-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T0LxWty+thrGClz2sF5tgcRr9OgkRx0rECBbNeN6WVF04iSXNWZb4vqaulD1vFny IIe0KLEJeaCo9DQWltqGvQ== 0000730464-01-500007.txt : 20010502 0000730464-01-500007.hdr.sgml : 20010502 ACCESSION NUMBER: 0000730464-01-500007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVRY INC CENTRAL INDEX KEY: 0000730464 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 363150143 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13988 FILM NUMBER: 1618315 BUSINESS ADDRESS: STREET 1: ONE TOWER LN STREET 2: SUITE 1000 CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 BUSINESS PHONE: 7085717700 MAIL ADDRESS: STREET 1: ONE TOWER LANE CITY: OAKBROOK STATE: IL ZIP: 60181 10-Q 1 qtr3.txt FY 2001 3RD QTR 10Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________________ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 Commission file number 0-12751 DeVRY INC. ---------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-3150143 ------------------------------ ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Tower Lane, Oakbrook Terrace, Illinois 60181 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (630) 571-7700 -------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X Number of shares of Common Stock, $0.01 par value, outstanding at April 24, 2001: 69,744,416 Total number of pages: 22 2 DeVRY INC. FORM 10-Q INDEX For the Quarter Ended March 31, 2001 Page No. -------- PART I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets at March 31, 2001, June 30, 2000, and March 31, 2000 3-4 Consolidated Statements of Income for the quarter and nine months ended March 31, 2001, and 2000 5 Consolidated Statements of Cash Flows for the nine months ended March 31, 2001, and 2000 6 Notes to Consolidated Financial Statements 7-15 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 16-19 Part II. Other Information Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 22 3 PART I - Financial Information Item 1 - Financial Statements DEVRY INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
March 31, June 30, March 31, 2001 2000 2000 ----------- ----------- ----------- (Unaudited) (Unaudited) ASSETS Current Assets Cash and Cash Equivalents $ 26,868 $ 25,851 $ 33,995 Restricted Cash 58,345 19,395 49,595 Accounts Receivable, Net 115,049 25,362 92,708 Inventories 4,130 6,371 3,532 Deferred Income Taxes 3,526 3,526 2,656 Prepaid Expenses and Other 3,451 1,459 4,109 ------- ------- ------- Total Current Assets 211,369 81,964 186,595 ------- ------- ------- Land, Buildings and Equipment Land 42,501 38,516 38,491 Buildings 119,728 101,689 100,141 Equipment 136,173 113,586 108,904 Construction In Progress 10,128 6,403 3,135 ------- ------- ------- 308,530 260,194 250,671 Accumulated Depreciation (117,829) (101,393) (96,132) ------- ------- ------- Land, Buildings and Equipment, Net 190,701 158,801 154,539 ------- ------- ------- Other Assets Intangible Assets, Net 79,853 74,134 74,946 Deferred Income Taxes 1,166 2,032 - Perkins Program Fund, Net 9,746 8,316 7,829 Other Assets 2,928 1,832 1,405 ------- ------- ------- Total Other Assets 93,693 86,314 84,180 ------- ------- ------- TOTAL ASSETS $495,763 $327,079 $425,314 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 4 DEVRY INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
March 31, June 30, March 31, 2001 2000 2000 ----------- ---------- ----------- (Unaudited) (Unaudited) LIABILITIES Current Liabilities Accounts Payable $ 33,039 $ 31,827 $ 35,272 Accrued Salaries, Wages & Benefits 30,725 24,715 26,355 Accrued Expenses 8,646 7,041 8,078 Advance Tuition Payments 9,382 15,507 10,069 Deferred Tuition Revenue 130,684 10,095 108,417 ------- ------- ------- Total Current Liabilities 212,476 89,185 188,191 ------- ------- ------- Other Liabilities Revolving Loan - - 13,000 Deferred Income Tax Liability - - 323 Deferred Rent and Other 12,425 12,755 11,985 ------- ------- ------- Total Other Liabilities 12,425 12,755 25,308 ------- ------- ------- TOTAL LIABILITIES 224,901 101,940 213,499 ------- ------- ------- SHAREHOLDERS' EQUITY Common Stock, $0.01 par value, 200,000,000 Shares Authorized, 69,742,851, 69,642,087 and 69,605,007, Shares Issued and Outstanding at March 31, 2001, June 30, 2000 and March 31, 2000, Respectively 698 697 696 Additional Paid-in Capital 63,893 63,012 61,463 Retained Earnings 204,921 160,996 149,210 Accumulated Other Comprehensive Income 1,350 434 446 ------- ------- ------- TOTAL SHAREHOLDERS' EQUITY 270,862 225,139 211,815 ------- ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $495,763 $327,079 $425,314 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 5 DEVRY INC. CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands Except for Per Share Amounts) (Unaudited)
For The Quarter For The Nine Months Ended March 31, Ended March 31, --------------------- ---------------------- 2001 2000 2001 2000 --------------------- ---------------------- REVENUES: Tuition $137,836 $117,496 $400,189 $343,332 Other Educational 11,131 12,358 33,987 37,444 Interest 242 278 817 886 ------- ------- ------- ------- Total Revenues 149,209 130,132 434,993 381,662 ------- ------- ------- ------- COSTS AND EXPENSES: Cost of Educational Services 81,292 72,569 241,015 216,333 Student Services and 41,325 35,518 121,893 105,131 Administrative Expense Interest Expense 89 355 278 1,364 ------- ------- ------- ------- Total Costs and Expenses 122,706 108,442 363,186 322,828 ------- ------- ------- ------- Income Before Income Taxes 26,503 21,690 71,807 58,834 Income Tax Provision 10,466 8,393 27,882 22,839 ------- ------- ------- ------- NET INCOME $ 16,037 $ 13,297 $ 43,925 $ 35,995 ======= ======= ======= ======= EARNINGS PER COMMON SHARE Basic $0.23 $0.19 $0.63 $0.52 ===== ===== ===== ===== Diluted $0.23 $0.19 $0.62 $0.51 ===== ===== ===== =====
The accompanying notes are an integral part of these consolidated financial statements. 6 DEVRY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
For The Nine Months Ended March 31, -------------------- 2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 43,925 $ 35,995 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 20,656 15,484 Amortization 2,885 2,777 Provision for Refunds and Uncollectible Accounts 21,742 18,611 Deferred Income Taxes 866 66 Loss on Disposals and Adjustments to Land, Buildings and Equipment 282 49 Changes in Assets and Liabilities: Restricted Cash (38,950) (28,684) Accounts Receivable (111,197) (96,550) Inventories 2,261 3,143 Prepaid Expenses And Other (3,470) (2,688) Perkins Program Fund Contribution and Other (1,662) (581) Accounts Payable 1,212 3,896 Accrued Salaries, Wages, Expenses and Benefits 7,615 6,178 Advance Tuition Payments (6,125) (3,359) Deferred Tuition Revenue 120,589 103,272 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 60,629 57,609 ------- ------- CASH FLOWS USED IN INVESTING ACTIVITIES: Capital Expenditures (52,838) (30,490) Payments for Purchases of Businesses, Net of Cash Acquired (8,572) (38,487) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (61,410) (68,977) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds From Exercise of Stock Options 882 517 Proceeds From Revolving Credit Facility 24,000 40,000 Repayments Under Revolving Credit Facility (24,000) (27,000) ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 882 13,517 Effects of Exchange Rate Differences 916 (2) ------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,017 2,147 Cash and Cash Equivalents at Beginning of Period 25,851 31,848 ------- ------- Cash and Cash Equivalents at End of Period $ 26,868 $ 33,995 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest Paid During the Period $ 237 $ 1,329 Income Taxes Paid During the Period 29,700 25,384
The accompanying notes are an integral part of these consolidated financial statements. 7 DEVRY INC. Notes to Consolidated Financial Statements For the Quarter and Nine Months Ended March 31, 2001 NOTE 1: INTERIM FINANCIAL STATEMENTS The interim consolidated financial statements include the accounts of DeVry Inc. (the Company) and its wholly-owned subsidiaries. These financial statements are unaudited but, in the opinion of management, contain all adjustments, consisting only of normal, recurring adjustments, necessary to present fairly the financial condition and results of operations of the Company. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 and in conjunction with the Company's quarterly reports on Form 10-Q for the quarters ended September 30, 2000 and December 31, 2000, each as filed with the Securities and Exchange Commission. The results of operations for the nine months ended March 31, 2001, are not necessarily indicative of results to be expected for the entire fiscal year. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies should be read in conjunction with the Company's Annual Report on form 10-K for the fiscal year ended June 30, 2000. Restricted Cash - --------------- A significant portion of revenues is received from students who participate in government financial aid and assistance programs. Restricted cash represents amounts received from the United States and state governments under various student aid grant and loan programs. Restricted funds are held in separate bank accounts. These funds are either received subsequent to the completion of the authorization and disbursement process for the benefit of the student or, in a limited number of instances, just prior to that authorization. Once the authorization and disbursement process to the student has been completed, the funds are transferred to unrestricted accounts and these funds then become available for use in current operations. This transfer generally occurs within the period of the academic term for which such funds were authorized, with no term being more than 16 weeks in length. 8 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue Recognition - ------------------- Tuition revenue is recognized ratably on a straight line basis over the applicable academic term. The provisions for refunds and uncollectible accounts also are recognized in the same straight line fashion as revenue to most appropriately match the tuition revenue in that term. These provisions are included in the Cost of Educational Services in the Consolidated Statements of Income. Estimates of the Company's expected exposure to uncollectible accounts and refunds are determined at the onset of each academic term based upon actual experience in previous terms and monitored and adjusted as necessary within the term. If a student leaves school prior to completing a term, federal, state and Canadian provincial regulations and accreditation criteria permit the Company to retain only a set percentage of the total tuition received from such student, which varies with, but generally equals or exceeds, the percentage of the term completed by such student. Amounts received by the Company in excess of such set percentages of tuition are refunded to the student or the appropriate funding source. All refunds issued are charged fully to refund expense during the applicable academic term. Related reserves are $17,037,000, $9,352,000 and $13,841,000 at March 31, 2001, June 30, 2000 and March 31, 2000, respectively. Textbook sales and other educational product sales, including training services and the Becker/Conviser CD-ROM product are included in Other Educational Revenues in the Consolidated Statements of Income. Textbook and other educational product revenues are recognized when the sale occurs, generally at the start of each academic term. Revenue from training services, which is generally short-term in duration, is recognized when the training service is provided, without consideration for when payment is received. Also included in Other Educational Revenues are receivable interest billings from various student deferred tuition payment plans. Interest charges are generally billed monthly and are recognized when billed. In addition, fees from international licensees of the Becker/Conviser programs are included in Other Educational Revenues and recognized into income when realized. 9 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue Recognition, continued - ------------------------------ Enrollment and application fees for the Company's educational programs represent less than 1 percent of the Company's revenues. These fees are included in Other Educational Revenues and are recognized in the next academic period after which there is no further right to use or refund. Upon the Company's adoption of SAB 101 in the fourth quarter of this fiscal year, enrollment fees will be deferred and amortized over the full expected period of student attendance as described in Note 2, Recent Accounting Pronouncements. Perkins Program Fund - -------------------- The Company is required, under federal aid program regulations, to make contributions to the Perkins Student Loan Fund at a rate equal to 33% of new contributions by the federal government. As previous borrowers repay their Perkins loans, their payments are used to fund new loans, thus creating a permanent revolving loan fund. The Company carries its investment in such contributions at original values, net of allowances for losses on loan collections, of $2,578,000, $2,346,000 and $2,208,000 at March 31, 2001, June 30, 2000 and March 31, 2000, respectively. The allowance for future loan losses is based upon an analysis of actual loan losses experienced since the inception of the program. The federal contributions to this revolving loan program do not belong to the Company and are not recorded on the Company's financial statements. Upon termination of the program by the federal government or withdrawal from future participation by the Company, subsequent student loan repayments would be divided between the federal government and the Company in proportion to their relative cumulative contributions to the fund. Internal Software Development Costs - ----------------------------------- The Company capitalizes certain internal software development costs which are amortized using the straight line method over the estimated lives of the software not to exceed 5 years. Capitalized costs include external direct costs of materials and services consumed in developing or obtaining internal-use software and payroll and payroll related costs for employees who are directly associated with the internal-use software project. Capitalization of such costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose. 10 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Comprehensive Income - -------------------- Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" establishes standards for reporting and display of comprehensive income and its components in the financial statements. The components of comprehensive income, other than those included in net income, were immaterial for the quarter and nine months ended March 31, 2001. Earnings Per Common Share - ------------------------- Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Shares used in this computation were 69,721,000 and 69,592,000 for the third quarters ended March 31, 2001 and 2000, respectively, and 69,689,000 and 69,490,000 for the nine months ended March 31, 2001 and 2000, respectively. Diluted earnings per share is computed by dividing net income by the weighted average number of shares assuming dilution. Dilutive shares reflect the additional shares that would be outstanding if dilutive stock options were exercised during the period. Shares used in this computation were 70,697,000 and 70,321,000 for the quarters ended March 31, 2001 and 2000, respectively, and 70,678,000 and 70,324,000 for the nine months ended March 31, 2001 and 2000, respectively. Recent Accounting Pronouncements - -------------------------------- In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101 ("SAB 101"). Adoption of SAB 101 is required by the Company's fourth quarter of fiscal 2001. SAB 101 requires the deferral of certain fees and other charges over the period of service (student enrollment). Based on its analysis, enrollment fee income will be deferred and recognized over the period of expected future student enrollment. SAB 101 permits the deferral of certain direct enrollment costs to the extent of deferred enrollment fee revenues. Therefore, although revenues will be reduced somewhat by the deferral, net income, financial position and cash flows will not be significantly affected. Also, in accordance with the EITF, the Company expects that total reported revenue will be reduced by approximately 3 to 4 percent by the provision for student refunds that is currently reported as an expense in Cost of Educational Services. This also will not significantly affect net income, financial position and cash flows. 11 NOTE 3: ACQUISITIONS On January 5, 2001, using its available cash balances, the Company acquired for approximately $8.6 million, substantially all of the tangible operating assets, trademarks and trade names of Argentum Inc. and Xerxes Inc., which do business as Stalla Seminars ("Stalla"). Stalla, which is based outside of Cleveland, Ohio, develops and markets exam preparation materials for the Chartered Financial Analyst professional certification as administered by the Association for Investment Management and Research. This acquisition was accounted for under the purchase method of accounting. Accordingly, the purchase price was allocated to the tangible and identifiable intangible assets acquired based on their estimated fair values, with any residual purchase price allocated to goodwill. The intangible assets are being amortized using the straight line method primarily over a 25-year period for financial reporting purposes and will be deducted for tax reporting purposes over shorter statutory lives. The Company's previous acquisitions have also been accounted for using the purchase method of accounting. In July 1999, the Company acquired, for cash, Conviser-Duffy CPA Review for approximately $12.9 million and Denver Technical College for approximately $25.8 million. NOTE 4: REVOLVING LOAN AGREEMENT In October, the Company and its banks renegotiated the revolving loan agreement; extending the term of the agreement to February 1, 2003, increasing the permissible level of capital spending and adjusting one of the financial covenants. 12 NOTE 5: SEGMENT INFORMATION The Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131") effective with the year ended June 30, 1999. SFAS 131 establishes standards for the way that public business enterprises report certain information about operating segments in the financial reports. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in accessing performance of the segment and in deciding how to allocate resources to an individual segment. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company's principal business is providing post-secondary education. The services of our operations are described in more detail in Note 1 under "Nature of Operations" in Form 10-K for the year ended June 30, 2000. In the past, the Company aggregated its operations into a single reportable segment. Effective with the third quarter of fiscal 2001, the Company will present two reportable segments: the undergraduate operations (Undergraduate) and graduate and professional examination review operations including Keller Graduate School of Management and Becker Conviser Professional Review (Graduate and Professional). These segments are based on the method by which management evaluates performance and allocates resources. Such decisions are based upon each segment's operating income, which is defined as income before interest expense, amortization and income taxes. Intersegment sales are accounted for at amounts comparable to sales to nonaffiliated customers, and are eliminated in consolidation. The accounting policies of the segments are the same as those described in Note 1 - Summary of Significant Accounting Policies in Form 10-K for the year ended June 30, 2000. The consistent measure of segment profit excludes interest expense, amortization and certain corporate related depreciation. As such, these items are reconciling items in arriving at income before income taxes. The consistent measure of segment assets excludes deferred income tax assets and certain depreciable corporate assets. Additions to long-lived assets have been measured in this same manner. Reconciling items are included as corporate assets. Following is a tabulation of business segment information for the three months and nine months ended March 31, 2001 and 2000, as well as for each of the years ended June 30, 2000, 1999 and 1998. Corporate information is included where it is needed to reconcile segment data to the consolidated financial statements. 13 NOTE 5: SEGMENT INFORMATION (continued)
For the Quarter Ended For the Nine Months Ended March 31, March 31, -------------------------- -------------------------- 2001 2000 2001 2000 -------------------------- -------------------------- Revenues: Undergraduate $130,609,000 $114,239,000 $377,280,000 $329,150,000 Graduate and Professional 19,012,000 16,112,000 58,589,000 52,983,000 Intersegment Elimination (412,000) (219,000) (876,000) (471,000) -------------------------- -------------------------- Total Consolidated Revenues $149,209,000 $130,132,000 $434,993,000 $381,662,000 -------------------------- -------------------------- Operating Income: Undergraduate $24,706,000 $21,680,000 $64,986,000 $54,405,000 Graduate and Professional 3,050,000 1,459,000 10,508,000 9,111,000 Reconciling Items: Amortization Expense (1,021,000) (927,000) (2,885,000) (2,776,000) Interest Expense (89,000) (355,000) (278,000) (1,364,000) Depreciation and Other (143,000) (167,000) (524,000) (542,000) -------------------------- -------------------------- Total Consolidated Income before Income Taxes $26,503,000 $21,690,000 $71,807,000 $58,834,000 -------------------------- -------------------------- Segment Assets: Undergraduate $403,147,000 $325,727,000 $403,147,000 $325,727,000 Graduate and Professional 73,479,000 80,439,000 73,479,000 80,439,000 Corporate 19,137,000 19,148,000 19,137,000 19,148,000 -------------------------- --------------------------- Total Consolidated Assets $495,763,000 $425,314,000 $495,763,000 $425,314,000 -------------------------- --------------------------- Additions to Long-lived Assets: Undergraduate $14,011,000 $8,191,000 $51,612,000 $54,569,000 Graduate and Professional 8,917,000 900,000 9,798,000 14,408,000 --------------------------- -------------------------- Total Consolidated Additions to Long-lived Assets $22,928,000 $9,091,000 $61,410,000 $68,977,000 --------------------------- -------------------------- Depreciation Expense: Undergraduate $6,917,000 $5,134,000 $18,917,000 $14,132,000 Graduate and Professional 437,000 289,000 1,160,000 830,000 Corporate 193,000 174,000 579,000 522,000 --------------------------- -------------------------- Total Consolidated Depreciation $7,547,000 $5,597,000 $20,656,000 $15,484,000 --------------------------- -------------------------- Amortization Expense: Undergraduate $264,000 $261,000 $794,000 $795,000 Graduate and Professional 757,000 666,000 2,091,000 1,981,000 --------------------------- -------------------------- Total Consolidated Amortization $1,021,000 $927,000 $2,885,000 $2,776,000 --------------------------- --------------------------
14 NOTE 5: SEGMENT INFORMATION (continued)
For the Year Ended June 30, ------------------------------------------ 2000 1999 1998 ------------------------------------------ Revenues: Undergraduate $435,392,000 $365,691,000 $305,773,000 Graduate and Professional 72,327,000 55,623,000 48,257,000 Intersegment Elimination (895,000) (679,000) (559,000) ------------------------------------------ Total Consolidated Revenues $506,824,000 $420,635,000 $353,471,000 ------------------------------------------ Operating Income: Undergraduate $71,291,000 $59,110,000 $45,927,000 Graduate and Professional 12,600,000 6,744,000 7,476,000 Reconciling Items: Amortization Expense (3,706,000) (1,675,000) (1,590,000) Interest Expense (1,409,000) (300,000) (913,000) Depreciation and Other (702,000) (769,000) (417,000) ------------------------------------------ Total Consolidated Income before Income Taxes $78,074,000 $63,110,000 $50,483,000 ------------------------------------------ Segment Assets: Undergraduate $225,913,000 $182,009,000 $144,217,000 Graduate and Professional 81,256,000 59,476,000 61,560,000 Corporate 19,910,000 19,206,000 18,115,000 ------------------------------------------ Total Consolidated Assets $327,079,000 $260,691,000 $223,892,000 ------------------------------------------ Additions to Long-lived Assets: Undergraduate $64,362,000 $41,661,000 $28,987,000 Graduate and Professional 15,022,000 3,158,000 2,858,000 ------------------------------------------ Total Consolidated Additions to Long-lived Assets $79,384,000 $44,819,000 $31,845,000 ------------------------------------------ Depreciation Expense: Undergraduate 19,642,000 14,475,000 10,921,000 Graduate and Professional 1,207,000 870,000 911,000 Corporate 696,000 764,000 565,000 ------------------------------------------ Total Consolidated Depreciation $21,545,000 $16,109,000 $12,397,000 ------------------------------------------ Amortization Expense: Undergraduate $1,059,000 $63,000 $63,000 Graduate and Professional 2,647,000 1,612,000 1,527,000 ------------------------------------------ Total Consolidated Amortization $3,706,000 $1,675,000 $1,590,000 ------------------------------------------
15 NOTE 5: SEGMENT INFORMATION (continued) The Company conducts its educational operations in the United States, Canada, Europe, the Middle East and the Pacific Rim. International revenues, which are derived principally from Canada, were less than 10% of total revenues for the periods ended March 31, 2001 and 2000 and for the years ended June 30, 2000 and 1999. Revenues and long- lived assets by geographic area are as follows:
For the Quarter Ended For the Nine Months Ended March 31, March 31, -------------------------- -------------------------- 2001 2000 2001 2000 -------------------------- -------------------------- Revenues from Unaffiliated Customers: Domestic Operations $142,264,000 $122,984,000 $416,067,000 $362,571,000 International Operations 6,945,000 7,148,000 18,926,000 19,091,000 -------------------------- --------------------------- Consolidated $149,209,000 $130,132,000 $434,993,000 $381,662,000 ========================== ========================== Long-lived Assets: Domestic Operations $274,016,000 $227,872,000 $274,016,000 $227,872,000 International Operations 10,378,000 10,847,000 10,378,000 10,847,000 -------------------------- -------------------------- Consolidated $284,394,000 $238,719,000 $284,394,000 $238,719,000 ========================== ==========================
For the Year Ended June 30, ------------------------------------------ 2000 1999 1998 ------------------------------------------ Revenues from Unaffiliated Customers: Domestic Operations $480,894,000 $399,412,000 $332,405,000 International Operations 25,930,000 21,223,000 21,066,000 ----------------------------------------- Consolidated $506,824,000 $420,635,000 $353,471,000 ========================================== Long-lived Assets: Domestic Operations $232,831,000 $175,474,000 $149,661,000 International Operations 12,284,000 6,276,000 4,511,000 ------------------------------------------ Consolidated $245,115,000 $181,750,000 $154,172,000 ==========================================
No one customer accounted for more than 10% of the Company's consolidated revenues. 16 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition - --------------------------------------------------------------------------- Certain information contained in this quarterly report may constitute forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Potential risks and uncertainties include, but are not limited to, dependence on student financial aid, state and provincial approval and licensing requirements, and the other factors detailed in the Company's SEC filings, including those discussed under the heading entitled "Risk Factors" in the Company's Registration Statement on Form S-3 (No. 333-22457) filed with the Securities and Exchange Commission. The following discussion of the Company's results of operations and financial condition should be read in conjunction with the consolidated financial statements of the Company and the notes thereto as included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000, and in conjunction with the Company's quarterly reports on Form 10-Q for the periods ended September 30, 2000, and December 31, 2000, each as filed with the Securities and Exchange Commission. All references to per share amounts have been restated to reflect the June 19, 1998, two-for-one stock split. Because of the somewhat seasonal pattern of the Company's enrollments and its term starting dates, which affect the results of operations and the timing of cash inflows, the Company's management believes that comparisons of its results of operations should be made to the corresponding period in the preceding year. Comparisons of financial position should be made to both the end of the previous fiscal year and to the end of the corresponding period in the preceding year. Because of the seasonality of student enrollments, the Company's second and third quarters have historically represented the periods of highest revenues and net income within a fiscal year. Results of Operations - --------------------- Total consolidated revenues increased by $19.1 million, or 14.7%, compared to last year. Tuition revenues, that are the largest component of total revenues, increased by $20.3 million, or 17.3%, in the quarter compared to the third quarter of last year. Other Educational Revenues, composed primarily of the sale of books and supplies, including the Becker Conviser CD-ROM product, declined slightly for the quarter, continuing the trend of the first six months. Interest income, that has historically been less than 0.5% of revenues, remained just below last year's levels as the amount of cash available for investment was generally below the levels available last year. For the first nine months, the increase in total consolidated revenues was $53.3 million, or 14.0%, while the increase in the tuition revenue component of the total was $56.9 million, or 16.6%. Other Educational Revenues declined by $3.5 million, or 9.2%, from the nine months of last year because of the continued effect of the outsourcing of some DeVry Institute bookstores to Follett Higher Education Group. Interest income was just below last year's level as a result of generally declining interest rates available on the Company's short-term investments and somewhat lower cash balances available for investment. 17 Undergraduate segment revenues increased by 14.3% and 14.6% for the third quarter and nine months, respectively. In the Undergraduate segment, enrollments for the fall term increased by 9.3% and by 10.5% for the spring term. Contributing to record revenues and enrollments was the opening of a new DeVry Institute in Tinley Park, Illinois, in July, 2000 and a new DeVry Institute in Orlando, Florida, in November, 2000. In addition, tuition rates were increased approximately 6% effective with the summer term that began in July, 2000. Partly offsetting the increased tuition revenue was the lower Other Educational Revenues reflecting the outsourcing of certain DeVry Institute bookstores to Follett Higher Education Group. As of the end of the third quarter, a total of nine bookstores had been outsourced. At those bookstores that Follett has contracted to run for DeVry, the Company receives a commission from Follett based upon the level of sales instead of the Company reporting the higher sales amount and accompanying cost of sales. In the Graduate and Professional segment, revenues increased by 18.0% and 10.6% for the third quarter and nine months, respectively. Enrollments at the Keller Graduate School increased by 16.4% for the term that began in February, 2001. In addition, tuition rates were increased by more than 5% for the term that began in September, 2000. Partly offsetting these increases were lower revenues at Becker-Conviser Professional Review as enrollments in its CPA examination review course declined somewhat because of numerous state implementations of the "150 hour rule", requiring CPA candidates in those states to have completed 150 hours of college credit, generally a fifth year of college, before they are eligible to sit for the exam. However, in the third quarter, although the "150 hour rule" continued to affect enrollments as it did in the first half, the acquisition of the Stalla CFA seminar business almost totally reduced the effect of this decline, so that total revenues increased at a higher rate than in the first half of the year. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101 entitled "Revenue Recognition in Financial Statements" ("SAB 101"). This bulletin provides the SEC staff's views on applying generally accepted accounting principles to selected revenue recognition issues, including the recognition of fee income. The SEC has subsequently issued interpretive guidance and SAB 101 will be implemented by the Company in the fourth quarter of the current fiscal year. Based on its analysis, enrollment fee income will be deferred and recognized over the period of the expected future student enrollment. SAB 101 permits the deferral of certain direct enrollment costs to the extent of deferred enrollment revenues. Therefore, although reported revenues will be reduced somewhat by the deferral, net income, financial position and cash flow will not be significantly affected. Also, in accordance with the EITF, the Company expects that total revenue will be reduced by the provision for student refunds that is currently included as an expense in Cost of Educational Services. This also will not significantly affect net income, financial position and cash flows. The Company's cost of Education Services increased at a rate less than the rate of increase in revenues for both the quarter and the year-to-date. Contributing to the lesser rate of growth in this expense category is the outsourcing of bookstore sales at nine DeVry Institutes. The Company does not report cost of books sold at those Institutes that do not operate their own bookstore, reporting instead commission income based upon the level of sales at those locations and no corresponding cost of sales. 18 Student Service and Administrative Expense continued to increase at a rate somewhat higher than revenue growth for the quarter as it did in the first half of the year. Spending on marketing for the Company's newly opened operating locations whose revenues have not yet reached their full level and marketing in advance of future DeVry Institute and Keller Graduate School openings is contributing to the increase. Also, in response to the growing size and complexity of its educational program offerings, the Company began this year to design and develop a new student information system to better support the educational process and supporting activities. Information system development costs related to this project and to other system initiatives, including the cost of staff and outside consulting services, have increased from last year. In accordance with accounting principles for software development costs, certain wage and outside service costs are being capitalized. At the end of March, 2001 total capitalized costs were approximately $1.2 million. Capitalized costs will begin to be amortized in future periods as portions of the project become operational. In the Undergraduate segment, the operating income margin for the third quarter was almost identical with the third quarter of last year but was somewhat higher for the nine months than it was a year ago. Although the outsourcing of bookstore sales to Follett has improved operating margins in all periods, increased marketing and computer information system maintenance costs reduced much of this gain in the third quarter. Also, approximately $1.6 million of currency conversion losses with respect to DeVry Canada were incurred in the third quarter as the Canadian dollar declined from $0.67 to $0.63 vs. the U.S. dollar. In the Graduate and Professional segment, opening of new Keller Graduate School centers and enrollment growth at existing centers plus the addition of the Stalla Seminars CFA exam review program as a part of the Becker/Conviser course offerings has contributed to a 77% increase in operating margin in the third quarter vs. the prior year, increasing operating margins for the nine months slightly above the level of last year. Amortization expense has increased slightly from last year because the acquisition of Stalla Seminars, accounted for with the purchase method of accounting, consisted largely of intangibles that are being amortized over their expected useful lives. The reduced interest expense for the third quarter and nine months compared to last year reflects the Company's generally debt free financial position except for brief periods between operating cycle inflows. The effective tax rate on income in the third quarter increased to 39.5% compared to 38.7% in the third quarter last year, bringing the rate for the nine months to 38.8%. The higher effective tax rate in the third quarter is caused by the tax rate applicable to the future utilization of certain deferred tax assets decreasing as a result of an enacted statutory reduction in Canadian income tax rates. Net income of $16.0 million, or $0.23 per diluted share, increased by 20.6% for the third quarter. For the nine months, net income of $43.9 million, or $0.62 per diluted share, increased by 22.0%. 19 Liquidity and Capital Resources - ------------------------------- Cash generated from operations reached $60.6 million for the first nine months, up $3.0 million from the same period a year ago. Contributing to the higher cash flow from operations were higher net income, the increased non-cash charge for depreciation and amortization included in this net income and accrued wages and expenses. These increases are all related to the greater volume of revenues and related activities as the Company continues to grow. Partly offsetting these higher sources were an increase in restricted cash, a decrease in the amount of issued but outstanding checks and the combination of all accounts receivable related items including the provision for refunds and doubtful accounts, advance tuition payments, deferred tuition revenues and accounts receivable from students and various financial aid programs. The increased accounts receivable level reflects higher student enrollments generating higher tuition billings to be collected and an increase of average receivables per DeVry Institute student of 4+% vs. a year ago. The increase in average receivable per student at DeVry Institutes is less than the rate of the summer term increase in tuition rates. The March 31, 2001 Balance Sheet reflects receivable levels from DeVry Institute enrollments for the spring term that began on March 12th. Receivable collections are heaviest at the start of every term and receivable levels measured this close to a term start can be volatile and not necessarily indicative of the real increase in receivables which is best measured at June 30th. Capital spending for the nine months reached a record $52.8 million, up more than $22.0 million from the same period last year. Included in this capital spending is ongoing construction of a new DeVry Institute in Seattle; renovation and expansion of the Columbus Institute; classroom, laboratory and administrative equipment and furniture for the newly opened Orlando, Florida, and Tinley Park, Illinois campuses plus improvements and replacements at all of the Company's operating locations. The rate of future capital spending may remain at historically high levels depending upon new campus openings being owned or leased. The decision to own rather than lease is based upon an analysis of the alternative financing opportunities at each location. At the beginning of January, 2001 the Company completed the acquisition of Stalla Seminars for approximately $8.6 million in cash. Stalla Seminars develops and markets exam preparation materials for the Chartered Financial Analyst certification and is included in the Graduate and Professional segment. In both the first and second quarters of this fiscal year, the Company borrowed $6 million under its revolving line of credit agreement to meet cyclical operating needs prior to the cash inflows from the start of DeVry Institute's summer and fall term. These temporary borrowings were fully repaid by the end of each quarter. In the third quarter, the Company borrowed $12 million to fund the Stalla acquisition and to meet its cyclical operating needs until the inflow of cash from the start of DeVry Institute's spring term. This borrowing was fully repaid by the end of the quarter. The Company believes that current balances of unrestricted cash, cash generated from operations and, if needed, its revolving loan facility will be sufficient to fund its operations for the foreseeable future. 20 Item 5 - Other Information - -------------------------- In November, 2000 three graduates of DeVry Institute's Chicago campus filed a class-action complaint that alleges DeVry graduates do not have appropriate skills for employability in the computer information systems field. The Company believes that this lawsuit is frivolous and completely without merit. Costs incurred to-date related to this lawsuit have been minimal. The Company has made no provision in its financial statements for the cost of the lawsuit and believes that any future costs will not have a material effect on its results of operations or financial position. In January, 2001 the Company acquired, for cash, the Stalla Seminars CFA Review business as a complement to its Becker Conviser Professional Review. In January, 2001 the Company announced several key management promotions designed to provide the organizational resources necessary to accomplish the Company's growth and quality goals. These promotions included: O. John Skubiak to executive vice president Michael J. LaForte, Jr. to senior vice president Norman M. Levine to senior vice president. In April, 2001 the Company reached an agreement to purchase approximately 17 acres of land in Houston, Texas, as the site for a future DeVry Institute campus. Item 6 - Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits and Financial Statements Schedules (2) Supplemental Financial Statement The supplemental valuation schedule for the Company and its subsidiaries is included on page 21 of this Form 10-Q. (b) Reports on Form 8-K There were no reports on Form 8-K filed by the Company during the quarter ended March 31, 2001. 21 DEVRY INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended June 30, 2000, 1999 and 1998 (Dollars in Thousands)
Charged to Balance at Charged to Other Balance at Description of Allowances Beginning Costs and Accounts Deductions End of and Reserves of Period Expenses 1 2 Period - --------------------------------------------------------------------------------------------------------- 2000 - ---- Deducted from accounts receivable for refunds $117 $16,235 $ - $16,235 $117 Deducted from accounts receivable for uncollectible accounts 6,367 7,586 620 5,338 9,235 Deducted from notes receivable for uncollectible notes 4 - - - 4 For loss on disposition of inventory 89 45 - 22 112 For loss on DeVry capital contributions to Perkins loan program 2,080 266 - - 2,346 1999 - ---- Deducted from accounts receivable for refunds $124 $14,314 - $14,321 $117 Deducted from accounts receivable for uncollectible accounts 4,596 5,513 - 3,742 6,367 Deducted from notes receivable for uncollectible notes 42 5 - 43 4 For loss on disposition of inventory 65 47 - 23 89 For loss on DeVry capital contributions to Perkins loan program 1,879 201 - - 2,080 1998 - ---- Deducted from accounts receivable for refunds $305 $12,701 - $12,882 $124 Deducted from accounts receivable for uncollectible accounts 5,651 3,118 - 4,173 4,596 Deducted from notes receivable for uncollectible notes 50 - - 8 42 For loss on disposition of inventory 63 10 - 8 65 For loss on DeVry capital contributions to Perkins loan program 1,714 165 - - 1,879
- ----------------------------------------------------- [FN] [FN]1 Opening balances of acquired businesses. [FN]2 Write-offs of uncollectible amounts or inventory. 22 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: APRIL 30, 2001 /s/ Ronald L. Taylor ----------------------------- Ronald L. Taylor President and Chief Operating Officer Date: APRIL 30, 2001 /s/Norman M. Levine --------------------------------- Norman M. Levine Senior Vice President Finance and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----