-----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, Bmjk7B+gB84RcCudl5oD0rb74W9J5h9j9JNnrhoV08sAmehy0t7i3UYncegswo0E mjqJlIUpwrj2L31LKAxX9w== 0000730464-02-000002.txt : 20020414 0000730464-02-000002.hdr.sgml : 20020414 ACCESSION NUMBER: 0000730464-02-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020207 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: 1934 Act SEC FILE NUMBER: 001-13988 FILM NUMBER: 02529497 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 q202.txt FISCAL 2002 2ND QTR 10-Q 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 and six month period ended December 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 January 28, 2002: 69,812,522 Total number of pages: 24 2 DeVRY INC. ---------- FORM 10-Q INDEX For the Quarter and Six Months Ended December 31, 2001 Page No. -------- PART I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets at December 31, 2001, June 30, 2001, and December 31, 2000 3-4 Consolidated Statements of Income for the quarter and six months ended December 31, 2001, and 2000 5 Consolidated Statements of Cash Flows for the six months ended December 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 16-21 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 23 SIGNATURES 24 3 PART I - Financial Information Item 1 - Financial Statements DEVRY INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
December 31, June 30, December 31, 2001 2001 2000 ------------ ----------- ------------ (Unaudited) (Unaudited) ASSETS Current Assets Cash and Cash Equivalents $ 76,108 $ 29,213 $ 47,144 Restricted Cash 28,934 20,484 21,944 Accounts Receivable, Net 65,416 25,664 85,207 Inventories 2,184 4,899 3,354 Deferred Income Taxes 5,221 5,221 3,526 Prepaid Expenses and Other 4,602 3,146 2,658 ------- ------- ------- Total Current Assets 182,465 88,627 163,833 ------- ------- ------- Land, Buildings and Equipment Land 58,892 42,583 42,087 Buildings 171,067 122,433 116,206 Equipment 157,131 147,437 133,315 Construction In Progress 237 20,808 6,527 ------- ------- ------- 387,327 333,261 298,135 Accumulated Depreciation (136,094) (125,796) (113,146) ------- ------- ------- Land, Buildings and Equipment, Net 251,233 207,465 184,989 ------- ------- ------- Other Assets Intangible Assets, Net 36,056 32,027 33,023 Goodwill 42,391 46,825 39,283 Deferred Income Taxes 3,560 4,658 2,035 Perkins Program Fund, Net 9,958 9,753 9,603 Other Assets 2,225 2,320 1,728 ------- ------- ------- Total Other Assets 94,190 95,583 85,672 ------- ------- ------- TOTAL ASSETS $527,888 $391,675 $434,494 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 4 DEVRY INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
December 31, June 30, December 31, 2001 2001 2000 ------------ ----------- ------------ (Unaudited) (Unaudited) LIABILITIES Current Liabilities Accounts Payable $ 34,476 $ 34,573 $ 39,861 Accrued Salaries, Wages & Benefits 26,578 23,782 24,912 Accrued Expenses 7,431 10,891 5,543 Advance Tuition Payments 7,730 14,179 8,664 Deferred Tuition Revenue 99,509 10,957 90,088 ------- ------- ------- Total Current Liabilities 175,724 94,382 169,068 ------- ------- ------- Other Liabilities Revolving Loan 25,000 - - Deferred Income Tax Liability - - - Deferred Rent and Other 9,890 12,622 11,687 ------- ------- ------- Total Other Liabilities 34,890 12,622 11,687 ------- ------- ------- TOTAL LIABILITIES 210,614 107,004 180,755 ------- ------- ------- SHAREHOLDERS' EQUITY Common Stock, $0.01 par value, 200,000,000 Shares Authorized, 69,807,822, 69,755,491 and 69,696,333, Shares Issued and Outstanding at December 31, 2001, June 30, 2001 and December 31, 2000, Respectively 698 698 697 Additional Paid-in Capital 64,924 64,481 63,555 Retained Earnings 251,269 218,772 188,884 Accumulated Other Comprehensive Income 383 720 603 ------- ------- ------- TOTAL SHAREHOLDERS' EQUITY 317,274 284,671 253,739 ------- ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $527,888 $391,675 $434,494 ======= ======= =======
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 Six Months Ended December 31, Ended December 31, --------------------- ---------------------- 2001 2000 2001 2000 --------------------- ---------------------- REVENUES: Tuition $153,727 $133,871 $298,486 $252,968 Other Educational 12,814 11,757 22,495 22,853 Interest 134 320 326 575 ------- ------- ------- ------- Total Revenues 166,675 145,948 321,307 276,396 ------- ------- ------- ------- COSTS AND EXPENSES: Cost of Educational Services 90,135 76,997 173,262 150,335 Student Services and Administrative Expense 45,854 43,353 93,970 80,568 Interest Expense 291 76 601 189 ------- ------- ------- ------- Total Costs and Expenses 136,280 120,426 267,833 231,092 ------- ------- ------- ------- Income Before Income Taxes 30,395 25,522 53,474 45,304 Income Tax Provision 11,976 9,800 20,977 17,416 ------- ------- ------- ------- NET INCOME $ 18,419 $ 15,722 $ 32,497 $ 27,888 ======= ======= ======= ======= EARNINGS PER COMMON SHARE Basic $0.26 $0.23 $0.47 $0.40 ==== ==== ==== ===== Diluted $0.26 $0.22 $0.46 $0.39 ==== ==== ==== =====
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 Six Months Ended December 31, -------------------- 2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $32,497 $27,888 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 15,721 13,109 Amortization of Intangible Assets and Goodwill 405 1,828 Amortization of Other Assets 22 36 Provision for Refunds and Uncollectible Accounts 17,267 14,299 Deferred Income Taxes 1,098 (3) Loss on Disposals and Adjustments to Land, Buildings and Equipment 201 113 Changes in Assets and Liabilities: Restricted Cash (8,450) (2,549) Accounts Receivable (56,990) (73,998) Inventories 2,715 3,017 Prepaid Expenses And Other (1,224) (3,632) Accounts Payable (97) 8,034 Accrued Salaries, Wages, Expenses and Benefits (991) (1,301) Advance Tuition Payments (6,449) (6,843) Deferred Tuition Revenue 88,552 79,993 ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 84,277 59,991 ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures (62,488) (39,410) ------ ------ NET CASH USED IN INVESTING ACTIVITIES: (62,488) (39,410) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds From Exercise of Stock Options 443 543 Proceeds From Revolving Credit Facility 55,000 12,000 Repayments Under Revolving Credit Facility (30,000) (12,000) ------ ------ NET CASH PROVIDED BY FINANCING ACTIVITIES 25,443 543 Effects of Exchange Rate Differences (337) 169 ------ ------ NET INCREASE IN CASH AND CASH EQUIVALENTS 46,895 21,293 Cash and Cash Equivalents at Beginning of Period 29,213 25,851 ------ ------ Cash and Cash Equivalents at End of Period $76,108 $47,144 ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest Paid During the Period $ 591 $ 154 Income Tax Payments During the Period, Net 24,481 20,461
The accompanying notes are an integral part of these consolidated financial statements. 7 DEVRY INC. Notes to Consolidated Financial Statements For the Quarter Ended December 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 June 30, 2001 data which is presented is derived from audited financial statements. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001 and in conjunction with the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2001, each as filed with the Securities and Exchange Commission. The results of operations for the six months ended December 31, 2001, are not necessarily indicative of results to be expected for the entire fiscal year. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Combinations and Intangible Assets - ------------------------------------------- In July 2001, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 141 and 142, entitled "Business Combinations" ("SFAS 141") and "Goodwill and Other Intangible Assets" ("SFAS 142"), respectively. SFAS 141 requires companies to use the purchase method of accounting for all business combinations initiated after June 30, 2001 and eliminates use of the pooling-of-interests method of accounting for business combinations. All of the Company's acquisitions to-date have been accounted for using the purchase method of accounting. SFAS 141 also establishes criteria that must be used to determine whether acquired intangible assets should be recognized separately from goodwill in the Company's financial statements. SFAS 142 details the method by which companies will account for goodwill and intangible assets after a business combination has been completed. This accounting standard provides that goodwill and indefinite lived intangibles arising from a business combination will no longer be amortized and charged to expense over time. Instead, goodwill and indefinite lived intangibles must be reviewed annually for impairment, or more frequently if circumstances arise indicating potential impairment. For goodwill, if the carrying amount of the reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized to the extent the "implied fair value" 8 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Business Combinations and Intangible Assets (continued) - ------------------------------------------------------- of the reporting unit goodwill is less than the carrying amount of the goodwill. For indefinite lived intangible assets, if the carrying amount exceeds the fair value, an impairment loss shall be recognized in an amount equal to that excess. As required by FAS 142, the Company has completed an assessment of the categorization of its existing intangible assets and goodwill in accordance with the new criteria and has reported them appropriately on the Consolidated Balance Sheets. Intangible assets with indefinite lives are not subject to amortization, but are instead reviewed annually for impairment, or more frequently if circumstances arise indicating potential impairment. Indefinite lived intangible assets related to Trademarks, Trade Names 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 July 1, 2001, there was no impairment loss associated with such indefinite lived intangible assets as fair value exceeds the carrying amount. Amortization of intangible assets with finite lives will continue over the expected economic lives of the intangible assets. As part of its assessment of intangible assets, the company shortened the useful life of the Class Materials intangible asset and wrote-off the $10,000 cost basis of another. In the quarter ended December 31, 2001, the Company also finalized the allocation of the purchase price of the Stalla Seminars acquisition that occurred in January 2001. The initially recorded goodwill from this acquisition was reduced by $4,434,000 and reallocated as follows: Amortized Intangible Assets: Class Materials $2,400,000 Non-compete Agreement 100,000 Other 34,000 --------- Total $2,534,000 ========= Unamortized Intangible Assets: Trade Name $1,900,000 ========= The $34,000 of Other amortized intangible assets was subsequently written-off to expense as a part of the allocation process. 9 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Business Combinations and Intangible Assets (continued) - ------------------------------------------------------- Intangible assets consist of the following:
As of December 31, 2001 ------------------------------ Gross Carrying Accumulated Amount Amortization ------------------------------ Amortized Intangible Assets: License and Non-compete Agreements $2,600,000 $(1,051,000) Class Materials 2,900,000 (200,000) Other 600,000 (250,000) --------- --------- Total $6,100,000 $(1,501,000) ========= ========= Unamortized Intangible Assets: Trademark $ 1,645,000 Trade Names 15,872,000 Intellectual Property 13,940,000 ---------- Total $31,457,000 ==========
As of June 30, 2001 ------------------------------ Gross Carrying Accumulated Amount Amortization ------------------------------ Amortized Intangible Assets: License and Non-compete Agreements $2,500,000 $ (838,000) Class Materials 500,000 (100,000) Other 610,000 (202,000) --------- --------- Total $3,610,000 $(1,140,000) ========= ========= Unamortized Intangible Assets: Trademark $ 1,645,000 Trade Names 13,972,000 Intellectual Property 13,940,000 ---------- Total $29,557,000 ==========
10 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Business Combinations and Intangible Assets (continued) - -------------------------------------------------------
As of December 31, 2000 ------------------------------ Gross Carrying Accumulated Amount Amortization ------------------------------ Amortized Intangible Assets: License and Non-compete Agreements $2,500,000 $(632,000) Class Materials 500,000 (90,000) Other 610,000 (151,000) --------- ------- Total $3,610,000 $(873,000) ========= ======= Unamortized Intangible Assets: Trademark $ 1,676,000 Trade Names 14,321,000 Intellectual Property 14,289,000 ---------- Total $30,286,000 ==========
Amortization expense for amortized intangible assets was $259,000 and $405,000 for the three and six months ended December 31, 2001, respectively. Amortization expense was $505,000 and $1,006,000 for both amortized and unamortized intangible assets for the three and six months ended December 31, 2000, respectively. Estimated amortization expense for amortized intangible assets for the next five fiscal years ended June 30, is as follows: Fiscal Year 2002 $730,000 2003 730,000 2004 730,000 2005 730,000 2006 230,000 The weighted-average amortization period for amortized intangible assets is 6 years for License and Non-compete Agreements, 14 years for Class Materials and 6 years for Other as of December 31, 2001. Based upon the valuation analysis performed for the Company by independent professional valuation specialists, it does not appear that there has been any impairment in the value of the Company's goodwill for any reporting units as of July 1, 2001. The carrying amount of goodwill related to the Undergraduate reportable segment at July 1, 2001 and December 31, 2001 was unchanged at $22,195,000. The carrying amount of goodwill related to Graduate and Professional reportable segment was $24,630,000 at July 1, 2001 and $20,196,000 at December 31, 2001. The decrease is the result of the finalization of the allocation of the Stalla Seminars purchase price as described above. 11 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Business Combinations and Intangible Assets (continued) - ------------------------------------------------------ As required by FAS 142, the following is the Company's disclosure of what reported net income would have been in all periods presented, exclusive of amortization expense (including any related tax effects) recognized in those periods related to goodwill, intangible assets that are no longer being amortized and changes in amortization periods for intangible assets that will continue to be amortized.
(Dollars in thousands except per share amounts) For the Quarter Ended For the Six Months Ended December 31, December 31, --------------------- ------------------------ 2001 2000 2001 2000 ---- ---- ---- ---- NET INCOME: Net Income as reported $18,419 $15,722 $32,497 $27,888 Goodwill amortization - 253 - 506 Trademark, Trade Name and Intellectual Property Amortization - 225 - 450 Change in useful life of Class Materials - (3) - (6) ------ ------ ------ ------ Adjusted Net Income $18,419 $16,197 $32,497 $28,838 ====== ====== ====== ====== EARNINGS PER COMMON SHARE: Basic Earnings per Common Share as reported $0.26 $0.23 $0.47 $0.40 Aggregate Changes in Amortization Expense - - - .01 ---- ---- ---- ---- Adjusted Basic Earnings per Common Share $0.26 $0.23 $0.47 $0.41 ==== ==== ==== ==== Diluted Earnings per Common Share as reported $0.26 $0.22 $0.46 $0.39 Aggregate Changes in Amortization Expense - .01 - .02 ---- ---- ---- ---- Adjusted Diluted Earnings per Common Share $0.26 $0.23 $0.46 $0.41 ==== ==== ==== ====
12 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued Earnings Per Common Share - ------------------------- Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Shares used in this computation were 69,797,000 and 69,688,000 for the second quarters ended December 31, 2001 and 2000, respectively and 69,788,000 and 69,674,000 for the six months ended December 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 70,545,000 and 70,716,000 for the second quarters ended December 31, 2001 and 2000, respectively and 70,624,000 and 70,677,000 for the six months ended December 31, 2001 and 2000, respectively. Excluded from the second quarter and six month ended December 31, 2001 computations of diluted earnings per share were options to purchase 685,000 and 412,000 shares of common stock, respectively. These outstanding options were excluded because the option exercise prices were greater than the average market price of the common shares and therefore, their effect would be anti-dilutive. Comprehensive Income - -------------------- Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" establishes standards for reporting and display of comprehensive income and its components in the financial statements. The components of Comprehensive Income, other than those included in net income, were immaterial for the quarter ended December 31, 2001. Reclassifications - ----------------- Certain previously reported amounts have been reclassified to conform to current presentation format. This includes tuition refunds, which were previously reported as a Cost of Educational Services and are now classified as a reduction in net revenue. 13 NOTE 3: SEGMENT INFORMATION The Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131") effective with the year ended June 30, 1999. SFAS 131 establishes standards for the way that public business enterprises report certain information about operating segments in the financial reports. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in assessing performance of the segment and in deciding how to allocate resources to an individual segment. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company's principal business is providing post-secondary education. The services of our operations are described in more detail under "Nature of Operations" in Note 1 to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001. The Company presents two reportable segments: the undergraduate operations (Undergraduate) and graduate and professional examination review operations including Keller Graduate School of Management and Becker Conviser Professional Review (Graduate and Professional). These segments are based on the method by which management evaluates performance and allocates resources. Such decisions are based upon each segment's operating income, which is defined as income before interest expense, amortization and income taxes. Intersegment sales are accounted for at amounts comparable to sales to nonaffiliated customers, and are eliminated in consolidation. The accounting policies of the segments are the same as those described in Note 1 - Summary of Significant Accounting Policies to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001. The consistent measure of segment profit excludes interest expense, amortization and certain corporate related depreciation. As such, these items are reconciling items in arriving at income before income taxes. The consistent measure of segment assets excludes deferred income tax assets and certain depreciable corporate assets. Additions to long-lived assets have been measured in this same manner. Reconciling items are included as corporate assets. 14 NOTE 3: SEGMENT INFORMATION, continued Following is a tabulation of business segment information for the quarters and for the six month periods ended December 31, 2001 and 2000. Corporate information is included where it is needed to reconcile segment data to the consolidated financial statements.
(Dollars in thousands) For the Quarter For the Six Months Ended December 31, Ended December 31, -------------------- -------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenues: Undergraduate $141,146 $125,392 $274,515 $238,593 Graduate and Professional 26,320 20,827 47,861 38,253 Intersegment Elimination (791) (271) (1,069) (450) ------- ------- ------- ------- Total Consolidated Revenue $166,675 $145,948 $321,307 $276,396 ------- ------- ------- ------- Operating Income: Undergraduate $ 24,121 $ 21,703 $ 43,450 $ 40,280 Graduate and Professional 7,029 5,021 11,413 7,458 Reconciling Items: Amortization Expense (270) (932) (427) (1,864) Interest Expense (291) (76) (601) (189) Depreciation and Other (194) (194) (361) (381) Total Consolidated Income before ------- ------- ------- ------- Income Taxes $ 30,395 $ 25,522 $ 53,474 $ 45,304 ------- ------- ------- ------- Segment Assets: Undergraduate $435,426 $345,910 $435,426 $345,910 Graduate and Professional 77,899 69,355 77,899 69,355 Corporate 14,563 19,229 14,563 19,229 ------- ------- ------- ------- Total Consolidated Assets $527,888 $434,494 $527,888 $434,494 ------- ------- ------- ------- Additions to Long-lived Assets: Undergraduate $ 6,748 $ 18,830 $ 61,445 $ 38,529 Graduate and Professional 522 500 1,043 881 ------- ------- ------- ------- Total Consolidated Additions to Long-lived Assets $ 7,270 $ 19,330 $ 62,488 $ 39,410 ------- ------- ------- ------- Depreciation Expense: Undergraduate $ 7,623 $ 6,436 $ 14,581 $ 12,000 Graduate and Professional 394 375 753 723 Corporate 194 193 387 386 ------- ------- ------- ------- Total Consolidated Depreciation $ 8,211 $ 7,004 $ 15,721 $ 13,109 ------- ------- ------- ------- Amortization Expense: Undergraduate $ 7 $ 280 $ 15 $ 544 Graduate and Professional 263 652 412 1,320 ------- ------- ------- ------- Total Consolidated Amortization $ 270 $ 932 $ 427 $ 1,864 ------- ------- ------- -------
15 NOTE 3: SEGMENT INFORMATION, continued The Company conducts its educational operations in the United States, Canada, Europe, the Middle East and the Pacific Rim. International revenues, which are derived principally from Canada, were less than 10% of total revenues for the quarters and for the six months ended December 31, 2001 and 2000. Revenues and long-lived assets by geographic area are as follows:
(Dollars in thousands) For the Quarter For the Six Months Ended December 31, Ended December 31, ------------------ ------------------ 2001 2000 2001 2000 ---- ---- ---- ---- Revenues from Unaffiliated Customers: Domestic Operations $160,743 $139,610 $308,976 $264,366 International Operations 5,932 6,338 12,331 12,030 ------- ------- ------- ------- Consolidated $166,675 $145,948 $321,307 $276,396 ------- ------- ------- ------- Long-lived Assets: Domestic Operations $334,971 $259,025 $334,971 $259,025 International Operations 10,452 11,636 10,452 11,636 ------- ------- ------- ------- Consolidated $345,423 $270,661 $345,423 $270,661 ------- ------- ------- -------
No one customer accounted for more than 10% of the Company's consolidated revenues. NOTE 4: COMMITMENTS AND CONTINGENCIES The Company is subject to occasional lawsuits, regulatory reviews associated with financial assistance programs and claims arising in the normal conduct of its business. 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 results of operations or financial position. 16 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition - ----------------------------------------------------------- Certain information contained in this quarterly report may constitute forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Potential risks and uncertainties include, but are not limited to, dependence on student financial aid, state and provincial approval and licensing requirements, and other factors detailed in the Company's Securities and Exchange Commission ("SEC") filings, including those discussed under the heading entitled "Risk Factors" in the Company's Registration Statement on Form S-3 (No. 333-22457) filed with the SEC. 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, 2001, that includes a description of significant accounting policies including, but not limited to, accounting policies on revenue recognition, depreciation methods, asset impairment recognition and capitalization of internal software development costs. The following discussion of the Company's results of operations and financial condition should also be read in conjunction with the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2001, each as filed with the Securities and Exchange Commission. 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. Results of Operations - --------------------- The Company's total consolidated revenues increased by $20.7 million and $44.9 million for the second quarter and first half of the fiscal year, respectively. Tuition revenues, the largest component representing over 92% of total revenues, increased by $19.9 million, or 14.8% for the second quarter compared to the second quarter of last year. For the first six months, the increase in tuition revenues was $45.5 million, or 18.0%. The increases in tuition revenue were produced by several positive factors including higher student enrollments and increased tuition pricing at all of the Company's operations. Other Educational Revenues, that are composed primarily of the sales of books and supplies and fee charges in all of the Company's educational operations, increased by $1.1 million in the second quarter but trailed the first half level of the prior year by $0.4 million. In the Graduate and Professional segment, book sales to higher levels of enrolled students attending the Keller Graduate School programs and sales of the Becker CD-ROM and other study materials continue to increase. Further outsourcing of some Undergraduate segment bookstore operations, discussed in more detail below, produced declines in this revenue category during the quarter, as expected. This decline was more than offset by a new Technology and Software Supplies charge to be billed each term for DeVry Institute students to provide them 17 with current technology in their classrooms and laboratories and their own suite of software to help ensure that DeVry graduates have both the software and technology expertise they expect. This charge is recognized ratably into income over the applicable academic term, similar to the recognition of tuition revenue. Interest income on the Company's short-term investments of cash balances declined slightly in the quarter and first half from the corresponding periods of a year ago because of lower prevailing interest rates earned on these balances and somewhat lower balances available for investment during the period. Undergraduate segment revenues increased by $15.8 million, or 12.6%, for the second quarter compared to last year. For the first half, revenues increased by $35.9 million, or 15.1%, from the first half of last year. Total student enrollment at the DeVry Institutes for the summer term that began in July increased by more than 9% from last year to 47,415. In addition, tuition pricing was increased by approximately 6% from last year. Tuition rates at the more recently opened Institute locations have been generally higher than the system average, further contributing to the overall rate of revenue increase. Enrollments for the fall term that began in November at the Company's undergraduate schools increased to 48,698, an increase of 3.5% from last year including the remaining enrollments of certain discontinued Denver Technical College programs still being taught to program completion. Contributing to the record enrollments and revenues were the opening of a new DeVry Institute campus in the Seattle, Washington, area in July and a new campus in the Washington, DC, area in November. At the start of the current fiscal year, 11 of the DeVry Institute bookstores were outsourced and a 12th store was outsourced in the second quarter, contributing to the decline in first half Other Educational revenues in the Undergraduate segment. At the end of December last year, a total of 9 bookstores had been outsourced. In the Graduate and Professional segment, revenues increased by $5.5 million, or 26.4%, from the second quarter of last year. For the first half, revenues increased by $9.6 million, or 25.1%, from last year. At Keller Graduate School, total course enrollment for the term that began in September increased by more than 24% from the same term a year ago and course enrollment for the term that began in November increased by more than 19%. Enrollment increases at Becker Conviser and higher sales of their CD-ROM product further contributed to the increased revenues in this segment as did tuition price increases implemented during the past year at both Keller Graduate School and Becker. The Company's Cost of Educational Services increased by $13.1 million, or 17.1%, from last year. For the first half, these costs increased by $22.9 million, or 15.3%. Costs increased in support of increased enrollments and new operating locations. The opening of new locations contributes greater increases to cost than to revenue in their early terms of operation. In addition, during the second quarter the Company incurred the incremental cost of acquiring and distributing individual software licenses for undergraduate students in most of DeVry Institute's programs, in conjunction with the Technology and Software Supplies charge, as an expansion to its educational program support. Depreciation expense, most of which is 18 included in Cost of Educational Services, increased by 20% from last year to $15.7 million for the first six months. The increase in depreciation expense reflects the continued high level of capital spending on expansion and improvement throughout all of the Company's operations. Partly offsetting the rate of increase in spending on educational operations is the expanded outsourcing of Undergraduate segment bookstore operations. The Company does not report bookstore revenue or cost of books sold at the outsourced locations, reporting instead the commission income based upon the level of sales at these locations. This change in operation has the effect, slowing somewhat now as the rate of new outsourcing slows, of increasing the reported percentage operating margins within the Undergraduate segment and for the Company as a whole. Student Services and Administrative Expense increased by $2.5 million, or 5.8%, in the second quarter compared to last year. For the first half, these costs increased by $13.4 million, or 16.6%, from the first half of last year. In the first quarter, and contributing to the first half increase, the Company incurred higher student recruitment expense in the Undergraduate segment in response to an increasingly competitive environment and the events of September 11th which diverted applicant attention at a critical point in the recruiting process for the new academic term that began in November. In the second quarter, the rate of spending on student recruitment expense was pared back and portions of it are expected to occur in the third quarter to better match the rate of student inquiry and applications that precede the start of the March undergraduate term. The Company is continuing its efforts at developing a new student information system to better support its educational processes and related activities. In accordance with accounting principles for internal software development costs, certain wage and outside consulting service costs are being capitalized. During the second quarter, the Company capitalized an additional $1.1 million. For the first half, the total amount capitalized was $2.0 million while an additional $1.9 million was charged to Student Services and Administrative expense during the period. Partly offsetting the increased student recruitment expenses and information system development costs during the first half was a reduction of $648,000 and $1,423,000 for the second quarter and first half, respectively, in amortization expense of intangible assets and goodwill compared to the same periods a year ago in conjunction with the Company's adoption of Statement of Financial Accounting Standard No. 142, entitled "Goodwill and Other Intangible Assets". Goodwill and indefinite lived intangible assets arising from a business combination will no longer amortized and charged to expense over time. Instead, goodwill and indefinite lived intangibles must be reviewed annually for impairment, or more frequently if circumstances arise indicating potential impairment. For goodwill, if the carrying amount of the reporting unit containing the goodwill exceeds the fair value of that reporting unit, an impairment loss is recognized to the extent the "implied fair value" of the reporting unit goodwill is less than the carrying amount of the goodwill. For indefinite lived intangible assets, if the carrying amount exceeds the fair value, an impairment loss shall be recognized in an amount equal to that excess. As of July 1, 2001, there was no impairment loss associated with the Company's indefinite lived intangible assets or goodwill associated with it's reporting units which are comprised of the Company's three operating segments. In the Undergraduate segment, operating margins of 17.1% were approximately equal to the margin in the second quarter last year. For the first half, however, operating margins of 15.8% 19 remained below the level of the first six months of last year because of the increased level of spending on student recruitment in the first quarter as discussed above. In the Graduate and Professional segment, operating margins for the quarter increased to 26.7%, up from 24.1% in the second quarter of last year. The increased margins reflect the operating efficiencies from higher enrollments and higher tuition pricing at both the Keller Graduate School and Becker Conviser Professional Review. This continues the pattern of first quarter performance, resulting in first half operating margins of 23.8%, up from 19.5% in the first half of last year. Interest expense increased to $0.3 million from less than $0.1 million in the second quarter of last year. For the first six months, interest expense was $0.6 million compared to less than $0.2 million last year. The higher interest expense reflects borrowings under the Company's revolving line of credit throughout the first and second quarter to meet both cyclical operating needs and the purchase of two DeVry Institute campuses in the first quarter that were formerly occupied under operating leases. Taxes on income increased to 39.4% of pre-tax income during the second quarter and 39.2% for the first six months compared to 38.4% for the second quarter and first half of last year. The higher effective tax rate reflects an increase to the weighted average state income tax rate on the Company's U.S. operations and further downward adjustments to the value of the Company's Canadian tax loss carryforward benefits based on tax rate reductions in the expected future utilization periods. Reported Net Income for the quarter totaled $18.4 million or $0.26 per share (diluted), a record for any first quarter in the Company's history. Net Income increased by 17.2% from last year. For the first half, Net Income increased by 16.5% from last year to $32.5 million or $0.46 per share (diluted), a record for any first half in the Company's history. The prior year second quarter and first half diluted earnings per share would have been $0.01 and $0.02 per share higher, respectively, without the expense associated with goodwill and indefinite lived intangible assets that are no longer being amortized in accordance with SFAS 142. Liquidity and Capital Resources - ------------------------------- Cash generated from operations reached $84.3 million for the first six months, up more than 40% from the same period a year ago. Contributing to this increase in cash flow was a reduction in the level of accounts receivable, higher net income and the increased non-cash charges for depreciation, refunds and bad debt included in this net income. The reduction in accounts receivable is almost entirely attributable to a reduction in the amount of money owed to the Company under various state and federal financial aid programs as a result of more timely requests for the funds owed and improved cash management in the student financial aid process. Federal and state financial aid programs represent over 60% of the collections for U.S. DeVry Institute revenues. 20 Capital spending for the first six months reached a record high of $62.5 million. Contributing to the record spending level was the first quarter purchase of two DeVry Institute campuses, in Pomona, California, and Addison, Illinois, both formerly occupied under operating leases. These purchases totaled approximately $37.8 million, or approximately 60% of the total spending year- to-date. Capital spending, on improvements and expansion throughout all of the Company's educational operations for the balance of the year is expected to continue at a rate similar to that in the first half of the year excluding the purchase of the two campuses. In the first quarter, the Company borrowed $55 million under its revolving line of credit agreement to fund the record capital spending and to meet cyclical operating needs. Using cash generated from the cyclical inflow following the start of the DeVry Institute summer term, the Company repaid $15 million of the borrowings before the end of the first quarter. In the second quarter, the Company repaid an additional $15 million using cash generated from the cyclical inflow following the start of the DeVry Institute fall term. Subsequent to the end of the second quarter, in January 2002, the Company repaid an additional $6 million of the borrowings, reducing the outstanding borrowing to $19 million. In December 2001, the Company and its banks amended the $85 million revolving loan agreement under which the Company has issued letters of credit and borrowed to meet cash requirements for capital spending and acquisitions. The term of the agreement was extended to February 1, 2004. In addition, the covenant limiting capital expenditures was removed and the fixed charge covenant was modified to provide improved flexibility for the Company's future operations. The Company's long-term contractual obligations consist only of its revolving line of credit and its operating leases on facilities and equipment. The Company is not a party to any other long-term contractual or off-balance sheet financing arrangements. The principal source of the company's liquidity is operating cash flow which is significantly dependent upon the Company's continued participation in and compliance with federal, state and provincial financial aid programs. The Company is highly dependent upon the timely receipt of these financial aid funds in both its U.S. and Canadian operations. The Company estimates that historically, approximately 70% of its Undergraduate segment's tuition, bookstore and fee revenues have been financed by government-provided financial aid to students. More recently, Keller Graduate School students have begun to make increased use of student loan offerings that now represent over 30% of Keller's revenues. These financial aid and assistance programs are subject to political and governmental budgetary considerations. There is no assurance that such funding will be maintained. Extensive and complex regulations in the United States and Canada govern all of the government financial assistance programs in which the Company's students participate. The Company's administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for disciplinary action, including initiation of a suspension, limitation or termination proceeding against the Company. The Company believes that current balances of unrestricted cash, cash generated from operations and, if needed, its revolving loan facility will be sufficient to fund its current operations and growth plans for the foreseeable future. 21 Adoption of New Accounting Standards - ------------------------------------ In July 2001, the Financial Accounting Standard Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement is effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company does not expect that there will be any immediate impact on its financial statements upon adoption of SFAS No. 143 or SFAS No. 144, however, the Company has not yet completed its full analysis of these new standards. 22 PART II - Other information - --------------------------- Item 4 - Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ The Company's regular annual meeting of stockholders was held in Chicago, Illinois, on Tuesday, November 13, 2001, 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. At the meeting, four Directors of the Company were elected to serve as Class I Directors to hold office until 2004 or until their respective successors are elected and qualified. The results of the voting for Directors, whether in person or by proxy, were as follows: Class III For Against Withheld --------- --- ------- -------- Ewen M. Akin 55,927,704 - 549,760 Thurston E. Manning 55,925,613 - 551,851 Hugo J. Melvoin 56,105,763 - 371,701 Harold T. Shapiro 55,940,509 - 536,955 The terms of office of the following Directors continued after the meeting: Charles A. Bowsher, David S. Brown, Dennis J. Keller, Robert E. King, Frederick A. Krehbiel, Robert C. McCormack, Julie A. McGee and Ronald L. Taylor. Shareholders voted on and approved the Amended and Restated DeVry Inc. 1999 Stock Incentive Plan. The following table presents the results of stockholders' vote on this matter: For Against Withheld --- ------- -------- 53,477,229 2,934,860 65,374 Also submitted to a vote of the stockholders at this meeting was a proposal for the ratification of the appointment of PricewaterhouseCoopers LLP as independent public accountants for the Company for the current fiscal year. The following table presents the results of the stockholders' vote on this matter: For Against Withheld --- ------- -------- 56,415,305 45,837 16,321 23 Item 5 - Other Information - -------------------------- In December 2001, the Company announced the appointment of three new DeVry Institute campus presidents. Dr. Diane Engelhardt was appointed president of the DeVry Long Island City campus in New York. Barbara Hurley was appointed president of the Philadelphia-area campus expected to open in July 2002. Julio Torres as appointed president of the Miramar (South Florida) campus expected to open in November 2002. In January 2002, the Company received notice of an antitrust complaint concerning the operations of its Becker CPA Review Corp. subsidiary in California. This complaint was filed in federal district court by the trustee in bankruptcy of a failed CPA review provider seeking a substantial amount of damages. The Company does not believe that there is any merit to the claim and intends to vigorously defend itself. In January 2002, a graduate of one of DeVry Institute's Los Angeles-area campuses filed a class-action complaint 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. The Company does not believe that there is any merit to the claim and intends to vigorously defend itself. As previously disclosed, in November 2000, three graduates of one of DeVry Institute's Chicago-area campuses filed a class-action complaint that alleges DeVry graduates do not have appropriate skills for employability in the computer information systems field. The complaint was subsequently dismissed by the court, but was amended and refiled, this time including a current student from a second Chicago-area campus. The Company does not believe that there is any merit to the claim and intends to vigorously defend itself. Item 6 - Exhibits and Reports on Form 8-K - ---------------------------------------- (b) Reports on Form 8-K There were no reports on Form 8-K filed by the Company during the quarter ended December 31, 2001. 24 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: FEBRUARY 7, 2002 /s/ Ronald L. Taylor ----------------------------- Ronald L. Taylor President and Chief Operating Officer Date: FEBRUARY 7, 2002 /s/Norman M. Levine ----------------------------- Norman M. Levine Senior Vice President Finance and Chief Financial Office -----END PRIVACY-ENHANCED MESSAGE-----