<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 March 31, 1999
Commission file number 0-12751
DeVRY INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3150143
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Tower Lane, Oakbrook Terrace, Illinois 60181
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(630) 571-7700
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES X
Number of shares of Common Stock, $0.01 par value, outstanding at
April 30, 1999: 69,405,310
Total number of pages: 13
<PAGE>2
DeVRY INC.
FORM 10-Q INDEX
For the Quarter and Nine Months ended March 31, 1999
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at
March 31, 1999, June 30, 1998,
and March 31, 1998 3-4
Consolidated Statements of Income
for the quarter and nine months ended
March 31, 1999 and 1998 5
Consolidated Statements of Cash
Flows for the nine months ended
March 31, 1999 and 1998 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and
Analysis of Results of Operations
and Financial Condition 8-11
Part II. Other Information
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>
March 31, June 30, March 31,
1999 1998 1998
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $57,465 $31,881 $45,911
Restricted Cash 30,442 16,875 31,814
Accounts Receivable, Net 62,816 11,878 55,440
Inventories 3,821 5,218 2,754
Prepaid Expenses and Other 3,338 3,868 3,776
-------- -------- --------
Total Current Assets 157,882 69,720 139,695
-------- -------- --------
Land, Buildings and Equipment
Land 37,821 35,142 35,148
Buildings 72,668 62,371 51,638
Equipment 86,850 73,039 71,678
Construction In Progress 4,871 2,541 6,991
-------- -------- --------
202,210 173,093 165,455
Accumulated Depreciation (76,245) (64,988) (66,232)
-------- -------- --------
Land, Buildings and
Equipment, Net 125,965 108,105 99,223
-------- -------- --------
Other Assets
Intangible Assets, Net 38,181 37,908 36,604
Perkins Program Fund, Net 7,131 6,660 6,636
Other Assets 3,909 1,499 1,540
-------- -------- --------
Total Other Assets 49,221 46,067 44,780
-------- -------- --------
TOTAL ASSETS $333,068 $223,892 $283,698
======== ======== ========
</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>
March 31, June 30, March 31,
1999 1998 1998
----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
LIABILITIES
Current Liabilities
Accounts Payable $25,455 $24,116 $23,807
Accrued Salaries, Wages &
Benefits 22,593 18,422 19,263
Accrued Expenses 5,831 8,504 7,685
Advance Tuition Payments 6,500 9,202 7,124
Deferred Tuition Revenue 94,564 5,735 78,926
-------- -------- --------
Total Current Liabilities 154,943 65,979 136,805
-------- -------- --------
Other Liabilities
Revolving Loan 0 10,000 6,000
Deferred Income Tax Liability 3,660 3,612 4,998
Deferred Rent and Other 9,087 8,045 7,385
-------- -------- --------
Total Other Liabilities 12,747 21,657 18,383
-------- -------- --------
TOTAL LIABILITIES 167,690 87,636 155,188
-------- -------- --------
SHAREHOLDERS' EQUITY
Common Stock, $0.01 par value,
200,000,000 Shares Authorized,
69,399,630, 69,305,070 and
69,292,944, Shares Issued and
Outstanding at March 31, 1999,
June 30, 1998 and March 31,
1998, Respectively 694 693 693
Additional Paid-in Capital 60,885 60,608 60,600
Retained Earnings 103,125 74,385 66,723
Accumulated Other Comprehensive
Income 674 570 494
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 165,378 136,256 128,510
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $333,068 $223,892 $283,698
======== ======== ========
</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 Nine Months
Ended March 31, Ended March 31,
------------------- --------------------
1999 1998 1999 1998
------------------- --------------------
<S> <C> <C> <C> <C>
REVENUES:
Tuition $ 98,669 $83,349 $279,901 $237,019
Other Educational 11,347 9,135 31,289 25,527
Interest 218 370 715 1,071
-------- -------- -------- --------
Total Revenues 110,234 92,854 311,905 263,617
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of Educational Services 63,932 51,310 178,890 149,489
Student Services and
Administrative Expense 29,124 27,455 85,922 75,420
Interest Expense 43 156 257 804
-------- ------- -------- --------
Total Costs and Expenses 93,099 78,921 265,069 225,713
-------- ------- -------- --------
Income Before Income Taxes 17,135 13,933 46,836 37,904
Income Tax Provision 6,512 5,496 18,096 14,841
-------- ------- -------- --------
NET INCOME $ 10,623 $ 8,437 $ 28,740 $ 23,063
======== ======= ======== ========
EARNINGS PER COMMON SHARE $0.15 $0.12 $0.41 $0.33
(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 Nine Months
Ended March 31,
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $28,740 $23,063
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 11,457 8,644
Amortization 1,248 1,187
Provision for Refunds and
Uncollectible Accounts 15,094 13,020
Deferred Income Taxes (45) (11)
Loss on Disposals and Adjustments to
Land, Buildings and Equipment 139 128
Changes in Assets and Liabilities:
Restricted Cash (13,567) (19,710)
Accounts Receivable (65,988) (55,969)
Inventories 1,397 1,795
Prepaid Expenses And Other (2,266) 1,247
Perkins Program Fund Contribution
and Other (515) (730)
Accounts Payable 1,339 1,506
Accrued Salaries, Wages,
Expenses and Benefits 1,498 3,251
Advance Tuition Payments (2,702) 530
Deferred Tuition Revenue 88,829 73,225
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 64,658 51,176
------ ------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital Expenditures (29,456) (17,307)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Exercise of Stock Options 278 120
Repayments Under Revolving Credit Facility (10,000) (27,000)
------ ------
NET CASH USED IN FINANCING ACTIVITIES (9,722) (26,880)
Effects of Exchange Rate Differences 104 57
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 25,584 7,046
Cash and Cash Equivalents at Beginning
of Period 31,881 38,865
------ ------
Cash and Cash Equivalents at End of Period $57,465 $45,911
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Period $247 $843
Income Taxes Paid During the Period 19,789 12,547
</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 Nine Months Ended March 31, 1999
----------
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, 1998 and in conjunction
with the Company's quarterly reports on Form 10-Q for the quarters
ended September 30, 1998 and December 31, 1998, each as filed
with the Securities and Exchange Commission.
The results of operations for the nine months ended
March 31, 1999, are not necessarily indicative of results
to be expected for the entire fiscal year.
Certain previously reported amounts have been reclassified to
conform to the current presentation format.
2. In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements.
The components of comprehensive income, other than those included in
net income, were immaterial for the quarter and nine months ended
March 31, 1999.
3. In July and August 1998, the Company granted options to
purchase up to 597,000 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.
4 In April 1999, the Company signed a letter of intent to acquire
for stock Educational Development Corporation which does business
as the Denver Technical College. The acquisition is contingent upon
satisfactory completion of due diligence.
<PAGE>8
Item 2 - Management's Discussion and Analysis of Results of Operations and
Financial Condition
Certain information contained in this quarterly report may constitute forward
looking statements made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such statements may involve risks
and 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.
The following discussion of the Company's results of operations and financial
condition should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto as included in the Company's
annual report on Form 10-K for the fiscal year ended June 30, 1998, as filed
with the Securities and Exchange Commission. All references to per share
amounts have been restated to reflect the December 18, 1996, and June 19, 1998,
two-for-one stock splits.
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. Because of the seasonality of student enrollments, the
Company's second and third quarters have historically represented the periods
of highest revenues and net income within a fiscal year.
Results of Operations
- ---------------------
Tuition revenues for the third quarter increased by $15.3 million, or nearly
18.4%. For the first nine months, the increase in tuition revenues was nearly
$42.9 million, or 18.1%. These increases in tuition revenue were produced by
several positive factors. Enrollment for the DeVry Institutes for the spring
term, which began in March, increased by 12.2% from last spring. This increase
included the enrollments of new Institute openings in Fremont, California, in
July and New York in November. The increased enrollment represents the
twenty-sixth consecutive term of increased total student enrollment compared
to the comparable year-ago period.
At Keller Graduate School, enrollment for the term which began in February
increased by more than 14.7% from last February. Compared to February of
last year, Keller conducted classes in 6 new sites, bringing the total to 31,
including the distance education program. In addition, tuition increases of
approximately 5-6% were implemented by both DeVry Institutes and Keller
Graduate School during the past year. A somewhat smaller tuition increase
was implemented at Becker CPA Review.
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 Review course on
CD-ROM, which are included in this revenue category, continued to increase
from the prior year.
<PAGE>9
Interest income on the Company's short-term investments decreased from the
third quarter and year-to-date level of the prior year. During most of these
periods, cash balances were lower than they were last year as cash was used
early in the fiscal year to eliminate all remaining debt and throughout the
year-to-date for increased capital spending on new and improved facilities
and equipment.
Cost of Educational Services increased by $12.6 million, or 24.6% from the
third quarter of last year. For the first nine months, the increase in these
costs was $29.4 million, or nearly 19.7%. The rate of increase, which
accelerated in the third quarter, reflects the cost of additional facilities,
faculty and staff associated with the six new Keller Graduate School sites and
the new DeVry Institutes in Fremont, California, and New York, all of which
have been opened in the past year. In addition, there were higher wage,
benefit, supply and service expenses associated with the higher student
enrollments at the previously opened DeVry Institutes, Keller Graduate School
and Becker CPA Review sites.
Depreciation expense, included in the Cost of Educational Services, continues
to increase as capital spending on new and improved facilities has accelerated.
For the first nine months, depreciation expense has increased by $2.8 million,
or 32.5% from last year.
The provision for tuition refunds and doubtful accounts continues to increase
at a lower rate than tuition revenue. For the nine months, this expense has
increased by 15.9%. The Company believes that this rate of increase, below
the rate at which tuition revenue is growing, reflects the benefits of
improved student retention from continuing efforts to raise new student
admission standards at DeVry Institutes and provide improved educational
support throughout all of the Company's educational programs.
Student Services and Administrative Expense increased by only $1.7 million, or
6.1% from last year. For the first nine months , however, these expenses
increased by $10.5 million, or 13.9%. The increased expense primarily reflects
the marketing costs associated with student recruitment for both the Company's
newly opened operating locations and the marketing costs associated with
recruiting increased numbers of students at the previously opened locations.
The third quarter of last year included pre-opening marketing expenses for
both of the DeVry Institute campuses opened this fiscal year, and so the
comparative increase in spending from last year's third quarter is not as
large as it might have otherwise been.
Administrative expenses are also increasing to support the Company's expanding
operations. These administrative expenses include efforts related to what is
commonly referred to as the Y2K problem. In mid-1997, the Company initiated
a project to determine the magnitude of our exposure from our own systems and
from those of our significant business partners. Through our audit, testing
and remediation project, we have identified and evaluated the readiness of our
IT systems and non-IT systems, which, if not Y2K compliant, could have a
material effect on the Company.
The review and testing of all internal IT systems has been completed and those
systems have been made Y2K compliant through change or replacement. An
inventory of PC hardware/software has been completed and a plan has been
developed to replace any non-compliant hardware prior to the end of this
calendar year. Software vendors have been contacted and are being tracked for
follow-up. An upgrade or replacement plan is being developed for this
software.
<PAGE>10
Non-IT vendors have also been identified and contacted for upgrade or
replacement as necessary, with particular emphasis on Mission Critical vendors.
In addition, the Company is developing contingency plans in the event that we
experience any Y2K difficulty at our various operating locations. While our
efforts in the Y2K endeavor have been extensive, incremental spending on these
efforts, which is being charged to expense as incurred, has not been material
relative to the overall level of expense or revenues in any period.
The Company's earnings from operations, before interest and taxes, were a
record for any third quarter and nine month period.
Interest expense has been almost completely eliminated as all remaining debt
was repaid during the first quarter of the current fiscal year. Continuing
interest expense reflects the commitment and administrative fees associated
with the Company's revolving line of credit.
Net income of $10.6 million, or $0.15 per share for the third quarter,
increased by more than 25% from last year. Similarly, for the nine months,
net income and earnings per share reflect the Company's continuing year over
year growth.
Liquidity and Capital Resources
- -------------------------------
Cash generated from operations totaled nearly $64.7 million in the first nine
months, an increase of nearly $13.5 million from last year. Higher net income
plus the increase in non-cash charges included in income for depreciation,
amortization and deferred tuition revenue all contributed to the increased cash
flow. Although accounts receivable increased, the percent increase from last
year was less than the rate of increase in revenues. This lesser rate of
growth in student receivables occurred even as new student enrollment, with
their typically higher average level of receivables, continues to increase.
Capital spending was more than $29.4 million in the first nine months, an
increase of more than $12.1 million from last year. Completion of the
Fremont, California, and New York DeVry Institutes, construction of the third
Los Angeles area DeVry campus plus the purchase of land for the third Chicago-
area campus all contributed to the increased spending. In addition,
construction continues on the expansion of the urban Chicago DeVry campus and
on the renovation and expansion of the Columbus DeVry campus.
During the first quarter, the Company completely repaid all of its outstanding
revolving loan facility using existing cash balances and cash generated from
operations. Future borrowings, if any, will be based upon the Company's
seasonal cash flow cycle and payment requirements for capital spending and
other needs.
The Company is substantially dependent, as is most of the higher education
community, upon the timely delivery of federal and state financial aid for its
students. Most financial aid application and disbursement activity is
processed electronically. If the disbursement system of federal and/or
state governmental agencies and the commercial banks that participate in
student loan programs are not prepared for the year 2000, there could be
interruptions or delays in the receipt of these aid funds, which could have
at least a temporary adverse effect upon the Company's liquidity and
<PAGE>11
financial position. The Company could use its available cash resources and
borrowings under its revolving term loan agreement to temporarily fund its
operations until such student financial aid disbursements were restored.
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>12
PART II - Other Information
Item 5 - Other Information
- --------------------------
During the third quarter, the Company successfully concluded the resolution of
all outstanding issues with the Ontario Ministry of Education and Training.
DeVry's Toronto-area campuses have now been unconditionally reinstated as
participants in the province's student financial aid programs.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(b) Reports on Form 8-K
On February 12th, the Company filed an 8K announcing that its DeVry Institutes'
Toronto-area campuses have been fully reinstated as an eligible institution
under the Ontario Student Assistance Program.
On April 19th, the Company filed an 8K announcing that it had signed a letter
of intent to acquire the Denver Technical College.
<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: MAY 10, 1999 /s/ Ronald L. Taylor
--------------------
Ronald L. Taylor
President and Chief Operating
Officer
Date: MAY 10, 1999 /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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 87907
<SECURITIES> 0
<RECEIVABLES> 72997
<ALLOWANCES> 10181
<INVENTORY> 3821
<CURRENT-ASSETS> 157882
<PP&E> 202210
<DEPRECIATION> 76245
<TOTAL-ASSETS> 333068
<CURRENT-LIABILITIES> 154943
<BONDS> 0
0
0
<COMMON> 694
<OTHER-SE> 164684
<TOTAL-LIABILITY-AND-EQUITY> 333068
<SALES> 0
<TOTAL-REVENUES> 311905
<CGS> 0
<TOTAL-COSTS> 178890
<OTHER-EXPENSES> 85922
<LOSS-PROVISION> 15094
<INTEREST-EXPENSE> 257
<INCOME-PRETAX> 46836
<INCOME-TAX> 18096
<INCOME-CONTINUING> 28740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28740
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
