<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, 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 (I.R.S. Employer
incorporation or organization) Identification No.)
One Tower Lane, Oakbrook Terrace, Illinois 60181
(Address of principal executive offices) (Zip Code)
(630) 571-7700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X
Number of shares of Common Stock, $0.01 par value, outstanding at
January 29, 1999: 69,390,691
Total number of pages: 13
<PAGE>2
DeVRY INC.
FORM 10-Q INDEX
For the Quarter and Six Months ended December 31, 1998
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at
December 31, 1998, June 30, 1998,
and December 31, 1997 3-4
Consolidated Statements of Income
for the quarter and six months ended
December 31, 1998 and 1997 5
Consolidated Statements of Cash
Flows for the six months ended
December 31, 1998 and 1997 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,
1998 1998 1997
------------ ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 29,557 $ 31,881 $ 36,108
Restricted Cash 36,009 16,875 33,466
Accounts Receivable, Net 37,611 11,878 22,816
Inventories 1,924 5,218 1,795
Prepaid Expenses and Other 4,873 3,868 5,288
------------ ----------- ------------
Total Current Assets 109,974 69,720 99,473
------------ ----------- ------------
Land, Buildings and Equipment
Land 37,809 35,142 35,148
Buildings 71,275 62,371 51,304
Equipment 82,496 73,039 69,023
Construction In Progress 3,347 2,541 3,400
------------ ----------- ------------
194,927 173,093 158,875
Accumulated Depreciation (71,841) (64,988) (62,582)
------------ ----------- ------------
Land, Buildings and
Equipment, Net 123,086 108,105 96,293
------------ ----------- ------------
Other Assets
Intangible Assets, Net 37,093 37,908 36,992
Perkins Program Fund, Net 6,813 6,660 6,256
Other Assets 1,405 1,499 1,581
------------ ----------- ------------
Total Other Assets 45,311 46,067 44,829
------------ ----------- ------------
TOTAL ASSETS $278,371 $223,892 $240,595
============ =========== ============
</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,
1998 1998 1997
------------ ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
LIABILITIES
Current Liabilities
Accounts Payable $ 18,693 $ 24,116 $ 19,599
Accrued Salaries, Wages &
Benefits 16,944 18,422 15,381
Accrued Expenses 10,876 8,504 7,328
Advance Tuition Payments 5,290 9,202 5,381
Deferred Tuition Revenue 59,416 5,735 50,630
------------ ----------- ------------
Total Current Liabilities 111,219 65,979 98,319
------------ ----------- ------------
Other Liabilities
Revolving Loan - 10,000 10,000
Deferred Income Tax Liability 3,695 3,612 4,992
Deferred Rent and Other 8,812 8,045 7,276
------------ ----------- ------------
Total Other Liabilities 12,507 21,657 22,268
------------ ----------- ------------
TOTAL LIABILITIES 123,726 87,636 120,587
------------ ----------- ------------
SHAREHOLDERS' EQUITY
Common Stock, $0.01 par value,
200,000,000 Shares Authorized,
69,365,741, 69,305,070 and
69,073,254, Shares Issued and
Outstanding at December 31,
1998, June 30, 1998 and
December 31, 1997,
Respectively 694 693 690
Additional Paid-in Capital 60,686 60,608 60,548
Retained Earnings 92,500 74,385 58,287
Cumulative Translation
Adjustment 765 570 483
------------ ----------- ------------
TOTAL SHAREHOLDERS' EQUITY 154,645 136,256 120,008
------------ ----------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $278,371 $223,892 $240,595
============ =========== ============
</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,
------------------ --------------------
1998 1997 1998 1997
------------------ --------------------
<S> <C> <C> <C> <C>
REVENUES:
Tuition $ 96,479 $80,697 $181,232 $153,670
Other Educational 11,074 9,290 19,942 16,392
Interest 260 355 497 701
-------- ------- -------- --------
Total Revenues 107,813 90,342 201,671 170,763
-------- ------- -------- --------
COSTS AND EXPENSES:
Cost of Educational Services 58,372 49,469 114,958 98,179
Student Services and 32,491 26,950 56,798 47,965
Administrative Expense
Interest Expense 44 248 214 648
-------- ------- -------- --------
Total Costs and Expenses 90,907 76,667 171,970 146,792
-------- ------- -------- --------
Income Before Income Taxes 16,906 13,675 29,701 23,971
Income Tax Provision 6,607 5,328 11,584 9,345
-------- ------- -------- --------
NET INCOME $ 10,299 $ 8,347 $ 18,117 $ 14,626
======== ======= ======== ========
EARNINGS PER COMMON SHARE $0.15 $0.12 $0.26 $0.21
(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,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $18,117 $14,626
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 7,176 4,999
Amortization 829 792
Provision for Refunds and
Uncollectible Accounts 9,460 8,789
Deferred Income Taxes 82 (17)
Loss on Disposals and Adjustments to
Land, Buildings and Equipment 193 124
Changes in Assets and Liabilities:
Restricted Cash (19,134) (21,362)
Accounts Receivable (35,150) (19,222)
Inventories 3,294 2,754
Prepaid Expenses And Other 967 (183)
Perkins Program Fund Contribution
and Other (196) (242)
Accounts Payable (5,423) (2,702)
Accrued Salaries, Wages,
Expenses and Benefits (230) (1,213)
Advance Tuition Payments (3,912) (1,213)
Deferred Tuition Revenue 53,681 44,929
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,754 30,859
------ ------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital Expenditures (22,350) (10,728)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Exercise of Stock Options 77 66
Repayments Under Revolving Credit Facility (10,000) (23,000)
------ ------
NET CASH USED IN FINANCING ACTIVITIES (9,923) (22,934)
Effects of Exchange Rate Differences 195 46
------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,324) (2,757)
Cash and Cash Equivalents at Beginning
of Period 31,881 38,865
------ ------
Cash and Cash Equivalents at End of Period $29,557 $36,108
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Year $203 $663
Income Taxes Paid During the Year 12,460 9,129
</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, 1998
----------
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 report on Form 10-Q for the quarter
ended September 30, 1998, each as filed with the Securities
and Exchange Commission.
The results of operations for the six months ended
December 31, 1998, 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 six months ended
December 31, 1998.
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.
<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 second quarter increased by nearly $15.8 million, or
19.6%. For the first six months, the increase in tuition revenues was almost
$27.6 million, or 17.9%. These increases in tuition revenue were produced by
several positive factors. Enrollment at DeVry Institutes for the fall term,
which began in November, increased by 13.9% from last fall. This increase
included the effect of new Institute openings in Fremont, California, in July
and New York in November. The increased enrollment represents the twenty-fifth
consecutive term of increased total enrollment compared to the comparable year-
ago period. At Keller Graduate School, enrollment for the term which began in
November increased by more than 17% from last November. Compared to November
of last year, Keller conducted classes in 5 new sites, bringing the total to
29, including the distance education program. In addition, tuition increases
of approximately 5% were implemented by both DeVry Institutes and Keller
Graduate School during the past year and a smaller 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 other educational revenues, continued to increase
from the prior year.
<PAGE>9
Interest income on the Company's short-term investments decreased from the
second quarter and six months of last year as available cash resources were
used to eliminate all remaining debt and for increased capital spending on
new and improved facilities and equipment.
Cost of Educational Services increased by $8.9 million, or 18.0% from the
second quarter of last year. For the first half, the increase in cost was
almost $16.8 million, or 17.1%. These increases reflect the cost of additional
facilities, faculty and staff associated with the five new Keller Graduate
School sites and the 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 existing DeVry Institutes, Keller
Graduate School and Becker CPA Review sites.
Depreciation expense increased by approximately $1.4 and $2.2 million for the
second quarter and first half, respectively. This increase reflects the
record investment during the past year for the expansion and upgrading of
school laboratories and teaching equipment throughout the system as well as the
depreciation associated with the newly opened facilities. Despite record
enrollments, the provision for refunds and doubtful accounts continues to
increase at a much lower rate than revenues. The Company believes that this
lower rate of increase, which began last year, reflects the benefits of
continuing efforts to raise new student admission standards at DeVry Institutes
and provide improved educational support throughout all the Company's
educational programs.
Student Services and Administrative Expense increased by $5.5 million, or
20.6%, from the second quarter of last year. For the first half, these
expenses increased by $8.8 million, or 18.4%, from last year. These increases
primarily reflect the marketing costs associated with student recruitment for
the Company's newly opened operating locations and the marketing costs
associated with recruiting increased numbers of students at the previously
opened locations. Administrative expenses are also increasing to support the
Company's expanding operations. Administrative expenses also include efforts
on the Y2K project as hardware is being tested and software is being rewritten
and tested. The Company believes that it is on schedule for completion of the
project during 1999. Cost associated with the year 2000 project have not been
material to the total Company results and are being charged to expense as
incurred. Post-implementation tasks and related spending for the Company's new
financial and reporting system have now been largely completed.
The Company's earnings from operations, before interest and taxes, were a
record for any second quarter and first half period. The growth in operating
margins is beginning to slow from its rate of increase in previous years as new
school locations, with their typical pattern of pre-opening and first year
operating losses, are partially offsetting the margin increases from expanding
enrollments and cost efficiencies in existing sites.
Interest expense has been almost completely eliminated as cash flow from
operations was used to pay off all remaining borrowing by the end of the first
quarter.
Net income of $10.3 million, or $0.15 per share, increased by more than 20%
from last year. Similarly, net income of $18.1 million, or $0.26 per share,
reflects increases that continue the pattern of 20+% year-over increases.
<PAGE>10
Liquidity and Capital Resources
- -------------------------------
Cash generated from operations totaled nearly $29.8 million in the first half,
declining slightly from $30.9 million last year. Offsetting higher net income
and non-cash sources of depreciation, amortization and deferred tuition
revenue, was an increase in the level of accounts receivable. The increase
in accounts receivable results partly from an increase in the average
receivable owed by students under DeVry Institutes and Keller Graduate School
interim financing programs until financial aid and employer tuition
reimbursement are applied, the higher level of student enrollment and tuition
revenue and an approximately $5.4 million increase in funds owed by the
Department of Education under various federal loan and grant programs.
Receivable levels, which had been declining during the past several years
because of improved timeliness of collection efforts and student aid
disbursements, even as student enrollments and revenues increased, are
expected to continue to increase somewhat from year-ago levels as new student
enrollments, with their typically higher average level of receivables,
continue to increase.
Capital spending was more than $22.3 million in the first half, more than
double the level of last year as equipment continued to be received at the
newly opened DeVry Institute in Fremont, California, construction of
classrooms and offices was completed for the DeVry Institute in New York and
land was acquired for a third Chicago area campus. In addition, construction
is under way on a new DeVry Institute in West Hills, California and on the
expansion to the Chicago, Illinois, urban 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 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>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 17, 1998. 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, three Directors of the Company were elected to serve as Class I
Directors to hold office until 2001 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 60,401,223 23,605
Thurston E. Manning 60,401,623 23,205
Hugo J. Melvoin 60,401,623 23,205
The terms of office of the following Directors continued after the meeting:
Charles A. Bowsher, David S. Brown, Dennis J. Keller, Robert E. King, Frederick
A. Krehbiel, Robert C. McCormack, Julie A. McGee and Ronald L. Taylor. Ann I.
Gannon, whose term of office expired, did not seek re-election.
At this meeting, shareholders were asked to approve an Amendment of Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock, $0.01 par value, from 75,000,000 to 200,000,000 shares. The
following table presents the stockholders' vote on the matter:
For Against Withheld
50,458,944 9,907,986 57,898
Also submitted to a vote of the stockholders at this meeting was a proposal
for the ratification of the appointment of PricewaterhouseCoopers as
independent public accountants for the Company for the current fiscal year.
The following table presents the results of the stockholders' vote on
this matter:
For Against Withheld
60,396,567 17,695 10,566
<PAGE>12
PART II - Other information
Item 5 - Other Information
In fiscal 1996, the Ontario Ministry of Education and Training temporarily
suspended and later conditionally reinstated the Ontario Student Assistance
Program ("OSAP") designation of the Company's Toronto-area schools as an OSAP-
eligible institution, affecting the processing of student's financial aid
applications. Full reinstatement is contingent upon, among other conditions,
the outcome of an audit of the Company's files to assess compliance with the
Ministry's guidelines.
In mid-October, the Company received from the Ontario Ministry of Education and
Training (the "Ministry") a copy of the forensic audit reports prepared by its
auditors, Lindquist Avey, to quantify the costs "incurred by or associated with
inappropriately released loans." The Company has acknowledged receipt of the
report to the Ministry and delivered a copy of these reports to Canadian legal
counsel and audit counsel for review and advice. Several meetings have been
held with the Ministry, Lindquist Avey, the Company and its Canadian legal and
audit counsel to review and discuss the report prepared by Lindquist Avey.
The Company believes that final resolution of this matter will be completed in
the coming months.
The Company completed the acquisition of a parcel of land in Tinley Park,
Illinois, for construction of its third DeVry Institute campus in the Chicago
area. Start of construction has not yet been scheduled.
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, 1998.
<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 3, 1999 /s/ Ronald L. Taylor
-----------------------------
Ronald L. Taylor
President and Chief Operating
Officer
Date:FEBRUARY 3, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 65566
<SECURITIES> 0
<RECEIVABLES> 45418
<ALLOWANCES> 7807
<INVENTORY> 1924
<CURRENT-ASSETS> 109974
<PP&E> 194927
<DEPRECIATION> 71841
<TOTAL-ASSETS> 278371
<CURRENT-LIABILITIES> 111219
<BONDS> 0
0
0
<COMMON> 694
<OTHER-SE> 153951
<TOTAL-LIABILITY-AND-EQUITY> 278371
<SALES> 0
<TOTAL-REVENUES> 201671
<CGS> 0
<TOTAL-COSTS> 114958
<OTHER-EXPENSES> 56798
<LOSS-PROVISION> 9460
<INTEREST-EXPENSE> 214
<INCOME-PRETAX> 29701
<INCOME-TAX> 11584
<INCOME-CONTINUING> 18117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18117
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
