1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
Commission file number 1-13988
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
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
YES X
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
NO X
Number of shares of Common Stock, $0.01 par value, outstanding on
October 31, 2005: 70,529,100
Total number of pages: 50
2
DeVry Inc.
FORM 10-Q INDEX
For the Quarter Ended September 30, 2005
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at
September 30, 2005, June 30, 2005,
and September 30, 2004 3-4
Consolidated Statements of Income
for the quarter ended
September 30, 2005 and 2004 5
Consolidated Statements of Cash
Flows for the three months ended
September 30, 2005 and 2004 6
Notes to Consolidated Financial
Statements 7-24
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 25-33
Item 3. Quantitative and Qualitative
Disclosures About Market Risk 34
Item 4. Controls and Procedures 35
Part II. Other Information
Item 1. Legal Proceedings 36-37
Item 4. Submission of Matters to a
Vote of Security Holders 37
Item 6. Exhibits 38
SIGNATURES 39
3
PART I - Financial Information
Item 1 - Financial Statements
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
September 30, June 30, September 30,
2005 2005 2004
------------ ------------ ------------
Restated Restated
ASSETS
Current Assets
Cash and Cash Equivalents $119,829 $161,823 $115,071
Restricted Cash 26,217 13,935 27,702
Accounts Receivable, Net 83,585 39,226 64,298
Inventories 95 164 1,376
Deferred Income Taxes 17,142 17,142 6,454
Prepaid Expenses and Other 16,478 10,048 12,831
------- ------- -------
Total Current Assets 263,346 242,338 227,732
------- ------- -------
Land, Buildings and Equipment
Land 68,015 68,013 64,256
Buildings 222,479 212,428 204,378
Equipment 237,620 234,201 227,110
Construction In Progress 4,105 15,813 7,513
------- ------- -------
532,219 530,455 503,257
Accumulated Depreciation (249,966) (243,688) (220,343)
------- ------- -------
Land, Buildings and
Equipment, Net 282,253 286,767 282,914
------- ------- -------
Other Assets
Intangible Assets, Net 71,118 73,699 82,709
Goodwill 291,308 289,308 284,397
Perkins Program Fund, Net 13,290 13,290 12,472
Other Assets 4,481 4,633 5,457
------- ------- -------
Total Other Assets 380,197 380,930 385,035
------- ------- -------
TOTAL ASSETS $925,796 $910,035 $895,681
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
September 30, June 30, September 30,
2005 2004 2004
------------ ------------ ------------
Restated Restated
LIABILITIES
Current Liabilities
Current Maturities of
Revolving Loan $ 50,000 $ 50,000 $ -
Accounts Payable 24,154 30,681 17,601
Accrued Salaries, Wages &
Benefits 30,784 34,071 33,316
Accrued Expenses 30,525 34,462 28,062
Advance Tuition Payments 15,664 14,685 16,981
Deferred Tuition Revenue 95,446 22,823 82,311
------- ------- -------
Total Current Liabilities 246,573 186,722 178,271
------- ------- -------
Other Liabilities
Revolving Loan 0 50,000 75,000
Senior Debt 125,000 125,000 125,000
Deferred Income Taxes 15,963 15,949 13,736
Accrued Post-employment
Agreements 6,352 6,352 4,267
Deferred Rent and Other 12,613 12,629 13,016
------- ------- -------
Total Other Liabilities 159,928 209,930 231,019
------- ------- -------
TOTAL LIABILITIES 406,501 396,652 409,290
------- ------- -------
SHAREHOLDERS' EQUITY
Common Stock, $0.01 par value,
200,000,000 Shares Authorized,
70,527,000, 70,475,000 and
70,365,000, Shares Issued and
Outstanding at September 30,
2005, June 30, 2005 and
September 30, 2004,
Respectively 706 706 704
Additional Paid-in Capital 115,086 113,571 102,116
Retained Earnings 403,572 398,840 383,071
Accumulated Other Comprehensive
Income (Loss) (69) 266 500
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 519,295 513,383 486,391
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $925,796 $910,035 $895,681
======= ======= =======
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,
---------------------
2005 2004
---------------------
Restated
REVENUES:
Tuition $183,053 $177,984
Other Educational 13,308 10,352
Interest 419 60
------- -------
Total Revenues 196,780 188,396
------- -------
COSTS AND EXPENSES:
Cost of Educational Services 111,709 110,265
Student Services and
Administrative Expense 75,890 75,267
Interest Expense 2,655 1,991
------- -------
Total Costs and Expenses 190,254 187,523
------- -------
Income Before Income Taxes and
Cumulative Effect of Change
in Accounting 6,526 873
Income Tax Provision 1,794 543
------- -------
Income Before Cumulative Effect
of Change in Accounting 4,732 330
Cumulative Effect of Change in
Accounting, Net of Tax - 1,810
------- -------
NET INCOME $ 4,732 $ 2,140
======= =======
EARNINGS PER COMMON SHARE
Basic
Income Before Cumulative
Effect of Change in Accounting $0.07 $0.01
Cumulative Effect of Change
in Accounting - 0.02
----- -----
Net Income $0.07 $0.03
===== =====
Diluted
Income Before Cumulative
Effect of Change in Accounting $0.07 $0.01
Cumulative Effect of Change
in Accounting - 0.02
----- -----
Net Income $0.07 $0.03
===== =====
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 Three Months
Ended September 30,
--------------------
2005 2004
-------- --------
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,732 $ 2,140
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Share-Based Compensation Charge 1,145 2,439
Depreciation 9,093 9,630
Amortization 2,701 3,907
Provision for Refunds and
Uncollectible Accounts 11,264 9,225
Deferred Income Taxes 14 850
Loss on Disposals of Land, Buildings
and Equipment 10 55
Changes in Assets and Liabilities, net of
Effects from Acquisition of Business:
Restricted Cash (12,279) (14,245)
Accounts Receivable (55,604) (45,348)
Inventories 77 1,905
Prepaid Expenses And Other (6,418) (2,300)
Perkins Program Fund Contribution and Other - (250)
Accounts Payable (6,556) (9,748)
Accrued Salaries, Wages,
Expenses and Benefits (7,281) 5,727
Advance Tuition Payments 941 162
Deferred Tuition Revenue 72,623 60,481
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,462 24,630
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (4,564) (5,712)
Payment for Purchase of Business,
net of Cash Acquired (2,000) -
------- -------
NET CASH USED IN INVESTING ACTIVITIES: (6,564) (5,712)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Exercise of Stock Options 328 130
Excess Tax Benefit from Share-Based Payments 42 36
Repayments Under Revolving Credit Facility (50,000) (50,000)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (49,630) (49,834)
Effects of Exchange Rate Differences (262) (240)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (41,994) (31,156)
Cash and Cash Equivalents at Beginning
of Period 161,823 146,227
------- -------
Cash and Cash Equivalents at End of Period $119,829 $115,071
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Period $2,206 $1,597
Income Tax Payments During the Period, Net 6,900 314
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, 2005
----------
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 fairly present the financial condition
and results of operations of the Company. The June 30, 2005 data that
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, 2005.
The results of operations for the three months ended September 30,
2005, are not necessarily indicative of results to be expected for the
entire fiscal year.
The consolidated financial statements that are presented for the
fiscal year ended June 30, 2005 and the three months ended
September 30, 2004, have been restated to reflect the adjustments
necessary under the provisions of the modified retrospective
application method of Statement of Financial Accounting Standards
No. 123(R), "Share Based Payments" ("SFAS 123(R)"). SFAS123(R) was
adopted in the first quarter of fiscal 2006 (See Note 3).
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Derivative Instruments and Hedging Activities
- ---------------------------------------------
The Company uses derivative financial instruments to manage its
exposure to movements in interest rates. The use of these
financial instruments modifies the exposure of these risks with
the intent to reduce the risk to the Company. The Company does not
use financial instruments for trading purposes, nor does it use
leveraged financial instruments. Credit risk related to the
derivative financial instruments is considered minimal and is
managed by requiring high credit standards for its counterparties
and periodic settlements.
All derivative contracts are reported at fair value, with changes
in fair value reported in earnings or deferred, depending on the
nature and effectiveness of the offset or hedging relationship.
Any ineffectiveness in a hedging relationship is recognized
immediately into earnings.
During the first quarter of fiscal 2004, the Company entered into
several interest rate cap agreements to protect approximately
$100,000,000 of its outstanding borrowings from sharp increases
in short-term interest rates upon which its borrowings are based.
These agreements expired in the first quarter of fiscal 2006. The
Company intends to periodically evaluate the need for interest
rate protection in light of projected changes in interest rates
and borrowing levels.
8
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Derivative Instruments and Hedging Activities, continued
- --------------------------------------------------------
These interest rate cap agreements were designated as cash flow
hedging instruments and were intended to protect the portion of
the Company's debt that is covered by these agreements from short-
term interest rates above 3.5%.
These cap agreements were purchased at fair market values totaling
$568,000. This cost was capitalized and amortized to earnings and
recorded as interest expense over the 24-month term of the
agreements. Differences between the changes in fair value of the
interest rate caps and the amount being amortized to earnings were
reported as a component of Other Comprehensive Income. These
amounts were reclassified and recognized into earnings over the 24-
month term of the agreements. As of September 30, 2005, these cap
agreements had expired so there is no effect on Accumulated Other
Comprehensive Income in the Consolidated Balance Sheets. As of
September 30, 2004, $38,000 was recorded as Other Comprehensive
Income in the Consolidated Balance Sheet. This represents the
cumulative difference between the decline in the fair market value
of the interest rate caps of $112,000 and the $150,000 expensed as
interest. Gains of $12,000 and $20,000 were recorded as Other
Comprehensive Income for the three months ended September 30, 2005
and 2004, respectively. Interest expense of $73,000 and $60,000
was charged to earnings for these interest rate caps for the three
months ended September 30, 2005 and 2004, respectively. For the
three months ended September 30, 2005 and 2004, there was no
ineffectiveness related to these agreements.
Internal Software Development Costs
- -----------------------------------
The Company capitalizes certain internal software development costs
that are amortized using the straight line method over the estimated
useful lives of the software, not to exceed five 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. Capitalized
software development costs for projects not yet complete, which are
included as Equipment in the Land, Buildings and Equipment section of
the Consolidated Balance Sheets, were $1,083,000 as of September 30, 2004.
As of September 30, 2005 and June 30, 2005 there were no capitalized
costs for projects not yet completed. The gross capitalized software
development costs for completed projects, which are also included
as Equipment in the Land, Building and Equipment section of the
Consolidated Balance Sheets, were $20,605,000 at September 30,
2005 and June 30, 2005, and $18,767,000 at September 30, 2004.
Post-employment Benefits
- ------------------------
The Company's employment agreements with its Chairman of the
Board of Directors and Chief Executive Officer provide certain
post-employment benefits that require accrual over the
expected future service period beginning with the second
quarter of fiscal 2003. For the three months
9
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Post-employment Benefits, continued
- -----------------------------------
ended September 30, 2005 the Company recognized no expenses
related to these agreements. For the three months ended September 30,
2004, the Company recognized expense of approximately
$588,000, related to these agreements. The amounts provided
are based on recording, over the period of active service, the
amount that will represent the present value of the
obligation through the date the executive attains full
eligibility for the benefits, discounted using a 6.03% rate
and using the sinking fund accrual method.
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 70,506,000 and
70,349,000 for the first quarters ended September, 2005 and 2004,
respectively. Diluted earnings per share is computed by dividing
net income by the weighted average number of shares assuming
dilution. Dilutive shares are computed using the Treasury Stock
Method and reflect the additional shares that would be outstanding
if dilutive stock options were exercised during the period. Shares
used in this computation were 70,664,000 and 70,677,000 for the
first quarters ended September 30, 2005 and 2004, respectively.
Excluded from the computations of diluted earnings per share were
options to purchase 2,839,000 and 1,289,000 shares of common stock for
the first quarters ended September 30, 2005 and 2004, respectively.
These outstanding options were excluded because the option
exercise prices were greater than the average market price of the
common shares during these periods and therefore, their effect
would be anti-dilutive.
Comprehensive Income
- --------------------
The differences between changes in the fair values of the cash
flow hedging instruments described above in "Derivative
Instruments and Hedging Activities", and the amount of these
instruments being amortized to earnings are reported as a
component of Comprehensive Income. The amounts recorded in Other
Comprehensive Income are gains of $12,000 and $20,000 for the
three months ended September 30, 2005 and 2004, respectively. The
Company's only other item that meets the definition for adjustment
to arrive at Comprehensive Income is the change in cumulative
translation adjustment. The amounts recorded in Other
Comprehensive Income for the changes in currency translation rates
were a loss of $262,000 for the three months ended September 30,
2005 and a loss of $240,000 for the three months ended September
30, 2004.
The Accumulated Other Comprehensive Income balance at September
30, 2005 is composed entirely of a cumulative translation loss of
$69,000. This balance at September 30, 2004, is composed of a
$38,000 gain related to the cash flow hedge and a cumulative
translation gain of $462,000.
10
NOTE 3: STOCK-BASED COMPENSATION
The Company maintains five stock-based award plans: the Amended
and Restated Stock Incentive Plan, established in 1988, the 1991 Stock
Incentive Plan, the 1994 Stock Incentive Plan, the 1999 Stock Incentive
Plan and the 2003 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, 1999 and 2003 Stock Incentive Plans 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
five plans are granted for terms of up to 10 years and vest over periods of
one to five years. The requisite service period is equal to the vesting
period. The option price under the plans is the fair market value
of the shares on the date of the grant.
The company accounts for options granted to retirement eligible
employees that vest upon an employees' retirement under the non-
substantive vesting period approach to these options. Under this
approach, compensation cost is recognized at the grant date for
options issued to retirement eligible employees where the options
vest upon retirement.
At September 30, 2005, 4,696,617 authorized but unissued shares of
common stock were reserved for issuance under the Company's stock option
plans.
Effective July 1,2005, the Company adopted the provisions of SFAS
123(R). SFAS 123(R) establishes accounting for stock-based awards
exchanged for employee services. Accordingly, stock-based
compensation cost is measured at grant date, based on the fair
value of the award, and is recognized as expense over the employee
requisite service period. The Company previously applied
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," ("APB 25")and related Interpretations and
provided the required pro forma disclosures of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). The Company
elected to adopt the modified retrospective application method as
provided by SFAS 123(R) and accordingly, financial statement amounts
for the prior periods presented in this Form 10-Q have been restated
to reflect the fair value method of expensing options as prescribed by
SFAS 123(R).
The following is a summary of options activity for the three
months ended September 30, 2005:
Weighted
Weighted Average Aggregate
Average Remaining Intrinsic
Options Exercise Contractual Value
Outstanding Price Life ($000)
----------- -------- ----------- ---------
Outstanding at July 1, 2005 3,764,844 $22.35
Options Granted 2,000 $20.49
Options Exercised (52,220) $ 6.26
Options Canceled (91,537) $24.89
--------- ------
Outstanding at September 30, 2005 3,624,087 $22.52 6.75 $3,067
========= ====== ==== ======
Exercisable at September 30, 2005 2,612,959 $22.47 6.32 $2,624
========= ====== ==== ======
11
NOTE 3: STOCK-BASED COMPENSATION, continued
The total intrinsic value of options exercised for the quarters
ended September 30, 2005 and 2004 was $672,000 and $615,000,
respectively.
Prior to fiscal 2005, 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 ("Black-Scholes 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.
Beginning with all options granted in the first quarter of fiscal
2005, the fair value of the Company's stock-based awards is
estimated using a binomial model. This model uses historical
cancellation and exercise experience of the Company to determine
the option value. It also takes into account the illiquid nature
of employee options during the vesting period, something that the
Black-Scholes model does not consider. For these reasons, Company
management believes that the binomial model provides a fair value
that is more representative of actual experience and future
expected experience than the value calculated in previous years,
using the Black-Scholes model.
The weighted average estimated grant date fair values, as defined
by SFAS 123(R), for options granted at market price under the
Company's stock option plans during the first quarters of fiscal
2006 and 2005 were $6.95 and $9.09, per share, respectively. The
fair values of the Company's stock option awards for the first
quarters of fiscal 2006 and 2005, were estimated assuming no
expected dividends and the following weighted average assumptions:
Fiscal Year,
2006 2005
---- ----
Expected Life (in Years) 4.38 6.69
Expected Volatility 41.30% 41.41%
Risk-free Interest Rate 3.80% 3.83%
Pre-vesting Forfeiture Rate 4.00% 4.00%
The expected life of the options granted is based on the weighted
average exercise life with age and salary adjustment factors from
historical exercise behavior.
The Company's expected volatility is computed by combining and
weighting the implied market volatility, the Company's most recent
volatility over the expected life of the option grant, and the
Company's long-term historical volatility.
12
NOTE 3: STOCK-BASED COMPENSATION, continued
The following table shows total stock-based compensation expense
included in the Consolidated Statement of Earnings:
(Dollars in thousands)
For the three months ended September 30, 2005 2004
- ---------------------------------------------------------------
Cost of Educational Services $ 366 $780
Student Services and Administrative Expense 779 1,659
Income Tax Benefit 161 279
----- -----
Net Stock-based Compensation Expense $ 984 $2,160
===== =====
As of September 30, 2005, $9.44 million of total pre-tax
unrecognized compensation costs related to non-vested awards is
expected to be recognized over a weighted average period of 3
years. The total fair value of options vested during the three
months ended September 30, 2005 and 2004 was $3,017,000 and
$4,176,000, respectively.
There were no capitalized stock-based compensation costs at
September 30, 2005 and 2004.
The Company has a policy of issuing new shares of common stock to
satisfy share options exercises.
As previously discussed, the Company elected to adopt SFAS 123(R)
under the modified retrospective application method. The Company
believes that the modified retrospective application of this
standard achieves the highest level of clarity and comparability
among the presented periods. Accordingly, financial statement
amounts for the prior periods presented in this Form 10-Q have
been
restated to reflect the fair value method of expensing prescribed
by SFAS 123(R).
13
NOTE 3: STOCK-BASED COMPENSATION, continued
The following table details the retroactive application impact of
SFAS 123(R) on previously reported results, (dollars in thousands
except per share amounts):
For the Quarter ended and as of
September 30, 2004
-------------------------------
As
Previously
Restated Reported
----------------------
CONSOLIDATED STATEMENTS OF INCOME:
Total Costs and Expenses $187,523 $185,084
Income before Income Taxes and
Cumulative Effect of Change
In Accounting 873 3,312
Income Tax Provision 543 822
Income before Cumulative Effect
Of Change in Accounting 330 2,490
Net Income 2,140 4,300
EARNINGS PER COMMON SHARE:
Basic
Income before Cumulative Effect
Of Change in Accounting $0.01 $0.04
Net Income $0.03 $0.06
Diluted
Income before Cumulative Effect
Of Change in Accounting $0.01 $0.04
Net Income $0.03 $0.06
CONSOLIDATED BALANCE SHEETS
Deferred Income Taxes $ 13,736 $17,660
Total Other Liabilities 231,019 234,943
Total Liabilities 409,290 413,214
Additional Paid-in Capital 102,116 71,927
Retained Earnings 383,071 409,336
Total Shareholders' Equity 486,391 482,467
14
NOTE 3: STOCK-BASED COMPENSATION, continued
For the Quarter Ended
September 30, 2004
----------------------
As
Previously
Restated Reported
---------------------
CASH FLOW RELATED TO FIRST QUARTER
FISCAL 2005
Net Income $ 2,140 $ 4,300
Share Based Compensation Charge 2,439 -
Deferred Income Taxes 850 1,165
Net Cash Provided by Operating Activities 24,630 24,666
Excess Tax Benefits from Share
Based Payments 36 -
Net Cash Used in Financing Activities (49,834) (49,870)
June 30, 2005
---------------------
As
Previously
Restated Reported
---------------------
CONSOLIDATED BALANCE SHEETS
Deferred Income Taxes $ 15,949 $21,408
Total Other Liabilities 209,930 215,389
Total Liabilities 396,652 402,111
Additional Paid-in Capital 112,671 73,372
Retained Earnings 399,740 433,580
Total Shareholders' Equity 513,383 507,924
NOTE 4: CHANGE IN ACCOUNTING - CHANGED FISCAL YEAR OF SUBSIDIARY
Prior to July 1, 2004, the accounts of Becker Professional Review
were consolidated based on an April 30 fiscal year end, which
management believed was its natural year-end based on its then
business cycle. As a result of a change in the CPA exam schedule,
the Company has aligned the Becker fiscal year end to that of
DeVry Inc. The results of operations for the two-month period
from May 1, 2004 through June 30, 2004, are included as a
cumulative effect of change in accounting in the Consolidated
Statements of Income for the first quarter of fiscal 2005. The
cumulative effect of this change in accounting added $1,810,000,
or $0.02 per share to net income for the first quarter. This
amount is net of income tax expense of $1,189,000.
15
NOTE 4: CHANGE IN ACCOUNTING - CHANGED FISCAL YEAR OF SUBSIDIARY,
continued
Net Income and basic and diluted earnings per share for the three
months ended September 30, 2004 is set forth below as if the
consolidation of the Becker operations had been accounted for in
the same manner for all periods presented. These amounts have been
restated to reflect the fair value method of expensing stock-based
compensation as prescribed by SFAS 123(R).
Proforma
Three Months Ended
September 30, 2004
------------------
Net Income $330,000
Earnings per Share
Basic $0.01
Diluted $0.01
NOTE 5: BUSINESS COMBINATIONS
Gearty CPE
- ----------
In July 2005, the Company signed a definitive agreement to acquire
Gearty CPE for $2.0 million in cash. Gearty CPE, which operates in
the New York/New Jersey metro area, is a provider of continuing
professional education (CPE) programs and seminars in accounting
and finance predominantly serving chief financial officers and
controllers of Fortune 500 companies.
There is no pro forma presentation of prior year operating results
related to this acquisition due to the insignificant effect on
consolidated operations.
Deaconess College of Nursing
- ----------------------------
On March 24, 2005, Ross University School of Nursing and Health
Sciences, a newly formed, wholly owned subsidiary of the Company,
acquired the operations of Deaconess College of Nursing
(Deaconess) for $5,391,000 in cash, subject to purchase price
adjustments. Funding was provided from the Company's existing
operating cash balances. The results of Deaconess' operations have
been included in the consolidated financial statements of the
Company since the date of acquisition.
Located in St. Louis, Missouri, Deaconess had approximately 450
students enrolled at the date of purchase and offers associate and
bachelor's degree programs in nursing. In addition, Deaconess
offers a bachelor's degree completion program designed for
registered nurses who have previously completed an associate
degree program. Classes are offered days, evenings and weekends
with non-clinical coursework offered both on campus and online.
The addition of Deaconess will further diversify the Company's
curricula.
16
NOTE 5: BUSINESS COMBINATION, continued
Deaconess College of Nursing, continued
- ---------------------------------------
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of
acquisition.
At March 24, 2005
(In Thousands)
Current Assets $ 659
Property and Equipment 37
Intangible Assets 1,470
Goodwill 4,911
-----
Total Assets Acquired 7,077
Current Liabilities Assumed 1,686
-----
Net Assets Acquired $5,391
-----
Of the $1,470,000 of acquired intangible assets, $470,000 was
assigned to the value of the Deaconess Title IV financial aid
eligibility and $730,000 was assigned to accreditations, both of
which have been determined to not be subject to amortization, and
$270,000 was assigned to student relationships that have an
average useful life of approximately 3 years. The Company
determined this allocation based upon a number of factors,
including a preliminary valuation analysis prepared by an
independent professional valuation specialist. The $4,911,000 of
goodwill was all assigned to the Medical & Healthcare operating
segment.
The amounts recorded at September 30, 2005, relating to the
acquisition are subject to adjustment, as the Company has not yet
completed the final allocation of purchase price. The purchase
price is still subject to final closing adjustments. The Company
expects to finalize the purchase price and complete the
allocations during the second quarter of fiscal 2006. There is no
pro forma presentation of prior year operating results related to
this acquisition due to the insignificant effect on consolidated
operations.
17
NOTE 6: INTANGIBLE ASSETS
Intangible assets consist of the following:
As of September 30, 2005
-----------------------------
Gross Carrying Accumulated
Amount Amortization
-----------------------------
Amortized Intangible Assets:
Student Relationships $47,770,000 $(30,595,000)
License and Non Compete
Agreements 2,650,000 (2,573,000)
Class Materials 2,900,000 (950,000)
Trade Names 110,000 (55,000)
Other 620,000 (616,000)
---------- ----------
Total $54,050,000 $(34,789,000)
========== ==========
Unamortized Intangible Assets:
Trade Names $20,972,000
Trademark 1,645,000
Ross Title IV Eligibility
And Accreditations 14,100,000
Intellectual Property 13,940,000
Deaconess Title IV
Eligibility and
Accreditations 1,200,000
----------
Total $51,857,000
==========
As of September 30, 2004
-----------------------------
Gross Carrying Accumulated
Amount Amortization
-----------------------------
Amortized Intangible Assets:
Student Relationships $47,500,000 $(18,181,000)
License and Non Compete
Agreements 2,650,000 (2,236,000)
Class Materials 2,900,000 (750,000)
Trade Names 110,000 (27,000)
Other 620,000 (534,000)
---------- ----------
Total $53,780,000 $(21,728,000)
========== ==========
Unamortized Intangible Assets:
Trade Names $20,972,000
Trademark 1,645,000
Ross Title IV Eligibility
And Accreditations 14,100,000
Intellectual Property 13,940,000
----------
Total $50,657,000
==========
18
NOTE 6: INTANGIBLE ASSETS, continued
Amortization expense for amortized intangible assets was
$2,581,000 and $3,637,000 for the three months ended September
30, 2005 and 2004, respectively. Estimated amortization expense
for amortized intangible assets for the next five fiscal years
ending June 30, is as follows:
Fiscal Year
2006 $10,036,000
2007 6,807,000
2008 3,598,000
2009 203,000
2010 200,000
The weighted-average amortization period for amortized intangible
assets is three and five years for Deaconess and Ross Student
Relationships, respectively, six years for License and Non-compete
Agreements, 14 years for Class Materials, four years for Trade
Names and six years for Other. These intangible assets, except for
the Ross Student Relationships, are being amortized on a straight-
line basis. The amount being amortized for the Ross Student
Relationships is based on the estimated progression of the
students through the respective medical and veterinary programs,
giving consideration to the revenue and cash flow associated with
both existing students and new applicants. This results in the
basis being amortized at an annual rate for each of the five years
of estimated economic life, beginning with May 2003, as follows:
Year 1 27.4%
Year 2 29.0%
Year 3 21.0%
Year 4 14.5%
Year 5 8.1%
Indefinite-lived intangible assets related to Trademarks, Trade
Names, Title IV Eligibility, Accreditation and Intellectual
Property are not amortized as there are no legal, regulatory,
contractual, economic or other factors that limit the useful life
of these intangible assets to the reporting entity. As of the end
of fiscal year 2005, there was no impairment loss associated with
these indefinite-lived intangible assets as fair value exceeds
the carrying amount.
The Company determined that as of the end of fiscal 2005,
there was no impairment in the value of the Company's
goodwill for any reporting units. This determination was
made after considering a number of factors including a
valuation analysis prepared by an independent professional
valuation specialist. The carrying amount of goodwill
related to the DeVry University reportable segment at
September 30, 2005 and June 30, 2005 was unchanged at
$22,195,000. The carrying amount of goodwill related to
Professional and Training reportable segment was $24,716,000
at September 30, 2005 and $22,716,000 at June 30, 2004. The
increase of $2,000,000 is the result of the allocation of the
purchase price for Gearty CPE as described in Note 5 above.
The carrying amount of goodwill related to the Medical &
Healthcare segment at September 30, 2005 and June 30, 2005
was unchanged at $244,397,000.
19
NOTE 7: REDUCTION IN WORKFORCE CHARGES
During the second quarter of fiscal 2005, the Company offered a
voluntary separation plan to its employees with more than 20 years
of service. In the third quarter of fiscal 2005, the Company
implemented an involuntary reduction in force that reduced its
workforce at its educational facilities and corporate office. In
the fourth quarter of fiscal 2005, the Company offered another
voluntary separation plan for its DeVry University faculty
employees with more than 15 years of service and implemented an
involuntary reduction in force of its faculty employees. These
voluntary and involuntary separation plans resulted in workforce
reductions of approximately 230 employees. In addition to these
separation and reduction in force plans, the Company experienced
other involuntary separations during fiscal 2005. In relation to
all of these voluntary and involuntary reductions in force, the
Company recorded pre-tax charges of approximately $8.4 million in
the fiscal 2005. These charges consist of severance pay and in
some cases, extended medical and dental benefits coverage. These
charges were classified as Cost of Educational Services and
Student Services and Administrative Expense in the Consolidated
Statements of Income and are related to the DeVry University and
Medical & Healthcare reportable segments.
Cash payments for the voluntary separation plans and all
involuntary reductions in force were approximately $2.0 million in
the first quarter ended September 30, 2005. Of the total amount
accrued for these events, approximately $1,600,000 remained to be
paid as of September 30, 2005. Payments will continue into the
second quarter of fiscal 2006.
NOTE 8: INCOME TAXES
The principal operating subsidiaries of DMI are Ross University
School of Medicine (the Medical School) incorporated under the
laws of the Commonwealth of Dominica and Ross University School
of Veterinary Medicine (the Veterinary School), incorporated
under the laws of the Federation of St. Christopher Nevis, St.
Kitts in the West Indies. Both operating companies have
agreements with the respective governments that exempt them from
local income taxation through the years 2043 and 2023,
respectively. Accordingly no current provision for foreign income
taxes was recorded in the three months ended September 30, 2005
for the Medical or Veterinary Schools.
The Company has not recorded a tax provision for the
undistributed earnings of the Medical and Veterinary Schools for
the period after the acquisition. It is the Company's intention
to indefinitely reinvest post-acquisition undistributed earnings
and profits to service debt, improve the facilities and
operations of the Schools and pursue future opportunities outside
of the United States. As of September 30, 2005 and 2004,
cumulative undistributed earnings were approximately $36.4
million and $19.4 million, respectively.
It is the Company's intention for the foreseeable future to use
accumulated cash balances at the Medical and Veterinary Schools
plus subsequent earnings and cash flow to service outstanding
debt, and reinvest remaining balances to improve and expand
facilities and operations of the schools and pursue future
business opportunities outside the United States. In accordance
with this plan, cash held by Ross University will not be available
for general Company purposes such as at DeVry University and will
not be subject to U.S. taxation.
20
NOTE 9: LONG-TERM DEBT
All of the Company's borrowings and letters of credit under its
long-term debt agreements are through DeVry Inc. and Global
Education International, Inc. (GEI). This long-term debt consists
of the following at September 30, 2005:
Effective
Outstanding Interest Rate at
Debt September 30, 2005
------------ ------------------
Revolving Credit Agreement:
DeVry Inc. as borrower $ 40,000,000 5.00%
GEI as borrower 10,000,000 5.21%
----------
Total $ 50,000,000 5.05%
----------
Senior Notes:
DeVry Inc. as borrower $ 75,000,000 4.94%
GEI as borrower 50,000,000 4.94%
-----------
Total $125,000,000 4.94%
-----------
Total outstanding debt $175,000,000 4.97%
Current Maturities of Revolving
Credit Agreement $ 50,000,000 5.05%
-----------
Total Long-term debt $125,000,000 4.94%
-----------
NOTE 10: COMMITMENTS AND CONTINGENCIES
The Company is subject to occasional lawsuits, administrative
proceedings, regulatory reviews associated with financial
assistance programs and other claims arising in the normal
conduct of its business. The following information updates the
status of claims and litigations previously disclosed.
In January 2002, a graduate of one of DeVry University's Los
Angeles-area campuses, filed a class-action complaint against
DeVry Inc. and DeVry University, Inc. in the Superior Court of
the State of California, County of Los Angeles, on behalf of all
students enrolled in the post-baccalaureate degree program in
Information Technology. The suit alleges that the program
offered by DeVry did not conform to the program as it was
presented in the advertising and other marketing materials. In
March 2003, the complaint was dismissed by the court with limited
right to amend and re-file. The complaint was subsequently
amended and re-filed. During the first quarter of the Company's
fiscal year 2004, a new complaint was filed in the same court by
another plaintiff with the same general allegations and by the
same plaintiffs' attorneys. This subsequent action has been
stayed pending the outcome of the initial matter. Discovery
continues, but there is no determinable date at which this matter
may be brought to conclusion.
The alleged class action above seeks money damages of an
indeterminate amount. The Company has accrued $0.75 million
representing the estimated minimum amount to resolve this claim.
21
NOTE 10: COMMITMENTS AND CONTINGENCIES, continued
In November 2000, three graduates of one of DeVry University's
Chicago-area campuses filed a class-action complaint in the
Circuit Court for Cook County, Illinois that alleges DeVry
graduates do not have appropriate skills for employment in the
computer information systems field. The complaint was
subsequently dismissed by the court, but was amended and re-filed
to include as a plaintiff, a then-current student in another
curriculum from a second Chicago-area campus. In September 2005,
the court denied the Plaintiff's motion for class action
certification in its entirely. However, while pending claims
remain by each of the three named defendants in this action, the
Company believes that the eventual outcome will not have a
material effect on its cash flows, results of operations or
financial position.
In August 2005 counterclaims were filed against the company's
subsidiary Dominica Management, Inc. and the Ross University
School of Medicine by defendants American University of Antigua
College of Medicine, Neal Simon and Sol Weltman in a case filed
by Dominica Management, Inc. in the U.S. District Court for the
Southern District of New York in September 2004. The original
case filed by Dominica Management, Inc. sought relief primarily
for alleged copyright infringement, misappropriation of trade
secrets and confidential information, and unfair competition.
The counterclaims allege, inter alia, anticompetive behavior,
tortious interference with prospective economic relationships,
and defamation. In October 2005, the Company and American University
of Antigua reached an agreement to resolve this matter and drop all
claims, and the matter is now resolved.
At September 30, 2005, the Company has recorded
approximately $1.5 million associated with estimated loss
contingencies, including the amount of approximately $0.6
million in remaining payments under an anti-trust claim
settlement agreement. While the ultimate outcome of these
and other contingencies is difficult to estimate at this
time, the Company does intend to vigorously defend itself
with respect to the pending claims.
At this time, the Company does not believe that the outcome of
current claims, regulatory reviews and lawsuits will have a
material effect on its cash flows, results of operations or
financial position.
22
NOTE 11: SEGMENT INFORMATION
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, 2005. The Company
presents three reportable segments: the DeVry University undergraduate
and graduate operations (DeVry University), the professional
examination review and training operations including Becker
Professional Review and Center for Corporate Education
(Professional and Training) and the Ross University medical and
veterinary school and Deaconess School of Nursing operations
(Medical & Healthcare).
These segments are based on the method by which management
evaluates performance and allocates resources. Such decisions
are based, in part, 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, 2005.
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.
23
NOTE 11: SEGMENT INFORMATION, continued
Following is a tabulation of business segment information for the
three months ended September 30, 2005 and 2004. Where applicable,
the September 30, 2004, information has been restated to reflect
the adoption of SFAS 123(R) under the modified retrospective
application method. These amounts have been restated to reflect
the fair value method of expensing stock-based compensation as
prescribed by SFAS 123(R). Corporate information is included where
it is needed to reconcile segment data to the consolidated
financial statements.
For the Quarter Ended
September 30,
2005 2004
---- ----
Restated
Revenues:
DeVry University $160,719,000 $156,740,000
Professional and Training 12,280,000 10,746,000
Medical & Healthcare 23,781,000 20,910,000
----------- -----------
Total Consolidated Revenues $196,780,000 $188,396,000
----------- -----------
Operating Income (Loss):
DeVry University $ (74,000) $(3,103,000)
Professional and Training 4,570,000 2,913,000
Medical & Healthcare 7,532,000 6,956,000
Reconciling Items:
Amortization Expense (2,581,000) (3,637,000)
Interest Expense (2,655,000) (1,991,000)
Depreciation and Other (266,000) (265,000)
---------- ----------
Total Consolidated Income
before Income Taxes and
Cumulative Effect of Change
In Accounting $ 6,526,000 $ 873,000
---------- ----------
Segment Assets:
DeVry University $423,735,000 $412,286,000
Professional and Training 79,484,000 80,843,000
Medical & Healthcare 396,027,000 385,702,000
Corporate 26,550,000 16,850,000
----------- -----------
Total Consolidated Assets $925,796,000 $895,681,000
----------- -----------
Additions to Long-lived Assets:
DeVry University $3,056,000 $4,655,000
Professional and Training 25,000 82,000
Medical & Healthcare 1,483,000 975,000
--------- ---------
Total Consolidated Additions
to Long-lived Assets $4,564,000 $5,712,000
--------- ---------
Depreciation Expense:
DeVry University $7,777,000 $8,554,000
Professional and Training 114,000 151,000
Medical & Healthcare 955,000 678,000
Corporate 247,000 247,000
--------- ---------
Total Consolidated Depreciation $9,093,000 $9,630,000
--------- ---------
24
NOTE 11: SEGMENT INFORMATION, continued
For the Quarter Ended
September 30,
2005 2004
---- ----
Intangible Asset Amortization Expense:
DeVry University $ - $ -
Professional and Training 66,000 193,000
Medical & Healthcare 2,515,000 3,444,000
--------- ---------
Total Consolidated Amortization $2,581,000 $3,637,000
--------- ---------
The Company conducts its educational operations in the United
States, Canada, the Caribbean countries of Dominica and St. Kitts/Nevis,
Europe, the Middle East and the Pacific Rim. Other international
revenues, which are derived principally from Canada were less than
5% of total revenues for the quarters ended September 30, 2005 and
2004. Revenues and long- lived assets by geographic area are as follows:
For the Quarter Ended
September 30,
2005 2004
---- ----
Revenues from Unaffiliated Customers:
Domestic Operations $172,054,000 $164,337,000
International Operations:
Dominica and St. Kitts/Nevis 22,380,000 20,910,000
Other 2,346,000 3,149,000
----------- -----------
Total International Operations 24,726,000 24,059,000
----------- -----------
Consolidated $196,780,000 $188,396,000
----------- -----------
Long-lived Assets:
Domestic Operations $352,499,000 $350,815,000
International Operations
Dominica and St. Kitts/Nevis 309,502,000 316,225,000
Other 449,000 909,000
----------- -----------
Total International Operations 309,951,000 317,134,000
----------- -----------
Consolidated $662,450,000 $667,949,000
----------- -----------
No one customer accounted for more than 10% of the Company's
consolidated revenues.
25
Item 2 - Management's Discussion and Analysis of Results of
Operations and Financial Condition
- -----------------------------------------------------------
Forward-Looking Statements
- --------------------------
Certain information contained in this quarterly report on Form 10-
Q may constitute forward-looking statements relating to DeVry's
future financial results and strategies, business plans or
objectives and beliefs about future events. They are often
identified by the use of qualifiers in their description such as
"expects", "believes", "is likely", "intends", "estimates",
"forecast", "assumption" or other similar expressions. Such
statements are inherently uncertain and may involve risks that
could cause future results to differ materially from the forward-
looking statements. Potential risks and uncertainties include,
but are not limited to:
Shifts in applicant career interests away from the concentration
of the Company's undergraduate programs in selected areas of
technology, healthcare and business that the Company does not
adequately anticipate or respond to.
Increased competition in recruiting new students and retaining
students already enrolled.
Reductions in student financial aid, upon which the Company is
highly dependent for the collection of its billings, because of
changes to program regulations affecting student eligibility or
reductions to federal and state funding levels.
Failure of DeVry University, Ross University or Deaconess College
of Nursing to maintain eligibility for student participation in
financial aid programs.
Reductions in the amount of corporate employee tuition
reimbursement because of changes to tax laws or a lower level of
corporate earnings that affects employee educational benefit
plans.
Loss or limitations in accreditations and licensing approvals
affecting DeVry University, Ross University or Deaconess College
of Nursing.
Changes to laws and regulations that adversely affect the
Company's eligibility to participate in government financial aid
programs, current operations or future growth opportunities.
Ability to hire and retain faculty with appropriate
qualifications such as education and experience.
Reductions in tuition pricing by other educational institutions
that affect the Company's current competitive position and its
ability to maintain and increase tuition rates in the future.
Some of these risks and uncertainties are described more fully in
the sections of the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2005 that are captioned "Business -
Competition, -Student Recruiting, -Accreditation and Approvals, -
Tuition and Fees, -Financial Aid and Financing Student Education,
- -Career Services, and -Faculty".
All forward-looking statements included in this Report are based
upon information presently available, and the Company assumes no
obligation to update any forward-looking statements.
26
Copies of the Company's annual and quarterly reports on Form 10-
K, Form 10-Q and other reports filed with the Securities and
Exchange Commission may be obtained without charge at the
Company's website, www.devryinc.com.
The following discussion of the Company's results of operations
and financial condition should be read in conjunction with the
consolidated financial statements of the Company and the notes
thereto as included in the Company's annual report on Form 10-K
for the fiscal year ended June 30, 2005. The Company's annual
report on Form 10-K includes a detailed description of critical
accounting policies, estimates and assumptions used in the
preparation of the Company's financial statements. These
include, but are not limited to, revenue and expense recognition,
useful lives of equipment and facilities, valuation of goodwill
and indefinite-lived intangible assets, valuation and useful
lives of acquired finite-lived intangible assets, pattern of
amortization of finite-lived intangible assets over their
economic lives, losses on the collection of student receivable
balances, costs associated with pending legal matters, health
care costs for incurred but not yet paid medical services and
stock based compensation.
Because of the somewhat seasonal pattern of the Company's
enrollments and its educational program starting dates, which
affect the results of operations and the timing of cash inflows,
the Company's management believes that comparisons of its results
of operations should be made to the corresponding period in the
preceding year. Comparisons of financial position should be made
to both the end of the previous fiscal year and to the end of the
corresponding quarterly period in the preceding year.
Results of Operations
- ---------------------
The Company's financial performance in the first quarter improved
from the results for the first quarter of the previous fiscal
year. First quarter fiscal 2005 has been restated for the
adoption of Statement of Financial Accounting Standard 123R
("SFAS 123R"), Share - Based Payments using the modified
retrospective approach. Factors contributing to the improved
performance were continued total enrollment growth in DeVry
University's graduate school programs, increased tuition rates
for both undergraduate and graduate students, an increase in new
student enrollments and higher tuition rates at Ross University,
an increase in enrollments in the Professional and Training
segment's Becker Professional Review operations, wage savings
from the workforce reductions implemented last year and continued
restraint in spending in other areas of operation.
Total DeVry University undergraduate enrollments of 36,200 for
the summer term that began in July were 4.8% lower than
enrollments a year ago. However, coursetaker enrollments at
DeVry University's Keller Graduate School for the July session
increased by 11.3% from last year and coursetakers enrollments
for the September session were up by 5% from last year,
increasing from 12,129 to 12,732. At Ross University in the
Medical and Healthcare segment, for the term that started in
September, new student enrollments increased by 40.6% from last
year to 575 and total student enrollments were 3,227. Although
total student enrollments lagged those of last year by 3.8%, this
is a sequential improvement from the year over year decline of
8.5% in the Ross term that began in May 2005.
27
The following table presents information with respect to the
relative size to revenue of each item in the statement of income
for the first quarter for both the current and prior year.
Percents may not add due to rounding.
Quarter Ended
September 30,
-------------------
2005 2004 <FN>1
(Restated)
Revenue 100.0% 100.0%
Cost of Educational Services 56.8% 58.5%
Student Services & Admin. Exp. 38.6% 40.0%
Interest Expense 1.3% 1.1%
------ ------
Total Costs and Expenses 96.7% 99.5%
Income Before Income Taxes and Cumulative
Effect of Change in Accounting 3.3% 0.5%
Income Tax Provision 0.9% 0.3%
------ ------
Income Before Cumulative
Effect of Change in Accounting 2.4% 0.2%
Cumulative Effect of
Change in Accounting - 1.0%
------ ------
NET INCOME 2.4% 1.1%
====== ======
<FN>
<FN>1 Quarter ended September 30, 2004, restated for the adoption of
SFAS 123R using the modified retrospective approach.
</FN>
The Company's total consolidated revenue increased by $8.4
million, or 4.5%, for the first quarter compared to the first
quarter of last year. Tuition revenue, which is the largest
component of total revenue, represented over 93% of total revenue
in both periods. All three of the Company's segments contributed
to the increase in revenue.
DeVry University
- ----------------
At DeVry University, total first quarter revenues increased by
approximately $4.0 million, nearly one half of the increase in
revenues for the total Company. As discussed above, contributing
to the higher revenues were increased coursetaker enrollments at
Keller Graduate School and higher tuition rates that were in
effect for both the undergraduate and graduate programs compared
to last year. Undergraduate program tuition increased by
approximately 5% in July 2005 following a similar tuition
28
increase in November 2004. For graduate school programs, tuition
increased by approximately 5% for the September session following
a similar increase in January 2005. In addition, higher
undergraduate student accounts receivable, which are generally
subject to a monthly interest charge of one percent under the
Company's EDUCARD revolving charge plan for financing students'
education, generated approximately $0.9 million more in student
financing charges than last year.
Partly offsetting these increases was a higher proportion of
working adult undergraduate students who typically enroll for
less than a full-time academic load. These students are
primarily enrolled in the online programs and for program
offerings at DeVry University Centers. These part-time students
pay a somewhat lesser average tuition amount each term than do
full-time students at the undergraduate campus locations.
Therefore, the higher revenue per student resulting from tuition
increases has been partially offset by this greater proportion of
part-time students.
In the first quarter of fiscal 2005, the Company completed an
agreement with Follett Higher Education Group ("Follett") to
manage the nine remaining U.S. DeVry University campus bookstores
not previously managed by them. While this resulted in a
lowering of bookstore sales revenue in the first quarter of
fiscal 2006 compared to last year, DeVry University began to
offer selected graduate and undergraduate courses using
electronic textbook materials ("eBooks"). The Company reports
the sale of these eBooks at their full selling price which is
higher than the commission income it reports on sales by Follett.
The two changes in the reporting of book sales were approximately
offsetting so that the DeVry University bookstore sales component
of Other Educational revenue was unchanged.
Professional and Training
- -------------------------
In the Professional and Training segment, revenues reached a
record $12.3 million. The Company believes that increased
enrollment in the Becker Professional Review's CPA review courses
reflects the market recovery from the effects of the CPA exam
changes in fiscal 2004. Not only have on-site course enrollments
increased, but demand for the review courses online and on CD-ROM
have increased, contributing approximately $1.8 million of the
total Company increase in Other Educational Revenues. Also
contributing to the growth is increased enrollment in the Stalla
CFA review course in preparation for the December administration
of the Level 1 exam. This is only the second year in which this
part of the exam has been offered in December.
In July 2005, the Company completed the acquisition of Gearty CPE
by a DeVry Inc. subsidiary. Gearty CPE is a provider of
continuing professional education programs and seminars in
accounting and finance, predominantly serving customers in the
New York/New Jersey metro area. The acquisition complements the
Becker Professional Review CPA exam review business. The
acquisition did not contribute significantly to the revenues or
operating income of the Professional and Training segment during
the quarter.
Medical and Healthcare
- ----------------------
In the Medical and Healthcare segment, revenues increased by
approximately $2.9 million, or 13.7%. Included in this segment
are $0.9 million in revenues for Deaconess College of Nursing
that was not acquired by the Company until the latter part of
fiscal 2005. At Ross, although total enrollments during the
quarter were lower than a year ago, a tuition price increase of
29
approximately 5% effective with this September semester,
following a price increase of slightly less than 8% in January
2005, fully offset the effects of the decline in enrollment and
contributed to the revenue increase.
SFAS 123R
- ---------
The Company adopted Statement of Financial Accounting Standards
123R effective with the start of the first quarter of fiscal
2006. Financial results for fiscal 2005 have been restated to
reflect the modified retrospective approach of adoption.
Accordingly, expenses relating to share-based awards have been
included in the various expense categories for both years as
appropriate.
SFAS 123R establishes the accounting for stock-based awards
issued in exchange for employee services. To-date, all of the
Company's stock-based awards have been granted in the form of
stock options. Stock based compensation is measured at the grant
date of the option, based on the fair value of the award. The
fair value is recognized as expense over the employee requisite
service period which is the period over which these options vest.
At the beginning of fiscal 2005, the Company's stock-based awards
were valued using a binomial model. Previously, these awards
were valued using the Black-Scholes model for purposes of pro
forma disclosure pursuant to SFAS 123 and SFAS 148. The binomial
model requires estimates of several important factors, e.g.
expected life of an option, stock price volatility, risk-free
rate of return, forfeiture rate for options granted and the stock
dividend yield. The expected life of an option takes into
account the contractual term of the option and the effects of the
employees' expected exercise and post-vesting employment
termination behavior. The Company has granted stock options to
several hundred employees over a period of time longer than the
maximum ten-year contractual life of the option and, therefore,
has a history upon which estimates of the expected life of the
option and the forfeiture rate can be based. The Company's stock
has been publicly traded since 1991 and, therefore, there is a
history upon which estimates of future stock price volatility can
be determined. In determining the appropriate estimates and for
computing the actual valuation in a binomial model, the Company
engaged the assistance of an independent professional actuarial
service.
Cost of Educational Services
- ----------------------------
The Company's Cost of Educational Services increased by $1.4
million, or 1.3%, from the first quarter of last year.
Contributing to the increase was an increase of $1.9 million in
the provision for doubtful accounts, primarily in the DeVry
University undergraduate operations, as student receivables there
increased from last year. Also, cost increases were incurred in
support of the higher number of DeVry University Centers and
expanding online program enrollments. For the September session,
courses were being offered at nine new DeVry University locations
compared to a year ago. The number of online coursetakers
enrolled in courses for summer 2005 increased by more than 67%
from last year to 21,068. Costs were also recognized for the
Deaconess College of Nursing that were not included in the
Company results last year.
Partly offsetting these increases were the wage savings from
workforce reductions implemented last year and continued spending
restraint in all areas of operation. Also, lower capital
spending during each of the past several years has resulted in
lower depreciation expense, most of which is
30
included in the Cost of Educational Services. For the quarter,
depreciation expense was $9.1 million compared to $9.6 million
last year. Also included in Cost of Educational Services is $0.4
million of expense attributed to share-based awards, compared to
approximately $0.8 million in the restated first quarter of last
year.
DeVry University announced that its computer engineering
technology bachelor's degree programs at its campuses in Pomona,
Calif.; Decatur, Ga.; Chicago and Addison, Ill.; and Long Island
City, N.Y., earned accreditation from the Technology
Accreditation Commission of the Accreditation Board for
Engineering and Technology (TAC of ABET). DeVry's electronics
engineering technology bachelor's degree programs at 10 of its
campuses were also re-accredited.
TAC of ABET is the recognized accrediting body for college and
university programs in applied science, computing, engineering
and technology. TAC of ABET currently accredits more than 2,500
programs at more than 550 higher education institutions
nationwide. The program accreditation by TAC of ABET is in
addition to DeVry University's institutional accreditation by the
Higher Learning Commission of the North Central Association.
Student Services and Administrative Expense
- -------------------------------------------
Student Services and Administrative Expense increased by $0.6
million, or 0.8%, from last year. The increased cost reflects
efforts to generate more new student enrollments in all of the
Company's educational programs through more advertising and
student recruiting. Admissions advisors are being added to
support the growing online program enrollments and newly opened
DeVry University Centers and at Ross University to offset the
previous declines in new student enrollments following changes to
admission standards at the medical school. Costs were also
recognized for the Deaconess College of Nursing that were not
included in the Company results last year.
Largely offsetting these increases was lower amortization of
finite-lived intangible assets related to acquisitions of
businesses including, most recently, Ross University and
Deaconess College of Nursing. Amortization expense is included
entirely in the Student Services and Administrative Expense
category. For the first quarter, amortization expense was $2.6
million compared to $3.6 million in the first quarter of a year
ago. Also, lower spending for corporate general and
administrative expense, primarily savings in outside legal
expenses, resulted in savings of approximately $0.9 million
compared to the first quarter of last year. Expense attributed
to share-based awards included in the Student Services expense
category was approximately $0.8 million for the current year,
compared to approximately $1.6 million in the restated first
quarter of last year. There was no post-employment benefit cost
in the first quarter of this year compared to approximately $0.6
million in the first quarter of last year, which helped offset
the expense increases described above. The required period of
active service, over which the cost of these benefits were
recognized, was fully met at the end of fiscal 2005.
DeVry University
- ----------------
The DeVry University segment had an operating loss of
approximately $0.1 million, compared to a loss last year of $3.1
million. The reduced operating loss was the result of the
changes to enrollments, tuition rates and spending described
above. In addition, DeVry University's Canadian operation, which
included the teach out cost for the former undergraduate Toronto-area
31
campuses last year, is no longer incurring any further charges
for the teach out activity. In the first quarter of last year,
DeVry University incurred operating losses of approximately $0.5
million from its Canadian operation. For the current year, the
Canadian operations generated an operating income of
approximately $0.1 million.
Professional and Training
- -------------------------
As a result of record revenues for the first quarter, operating
income in the Professional and Training segment increased from
$2.9 million last year to $4.6 million in the first quarter of
the current year. The Company believes that this growth can be
attributed to exam candidates who previously procrastinated and
who are now starting to prepare for the CPA exam. The exam
review course continues to be updated and improved with good
student response, which we believe is attracting more students
than before. Although a small part of the total segment
operations, the Stalla CFA exam review continues to increase its
enrollments. Declining exam taker pass rates may be attracting
more students to take review courses rather than to self-study as
many have done in the past.
Medical and Healthcare
- ----------------------
The Medical and Healthcare segment increased operating income by
$0.6 million, or 8.2%, from last year. Although Deaconess
College of Nursing contributed approximately $0.9 million of
revenue to the segment, it did not contribute significantly to
the operating income. Operating expenses at Ross University were
higher in the first quarter of this year reflecting the expanded
student recruitment programs and the continuation of spending
increases through most of fiscal 2005 for additional faculty and
depreciation on newly added facilities to further improve the
educational programs. Lower enrollments at Ross University were
more than offset by tuition increases to produce the higher
operating income.
Interest Expense
- ----------------
Interest expense on the Company's borrowings was $2.7 million
compared to $2.0 million last year. Although borrowings have
been reduced, the interest rates on the Company's borrowings is
based upon short-term interest rates, which increased
significantly over the past year. For example, at September 30,
2005, the interest rates on the Company's Senior Notes was 4.94%
compared to 2.93% at that time last year.
Taxes on Income
- ---------------
Taxes on income were 27.5% of pre-tax income for the first
quarter. The effective tax rate reflects the Company's estimates
of the proportion of earnings attributable to Ross University
offshore operations compared to Company earnings that are fully
taxable at the appropriate federal and state income tax rates.
Changes to this proportion could result in a somewhat higher or
lower effective tax rate in future periods.
Cumulative Effect of Change in Accounting
- -----------------------------------------
In the first quarter of last year, the Company recognized $1.8
million of income, net of taxes, from a Cumulative Effect of
Change in Accounting for the alignment of the Professional and
Training segment's fiscal year to the same June-end fiscal year
as the rest of the Company. Because of the change to the CPA
32
exam schedule from a twice a year November and May schedule to a
nearly continuous exam administration, the Company believes that
the historical Becker Professional Review operating year that
ended in April is no longer the most appropriate
fiscal year-end. Effective with the start of the Company's
fiscal 2005, the Becker fiscal year was aligned to the June 30th
year-end of DeVry Inc. and the cumulative effect of this change
in accounting, representing the months of May and June 2004, was
reported in the first quarter of fiscal 2005.
Liquidity and Capital Resources
- -------------------------------
Cash generated from operations for the quarter was $14.5 million,
compared to $24.6 million in the same period last year.
Contributing to the lower cash flow was a $3.0 million reduction
in non-cash charges included in Net Income. The lower non-cash
charges were for share-based compensation, depreciation and
amortization. Reductions in accounts payable and accrued
expenses and an increase in prepaid expenses were a $12.7 million
increased use of cash compared to last year. Variations in the
levels of accrued expenses and accounts payable are caused, in
part, by the timing of the quarter-end relative to the Company's
payroll and bill payment cycles. Also, accounts receivable, net
of deferred tuition revenue, increased by $3.9 million. Higher
tuition rates with no commensurate increase in the amount of
available student financial aid, extended payment plans to better
serve the growing number of military and adult students at DeVry
and an increased proportion of part-time students whose financial
aid eligibility is less than for full-time students contributed
to the higher outstanding receivables.
Capital spending for the quarter was $4.6 million, compared to
$5.7 million in the first quarter last year. Historically,
capital spending is lower in the first quarter than in subsequent
quarters. There are no major capital projects underway or
currently in the late planning stage so that for the total year,
capital spending is expected to approximate $40 million, slightly
below the level of the past several years. In addition to
spending on capital additions and improvements during the first
quarter, the Company paid $2 million for the acquisition of
Gearty CPE.
During the first quarter, the Company repaid $50 million in
borrowings from its revolving loan agreements using existing cash
balances and cash flow generated from operations. During the
first quarter of last year, the Company also repaid $50 million
of its borrowings. All of the Company's borrowings are based
upon a floating rate, generally LIBOR at the Company's option.
In the first quarter of fiscal 2004, the Company entered into
several interest rate cap agreements to protect approximately
$100,000,000 of its borrowings from sharp increases in short-term
interest rates upon which its borrowings are based. These
interest rate cap agreements expired during the first quarter of
this fiscal year. The company intends to periodically evaluate
the need for future interest rate protection in light of
projected changes in interest rates and expected borrowing
levels.
In early November 2005, the Company's revolving loan agreement
was amended to exclude from the financial covenant computations,
the non-cash effects of accounting for share-based awards in
accordance with SFAS 123R. This amendment was initiated at the
Company's request in accordance with terms of the original
agreement.
The Company's only long-term contractual obligations consist of
its revolving line of credit and senior notes, operating leases
on facilities and equipment, and agreements for various services.
There are no required payments under the Company's borrowing
agreements prior to their maturity in 2009 and 2010. The Company
33
is not a party to any off-balance sheet financing or contingent
payment agreements, nor are there any unconsolidated subsidiaries
of the Company. There are no loans extended to any officer,
director or other person affiliated with the Company. The
Company has not entered into any derivative, swap, futures
contract, put, call, hedge or non-exchange traded contract except
for the interest rate cap agreements discussed above.
The Company's primary source of liquidity is the cash received
from payments for student tuition, books, educational supplies
and fees. These payments include funds originating as student
and family educational loans; other financial aid from various
federal, state and provincial loan and grant programs; and
student and family financial resources.
The Company is highly dependent upon the timely receipt of
financial aid funds at DeVry University, Ross University and
Deaconess College of Nursing. The Company estimates that
historically, more than 60% of its DeVry University undergraduate
students' tuition, book and fee revenues were financed by
government-provided financial aid to students. At Keller
Graduate School, approximately 70% of graduate student revenues
are financed by government-provided financial assistance. At
Ross University, collections from student participation in federal
loan programs are approximately 70% of its revenues. The financial
aid and assistance programs in which the Company's students participate
are subject to political and budgetary considerations. There is
no assurance that such funding will be maintained in the future.
Currently, there are legislative proposals that would adversely
affect Ross University's medical school's participation in
federal student loan programs. However, the Company believes
that alternative lending sources are readily available, if
necessary, and that there would not be a material effect on the
Company's cash flows, results of operations or financial
position.
Extensive and complex regulations in the United States and Canada
govern all of the government funded 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. Such program reviews may be conducted at any
educational institution at any time and have been conducted in
the past at the Company's educational facilities and headquarters
location. Previous Department of Education and state regulatory
agency program reviews have not resulted in material findings or
adjustments.
Included in the Company's consolidated cash balances at the end
of the quarter is $63.1 million attributable to Ross University
offshore operations. For the foreseeable future, it is the
Company's intention to reinvest this cash and subsequent earnings
and cash flow to service the outstanding debt of Global Education
International (the Corporate parent of Ross University) to
improve and expand facilities and operations of the Ross schools
and pursue future business opportunities outside the United
States. Therefore, cash held by Ross University will not be
available for general Company purposes such as at DeVry
University.
The Company believes that current balances of unrestricted cash,
cash generated from operations and, if necessary, borrowings
under the revolving loan facility will be sufficient to fund both
its current operations and growth plans for the foreseeable
future, unless future investment opportunities, similar to the
acquisition of Ross University, should arise.
34
Item 3 - Qualitative and Quantitative Disclosures About Market Risk
- -------------------------------------------------------------------
The nature of the Company's operations does not subject it to a
concentration or dependency upon the price levels or fluctuations
in pricing of any one particular or group of commodities.
The financial position and results of operations of Ross
University's Caribbean operations are measured using the U.S.
dollar as the functional currency. Substantially all Ross
University financial transactions are denominated in the U.S.
dollar.
The financial position and results of operations for the
Company's Canadian educational programs are measured using the
local currency as the functional currency. The Canadian
operations have not entered into any material long-term contracts
to purchase or sell goods and services, other than a lease
agreement on its principal teaching facility. The Company does
not have any foreign exchange contracts or derivative financial
instruments related to protection from changes in the value of
the Canadian dollar. Because the assets and liabilities of the
Company's Canadian operations are small relative to those of the
Company (Canadian assets are currently less than 2.5% of total
Company assets) changes in currency value within the range of
changes recently experienced, would not have a material effect on
the Company's results of operations or financial position. Based
upon the current value of the net assets in the Canadian
operations, a change of $0.01 in the value of the Canadian dollar
relative to the U.S. dollar would result in a pre-tax translation
adjustment of less than $100,000.
The Company's customers are principally individual students
enrolled in its various educational programs. Accordingly,
concentration of accounts receivable credit risk is small
relative to total revenues or accounts receivable.
The Company's cash is held in accounts at various financial
institutions. The Company selects the financial institutions
with which it maintains deposits from amongst only those that are
the largest and most financially secure. Therefore, although the
amount on deposit at a given institution will typically exceed
amounts subject to guarantee, the Company has not experienced any
deposit losses to date nor does it expect to incur such losses in
the future.
The interest rate on the Company's debt is based upon LIBOR
interest rates for periods typically ranging from one to three
months. Based upon the level of Company borrowings at September
30, 2005, a 1.0% increase in short-term interest rates would
result in $1.75 million of additional annual interest expense.
However, future investment opportunities and cash flow generated
from operations may affect the level of outstanding borrowings
and the effect of a change in interest rates.
In the first quarter of fiscal 2004, the Company entered into
several interest rate cap agreements to protect a portion of its
borrowings from sharp increases in short-term interest rates.
These agreements, expired by the end of the first quarter of
fiscal year 2006 and no longer afford any protection from changes
interest rates. The Company intends to periodically review
further debt repayment and the need for additional interest rate
protection agreements in light of projected changes in working
capital, investment requirements and expectations about future
period interest rates.
35
Item 4 - Controls and Procedures
- --------------------------------
CEO and CFO Certificates
- ------------------------
The required compliance certificates signed by the Company's CEO
and CFO are included as Exhibits 31 and 32 of this Quarterly
Report on Form 10-Q.
Disclosure Controls and Procedures
- ----------------------------------
Disclosure controls and procedures are designed to help ensure
that all the information required to be disclosed in our reports
filed with the SEC is recorded, processed, summarized and
reported within the time periods specified by the appropriate
rules.
Evaluations required by Rule 13a - 15 of the Securities Exchange
Act of 1934 of the effectiveness of the Company's disclosure and
controls and procedures as of the end of the period covered by
this Report have been carried out under the supervision and with
the participation of the Company's management, including its
Chief Executive Officer and its Chief Financial Officer. Based
upon these evaluations, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure
controls and procedures were effective as required, and have
attested to this in Exhibit 31 of this Report.
Changes In Internal Control Over Financial Reporting
- ----------------------------------------------------
There were no changes in internal control over financial
reporting that occurred during the first quarter of fiscal year
2006 that materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial
reporting.
36
Part II - Other Information
- ---------------------------
Item 1 - Legal Proceedings
- --------------------------
The Company is subject to occasional lawsuits, administrative
proceedings, regulatory reviews associated with financial
assistance programs and other claims arising in the normal
conduct of its business. The following information updates the
status of claims and litigations previously disclosed.
In January 2002, Royal Gardner, a graduate of one of DeVry
University's Los Angeles-area campuses, filed a class-action
complaint against DeVry Inc. and DeVry University, Inc. in the
Superior Court of the State of California, County of Los Angeles,
on behalf of all students enrolled in the post-baccalaureate
degree program in Information Technology. The suit alleges that
the program offered by DeVry did not conform to the program as it
was presented in the advertising and other marketing materials.
In March 2003, the complaint was dismissed by the court with
limited right to amend and re-file. The complaint was
subsequently amended and re-filed. During the first quarter of
the Company's fiscal year 2004, a new complaint was filed in the
same court by Gavino Teanio with the same general allegations and
by the same plaintiffs' attorneys. This subsequent action has
been stayed pending the outcome of the Gardner matter. Discovery
continues in the Gardner matter and a class action certification
hearing is still pending, but there is no determinable date at
which this matter may be brought to conclusion.
The alleged class action above seeks money damages of an
indeterminate amount. The Company has accrued $0.75 million
representing the estimated minimum amount to resolve this claim.
In November 2000, Afshin Zarinebaf, Ali Mousavi and another
graduate of one of DeVry University's Chicago-area campuses filed
a class-action complaint in the Circuit Court for Cook County,
Illinois that alleges DeVry graduates do not have appropriate
skills for employment in the computer information systems field.
The complaint was subsequently dismissed by the court, but was
amended and re-filed to include as a plaintiff Marck Macenas, a
then-current student in another curriculum from a second Chicago-
area campus. In September 2005, the court denied the plaintiff's
motion for class action certification in its entirety. However,
pending claims remain by each of the named defendants in this
action.
In August 2005 counterclaims were filed against the Company's
subsidiary Dominica Management, Inc. and the Ross University
School of Medicine by defendants American University of Antigua
College of Medicine, Neal Simon and Sol Weltman in a case filed
by Dominica Management, Inc. in the U.S. District Court for the
Southern District of New York in September 2004. The original
case filed by Dominica Management, Inc. sought relief primarily
for alleged copyright infringement, misappropriation of trade
secrets and confidential information, and unfair competition.
The counterclaims allege, inter alia, anticompetive behavior,
tortious interference with prospective economic relationships,
and defamation. In October 2005, the Company and American
University of Antigua reached an agreement to resolve this matter
and drop all claims, and the matter is now resolved.
37
While the ultimate outcome of these and other contingencies is
difficult to estimate at this time,
the Company does intend to vigorously defend itself with respect
to the pending claims. At this time, the Company does not
believe that the outcome of current claims, administrative
proceedings, regulatory reviews and lawsuits will have a material
effect on its cash flows, results of operations or financial
position.
Item 4 - Submission Of Matters To A Vote Of Security Holders
- ------------------------------------------------------------
The Company's regular annual meeting of stockholders will be held
in Oakbrook Terrace, Illinois, on Wednesday, November 9, 2005,
pursuant to notice duly given. Proxies for the meeting were
solicited in accordance with the Securities Exchange Act of 1934
and there was no solicitation in opposition to those of
management.
Stockholders are being asked to re-elect David S. Brown, Dennis
J. Keller and Frederick A. Krehbiel as directors; to serve until
the annual meeting of stockholders in 2008 or until their
successors are elected and qualified.
In addition, stockholders are being asked to elect William T.
Keevan, who had not previously served on the Board, as a director
until the annual meeting of stockholders in 2006 or until his
successor is elected and qualified. Stockholders are also asked
to elect Fernando Ruiz, who had not previously served on the
Board, as a director until the annual meeting of stockholders in
2008 or until his successor is elected and qualified.
In addition to the election of Directors, stockholders are being
asked to approve:
a) the amendment and restatement of the DeVry Inc. Employee
Stock Purchase Plan
b) the DeVry Inc. Incentive Plan of 2005; and
c) the selection of PricewaterhouseCoopers LLP as independent
public accountants for the Company for the current fiscal year
38
Item 6 - Exhibits
- -----------------
Exhibits
Sequentially
Exhibit # Description Numbered Page
--------- ----------- -------------
4 Second Amendment dated as of
September 30, 2005 to Credit Agreement
between DeVry Inc. and Global Education
International, Inc. as borrowers and certain
Financial institutions and Bank of
America, N.A. as lenders 40-45
31 Rule 13a-14(a)/15d-14(a)Certifications 46-49
32 Section 1350 Certifications 50
39
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 8, 2005 /s/Ronald L. Taylor
-----------------------
Ronald L. Taylor
Chief Executive Officer
Date: November 8, 2005 /s/Norman M. Levine
-------------------------
Norman M. Levine
Senior Vice President and
Chief Financial Officer