arise
indicating impairment. For goodwill, if the carrying amount of the reporting
unit containing the goodwill exceeds the fair value of that reporting unit, an
impairment loss is recognized to the extent the "implied fair value" of the
reporting unit goodwill is less than the carrying amount of the goodwill. For
indefinite lived intangible assets, if the carrying amount exceeds the fair
value, an impairment loss shall be recognized in an amount equal to that
excess.
8
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Business Combinations and Intangible Assets (continued)
- -------------------------------------------
As required by FAS 142, the Company has completed an assessment of the
categorization of its existing intangible assets and goodwill in accordance
with the new criteria and has reported them appropriately on the Consolidated
Balance Sheets. Intangible assets with indefinite lives are not subject to
amortization, but are instead reviewed annually for impairment, or more
frequently if circumstances arise indicating impairment. Indefinite lived
intangible assets related to Trademarks, Trade Names and Intellectual Property
are not amortized as there is no legal, regulatory, contractual, economic or
other factors that limit the useful life of these intangible assets to the
reporting entity. As of July 1, 2001 there was no impairment loss associated
with such indefinite lived intangible assets.
Amortization of intangible assets with finite lives will continue over the
expected economic lives of the intangible assets. As part of its assessment of
intangible assets, the company shortened the useful life of the Class Materials
intangible asset and wrote-off the $10,000 cost basis of another.
Intangible assets consist of the following:
As of September 30, 2001
---------------------------------
Gross Carrying Accumulated
Amount Amortization
---------------------------------
Amortized Intangible Assets:
License and Non Compete
Agreements $ 2,500,000 $ (941,000)
Class Materials 500,000 (110,000)
Other 600,000 (225,000)
--------- ---------
Total $ 3,600,000 $(1,276,000)
========= =========
Unamortized Intangible Assets:
Trademark $ 1,645,000
Trade Names 13,972,000
Intellectual Property 13,940,000
----------
Total $29,557,000
==========
9
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Business Combinations and Intangible Assets (continued)
- -------------------------------------------
As of June 30, 2001
----------------------------------
Gross Carrying Accumulated
Amount Amortization
----------------------------------
Amortized Intangible Assets:
License and Non Compete
Agreements $ 2,500,000 $ (838,000)
Class Materials 500,000 (100,000)
Other 610,000 (202,000)
--------- ---------
Total $ 3,610,000 $(1,140,000)
========= =========
Unamortized Intangible Assets:
Trademark $ 1,645,000
Trade Names 13,972,000
Intellectual Property 13,940,000
----------
Total $29,557,000
==========
As of September 30, 2000
----------------------------------
Gross Carrying Accumulated
Amount Amortization
----------------------------------
Amortized Intangible Assets:
License and Non Compete
Agreements $ 2,500,000 $ (529,000)
Class Materials 500,000 (85,000)
Other 610,000 (127,000)
--------- -------
Total $ 3,610,000 $ (741,000)
========= =======
Unamortized Intangible Assets:
Trademark $ 1,692,000
Trade Names 14,496,000
Intellectual Property 14,463,000
----------
Total $30,651,000
==========
10
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Business Combinations and Intangible Assets (continued)
- -------------------------------------------
Amortization expense for amortized intangible assets was $146,000 for the three
months ended September 30, 2001 and $501,000 for both amortized and unamortized
intangible assets for the three months ended September 30, 2000. Estimated
amortization expense for amortized intangible assets for the next five fiscal
years ended June 30, is as follows:
Fiscal Year
-----------
2002 $550,000
2003 550,000
2004 550,000
2005 550,000
2006 50,000
The weighted-average amortization period for amortized intangible assets is
6 years for License and Non Compete Agreements, 10 years for Class Materials
and 6 years for other as of July 1, 2001.
A complete valuation of the Company's goodwill by reporting unit is underway to
determine if there is any impairment in the carrying value as of July 1, 2001
and is expected to be completed by the end of the second fiscal quarter. 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 for any reporting unit.
The carrying amount of goodwill for each reportable segment at July 1, 2001 and
September 30, 2001 was unchanged and was $22,195,000 related to Undergraduate
and $24,630,000 related to Graduate and Professional reportable segments. The
goodwill reported for the Graduate and Professional segment at September 30,
2001 includes estimated goodwill associated with the Stalla Seminars
acquisition that occurred in January 2001 for which the Company is in the
process of finalizing the purchase price allocation at this time.
As required by FAS 142, the following is the Company's disclosure of what
reported net income would have been in all periods presented, exclusive of
amortization expense (including any related tax effects) recognized in those
periods related to goodwill, intangible assets that are no longer being
amortized and changes in amortization periods for intangible assets that will
continue to be amortized.
11
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Business Combinations and Intangible Assets (continued)
- -------------------------------------------
(Dollars in thousands except per share amounts)
For the Quarter Ended
September 30,
---------------------
2001 2000
---- ----
NET INCOME:
Net Income as reported $14,078 $12,166
Goodwill amortization - 256
Trademark, Trade Name and
Intellectual Property
Amortization - 225
Change in useful life of
Class Materials - (3)
------ ------
Adjusted Net Income $14,078 $12,644
====== ======
EARNINGS PER COMMON SHARE:
Basic Earnings per Common
Share as reported $0.20 $0.17
Aggregate Changes in
Amortization Expense - .01
----- -----
Adjusted Basic Earnings per
Common Share $0.20 $0.18
===== =====
Diluted Earnings per Common
Share as reported $0.20 $0.17
Aggregate Changes in
Amortization Expense - .01
----- -----
Adjusted Diluted Earnings per
Common Share $0.20 $0.18
===== =====
12
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Business Combinations and Intangible Assets (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 69,778,000 and 69,660,000 for the first quarters
ended September, 2001 and 2000, respectively. Diluted earnings per share is
computed by dividing net income by the weighted average number of shares
assuming dilution. Dilutive shares reflect the additional shares that would be
outstanding if dilutive stock options were exercised during the period.
Shares used in this computation were 70,711,000 and 70,820,000 for the first
quarters ended September 30, 2001 and 2000, respectively.
Comprehensive Income
- --------------------
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" establishes standards for reporting and display of comprehensive
income and its components in the financial statements. The components of
comprehensive income, other than those included in net income, were immaterial
for the quarter ended September 30, 2001.
Reclassifications
- -----------------
Certain previously reported amounts have been reclassified 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.
13
NOTE 3: 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 under "Nature of
Operations" in Note 1 to the consolidated financial statements contained in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001.
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 to the consolidated financial statements contained in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2001.
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.
14
NOTE 3: SEGMENT INFORMATION, continued
Following is a tabulation of business segment information for the periods
ended September 30, 2001 and 2000. Corporate information is included where it
is needed to reconcile segment data to the consolidated financial statements.
For the Quarter Ended
September 30,
--------------------------
2001 2000
--------------------------
Revenues:
Undergraduate $133,369,000 $113,201,000
Graduate and Professional 21,541,000 17,426,000
Intersegment Elimination (278,000) (179,000)
----------- -----------
Total Consolidated Revenues $154,632,000 $130,448,000
=========== ===========
Operating Income:
Undergraduate $19,329,000 $18,577,000
Graduate and Professional 4,384,000 2,437,000
Reconciling Items:
Amortization Expense (157,000) (932,000)
Interest Expense (310,000) (113,000)
Depreciation and Other (167,000) (187,000)
----------- -----------
Total Consolidated Income before Income Taxes $23,079,000 $19,782,000
=========== ===========
Segment Assets:
Undergraduate $399,300,000 $288,583,000
Graduate and Professional 86,086,000 80,321,000
Corporate 21,567,000 19,423,000
----------- -----------
Total Consolidated Assets $506,953,000 $388,327,000
=========== ===========
Additions to Long-lived Assets:
Undergraduate $54,697,000 $19,699,000
Graduate and Professional 521,000 381,000
----------- -----------
Total Consolidated Additions
to Long-lived Assets $55,218,000 $20,080,000
=========== ===========
Depreciation Expense:
Undergraduate $6,958,000 $5,564,000
Graduate and Professional 359,000 348,000
Corporate 193,000 193,000
----------- -----------
Total Consolidated Depreciation $7,510,000 $6,105,000
=========== ===========
Amortization Expense:
Undergraduate $ 8,000 $265,000
Graduate and Professional 149,000 668,000
----------- -----------
Total Consolidated Amortization $157,000 $933,000
=========== ===========
15
NOTE 3: SEGMENT INFORMATION, continued
The Company conducts its educational operations in the United States, Canada,
Europe, the Middle East and the Pacific Rim. International revenues, which
are derived principally from Canada, were less than 10% of total revenues for
the periods ended September 30, 2001 and 2000. Revenues and long-lived assets
by geographic area are as follows:
For the Quarter Ended
September 30,
--------------------------
2001 2000
--------------------------
Revenues from Unaffiliated Customers:
Domestic Operations $148,233,000 $124,756,000
International Operations 6,399,000 5,692,000
--------------------------
Consolidated $154,632,000 $130,448,000
==========================
Long-lived Assets:
Domestic Operations $338,909,000 $245,589,000
International Operations 10,896,000 11,980,000
--------------------------
Consolidated $349,805,000 $257,569,000
==========================
No one customer accounted for more than 10% of the Company's consolidated
revenues.
16
Item 2 - Management's Discussion and Analysis of Results of
Operations and Financial Condition
Certain information contained in this quarterly report may
constitute forward looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements may involve risks and
uncertainties that could cause actual results to differ
materially from the forward-looking statements. Potential
risks and uncertainties include, but are not limited to,
dependence on student financial aid, state and provincial
approval and licensing requirements, and other factors
detailed in the Company's Securities and Exchange Commission
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.
Results of Operations
- ---------------------
The Company's total consolidated revenues increased by $24.2
million, or 18.5%, compared to last year. Tuition revenues,
representing the largest component of total revenues,
increased by $25.7 million, or 21.5%, from last year because
of higher student enrollments and increased tuition pricing at
all of the Company's operations. Other Educational Revenues,
that are composed primarily of the sale of books and supplies
for all of the Company's educational operations, declined
slightly from last year. While sales of the Becker CD-ROM and
other study materials contributed to an increase in Other
Educational Revenues in the Graduate and Professional segment,
the continued outsourcing of some Undergraduate segment
bookstore operations that is discussed in more detail below,
has caused an overall decline in this revenue category.
Interest income on the Company's short-term investments of
cash balances declined slightly because of the somewhat lower
cash balances that were available for investment during most
of the quarter.
Undergraduate segment revenues increased by 17.8% to $133.4
million. Total student enrollment at the DeVry Institutes for
the summer term that began in July, including the newly opened
campus in the Seattle, Washington area, increased by more than
9% from last year to 47,415. In addition, tuition pricing was
increased by approximately 6% from last year. Tuition rates
at the more recently opened Institute locations have been
17
generally higher than the system average rate, further
contributing to the overall rate of revenue increase. At the
start of the current fiscal year, 11 of the DeVry Institute
bookstores had been outsourced compared to 5 at the start of
the previous fiscal year, resulting in a somewhat lower level
of Other Educational Revenues within the total Undergraduate
segment revenue.
In the Graduate and Professional segment, total revenues
increased by 23.6% from last year to $21.5 million. An
increased number of graduate school teaching centers and
higher enrollments at existing centers produced more than a
26% increase in enrollments for the term which began at the
end of June. Enrollment increased at a 24+% rate for the
graduate school term that began in September. Enrollment
increases at Becker Conviser and higher tuition rates for both
operations also contributed to the higher level of revenue.
Other Educational Revenue within this segment did increase as
student enrollments grew, but at a somewhat lesser rate from
the prior year so that the overall rate of revenue growth was
less than the rate of growth in just tuition revenue.
The Company's Cost of Educational Services increased by 13.3%
from last year, a lesser rate of increase than for revenues.
Costs did increase generally in support of increased
enrollments and new operating locations. However, offsetting
these increases and partly contributing to the lesser rate of
growth in this expense category, is the effect of economies of
scale from increased enrollments and the expanded outsourcing
of Undergraduate segment bookstore operations. The Company
does not report bookstore revenue or cost of books sold at the
outsourced locations, reporting instead commission income
based upon the level of sales at these locations. This change
in operation and reporting has the effect of increasing the
reported operating margins within the Undergraduate segment
and for the Company as a whole.
Student Services and Administrative Expense increased by 29.3%
to $48.1 million. The higher rate of increase relative to the
rate of increase in tuition revenue is due to higher student
recruitment expense in the Undergraduate segment in response
to an increasingly competitive environment and the events of
September 11th which diverted applicant attention at a critical
point in the recruiting process for the new academic term that
begins in early November. The Company continued its efforts
at developing a new student information system to better its
support for educational processes and related activities. In
18
accordance with accounting principles for internal software
development costs, certain wage and outside consulting service
costs are being capitalized. During the quarter, the Company
capitalized an additional $1.0 million, bringing the
cumulative capitalized amount to $3.3 million.
Partly offsetting the increase in Undergraduate segment
student recruiting costs is a reduction of $775,000 in
amortization expense of intangible assets and goodwill
compared to the first quarter of last year. The Company
adopted Financial Accounting Standard No. 142, entitled
"Goodwill and Other Intangible Assets" effective with its
first quarter of the current fiscal year. This accounting
standard provides that goodwill and indefinite lived
intangibles arising from a business combination will no longer
be amortized and charged to expense over time. During the
quarter, the Company completed an analysis of its identifiable
intangible assets and goodwill. One intangible asset was
reduced to no remaining value and the amortizable life of
another intangible asset was shortened to better reflect its
expected useful life. The final purchase price allocation of
the January 2001 acquisition of the Stalla Seminars business
will be completed and reported in the Company's second fiscal
quarter.
Goodwill and indefinite lived intangible assets must be
reviewed annually for impairment in value. As of July 1,
2001, there was no impairment loss associated with the
Company's indefinite lived intangible assets. With respect to
goodwill, a complete valuation study is underway on the Fair
Value compared to the Carrying Value of the three operating
segments that are the appropriate reporting units for purposes
of the FAS 142 analysis. Based upon preliminary results, the
Company does not believe that there is currently any
impairment in value to the goodwill in any of its reporting
units.
In the Undergraduate segment, revenue growth produced
operating leverage in Cost of Educational Services, but
overall operating margins declined from 16.4% to 14.5% in the
quarter because of the increased spending on student
recruitment discussed above.
In the Graduate and Professional segment, operating margins
increased from 14.0% to 20.4% because of the benefits of scale
from higher enrollments and tuition rates that were not offset
19
by the need for higher rates of spending on educational
operations or student recruitment.
Interest expense increased to $0.3 million from $0.1 million
in the same quarter last year as the Company used its
revolving line of credit throughout the entire quarter to meet
both its cyclical operating needs and for the acquisition of
the two DeVry Institute campuses purchased during the quarter.
Reported net income of $14.1 million, or $0.20 per share
(diluted), was a record for any first quarter. If FAS 142 had
been adopted in the first quarter of last year, reported net
earnings for the quarter ended September 30, 2000, would have
increased by $0.01 to $0.18 per share (diluted).
Liquidity and Capital Resources
- -------------------------------
Cash generated from operations in the first quarter was $35.2
million, a 51% increase from the same period a year ago.
Contributing to the sharply increased cash flow were higher
net income, the increased non-cash charges for depreciation,
refunds and bad debt included in this net income and increases
in accounts payable and accrued expenses. These increases are
generally related to the higher level of student enrollments,
increased revenues and related operating activities as the
Company continues to grow.
Capital spending for the quarter was a record $54.2 million,
up more than $35 million from last year. Contributing to this
increase in capital spending was the purchase of two DeVry
Institute campuses, in Pomona, California, and Addison,
Illinois, formerly occupied under lease. These purchases
totaled approximately $37.8 million. Capital spending on
improvements and expansion throughout all of the Company's
educational operations is expected to remain at historically
high levels for the foreseeable future.
In the first quarter, the Company borrowed $55 million under
its revolving line of credit agreement to fund the record
capital spending and to meet cyclical operating needs. Using
cash generated from the cyclical inflow following the start of
the DeVry Institute summer term, the Company repaid $15
million of the borrowings before the end of the quarter. To-
date, there have been no further borrowings or repayments.
20
The Company believes that current balances of unrestricted
cash, cash generated from operations and, if needed, its
revolving loan facility will be sufficient to fund its current
operations and growth plans for the foreseeable future.
Adoption of New Accounting Standards
- ------------------------------------
In July 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations." SFAS 143 addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
retirement costs. This statement is effective for financial
statements issued for fiscal years beginning after June 15,
2002.
In August 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets". SFAS 144
addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement
is effective for financial statements issued for fiscal years
beginning after December 15, 2001.
With respect to both of these new accounting standards, the
Company is in the process of performing a preliminary
assessment and has not yet determined whether these standards
will have any immediate impact on the Company's financial
statements upon adoption.
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Item 5 - Other Information
- --------------------------
In November 2000, three graduates of one of DeVry Institute's Chicago-area
campus 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 was amended
and refiled, this time including a current student from a second Chicago-area
campus. The Company has filed a motion with the court requesting that the
suit be dismissed.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the quarter
ended September 30, 2001.
22
Signatures
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: NOVEMBER 12, 2001 /s/ Ronald L. Taylor
------------------------------
Ronald L. Taylor
President and Chief Operating
Officer
Date: NOVEMBER 12, 2001 /s/Norman M. Levine
------------------------------
Norman M. Levine
Senior Vice President Finance
and Chief Financial Officer