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, 1996 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, 1996: 16,628,272 Total number of pages: 12 2 DeVRY INC. FORM 10-Q INDEX For the period ended September 30, 1996 Page No. -------- PART I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets at September 30, 1996, June 30, 1996 and September 30, 1995 3-4 Consolidated Statements of Income for the quarters ended September 30, 1996 and 1995 5 Consolidated Statements of Cash Flows for the quarters ended September 30, 1996 and 1995 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8-10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 3 PART I - Financial Information Item 1 - Financial Statements DeVRY INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) September June 30, September 1996 1996 1995 (Unaudited) (Unaudited) ----------- -------- ----------- ASSETS Current Assets Cash and Cash Equivalents $ 18,184 $ 29,948 $ 30,988 Restricted Cash 22,096 16,590 18,519 Accounts Receivable, Net 31,372 9,684 9,028 Inventories 1,757 3,290 2,565 Prepaid Expenses and Other 2,564 2,055 1,219 ------- ------- ------- Total Current Assets 75,973 61,567 62,319 ------- ------- ------- Land, Buildings and Equipment Land 19,031 18,956 18,952 Buildings 49,859 50,570 39,893 Equipment 56,388 51,198 45,944 Construction In Progress 342 4,598 ------- ------- ------- 125,620 120,724 109,387 Accumulated Depreciation (51,873) (49,283) (44,489) ------- ------- ------- Land, Buildings and Equipment, Net 73,747 71,441 64,898 ------- ------- ------- Other Assets Intangible Assets, Net 37,815 37,709 2,007 Perkins Program Fund, Net 5,516 5,483 4,689 Other Assets 1,806 1,889 1,815 ------- ------- ------- Total Other Assets 45,137 45,081 8,511 ------- ------- ------- TOTAL ASSETS $194,857 $178,089 $135,728 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 4 DeVRY INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) September June 30, September 1996 1996 1995 (Unaudited) (Unaudited) ----------- -------- ----------- LIABILITIES Current Liabilities Accounts Payable $ 14,192 $ 18,859 $ 17,817 Accrued Salaries, Wages & Benefits 13,538 14,735 12,008 Accrued Expenses 9,180 7,640 6,085 Advance Tuition Payments 11,929 7,617 9,411 Deferred Tuition Revenue 29,793 3,609 20,487 ------- ------- ------- Total Current Liabilities 78,632 52,460 65,808 ------- ------- ------- Other Liabilities Revolving Loan 47,000 61,500 21,029 Deferred Income Tax Liability 2,184 2,207 2,485 Deferred Rent and Other 4,764 4,635 4,273 ------- ------- ------- Total Other Liabilities 53,948 68,342 27,787 ------- ------- ------- TOTAL LIABILITIES 132,580 120,802 93,595 ------- ------- ------- SHAREHOLDERS' EQUITY Common Stock, $0.01 par value, 20,000,000 Shares Authorized, 16,628,187, 16,621,852 and 16,614,612, Shares Issued and Outstanding at September 30, 1996, June 30, 1996 and September 30, 1995, Respectively. 166 166 166 Additional Paid-in Capital 36,725 36,694 36,617 Retained Earnings 24,947 19,987 4,773 Cumulative Translation Adjustment 439 440 577 ------- ------- ------- TOTAL SHAREHOLDERS' EQUITY 62,277 57,287 42,133 ------- ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $194,857 $178,089 $135,728 ======= ======= ======= 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, ------------------- 1996 1995 ---- ---- REVENUES: Tuition $ 62,478 $ 54,322 Other Educational 6,604 5,204 Interest 167 313 ------- ------- Total Revenues 69,249 59,839 ------- ------- COSTS AND EXPENSES: Cost of Educational Services 42,819 36,346 Student Services and Administrative Expense 17,396 16,111 Interest Expense 886 349 ------- ------- Total Costs and Expenses 61,101 52,806 ------- ------- Income Before Income Taxes 8,148 7,033 Income Tax Provision 3,188 3,002 ------- ------- NET INCOME $ 4,960 $ 4,031 ======= ======= EARNINGS PER COMMON SHARE $0.29 $0.24 The accompanying notes are an integral part of these consolidated financial statement. 6 DeVRY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) <CPATION> For The Quarter Ended September 30, ------------------ 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 4,960 $ 4,031 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 1,858 1,575 Amortization 386 15 Provision for Refunds and Uncollectible Accounts 4,394 3,937 Deferred Income Tax Benefit 177 858 Loss (Gain) on Disposal and Adjustments to Land, Buildings and Equipment 13 (58) Changes in Assets and Liabilities: Restricted Cash (5,506) 1,660 Accounts Receivable (26,073) (6,722) Inventories 1,533 988 Prepaid Expenses and Other (989) (619) Perkins Program Fund Contribution and Other (42) (221) Accounts Payable (4,667) 2,860 Accrued Salaries, Wages, Expenses and Benefits 343 2,307 Advance Tuition Payments 4,312 (4,571) Deferred Tuition Revenue 26,184 16,719 ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 6,883 22,759 ------ ------ CASH FLOWS USED IN INVESTING ACTIVITIES Capital Expenditures (4,177) (6,157) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Exercise of Stock Options 31 7 Repayments Under Revolving Credit Facility (14,500) (12,000) ------ ------ NET CASH USED IN FINANCING ACTIVITIES (14,469) (11,993) ------ ------ Effects of Exchange Rate Differences (1) 127 ------ ------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (11,764) 4,736 Cash and Cash Equivalents at Beginning of Period 29,948 26,252 ------ ------ Cash and Cash Equivalents at End of Period $18,184 $30,988 ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest Paid During the Period $896 $413 Income Taxes Paid During the Period $1,454 $1,130 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, 1996 1. The interim consolidated financial statements include the accounts of DeVry Inc.(the Company) and its wholly-owned subsidiaries. These financial statements are unaudited but, in the opinion of management, contain all adjustments, consisting only of normal, recurring adjustments, necessary to present fairly the financial condition and results of operations of the Company. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended June 30, 1996 The results of operations for the three months ended September 30, 1996, are not necessarily indicative of results to be expected for the entire fiscal year. Certain reclassifications have been made to the September 1995 financial statements to conform with the June 1996 and September 1996 presentation. 2. In July and August 1996, the Company granted options to purchase up to 71,250 shares of the Company's common stock under the Amended and Restated Stock Incentive Plan, the 1991 Stock Incentive Plan and the 1994 Stock Incentive Plan. 8 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition 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. Results of Operations - --------------------- Tuition revenues in the first quarter increased by 15% to $62,478,000. The increase in tuition revenues was produced by several positive factors including enrollment increases at the DeVry Institutes where total student enrollment for the summer semester which began in July, increased by 4.6% from last year. This is the seventeenth consecutive term of increased total student enrollment vs. prior year at the DeVry Institutes. At KGSM, total enrollment for the term which began in June increased more than 21% from last June. Tuition revenues also increased because of tuition rate increases which became effective at the DeVry Institutes last March and at the Keller Graduate School in September of 1995 and 1996. In June 1996, the Company acquired the Becker CPA Review. Revenues from Becker courses which prepare students to take the national Certified Public Accountant exam also contributed to the Company's revenue increase for the quarter. Other educational revenues, comprised primarily of sales of books and supplies, increased because of sales to the increased number of students attending the Company's educational programs. Interest income on the Company's short-term investments decreased from last year because of lower cash balances available for investment. The cost of educational services increased from last year by $6,473,000 or 17.8% reflecting the additional facility, faculty and staff costs associated with the Becker CPA Review and the expenses associated with higher student enrollments at the DeVry and KGSM locations which affected the level of spending on wages, benefits, supplies and services. Tuition refund and bad debt expense decreased slightly from the first quarter of last year as a percentage of the DeVry Institute and KGSM revenues, in part because of the student service quality initiatives implemented during the past several years that affect the pattern of student retention, reducing the proportion of refund expense and uncollectible account costs below those of prior periods. Depreciation expense increased compared to last year as a result of extensive capital improvements and additions in 1995 and 1996, particularly those related to the opening of the new DeVry Institute in North Brunswick, New Jersey, and the upgrading of school laboratories and teaching equipment throughout the system. The increase of $1,285,000 or 8% in student services and administrative expenditures, comprised largely of new student recruitment expenses, reflects the marketing costs associated with the Becker CPA Review operations and the marketing costs associated with generating the higher new student enrollments at DeVry and KGSM for the summer and future terms. 9 The Company's earnings from operations before interest expense were a record for this quarter. Operating margins, which have been increasing consistently year over year, increased again in this quarter to 13.0% vs. 12.3% in the prior year period. Operating margins were favorably affected by the inclusion of Becker CPA results, where operating margins have historically been high, by the higher revenues and improved facility utilization from the increased enrollments at the DeVry Institutes and KGSM and by continued cost containment measures. Interest expense in the quarter increased by $537,000 from last year because of higher outstanding debt levels resulting from the acquisition, for cash, of the Becker CPA operations in June. At September 30, 1996, total funded debt had increased by nearly $26,000,000 from the same date last year. Net income of $4,960,000, or $0.29 per share, was a record for the quarter, increasing by 23% from the same quarter of last year. This continues the unbroken pattern of year-over-year quarterly earnings increases since the first quarter of fiscal 1992. Liquidity and Capital Resources - ------------------------------- Because of the somewhat seasonal pattern of the Company's enrollments and its term starting dates which affect the timing of cash inflows, comparisons of financial position should be made to both the end of the previous fiscal year and to the corresponding period of a year ago. Cash generated from operations in the first quarter decreased by approximately $16 million from the first quarter of last year. Higher earnings, depreciation and amortization each contributed to a higher operating cash flow but were offset by increases in accounts receivable and restricted cash that exceeded the related increases in deferred tuition revenue and advance tuition payments. Accounts receivable, net of the related increase in deferred tuition revenue reflecting higher enrollment and revenue levels, results primarily from the later opening of the Atlanta Institute to avoid conflict with Olympic Games activity and a summer term start at the other DeVry Institutes that was 5 days later than last year. Accordingly, some collections included in the first quarter of prior years will be included in the Company's second quarter results. The increase in receivables is also attributable, in part, to the tuition financing offered by DeVry Canada to those students at the Toronto area campuses who were affected by last year's temporary suspension of financial aid. Also, included in the increased accounts receivable were the receivable balances from students attending the Becker CPA classes which were not included in the Company's reported balances last year. The increase in Restricted Cash from last year reflects, in part, the later DeVry Institute summer term starts as more federal aid remains to be disbursed in the final weeks of the term. Similarly the increase in Advance Tuition Payments, which includes he liability for the increase in undisbursed Restricted Cash, also reflects the effects of these later term starts. Capital expenditures decreased by almost $2 million from last year, reflecting completion of construction payments on the DeVry Institute New Jersey campus. 10 During the first quarter, the Company repaid $14,500,000 of its revolving loan facility using existing cash balances and cash generated from operations. Taking advantage of the financing flexibility from this unsecured revolving line of credit, future borrowings and/or repayments will be based upon the Company's seasonal cash flow cycle and payment requirements for capital spending. 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 operating needs and capital spending for the foreseeable future. 11 PART II - Other information Item 6 - Exhibits and Reports on Form 8-K (b) Reports on Form 8-K On July 3, 1996, the Company filed a Form 8-K containing the description of its acquisition of substantially all of the assets of the Becker CPA Review Business. On August 23, 1996, the Company filed a Form 8-K containing the audited financial statements of the Company's financial results for the fiscal year ended June 30, 1996. On August 30, 1996, the Company filed a Form 8-K/A including the required audited financial statements of the recently acquired Becker CPA Review and pro forma financial information. 12 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 7, 1996 /s/ Ronald L. Taylor -------------------- Ronald L. Taylor President and Chief Operating Officer Date: NOVEMBER 7, 1996 /s/Norman M. Levine ------------------- Norman M. Levine Vice President Finance, Controller, Chief Financial and Accounting Officer