<PAGE>1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
Commission file number 0-12751
DEVRY INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3150143
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Tower Lane, Oakbrook Terrace, Illinois 60181
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(630) 571-7700
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file uch reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X
Number of shares of Common Stock, $0.01 par value, outstanding at
January 30, 1998: 34,543,127
Total number of pages: 14
<PAGE>2
DEVRY INC.
FORM 10-Q INDEX
For the Quarter ended December 31, 1997
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at
December 31, 1997, June 30, 1997,
and December 31, 1996 3-4
Consolidated Statements of Income
for the quarter and six months
ended December 31, 1997 and 1996 5
Consolidated Statements of Cash
Flows for the six months ended
December 31, 1997 and 1996 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and
Analysis of Results of Operations
and Financial Condition 8-10
Part II. Other Information
Item 4. Submission of Matters to a vote
of Security Holders 11
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>3
PART I - Financial Information
Item 1 - Financial Statements
<TABLE>
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
December 31, June 30, December 31,
1997 1997 1996
------------ -------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 36,108 $ 38,865 $ 27,543
Restricted Cash 33,466 12,104 28,479
Accounts Receivable, Net 22,816 12,322 28,438
Inventories 1,795 4,549 1,087
Prepaid Expenses and Other 3,339 2,676 2,313
-------- -------- --------
Total Current Assets 97,524 70,516 87,860
-------- -------- --------
Land, Buildings and Equipment
Land 35,148 34,348 18,722
Buildings 51,304 50,906 50,101
Equipment 69,023 63,609 58,639
Construction In Progress 3,400 91 387
-------- -------- --------
158,875 148,954 127,849
Accumulated Depreciation (62,582) (58,266) (53,072)
-------- -------- --------
Land, Buildings and
Equipment, Net 96,293 90,688 74,777
-------- -------- --------
Other Assets
Intangible Assets, Net 36,992 37,770 37,859
Perkins Program Fund, Net 6,256 6,075 5,885
Other Assets 1,581 1,654 1,764
-------- -------- --------
Total Other Assets 44,829 45,499 45,508
-------- -------- --------
TOTAL ASSETS $238,646 $206,703 $208,145
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>4
<TABLE>
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
December 31, June 30, December 31,
1997 1997 1996
------------ -------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
LIABILITIES
Current Liabilities
Accounts Payable $ 19,599 $ 22,301 $ 16,164
Accrued Salaries, Wages &
Benefits 15,381 16,077 15,378
Accrued Expenses 7,328 7,620 6,520
Advance Tuition Payments 5,381 6,594 5,823
Deferred Tuition Revenue 50,630 5,701 44,097
-------- -------- --------
Total Current Liabilities 98,319 58,293 87,982
-------- -------- --------
Other Liabilities
Revolving Loan 10,000 33,000 44,000
Deferred Income Tax Liability 3,043 3,060 2,142
Deferred Rent and Other 7,276 7,080 4,936
-------- -------- --------
Total Other Liabilities 20,319 43,140 51,078
-------- -------- --------
TOTAL LIABILITIES 118,638 101,433 139,060
-------- -------- --------
SHAREHOLDERS' EQUITY
Common Stock, $0.01 par value,
75,000,000 Shares Authorized,
34,536,627, 34,504,214 and
33,265,244, Shares Issued and
Outstanding at December 31,
1997, June 30, 1997 and
December 31, 1996,
Respectively 345 345 333
Additional Paid-in Capital 60,548 60,482 36,744
Retained Earnings 58,632 44,006 31,561
Cumulative Translation
Adjustment 483 437 447
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 120,008 105,270 69,085
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $238,646 $206,703 $208,145
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>5
<TABLE>
DEVRY INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except for Per Share Amounts)
(Unaudited)
<CAPTION>
For The Quarter For The Six Months
Ended December 31, Ended December 31,
------------------ -------------------
1997 1996 1997 1996
------------------ -------------------
<S> <C> <C> <C> <C>
REVENUES:
Tuition $80,697 $73,030 $153,670 $135,508
Other Educational 9,290 7,999 16,392 14,603
Interest 355 233 701 400
------- ------- -------- --------
Total Revenues 90,342 81,262 170,763 150,511
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of Educational Services 49,469 46,837 98,179 89,656
Student Services and
Administrative Expense 26,950 22,470 47,965 39,866
Interest Expense 248 805 648 1,691
------- ------- -------- --------
Total Costs and Expenses 76,667 70,112 146,792 131,213
------- ------- -------- --------
Income Before Income Taxes 13,675 11,150 23,971 19,298
Income Tax Provision 5,328 4,369 9,345 7,557
------- ------- -------- --------
NET INCOME $ 8,347 $ 6,781 $ 14,626 $ 11,741
======= ======= ======== ========
EARNINGS PER COMMON SHARE $0.24 $0.20 $0.42 $0.35
(Basic and Diluted) ===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>6
<TABLE>
DEVRY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<CAPTION>
For The Quarter
Ended December 31,
-------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $14,626 $11,741
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 4,999 4,155
Amortization 792 788
Provision for Refunds and
Uncollectible Accounts 8,789 9,356
Deferred Income Taxes (17) 253
Loss on Disposals and Adjustments to
Land, Buildings and Equipment 124 (145)
Changes in Assets and Liabilities:
Restricted Cash (21,362) (11,889)
Accounts Receivable (19,222) (27,997)
Inventories 2,754 2,203
Prepaid Expenses And Other (183) (986)
Perkins Program Fund Contribution
and Other (242) (515)
Accounts Payable (2,702) (2,695)
Accrued Salaries, Wages,
Expenses and Benefits (1,213) (579)
Advance Tuition Payments (1,213) (1,794)
Deferred Tuition Revenue 44,929 40,488
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 30,859 22,384
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital Expenditures (10,728) (7,346)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Exercise of Stock Options 66 50
Repayments Under Revolving Credit Facility (23,000) (17,500)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (22,934) (17,450)
Effects of Exchange Rate Differences 46 7
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,757) (2,405)
Cash and Cash Equivalents at Beginning
of Period 38,865 29,948
------- -------
Cash and Cash Equivalents at End of Period $36,108 $27,543
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Year $ 663 $ 1,709
Income Taxes Paid During the Year 9,129 8,568
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>7
DEVRY INC.
Notes to Consolidated Financial Statements
For the Quarter and Six Months Ended December 31, 1997
----------
1. The interim consolidated financial statements include the
accounts of DeVry Inc. (the Company) and its wholly-owned
subsidiaries. These financial statements are unaudited but,
in the opinion of management, contain all adjustments,
consisting only of normal, recurring adjustments, necessary
to present fairly the financial condition and results of
operations of the Company.
The interim consolidated financial statements should be read
in conjunction with the consolidated financial statements and
notes thereto contained in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1997 and in
conjunction with the Company's Quarterly report on Form 10-Q
for the quarter ended September 30, 1997, each as filed with
the Securities and Exchange Commission.
The results of operations for the three months and six months
ended December 31, 1997, are not necessarily indicative of
results to be expected for the entire fiscal year.
2. In July and August 1997, the Company granted options to
purchase up to 129,800 shares of the Company's common stock
under the Amended and Restated Stock Incentive Plan, the 1991
Stock Incentive Plan and the 1994 Stock Incentive Plan.
<PAGE>8
Item 2 - Management's Discussion and Analysis of Results of Operations and
Financial Condition
- --------------------------------------------------------------------------
The following discussion of the Company's results of operations and financial
condition should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto. All references to per share
amounts have been restated to reflect the December 18, 1996, two-for-one stock
split.
Because of the somewhat seasonal pattern of the Company's enrollments and its
term starting dates, which affect the results of operations and the timing of
cash inflows, the Company believes that comparisons of its results of
operations should be made to the corresponding period in the preceding year.
Comparisons of financial position should be made to both the end of the
previous fiscal year and to the end of the corresponding period in the
preceding year. Typically, due to the seasonality of student enrollments, the
Company's second and third quarters have historically represented the periods
of highest revenues and net income within a fiscal year.
Results of Operations
- ---------------------
Tuition revenues for the second quarter increased by $7.7 million, or 10.5%.
For the first six months, the increase in tuition revenues was $18.2 million,
or 13.4%. These increases in tuition revenue were produced by several positive
factors. Enrollment at the DeVry Institutes for the summer term, which began
in July, increased by 6.9% from last summer. For the fall term at the DeVry
Institutes, which began in November, enrollments increased by 9.0%. These
increases in enrollments represented the twentieth and twenty-first consecutive
terms of higher total student enrollment as compared to the corresponding prior
year period. Contributing to the increased enrollment at DeVry was the opening
of its fifteenth Institute in Alpharetta, Georgia, for the summer term.
Enrollments at Keller Graduate School for the term which began in June
increased by over 20%. For the term which began in November, enrollments at
Keller increased by 16.8%. During the first half of fiscal 1998, Keller opened
three new teaching centers, bringing the total to 23. In addition, tuition
increases of approximately five percent were implemented at DeVry and Keller
while a somewhat smaller increase was implemented at Becker CPA.
Other educational revenues, composed primarily of sales of books and supplies,
increased because of sales to the increased number of students attending the
Company's educational programs. Sales of the Becker CPA course recently
introduced on CD-ROM are also included in this revenue category.
Interest income on the Company's short-term investments increased in the second
quarter and first six months as a strong pace of student receivable collections
provided cash available for investment in larger amounts than in the previous
year.
Cost of Educational Services increased by $2.6 million, or 5.6% from the second
quarter of last year. For the first half, the increase in cost was
$8.5 million, or 9.5%. The increase in cost reflects the additional facility,
faculty and staff associated with the new DeVry Institute and Keller Graduate
School centers. In addition, there were higher costs associated with the
higher enrollments at the previously existing locations at DeVry and Keller.
The provision for refunds and doubtful accounts has declined from the level of
<PAGE>9
that expense realized in the first half of last year. The Company believes
that the reduction, which began to occur in the second quarter, reflects the
beginnings of results from continuing efforts to raise new student admission
standards and provide expanded academic services to students needing additional
help with their educational program. Depreciation expense increased by over
$0.8 million in the first half, reflecting further capital spending for
expansion and upgrading of school laboratories and teaching equipment
throughout the system.
Student Services and Administrative Expense increased by approximately 20% from
the second quarter and first half of last year. The increase primarily
reflects the marketing costs associated with the Company's newly opened
operating locations and the costs associated with generating the higher student
enrollments at the previously opened locations. Student recruiting expenses
are also being incurred for the planned July 1998 opening of the new DeVry
Institute in Fremont, California, and the planned November 1998 opening of the
DeVry Institute in New York City. Administrative expenses have also increased
from the prior year to support the expanded Company operations. In addition,
implementation efforts and spending are underway for the Company's new
accounting system. This new system, which was purchased rather than internally
developed, will enhance reporting and analysis and overcome year 2000
deficiencies in the current system.
The Company's earnings from operations, before interest expense and taxes,
were a record for second quarter and six months. Operating margins, which have
been increasing consistently each quarter over the comparable year-ago period,
increased again in the second quarter to 15.4% from 14.7% last year. For the
half, operating margins reached 14.4% compared to 13.9% for the same period
last year. The improved operating margins reflect the expanded enrollments
and continued cost control.
Interest expense for both the quarter and half have decreased substantially
from the previous year. The lower interest expense results from the
application of the net proceeds from the April 1997 stock offering to debt
reduction and from the continued strong cash flow from operations, in excess
of needs for expansion and other investment, which is also being applied to
debt reduction. Compared to December 31st of last year, debt has been reduced
by $34 million.
Net income of $8.3 million for the quarter and $14.6 million for the half has
increased by more than 20% from the same period last year. Earnings per share
for both periods has also increased by 20%, including the effect of the higher
number of shares outstanding after the April 1997 stock offering.
Liquidity and Capital Resources
- -------------------------------
Cash generated from operations in the first half increased by more than
$8 million from the first half of last year. The higher level of cash
generated reflects the higher net income and higher non-cash charges for
depreciation. Also contributing to the higher cash flow is the earlier
collection of student receivables this year at the DeVry Institute campus in
Atlanta where the start of the summer term last year, and the receivable
collection cycle, were delayed by the summer Olympics.
<PAGE>10
For the half, total reductions in the Company's long-term debt equaled
$23 million, up from $17.5 million last year. Future borrowings and/or
repayments will be based upon the Company's seasonal cash flow cycle and
payment requirements for construction of new facilities and other capital
spending.
Capital spending remains high with construction of the Fremont, California,
campus underway and continued investments in technology and other improvements
throughout all the Company's operations. For the first half, total capital
expenditures were $10.7 million, up $3.4 million from last year. The level of
capital spending is expected to remain high as construction of the Fremont
campus continues and work begins on the improvements to the leased New York
City campus.
The Company believes that current balances of unrestricted cash, cash generated
from operations and, if needed, its revolving loan facility will be sufficient
to fund its operating needs and capital spending plans for the foreseeable
future.
<PAGE>11
PART II - Other information
- ---------------------------
Item 4 - Submission of Matters of Vote of Security Holders
- ----------------------------------------------------------
The Company's regular annual meeting of stockholders was held in Chicago,
Illinois, on Tuesday, November 18, 1997. Proxies for the meeting were
solicited in accordance with the Securities Exchange Act of 1934 and there
was no solicitation in opposition to those of management.
At the meeting, four Directors of the Company were elected to serve as
Class III Directors to hold office until 2000 and one Director of the Company
was elected to serve as a Class I Director to hold office until 1998 or until
their respective successors are elected and qualified. The results of the
voting for Directors, whether in person or by proxy, were as follows:
For Withheld
Class I:
Ewen M. Akin 30,676,406 168,480
Class III:
Charles A. Bowsher 30,686,473 158,412
Robert C. McCormack 30,692,826 152,060
Julie A. McGee 30,691,196 153,690
Ronald L. Taylor 30,692,506 152,379
The terms of office of the following Directors continued after the meeting:
David S. Brown, Ann I. Gannon, Dennis J. Keller, Robert E. King, Frederick A.
Krehbiel, Thurston E. Manning, and Hugo J. Melvoin.
Also submitted to a vote of the stockholders at this meeting was a proposal
for the ratification of the appointment of Price Waterhouse as independent
public accountants for the Company for the current fiscal year. The following
table presents the result of the stockholders' vote on this matter:
For Against Withheld
30,824,050 14,796 6,040
<PAGE>12
Item 5 - Other Information
- --------------------------
In connection with the law suit filed by a former student at the DeVry
Institute in North York, Ontario, Canada, oral arguments were made on
January 23rd on the pending motion to certify the suit as a class action
lawsuit. The Company is awaiting the judge's ruling on the matter, the timing
of which is presently unknown.
Although the outcome cannot be predicted with certainty, the Company believes
the resolution of this matter will not have a material effect on the Company's
financial position, results of operations or liquidity.
In conjunction with the early 1999 expiration of the DeVry Institutes' lease on
its North York, Ontario, Canada, facility, all classes and operations at that
campus will be relocated to the Scarborough and Mississauga campuses. The
Scarborough and Mississauga campuses have the flexibility to accommodate this
move while maintaining the level of service to students.
Item 6 - Exhibits and Reports on Form 8-K
- ----------------------------------------
(b) Reports on Form 8-K
- -----------------------
There were no reports on Form 8-K filed by the Company during the quarter ended
December 31, 1997.
<PAGE>13
Signatures
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: FEBRUARY 9, 1998 /s/ Ronald L. Taylor
--------------------
Ronald L. Taylor
President and Chief Operating
Officer
Date: FEBRUARY 9, 1998 /s/Norman M. Levine
-------------------
Norman M. Levine
Vice President Finance, Controller,
Chief Financial and Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 69574
<SECURITIES> 0
<RECEIVABLES> 30277
<ALLOWANCES> 7461
<INVENTORY> 1795
<CURRENT-ASSETS> 97524
<PP&E> 158875
<DEPRECIATION> 62582
<TOTAL-ASSETS> 238646
<CURRENT-LIABILITIES> 98319
<BONDS> 10000
0
0
<COMMON> 345
<OTHER-SE> 119663
<TOTAL-LIABILITY-AND-EQUITY> 238646
<SALES> 0
<TOTAL-REVENUES> 90342
<CGS> 0
<TOTAL-COSTS> 49469
<OTHER-EXPENSES> 26950
<LOSS-PROVISION> 4207
<INTEREST-EXPENSE> 248
<INCOME-PRETAX> 13675
<INCOME-TAX> 5328
<INCOME-CONTINUING> 8347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8347
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
