<PAGE>1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended: JUNE 30, 1998
Commission file number: 0-12751
DeVRY INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3150143
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
ONE TOWER LANE, SUITE 1000, OAKBROOK TERRACE, ILLINOIS 60181
(Address of principal executive offices) (Zip Code)
Registrant's telephone number; including area code (630) 571-7700
Securities registered pursuant to section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of class)
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]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
SEPTEMBER 1, 1998 - $1,029,071,000
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The market value was computed using the
closing sale price of the common stock on the date indicated. Shares of
common stock held directly or controlled by each director and executive
officer have been excluded in that such persons may be deemed to be
affiliates.
SEPTEMBER 1, 1998 - 69,314,102 shares of common stock, $0.01 par value
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents incorporated by reference and the Part of the
Form 10-K (e.g. Part I, Part II, etc.) into which the document is incorporated:
Certain portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on November 17, 1998, are incorporated into
Part III of this Form 10-K to the extent stated herein.
Exhibit Index located on Pages 92-94 Total number of pages, 116
<PAGE>2
DeVry INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE #
PART I
Item 1 - Business 3
Item 2 - Properties 38
Item 3 - Legal Proceedings 43
Item 4 - Submission of Matters to a Vote of Security Holders 44
- Executive Officers 45
PART II
Item 5 - Market for Common Equity and
Related Stockholder Matters 49
Item 6 - Selected Financial Data 50
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 50
Item 8 - Financial Statements and Supplementary Data 60
Item 9 - Changes in and Disagreements with Accountants 84
PART III
Item 10 - Directors and Executive Officers 85
Item 11 - Executive Compensation 85
Item 12 - Security Ownership of Beneficial Owners and Management 85
Item 13 - Certain Relationships and Transactions 85
PART IV
Item 14 - Exhibits, Financial Statements and Reports on Form 8-K 86
- Financial Statements 86
- Financial Statement Schedules 86
- Exhibits 87
- Reports on Form 8-K 87
- Signatures 89
<PAGE>3
PART I
------
Certain information contained in this Annual Report on Form 10-K may
constitute forward-looking statements made pursuant to the safe harbor
provision of the Private Securities Litigation Reform Act of 1995. Such
statements may involve risks and uncertainty 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.
ITEM 1 - BUSINESS
DeVry Inc. (the "Company") is incorporated under the laws of the State of
Delaware. The Company, through its wholly-owned subsidiaries, owns and
operates the DeVry Institutes of Technology ("DeVry Institutes") and the
Keller Graduate School of Management ("Keller Graduate School") which
collectively form one of the largest private, degree-granting, regionally
accredited higher education systems in North America. The Company also
owns and operates the Becker CPA Review ("Becker"), which prepares
candidates for the Certified Public Accountant ("CPA") and Certified
Management Accountant ("CMA") professional certification examinations.
The amounts of revenue, earnings before interest and taxes and identifiable
assets of the Company's U.S. and foreign operations are included in Note 9
to the Consolidated Financial Statements, Operations by Geographic Area.
DeVry Institutes
The DeVry Institutes were founded by Dr. Herman DeVry and for more than 67
years have provided career-oriented technical education to high school
graduates in the United States and Canada. The first DeVry Institute was
opened in Chicago in 1931 as an electronics school. Today, the DeVry
Institutes are located on twelve campuses in the United States and three
campuses in Canada.
<PAGE>4
Originally offering only programs in electronics, DeVry introduced the
computer information systems curriculum in 1979. As the number of high
school graduates in the U.S. declined during the 1980s, the DeVry
Institutes expanded their program offerings and delivery schedule into the
evening hours to serve larger numbers of working adults. In the summer of
1986, a bachelor's degree program in business operations was introduced.
That fall, the DeVry Institutes introduced the telecommunications
management program, followed by the introduction of an accounting program
in the spring of 1988. In 1994, the DeVry Institutes introduced the
technical management degree completion program. In 1997, the business
operations program was reconfigured and is now titled business
administration. Other programmatic initiatives include new delivery
formats, such as weekend schedules, accelerated course schedules and
technology-assisted delivery options.
The DeVry Institutes initiated a facility improvement and expansion program
in 1991 to attract and retain increased student enrollment. The program
has included renovation and expansion of the Atlanta campus; relocation and
expansion of the suburban Chicago, Dallas, Los Angeles and New Jersey
Institutes; and opening of new branch or satellite campuses in Long Beach,
California; Scarborough and Mississauga (Toronto), Canada; and Alpharetta,
Georgia. In July, 1998 a new campus was opened in Fremont, California.
At the beginning of the spring 1998 semester, which is the final semester
in the Company's 1998 fiscal year, approximately 32,991 full and part-time
students enrolled in the DeVry Institutes' diploma, associate and
bachelor's degree day and evening programs in electronics, electronics
engineering technology, computer information systems, accounting, business
administration, technical management and telecommunications management.
In response to the facility expansions and improvements and new programs
initiated in the past several years, fiscal 1998 marks the eighth
consecutive year that total cumulative enrollment has increased from the
prior year. Cumulatively, total student enrollment for the three semesters
of fiscal 1998 increased by 9.4% compared with fiscal 1997. Since fiscal
<PAGE>5
1990, cumulative annual total student enrollment at the DeVry Institutes
has increased by more than 44%. The DeVry Institutes' operations accounted
for approximately 87% of the Company's revenues in both 1998 and 1997.
Classes began on July 13th for the summer 1998 semester. In this first
semester in the Company's 1999 fiscal year, which included the opening of a
new DeVry Institute campus in Fremont, California, a total of 33,088
students were enrolled in the DeVry Institutes' programs, a 12.1% increase
from the number of students enrolled in the summer term last year. This
was the twenty third consecutive term in which total enrollments exceeded
the prior year level. Historically, the summer semester has been the
period of lowest enrollment during the year.
Changing demographics in the United States are expected to continue to
benefit the DeVry Institutes' future enrollment. The "baby boom echo" is
producing more high school graduates. After a period of nearly two decades
during which the number of graduating high school seniors declined by 25
percent to 2.4 million, 1995 marked the beginning of a rise in the number
of high school graduates. The National Center for Education Statistics
forecasts that we will reach 3.1 million graduates by 2005, rivaling the
previous peak of 3.1 million in the late 1970's. Within the states where
the DeVry Institutes are currently located, the percent change in the
number of high school graduates from 1995-96 to 2004-2005, as projected by
the Western Interstate Commission for Higher Education, is expected to
increase by as much as 40% in Arizona, 36% in Georgia, 20% in Texas, 15% in
California and 12% in Illinois. The rate of increase in the number of high
school graduates in some of the states in which the DeVry Institutes are
located is greater than the national rate of increase during this period
and should contribute to future DeVry Institute enrollment growth. In
addition, the Department of Education's National Center for Education
Statistics reports that in 1994, 62% of high school graduates (ages 16-24)
went directly to college, up from 51% in 1975. In today's information-driven
economy, a higher education degree is extremely important. In 1979,
median compensation for male college graduates was 42% higher than for male
<PAGE>6
high school graduates. Nearly two decades later, this wage gap has
increased to 89%. More students recognize this and are seeking the skills
and degrees necessary to enhance their future.
Recent data from the U.S. Department of Education also indicates that more
than one third of U.S. undergraduate students are 25 years of age or older
and that these older students will continue to be a significant portion of
college enrollments in the coming years. The Company estimates that more
than 40% of the students enrolling at its DeVry Institutes are 25 years of
age or older.
Over 20% of recent new students enrolled at the DeVry Institutes had some
prior college experience. To attract the growing number of adults
returning to college, the DeVry Institutes introduced a bachelor of science
degree completion program in technical management which focuses on business
and management skills vital to career advancement for students who already
have an associate degree. In response to the growing demand for computer
and systems professionals, this November the U.S. DeVry Institutes will
begin to offer an advanced program in Information Technology at selected
locations to current bachelors degree holders. A similar program is
currently being offered at the Toronto-area DeVry Institutes. An
undergraduate degree completion program in business information technology
is also being considered for introduction.
Some DeVry programs are being offered on weekends to serve the working
adult student and DeVry Institutes have also developed several accelerated
program curricula with a shorter term length and time to completion. While
these programs present an intensive and demanding experience, they enable
students to fulfill their other responsibilities while completing these
educational programs.
Each of the DeVry Institutes' programs is designed to integrate general
education and technology or business. The DeVry Institutes' general
education courses develop skills and competencies that help graduates
enhance both their professional and personal capabilities. Businesses
require graduates that can fit into an organization, work in teams, have an
<PAGE>7
understanding of how business works, interface well with customers and have
the in-depth technical knowledge to get the job done. Laboratory courses
throughout each curriculum provide the opportunity to translate classroom
learning into a practical, hands-on experience that better prepares the
student for the workplace.
Distance delivery of education is becoming increasingly prominent. The
DeVry Institutes' approach to distance learning is to focus on the quality
of education, not the technical feasibility of the delivery system.
Distance learning initiatives are being explored throughout the system to
enhance student learning opportunities.
At the DeVry Institutes, classes are generally offered in morning,
afternoon or evening sessions which help students maintain a part-time job.
This availability of part-time employment and government-provided financial
aid partially offsets the competitive advantage of those schools with lower
tuition levels. Each curriculum is generally the same at all of the DeVry
Institutes with content variations introduced to meet local employment
market needs. This common curriculum allows students to transfer, if
necessary, to a DeVry Institute at a different location without
interrupting their studies.
To facilitate student success, DeVry devotes significant resources to
libraries and academic support services which can assist students in any
phase of their educational program. In addition, the DeVry Institutes
encourage students to participate in campus activities and offer a student
success strategies course aimed at preparing students to assume
responsibility for their learning and growth through practical strategies
and methods for realizing success.
Keller Graduate School of Management
Keller Graduate School was founded in 1973 and offers practitioner-based
graduate management programs leading to a master's degree. In addition to
the Master of Business Administration ("MBA") program, which Keller began
offering in 1977, Keller introduced a Master of Project Management ("MPM")
<PAGE>8
degree program in 1991 and a Master of Human Resource Management ("MHRM")
degree program in 1993. In September 1995, Keller began offering a Health
Services Management ("HSM") concentration within its MBA program. This HSM
concentration is being offered in response to the growing demands of the
health services industry professionals and professionals in related
industries such as insurance or pharmaceuticals. In February 1997, Keller
introduced a Master of Telecommunications Management ("MTM") program to
meet the need for expertise in this growing field. The MTM program at
Keller Graduate School was developed in conjunction with the DeVry
Institutes, which offer an undergraduate telecommunications program. In
September 1998, Keller will begin offering at selected sites, two new
programs, the Master of Information Systems Management ("MISM") and the
Master of Accounting and Financial Management ("MAFM"). These programs are
aimed at satisfying the need for advanced education in these high demand
areas.
Keller emphasizes a practitioner orientation, excellence in teaching and
service to working adults, offering classes in the evenings and on
weekends. At June 1998, classes were being offered at twenty six locations
nationwide. Additional teaching centers are scheduled to begin offering
classes in fiscal 1999. Seven of Keller's teaching sites are co-located on
DeVry Institute campuses in Arizona, California, Georgia and Missouri.
Keller Graduate School's faculty members are practicing professionals who
bring their expertise to the classroom, emphasizing theory and practices
that will best serve students in their work as managers. Critical
competencies in areas such as business communications, technology, quality
and international issues are woven throughout the curricula. Keller's
curricula are regularly reviewed for relevance to both students and
employers through advisory councils composed of representatives of
distinction and achievement in business and community affairs.
In addition to expanding its network of teaching locations, Keller
developed and offers distance-education delivery in selected courses.
Distance-education programs provide convenience and flexibility for
students who are physically distant from classrooms, who find it difficult
<PAGE>9
to attend weekly classes and/or who cannot find their desired courses at
the Keller center near where they live or work. After piloting distance
education course offerings, Keller applied for and has recently received
approval from the North Central Association of Colleges and Schools to
deliver via distance education all courses leading to and to award the
Master of Business Administration degree.
At the start of the June term, which falls primarily in the Company's 1999
fiscal year, enrollment at Keller Graduate School was 3,857, an increase of
725 students or 23.1% from the previous June. Historically, the summer
term has been the period of lowest enrollment during the year.
Through its Center for Corporate Education (previously Corporate
Educational Services), Keller also offers on-site management and technical
training programs for larger corporations and government agencies.
At the start of the summer 1998 semester, which is the first semester in
the Company's 1999 fiscal year, a combined total of approximately 36,945
full and part-time students were enrolled in the Company's DeVry and Keller
educational programs, up 13.2% from a total of 32,642 full and part-time
students in the summer 1997 semester.
Becker CPA
In June 1996, the Company acquired the Becker CPA Review. Becker is a
leading international training firm preparing students to take the national
Certified Public Accountant exam and Certified Management Accountant exam.
Becker, which is headquartered in Los Angeles, offers CPA classes at
approximately 190 locations in the United States and international
locations. The CMA exam preparation course, which is offered at selected
sites in the United States, was developed for the many accountants who have
moved to the corporate management and strategic planning side of business.
To reach students for whom class attendance is not practical because of
location or schedule, Becker offers the complete CPA course conveniently
packaged on CD-ROM with the same supplementary printed materials as would
be received in a classroom.
<PAGE>10
Becker's proprietary course materials and teaching methods result in pass
rates on the CPA exam for Becker students which the Company believes are
substantially higher than the national average pass rate, producing more
than one-third of all students passing the CPA exam. Approximately 20,000
students either attend Becker review courses at its U.S. and international
locations or study for the CPA exam using the CD-ROM materials. Becker CPA
Review alumni now number over 200,000 since the course was founded in 1957.
Competition
The postsecondary education market is highly fragmented and competitive
with no single institution having a significant market share. There are
more than 10,000 institutions in the United States that offer postsecondary
education. The Company believes that it is one of the largest private,
degree-granting, regionally accredited, higher education school systems in
North America. The DeVry Institutes compete with traditional publicly
supported and independent two-year and four-year colleges, other for-profit
schools and alternatives to higher education, such as employment and
military service. Also, an increasing number of corporations, including
Apple, AT&T and Intel, now offer accredited college courses that may be
applied toward degrees.
Publicly supported colleges may offer programs similar to those of the
DeVry Institutes at a lower tuition level due to government subsidies,
government and foundation grants, tax-deductible contributions and other
financial sources not available to for-profit schools. Tuition at
independent not-for-profit institutions is, on average, higher than the
tuition at the DeVry Institutes. Other for-profit schools offer programs
that compete, to a limited extent, with those of the DeVry Institutes.
According to Company surveys of prospective students, the most common
alternative to attending a DeVry Institute is attending a four-year
college.
The DeVry Institutes believe their competitive strengths include career-
oriented curricula developed with regular structured employer input which
helps ensure that graduates will be marketable to employers; faculty with
related industry experience; the demonstrated effectiveness of their career
<PAGE>11
services activities in obtaining education-related employment; their
national brand name; name recognition and market presence through national
advertising and student recruitment; the accreditations granted to the
DeVry Institutes; authorization by various states to grant degrees; modern
facilities; well-equipped laboratories; evening and weekend class schedules
and a trimester schedule that allows attendance year-round, thereby
permitting earlier graduation. Only a limited number of traditional
colleges offer a bachelor's degree program which can be completed in three
years. This results in a significant financial advantage to DeVry students
who are able to enter the work force one year earlier than if they had
attended a traditional four year institution.
Keller Graduate School competes with numerous other MBA programs offered in
all markets in which it has operations. Competition with Keller's MHRM,
MISM and MAFM programs varies by the market area in which it is offered but
is generally more moderate than competition for the MBA program. Fewer
schools in the country offer a master's degree in project management or
telecommunications management, but increasing interest in these fields is
beginning to attract similar offerings.
Keller differentiates itself in the marketplace by stressing a practitioner
approach to education, excellence in teaching by a faculty of practicing
professionals and a high level of service to the adult student. To help
improve student performance, satisfaction and retention, Keller introduced
an innovative teaching technique called System Supported Teaching and
Learning (SSTL)TM. This instructional process focuses on providing
students and their instructors with more frequent feedback and correctives
using quizzes and retests. The process is outcomes driven and is being
applied to problem-based core courses in which student learning can be most
significantly improved.
Keller offers five 10-week terms each year. Classroom based courses meet
once a week, either in the evening or on Saturday. This schedule allows
students with heavy travel or other demands on their time to fit courses
into their schedules. In addition, in most markets Keller is able to offer
greater flexibility in course scheduling, a greater choice of elective
<PAGE>12
courses and a more convenient location than its competitors. Keller also
offers an accelerated format of its MBA program on Saturdays at some
locations for students who wish to complete their degree more quickly and
without disrupting their work week. As the market for adult education
programs has expanded in recent years, other schools have implemented
multi-location evening and weekend programs. However, enrollments at
Keller continue to increase, demonstrating the recognition it has earned as
an innovator in providing quality practical education.
With educational centers in an expanding number of states and multiple
locations within most of these states Keller offers distributed access
points throughout the country to adults who may be transferred from one
part of the country to another by their employer or who capitalize upon
personal career opportunities in other locations. Additionally, with the
expansion of its distance delivery offerings, Keller can now expand its
availability to all qualified students without regard to their location or
daily schedule.
Becker competes with CPA exam preparation through self-study; with firm-
sponsored courses; with courses offered by colleges and universities; and
with other private training companies. According to a recently issued
report by the National Association of State Boards of Accountancy, two-thirds
of first-time CPA candidates participated in a review course in the
six months prior to taking the 1996 exams. Taking a privately offered
course was cited by 89% of these first-time candidates, with college and
firm-sponsored courses representing the remainder in approximately equal
amounts. Courses offered by colleges and private competitors generally
have a lower total course cost to help attract students. Becker
differentiates itself from its competitors by providing more classroom
hours of instruction, extensive and constantly updated review and practice
test materials and experienced, qualified instructors for each area of
specialty included in the exam. Becker CPA courses undergo regular review
and revision to stay current with the latest accounting practice. The high
success rate of students who take the Becker review course and the numbers
of students enrolling after taking other review courses but not passing the
<PAGE>13
CPA exam are testimony to the quality and value of the Becker methodology.
CPA candidates can take the Becker review course content and methodology in
conjunction with their Keller Graduate School MBA or MAFM programs in most
states in which Keller offers classes, earning full graduate academic
credit. These credits can also be used to fulfill educational requirements
to sit for the CPA exam. This provides both Becker and Keller with an
important competitive advantage. Efforts are underway to extend the
granting of credit to the remaining states in which Keller operates. To
further extend the marketing and operational benefits of joint operation,
Becker offers classes at more than 15 Keller locations. Becker classes are
also offered on five DeVry Institute campuses.
In June 1998, Becker acquired the assets of Gross-Monette CPA Review
Course, the largest CPA review course company in the Philadelphia area.
The acquisition expands the Becker presence in this important East coast
market. Further acquisitions could occur in selected important local
markets.
Student Recruiting
Students at the DeVry Institutes are recruited by admissions
representatives at on-campus admissions offices and by field student
recruiters. Field student recruiters are an important nationwide element
of the recruiting process because a significant portion of the DeVry
Institutes' students come from outside the immediate area in which the
DeVry Institute campus they attend is located. The percentage of
enrollment coming from these two recruiting sources varies campus by
campus, but is predicated largely on each school's location. Overall,
admissions representatives currently generate over two-thirds of the DeVry
Institutes' total enrollments. The DeVry Institutes employ over 400
admissions representatives and field recruiters throughout the United
States and Canada. In order to recruit students in certain states and
Canadian provinces, representatives and recruiters must be licensed or
authorized by the appropriate regulatory agency. Regulations governing
student participation in U.S. federal financial assistance programs
prohibit an institution from paying a commission, bonus or incentive to the
<PAGE>14
Company's representatives and recruiters based upon their success in
securing enrollments. The Company believes that its method of
representative and recruiter compensation complies with the regulations.
The admissions representatives are salaried, full-time Company employees.
They are located at each DeVry campus and work with potential applicants
who respond to the Company's advertising or otherwise learn of the school.
Admissions representatives generally work with older students, many of them
working adults wanting to attend class in the evening or on weekends,
recently unemployed adults seeking to improve their job skills as a way to
re-enter the workforce and students transferring to DeVry from nearby
junior colleges. Each of the DeVry Institutes has entered into
articulation agreements with nearby community colleges to facilitate the
enrollment of their students seeking to transfer course credits into a
DeVry program. Over 20% of new students recently enrolled at the DeVry
Institutes had some prior college experience.
Field student recruiters are salaried, full-time Company employees. Field
recruiters meet individually with prospective students who are contacted
primarily through high school, club and youth group presentations. These
student recruiters visited over 11,000 high schools in North America last
year and made presentations on career choices and the importance of a
college education. Field recruiters also receive student inquiries
generated by direct mail and television advertising in the particular
recruiter's territory. Follow-up interview sessions with prospective
students are generally held in the student's home with the student and his
or her parents. The downsizing of the U.S. military and base closings also
present recruiting opportunities. Veterans with military-specific technical
training are attracted to DeVry's practical career-oriented education, and
DeVry's locations across the U.S. are often near the home area to which the
veteran will relocate. Numerous new students with V.A. benefits have
enrolled at the DeVry Institutes.
In support of its recruiting force, the DeVry Institutes advertise on
television and radio, in magazines and newspapers, and utilize
telemarketing and direct mail to reach prospective students. Prospective
<PAGE>15
students are also frequently referred by their employers, alumni or
currently enrolled students. In addition to the more traditional
recruiting methods, DeVry's Internet site provides another avenue for
students to receive information and apply for information about admission.
To be admitted to a DeVry Institute program in the United States, an
applicant must be a high school graduate, have a General Education
Development (GED) certificate or hold a degree from an accredited
postsecondary institution. In Canada, an applicant must either meet the
same criteria as in the U.S. or meet "mature student" criteria. Applicants
must also meet minimum admissions and placement examination scores which
vary depending on the program to which they are applying. In 1996, the
DeVry Institutes implemented the Computerized Placement Tests (CPT) which
were designed in collaboration with The College Board and Educational
Testing Service. These exams help DeVry Institutes serve the needs of its
students by better assessing students' achievement levels and developmental
needs during the admission process. Since its introduction, minimum
admission and placement scores on the CPT have been raised several times in
an effort to better identify those students most likely to successfully
complete their educational program. Submission of ACT or SAT examination
scores deemed appropriate for the desired program or the submission of
acceptable grades in qualifying college-level work completed at an approved
postsecondary institution can also be used to meet DeVry Institute
admission requirements.
Keller Graduate School recruits students through direct mail, radio
advertising, telemarketing, print advertising and referrals from employers,
alumni or current students. Keller employs on-campus admissions
representatives at each teaching center who meet with, counsel and evaluate
admission qualifications of prospective students. To be admitted to a
Keller program, applicants must hold a baccalaureate degree from a U.S.
institution that is accredited by or in candidacy status with a regional
accrediting agency. Foreign applicants must hold a degree recognized to be
equivalent to a U.S. bachelors' degree. Applicants must also achieve
acceptable scores on either the Graduate Management Admission Test (GMAT),
the Graduate Record Examination (GRE) or Keller's alternative admission
<PAGE>16
test, designed and validated by Educational Testing Service. All
admissions decisions are based on evaluation of a candidate's academic
credentials, entrance test scores and personal interview.
Becker markets its courses directly to potential students and to some of
their employers, e.g. the large national and regional accounting firms.
Alumni referrals, direct mail, print advertising and a network of on-campus
recruiters at colleges and universities across the country generate the new
students who take the CPA or CMA review courses, which are offered twice
each year. Becker enrolls many students who have previously completed a
competitor's course or a self-study program but were unable to pass the
exam.
According to data published by the National Association of State Boards of
Accountancy, the number of first time CPA examination takers has declined
during each of the past several years. Several states have either adopted
or introduced legislation that requires 150 semester units (the equivalent
of five years of college) before a candidate can sit for the CPA exam. If
the 150 semester unit legislation is broadly implemented, it might have the
effect of further reducing candidates for the CPA exam. Additionally, some
states have passed or may pass laws requiring completion of all educational
requirements before a candidate can take the CPA exam. This has the effect
of delaying, for six months or more, enrollment in Becker's review class by
some students in those states. To overcome these recruiting challenges,
Becker has expanded the number of class locations to make it accessible to
more students, has increased advertising and promotional efforts and, as
previously described, has introduced the course on CD-ROM.
Accreditation and Approvals
Accreditation is a process for recognizing educational institutions and the
programs offered by those institutions for achieving a level of quality
that entitles them to the confidence of the educational community and the
public they serve. In the United States, this recognition is extended
primarily through nongovernmental, voluntary, regional or specialized
accrediting associations. Accredited institutions are subject to periodic
<PAGE>17
review by accrediting bodies to ensure that these institutions maintain the
level of performance, evidence institutional and program improvement,
demonstrate integrity and fulfill requirements established by the
accrediting body.
Although regional accreditation in the United States is a voluntary process
designed to promote educational quality and improvement, it is an important
strength of the DeVry Institutes and Keller Graduate School, providing
significant advantages over most other for-profit colleges. College and
university administrators depend on the accredited status of an institution
in evaluating transfers of credit and applications to graduate schools.
Employers rely on the accredited status of an institution when evaluating a
candidate's credentials, and parents and high school counselors look to
accreditation for assurance that an institution meets quality educational
standards. Moreover, accreditation is necessary for students to qualify
for eligibility for federal financial assistance. Also, most scholarship
commissions restrict their awards to students attending accredited
institutions.
DeVry Institutes and Keller Graduate School are each accredited by the
Commission on Institutions of Higher Education of the North Central
Association of Colleges and Schools, one of the six regional collegiate
accrediting agencies recognized by the U.S. Department of Education. The
North Central Association is the same accrediting agency that accredits
other four-year publicly supported and independent colleges and
universities in the North Central region. The DeVry Institutes and Keller
accreditations were last reaffirmed by the North Central Commission in 1992
for the maximum ten year period. A scheduled interim progress monitoring
visit was conducted at the DeVry Institutes in May, 1997, with a
recommendation for an analysis by the DeVry Institutes, due in April 1999,
on the expansion status of its library collections. The next comprehensive
visit remains at its originally scheduled 2002 date.
<PAGE>18
Accreditations of the DeVry Institutes and Keller in the United States and
of the DeVry Institutes in Canada are as follows:
UNITED STATES CANADA
Commission on Institutions of Ontario Association of Certified
Higher Education of the North Engineering Technicians and
Central Association of Colleges and Technologists (DeVry/Toronto area
Schools. campuses' Electronics Engineering
Technology and Electronics
Engineering Technician programs)
The baccalaureate electronics
engineering technology (EET) Canadian Technology Accrediting
programs at all DeVry U.S. Board (DeVry/Calgary's Electronics
campuses, except Fremont and Engineering Technology and
Alpharetta, and the Electronics Electronics Engineering Technician
Technology program at DeVry/New programs)
York, are separately accredited by
the Technology Accreditation
Commission of the Accreditation
Board of Engineering and Technology
(TAC/ABET). The associate-level
EET program at DeVry's New Jersey
campus is also TAC/ABET accredited.
The Fremont, Alpharetta and New
York DeVry Institutes will apply
for TAC/ABET accreditation once
their first classes have graduated.
In the United States, each DeVry Institute is approved to grant associate
and bachelor's degrees by the respective state where it is located. In New
Jersey, however, authorization is only at the associate degree level for
three programs - electronics engineering technology, computer information
systems and telecommunications management. Students at the DeVry
Institute, North Brunswick, are encouraged, upon completion of their
associate's degree, to transfer to other DeVry Institutes to complete
bachelor's degree requirements.
Under current Canadian law, the Canadian DeVry Institutes are not permitted
to grant degrees. However, students at the Canadian Institutes are allowed
to transfer to DeVry Institutes in the U.S. to complete their degree
requirements. In 1995, the Alberta Department of Advanced Education, the
State of Arizona and the Commission on Institutions of Higher Education of
the North Central Association of Colleges and Schools approved the DeVry
<PAGE>19
Institute in Phoenix to offer its bachelor of science degree-completion
program on the Calgary campus. This allows students attending classes at
the Calgary campus to complete their degree studies without relocating to a
campus in the United States. Students attending one of the Toronto-area
campuses may transfer to Calgary to participate in this program rather than
transferring to a DeVry campus in the United States.
Keller Graduate School is authorized to operate and award degrees under
authority of the Illinois Board of Higher Education and the appropriate
approval boards in the other states in which it has operations.
State and Provincial Approval and Licensing
Authorizations from state or provincial licensing agencies or ministries
are required to recruit students, operate the Company's schools and grant
degrees. Many states and provinces require for-profit postsecondary
education institutions to post surety bonds for licensure. The Company has
posted over $5 million of surety bonds with state and local regulatory
authorities in the U.S. and approximately $1 million (CDN) of surety bonds
with regulatory agencies in Canada and believes it is currently in material
compliance with state and Canadian provincial regulations. Certain states
have set standards of financial responsibility beyond those prescribed by
federal regulation. For example, fiscal tests adopted by the California
legislature (as discussed more fully below) and similar regulations adopted
or proposed by other state regulators may place the Company in future non-
compliance under certain state regulations. If the Company were unable to
meet these tests and could not otherwise demonstrate that it was
financially responsible, it could be required to cease operations in that
state. To date, the Company has successfully demonstrated its financial
responsibility where required.
In January 1991, the state of the California adopted legislation that
requires private, postsecondary education institutions to meet certain
fiscal tests in order to continue operating in the state. These fiscal
tests include three requirements: not having an operating loss in each of
an institution's two most recent fiscal years; having positive net worth in
its latest fiscal year; and maintaining a ratio of current assets to
<PAGE>20
current liabilities of 1.25:1 or greater. The Company has consistently
achieved two of the required fiscal tests but has not maintained the ratio
of current assets to liabilities of 1.25:1 which the Company believes is an
inefficient use of its assets. At June 30, 1998, the Company had a ratio
of current assets to current liabilities of 1.06:1. However, California
law stipulates that when another government agency requires an institution
to file annual financial audits prepared by a certified public accountant,
that agency's current ratio standard may apply in lieu of the California
ratio if the ratio of current assets to current liabilities under that
standard is 1 to 1 or greater. The California legislation also permits
discretion under this statute to allow an educational institution to
continue operating, even if it does not satisfy the financial tests, if the
institution can demonstrate that it has maintained sufficient financial
resources to sustain all of its promised educational services. At June 30,
1998, the Company believes that it has satisfactorily demonstrated its
financial strength and ability to continue to operate.
California law further requires an on-site visit to all postsecondary
institutions having accreditation from a regional accrediting association
other than the Western Association of Colleges and Schools. The California
Council for Private Postsecondary and Vocational Education conducted a
visit of the California campuses in August, 1996, and issued its report
granting approval for continued degree-granting operation for the maximum
five-year period. The California Council was discontinued last year, and a
new Bureau for Private Postsecondary and Vocational Education established
under the Department of Consumer Affairs was designated as the appropriate
regulatory agency.
Tuition and Fees
Effective with the spring 1998 term, the DeVry Institutes' tuition in the
United States for two semesters (one academic year) ranged from $7,280 to
$7,355. Variations in tuition depend on term of enrollment. The Fremont,
California and Long Island City, New York, Institutes, both of which begin
operation in fiscal 1999, charge tuition ranging from $8,280 to $8,355.
Students enrolled on less than a full time basis are charged somewhat lower
<PAGE>21
tuition. DeVry's tuition rates are substantially below the average tuition
at four-year independent institutions but substantially higher than the
average at four-year publicly supported institutions. DeVry's increase in
tuition from spring 1997 was approximately 4.9%. This increase
approximates the rate of increase at many other postsecondary education
institutions. Based upon current tuition rates, for a student enrolled in
the DeVry Institute's 5 term electronics technician program, total tuition
cost would be $18,300. For a student enrolled in the 9 term computer
information systems program, total tuition cost based upon current rates
would be $32,860.
Effective with the spring 1998 term, tuition in Canada ranged from $6,690
to $6,765 (CDN) for the two semester period, an increase of approximately
4.9% from spring 1997.
Effective with the September, 1998, term, Keller Graduate School tuition
per course (four quarter credit hours) ranges from $1,010 to $1,235,
depending on the state in which the student is enrolled. This compares to
tuition rates from $955 to $1,170 implemented in September, 1997. The
price for courses taken by distance education is $1,350.
The price of the complete live Becker CPA review course is $1,495, which
includes an enrollment fee. The price of the complete Becker CMA review
course in $1,160, which also includes an enrollment fee. The complete CPA
review course on CD-ROM is priced at $1,195.
In addition to the tuition amounts described above, students at the DeVry
Institutes and Keller must purchase textbooks and supplies as part of their
educational program.
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
<PAGE>22
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.
Financial Aid and Financing Student Education
Students attending the DeVry Institutes finance their education through a
combination of family contributions, individual resources (including
earnings from full- or part-time employment), financial aid (including
Company-provided financial aid) and tuition reimbursement from their
employers.
The Company believes that approximately 75% of the U.S. DeVry Institutes'
students receive some government-sponsored financial aid and that a similar
percentage of the students attending the Canadian DeVry Institutes receive
some government-sponsored financial assistance. A 1996 National
Postsecondary Student Aid Study found that approximately 80% of full-time
students attending private four-year institutions received some form of
financial aid.
The Company believes that between 10% and 20% of Keller Graduate School
students have received government-sponsored financial aid. In addition,
approximately 80% of Keller students receive some tuition reimbursement
from their employers. Students attending the Becker CPA or CMA review
courses are not eligible for financial aid, but many of them receive part
or full tuition reimbursement from their employers.
The DeVry Institutes assist their undergraduate students in locating part-
time employment. Data from the National Center for Education Statistics
indicates that almost half of all full-time college students between the
ages of 16 and 24 are employed. The Company believes that a substantially
greater percentage of its full-time students are employed to help finance
their costs of education. On the basis of a financial aid application
completed by the student and the student's family, the DeVry Institutes
develop an assistance package for students who require financial aid.
Government-sponsored financial aid is of great importance to the Company
<PAGE>23
because historically, slightly less than 70% of the DeVry Institutes' U.S.
tuition, book and fee revenues have been financed by government-provided
financial aid received by its students.
The government-provided financial aid and assistance programs in which many
of the Company's students participate are subject to political and
governmental budgetary considerations. In 1992, Congress reauthorized
funding for financial assistance programs through September, 1997, with
provision for extensions, if needed. Congress has begun the process of
reauthorization but there is no assurance that federal funding will be
continued at its present level or in its present form. A reduction in
funding levels to financial aid programs could result in lower enrollments
or an increased amount of Company-provided financial aid to its students.
The 1997 Tax Relief Act provides several education incentives. First,
employer-provided undergraduate educational assistance of up to $5,250 per
year will remain excluded from taxable income for several additional years.
Second, a HOPE tax credit of up to $1,500 for each student has been
provided for expenses paid after 1997 during each of the first two years of
college. For college juniors, seniors, graduate students and employees
upgrading skills, a Lifetime Learning credit of up to $1,000 per year has
been provided for expenses paid after June 30, 1998. Also, student loan
interest expense during the first 60 months of payments, in amounts ranging
from $1,000 in 1998 to $2,500 in 2001, will be allowed as a deduction from
taxable income.
Extensive and complex regulations in the United States and Canada govern
all of the government grant, loan and work programs in which the Company
and its students participate. Regulations and standards that an
institution must satisfy in order for its students to participate in
federal financial assistance programs include, among others, maximum
student loan default rates; limits on the proportion of an institution's
revenue that can be derived from federal aid programs; prohibition of
certain types of incentive payments to student recruiters; and financial
responsibility and administrative capability requirements.
<PAGE>24
At June 30, 1997, the Company achieved an operating profit, positive net
worth, a "quick ratio" (cash plus accounts receivable to all current
liabilities) of more than 1:1 and maintained the required cash reserve for
the payment of refunds. This fully satisfied the standards of financial
responsibility established by the U.S. Department of Education for
participation in federal financial assistance programs for that year. For
1998, the Department of Education introduced a new standard of financial
responsibility test. The standard is based upon a composite score of three
ratios which are designed to measure various aspects of an educational
institutions financial stability. The Company believes that, based upon
its computations, for fiscal year 1998 it has demonstrated the highest
level of financial stability. Failure to achieve these financial
responsibility standards or otherwise demonstrate, within the regulations,
its ability to continue to provide the educational services it offers could
result in the Company being required to post a surety bond to permit its
students to continue to participate in federal financial assistance
programs. In addition to the regulations and standards which must be met
by the institution, student recipients of financial aid must maintain
satisfactory progress toward completion of their program of study and an
appropriate grade point average.
Institutions that participate in Title IV financial aid programs must
disclose information upon request about student completion rates to current
and prospective students. The federal Student-Right-To-Know Act defines
the cohort of students on which the institution must report as "first-time,
full-time degree-seeking" students. Completion rates, as defined by the
Act, at each of the U.S. DeVry Institutes generally fall within the range
of completion rates, as published by U.S. News and World Report, 1998
America's Best Colleges, for selected urban public colleges in the areas in
which the DeVry Institute operates. DeVry also admits many students who
previously attended another college and whose completion rates are not
included in these statistics. Completion rates for the 20% or more of
students entering DeVry with previous college experience are generally
higher than for first-time students.
<PAGE>25
The Company maintains a staff at its Oakbrook Terrace headquarters to
review, interpret and establish procedures for compliance with regulations
governing financial assistance programs. Because financial assistance
programs are required to be administered in accordance with the standard of
care and diligence of a fiduciary, any regulatory violation could be the
basis for disciplinary action, including the initiation of a suspension,
limitation or termination proceeding against the Company. Changes in or
new interpretations of applicable laws, rules or regulations could have an
adverse effect on the Company in the future.
In the United States, the Company has completed and submitted all required
audits of compliance with federal financial assistance programs and its
independent accountants are currently conducting the required audits of the
one year period ending June 30, 1998. The Department of Education
conducted a site visit, in August, 1996, at the DeVry Institutes' North
Brunswick, New Jersey, campus as a part of its program of periodic review
of the administration of student financial assistance programs. The visit
was satisfactorily concluded without further follow-up or action. Although
the Company has no reason to believe that any proceeding against the
Company is presently contemplated, if such a proceeding were initiated
against the Company and resulted in a substantial curtailment of the
Company's participation in government grant or loan programs, the Company
could be adversely affected.
In Canada, the DeVry Institutes' Toronto-area campuses were notified at the
end of August, 1995, that the Ontario Ministry of Education and Training
had temporarily suspended the processing of new financial aid applications
from DeVry students pending review of inaccuracies found in applications
filed by some students. The Ministry believed that some of DeVry's
Toronto-area students applied for and collected what might be excessive
government-sponsored financial aid by inappropriately reporting that they
had "zero income." A Ministry audit of these applications, with DeVry's
full cooperation, began in September, 1995, and was subsequently completed,
although no final report has been issued to-date. In order to restore
financial aid eligibility, the Company refunded to the Ministry
<PAGE>26
approximately CDN $1.6 million for the 1995/96 academic year which the
Company believes is substantially all of the financial aid previously
inappropriately disbursed to such "zero income" students for this time
period. In addition, the Company posted a letter of credit at the
Ministry's request against possible additional amounts that may have been
inappropriately disbursed as determined by the Ministry audit. Effective
with the spring 1996 term, which began in March, 1996, the Ministry
conditionally reinstated approval for the processing of financial aid
applications. As a result of these actions, the results of operations of
the Company's Canadian operations were adversely affected. Full
unconditional reinstatement is pending, subject to the Ministry's
completion of its review and issuance of a final report.
The following is a description of the U.S. and Canadian financial aid
programs in which the Company's students participate:
United States Government Financial Aid Programs The following U.S.
Department of Education financial aid programs under Title IV of the Higher
Education Act are utilized by the Company's students in the United States:
(1) Federal Pell Grant ("Pell"), (2) Federal Supplemental Educational
Opportunity Grant ("SEOG"), (3) Federal Family Education Loan Program
("FFELP"), (4) Federal Perkins Direct Student Loan program ("Perkins"), (5)
Federal Work Study ("FWS") and (6) William D. Ford Federal Direct Student
Loan Program ("FDSL").
Grants These funds, made available by the government to eligible
students who demonstrate financial need, do not have to be repaid. The
Company's students are eligible to participate in the Pell and SEOG Grant
programs, which are programs for undergraduate students. Eligible
students receive a Pell grant ranging in amount from $400 to $3,000 per
year. SEOG is a supplement to the Pell grant, available to only the
neediest students because SEOG funds are limited in amount at each
institution based upon a federally determined formula. In addition to
these federal assistance funds, DeVry is required to make a 25%
institutional matching contribution of all federal SEOG funds. The
<PAGE>27
institutional matching contribution may be satisfied, in whole or in
part, by the DeVry Institutes' scholarship funds, discussed separately in
this section, or by externally provided scholarship grants.
Loans Students at the DeVry Institutes participate in the Stafford and
PLUS programs within the FFELP and in the Perkins loan program. Stafford
loans may include an interest subsidy depending upon the financial need
of the student, and loan repayment is scheduled to begin six months after
a student no longer attends school on at least a half-time basis.
Historically, over 80% of the financial aid received by students
attending the Company's U.S. DeVry Institutes has been provided by
federal student loans. Students at Keller Graduate School currently
participate in the FDSL and FFELP, which represent 100% of the federal
financial aid received by these students.
In 1993, Congress passed legislation creating the Direct Student Loan
Program. Under this program, students may complete all loan application
and processing steps at their educational institution. Besides the
benefit of one-stop processing, which can be done at the institution in
conjunction with the application for aid under other programs, this loan
program offers other benefits to student borrowers such as income-based
repayments, lower loan fees and lower loan interest rates. For the
1994-95 school year, the DeVry DuPage Institute was one of only 104
institutions in the nation chosen by the Department of Education to pilot
the implementation. Subsequently, several additional DeVry Institutes
and Keller Graduate School were chosen to begin participation in the
program. The U.S. Congress has considered various proposals to eliminate
this program or to cap loans made under this program at some percentage
of all federal student loans until there is more experience with its
success and realized cost savings. Federal student loans remain
available to the Company's eligible students under the Stafford program
should direct student loan availability be curtailed.
<PAGE>28
Work Study Work Study wages are 75% paid from federal funds and 25% from
qualified employer funds. Work opportunities, both on or off-campus,
under FWS are offered on a part-time basis by the U.S. DeVry Institutes
to undergraduate students who demonstrate financial need.
State Financial Aid Programs In addition to the various federal loan and
grant programs, state grant assistance may be received by eligible students
attending DeVry Institutes in Arizona, California, Georgia, Illinois, Ohio
and New Jersey.
Canadian Government Financial Aid Programs Canadian students, other than
students from Quebec, are eligible for loans under the Canada Student Loan
Plan, which is financed by the Canadian government but administered at the
provincial level. Canadian Student Loans are available to students who are
Canadian citizens or a permanent resident of Canada enrolled at approved
postsecondary institutions. Students from Quebec are eligible for loans
under the Quebec Student Loan Plan. The loans are interest-free while the
student is in school, and repayment begins six months after the student
leaves school. All other forms of government financial aid in Canada, both
loans and grants, are financed and administered by the provinces.
Postsecondary institutions whose students participate in the Ontario
Student Loan program are now required to make available to prospective
students information about graduation rates and student loan default rates.
In addition, postsecondary institutions whose student default rates exceed
certain thresholds will be required to provide the Ontario Ministry of
Education and Training with a security deposit for loan default losses that
might exceed the regulatory threshold. The Company's Toronto-area campuses
have posted the required surety bond and promissory note and believe that
full compliance with these regulations will not have a material effect on
their operations.
"85/15 Rule" This U.S. Department of Education regulation affects only
for-profit postsecondary institutions, such as the Company. Under this
regulation, students attending a for-profit institution that derives more
than 85% of its revenues from federal financial assistance programs in any
<PAGE>29
year will not be able to participate in these programs for the following
year. This regulation is commonly referred to as the "85/15 rule." Final
data for fiscal 1998 is not yet complete but, in 1997 the U.S. Institutes
derived approximately 68% of their revenues from these programs and no
institute within the DeVry system derived more than 80% of its revenues
from these programs. Similarly, in 1996, the U.S. Institutes derived
approximately 68% of their revenues from these defined federal assistance
programs. Keller Graduate School derived approximately 20% of its 1997
revenues from these defined aid programs. Each of the DeVry Institutes
(except for the Long Beach, California, Institute, which currently operates
as an additional location of the Pomona, California, Institute and the
Fremont, California, Institute which currently operates as an additional
location of the Phoenix, Arizona, Institute) and Keller is established as a
separate institution under the Higher Education Act ("HEA") provisions and
must separately meet the criteria for the "85/15 rule" and for loan default
rates.
Company-Provided Financial Assistance The Company's EDUCARD Plan is
available to students attending the U.S. DeVry Institutes. The EDUCARD
Plan is an installment loan program designed to assist students unable to
completely cover educational costs with student and family contributions,
federal and state grants and loans. The installment loan feature of the
EDUCARD Plan is available to a student only after other student financial
assistance has been applied toward the payment of tuition, books and fees
and is available only for those purposes. Repayment of EDUCARD Plan
balances is worked out in accordance with the financial circumstances of
the particular student, but is typically on a monthly basis with all
balances required to be paid within 12 months following a student's
graduation or termination of study. The receivable balance related to
Company-provided financial aid at the U.S. DeVry Institutes at June 30,
1998, was approximately $10.9 million. Continued timeliness in financial
aid processing and in the collection of student-owed balances has reduced
the level of these receivables from last year even as enrollment and
tuition revenue increased. Amounts owed by students under the EDUCARD Plan
are subject to a monthly interest charge of 1% of the average outstanding
<PAGE>30
balance. In Canada, to assist students who are unable to pay their tuition
in full at the start of each term, students are allowed to participate in a
multi-payment plan over the length of each semester.
In addition to the student financial assistance provided by the EDUCARD
Plan, the U.S. and Canadian DeVry Institutes offered a Dean's Scholarship
national competition and a Presidential Scholarship campus competition to
1997/98 high school graduates. The Dean's scholarships are renewable
partial scholarship awards to high school seniors who apply to DeVry and
submit qualifying ACT/SAT scores. Presidential Scholarships, which cover
full tuition for any of DeVry's full-time degree programs, are limited to
two per campus. Similar scholarship offers have been made to high school
graduates in previous years and are expected to be offered in the future.
To attract students who attend community or junior colleges, the U.S. DeVry
Institutes offer half-tuition scholarships, valued in total at more than
$500,000, to recent graduates from an accredited community/junior college.
The DeVry Institutes have also provided funds in the form of institutional
grants which help students most in need of financial assistance.
Student Loan Defaults
The Company believes that historically, federal student loans represented
more than 80% of the federal aid received by students at the U.S. DeVry
Institutes and 100% of the federal aid received by students at Keller
Graduate School. For a variety of reasons, high student loan default rates
on federal student loans are most often found in proprietary institutions,
institutions having large minority populations and community colleges, all
of which tend to have a higher percentage of low income students enrolled
than do four-year publicly supported and independent colleges and
universities. In 1989, the U.S. Department of Education instituted strict
regulations that penalize educational institutions whose students have high
loan default rates. These regulations were further tightened by the 1992
Higher Education Reauthorization Act. Any individual institution with a
FFELP or FDSL cohort default rate exceeding 20% for the year is required to
develop a default management plan in order to reduce defaults, although the
institution's operations and its students' ability to utilize student loans
are not restricted. Any individual institution with a FFELP or FDSL cohort
<PAGE>31
default rate of 25% or more for three consecutive years is ineligible for
participation in these loan programs and cannot offer student loans
administered by the U.S. Department of Education for the fiscal year in
which the ineligibility determination is made and for the two succeeding
fiscal years. In addition, students attending an institution whose cohort
default rate has exceeded 25% for three consecutive years will be
ineligible for Pell grants. Any institution with a FFELP or FDSL cohort
default rate of 40% or more in any year is subject to immediate limitation,
suspension or termination proceedings from all federal aid programs. No
DeVry Institute has ever had a FFELP cohort default rate of 25% or more for
three consecutive years nor a cohort default rate of 40% or more in any one
year. Due to the recent introduction of the FDSL program, no default rates
for this program have yet been reported.
The Company carefully monitors its students' loan default rate. To help
reduce student loan default rates, the Department of Education requires
that all educational institutions wait 30 days before disbursing funds to
first-time, first-year undergraduates to prevent potential early-term
dropouts from defaulting on their loans. Students who leave school in the
early part of their educational program typically default on their loans at
a higher rate than those students who remain and complete the course.
Another significant factor in controlling student loan default rates is the
servicing and collection efforts by lenders and guaranty agencies. The
Company assists the efforts of these lenders and agencies by contacting its
students who are delinquent in their loan repayments and advising them of
their responsibilities and rights to deferments or collection forbearance
if they are eligible.
According to preliminary, pre-published reports by the U.S. Department of
Education, the Company's schools had FFELP student loan cohort default
rates for 1996 (the latest year for which statistics are available) ranging
from 3.5% to 23.1%. The Company's weighted average FFELP cohort default
rate is preliminarily reported at approximately 17.0%. The reported rates
for 1996 reflect the proportion of former students who were due to begin
repaying their loans during that year but who were in default by the end of
1997. Cohort default rates are subject to revision by the Department of
<PAGE>32
Education as new data becomes available and are subject to appeal by
schools contesting the accuracy of the data. Upon review of the
calculations of these rates for each Institute, the Company has discovered
some errors and exceptions and has submitted appeals for revision where
appropriate. For 1995 (the latest year for which "final" statistics are
available), the Company's weighted average FFELP cohort default rate was
16.1%. This compares to a 1995 average 19.9% default rate for all
proprietary schools.
No DeVry Institute has had a FFELP cohort loan default rate greater than
25% in 1994, 1995 or 1996. Default rate reduction initiatives are underway
at each Institute. No DeVry Institute is subject to any restrictions or
termination under the student loan program.
Students who attend the U.S. DeVry Institutes also participate in the
Federal Perkins loan program. This program provides low interest
educational loans to students who demonstrate exceptional need. Funding
for this program is provided, in part, by the Department of Education and,
in part, by the participating institution. As loans are repaid, the
principal and interest from these repayments is returned to the pool of
funds available for future loans to students at that institution. The
program, including the responsibility for collection of outstanding loans,
is administered by the institution. Any institution with a Perkins loan
cohort default rate exceeding 15% must establish a default reduction plan.
Any institution with a Perkins loan cohort default rate between 20% and 30%
will receive a reduced annual federal contribution to the program. If the
Perkins loan cohort default rate exceeds 30%, the institution will not
receive any new federal contribution to the program. However, new loans to
eligible students may continue to be made from the pool of funds created by
monthly repayments on previous loans. The DeVry Institutes Perkins loan
cohort default rates for 1997 (the latest year for which statistics are
available) range from 14.7% to 36.8%. The U.S. DeVry Institutes weighted
average Perkins loan cohort default rate was 25.0%. For 1996, the Perkins
loan default rates ranged from 16.0% to 32.0%, and the U.S. DeVry
Institutes weighted average Perkins loan cohort default rate was
<PAGE>33
approximately 23.2%. Student counseling and additional collection efforts
were previously implemented and have, in part, contributed to maintaining
default rates at their current levels.
Career Services
The Company believes that the employment of its graduating students is
essential to its ability to attract new students. At the U.S. DeVry
Institutes, there were nearly 45,000 graduates over the ten-year period
ending October, 1997, who were eligible for career services assistance
(i.e. excluding graduates who continued their education, students from
foreign countries not legally eligible to work in the U.S., etc.). Of the
more than 43,000 graduates who actively pursued employment or were already
employed, 93% held positions in their chosen fields within six months of
graduation. Each Institute has career services staff working with students
in the areas of career choice activity, resume preparation and job
interviewing. The staff also maintains contact with local and national
employers to determine job opportunities and arrange interviews.
The shortage of skilled employees has placed an increased premium on
educated workers as evidenced by the widening gap in median wages of male
college vs. high-school graduates to approximately 89% today from 42% in
1979. By the year 2000, it is estimated that 85% of the jobs in the United
States will require education or training beyond high school from only 65%
as recently as 1991.
The DeVry Institutes attempt to gather accurate data on the number of its
graduates employed in education-related positions within six months
following graduation. To a large extent, the reliability of such data is
dependent on the information that graduates report to the DeVry Institutes.
Full and part-time U.S. degree and diploma program graduates for the three
classes which ended in calendar year 1997, and for the three classes which
ended in calendar year 1996, were employed in their chosen field within six
months of graduation, based on data reported to the DeVry Institutes, as
follows:
<PAGE>34
<TABLE>
THE U.S. DEVRY INSTITUTES' GRADUATE EMPLOYMENT STATISTICS
<CAPTION>
Percent of
Graduates
Who
Number of Actively
Graduates Pursued
Who Number of and
Actively Graduates Obtained
Pursued Employed Employment
Employment in and Those Percent
Number or Were Education Who were Of Net
of Net Already Related Already Graduates
Graduates<F1> Employed<F2> Positions Employed<F2> Employed<F1>
<S> <C> <C> <C> <C> <C>
Calendar Year
1997 Graduating
Classes (2/97,
6/97, 10/97) 4,503 4,419 4,290 97.1% 95.3%
Calendar Year
1996 Graduating
Classes (2/96,
6/96, 10/96) 4,170 4,082 3,931 96.3% 94.3%
<FN>
<F1>(1)Net graduates exclude students continuing their education, students
from foreign countries who are legally ineligible to work in the United
States and students ineligible for employment because of extreme
circumstances.
<F2>(2)Does not include students who actively pursued employment for less
than 6 months and did not obtain employment.
</FN>
</TABLE>
In Canada, for the three classes which ended in calendar year 1997, 93.3%
of those graduates who actively pursued employment had obtained employment
or were already employed in their chosen field within six months of
graduation. This includes those students who received diplomas and who
received bachelor's degrees through the DeVry Phoenix Institute's degree
completion program in Calgary and those students who completed their degree
requirements at a U.S. DeVry Institute.
<PAGE>35
The majority of employers of the DeVry Institutes' graduates are in the
electronics or information processing industries. The Company believes
that no single employer has hired more than 5% of the DeVry Institutes'
graduates in recent years. Major employers of the DeVry Institutes'
graduates include the following companies: Andersen Consulting Group,
Applied Materials, AT&T, Cellular One, Eastman Kodak, EDS, General Electric
Company, Hewlett-Packard, IBM, Intel Corp, MCI, Motorola and Silicon
Graphics.
Keller Graduate School maintains a career services office to assist current
and past graduates. This office offers a full range of services designed
to enhance each individual's career development skills and is available to
graduates, at no charge, on a lifetime basis.
Seasonality
The Company's business is somewhat seasonal. Highest enrollment and
revenues at the DeVry Institutes and Keller typically occur during the fall
back-to-school period which corresponds to the second and third quarters of
the Company's fiscal year. Slightly lower enrollment is experienced in the
spring, and the lowest enrollment occurs during the summer months. Becker
experiences higher enrollments for its courses beginning in June and July
leading to the fall CPA exam than for its classes beginning in December and
January leading to the spring CPA exam.
Results of operations reflect this seasonal enrollment pattern and the
pattern of student recruiting activity costs that precede the start of
every term. Revenues, income before interest and taxes and net income by
quarter for each of the past two fiscal years are included in Note 10 to
the Company's Consolidated Financial Statements, Quarterly Financial Data.
Administration and Employees
Each DeVry Institute's campus is managed by a president and has a staff of
academic deans, career service and student service personnel and other
professionals. Each campus also has an admissions director who reports to
<PAGE>36
the Company's vice president of admissions. Each Keller Graduate School
center is managed by a center director and has a director of admissions and
appropriate center support staff.
The Company has approximately 2,850 regular full- and part-time employees.
Approximately 300 of these employees, or slightly more than 10% of the
total work force, work at its corporate headquarters in Oakbrook Terrace,
Illinois, including Keller Graduate School management and staff. In
addition, the Company employs approximately 1,400 students as faculty
assistants and in other part-time positions. Becker is managed by an
administrative staff headquartered in Los Angeles and by regional
administrative staffs which support instructors and coordinate local
recruiting efforts. None of the Company's employees is represented by a
union. The Company believes that its relationships with its employees are
satisfactory.
Faculty
Each DeVry Institutes' campus president hires faculty members in accordance
with criteria established by the Company and applicable state law. Most
faculty members teaching in technical areas have related industry
experience. The DeVry Institutes have initiated sabbatical and other
programs to allow faculty to engage in developmental projects or consulting
opportunities to maintain and enhance their currency and teaching skills.
Faculty members are evaluated each semester based on student comments and
observations by an academic dean. There are approximately 700 full-time
faculty members among all of the DeVry Institutes' campuses. Approximately
80% of the DeVry Institutes' faculty members hold advanced academic
degrees. In addition, DeVry Institutes engaged over 700 part-time, adjunct
and visiting faculty, mostly in the evening programs. Recruiting qualified
new faculty members for some upper term technical courses has become more
difficult as the economic expansion cycle continues. In some classes,
regular full-time faculty have been supplemented with adjunct faculty
teaching on a part-time basis while maintaining employment in their
technical field of specialty.
<PAGE>37
Keller Graduate School faculty members are practicing business
professionals who are engaged to teach on a course-by course basis. A
multi-session training course is used to train and develop new faculty
throughout Keller's national system. Over the past several years, Keller
has begun selectively utilizing full-time faculty to respond to student
demand in rapidly developing areas and to meet approval requirements in
certain states. Less than 10% of Keller's instructors, excluding staff
members who regularly teach, are full-time employees. More than 90% of
Keller's faculty have advanced degrees. Keller draws upon more than 600
active faculty who teach courses as needed throughout the year. Becker's
faculty, numbering approximately 500 each term, are primarily practicing
professionals who teach part-time on a course-by-course basis.
Trademarks and Service Marks
The Company uses a number of trademarks including "DeVry Institute of
Technology", "Becker CPA Review" and variants thereof. All trademarks,
service marks and copyright registrations associated with the business are
registered in the name of the Company or one of its subsidiaries and expire
over various periods of time. The Company vigorously defends against
infringements of its trademarks, service marks and copyrights.
<PAGE>38
ITEM 2 - PROPERTIES
DeVry Institutes
The DeVry Institute campuses are located in both suburban communities and
urban neighborhoods. They are easily accessible to major thoroughfares.
Each Institute campus includes teaching facilities, admissions and
administrative offices. Teaching facilities are housed in modern buildings
that include classrooms, laboratories, libraries, bookstores and student
lounges. Electronics laboratories include PC-based instrumentation and
microprocessor development/circuit simulation systems along with analog and
digital oscilloscopes, digital multimeters, power supplies, signal
generators and other equipment. Computer laboratories include both stand-
alone and networked PC-compatible workstations that support all curricula
areas. Resources available to students include access to a central
mainframe owned and operated by a third party, UNIX and numerous software
packages supporting a variety of business, engineering and scientific
applications. Connections to the Internet and World Wide Web are included
through the computer laboratories as a part of the program curriculum.
Telecommunications laboratories provide central office simulation, PBX
administration, inter-networking and teaching LAN environments.
None of the seven DeVry Institute campuses owned by the Company is subject
to a mortgage or other indebtedness.
In June 1996, the DeVry Technical Institute in Woodbridge, N.J., moved to a
new, 99,000 square foot Company-owned facility in North Brunswick, N.J., in
advance of the fiscal year 1997 summer term class start.
In July 1996, the Company began operation of a satellite campus in
Mississauga (Toronto), Ontario, Canada. Opened in 42,000 square feet of
space, this was the second satellite to the then main campus operation in
North York (Toronto) and the fourth DeVry Institute in Canada.
A new DeVry Institute began operation in July 1997 in Alpharetta (Atlanta),
Georgia, in a build-to-suit, leased campus. The facility, of approximately
65,000 square feet, is being operated as a branch location of the DeVry
Institute in Decatur, Georgia.
<PAGE>39
The table below sets forth certain information regarding each of the
properties at which the DeVry Institutes conducted educational operations
at June 30, 1998:
<TABLE>
<CAPTION>
DeVRY INSTITUTE CAMPUSES
Full and
June 1998 Part-Time
Area Students
(Approximate Attending
Square Feet) Spring 1998 Ownership
------------ ----------- ---------
<S> <C> <C> <C>
Alpharetta (Atlanta), Georgia 65,000 588 Leased
Decatur (Atlanta), Georgia 107,500 2,774 Owned
Chicago, Illinois 104,850 3,526 Owned
Addison (Chicago), Illinois 91,600 3,635 Leased
Columbus, Ohio 106,480<F1> 2,803 Owned
North Irving (Dallas), Texas 95,250 2,561 Leased
Kansas City, Missouri 74,500 2,306 Owned
Phoenix, Arizona 120,200 3,207 Owned
Pomona (Los Angeles), California 100,500 3,354 Leased
Long Beach (Los Angeles),
California 98,240 1,933 Leased
North Brunswick, New Jersey 99,000 3,113 Owned
Calgary, Alberta, Canada 42,900 1,244 Leased
North York (Toronto), Ontario,
Canada 51,690 579 Leased
Scarborough (Toronto), Ontario,
Canada 44,800 654 Leased
Mississauga (Toronto), Ontario,
Canada 60,600 714 Leased
------
32,991
======
<FN>
<F1>(1) Includes 14,400 square feet of modular buildings.
</FN>
</TABLE>
In the fourth quarter of fiscal 1997, the Company completed the purchase of
land in Fremont (San Francisco), California, for construction of a campus
to serve the Northern California area. This campus opened for classes in
July 1998 in a 99,000 square foot Company-owned facility.
Also purchased in the fourth quarter of fiscal 1997 was a parcel of land in
the San Fernando Valley, California, for construction of a third campus in
the Los Angeles area. Purchase of an adjoining parcel of land, necessary
<PAGE>40
to complete the site, was completed in August, 1997. Construction has
started on a 105,000 square foot Company-owned facility. Classes are
expected to be offered beginning in November 1999.
In New York, the Company is completing renovation on a leased site in Long
Island City. Classes are expected to be offered for the first time in
November 1998. Initially occupying approximately 96,000 square feet, the
campus can be expanded in two years, at the Company's option, by 59,000
square feet.
In Calgary (Alberta), Canada, the Company leased a new build-to-suit campus
of approximately 70,000 square feet to replace its former location.
Classes were offered in this new and larger facility with the start of the
summer 1998 term.
In the Toronto-area, the Company consolidated its operations into its two
newer campuses in Scarborough and Mississauga, Ontario. Effective with the
summer 1998 term, classes were no longer offered in the original North York
location. Additional space was leased in both Scarborough and Mississauga
to accommodate this consolidation and administrative staff will be
relocated when final renovation of the additional space is completed.
In Pomona, California, the Company has leased additional space in an
adjacent building in order to relocate certain administrative functions,
permitting that space to be used for classroom and laboratories. This
expansion is necessary to accommodate increasing enrollments.
In Chicago, construction should begin shortly on a 53,000 square foot
expansion to the urban DeVry Institute campus. Located on the same Company
owned property, this expansion will permit further enrollment growth and an
enhanced environment for the students, faculty and staff.
<PAGE>41
Additional DeVry Institute facility renovations and expansions are under
consideration to improve and expand operations at these locations.
Keller Graduate School
Keller centers are housed in modern buildings whose locations were chosen
for their convenience to students. Keller centers, which mostly range in
size from approximately 4,000 to 10,000 square feet, include teaching
facilities, admissions and administrative offices. Each Keller facility
has an information center designed to enhance students' success and to
support coursework requiring data and information beyond that provided in
course texts and packets. The information centers include personal
computers; all software required in courses; Internet access; alternate
texts; sample business plans; popular business periodicals; videos of
selected courses; a career services video and texts, and access to more
than three hundred electronic data-bases.
During fiscal 1998, Keller relocated its Downers Grove, Illinois, center to
Lisle, Illinois to take advantage of state-of-the-art telecommunications
laboratory equipment at this site. Also during the year, new centers were
opened in Fremont and San Diego, California; Merrillville, Indiana;
Alpharetta and Buckhead, Georgia; and St. Louis, Missouri.
The table below sets forth certain information regarding each of the
properties at which Keller conducted educational operations in the April,
1998, term:
<PAGE>42
<TABLE>
<CAPTION>
KELLER GRADUATE SCHOOL CENTERS
Part-Time
Students
April 1998 Ownership
---------- ---------
<S> <C> <C>
Chicago, Illinois 452 Leased
Schaumburg, Illinois 437 Leased
Lincolnshire, Illinois 422 Leased
Oakbrook Terrace, Illinois 309 <F1>
Lisle/Downers Grove, Illinois 218 Leased
Orland Park, Illinois 168 Leased
Elgin, Illinois 155 Leased
Merrillville, Indiana 70 Leased
Milwaukee, Wisconsin 205 Leased
Waukesha, Wisconsin 174 Leased
Tysons Corner, Virginia 210 Leased
St. Louis, Missouri 122 Leased
St. Louis, Missouri (downtown) 24 Leased
Kansas City, Missouri 205 <F2>
Kansas City, Missouri (downtown) 119 Leased
Phoenix, Arizona 134 <F2>
Mesa, Arizona 210 Leased
Decatur, Georgia 262 <F2>
Atlanta, Georgia 218 Leased
Alpharetta, Georgia 119 <F2>
Buckhead, Georgia 73 Leased
Pomona, California 205 <F2>
Long Beach, California 124 <F2>
Irvine, California 73 Leased
San Diego, California 22 Leased
Fremont, California - <F3> <F2>
Distance Learning 100 -
-----
4,830
=====
<FN>
<F1>(1)Operates at the Company's corporate headquarters location
<F2>(2)Operates on a DeVry Institute campus
<F3>(3)Opened June, 1998
</FN>
</TABLE>
In September, 1998, Keller is opening a new center in Tampa, Florida, its
first in that state. Several additional new center openings are planned
for the remainder of fiscal 1999.
Becker
Becker CPA is headquartered in leased offices in Encino, California.
Classes are conducted in leased facilities, less than twenty of which are
leased on a full-time basis. The remainder of the classes are conducted in
<PAGE>43
facilities which are leased on an as-used basis, allowing classes to be
expanded or relocated as enrollments require. Becker classes are also
currently offered on several DeVry Institute campuses and at Keller
Graduate School centers where the location and facility availability are
appropriate.
Corporate
The Company's administrative offices are located in approximately 73,600
square feet of leased space in an office tower in Oakbrook Terrace,
Illinois. In addition, the Company leases approximately 17,900 square feet
of storage and other miscellaneous use space at this facility.
The Company's leased facilities are occupied under leases whose remaining
terms range from one to 15 years. A majority of these leases can be
renewed for additional periods.
ITEM 3 - LEGAL PROCEEDINGS
The Company is subject to occasional lawsuits, investigations and claims
arising out of the normal conduct of its business. Neither the Company nor
any of its subsidiaries is currently a party to any legal proceeding which
the Company believes is material except those described below.
In fiscal 1996, the Ontario Ministry of Education and Training temporarily
suspended and later conditionally reinstated the processing of financial
aid applications for students attending the Company's Toronto-area schools.
Full unconditional reinstatement is pending, subject to the Ministry's
completion of its review and issuance of a final report.
In July, 1996, the Company and DeVry Canada were served with a purported
class action lawsuit in Canada by a former student alleging breach of
contract and misrepresentation about the quality of the DeVry Institutes'
educational programs, seeking up to CDN $400 million in compensatory and
punitive damages. In July 1998, the Canadian court rejected the
plaintiffs' motion to certify the lawsuit as a class action in the province
of Ontario.
<PAGE>44
Although the outcomes cannot be predicted with certainty, the Company
believes the resolution of these matters will not have a material effect on
the Company's financial position, results of operations or liquidity.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year.
<PAGE>45
EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age and current position
of each executive officer of the
Company are:
Name, Age and Office Business Experience
- -------------------- -------------------
Dennis J. Keller. . .57
Chairman of the Board and Chief Mr. Keller co-founded KGSM in 1973.
Executive Officer From the inception of the Company,
Mr. Keller has been Chairman of the
Board and Chief Executive Officer.
Mr. Keller is a graduate of
Princeton University and holds a
Master of Business Administration
degree from the University of
Chicago Graduate School of
Business.
Ronald L. Taylor. . .54
Director, President and Chief Mr. Taylor co-founded KGSM in 1973
Operating Officer and has been a director since its
inception. Mr. Taylor was Dean of
Keller Graduate School from its
inception until 1981, when he
became President and Chief
Operating Officer of KGSM. Mr.
Taylor is a graduate of Harvard
University and holds a Master of
Business Administration degree from
Stanford University.
Marilynn J. Cason . . 55
Senior Vice President, General Ms. Cason joined the Company in
Counsel and Corporate Secretary 1989 with responsibility for the
Company's legal affairs and human
resources. In her current position
as a Senior Vice President, Ms.
Cason has responsibility for
facilities planning, purchasing and
management information systems in
addition to her responsibilities
for legal affairs and human
resources.
Norman C. Metz. . .50
Senior Vice President Mr. Metz joined the Company in 1983
as a Vice President. In 1986, Mr.
Metz assumed responsibility for
operations of the DeVry Institutes.
In addition, Mr. Metz is currently
responsible for both regional
student recruiting and recruiting
in the admission offices at the
Institute locations.
<PAGE>46
Name, Age and Office Business Experience
- -------------------- -------------------
O. John Skubiak . . 48
Senior Vice President Mr. Skubiak has been with KGSM for
more than 19 years, progressing
from admissions representative to
Dean of Keller Graduate School. In
his current position as a Senior
Vice President of the Company, Mr.
Skubiak has responsibility for the
Company's marketing, other than
sales, and the operations of Keller
and Becker CPA Review.
Norman M. Levine. . .55
Vice President, Controller and Mr. Levine has been Controller of
Chief Financial Officer the Company since 1987 and has been
the Chief Financial Officer since
1989. From 1982 to 1987, Mr.
Levine was Controller of the DeVry
Institutes.
George W. Fisher. . .46
Vice President, Regional Mr. Fisher joined the Company as
Operations Vice President, Canadian Operations
in 1985. His responsibilities
currently include operations of
several of the DeVry Institutes in
the U.S. and Canada.
Bruno LaCaria . . 56
Vice President, Chief Mr. LaCaria joined the Company in
Information Officer August 1998 as Vice President and
chief information officer. Prior
to joining the Company, Mr. LaCaria
was the Director of Information
Systems at the University of
Pittsburgh.
Patrick L. Mayers . . 58
Vice President, Academic Affairs Dr. Mayers joined Keller Graduate
School in 1978 as Dean of Academic
Affairs. Dr. Mayers, who obtained
his B.A., M.A., M.B.A. and Ph.D.
Degrees from the University of
Chicago, was elected an officer of
the Company in 1987. Dr. Mayers
served as Vice President of
Academic Affairs for Keller until
1997 at which time he became the
Vice President of Academic Affairs
for the DeVry Institutes.
<PAGE>47
Name, Age and Office Business Experience
- -------------------- -------------------
Gerald Murphy . . 51
Vice President, Regional Mr. Murphy joined the Company in
Operations late 1995 as a Vice President with
responsibility for the operation of
several of the DeVry Institutes in
the U.S. and Canada. Prior to
joining the Company, Mr. Murphy
served as a Vice President of
Educational Management Corp. and of
the Universal Technical Institute.
James Otten . . 49
Vice President, Regional Dr. Otten joined the Company in
Operations late 1995 as a Vice President with
responsibility for the operation of
several of the U.S. DeVry
Institutes. Prior to joining the
Company, Dr. Otten served as
President of the Katherine Gibbs
School in Boston and of the Brown
Institute in Minneapolis.
Sharon Thomas-Parrott . . 47
Vice President, Government Ms. Thomas-Parrott joined the
Relations Company in 1982 after several years
as an officer in the U.S.
Department of Education's Office of
Student Financial Assistance. She
served the Company in several
student finance positions before
being elected to her current
position which includes
responsibility for both student
finance and government relations.
Jane Perlmutter . . 50
Vice President, Regional Dr. Perlmutter joined the Company
Operations in 1997 as a Vice President with
responsibility for the operation of
several U.S. DeVry Institutes.
Prior to joining the Company, Dr.
Perlmutter managed the Bellcore
Training & Education Center in
Lisle, Illinois.
Kenneth Rutkowski . . 51
Vice President, Operations Mr. Rutkowski joined the Company in
Services and Administration 1985 as Director of Operations and
Administrative Services and was
promoted to his current position in
1991. His current responsibilities
include managing the Company's real
estate and various administrative
functions.
<PAGE>48
Name, Age and Office Business Experience
- -------------------- -------------------
Vijay Shah. . .47
Vice President, Admissions Mr. Shah joined the Company in 1977
progressing from representative in
a DeVry Institute admissions office
to director of admissions. He has
been DeVry's National Director of
Admissions since 1989 and was
promoted to his current position in
August, 1994.
Edward J. Steffes . . 48
Vice President, Marketing Mr. Steffes joined the Company in
1984 as director of marketing and
was promoted to his current
position in 1986. Mr. Steffes is
responsible for the Company's
advertising, sales promotion and
public relations.
<PAGE>49
PART II
-------
ITEM 5 - MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock is traded on the New York Stock Exchange and the
Chicago Stock Exchange under the symbol "DV."
The following table sets forth the high and low sales price information by
quarter for the past two years. All sales price information has been
restated to reflect the Company's two-for-one stock splits, in the form of
a 100% stock dividend, effective June 19, 1998, and December 18, 1996.
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997
-------------------- ------------------------
HIGH LOW HIGH LOW
--------- ------- --------- --------
<S> <C> <C> <C> <C>
First Quarter $15 3/16 $12 7/8 $11 23/32 $ 9 1/2
Second Quarter 16 1/2 12 1/2 12 11/16 9 3/16
Third Quarter 17 13/16 14 14 9 1/2
Fourth Quarter 22 3/8 16 3/8 14 15/16 10 13/16
</TABLE>
(b) Approximate Number of Security Holders
There were 571 holders of record of the Company's common stock as of
September 1, 1998. The number of holders of record does not include
beneficial owners of its securities whose shares are held by various
brokerage firms and other financial institutions. The Company believes
that there are over 10,000 beneficial holders of its common stock.
Dividends
The Company is a holding company and, as such, is dependent on the earnings
of its subsidiaries for funds to pay cash dividends. Cash flow from the
Company's subsidiaries may be restricted by law and is subject to some
restrictions by covenants in the subsidiaries' debt agreements. The
Company has not paid any dividends on its common stock and expects for the
<PAGE>49
foreseeable future to retain all of its earnings from operations for use in
the Company's business. From time to time, the board of directors will
review the Company's dividend policy. Any payment of dividends will be at
the discretion of the board of directors and will be dependent on the
earnings and financial requirements of the Company and other factors as the
board of directors deems relevant.
ITEM 6 - SELECTED FINANCIAL DATA
Selected financial data for the Company for the last five years is included
in the exhibit, Five-Year Summary - Operating, Financial and Other Data,
on page 88 of this report.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 appearing
elsewhere in this report.
All references in the financial statements to the number of shares
outstanding and per share amounts have been restated to reflect the
Company's two-for-one stock splits effective June 21, 1995, December 18,
1996, and June 19, 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
This new Statement establishes standards for reporting and displaying
comprehensive income and its components in a company's financial
statements. Comprehensive income includes foreign currency translation
adjustments and certain other categories of gain or loss. At the present
time, the only category of comprehensive income which must be included in
the Company's financial statements is foreign currency translation
adjustments, arising primarily form the Company's Canadian operations. The
magnitude of foreign currency translation adjustments has historically been
small and is not expected to result in a material change to the level of
future reported income.
<PAGE>51
RESULTS OF OPERATIONS
Fiscal Year Ended June 30, 1998, vs. Fiscal Year Ended June 30, 1997
- --------------------------------------------------------------------
Tuition revenues in fiscal 1998 increased by $40.3 million, or 14.3%, from
fiscal 1997. The increase in tuition revenue was produced by enrollment
increases at DeVry Institutes and Keller Graduate School of Management.
Fiscal 1998 marks the eighth consecutive year at DeVry Institutes in which
cumulative total student enrollment for the three semesters during the year
has increased, up 9.4% from the previous year. Enrollment increases at
DeVry Institutes reflect the opening of a new institute in Alpharetta,
Georgia, and increases in enrollments at existing Institutes. At Keller
Graduate School, cumulative total student enrollment for the five terms of
fiscal 1998 grew by 17.5% compared to fiscal 1997, reflecting the opening
of new centers in California, Georgia, Indiana and Missouri. Tuition
revenues also increased because of tuition rate increases of approximately
5.0% at DeVry Institutes in March 1998 and at Keller Graduate School in
September 1997.
Other educational revenues, composed primarily of sales of books and
supplies, increased by $4.3 million, or 16.3%, because of sales to the
increased number of students attending the Company's educational programs
and the introduction of the Becker CPA Review (Becker) course sold on CD-ROM.
Interest income on the Company's short-term investments of cash
balances increased to $1.6 million because of increased average cash
balances in excess of those needed for daily operations.
Cost of educational services increased by $20.1 million, or 11.3%, in
fiscal 1998 from the previous year. Cost of educational services includes
the cost of faculty and related staff, which represents approximately 60%
of this expense category. Also included in this expense category are the
costs of facilities, supplies, bookstore sales, other student education-
related support activities and the cost of tuition refunds and
uncollectible accounts. Higher wage, benefit, supply, service and facility
expenses associated with the growing number of operating locations and
increased student enrollments contributed to the increase in cost.
Depreciation expense increased by $2.7 million, or 28.1%, from fiscal 1997
as a result of another year of extensive capital improvements and additions
<PAGE>52
throughout the system. Also included in educational services this year is
the cost of consolidating teaching operations from three locations to the
two newer and more modern sites in the Toronto area. Tuition refunds and
bad debt expense declined by approximately $800,000 from last year, even as
total student enrollment and revenues increased. This is believed to
result from higher admission standards, and education programs and student
service quality initiatives that favorably affect student retention.
Student services and administrative expense increased by $16.3 million, or
18.7%, from fiscal 1997. Student services and administrative expense
includes the costs of new student recruiting, general and administrative
costs and curriculum development. The increased spending reflects the
marketing costs associated with generating the higher student enrollments
at DeVry Institutes and at Keller Graduate School for the terms that began
in fiscal 1998 and for the summer term, for which whose revenue is included
in fiscal 1999. Marketing costs for the July opening of the new DeVry
Institute in Fremont, California, and the November opening of the new
campus in New York also contributed to the increase.
Administrative expenses have also increased from the prior year to support
the Company's expanding operations. In addition, spending on
implementation efforts for the Company's new financial system contributed
to the increased expense. The new financial system, which will be used for
reporting beginning in July 1998, will enhance financial controls,
reporting and analysis and overcome year 2000 processing deficiencies in
the previous system. In addition, the Company has appointed a coordinator
with responsibility for all other aspects of the year 2000 project.
Efforts were initiated to address the year 2000 processing requirements,
focusing initially on mission critical systems and extending to all the
Company's hardware and software, whether internally developed or purchased,
and to ensure compliance by the many providers of products and services to
the Company. The Company believes that it is on schedule for completion of
the project during 1999. Costs associated with this effort are not
expected to have a material effect on the Company's results of operations
and are being charged to expense as incurred.
<PAGE>53
The Company's fiscal 1998 earnings from operations, before interest and
taxes, were a record $51.4 million. Operating margins, which have been
increasing steadily each year, increased again to 14.5%, up from 13.9% and
13.0% in fiscal 1997 and 1996, respectively. Operating margin increases
were generated by improved facility utilization from increased enrollments
and by continued operations improvements.
Interest expense decreased by $1.9 million from last year as debt incurred
for the acquisition of Becker in June 1996 was repaid from cash generated
by operations.
Net income of $30.7 million, or $0.44 per share, was a record for any year,
increasing by 27.0% from fiscal 1997.
Fiscal Year Ended June 30, 1997, vs. Fiscal Year Ended June 30, 1996
- --------------------------------------------------------------------
Tuition revenues in fiscal 1997 increased by $44.2 million, or 18.7% from
fiscal 1996. This was the largest tuition revenue increase in the history
of the Company. The increase in tuition revenues was produced by several
positive factors, including the June 1996 acquisition of Becker CPA Review.
Enrollment increases at DeVry Institutes and Keller Graduate School also
contributed to the tuition revenue increase. Fiscal 1997 marks the seventh
consecutive year at DeVry Institutes in which cumulative total student
enrollment for the three semesters during the year has increased from the
previous year. At Keller Graduate School, cumulative total student
enrollment for the five terms of fiscal 1997 grew by 19.5% compared to
fiscal 1996. Enrollment increases at the DeVry Institutes reflect the
opening of a new institute in Mississauga, Ontario, Canada, and at Keller
Graduate School, the opening of new centers in Oakbook Terrace, Illinois;
and Irvine, California. Tuition revenues also increased because of tuition
rate increases of approximately 5%, which became effective at DeVry
Institutes in March 1997 and at Keller Graduate School in September 1996.
Other educational revenues, composed primarily of sales of books and
supplies, increased by $4.2 million, or 18.9%, because of sales to the
increased number of students attending the Company's educational programs.
Interest income on the Company's short-term investments of cash balances
<PAGE>54
decreased by $72,000, or 6.8%, from the prior year because increased
capital spending and aggressive debt reduction payments reduced average
cash balances in excess of those needed for daily operations.
Cost of educational services increased by $22.9 million, or 14.7%, in
fiscal 1997 from the previous year. Cost of educational services incudes
the cost of faculty and related staff, which consistently comprises
approximately 60% of this expense category. Also included in this expense
category are the cost of facilities, supplies, bookstore sales, other
student education-related support activities and the cost of tuition
refunds and uncollectible accounts. The increase in cost of educational
services reflects the additional faculty, staff and facility costs of the
Becker operations that were not a part of the Company's results for fiscal
1996. Also, there were higher wage, benefit, supply and service expenses
associated with the growing number of operating locations and increased
student enrollments at DeVry Institutes and at Keller Graduate School.
Depreciation expense increased by $2.2 million, or 28.7%, from fiscal 1996
as a result of extensive capital improvements and additions, particularly
those related to the opening of the new DeVry Institutes in North
Brunswick, New Jersey, and Mississauga, Ontario, Canada, and the continued
expansion and upgrading of school laboratories and teaching equipment
throughout the system. Tuition refunds and bad debt expense at DeVry
Institutes declined by approximately $200,000 from last year, even as total
student enrollments increased. This results from educational program and
student service quality initiatives that favorably affected student
retention.
Student services and administrative expense increased by $16.5 million, or
23.2%, from fiscal 1996. Student services and administrative expense
includes the costs of new student recruiting, general and administrative
costs, and curriculum development. The increase this year in student
services and administrative expense reflects costs associated with Becker's
operations, which were not included in last year's results. The increased
spending also reflects the marketing costs associated with generating the
higher student enrollments at DeVry Institutes and at Keller Graduate
School for the terms that began in fiscal 1997 and for their summer terms
<PAGE>55
that started in fiscal 1998. General and administrative expense increased
from last year and includes the ongoing costs of efforts to restore
unconditional financial aid processing at the Toronto-area campuses. The
increase in student services and administrative cost also includes
approximately $1.6 million in amortization of intangibles and goodwill
primarily associated with the Becker acquisition.
The Company's fiscal 1997 earnings from operations, before interest expense
and taxes, were a record $42.7 million. Operating margins, which have been
steadily increasing each year, increased again to 13.9%, up from 13.0% and
12.6% in fiscal 1996 and fiscal 1995, respectively. Operating margins were
favorably affected by the inclusion of Becker's results, where operating
margins historically have been higher, by the higher revenues and improved
facility utilization from the increased enrollments at DeVry Institutes and
Keller Graduate School, by continued operations improvements and by cost
containment measures.
Interest expense increased by $1.8 million from last year because of higher
outstanding debt levels resulting from the acquisition, for cash, of Becker
in June 1996. This increased interest expense was offset, in part, during
the latter part of the fiscal year by the proceeds of the April 1997 stock
offering, which were used to reduce debt.
The provision for income taxes of $15.7 million represents a 39.3% rate on
pretax income. This year's rate is lower than the 41.1% rate in fiscal
1996 because of a lower effective state income tax rate on the Company's
U.S. operations.
Net income of $24.2 million, or $0.35 per share, was a record for any year,
increasing by 25.7% from fiscal 1996.
Liquidity and Capital Resources
- -------------------------------
The Company's primary source of liquidity is the cash received from student
payments for tuition, fees and books. These payments include cash from
<PAGE>56
student and family educational loans, from other financial aid under
various federal, state and provincial programs, and from student and family
resources.
The pattern of cash receipts is somewhat seasonal. The level of accounts
receivable from which cash payments are collected reaches a peak
immediately after the billing of tuition, fees and books at the beginning
of each of the DeVry Institutes' semesters, which begin in July, November
and March. Collections of DeVry Institute receivables are heaviest at the
start of each semester. In the first two months of each semester,
collections typically exceed payments for operating expenses applicable to
that period. Accounts receivable reach their lowest level just prior to
the start of the next semester, dropping to their lowest point in the year
at the end of June. The end of June corresponds to both the end of the
spring semester and the end of a financial aid year, at which time
substantially all financial aid for the previous 12 months has been
disbursed to students' accounts. Both Keller Graduate School and Becker
also experience similar seasonality in their cash receipts and expenditures
based upon their respective operating cycles. At June 30, 1998, total
Company accounts receivable, net of the related deferred tuition revenue,
decreased by more than $400,000. The decrease in receivables was achieved
by further improvements to collection effectiveness, offsetting increases
that would otherwise be associated with higher enrollment and revenue
levels in the Company's educational programs.
The Company is highly dependent upon the timely receipt of financial aid
funds. The Company estimates that historically slightly less than 70% of
DeVry Institutes' tuition, bookstore and fee revenues have been financed by
government-provided financial aid to its students. These financial aid and
assistance programs are subject to political and governmental budgetary
considerations. There is no assurance that such funding will be maintained
at current levels. If funds flow from the federal or state governments is
temporarily delayed in conjunction with year 2000 processing difficulties,
the Company could use its available cash resources and borrowings under its
revolving term loan agreement until such financial aid funding was
restored.
<PAGE>57
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.
Under the terms of the Company's participation in governmental financial
aid programs, certain cash received from the U.S. Department of Education
is maintained in restricted bank accounts. This cash becomes available for
general use by the Company only after student loans and grants have been
credited to the accounts of students and the cash is transferred to an
unrestricted operating cash account. At June 30, 1998, cash held in
restricted bank accounts increased to $16.9 million, up $4.8 million from
the end of the previous year, in anticipation of higher enrollments and
financial aid disbursements at the start of DeVry Institutes' summer term.
In July 1996, the Company entered into an out-of-court settlement agreement
with the Internal Revenue Service (IRS) relative to the Statutory Notice of
Deficiency issued by the IRS against the Company for tax years 1988 through
1991. The claimed deficiencies related to the amortization of intangible
assets purchased during the acquisition of DeVry Institutes in 1987. All
of these issues have been resolved as a result of the settlement. The
settlement amount was paid in the first quarter of fiscal 1997 and is
immaterial to the Company's financial position, results of operations and
liquidity.
Cash generated from operations in fiscal 1998 reached a record $47.6
million, up $5.2 million from last year. Higher earnings and the increased
non-cash sources of depreciation and amortization accounted for the
increased cash flow, more than offsetting the previously discussed higher
restricted cash balances. Traditionally, the Company has been able to help
fund its expansion by operating with negative working capital during most
of the year. The generation and use of cash during the year reflects the
seasonal operating patterns discussed above. During some periods just
prior to the start of a semester, cash balances may be supplemented by
<PAGE>58
temporary borrowings under the Company's revolving line of credit. Cash
generated form operations each year has been sufficient to meet all of the
Company's operating needs and capital investment needs, while reducing debt
on a regular basis.
Capital expenditures in fiscal 1998 reached a record $31.8 million, up $3.0
million from the previous record level set only last year. Capital
expenditures were made for expansion and facility improvements, replacement
and upgrading of school laboratories and for teaching and administrative
equipment. Contributing to 1998's record spending were the construction of
a new DeVry Institute in Fremont (San Francisco), California, and the start
of renovations for the new DeVry Institute in Long Island City, New York,
both of which are a part of the Company's expansion plan for 1999. Capital
expenditures in fiscal 1999 are not expected to decline from the record
1998 level and should remain significantly above the level of previous
years, as construction is completed in New York but begins at the DeVry
Institute campus expansion in Chicago and at the new campus to be built in
West Hills (Los Angeles), California. These new and expanded DeVry
Institute campuses, as well as further expansion of Keller Graduate School
and Becker into new operating sites will continue to require substantial
capital spending in the coming year. Cash generated from operations and
existing cash resources have been sufficient to meet capital requirements
in the past and, with the Company's revolving line of credit, are
anticipated to be sufficient to cover expansion plans in the future.
In April 1997, the Company completed an offering of 2.4 million additional
shares of its common stock. Net proceeds of the offering were
approximately $23.6 million, of which $23.0 million was used to repay
indebtedness under the Company's revolving line of credit.
In March 1998, the Company and its banks renegotiated the Company's 1996
revolving term loan agreement, extending its term to August 1, 2000, and
expanding the range of acquisitions or investments within the terms of the
agreement. At June 30, 1998, approximately $11.4 million of the revolving
line had been utilized in the form of borrowings and letters of credit, a
reduction of approximately $23.0 million from the level of borrowing one
<PAGE>59
year earlier. Included in these borrowings is a $2.0 million ($CDN) letter
of credit posted with the Ontario Ministry of Education and Training in
conjunction with the conditional reinstatement of financial aid processing
at the Company's Toronto-area campuses. Future borrowings and/or
repayments will be based on the Company's seasonal cash flow cycle and
payment requirements for capital spending and possible future acquisitions.
Effective October 1, 1997, the Company's bank borrowing interest rate was
reduced to a floating rate of LIBOR plus 0.35% or prime, at the Company's
option, and has remained at that level based on maintaining certain
financial ratios. At the present time, the Company does not have an
interest rate swap or other form of protection against increases in the
floating rate but does fix the interval of interest rate adjustment on most
of its borrowings for periods of six months or less to eliminate some of
the possible variability in rates. The Company periodically evaluates its
need for additional protection in light of projected changes in interest
rate and borrowing levels.
The Company believes that current balances of unrestricted cash, cash
generated from operations and, if needed, the revolving loan facility will
be sufficient to fund its operations for the foreseeable future.
<PAGE>60
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Company and its subsidiaries are
included below on pages 61 through 83 of this report:
10K
Report Page
Consolidated Balance Sheets at
June 30, 1998 and 1997 61-62
Consolidated Statements of Income for the
years ended June 30, 1998, 1997 and 1996 63
Consolidated Statements of Cash Flows for
the years ended June 30, 1998, 1997 and 1996 64
Consolidated Statements of Shareholders'
Equity for the years ended June 30, 1998,
1997 and 1996 65
Notes to Consolidated Financial Statements 66-82
Report of Independent Accountants 83
<PAGE>61
<TABLE>
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
June 30,
1998 1997
--------- ---------
<S> <S> <S>
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 31,881 $ 38,865
Restricted Cash 16,875 12,104
Accounts Receivable, Net 11,878 12,322
Inventories 5,218 4,549
Prepaid Expenses and Other 3,868 4,625
------- -------
Total Current Assets 69,720 72,465
------- -------
Land, Buildings and Equipment:
Land 35,142 34,348
Buildings 62,371 50,906
Equipment 73,039 63,609
Construction In Progress 2,541 91
------- -------
173,093 148,954
Accumulated Depreciation (64,988) (58,266)
------- -------
Land, Buildings and Equipment, Net 108,105 90,688
------- -------
Other Assets:
Intangible Assets, Net 37,908 37,770
Perkins Program Fund, Net 6,660 6,075
Other Assets 1,499 1,654
------- -------
Total Other Assets 46,067 45,499
------- -------
TOTAL ASSETS $ 223,892 $ 208,652
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>62
<TABLE>
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
June 30,
1998 1997
--------- ---------
<S> <C> <C>
LIABILITIES:
Current Liabilities:
Accounts Payable $ 24,116 $ 22,301
Accrued Salaries, Wages and Benefits 18,422 16,077
Accrued Expenses 8,504 7,620
Advance Tuition Payments 9,202 6,594
Deferred Tuition Revenue 5,735 5,701
------- -------
Total Current Liabilities 65,979 58,293
------- -------
Other Liabilities:
Revolving Loan 10,000 33,000
Deferred Income Tax Liability 3,612 5,009
Deferred Rent and Other 8,045 7,080
------- -------
Total Other Liabilities 21,657 45,089
------- -------
TOTAL LIABILITIES 87,636 103,382
------- -------
COMMITMENTS & CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common Stock, $0.01 par value, 75,000,000
Shares Authorized,69,305,070 and
69,008,428 Shares Outstanding
at June 30, 1998 and 1997, Respectively 693 690
Additional Paid-in Capital 60,608 60,482
Retained Earnings 74,385 43,661
Foreign Currency Translation Adjustment 570 437
------- -------
TOTAL SHAREHOLDERS' EQUITY 136,256 105,270
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 223,892 $ 208,652
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>63
<TABLE>
DEVRY INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except for Per Share Amounts)
<CAPTION>
For The Year Ended
June 30,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Tuition $321,029 $280,774 $236,607
Other Educational 30,877 26,558 22,341
Interest 1,565 987 1,059
------- ------- -------
Total Revenues 353,471 308,319 260,007
------- ------- -------
COSTS AND EXPENSES:
Cost of Educational Services 198,273 178,135 155,254
Student Services and
Administrative Expense 103,802 87,480 70,992
Interest Expense 913 2,848 1,063
------- ------- -------
Total Costs and Expenses 302,988 268,463 227,309
------- ------- -------
Income Before Income Taxes 50,483 39,856 32,698
Income Tax Provision 19,759 15,670 13,453
------- ------- -------
NET INCOME $ 30,724 $ 24,186 $ 19,245
======= ======= =======
EARNINGS PER COMMON SHARE
Basic $0.44 $0.36 $0.29
======= ======= =======
Diluted $0.44 $0.35 $0.29
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>64
<TABLE>
DEVRY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<CAPTION>
For The Year Ended June 30,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $30,724 $24,186 $19,245
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 12,397 9,676 7,516
Amortization 1,590 1,586 63
Provision for Refunds and
Uncollectible Accounts 15,984 16,786 16,130
Deferred Income Taxes (1,007) 1,978 (456)
Loss (Gain) on Disposals of Land,
Buildings and Equipment 331 (116) 19
Changes in Assets and Liabilities:
Restricted Cash (4,771) 4,486 3,589
Accounts Receivable (15,375) (19,257) (18,645)
Inventories (669) (1,259) 263
Prepaid Expenses And Other (1,299) (1,746) (118)
Perkins Program Fund Contribution
and Other 342 274 (1,188)
Accounts Payable 1,815 3,442 3,210
Accrued Salaries, Wages,
Expenses and Benefits 4,895 1,322 6,239
Advance Tuition Payments 2,608 (1,023) (7,340)
Deferred Tuition Revenue 34 2,092 (159)
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 47,599 42,427 28,368
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (31,845) (28,807) (18,352)
Acquisition of Net Assets (Note 2):
Payment for Purchase of Operating
Assets, Net of Cash Acquired - - (16,930)
Payment for Purchase of
Intellectual Property - - (17,935)
------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES (31,845) (28,807) (53,217)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Exercise of Stock Options 129 217 84
Net Proceeds from Common Stock Offering - 23,583 -
Proceeds From Revolving Credit Facility 6,000 15,000 46,500
Repayments Under Revolving Credit Facility (29,000) (43,500) (18,029)
------ ------ ------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (22,871) (4,700) 28,555
Effects of Exchange Rate Differences 133 (3) (10)
------ ------ ------
NET(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (6,984) 8,917 3,696
Cash and Cash Equivalents at Beginning
of Year 38,865 29,948 26,252
------ ------ ------
Cash and Cash Equivalents at End of Year $31,881 $38,865 $29,948
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Year $967 $2,893 $1,429
Income Taxes Paid During the Year 18,940 16,778 13,902
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>65
<TABLE>
DEVRY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<CAPTION>
For The Year Ended June 30,
---------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Common Stock:
Beginning of year $ 690 $ 666 $ 666
Proceeds from public offering - 24 -
Proceeds from exercise of stock options 3 - -
--------- -------- --------
End of year 693 690 666
========= ======== ========
Additional Paid-In Capital:
Beginning of year 60,482 36,694 36,610
Proceeds from public offering - 23,571 -
Proceeds from exercise of stock options 126 217 84
--------- -------- --------
End of year 60,608 60,482 36,694
========= ======== ========
Retained Earnings (Accumulated Deficit):
Beginning of year 43,661 19,487 242
Net income per accompanying statement 30,724 24,186 19,245
Effect of Stock Split on proceeds from
public offering - (12) -
--------- -------- --------
End of year 74,385 43,661 19,487
========= ======== ========
Foreign Currency Translation Adjustment:
Beginning of year 437 440 450
Translation adjustment 133 (3) (10)
--------- -------- --------
End of year 570 437 440
========= ======== ========
TOTAL SHAREHOLDERS' EQUITY, END OF YEAR $ 136,256 $105,270 $ 57,287
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>66
DEVRY INC.
Notes to Consolidated Financial Statements
June 30, 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
DeVry Inc. (the Company), through its wholly owned subsidiaries,
operates an international system of degree-granting, career-oriented
higher-education schools and a leading international training firm.
Keller Graduate School of Management, Inc. (KGSM), is one of the
largest regionally accredited higher-education systems in North
America. Its DeVry Institutes award associate and bachelor's
degrees in electronics, computer information systems, business
administration, accounting, technical management and
telecommunications management. Until June 1998, the DeVry
Institutes were located on 11 campuses in the United States and four
campuses in Canada. A twelfth U.S. campus was opened in July 1998
and a thirteenth is scheduled to open in November 1998. In July 1998,
one of the Canadian Institutes in the Toronto area consolidated
its operations into the two newer campuses in that area.
Keller Graduate School of Management awards master's degrees in business
administration, accounting and financial management, information systems
management, human resource management, project management and
telecommunications management. Keller Graduate School classes are offered
at 26 locations in Illinois, Indiana, California, Missouri, Georgia, Wisconsin,
Arizona and Virginia. Several additional locations are scheduled to
open in fiscal 1999. Through its Center for Corporate Education division,
Keller Graduate School offers on-site management and technical training
programs for larger corporations and government agencies. Becker CPA Review
(Becker CPA) is the leading international training firm preparing students
to pass the Certified Public Accountant (CPA) examination. Currently, the
CPA exam review course is offered at approximately 160 locations in the
United States as well as at 29 international locations. Becker CPA
also offers a Certified Management Accountant (CMA) examination
review course in the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
Becker CPA accounts are consolidated based on an April 30 fiscal
year end, which is its natural year end based on its business cycle.
There were no events occurring at Becker CPA during the intervening
period before June 30, that materially affected the financial
position or results of operations of the Company. Unless indicated,
or the context requires otherwise, references to years refer to the
Company's fiscal years then ended.
<PAGE>67
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
Cash and cash equivalents can include time deposits, commercial paper,
municipal bonds and bankers acceptances with maturities of three
months or less or that are highly liquid and readily convertible to
a known amount of cash. These investments are stated at cost, which
approximates market, due to their short duration or liquid nature.
The Company limits the amount of credit exposure with any one
investment instrument or with any one financial institution. The
Company evaluates the credit worthiness of the security issuers and
financial institutions with which it invests.
Financial Aid and Restricted Cash
Financial aid and assistance programs, in which most of the
Company's students participate, are subject to political and
governmental budgetary considerations. There is no assurance that
such funding will be maintained at current levels. 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 the initiation of a suspension, limitation or termination
proceeding against the Company.
A significant portion of revenues is provided by 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. The
cash is held in separate bank accounts and does not become available
for general use by the Company until the financial aid is credited
to the accounts of students and the cash is transferred to an
operating cash account.
Revenue Recognition
Tuition revenue and provisions for refunds and uncollectible
accounts are recognized ratably over each of the academic terms in a
fiscal year. The provisions for refunds and uncollectible accounts
are included in the cost of educational services in the Consolidated
Statements of Income. Related reserves are $4,720,000 and
$5,956,000 at June 30, 1998 and 1997, respectively. Textbook sales
and other educational revenues are recognized when they occur.
Revenue from training services is recognized when the training is
provided.
<PAGE>68
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories consist mainly of textbooks, electronics kits and
supplies held for sale to students enrolled in the Company's educational
programs. Inventories are valued at the lower of cost (first-in,
first-out) or market.
Land, Buildings and Equipment
Land, buildings and equipment are recorded at cost. Cost includes
additions and those improvements that increase the capacity or
lengthen the useful lives of the assets. Repairs and maintenance
costs are expensed as incurred. Interest is capitalized as a
component of cost on major projects during the construction period.
No interest was capitalized for the years ended June 30, 1998 and
1997. The amount of interest capitalized for the year ended
June 30, 1996, was $314,000. Assets under construction are reflected in
construction in progress until they are ready for their intended use.
Depreciation is computed using the straight line method over
estimated service lives ranging from three to 31 years.
Intangible Assets
Intangible assets relate mainly to the acquired business operations of
DeVry Institutes and Becker CPA (Note 2). These assets consist of
the purchase prices allocated to the estimated fair value of certain
assets acquired (Note 3). Accumulated amortization is computed
using the straight line method over the assets' estimated useful
lives of 25 to 40 years.
The Company expenses all marketing and new school opening costs as
incurred.
Perkins Program Fund
The Company makes contributions to the Perkins Student Loan Fund at
a rate equal to 33% of that contributed 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
$1,879,000 and $1,714,000 at June 30, 1998 and 1997, respectively.
<PAGE>69
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
The carrying amount reported in the Consolidated Balance Sheets for
cash and cash equivalents, restricted cash, accounts receivable,
accounts payable, accrued expenses and advanced and deferred
tuition payments approximate fair value because of the immediate or
short-term maturity of these financial instruments. The carrying
amount reported for borrowings under the revolving loan agreement
approximates fair value because the underlying instruments are
variable-rate notes.
Foreign Currency Translation
The financial position and results of operations of the Company's
foreign subsidiary and other foreign operations are measured using
local currencies as the functional currencies. Assets and
liabilities of the foreign subsidiary and other foreign operations
are translated to U.S. dollars using exchange rates in effect at the
balance sheet dates. Income and expense items are translated at
monthly average rates of exchange. The resultant translation
adjustments are included in the component of shareholders' equity
designated as Foreign Currency Translation Adjustment. Transaction
gains or losses during the years ended June 30, 1998, 1997 and 1996,
were insignificant.
Income Taxes
Income taxes are provided by applying statutory rates to income
recognized for financial statement purposes. Deferred income taxes
are provided for revenue and expense items that are recognized in
different accounting periods for financial reporting purposes than those
for income tax purposes. Effects of statutory rate changes are
recognized for financial reporting purposes in the year in which
enacted by law.
Earnings Per Common Share
The Company adopted the Financial Accounting Standards Board (FASB)
Statement No. 128 "Earnings Per Share" ("SFAS 128"), in the second
quarter of fiscal 1998. All prior period earnings per share data has
been restated to conform with the provisions of SFAS 128. Under this
statement, basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding during the
period after giving retroactive effect to stock splits (Note 7). Shares
used in this computation were 69,139,000, 67,135,000 and 66,474,000 in 1998,
1997 and 1996, 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, after giving retroactive effect to stock splits (Note 7), were
70,144,000, 68,170,000 and 67,322,000 in 1998, 1997 and 1996, respectively.
<PAGE>70
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the amounts of revenues and
expenses during the reported period. Actual results could differ
from those estimates.
Stock-based Compensation
The Company has elected to continue to account for its stock-based
awards in accordance with Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB Opinion No. 25")
and has provided the pro forma disclosures as required by FASB Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"),for the years ended June 30, 1998, 1997
and 1996, in Note 7.
Recent Accounting Pronouncements
in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130, which is
Effective for the Company's first quarter of fiscal 1999, establishes
standards for reporting and display of comprehensive income and its
components in the financial statements. The Company has evaluated the
reporting requirements of SFAS 130 and believes that its adoption will not
have a material impact on the Company's consolidated results of operations,
financial position and cash flows.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131, which is effective for the year ending June 30,
1999, establishes standards for the way that public business enterprises
report information about operating segments. It also establishes
standards for related disclosures about products and services,
geographic areas and major customers. The Company is evaluating the
disclosure requirements of SFAS 131 and believes that its adoption
will not have a material impact on the Company's future reported results.
Reclassifications
Certain previously reported amounts have been reclassified to
conform to the current presentation format.
<PAGE>71
NOTE 2: ACQUISITION
On June 19, 1996, a newly formed, wholly owned subsidiary of the
Company acquired substantially all of the tangible operating
assets and trade names and assumed certain liabilities of Becker
CPA for $18,458,000 in cash. On this same date, another newly
formed, wholly owned subsidiary of the Company acquired certain
copyrights, other intellectual property and publicity rights of
Becker CPA for $17,935,000 in cash. Becker CPA is the leading
international training firm preparing students to pass the
nationally administered CPA exam, and it also offers a CMA exam
review course. Funding for the acquisitions was obtained through
borrowings under the Company's revolving credit facility (Note 5).
The acquisitions have been accounted for under the purchase method
of accounting. Accordingly, the purchase prices were allocated to
the tangible and identifiable intangible assets acquired and
liabilities assumed based on their estimated fair values. The
intangible assets are being amortized using the straight line method
over a 25-year period for financial reporting purposes and are being
deducted for tax reporting purposes over shorter statutory lives.
The following unaudited pro forma financial information presents the
results of operations of the Company and the acquired Becker CPA
business as if the acquisitions had occurred at the beginning of that
fiscal year. The pro forma information is based on historical
results of operations and does not necessarily reflect the actual
results that would have occurred, nor is it necessarily indicative of
future results of operations of the combined enterprises (dollars
in thousands except for per share amounts):
1996
(Unaudited)
----------
Net Sales $279,938
Net Income 19,375
Earnings Per Common Share $0.29
<PAGE>72
NOTE 3: INTANGIBLE ASSETS
Intangible assets that were not fully amortized at June 30 consist
of the following:
1998 1997
----------- -----------
Trademarks $2,521,000 $2,521,000
Trade Names 17,465,000 17,465,000
Intellectual Property 17,425,000 17,425,000
Other 4,178,000 2,478,000
----------- -----------
41,589,000 39,889,000
Accumulated Amortization (3,681,000) (2,119,000)
----------- -----------
$37,908,000 $37,770,000
=========== ===========
NOTE 4: INCOME TAXES
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
For the Year Ended June 30,
---------------------------------------
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
U.S. $56,091,000 $44,731,000 $35,645,000
Foreign (5,608,000) (4,875,000) (2,947,000)
---------------------------------------
Total $50,483,000 $39,856,000 $32,698,000
=======================================
</TABLE>
<PAGE>73
NOTE 4: INCOME TAXES (continued)
The net income tax provisions (benefits) related to the above
results are as follows:
<TABLE>
<CAPTION>
For the Year Ended June 30,
---------------------------------------
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Current Tax Provision:
U.S. Federal $17,643,000 $12,575,000 $11,968,000
State and Local 3,123,000 2,412,000 2,717,000
Foreign - (1,295,000) (776,000)
---------------------------------------
Total Current 20,766,000 13,692,000 13,909,000
Deferred Tax Provision:
U.S. Federal 1,038,000 1,982,000 (214,000)
State and Local 198,000 455,000 (44,000)
Foreign (2,243,000) (459,000) (198,000)
---------------------------------------
Total Deferred (1,007,000) 1,978,000 (456,000)
---------------------------------------
Net Income Tax Provision $19,759,000 $15,670,000 $13,453,000
=======================================
</TABLE>
The income tax provisions differ from those computed using the
statutory rate as a result of the following items:
<TABLE>
<CAPTION>
For the Year Ended June 30,
------------------------------------------------------------------
1998 1997 1996
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected Provision $17,669,000 35.0% $13,950,000 35.0% $11,444,000 35.0%
(Higher) Lower Rates
on Foreign Operations (262,000) (0.5%) (48,000) (0.1%) (312,000) (1.0%)
State Income Taxes 2,108,000 4.1% 1,864,000 4.7% 1,767,000 5.4%
Other 244,000 0.5% (96,000) (0.3%) 554,000 1.7%
------------------------------------------------------------------
Income Tax Provision $19,759,000 39.1% $15,670,000 39.3% $13,453,000 41.1%
==================================================================
</TABLE>
<PAGE>74
NOTE 4: INCOME TAXES (continued)
Deferred income tax assets (liabilities) result primarily from the
recognition of the tax benefits of net operating loss carryforwards
and from temporary differences in the recognition of various expenses
for tax and financial statement purposes. These assets and
liabilities are composed of the following:
<TABLE>
<CAPTION>
For the Year Ended June 30,
--------------------------------------
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Loss Carryforwards $1,476,000 $ - $ -
Employee Benefits 1,734,000 1,785,000 1,207,000
Rental and Occupancy 362,000 607,000 762,000
Receivable Reserves and
Other 2,170,000 2,472,000 2,953,000
--------------------------------------
Gross Deferred Tax Assets 5,742,000 4,864,000 4,922,000
Depreciation and Other (5,356,000) (5,419,000) (4,837,000)
Amortization (2,448,000) (2,514,000) (1,176,000)
--------------------------------------
Gross Deferred Tax
Liabilities (7,804,000) (7,933,000) (6,013,000)
--------------------------------------
Net Deferred Taxes ($2,062,000) ($3,069,000) ($1,091,000)
======================================
</TABLE>
Based on the Company's history of operating earnings and its
expectations for the future, management believes that operating
income will be sufficient to recognize fully all deferred tax assets.
Deferred income tax provisions (benefits) result primarily from
temporary differences in the recognition of various expenses for tax
and financial statement purposes. The sources and tax effects of
these differences are as follows:
<TABLE>
<CAPTION>
For the Year Ended June 30,
---------------------------------------
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Realization of Operating
Loss Carryforwards ($1,476,000) $ - $829,000
Excess (Tax) Book
Depreciation and
Amortization (129,000) 1,920,000 266,000
Excess of Amounts Expensed
for (Book) Tax Purposes
Over Amounts Deductible
for Book (Tax) Purposes 598,000 58,000 (1,603,000)
Other, Net - - 52,000
--------------------------------------
Deferred Tax Provision ($1,007,000) $1,978,000 ($456,000)
======================================
</TABLE>
<PAGE>75
NOTE 5: REVOLVING LOAN AGREEMENT
All of the Company's borrowings and letters of credit under its
revolving loan agreement are through KGSM. This agreement consists
of a revolving credit facility in an aggregate amount not to exceed
$85,000,000. This agreement was amended in June 1997 to permit
increased annual capital expenditures in conjunction with the Company's
expansion plans. The agreement was amended again in March 1998 to extend
its term and expand the range of acquisitions or investments within
the terms of the agreement. All borrowings and letters of credit
under the revolving loan agreement mature in August 2000,
and no installment payments are required. Outstanding
borrowings under the revolving loan agreement are $10,000,000
and $33,000,000 at June 30, 1998 and 1997, respectively. There
is also a $1,400,000 letter of credit outstanding under this
agreement at June 30, 1998 and 1997. Outstanding borrowings
under the revolving loan agreement bear interest, payable quarterly,
at either the prime rate or a Eurodollar rate plus 0.35%, at the
option of the Company. Outstanding letters of credit under the
revolving loan agreement are charged an annual fee equal to 0.35% of
the undrawn face amount of the letter of credit, payable quarterly.
The effective interest rate on outstanding borrowings at June 30, 1998,
was 7.5%.
The bank financing agreement contains certain covenants that, among
other things, limit annual capital expenditures and require
maintenance of certain financial ratios as defined in the agreement.
None of these covenants negatively impacts the Company's liquidity
or capital resources.
NOTE 6: EMPLOYEE BENEFIT PLANS
Profit Sharing Retirement Plan
All employees who meet certain eligibility requirements can
participate in the Company's 401(k) Profit Sharing Retirement Plan.
The Company contributes to the plan an amount up to 1.5% of the
total eligible compensation of employees who make contributions under
the plan. Matching contributions under the plan were approximately
$1,194,000, $1,115,000 and $791,000 in 1998, 1997 and 1996,
respectively. In addition, the Company's board of directors may also
make discretionary contributions for the benefit of all eligible
employees. Provisions for discretionary contributions under the plan
were approximately $2,162,000, $2,165,000 and $1,898,000 in 1998,
1997 and 1996, respectively.
Employee Stock Purchase Plan
Under provisions of the DeVry Employee Stock Purchase Plan, any
eligible employee may authorize the Company to withhold up to $25,000
of annual earnings to purchase common stock of the Company on the
open market at 100% of the prevailing market price. The Company pays
all brokerage commissions and administrative fees associated with the
Plan. These expenses were insignificant for the years ended June 30,
1998, 1997 and 1996.
<PAGE>76
NOTE 7: SHAREHOLDERS' EQUITY
Stock Splits
On December 18, 1996, and again on June 19, 1998, the Company's
common stock was split two-for-one in the form of 100% stock
dividends. The par value of the additional shares arising from both
splits has been reclassified from retained earnings to common stock.
In addition, all references in the financial statements to the
number of shares outstanding, per share amounts, stock option data
and market prices of the Company's common stock have been restated
to reflect both stock splits as though they had occurred at the
beginning of the initial period presented.
Stock Offering
In April 1997, the Company and certain shareholders completed an
offering of the Company's common stock. In this offering, the
Company sold 2,400,000 shares of its common stock. The Company's
proceeds of the offering, net of underwriting discounts and
commissions and other related expenses, were approximately
$23,580,000. Substantially all the net proceeds were used to
repay indebtedness. The Company did not receive any proceeds
from the sale of shares by the selling shareholders.
Stock Option Plans
The Company maintains three stock-based award plans: the Amended
and Restated Stock Incentive Plan, established in 1988, the 1991
Stock Incentive Plan and the 1994 Stock Incentive Plan. Under
these Plans, directors, key executives and managerial employees
are eligible to receive incentive stock or nonqualified options
to purchase shares of the Company's common stock. The Amended
and Restated Stock Incentive Plan and the 1994 Stock Incentive
Plan are administered by a Plan Committee of the board of
directors. Plan Committee members are granted automatic,
nondiscretionary annual options. The 1991 Stock Incentive Plan
is administered by the board of directors. Options under all
three Plans are granted for terms of up to 10 years and vest over
periods of one to five years. The option price under the Plans
is the fair market value of the shares on the date of the grant.
At June 30, 1998, 2,690,380 authorized but unissued shares of
common stock were reserved for issuance under the Company's stock
option plans.
<PAGE>77
NOTE 7: SHAREHOLDERS' EQUITY (continued)
A summary of activity under the stock option plans is as follows:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------
Weighted
Shares Average
Available Number Exercise
for Grant Outstanding Price
------------------------ ---------
<S> <C> <C> <C>
Balance at June 30, 1995 1,925,600 1,234,400 $2.49
Options Granted (264,200) 264,200 $5.48
Options Exercised - (32,960) $2.57
Options Canceled 42,600 (42,600) $3.79
----------------------
Balance at June 30, 1996 1,704,000 1,423,040 $3.01
Options Granted (313,000) 313,000 $11.54
Options Exercised - (121,500) $1.79
Options Canceled 29,600 (29,600) $5.95
----------------------
Balance at June 30, 1997 1,420,600 1,584,940 $4.73
Options Granted (284,600) 284,600 $14.53
Options Exercised - (315,160) $1.36
Options Canceled 9,240 (9,240) $9.45
----------------------
Balance at June 30, 1998 1,145,240 1,545,140 $7.19
======================
</TABLE>
A summary of outstanding and exercisable stock options as of
June 30, 1998, is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number of Contractual Exercise Number of Exercise
Prices Shares Life Price Shares Price
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.88-3.69 722,580 5.49 $3.10 553,460 $3.05
$5.06-6.28 240,400 7.14 $5.48 99,600 $5.50
$11.19-14.59 578,660 8.65 $12.96 64,960 $11.55
$16.19-19.31 3,500 9.80 $17.97 - -
-------------------------------------------------------------
1,545,140 6.94 $7.19 718,020 $4.16
=============================================================
</TABLE>
<PAGE>78
NOTE 7: SHAREHOLDERS' EQUITY (continued)
Pro Forma Disclosure
As permitted under SFAS 123, the Company has elected to continue
to follow APB Opinion No. 25 in accounting for stock-based
awards. Under APB Opinion No. 25, the Company generally
recognizes no compensation expense with respect to such awards,
since the exercise price of the common stock options awarded are
equal to the fair market value of the underlying security on the
date of the grant.
Pro forma information regarding net income and earnings per share
is required by SFAS 123 for awards granted after June 30, 1995, as
if the Company had accounted for its stock-based awards under the
fair value method of SFAS 123. The fair value of the Company's
stock-based awards was estimated as of the date of grant using
the Black-Scholes option pricing model. The Black-Scholes model
was developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards.
This model also requires highly subjective assumptions, including
future stock price volatility and expected time until exercise,
which greatly affect the calculated grant date fair value.
The weighted average estimated grant date fair value, as defined
by SFAS 123, for options granted at market price under the
Company's stock option plans during fiscal 1998, 1997 and 1996 was
$7.76, $6.29 and $2.95 per share, respectively. The fair value of
the Company's stock option awards was estimated assuming no expected
dividends and the following weighted average assumptions:
1998 1997 1996
-------------------------------
Expected life (in years) 8.00 8.10 8.10
Expected volatility 36.00% 34.59% 34.44%
Risk-free interest rate 6.08% 6.80% 6.52%
<PAGE>79
NOTE 7: SHAREHOLDERS' EQUITY (continued)
Had the Company recorded compensation based on the estimated
grant date fair value, as defined by SFAS 123 for awards granted
under its stock option plans, the Company's net income and net
income per share would have been reduced to the pro forma amounts
below for the years ended June 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net income as reported $30,724 $24,186 $19,245
Pro forma net income $30,147 $23,885 $19,162
Diluted earnings per common share
as reported $0.44 $0.35 $0.29
Pro forma diluted earnings
per common share $0.43 $0.35 $0.28
</TABLE>
The pro forma effect on net income and earnings per common share
for 1998, 1997 and 1996 is not representative of the pro forma effect
on net income in future years because it is not required to take into
consideration pro forma compensation expense related to grants
made prior to fiscal year 1996.
NOTE 8: COMMITMENTS AND CONTINGENCIES
KGSM and Becker CPA lease certain equipment and facilities under
non-cancelable operating leases, some of which contain renewal
options, escalation clauses and requirements to pay taxes,
insurance and maintenance costs. Future minimum rental
commitments for all non-cancelable operating leases having a
remaining term in excess of one year at June 30, 1998, are as
follows:
Year Ended
June 30, Amount
---------- -----------
1999 $13,570,000
2000 14,070,000
2001 15,130,000
2002 15,190,000
2003 13,090,000
Thereafter 93,410,000
The Company recognizes rent expense on a straight line basis over
the term of the lease, although the lease may include escalation
clauses that provide for lower rent payments at the start of the
lease term and higher lease payments at the end of the lease term.
<PAGE>80
NOTE 8: COMMITMENTS AND CONTINGENCIES (continued)
Rent expenses for the years ended June 30, 1998, 1997 and 1996,
were $18,995,000, $15,990,000 and $13,879,000, respectively.
The Company is subject to occasional lawsuits, investigations and
claims arising in the normal conduct of its business. Neither
the Company nor any of its subsidiaries is currently a party to
any material legal action except those described below.
During 1996, the Ontario Ministry of Education and Training
temporarily suspended, and later conditionally reinstated, the
processing of financial aid applications for students attending
the Company's Toronto-area schools. Full unconditional
reinstatement is subject to the Ministry's completion of certain
procedures regarding verification of the Company's compliance with
current financial aid processing regulations.
In July 1996, the Company and DeVry Canada, Inc. were served with
a purported class action lawsuit filed in Canada by a former
student alleging breach of contract and misrepresentation about the
quality of DeVry Institutes' educational programs. The
Company believes that the claims in the lawsuit are frivolous and
without merit. In July 1998, the Canadian court rejected the plaintiffs'
motion to certify the lawsuit as a class action in the province of
Ontario. Although the outcome cannot be predicted with certainty, the
Company believes that any further pursuit of this matter will not have
a material effect on the Company's financial position, results of
operations or liquidity.
<PAGE>81
NOTE 9: OPERATIONS BY GEOGRAPHIC AREA
The Company operates in a single industry segment as a
provider of educational services. The Company conducts its
educational operations in the United States, Canada, Europe,
the Middle East and the Pacific Rim. International revenues
from each separate geographic region were less than 10% of total
revenues. Revenues, income before interest and taxes, and
identifiable assets by geographic area are as follows:
<TABLE>
<CAPTION>
For the Year Ended June 30,
--------------------------------------------
1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
Revenues:
Domestic Operations $332,405,000 $287,190,000 $234,180,000
International Operations 21,066,000 21,129,000 25,827,000
--------------------------------------------
Consolidated $353,471,000 $308,319,000 $260,007,000
============================================
Income Before Interest
and Taxes:
Domestic Operations $56,998,000 $47,570,000 $36,708,000
International Operations (5,602,000) (4,866,000) (2,947,000)
--------------------------------------------
Consolidated $51,396,000 $42,704,000 $33,761,000
============================================
Identifiable Assets:
Domestic Operations $217,390,000 $201,369,000 $170,828,000
International Operations $6,502,000 $7,283,000 7,261,000
--------------------------------------------
Consolidated $223,892,000 $208,652,000 $178,089,000
============================================
</TABLE>
<PAGE>82
NOTE 10: QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly data for the years ended June 30, 1998
and 1997, are as follows (dollars in thousands, except for per share
amounts):
<TABLE>
<CAPTION>
1998 Quarter
- ---- ------------------------------------- Total
First Second Third Fourth Year
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $80,421 $90,342 $92,854 $89,854 $353,471
Income Before Interest
and Taxes 10,696 13,923 14,089 12,688 51,396
Net Income 6,279 8,347 8,437 7,661 30,724
Earnings Per Common Share
Basic 0.09 0.12 0.12 0.11 0.44
Diluted 0.09 0.12 0.12 0.11 0.44
</TABLE>
<TABLE>
<CAPTION>
1997 Quarter
- ---- ------------------------------------- Total
First Second Third Fourth Year
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $69,249 $81,262 $81,133 $76,675 $308,319
Income Before Interest
and Taxes 9,034 11,955 11,310 10,405 42,704
Net Income 4,960 6,781 6,454 5,991 24,186
Earnings Per Common Share
Basic 0.07 0.10 0.10 0.09 0.36
Diluted 0.07 0.10 0.10 0.09 0.35
</TABLE>
<PAGE>83
Report of Independent Accountants
To the Board of Directors
and Shareholders of DeVry Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 86 present fairly, in all
material respects, the financial position of DeVry Inc. and its
subsidiaries at June 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June
30, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
August 3, 1998
<PAGE>84
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting
and financial disclosure.
<PAGE>85
PART III
--------
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Information regarding directors and nominees for directors of the Company
is included in the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 17, 1998, and is incorporated herein by
reference. Information regarding executive officers is included on pages
45 through 48 in Part I of this Form 10-K.
Information regarding compliance with Section 16(a) filings will be
included in the Proxy Statement for the Annual Meeting of Stockholders to
be held November 17, 1998, and is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
Information regarding compensation of executive officers of the Company is
included in the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 17, 1998, and is incorporated herein by
reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is included in the definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on November 17, 1998, and is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
included in the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 17, 1998, and is incorporated herein by
reference.
<PAGE>86
PART IV
--------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The following financial statements of the Company and its subsidiaries
are included in Part II, Item 8, on pages 61 through 83 of this Form
10-K.
10K
Report Page
-----------
Consolidated Balance Sheets at
June 30, 1998 and 1997 61-62
Consolidated Statements of Income for the
years ended June 30, 1998, 1997 and 1996 63
Consolidated Statements of Cash Flows for
the years ended June 30, 1998, 1997 and 1996 64
Consolidated Statements of Shareholders'
Equity for the years ended June 30, 1998,
1997 and 1996 65
Notes to Consolidated Financial Statements 66-82
Report of Independent Accountants 83
(2) Supplemental Financial Statement Schedules
The following supplemental schedule of the Company and its
subsidiaries is included on page 91 of this Form 10-K.
<PAGE>87
10K
Report Page
-----------
II. - Valuation and Qualifying Accounts 91
Schedules other than the one listed above are omitted for the reason
that they are not required or are not applicable, or the required
information is shown on the financial statements or notes thereto.
(3) Exhibits
A complete listing of exhibits is included on pages 92 through 94 of
this Form 10-K.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
fourth quarter of its fiscal year ending June 30, 1998.
<PAGE>88
<TABLE>
FIVE-YEAR SUMMARY - OPERATING, FINANCIAL AND OTHER DATA
(Dollars in Thousands Except for Per Share Amounts)
<CAPTION>
YEAR ENDED JUNE 30, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING:
Revenues $353,471 $308,319 $260,007 $228,593 $211,437
Depreciation 12,397 9,676 7,516 6,157 6,981
Amortization of Intangible Assets 1,590 1,586 63 63 346
Earnings Before Interest and Taxes (EBIT) 51,396 42,704 33,761 28,829 25,618
EBIT as a Percent of Revenues 14.5% 13.9% 13.0% 12.6% 12.1%
Interest Expense 913 2,848 1,063 3,070 4,615
Net Income 30,724 24,186 19,245 14,896 12,225
Change from Prior Year in Net Income 27.0% 25.7% 29.2% 21.8% 29.6%
Diluted Earnings Per Common Share (EPS) 0.44 0.35 0.29 0.22 0.18
Shares Used in Calculating Diluted EPS
(In Thousands) 70,144 68,170 67,322 66,908 66,776
FINANCIAL POSITION:
Cash and Cash Equivalents 31,881 38,865 29,948 26,252 22,704
Total Assets 223,892 208,652 178,089 126,671 106,798
Total Funded Debt 10,000 33,000 61,500 33,029 43,224
Total Shareholders' Equity 136,256 105,270 57,287 37,968 22,978
OTHER SELECTED DATA:
Cash Provided by Operating Activities 47,599 42,427 28,368 28,200 28,405
Capital Expenditures 31,845 28,807 18,352 14,551 6,288
Total DeVry and Keller Fall Term
Student Enrollment 38,031 34,596 32,612 29,884 28,815
Number of DeVry Institutes 15 14 13 13 11
Number of Keller Centers 26 20 18 17 15
Shares Outstanding at Year-end
(in Thousands) 69,305 69,008 66,488 66,454 66,426
Closing Price of Common Stock
at Year-end 21 15/16 13 1/2 11 1/4 5 3 5/8
Price Earnings Ratio on Common Stock <F1> 50 39 39 23 20
<FN>
<F1> Computed on trailing four quarters of earnings per common share.
</FN>
</TABLE>
<PAGE>89
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DeVRY INC.
Date: September 23, 1998 By/s/Dennis J. Keller
Dennis J. Keller
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and dates indicated below.
Signature Title Date
- --------- ----- ----
/s/Dennis J. Keller
Dennis J. Keller Chairman, Chief Executive
Officer and Director 9/23/98
/s/Ronald L. Taylor
Ronald L. Taylor President, Chief Operating
Officer and Director 9/23/98
/s/Norman M. Levine
Norman M. Levine Vice President, Chief
Financial Officer, Controller
and Principal Accounting Officer 9/23/98
/s/Ewen M. Akin
Ewen M. Akin Director 9/14/98
/s/Charles A. Bowsher
Charles A. Bowsher Director 9/14/98
<PAGE>90
SIGNATURES (CONTINUED)
Signature Title Date
- --------- ----- ----
/s/David S. Brown
David S. Brown Director 9/14/98
/s/Ann I. Gannon
Ann I. Gannon Director 9/14/98
Robert E. King Director
/s/Frederick A. Krehbiel
Frederick A. Krehbiel Director 9/14/98
/s/Thurston E. Manning
Thurston E. Manning Director 9/14/98
/s/Robert C. McCormack
Robert C. McCormack Director 9/14/98
/s/Julie A. McGee
Julie A. McGee Director 9/14/98
/s/Hugo J. Melvoin
Hugo J. Melvoin Director 9/14/98
<PAGE>91
<TABLE>
DEVRY INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended June 30, 1998, 1997 and 1996
(Dollars in Thousands)
<CAPTION>
Balance at Charged to Charged to Balance at
Description of Allowances Beginning Costs and Other Deductions End of
and Reserves of Period Expenses Accounts <F1> Period
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
- ---------
Deducted from accounts receivable
for refunds and uncollectible accounts $5,956 $15,819 - $17,055 $4,720
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
1997
- ---------
Deducted from accounts receivable
for refunds and uncollectible accounts $6,603 $16,592 - $17,239 $5,956
Deducted from notes receivable for
uncollectible notes 15 36 - 1 50
For loss on disposition of inventory 61 38 - 36 63
For loss on DeVry capital contributions
to Perkins loan program 1,547 167 - - 1,714
1996
- ---------
Deducted from accounts receivable
for refunds and uncollectible accounts $5,368 $15,867 - $14,632 $6,603
Deducted from notes receivable for
uncollectible notes 24 - - 9 15
For loss on disposition of inventory 61 22 - 22 61
For loss on DeVry capital contributions
to Perkins loan program 1,275 272 - - 1,547
<FN>
<F1> Write-offs of uncollectible amounts or inventory.
</FN>
</TABLE>
<PAGE>92
INDEX TO EXHIBITS
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
- ------- ---------------------------- ------------- ---------------
2(a) Agreement regarding purchase Exhibit 2 to the
of Becker CPA assets dated Company's Form 8-K
as of June 19, 1996 filed July 3, 1996
3(a) Certificate of Amendment of Exhibit 3(a) to the
Restated Certificate of Company's Form 10-K
Incorporation of the for the year ended
Registrant June 30, 1995
3(b) Certificate of Amendment of Exhibit 3.1 to the
Restated Certificate of Company's Form S-3,
Incorporation of the #333-22457 dated
Registrant February 27, 1997
3(c) Amended and Restated By-Laws Exhibit 3(d) to
of the Registrant Amendment #1 of the
Company's Form S-1,
#33-40151 dated
May 21, 1991
4(a) Amended and Restated Exhibit 4(a) to the
Financing Agreement, dated Company's Form 10-K
as of January 14, 1994, for the year ended
between Keller Graduate June 30, 1994
School of Management, Inc.,
certain financial
institutions and Continental
Bank N.A.
4(b) First Amendment, dated as of Exhibit 4(b) to the
July 18, 1995, to Amended Company's Form
and Restated Financing 10-K for the year
Agreement between Keller ended June 30, 1995
Graduate of School of
Management, Inc., certain
financial institutions and
Bank of America Illinois
4(c) Amended and Restated Exhibit 4(c) to the
Financing Agreement, dated Company's Form 10-K
as of June 12, 1996, between for the year ended
Keller Graduate School of June 30, 1996.
Management, Inc., certain
financial institutions and
Bank of America Illinois
<PAGE>93
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
- ------- ---------------------------- ------------- ----------------
4(d) First Amendment, dated as of Exhibit 4(d) to the
June 6, 1997, to Amended and Company's Form 10-K
Restated Financing Agreement for the year ended
between Keller Graduate June 30, 1997
School of Management, Inc.,
certain financial
institutions and Bank of
America Illinois.
4(e) Second Amendment, dated as
of March 23, 1998 to
Amended and Restated
Financing Agreement between
Keller Graduate School of
Management, Inc., certain
financial institutions and
Bank of America National
Trust and Savings
Association. 95-113
10(a) Registrant's Amended and Exhibit 10.1 to the
Restated Stock Incentive Company's Form S-3,
Plan #333-22457 dated
February 27, 1997
10(b) Registrant's 1991 Stock Exhibit 10.3 to the
Incentive Plan Company's Form S-3,
#333-22457 dated
February 27, 1997
10(c) Registrant's 1994 Stock Exhibit 10.2 to the
Incentive Plan Company's Form S-3,
#333-22457 dated
February 27, 1997
10(d) DeVry Inc. Amended and Exhibit 10(d) to
Restated Profit Sharing the Company's Form
Retirement Plan dated 10-K for the year
effective as of July 1, 1992 ended June 30, 1996
10(e) First Amendment to DeVry Exhibit 10(e) to
Inc. Amended and Restated the Company's Form
Profit Sharing Retirement 10-K for the year
Plan ended June 30, 1996
<PAGE>94
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
- ------- ---------------------------- ------------- -----------------
10(f) Amendment to DeVry Inc. Exhibit 10(f) to
Amended and Restated Profit the Company's Form
Sharing Retirement Plan 10-K for the year
ended June 30, 1997
10(g) Amendment to DeVry Inc. Exhibit 10(g) to
Amended and Restated Profit the Company's Form
Sharing Retirement Plan 10-K for the year
ended June 30, 1997
10(h) Amendment to DeVry Inc. Exhibit 10(h) to
Amended and Restated Profit the Company's Form
Sharing Retirement Plan 10-K for the year
ended June 30, 1997
10(i) Employee Stock Purchase Plan Exhibit 10(f) to
the Company's Form
S-3, #33-58636
dated February 22, 1993
10(j) First Amendment to Employee Exhibit 10(h) to
Stock Purchase Plan the Company's Form
10-K for the year
ended June 30, 1994
10(k) Form of Indemnification Exhibit 10(d) to
Agreement between the the Company's Form
Registrant and its directors S-1, #33-40151
dated April 24, 1991
10(l) Employment Agreement between Exhibit 10(f) to
the Registrant and each of the Company's Form
Dennis J. Keller and Ronald 10-K for the year
L. Taylor ended June 30, 1991
21 Subsidiaries of the
Registrant 114
23 Consent of Price Waterhouse
Coopers LLP, independent 115
accountants
27 Financial Data Schedule 116
<PAGE>95
SECOND AMENDMENT
TO
AMENDED AND RESTATED FINANCING AGREEMENT
THIS SECOND AMENDMENT (this "Amendment") dated as of March 23,
1998 is entered into by and among Keller Graduate School of Management, Inc.,
a Delaware corporation (the "Borrower"), the financial institutions who are
party to the Credit Agreement referred to below (the "Lenders") and Bank of
America National Trust and Savings Association (as successor by merger to Bank
of America Illinois), as Agent for the Lenders (herein, in such capacity, the
"Agent").
W I T N E S E T H:
WHEREAS, the Borrower, the Lenders and the Agent are parties
to a certain Amended and Restated Financing Agreement dated as of June 12,
1996 (as heretofore amended, called the "Credit Agreement"; terms used but not
otherwise defined herein are used herein as defined in the Credit Agreement);
WHEREAS, the Borrower desires, among other things, to extend
the Termination Date of the Credit Agreement by one year; and
WHEREAS, subject to the terms and conditions set forth herein
the Agent and the Lenders are willing to so amend the Credit Agreement.
NOW, THEREFORE, in consideration of the premises, and intending
to be legally bound hereby, the Borrower, the Agent and the Lenders hereby
agree as follows:
SECTION 1. AMENDMENTS.
Upon receipt of the documents to be delivered by the Borrower
pursuant to Section 2 below, and in reliance on the Borrower's warranties set
forth in Section 3 below, as of the date hereof the Credit Agreement shall be
hereby amended as follows:
1.1 The title page and the preamble to the Credit Agreement
are hereby amended by deleting each reference therein to "Bank of America
Illinois" and in its place substituting "Bank of America National Trust and
Savings Association (as successor by merger to Bank of America Illinois)".
1.2 The Credit Agreement is hereby amended by deleting each
reference therein to "BAI" and in its place substituting "BofA".
1.3 Paragraph 1(A) of the Credit Agreement is hereby amended
by deleting the definition of "BAI".
<PAGE>96
1.4 Paragraph 1(A) of the Credit Agreement is hereby amended
by adding the following new definitions in their appropriate alphabetical
order:
"Adjusted Consolidated Net Income" shall mean, for any period,
the consolidated net income (or loss) of DeVry and the Subsidiaries for such
period plus the consolidated net income (or loss) for such period attributable
to the assets or capital stock acquired pursuant to any Permitted Transaction
during such period; provided, however, that any write-off or other charge
against income relating to (i) an intangible or other assets excluded from the
calculation of Consolidated Tangible Net Worth, (ii) deferred financing costs
in connection with indebtedness hereunder and (iii) repurchase of interest
rate protection agreements, currency exchange agreements or similar agreements,
shall not be charged against consolidated net income for such period.
"BofA" means Bank of America National Trust and Savings
Association (as successor by merger to Bank of America Illinois).
"Permitted Transaction" shall mean any acquisition by DeVry or
any Subsidiary of all or substantially all of the assets of any Person or any
Investment by DeVry in a Subsidiary which becomes a Subsidiary after the
Restatement Date; provided, that (i) in the case of any Investment, if such
Investment involves the acquisition of capital stock, such Investment must be
approved by the Board of Directors of the issuer of such capital stock, (ii)
any such acquisition or Investment shall involve assets or a Subsidiary, as
the case may be, in the same general line of business as that previously
conducted by Borrower, DeVry or any existing Subsidiary, (iii) prior to such
acquisition or any Investment involving the acquisition of capital stock, the
Borrower shall have submitted to the Agent (a) four fiscal quarters of
financial statements for the assets acquired or Investment made and (b) a
compliance certificate, in the form of Exhibit C, calculated as of the last
day of the most recent Fiscal Quarter for which the Agent has received
financial statements pursuant to Paragraph 11(A), which calculation shall be
consistent in the Agent's reasonable opinion with the financial statements
referenced in the preceding clause (a) and shall demonstrate compliance with
the covenants set forth in Paragraph 16, and (iv) at the time of such
acquisition or Investment, the aggregate consideration paid for such
acquisition or Investment when added to the aggregate consideration paid for
any other Permitted Transactions since the Restatement Date shall not exceed
25% of the consolidated shareholders' equity of DeVry and its Subsidiaries as
of the last day of the most recent Fiscal Quarter for which the Agent has
received financial statements pursuant to Paragraph 11(A).
1.5 Paragraph 1(A) of the Credit Agreement is hereby amended
by amending the definitions of "Debt Coverage Ratio," "EBIT," "EBITDA," "Fixed
Charge Coverage Ratio" and "Special Purpose Subsidiary" to read in their
entirety as follows:
<PAGE>97
"Debt Coverage Ratio" shall mean the ratio, calculated as of
the last day of each Fiscal Quarter, of (i) the average daily aggregate pro
forma Indebtedness (excluding all Indebtedness to the extent consisting of
items described in clause (iii) of the definition of "Indebtedness") of DeVry
and its Subsidiaries for the then ending Fiscal Quarter calculated as if any
Indebtedness incurred in connection with a Permitted Transaction was incurred
on the first day of such period to (ii) the difference of (a) EBITDA for the
then ending and three immediately preceding Fiscal Quarters less
(b) $3,500,000.
"EBIT" shall mean, for any period, DeVry's Adjusted
Consolidated Net Income before deducting interest expense (including, without
limitation, any imputed interest attributable to capitalized leases), Fee
Expenses and taxes.
"EBITDA" shall mean, for any period, DeVry's Adjusted
Consolidated Net Income before deducting interest expense (including, without
limitation, any imputed interest attributable to capitalized leases), Fee
Expenses, taxes, depreciation and amortization and other non-cash charges.
"Fixed Charge Coverage Ratio" shall mean, for any period, the
ratio of DeVry's (i) EBIT for such period, plus lease expense included in
determining such net income (excluding, however, lease expenses for student
housing leases for terms of less than 18 months), plus the aggregate cash
proceeds of sales and other dispositions of DeVry's or Subsidiaries' assets
received during such period, plus federal income tax refunds received by DeVry
during such period arising from losses of DeVry and its Affiliates from prior
periods to (ii) pro forma interest expense and Fee Expenses accruing during
such period calculated as if any Indebtedness incurred in connection with a
Permitted Transaction was incurred on the first day of such period plus lease
expense included in determining such net income (excluding, however, lease
expenses for student housing leases for terms of less than 18 months).
"Special Purpose Subsidiary" means any Subsidiary: (1) of
which the Parent owns, directly or indirectly all of the issued and outstanding
voting stock, general partner's interests or other equity interests having
ordinary voting power to elect the board of directors or other managers of
such Subsidiary; (2) which has executed and delivered to the Agent for the
benefit of the Lenders a Guaranty; and (3) which has been designated in
writing by the Parent to the Agent and the Lenders as a "Special Purpose
Subsidiary"; it is acknowledged that DeVry Educational Products, Inc., a
Delaware corporation, and DeVry/Becker Educational Development Corp., a
Delaware corporation; are "Special Purpose Subsidiaries."
1.6 Paragraph 13 of the Credit Agreement is hereby amended
by adding at the end of such Paragraph new clauses (H) and (I) which shall
read in their entirety as follows:
<PAGE>98
"(H) Year 2000 Compatibility. Borrower and DeVry have conducted a
comprehensive review and assessment of their computer applications and
have made inquiry of their material suppliers, vendors and customers with
respect to the computer application errors (including with respect to date-
sensitive functions) anticipated to occur in connection with the advent of
the calendar year 2000 (herein, the "Year 2000 Problem"). Based on the
foregoing reviews, assessments and inquiries, Borrower and DeVry
reasonably believe that the Year 2000 Problem will not materially
adversely affect Borrower, DeVry's or any Subsidiary's business
operations, prospects or financial condition."
"(I) Subsidiary Guaranties. Borrower and DeVry will cause each
Subsidiary within 30 days of the acquisition or creation of such Subsidiary
to (i) execute and deliver to the Agent a Guaranty, accompanied by such
supporting documentation, including resolutions, an incumbency
certificate, and an opinion of counsel, as Agent may require, and (ii) keep
such Guaranty in full force and effect; provided, that in no event shall a
Subsidiary which is organized under the laws of a jurisdiction other than
the United States or any state thereof be required to so execute a Guaranty
or keep a Guaranty in full force and effect."
1.7 Clause (c) of Paragraph 14(A) of the Credit Agreement is
hereby amended to read in its entirety as follows:
"(c) so long as both immediately before and after giving effect
thereto, no Default or Event of Default shall exist, DeVry or any Subsidiary
may make additional acquisitions of all or substantially all of the assets of
any Person; provided, further, that any such acquisition shall constitute a
Permitted Transaction,"
1.8 Clause (vi) of Paragraph 14(B) of the Credit Agreement is
hereby amended to read in its entirety as follows:
(vi) so long as both immediately before and after giving effect
thereto, no Default or Event of Default shall exist, Investments by DeVry in
Subsidiaries which become Subsidiaries after the Restatement Date, provided,
that any such Investment shall constitute a Permitted Transaction,"
1.9 Paragraph 18(A) of the Credit Agreement is hereby amended
to read in its entirety as follows:
"(A) Term. This Agreement shall terminate on August 1, 2000
("Termination Date"), subject to the terms and provisions of Paragraph
22(E) and of any other provisions of this Agreement or any other Loan
Document which specifically provides for the continuation of obligations,
duties, representations and warranties beyond such termination. Upon the
<PAGE>99
Termination Date, all of Borrower's Obligations to Agent and each
Lender, whether or not incurred under this Agreement, or any amendment
or supplement thereto, under any Revolving Note, any other Loan
Document or otherwise, shall become immediately due and payable
without notice or demand".
1.10 The attachment to Exhibit C to the Credit Agreement
(form of Compliance Certificate) is hereby amended to read in its entirety
as set forth on Annex I hereto.
SECTION 2. CERTAIN DOCUMENTS.
Concurrently herewith the Borrower has delivered the following to the
Agent, duly executed and appropriately dated and in form and substance
satisfactory to the Agent.
(1) Guaranty. A Guaranty in the form of Annex II hereto duly
executed by each of DeVry Educational Products, Inc., DeVry Educational
Development Corp. and Becker CPA Review, Inc. I. (collectively the "New
Guarantors").
(2) Certificate. A certificate of the Secretary or Assistant
Secretary of each of the New Guarantors certifying: (a) a copy of the
organizational documents of such New Guarantor, as theretofore amended; (b)
copies of all corporate action taken by such New Guarantor, authorizing the
execution, delivery and performance of such New Guarantor of each document to
be executed and delivered by such New Guarantor pursuant to this Amendment;
and (c) the names and true signatures of the officers of such New Guarantor
authorized to sign the documents to be executed and delivered by such
New Guarantor under this Amendment.
(3) Miscellaneous. Such other documents as the Agent may reasonably
request.
SECTION 3. WARRANTIES.
To induce the Agent and the Lenders to enter into this
Amendment, the Borrower warrants to the Agent and the Lenders as of the date
hereof that:
(a) The representations and warranties contained in the
Credit Agreement and Loan Documents are true and correct in all material
respects on and as of the date hereof (except to the extent such
representations and warranties expressly refer to an earlier date); and
(b) No Default or Event of Default has occurred and is
continuing.
SECTION 4. GENERAL.
<PAGE>100
(c) As hereby modified, the Credit Agreement shall remain
in full force and effect and is hereby ratified, approved and confirmed in all
respects.
(d) This Amendment shall be binding upon and shall inure
to the benefit of the Borrower, the Lenders and the Agent and respective
successors and assigns of the Lenders and the Agent.
(e) This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Amendment.
<PAGE>101
Delivered at Chicago, Illinois, as of the date and year first above written.
KELLER GRADUATE SCHOOL OF
MANAGEMENT, INC.
By:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Lender
By:
Title:
THE NORTHERN TRUST COMPANY
By:
Title:
HARRIS TRUST AND SAVINGS BANK
By:
Title:
The undersigned hereby (i) acknowledge the foregoing amendments, (ii)
acknowledge that their respective Guaranties continue to guaranty the
obligations of the Borrower arising under the Credit Agreement, as amended
hereby and (iii) and reaffirm their respective duties and obligations arising
under the Loan Documents to which each is a party.
<PAGE>102
DEVRY, INC.
By:
Its:
BECKER CPA REVIEW CORP. (f/k/a
DEVRY CPA REVIEW CORP.)
By:
Its:
DEVRY/BECKER EDUCATIONAL
DEVELOPMENT CORP. (f/k/a DEVRY
EDUCATIONAL DEVELOPMENT CORP.)
By:
Its:
DEVRY EDUCATIONAL PRODUCTS, INC.
By:
Its:
DEVRY EDUCATIONAL DEVELOPMENT
CORP.
By:
Its:
BECKER CPA REVIEW, INC. I
By:
Its:
<PAGE>103
ANNEX I
FIXED CHARGE COVERAGE RATIO
$(000)
For the 4 Fiscal
Quarter Period Ended
--------------------
Numerator
EBIT $
+ Lease Expense*
+ Cash Proceeds From Sale of Assets
+ Federal Income Tax Refunds ______________
= Total Numerator
Denominator
Pro Forma Interest Expense
+ Agents Fee
+ Letter of Credit Fees
+ Pro Forma Revolving Loan Commitment Fees
+ Lease Expenses*
= Total Denominator
ACTUAL RATIO
VS.
ALLOWABLE MINIMUM 1.8:1
*/ To include related figures associated with Permitted Transactions.
<PAGE>104
DEBT COVERAGE RATIO
$(000)
For the Fiscal
Quarter Ended
--------------
Numerator
Average daily aggregate pro forma Indebtedness $
for then ending Fiscal Quarter
Denominator
EBITDA (for the then ending and
three immediately preceding
Fiscal Quarters)
- - 3,500,000
= Total Denominator
ACTUAL
VS.
ALLOWABLE MAXIMUM:
Fiscal Quarters ending between
June 30, 1996 and June 29, 1997 3.50:1
June 30, 1997 and June 29, 1998 3.25:1
June 30, 1998 and the Termination Date 3.00:1
<PAGE>105
OTHER FINANCIAL COVENANTS
$(000)
Actual Allowable
------ ---------
Capital Expenditure $ $45,000,000 (Maximum)
Consolidated Tangible Net Worth $ Minimum of $5,000,000 +
(.75 X Consolidated Net
Income) for each Fiscal
Quarter since June 30, 1996
<PAGE>106
Annex II
--------
GUARANTY
FOR VALUE RECEIVED and in consideration of any loan or
other financial accommodation heretofore or hereafter at any
time made or granted to Keller Graduate School of Management,
Inc., a Delaware corporation (hereinafter called the "Debtor"),
by the lenders who are or may become party to that certain
Amended and Restated Financing Agreement, dated as of June 12,
1996 (as from time to time, in whole or in part, amended,
modified, supplemented, restated, refinanced, refunded or
renewed, the "Credit Agreement"), among the Debtor, the lenders
who are or from time to time become party thereto (the
"Lenders"), and Bank of America Illinois, as agent for the
Lenders (the "Agent"), the "undersigned" hereby unconditionally
guarantees the full and prompt payment when due, whether at
stated maturity, by required prepayment, declaration, demand,
acceleration or otherwise (including amounts that would become
due but for the operation of the automatic stay under section
362(a) of the Bankruptcy Code (11 U.S.C. P 362(a)), and at all
times thereafter, of all obligations of the Debtor to the Agent
and the Lenders in their respective capacities under the Credit
Agreement, howsoever created, arising or evidenced, whether
direct or indirect, absolute or contingent, or now or hereafter
existing, or due or to become due (all such obligations being
hereinafter collectively called "Liabilities"), and the
undersigned further agrees to pay all expenses (including
attorneys' fees and legal expenses) paid or incurred by the
Agent and the Lenders in endeavoring to collect the Liabilities,
or any part thereof, and in enforcing this guaranty.
1. The undersigned agrees that, in the event of the
dissolution or insolvency of the Debtor or the undersigned, or
the inability of the Debtor or the undersigned to pay its debts
as they mature, or an assignment by the Debtor or the
undersigned for the benefit of creditors, or the institution of
any proceeding by or against the Debtor or the undersigned
alleging that the Debtor or the undersigned is insolvent or
unable to pay its debts as they mature, and if such event shall
occur at a time when any of the Liabilities may not then be due
and payable, the undersigned will pay to the Agent for the
benefit of the Lenders forthwith the full amount which would be
<PAGE>107
payable hereunder by the undersigned if all Liabilities were
then due and payable.
2. To secure all obligations of the undersigned
hereunder, the Agent for the benefit of the Lenders shall have a
lien upon and security interest in (and may, without demand or
notice of any kind, at any time and from time to time when any
amount shall be due and payable by the undersigned hereunder,
appropriate and apply toward the payment of such amount, in such
order of application as the Agent may elect) any and all
balances, credits, deposits (general or special, time or demand,
provisional or final), accounts or moneys of or in the name of
the undersigned now or hereafter with the Agent or any Lender
and any and all property of every kind or description of or in
the name of the undersigned now or hereafter, for any reason or
purpose whatsoever, in the possession or control of, or in
transit to, the Agent or the Lenders or any agent or bailee for
the Agent or the Lenders.
3. This guaranty shall in all respects be a
continuing, absolute and unconditional guaranty, and shall
remain in full force and effect (notwithstanding, without
limitation, the dissolution of the undersigned) until all of the
Liabilities have been paid in full, subject to discontinuance as
to the undersigned only upon receipt by the Agent of written
notice from the undersigned, or any person duly authorized and
acting on behalf of the undersigned, of the discontinuance
hereof as to the undersigned; provided, however, that no such
notice of discontinuance shall affect or impair any of the
agreements and obligations of the undersigned hereunder with
respect to any and all Liabilities existing prior to the time of
receipt of such notice by the Agent, any and all Liabilities
created or acquired thereafter pursuant to any previous
commitments made by the Agent or the Lenders, any and all
extensions or renewals of any of the foregoing, any and all
interest on any of the foregoing, and any and all expenses paid
or incurred by the Agent and the Lenders in endeavoring to
collect any of the foregoing and in enforcing this guaranty
against the undersigned; and all of the agreements and
obligations of the undersigned under this guaranty shall,
notwithstanding any such notice of discontinuance, remain fully
in effect until all such Liabilities (including any extensions
or renewals of any thereof) and all such interest and expenses
shall have been paid in full.
<PAGE>108
4. The undersigned further agrees that, if at any
time all or any part of any payment theretofore applied by the
Agent or the Lenders to any of the Liabilities is or must be
rescinded or returned by the Agent or the Lenders for any reason
whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of the Debtor), such Liabilities
shall, for the purposes of this guaranty, to the extent that
such payment is or must be rescinded or returned, be deemed to
have continued in existence, notwithstanding such application by
the Agent or the Lenders, and this guaranty shall continue to be
effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application by the Agent or the
Lenders had not been made.
5. The Agent may, from time to time, whether before
or after any discontinuance of this guaranty, at its sole
discretion and without notice to the undersigned, take any or
all of the following actions: (a) retain or obtain a security
interest in any property to secure any of the Liabilities or any
obligation hereunder, (b) retain or obtain the primary or
secondary obligation of any obligor or obligors, in addition to
the undersigned, with respect to any of the Liabilities, (c)
extend or renew for one or more periods (whether or not longer
than the original period), or alter or exchange, any of the
Liabilities, or release or compromise any obligation of the
undersigned hereunder or any obligation of any nature of any
other obligor with respect to any of the Liabilities, (d)
release its security interest in, or surrender, release or
permit any substitution or exchange for, all or any part of any
property securing any of the Liabilities or any obligation
hereunder, or extend or renew for one or more periods (whether
or not longer than the original period) or release, compromise,
alter or exchange any obligations of any nature of any obligor
with respect to any such property, and (e) resort to the
undersigned for payment of any of the Liabilities, whether or
not the Agent (i) shall have resorted to any property securing
any of the Liabilities or any obligation hereunder or (ii) shall
have proceeded against any other obligor primarily or
secondarily obligated with respect to any of the Liabilities
(all of the actions referred to in preceding clauses (i) and
(ii) being hereby expressly waived by the undersigned).
6. Any amounts received by the Agent from whatsoever
source on account of the Liabilities may be applied by it toward
<PAGE>109
the payment of such of the Liabilities, and in such order of
application, as the Agent may from time to time elect.
7. No payment made by or for the account of the
undersigned pursuant to this guaranty shall entitle the
undersigned by subrogation or otherwise to any payment by the
Debtor or from or out of any property of the Debtor and the
undersigned shall not exercise any right or remedy against the
Debtor or any property of the Debtor by reason of any
performance by the undersigned of this guaranty. The
undersigned waives, to the fullest extent permitted by law, all
rights of the undersigned against the Debtor, arising out of any
payment by the undersigned under this guaranty, whether arising
by way of any subrogation, contribution, reimbursement or
otherwise and agrees that, to the extent that any such rights
may not be waived under applicable law, it will contribute such
rights to the Debtor as a capital contribution concurrently with
the arising of such rights.
8. The undersigned hereby expressly waives: (a)
notice of the acceptance by the Agent of this guaranty, (b)
notice of the existence or creation or non-payment of all or any
of the Liabilities, (c) presentment, demand, notice of dishonor,
protest and all other notices whatsoever, and (d) all diligence
in collection or protection of or realization upon the
Liabilities or any thereof, any obligation hereunder, or any
security for or guaranty of any of the foregoing.
9. The Lenders may, from time to time, without notice
to the undersigned, assign or transfer any or all of the
Liabilities or any interest therein; and, notwithstanding any
such assignment or transfer or any subsequent assignment or
transfer thereof, such Liabilities shall be and remain
Liabilities for the purposes of this guaranty, and each and
every immediate and successive assignee or transferee of any of
the Liabilities or of any interest therein shall, to the extent
of the interest of such assignee or transferee in the
Liabilities, be entitled to the benefits of this guaranty to the
same extent as if such assignee or transferee were a Lender;
provided, however, that, unless the assigning or transferring
Lender shall otherwise consent in writing, such Lender shall
have an unimpaired right, prior and superior to that of any such
assignee or transferee, to enforce this guaranty, for the
benefit of the Lender, as to those of the Liabilities which the
Lender has not assigned or transferred.
<PAGE>110
10. The undersigned hereby warrants to the Agent and
the Lenders that the undersigned now has and will continue to
have independent means of obtaining information concerning the
affairs, financial condition and business of the Debtor. The
Agent and the Lenders shall not have any duty or responsibility
to provide the undersigned with any credit or other information
concerning the affairs, financial condition or business of the
Debtor which may come into the Agent's or any of the Lenders'
possession.
11. The undersigned hereby warrants and agrees that:
(a) the undersigned is a corporation duly existing and in good
standing under the laws of the state of its incorporation, and
the undersigned is duly qualified and in good standing and
authorized to do business in each jurisdiction where, because of
the nature of its activities or properties, such qualification
is required, (b) the undersigned has full corporate power and
authority to execute and deliver this guaranty, (c) the
execution, delivery and performance by the undersigned of this
guaranty are within the undersigned's corporate powers, have
been duly authorized by all necessary action, have received all
necessary governmental approval (if any shall be required) and
do not and will not contravene or conflict with any provision of
law or of the organizational documents of the undersigned or of
any agreement binding upon the undersigned, (d) this guaranty is
the legal, valid and binding obligation of the undersigned
enforceable against the undersigned in accordance with its
terms, except as enforceability may be limited by bankruptcy or
other laws relating to or affecting creditors' rights generally
or by equitable principles, and (e) this guaranty will directly
or indirectly benefit the undersigned.
12. No delay on the part of the Agent in the exercise
of any right or remedy shall operate as a waiver thereof, and no
single or partial exercise by the Agent of any right or remedy
shall preclude other or further exercise thereof or the exercise
of any other right or remedy; nor shall any modification or
waiver of any of the provisions of this guaranty be binding upon
the Agent except as expressly set forth in a writing duly signed
and delivered on behalf of the Agent for the benefit of the
Lenders. No action of the Agent permitted hereunder shall in
any way affect or impair the rights of the Agent and the
obligations of the undersigned under this guaranty. For the
purposes of this guaranty, Liabilities shall include all
<PAGE>111
obligations of the Debtor to the Agent and the Lenders,
notwithstanding any right or power of the Debtor or anyone else
to assert any claim or defense as to the invalidity or
unenforceability of any such obligation, and no such claim or
defense shall affect or impair the obligations of the
undersigned hereunder. The obligations of the undersigned under
this guaranty shall be absolute and unconditional irrespective
of any circumstance whatsoever which might constitute a legal or
equitable discharge or defense of the undersigned. The
undersigned hereby acknowledges that there are no conditions to
the effectiveness of this guaranty.
13. This guaranty shall be binding upon the
undersigned, and upon any successors and assigns of the
undersigned; and to the extent that the Debtor or any of the
undersigned is either a partnership or a corporation, all
references herein to the Debtor and to the undersigned,
respectively, shall be deemed to include any successor or
successors, whether immediate or remote, to such partnership or
corporation. If more than one party shall execute this
guaranty, the term "undersigned," as used herein, shall mean all
parties executing this guaranty and each of them, and all such
parties shall be jointly and severally obligated hereunder.
14. THIS GUARANTY HAS BEEN DELIVERED AT CHICAGO,
ILLINOIS, AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING
EFFECT TO ITS PRINCIPLES OF CHOICE OF LAW. WHEREVER POSSIBLE
EACH PROVISION OF THIS GUARANTY SHALL BE INTERPRETED IN SUCH
MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF
ANY PROVISION OF THIS GUARANTY SHALL BE PROHIBITED BY OR INVALID
UNDER SUCH LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE
EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING
THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF
THIS GUARANTY.
15. The undersigned hereby irrevocably agrees that
any legal action or proceeding pertaining to this guaranty may
be brought in the courts of the State of Illinois, County of
Cook, or of the United States of America for the Northern
District of Illinois. The undersigned hereby irrevocably agrees
that service of process in such action or proceeding may be made
either by mailing, by registered or certified mail, postage
prepaid, a copy of the summons or complaint, or other legal
process in such action or proceeding to the undersigned at the
<PAGE>112
address shown on the signature page hereof. Service of process
in any such action or proceeding, effected as aforesaid, shall
be effective upon receipt by the undersigned and shall be deemed
personal service upon the undersigned and shall be legal and
binding upon the undersigned for all purposes. The undersigned
hereby waives, to the fullest extent permitted by law, any
objection it may now or hereafter have to the laying of venue in
any such action or proceeding in any such court as well as any
right it may now or hereafter have to remove any such action or
proceeding, once commenced, to another court on the grounds of
forum non conveniens or otherwise.
16. The undersigned hereby expressly waives any right
to a trial by jury in any action or proceeding to enforce or
defend any rights (a) under this guaranty or under any
amendment, instrument, document or agreement delivered or which
may in the future be delivered in connection herewith or (b)
arising from any banking relationship existing in connection
with this guaranty, and agrees that any such action or
proceeding shall be tried before a court and not before a jury.
* * * * *
<PAGE>113
IN WITNESS WHEREOF, the undersigned has caused this
Guaranty to be duly executed as of this 23rd day of March, 1998.
[Name of Guarantor]
By:
Name:
Title:
<PAGE>114
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
DeVry Inc.:
Subsidiaries: Keller Graduate School of
Management, Inc.
DeVry New York
DeVry Leasing Corp.
DeVry Educational Products, Inc.
Becker CPA Review Corp.
DeVry/Becker Educational
Development Corp.
Becker CPA Review, Inc.
Newton Becker Limited, a Hong
Kong Corporation
Becker CPA Review Limited2, an
Israeli Corporation
Keller Graduate School of Management, Inc.:
Subsidiaries: DeVry Canada, Inc., a Canadian
corporation
DeVry Educational Development
Corp., a Delaware Corporation
DeVry Institute of Technology,
Inc., a Delaware corporation
Missouri Institute of Technology,
Inc., a Missouri corporation
Provost & Associates, Inc., an
Illinois corporation
<PAGE>115
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 33-44563) of DeVry Inc.
of our report dated August 3, 1998 appearing on page 83 of the
Annual Report to Shareholders which is incorporated in this
Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Chicago, Illinois
September 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 48756
<SECURITIES> 0
<RECEIVABLES> 16598
<ALLOWANCES> 4720
<INVENTORY> 5218
<CURRENT-ASSETS> 69720
<PP&E> 173093
<DEPRECIATION> 65988
<TOTAL-ASSETS> 223892
<CURRENT-LIABILITIES> 65979
<BONDS> 10000
0
0
<COMMON> 693
<OTHER-SE> 135563
<TOTAL-LIABILITY-AND-EQUITY> 223892
<SALES> 0
<TOTAL-REVENUES> 353471
<CGS> 0
<TOTAL-COSTS> 198273
<OTHER-EXPENSES> 103802
<LOSS-PROVISION> 15984
<INTEREST-EXPENSE> 913
<INCOME-PRETAX> 50483
<INCOME-TAX> 19759
<INCOME-CONTINUING> 30724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30724
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
