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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, 2000
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Commission file number: 0-12751
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DeVRY INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-3150143
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(State or other jurisdiction of incorporation (I.R.S. Empployer
or organization) Identification No.)
ONE TOWER LANE, SUITE 1000, OAKBROOK TERRACE, ILLINOIS 60181
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number; including area code (630) 571-7700
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Securities registered pursuant to section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
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(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, 2000 - $2,158,100.00
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, 2000 - 69,699,074 shares of common stock, $0.01 par value
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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 14, 2000, are incorporated into
Part III of this Form 10-K to the extent stated herein.
Exhibit Index located on Pages 110-113 Total number of pages, 125
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DeVry INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED JUNE 30, 2000
TABLE OF CONTENTS
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PAGE #
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PART I
Item 1 - Business 3
Item 2 - Properties 51
Item 3 - Legal Proceedings 57
Item 4 - Submission of Matters to a Vote of Security Holders 58
- Executive Officers 59
PART II
Item 5 - Market for Common Equity and
Related Stockholder Matters 64
Item 6 - Selected Financial Data 65
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 65
Item 8 - Financial Statements and Supplementary Data 78
Item 9 - Changes in and Disagreements with Accountants 104
PART III
Item 10 - Directors and Executive Officers 105
Item 11 - Executive Compensation 105
Item 12 - Security Ownership of Beneficial Owners and Management 105
Item 13 - Certain Relationships and Transactions 105
PART IV
Item 14 - Exhibits, Financial Statements and Reports on Form 8-K 106
- Financial Statements 106
- Financial Statement Schedules 106
- Exhibits 106
- Reports on Form 8-K 106
- Signatures 108
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PART I
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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
Securities and Exchange Commission ("SEC") filings, including those
discussed under the heading entitled "Risk Factors" in the Company's
Registration Statement on Form S-3 (No. 333-22457) filed with the SEC.
ITEM 1 - BUSINESS
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DeVry Inc. (the "Company") is incorporated under the laws of the State of
Delaware. The Company, through its wholly-owned subsidiaries, owns and
operates DeVry Institutes of Technology ("DeVry Institutes"), Denver
Technical College ("DTC"), Keller Graduate School of Management ("Keller
Graduate School") and Becker Conviser CPA Review ("Becker"). In fiscal
1999, the holding company for the degree-granting operations was renamed
DeVry University, Inc., to better reflect the nature of this higher
education system. DeVry Institutes, DeVry Canada, Inc., Denver Technical
College and Keller Graduate School of Management are a part of DeVry
University. DeVry Institutes and Keller Graduate School collectively form
one of the largest private, degree-granting, regionally accredited higher
education systems in North America. Becker prepares candidates for the
Certified Public Accountant ("CPA"), Certified Management Accountant
("CMA") and Chartered Financial Analyst ("CFA") professional certification
examinations.
<PAGE>4
In July 1999, the Company completed its acquisition of substantially all of
the net tangible operating assets, trademarks and other intangible assets
of the Denver Technical College. At the time of acquisition, DTC offered
diploma and undergraduate degree programs in electronics, computer
technology, business and medical technology to approximately 1,700 students
on campuses in Denver and Colorado Springs, Colorado.
In July 1999, the Company also completed its acquisition of certain
tangible operating assets, trademarks and other intangible assets of
Conviser Duffy CPA Review ("Conviser Duffy"). Conviser Duffy, which had
operated as a unit of Harcourt General, Inc., was a nationally known
training firm preparing approximately 12,000 students annually to pass the
CPA exam.
The amounts of revenue and identifiable long-lived assets of the Company's
U.S. and foreign operations are included in Note 9 to the Consolidated
Financial Statements, "Segment Information".
DeVry Institutes
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The DeVry Institutes were founded by Dr. Herman DeVry and for nearly 70
years have provided career-oriented technology-based 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 fifteen campuses in the United States
and three campuses in Canada.
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 1980's, 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.
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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 redefined and is now the business administration
program. In response to the increasing employment demands of the
information technology field, in 1998 a one year Information Technology
program was first offered at the Toronto-area campuses to bachelor's level
college graduates of any discipline. This program is now also offered at
most institutes in the United States. The Information Technology program
is designed for the already bachelor's-level graduate seeking career
opportunities in IT. The program is structured around a core of
technology-oriented specialty courses, with an emphasis on applying
computer technology to solve business problems.
In fiscal 2000, the Institutes introduced a new bachelor's degree program
in computer engineering technology, CET. This program is aimed at helping
students develop skills and knowledge in software engineering, operating
systems, data structures and algorithms, and distributed computer systems.
Other programmatic initiatives include new delivery formats, such as
weekend schedules, compressed and accelerated course schedules and
technology-assisted delivery options including on-line courses.
In addition to this programmatic expansion, 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 Decatur (Atlanta), Georgia, 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.
<PAGE>6
In July 1998, a new campus was opened in Fremont, California, and in
November 1998, a new campus was opened in Long Island City, New York. In
November 1999, a new campus opened in West Hills, California, the third
DeVry Institute campus in the Los Angeles area. In July 2000, a new campus
opened in Tinley Park, Illinois, the third DeVry Institute campus in the
Chicago area. Further expansion was accomplished with the completion of a
technology center addition to the urban Chicago campus and the start of a
renovation and expansion program at the Columbus, Ohio, Institute.
At the beginning of the spring 2000 semester, which is the final semester
in the Company's fiscal year 2000, approximately 43,330 full and part-time
students were enrolled in the DeVry Institutes' and Denver Technical
College's undergraduate day and evening programs.
In response to the new curricula offerings and facility expansions and
improvements initiated in the past several years, fiscal 2000 marks the
tenth consecutive year that total cumulative enrollment has increased from
the prior year. Cumulatively, total student enrollment for the three
semesters of fiscal 2000 increased by 14.5% compared with fiscal 1999,
following a 12.8% increase in fiscal 1999 from 1998. In the ten years
since fiscal 1990, cumulative annual total student enrollment at DeVry
Institutes has increased by more than 85%. DeVry Institutes' and DTC
operations accounted for approximately 86% of the Company's revenues in
fiscal 2000.
Classes began in July for DeVry Institutes' summer 2000 semester. This is
the first semester in the Company's new fiscal year, 2001. The start of
this term marked the twenty-ninth consecutive term in which total
enrollments exceeded the prior year level. Historically, the summer
semester has been the period of lowest undergraduate enrollment during the
year.
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Changing demographics in the United States are expected to continue to
benefit the Company's future undergraduate 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 slow
but steady increase in the number of high school graduates. The National
Center for Education Statistics forecasts that the number of graduating
high school seniors will increase by twenty percent over the next 8 years,
to approximately 3.2 million in 2008. The forecasted rate of increase in
the number of high school graduates in many of the states in which the
Company's undergraduate programs are offered is greater than the forecasted
national rate of increase, contributing to future enrollment growth
opportunities.
The Department of Education's National Center for Education Statistics
reports that the percentage of high school graduates who currently enroll
in college in the subsequent 12 months has increased to 65% from 51% in
1980. In addition, higher rates of enrollment growth for students age 25
and older, for female students, for part-time students and for minorities
is expected to continue to contribute to DeVry Institutes' undergraduate
enrollment growth in the coming years.
In today's information-driven economy, a higher education degree is
extremely important. In 1980, the pay difference between someone with just
a high school education versus a college education was 50%. Today, that
difference is over 100% and increasing. Students recognize this and are
seeking the skills and degrees necessary to enhance their future career and
earnings potential.
Approximately 25% of recent new student enrollees at the U.S. DeVry
Institutes had some prior college experience. DeVry Institutes estimate
that more than 40% of new student enrollees are 25 years of age or older.
In 1994, to attract the growing number of adults returning to college,
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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, in 1998 DeVry Institutes began to offer an advanced 1 year
program in Information Technology to current bachelor's degree holders. A
similar information technology program is being offered by DTC in several
Denver-area locations.
Some DeVry programs are being offered on weekends to serve the working
adult student and DeVry Institutes also offer 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 still fulfill other responsibilities while pursuing their
educational objectives.
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. Some
distance learning classes are offered in conjunction with DeVry Institutes'
classroom-based programs. Starting September 2000, DeVry Institutes will
begin offering over the Internet the bachelor of business administration
degree, with concentrations in business information systems, e-commerce,
project management and accounting. Enrollment for the online degree
program is limited to students who have already completed 24 college credit
hours, including math and language courses. Other distance learning
initiatives are also being explored throughout the system as an adjunct to
current classroom and laboratory instruction to further enhance student
learning opportunities.
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
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enhance both their professional and personal capabilities. Businesses
require graduates who can fit into an organization, work in teams, have an
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.
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 consistent 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, DeVry Institutes
encourage students to participate in campus activities and offer student
success or problem solving strategy courses aimed at preparing students to
assume responsibility for their learning and growth through practical
strategies and methods for realizing success. In response to these efforts
and higher required minimum admission and placement scores on its
computerized entrance examination, retention rates have increased for
students in the early terms of their program, where students are most
likely to discontinue their studies.
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Denver Technical College
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In July 1999, the Company acquired Denver Technical College. DTC operates
two campuses in Colorado, a main campus in Denver and another campus in
Colorado Springs. At the time of its acquisition, DTC had approximately
1,700 students enrolled in diploma and undergraduate degree programs in
electronics, computer technology, business and medical technology.
DTC operates much like DeVry Institutes, with classes offered in the
morning, afternoon and evening sessions. In addition to its traditional
program offerings, DTC offers a six-month, concentrated program in various
computer specialty areas, similar to the DeVry Institute year-long IT
program. Both the DTC and DeVry Institute programs are aimed at students,
primarily working adults, who already have a bachelor's degree and are
seeking career enhancement or a career change into the computer field.
In July 2000, the Company announced that it will no longer enroll new
students in any of DTC's medical programs. Classes will continue to be
offered so that all currently enrolled students who maintain continuous
enrollment will be able to complete their program of study. DTC will focus
future efforts on areas of DeVry Institutes' historical strength and
expertise.
Keller Graduate School of Management
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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")
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 health
services industry professionals and professionals in related industries
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such as insurance or pharmaceuticals. In February 1997, Keller Graduate
School introduced a Master of Telecommunications Management ("MTM") program
to meet the need for expertise in this growing field. The MTM program was
developed in conjunction with the DeVry Institutes, which offer an
undergraduate telecommunications program. In 1998, Keller began offering
two new programs, the Master of Information Systems Management ("MISM") and
the Master of Accounting and Financial Management ("MAFM"). The MAFM
program offers students a choice of three professional certification exam-
preparation emphases: Certified Public Accountant, Certified Management
Accountant or Chartered Financial Analyst. These exam-preparation
concentrations were developed in conjunction with the Becker Conviser CPA
Review. Concentrations in electronic commerce, international business and
marketing are among those developed to broaden the scope and appeal of the
original MBA program. The Keller programs and concentrations are aimed at
satisfying the need for advanced education in these high demand areas.
Keller emphasizes practitioner orientation, excellence in teaching and
service to working adults, offering classes in the evenings and on
weekends. At the start of the June 2000 term, classes were being offered
at thirty-six locations nationwide, including the distance education
center. Several additional teaching centers are scheduled to begin
offering classes in fiscal 2001. Eight of Keller's teaching sites are co-
located on DeVry Institute campuses in Arizona, California, Georgia and
Illinois. One classroom teaching site and the online education center are
located at the Company's corporate headquarters in Illinois.
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
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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 Graduate
School began offering its graduate programs online in September 1998. The
Online Education Center now extends delivery of all of the master's degree
programs to students who reside beyond the geographic reach of local
centers, whose schedules preclude attending weekly classes onsite and/or
who cannot find their desired course at the Keller center near where they
live or work.
At the start of the June 2000 term, which falls primarily in the Company's
fiscal year 2001, Keller Graduate School had 5,286 course-takers, an
increase of nearly 700 from the previous June. Historically, the June term
has been the period of lowest enrollment during the year.
Keller also provides customized educational and training programs through
its Center for Corporate Education ("CCE"). CCE helps organizations
achieve superior performance through work force development. CCE draws on
faculty and curriculum resources at Keller Graduate School and DeVry
Institutes.
Becker Conviser CPA
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In June 1996, the Company acquired the Becker CPA Review. At the time of
acquisition, Becker was a leading international training firm preparing
students to take the national Certified Public Accountant exam and
Certified Management Accountant exam.
Between 1996 and 1999, Becker acquired several regional CPA review firms,
strengthening its presence in the east coast market. In July 1999, the
Company acquired the operations of Conviser Duffy CPA Review. Conviser was
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a national provider of CPA review courses, serving approximately 12,000
students annually at more than 200 locations. The combined operations are
now known as Becker Conviser CPA Review.
For the May 2000 CPA examination, Becker offered CPA review classes at
approximately 300 locations including over 40 international sites, serving
over 30,000 students annually. With the Conviser Duffy acquisition, Becker
teaching sites now include approximately 80 college campuses throughout the
United States. To reach students for whom class attendance is not
practical because of location or schedule, Becker offers the complete CPA
review course conveniently packaged on CD-ROM or in an online format. The
CD-ROM and online products are interactive, bridging the gap between
classroom study and self study. The structured lesson plan emphasizes the
"work and remember" teaching system which has been so successful in the
Becker classroom environment.
Becker's proprietary course materials and teaching methods, which include
video delivery formats, CD-ROM and live instruction, 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. Becker CPA alumni now
number over 250,000 since the course was founded in 1957.
The CMA exam preparation course was developed for the many accountants who
have moved to the corporate management and strategic planning side of
business. While the course is delivered in several classroom sites across
the country, a newly developed CD-ROM based course is available to serve
the self-study market. An online version of the CMA course is being
developed for possible future availability.
In the spring of 2000, Becker offered a pilot version of its new CFA review
course for the Level 1 examination. The number of candidates seeking the
Chartered Financial Analyst professional designation now total over 70,000
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annually for all the three exam levels, more than half taking the Level 1
part. Review courses for the Level 2 and 3 exams may be developed for
offering in the future.
Competition
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DeVry Institutes
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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 undergraduate DeVry Institutes and Denver Technical
College 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, some
large corporations, such as Motorola, now offer accredited college courses
that may be applied toward degrees.
In each market, local community colleges and state universities continue to
provide alternatives to students for whom lower tuition cost is a high
priority. In addition, many local institutions are reaching out to partner
with local businesses to expand their educational reach. Many are also
recognizing the growing need for programs in information systems,
networking and electronics.
New to the market are the growing number of traditional universities
expanding their offerings in the online arena, including some who are
forming for-profit subsidiaries to serve this market segment. Most notable
are schools such as Columbia University, Cornell University, NYU,
University of Maryland and Western Governors. Many other institutes are
also working to develop a presence in the online space.
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A growing competitive force is the opportunity for high school graduates to
secure gainful employment. Non-skilled positions (fast food, retail, etc.)
garner more than minimum wage in most of our local campus markets.
Positions that require some skill set (including high school vocational
training) such as clerical work or the trades are much more competitive.
Therefore, more high school students are willing to stay home and work for
a year, take a few local classes and save money instead of leaving home
immediately for college.
There are also "new" competitive pressures in addition to the
traditional/historic competition that comes from community colleges,
traditional universities and technical colleges. These include industry-
specific certification programs, mostly aimed at the computer information
area, that are being offered to high school students on their high school
campus. In addition, other proprietary and community colleges are offering
more short-term certificate programs as a pathway to the job market.
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. Publicly supported
colleges may also benefit from regulatory approvals not available to
private schools. For example, in Florida, legislation now permits
community colleges to offer baccalaureate degrees in affiliation with other
public or private universities, increasing educational opportunities to
students without immediate access to a four-year college campus. 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.
<PAGE>16
The DeVry Institutes believe their competitive strengths include career-
oriented curricula developed with regular structured employer input that
helps ensure graduates learn skills that will be marketable to employers;
faculty with related industry experience; the demonstrated effectiveness of
their career services activities in obtaining education-related employment;
their national brand name; name recognition and market presence through
national advertising and student recruitment; accreditations granted to the
institutes; authorization by various states to grant degrees; modern
facilities; well-equipped laboratories; evening and weekend class schedules
and a semester schedule that allows attendance year-round, thereby
permitting earlier graduation. Only a limited number of traditional
colleges offer a bachelor's degree program that 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 of Management
------------------------------------
Keller Graduate School competes for students in a market consisting of
students seeking management skills in business and technology, additional
certification or degree credentialing and educational formats oriented to
working adults. In every market in which KGSM operates, there are numerous
local graduate schools of business, adult education and training companies
aimed at the same market segment. In addition to the local and regional
competition, there are several institutions now offering working adult
graduate degree programs on a national level, much like Keller Graduate
School does. There is also the newer and increasing competitive pressure
from a growing list of competitors providing management degree programs
online.
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. The
average Keller student is 34 years of age. To help improve student
<PAGE>17
performance, satisfaction and retention, Keller utilizes 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 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 flexibility in course scheduling, a greater choice of elective
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
inclusion of all programs in its distance delivery offerings, Keller has
expanded its availability to all qualified students without regard to their
location or daily schedule. By delivering courses both on-site, in an
<PAGE>18
expanding number of sites, and online, Keller Graduate School benefits from
the competitive advantage of enhancing student satisfaction and success
with this scheduling and format flexibility.
Becker Conviser CPA
-------------------
Becker competes with other methods of CPA exam preparation by self-study;
firm-sponsored courses; courses offered by colleges and universities; and
by other private training companies. On a national basis, Becker competes
with self-study and online programs. Local competition is often unique in
the various metropolitan areas where Becker operates. According to reports
by the National Association of State Boards of Accountancy, two-thirds of
first-time CPA candidates and more than half of repeat candidates reported
participating in a review course in the six months prior to taking the
exam. Taking a privately offered course was cited by 88% of these first-
time candidates and 90% of repeat candidates, with college and firm-
sponsored courses representing the remainder. 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 of the four areas of specialty included in the exam.
In addition, Becker's CD-ROM and online courses offer a wider range of
study alternatives than other course providers. Becker's 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 CPA exam are testimony to the quality
and value of the Becker methodology.
CPA candidates can also 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
<PAGE>19
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. To further
extend the marketing and operational benefits of joint operation, Becker
offers classes at many of the Keller Graduate School locations. Becker
classes are also offered on several DeVry Institute campuses.
The competition in the CMA review market is more limited, consisting of
several local market and a few regional programs. Becker's redesigned CMA
course is offered in a classroom setting in selected large markets. It is
offered on CD-ROM for the self-study market and plans for future online
delivery, also for the self-study market, will offer students complete
flexibility in the method of delivery they prefer. Furthermore, the Becker
name and reputation for quality and student success help differentiate
Becker in this market. In both the November 1999 and May 2000 exams, the
top three exam scores world-wide were awarded to Becker course graduates.
The CFA review course, like the CMA course, will be offered live in a
classroom setting in selected large markets, several of them international.
Plans for delivery by CD-ROM, online, or other means are being considered
for the future. The Becker course is a complete CFA exam review, geared
toward helping the student gain specific knowledge of the material, rather
than the more traditional study aids or "cram" courses offered by
competitors.
Student Recruiting
------------------
DeVry Institutes
----------------
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
<PAGE>20
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, depending largely on the school's location and the size of the
local market area. Overall, admissions representatives currently generate
over 70% of DeVry Institutes' total enrollments. The DeVry Institutes
employ over 500 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 the payment of commissions, bonuses or incentives for
student recruitment. The Company believes that its method of
representative and recruiter compensation complies with the regulations.
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
community 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. Approximately 25% of new students recently enrolled at the
U.S. 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 nearly 9,000 high schools in North America last
year and made presentations on career choices and the importance of a
<PAGE>21
college education. These presentations provide a service to high school
educators by providing a resource for educating students on careers in
technology related fields. The outcome of these presentations is the
collection of career surveys from high school juniors and seniors. These
surveys provide a large and important source of leads for student
recruitment.
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. Recruiting
opportunities also exist to U.S. military veterans with military-specific
technical training. Veterans 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. DeVry Institutes' long
history of providing educational services to former military personnel and
the success of the Keller Graduate School and DeVry Institute distance
education programs should help in securing a place for filling the U.S.
Army distance education initiatives for current personnel.
In support of its admissions representatives and field recruiters, DeVry
Institutes advertise on television and radio, in magazines and newspapers,
on various Internet sites, and utilize telemarketing and direct mail to
reach prospective students. Prospective students are also frequently
referred by their employers, alumni or currently enrolled students. In
addition to these more traditional recruiting methods, DeVry's own Internet
site provides another avenue for students to receive information about and
apply for admission.
To help attract more high school students to careers in information
technology, the U.S. DeVry Institutes, in conjunction with the U.S.
<PAGE>22
Department of Commerce's Office of Technology Policy, produced and
distributed an "I.T. is IT" brochure. This brochure, which introduces
technology careers, is being distributed to high schools nationwide.
To be admitted to a DeVry Institute program in the United States, an
applicant must be either a high school graduate or have a General Education
Development ("GED") certificate or hold a degree from an accredited
postsecondary institution and complete an interview with a DeVry admissions
representative. 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 their
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 select and serve 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.
To assist students who live distant from the DeVry Institute campus that
they attend, DeVry Institutes help students secure local living
arrangements. While DeVry Institutes have no dormitory facilities, lists
of nearby available private apartments or rooms are maintained for
students' convenience. In addition, most DeVry Institutes maintain
furnished apartments for shared rental by students. Housing rental and
<PAGE>23
fees are paid to DeVry who contracts with the property owner. Thus DeVry
becomes the students' landlord and students are assured of a fixed rental
charge per month.
Denver Technical College
------------------------
Denver Technical College recruits new students with advertising on
television, radio and in newspapers aimed primarily at the local market
areas in which its campuses are located and from inquiries to its Internet
site. Other promotional activities include attending career expos and job
fairs. Similar in fashion to DeVry Institute operations, Admissions
representatives conduct student interviews and oversee the application
process. Representatives also visit local high schools, but student
interviews are generally conducted on-campus because of the applicants'
proximity.
Keller Graduate School Of Management
------------------------------------
Keller Graduate School recruits students primarily through direct mail,
radio advertising, telemarketing, print advertising and referrals from
employers, alumni or current students. Keller's Internet site is also
becoming a valuable source of applicant inquiries. 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 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.
<PAGE>24
Becker Conviser CPA
-------------------
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, CMA or CFA review courses. The Becker Internet
site provides another source of information to interested applicants.
Becker also 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 CPA examination candidates has declined each
year from the all-time high of approximately 144,000 in 1990. A major
reason for the decline in the number of CPA candidates is the continuing
implementation of the 150 hour requirement. To date, 49 of the 54 states
and U.S. territories have passed a form of the legislation that requires
150 semester units (the equivalent of five years of college) before a
candidate may sit for the CPA exam. This has the effect of delaying
enrollment in Becker's review class by some students in those states. As
of the May 2000 exam, 29 jurisdictions have implemented the law and 15
other states and territories are scheduled to implement the law within the
next three years. By the end of 2001, the 39 jurisdictions that will have
implemented the 150-hour requirement will account for over 65% of the total
pool of candidates for the CPA examination.
In response to the 150 hour requirement, many of the top colleges and
universities have designed their accounting programs to add a fifth year,
either with a master of accounting curriculum or in connection with their
MBA programs. To capitalize on the opportunity, Keller Graduate School of
Management introduced its Master of Accounting and Financial Management
program in 1998. The MAFM program includes tracks for CPA, CMA, and CFA
candidates and culminates with a Becker Conviser review course for credit.
<PAGE>25
To further overcome the recruiting challenges of the 150 hour laws, Becker
has introduced the CPA review course on CD-ROM and online for students who
are unable to attend classroom based instruction, and with the acquisition
of the national Conviser Duffy CPA Review, expanded the Becker presence
onto numerous college campuses across the country.
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
review by accrediting bodies to ensure that these institutions maintain the
levels of performance, evidence institutional and program improvement,
demonstrate integrity and fulfill other 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.
<PAGE>26
DeVry Institute and Keller Graduate School are each accredited by the
Commission on Institutions of Higher Education of the North Central
Association of Colleges and Schools ("NCA"), 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. The next comprehensive Institute evaluation visit
is scheduled for August 2002. The required NCA self-study process is
underway, coordinated by DeVry Institutes' Vice President of Academic
Affairs and involving a Steering Committee of institute presidents and
deans, supported by faculty and staff throughout the entire system.
The next comprehensive evaluation visit by the North Central Commission to
Keller Graduate School is scheduled for April 2002. The Keller required
self-study process is currently underway.
Accreditations of the DeVry Institutes and Keller in the United States and
of the DeVry Institutes in Canada are as follows:
<PAGE>27
-------------------------------------------------------------------------------
UNITED STATES CANADA
-------------------------------------- ---------------------------------
Commission on Institutions of The Electronics Engineering
Higher Education of the North Technology and Electronics
Central Association of Colleges and Engineering Technician programs
Schools. are accredited by the Canadian
Technology Accreditation Board
The baccalaureate Electronics (CTAB).
Engineering Technology (EET)
programs at all DeVry U.S.
campuses, except Tinley Park, North
Brunswick, Fremont, West Hills,
and Alpharetta, and the Electronics
Technology program at DeVry/New
York, are separately accredited by
the Technology Accreditation
Commission of the Accreditation
Board of Engineering and Technology
(TAC of ABET). The associate-level
EET program at DeVry's North
Brunswick campus is also TAC of
ABET accredited. The Tinley Park,
North Brunswick, New York, Fremont,
West Hills and Alpharetta DeVry
Institutes will apply for TAC of
ABET accreditation once their first
classes have graduated.
-------------------------------------------------------------------------------
Denver Technical College is accredited by the Accrediting Commission of
Career Schools/Colleges of Technology ("ACCSCT"), Washington D.C. The
ACCSCT is listed by the U.S. Department of Education as a nationally
recognized accrediting agency.
<PAGE>28
In the United States, each DeVry Institute is approved to grant associate
and bachelor's degrees by the respective state in which it is located. In
New Jersey, however, authorization is at the bachelor's degree level for
only the Electronics Engineering Technology and Telecommunications
Management programs and at the associate degree level for four programs -
Business Administration, Electronics Engineering Technology, Computer
Information Systems and Telecommunications Management. Students at the
DeVry Institute, North Brunswick, may upon completion of their associate's
degree, 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 may
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
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. Both the Calgary and
Toronto-area campuses are seeking degree granting authority from their
respective Provincial regulatory bodies.
Denver Technical College is authorized by the Colorado Commission on Higher
Education as a private college or university under the Degree Authorization
Act to award baccalaureate and associate degrees.
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.
<PAGE>29
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 $6 million of surety bonds with state and local regulatory
authorities in the U.S. and more than $1 million (CDN) of surety bonds with
regulatory agencies in Canada. In Colorado, Denver Technical College has
agreed to maintain a reserve cash account in lieu of other security
arrangements. Certain states have set standards of financial
responsibility different from those prescribed by federal regulation. The
Company believes it is currently in material compliance with state and
Canadian provincial regulations. If the Company were unable to meet the
tests of financial responsibility for a specific state, 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.
Tuition and Fees
----------------
Effective with the summer 2000 term, tuition at most of the DeVry
Institutes in the United States for two semesters (one academic year)
ranged from $8,250 to $8,325. Variations in tuition depend on term of
enrollment. The Fremont, California, Long Island City, New York, and
Orlando, Florida, Institutes, charge tuition ranging from $9,250 to $9,325.
Students enrolled on less than a full time basis are charged somewhat lower
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 1999 was approximately six percent. This increase
approximates the rate of increase at many other postsecondary education
institutions. Based upon current tuition rates, for a student enrolled in
DeVry Institutes' five term Electronics Technician program, total tuition
<PAGE>30
cost would range from $20,725 to $23,225. For a student enrolled in the
nine term Computer Information Systems program, total tuition cost based
upon current rates would range from $37,225 to $41,725.
Tuition for DeVry Institutes' online Business Administration program is
$330 per credit hour. Based upon the current tuition rate, the total
program cost would be $40,945.
Effective with the summer 2000 term, tuition in Canada ranged from $7,370
to $7,655 (CDN) for the two semester period, an increase of more than five
percent from spring 1999. Variations in tuition depend upon the campus
attended and the term of enrollment.
Tuition at Denver Technical College ranges from $135 to $225 per credit
hour. Variations in tuition depend upon the program in which the student
is enrolled.
Effective with the September 2000, term, Keller Graduate School tuition per
course (four quarter credit hours) ranges from $1,125 to $1,425, depending
on the state in which the student is enrolled. This compares to tuition
rates from $1,065 to $1,305 implemented in September 1999. The price for
courses taken online is $1,530.
The price of the complete classroom Becker CPA review course is $1,690,
which includes an enrollment fee. The complete CPA review course on CD-ROM
is priced at $1,390 and, if taken online, the complete course is $1,890.
In addition to the tuition amounts described above, students at the DeVry
Institutes, Denver Technical College and Keller Graduate School must
purchase textbooks and supplies as part of their educational program.
<PAGE>31
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
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 more than 70% 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. A substantial portion of the students attending Denver
Technical College's day and evening programs also finance their education
through government aid programs and employer tuition reimbursement plans.
The Company believes that approximately 30% of Keller Graduate School
students receive government-sponsored financial aid. In addition,
approximately 85% of Keller students are believed to receive some tuition
reimbursement assistance from their employers. Students attending the
Becker CPA, CMA or CFA review courses are not eligible for financial aid,
but many of them receive partial or full tuition reimbursement from their
employers.
<PAGE>32
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
because historically, approximately 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. The Higher Education Act guides the
federal government's support of postsecondary education. The Act was most
recently reauthorized in the fall of 1998, redefining and extending the
numerous financial aid programs currently in existence. There is no
assurance, however, 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 provided several new incentives to help students
finance their education. First, employer-provided undergraduate
educational assistance of up to $5,250 per year remains excluded from
taxable income for courses beginning prior to December 1, 2001. Second, a
HOPE tax credit of up to $1,500 for each student has been provided for
expenses paid 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,
increasing to $2,000 after January 1, 2003. Also, student loan interest
<PAGE>33
expense during the first 60 months of repayment, in amounts ranging from
$1,500 in 1999 to $2,500 in 2001 and beyond, 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.
In 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
institution's financial stability. The Company believes that, based upon
its computations, it has demonstrated a high level of financial stability
as measured by these tests. 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 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,
<PAGE>34
full-time degree-seeking" students. For the U.S. DeVry Institute system,
completion rates have generally improved over the past several years.
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, 2000 America's Best Colleges, at
selected four-year urban public colleges in the areas in which DeVry
Institutes operate. DeVry also admits many students who previously
attended another college and who are not permitted to be included in these
completion rates statistics. Completion rates for the students entering
DeVry with previous college experience are generally higher than for first-
time students.
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 for fiscal
1999, and its independent accountants are currently conducting the required
audits of the one year period ending June 30, 2000. The Department of
Education may periodically conduct site visits at any of the Company's
locations as a part of its program of periodic review of the administration
of student financial assistance programs. A one-week review of the DeVry
Decatur (Atlanta) Institute was conducted in September. To-date, no report
of the review has been issued. Although the Company has no reason to
believe that any proceeding against the Company is presently contemplated,
<PAGE>35
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. A Ministry audit of these applications, with DeVry's
full cooperation, began in September 1995, and was subsequently completed.
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. During the
third quarter of fiscal 1999, the Company successfully concluded the
resolution of all outstanding issues with the Ontario Ministry of Education
and Training, including the remaining portion of the full refund of amounts
believed to have been inappropriately disbursed. DeVry's Toronto-area
campuses have now been unconditionally reinstated as participants in the
Province's student financial aid programs.
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").
<PAGE>36
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 can receive a Pell grant ranging in amount from $400
to $3,300 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 institutional matching contribution may be satisfied, in whole or
in part, by 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, FDSL and in the Perkins loan
program.
STAFFORD LOANS: A subsidized Stafford loan, awarded on the basis
of need, is a low interest loan with interest charges and
principal repayment not scheduled to begin until six months after
a student no longer attends school on at least a half-time basis.
An unsubsidized Stafford loan may be awarded to students who do
not meet the needs test and incurs interest charges from the time
the loan is disbursed; however, the interest payment may be
deferred until the principal payments begin.
PLUS LOANS: A PLUS loan enables parents of a dependant student to
borrow for the cost of their children's education. These loans
are not based on financial need, they are not subsidized and
interest charges and repayment begin upon receipt of the loan.
<PAGE>37
PERKINS LOANS: A Perkins loan is a low interest loan available to
only those students who demonstrate exceptional financial 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. New funding from the
Department of Education is limited in amount based upon federally
determined rules.
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. Several DeVry Institutes participate in this
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. Federal student loans would
still remain available to the Company's eligible students under the
Stafford program should Direct Student Loan availability be curtailed
for the DeVry Institutes that participate in the Direct Loan program.
<PAGE>38
WORK STUDY: Work Study wages are generally paid 75% 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 and loan assistance may be received by eligible
students attending DeVry Institutes in Arizona, California, Georgia,
Illinois, Ohio, New Jersey and New York.
Denver Technical College: Students attending Denver Technical College
participate in the same federal undergraduate financial aid programs as
students attending a DeVry Institute. In addition, there are several State
of Colorado programs available to students attending DTC.
"90/10 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 90% of its revenues from federal financial assistance programs in any
year are not able to participate in these programs for the following year.
This regulation is commonly referred to as the "90/10 rule." Prior to
1999, the rule permitted only 85% of revenues to be collected from federal
financial assistance programs. When the limit was increased to 90% the
definition of revenues was modified to exclude those funded by
institutional scholarships. Final data for fiscal 2000 are not yet
complete but, in 1999, the U.S. Institute system derived less than 70% of
its revenues from these programs.
Keller Graduate School derives approximately 30% of its revenues from these
defined aid programs.
<PAGE>39
Each of the DeVry Institutes (except for the Long Beach, California, and
West Hills, California, Institutes, which currently operate as an
additional location of the Pomona, California, Institute, the Fremont,
California, Institute which currently operates as an additional location of
the Phoenix, Arizona, Institute, the Alpharetta, Georgia, Institute, which
currently operates as an additional location of the Decatur, Georgia,
Institute, the Long Island City, New York, Institute, which currently
operates as an additional location of the Columbus, Ohio, Institute, the
Tinley Park, Illinois, Institute which currently operates as an additional
location of the Addison, Illinois, Institute and the Orlando, Florida,
Institute, which will operate as an additional location of the Addison,
Illinois, Institute), Denver Technical College and Keller is established as
a separate institution under the Higher Education Act ("HEA") provisions
and must separately meet the criteria for the "90/10 rule" and loan default
rates.
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 permanent residents 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. Canada Study Grants for students whose financial needs and
special circumstances cannot otherwise be met, tax-free withdrawals from
retirement savings plans, tax-free education savings plans, loan repayment
extensions and interest relief on loans are also available to qualified
applicants to help finance their educations. All other forms of government
financial aid in Canada, both loans and grants, are financed and
administered by the provinces.
<PAGE>40
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.
Company-Provided Financial Assistance: The Company's EDUCARD Plan is
available to students attending the U.S. DeVry Institutes. Similar
installment payment plans are being developed for the Canadian DeVry
Institutes. The EDUCARD Plan is an installment loan program designed to
assist students unable completely to 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 negotiated 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, 2000, was approximately $15.5 million. In
fiscal 2000, student accounts receivable increased at approximately the
same rate as tuition revenues. Amounts owed by students under the EDUCARD
Plan are subject to a monthly interest charge of 1% of the average
outstanding balance.
<PAGE>41
In September 2000, several DeVry Institutes began a supplementary loan
program trial with funding from private lenders. This new program is aimed
at students whose eligibility for federal and state funded financial aid is
not sufficient to cover all their costs of education. This program, with
longer repayment periods, lower monthly payments and generally lower
interest rates on borrowings than offered by EDUCARD, is intended as an
alternative to the current EDUCARD program. Results of the trial will be
evaluated over the coming terms and, if successful, may be implemented at
additional DeVry Institute campuses.
In addition to the student financial assistance provided by the EDUCARD
Plan, the U.S. and Canadian DeVry Institutes offer a numerous scholarships
to current high school graduates. 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 also offer a limited number of half-tuition
scholarships to recent graduates from accredited community/junior colleges.
The DeVry Institutes have also provided funds in the form of institutional
grants which help students most in need of financial assistance.
At Keller, students who wish to defer tuition payment may choose from
several deferred payment plans and students eligible for tuition
reimbursement plans may be able to have their tuition billed directly to
their employer.
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 student populations and community
<PAGE>42
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 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. Default rates for
the FDSL program have not 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
<PAGE>43
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 U.S. DeVry Institutes had FFELP student loan cohort default
rates for 1998 (the latest year for which statistics are available) ranging
from 1.1% to 18.5%. The weighted average DeVry Institute system's FFELP
cohort default rate is preliminarily reported at less than 13.0%. The
reported rates for 1998 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 1999. Cohort default rates are subject to revision by the
Department of Education as new data becomes available and are subject to
appeal by schools contesting the accuracy of the data. For 1997 (the
latest year for which "final" statistics are available), the U.S. DeVry
Institutes' weighted average FFELP cohort default rate was 15.1%.
No DeVry Institute has had a FFELP cohort loan default rate greater than
25% in any of the past 5 years. Default rate management plans and
reduction initiatives have been implemented 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. 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
<PAGE>44
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 1999 (the latest
year for which statistics are available) range from 11.6% to 22.8%. The
U.S. DeVry Institutes weighted average Perkins loan cohort default rate was
approximately 18.2%. For 1998, the DeVry Institutes' Perkins loan default
rates ranged from 12.0% to 25.6%, and the U.S. DeVry Institutes weighted
average Perkins loan cohort default rate was approximately 21.7%. Several
institutes receive reduced new funding for the Perkins loan program because
their default rates exceed the 20.0% regulatory thresholds. At these
institutes, new loans continue to be granted but at lower levels than if
the full amount of new federal funding were received. Because of the
relatively small amounts of funding available for this program relative to
other available financial aid programs, the reduced level of funding has
not had a material effect on the availability of total financial aid
available to DeVry students. Student counseling and additional collection
efforts, including the assistance of an outside loan service agency, have
been implemented at each institute and have, in part, contributed to the
current reduction in default rates.
Career Services
---------------
The Company believes that the employment of its graduating students is
essential to its ability to attract and retain students. Currently, more
than 100 career services professionals are located at the U.S. DeVry
Institutes, 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. In many cases, company hiring representatives conduct
interviews at an institute campus.
<PAGE>45
The shortage of skilled employees has placed an increased premium on
educated workers in our economy as evidenced by the widening gap in wages
of college vs. high-school graduates to more than 100% from approximately
50% in 1980. It is estimated that 85% of the jobs in the United States
currently require education or training beyond high school, up from only
65% as recently as 1991.
DeVry Institutes attempt to gather accurate data on the number of their
graduates employed in education-related positions within six months
following graduation. To a large extent, the reliability of such data is
dependent on the quality of information that graduates report to the DeVry
Institutes. At the U.S. DeVry Institutes, there were more than 44,000
graduates over the ten-year period ending October 1999, 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, more than 93% held positions
in their chosen fields within six months of graduation.
Full and part-time U.S. undergraduate degree and diploma program graduates
for the three classes which ended in calendar year 1999, and for the three
classes which ended in calendar year 1998, were employed in their chosen
field within six months of graduation, based on data reported to the DeVry
Institutes, as follows:
<PAGE>46
THE U.S. DEVRY INSTITUTES' UNDERGRADUATE EMPLOYMENT STATISTICS(1)
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(2) Employed(3) Positions Employed(3) Employed(2)
------------ ----------- --------- ----------- -----------
Calendar Year
1999 Graduating
Classes (2/99,
6/99, 10/99) 5,622 5,499 5,230 95.1% 93.0%
Calendar Year
1998 Graduating
Classes (2/98,
6/98, 10/98) 4,829 4,741 4,544 95.8% 94.1%
(1)Does not include graduates of the one year post-baccalaureate
Information Technology program.
(2)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.
(3)Does not include students who actively pursued employment for less
than 6 months and did not obtain employment.
The 1999 graduates achieved average annual starting compensation that
varied by program of study, ranging from $29,635 to $46,190. Individual
compensation levels vary depending upon the graduate's experience, program
of study and geographic area of employment.
<PAGE>47
In Canada, for the three classes which ended in calendar year 1999, 92.3%
of eligible 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, 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 but does not include graduates of
the one year Information Technology program.
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 Xerox.
At DTC, Career Services Department personnel assist students in resume
preparation, job search strategies and interviewing skill development. To
further assist its students in obtaining employment upon graduation, DTC
offers a unique Skills Guarantee Program. This program guarantees to
qualified employers that the DTC graduate possesses a specific set of job
skills. If an employer hires a graduate who fails to demonstrate these
skills, DTC will reimburse the employer the graduate's first month's
salary, up to $1,500. Claims under this guarantee program have been
minimal to-date.
For the four DTC classes that ended in calendar year 1999, 93.5% of those
graduates that actively pursued employment had obtained, or were already
employed, in their chosen field within 6 months of graduation.
<PAGE>48
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, DTC 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 Conviser 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 both this seasonal enrollment pattern and the
pattern of student recruiting activity costs that precede the start of
every term. Revenue, 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 of DeVry Institutes' campuses is managed by a president and has a
staff of academic deans, faculty and academic support staff, career service
and student service personnel and other professionals. Each campus also
has an admissions director who reports to the Company's vice president of
admissions. A similar organizational structure is employed at DTC. Each
Keller Graduate School center is managed by a center director and has
admissions representatives and appropriate academic and administrative
<PAGE>49
support staff. Becker Conviser is managed by an administrative staff
headquartered in Los Angeles and Oakbrook Terrace and by regional
administrative staff which support instructors and coordinate local
recruiting efforts.
The Company has more than 3,600 regular full- and part-time employees.
Over 300 of these employees are at the corporate headquarters in Oakbrook
Terrace, Illinois. In addition, the Company employs more than 1,500
students during peak periods as faculty assistants and in other part-time
positions. 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 Institute's campus president hires academic deans and 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 leave 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 more than 900 full and part-time faculty member employees among
all of DeVry Institutes' campuses. More than 80% of DeVry Institutes'
full-time faculty member employees hold advanced academic degrees. In
addition, DeVry Institutes engage adjunct and visiting faculty, as needed,
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>50
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 licensing 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 800 active faculty who teach courses as needed throughout the year.
Becker's faculty, numbering more than 500 each term, are primarily
practicing professionals who teach part-time on a course-by-course basis.
Trademarks and Service Marks
----------------------------
The Company owns and uses numerous trademarks and service marks including
"DeVry Institute of Technology" 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>51
ITEM 2 - PROPERTIES
--------------------
DeVry Institutes
----------------
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 DeVry Institute campuses or the Denver campus of DTC, which are
owned by the Company, are subject to a mortgage or other indebtedness.
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, the start of the summer term, in a 99,000 square foot Company-
owned facility.
<PAGE>52
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 in July 1998, the
start of the summer 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.
In New York, the Company completed renovation on a leased site in Long
Island City. Classes were offered for the first time in November 1998, the
start of the fall term. Initially occupying approximately 96,000 square
feet, expansion construction is underway, increasing the campus size by
59,000 square feet with expected occupancy for the fall 2000 term.
A parcel of land was purchased in the fourth quarter of fiscal 1997 in the
San Fernando Valley (West Hills), California, for construction of a third
campus in the Los Angeles area. Purchase of an adjoining parcel of land,
necessary to complete the site, was completed in August 1997. Construction
was completed on this 105,000 square foot Company-owned facility and
classes were first offered beginning in November 1999 for the fall term.
In Phoenix, Arizona, Pomona, California, and Kansas City, Missouri, the
Company leases additional space in adjacent office buildings in order to
relocate some administrative functions, permitting space within the campus
building to be used for additional classrooms and laboratories. These
expansions were necessary to accommodate increased student enrollments.
At the Chicago DeVry Institute, construction began in 1998 on a 53,000
square foot expansion. Located on the same Company owned property, and
adjacent to the existing facility, this expansion, which became available
<PAGE>53
during for the fall 1999 term, permits further enrollment growth and an
enhanced environment for the students, faculty and staff.
In fiscal 1999, the Company purchased approximately 16.9 acres of land in
Tinley Park (Chicago), Illinois, for construction of a 65,000 square foot
DeVry Institute. Construction was completed and classes were offered for
the first time in the summer 2000 term.
Renovation and expansion of the Columbus DeVry Institute was begun in 1999.
This project, currently nearing completion, increases the campus size to
approximately 114,000 square feet and replaces the 14,400 square feet of
adjacent modular space currently in use.
The owner of the Addison (suburban Chicago) Institute acquired an adjacent
parcel of land and constructed approximately 20,000 square feet of
additional classroom and administrative space to accommodate increased
enrollments. This space was completed and occupied for the summer 2000
term.
Additional DeVry Institute facility renovations and expansions may be
undertaken in the future to improve and expand operations.
In Orlando, Florida, the Company is nearing completion of construction on a
leased campus of approximately 72,000 square feet with classes scheduled to
begin in the fall of 2000.
In Seattle, Washington, the Company has completed the acquisition of
approximately 11 acres of land for the construction of a new Institute with
classes expected to be offered in the summer of 2001.
The table below sets forth certain information regarding each of the
properties at which the DeVry Institutes and DTC conducted educational
operations at June 30, 2000:
<PAGE>54
DeVRY INSTITUTE CAMPUSES
------------------------
Full and
June 2000 Part-Time
Area Students
(Approximate Attending
Square Feet) Spring 2000 Ownership
------------ ----------- ---------
Phoenix, Arizona 120,200 3,457 Owned
Alpharetta (Atlanta), Georgia 65,000 1,356 Leased
Decatur (Atlanta), Georgia 107,500 2,764 Owned
Chicago, Illinois 160,000 3,898 Owned
Addison (Chicago), Illinois 110,000 3,846 Leased
Kansas City, Missouri 74,500 2,479 Owned
Columbus, Ohio 114,000 3,264 Owned
North Irving (Dallas), Texas 95,250 2,952 Leased
Long Island City, New York 96,000 1,314 Leased
Pomona (Los Angeles), California 100,500 3,460 Leased
Long Beach (Los Angeles),
California 98,240 2,617 Leased
West Hills, (Los Angeles),
California 105,000 543 Owned
Fremont (San Francisco),
California 99,000 1,522 Owned
North Brunswick, New Jersey 99,000 3,546 Owned
Denver Technical College
Denver, Colorado 98,000 1,798 Owned(1)
Calgary, Alberta, Canada 70,000 1,387 Leased
Scarborough (Toronto), Ontario,
Canada 44,800 994 Leased
Mississauga (Toronto), Ontario,
Canada 60,600 1,133 Leased
------
42,330
======
----------------------
(1) Includes 28,000 square foot leased facility in Colorado Springs,
Colorado.
Keller Graduate School
----------------------
Keller centers are housed in modern buildings whose locations are chosen
primarily for their convenience to students. Keller centers, which mostly
range in size from approximately 4,000 to more than 10,000 square feet,
include teaching facilities, admissions and administrative offices. Each
<PAGE>55
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 2000, Keller opened five new teaching centers. Additional
new centers are planned for opening in fiscal 2001 and beyond.
At the start of the April 2000 term, the last complete term in fiscal 2000,
approximately 6,595 course-takers were enrolled in Keller's classroom and
distance education programs. The table below sets forth certain
information regarding each of the properties at which Keller conducted
educational operations in the April, 2000, term:
<PAGE>56
KELLER GRADUATE SCHOOL CENTERS
------------------------------
April 2000
Ownership
---------
Chicago Loop, Illinois Leased
Chicago/O'Hare, Illinois Leased
Schaumburg, Illinois Leased
Lincolnshire, Illinois Leased
Oakbrook Terrace, Illinois (1)
Lisle, Illinois Leased
Orland Park, Illinois Leased
Elgin, Illinois Leased
Merrillville, Indiana Leased
Tysons Corner, Virginia Leased
Crystal City, Virginia Leased
Bethesda, Maryland Leased
Milwaukee, Wisconsin Leased
Waukesha, Wisconsin Leased
St. Louis, Missouri Leased
St. Louis, Missouri (downtown) Leased
Kansas City, Missouri (2)
Kansas City, Missouri (downtown) Leased
Phoenix, Arizona (2)
Scottsdale, Arizona Leased
Mesa, Arizona Leased
Denver, Colorado Leased
Decatur, Georgia (2)
Atlanta, Georgia Leased
Alpharetta, Georgia (2)
Atlanta/Buckhead, Georgia Leased
Pomona, California (2)
Long Beach, California (2)
Irvine, California Leased
San Diego, California Leased
Fremont, California (2)
West Hills, California (2)
Tampa Bay, Florida Leased
Orlando, Florida Leased
Miami, Florida Leased
Distance Learning (1)
----------------------
(1)Operates at the Company's corporate headquarters location
(2)Operates on a DeVry Institute campus
<PAGE>57
Becker
------
Becker is headquartered in leased offices in Encino, California, and at the
Company's corporate headquarters in Oakbrook Terrace, Illinois. Classes are
conducted in leased facilities, fewer than twenty of which are leased on a
full-time basis. The remainder of the classes are conducted in facilities
which are leased on an as-needed 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 95,000
square feet of leased space in an office tower in Oakbrook Terrace,
Illinois. In addition, the Company leases more than 21,000 square feet of
storage and other miscellaneous use space plus an additional 24,000 square
feet of office space in an adjacent building. Additional office and
miscellaneous use space were added during the past year to accommodate the
Company's expanding operations and further space may need to be leased in
the future.
The Company's leased facilities are occupied under leases whose remaining
terms range from one to 14 years. A majority of these leases contain
provisions giving the Company the right to renew its lease for additional
periods at various rental rates.
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
<PAGE>58
the Company believes is material. Although the outcomes of these lawsuits
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.
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.
During the third quarter of fiscal 1999, the Company successfully concluded
the resolution of all outstanding issues with the Ontario Ministry of
Education and Training, including the full refund of amounts believed to
have been inappropriately disbursed. DeVry's Toronto-area campuses have a
full and unconditional status as a participant in the Province's student
financial aid programs.
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.
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>59
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 . . . . . . . . . . .59 Mr. Keller co-founded Keller
Graduate School in 1973. From the
Chariman of the Board and Chief inception of the Company, Mr.
Executive Officer Keller has been Chairman of the
Board and Chief Executive Officer.
Mr. Keller is a graduate of
Princeton University and holds a
Masters degree in Business
Administration from the University
of Chicago Graduate School of
Business.
Ronald L. Taylor . . . . . . . . . . .56 Mr. Taylor co-founded Keller
Graduate School in 1973 and has
Director, President and Chief been a director since its
Operating Officer 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. . . . . . . . . . .57 Ms. Cason joined the Company in
1989 with responsibility for the
Senior Vice President, General Company's legal affairs and human
Counsel and Corporate Secretary 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.
<PAGE>60
Name, Age and Office Business Experience
-------------------- -------------------
Michael J. LaForte . . . . . . . . . .54 Mr. LaForte joined the Company in
1996. Prior to joining DeVry, Mr.
Senior Vice President LaForte served as executive vice
president of XL/Datacomp after
spending 12 years at IBM in a
variety of regional and national
marketing positions. Mr. LaForte
is responsible for the operations
of the DeVry Institutes, including
student recruitment.
O. John Skubiak. . . . . . . . . . . .54 Mr. Skubiak joined Keller Graduate
School more than 20 years ago,
Senior Vice President 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
Conviser CPA Review.
Norman M. Levine . . . . . . . . . . .57 Mr. Levine has been Controller of
the Company since 1987 and has been
Vice President and Chief Financial the Chief Financial Officer since
Officer 1989. From 1982 to 1987, Mr.
Levine was Controller of the DeVry
Institutes.
Jack L. Calabro. . . . . . . . . . . .58 Mr. Calabro joined DeVry in 1999 as
Vice President of Human Resources.
Vice President, Human Resources Prior to joining DeVry, Mr. Calabro
was vice chancellor of human
resources at City Colleges of
Chicago and vice president of human
resources at Helene Curtis
Industries.
<PAGE>61
Name, Age and Office Business Experience
-------------------- -------------------
Thomas F. Donini . . . . . . . . . . .50 Mr. Donini joined DeVry in 1982,
serving in a variety of recruiting
Vice President, Field Recruitment positions. Appointed to his
current position in 1999, his
responsibilities include the more
than 250 DeVry Institute sales
representatives who make career
presentations at over 10,000 high
schools in North America each year.
James A. Dugan . . . . . . . . . . . .54 Mr. Dugan joined the Company in
1980 serving in a number of
Vice President, Regional operating positions at the Phoenix
Operations DeVry Institute, most recently as
its president. In his current
position, Mr. Dugan is responsible
for the operation of several of the
U.S. DeVry Institutes.
George W. Fisher . . . . . . . . . . .48 Mr. Fisher joined the Company as
Vice President, Canadian Operations
Vice President, Regional in 1985. His responsibilities
Operations currently include operations of
several DeVry Institutes in the
U.S. and Canada.
Timothy Joyce. . . . . . . . . . . . .39 Mr. Joyce joined the Company in
August 2000 as Controller. Prior
Controller to joining the Company, Mr. Joyce
was Vice President and Controller
of THK America, a manufacturer and
distributor of electronic devices,
in Schaumburg, Illinois.
Bruno LaCaria. . . . . . . . . . . . .58 Mr. LaCaria joined the Company in
August 1998 as Vice President and
Vice President, Chief Information chief information officer. Prior
Officer to joining the Company, Mr. LaCaria
was the Director of Information
Systems at the University of
Pittsburgh.
<PAGE>62
Name, Age and Office Business Experience
-------------------- -------------------
Patrick L. Mayers. . . . . . . . . . .60 Dr. Mayers joined Keller Graduate
School in 1978 as Dean of Academic
Vice President, Academic Affairs 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.
Gerald Murphy. . . . . . . . . . . . .53 Mr. Murphy joined the Company in
late 1995 as a Vice President with
Vice President, Institutional responsibility for the operation of
Development several of the DeVry Institutes in
the U.S. and Canada. He is
currently responsible for new DeVry
Institute location and program
development. Prior to joining the
Company, Mr. Murphy served as a
Vice President of Educational
Management Corp. and of the
Universal Technical Institute.
Sharon Thomas-Parrott. . . . . . . . .49 Ms. Thomas-Parrott joined the
Company in 1982 after several years
Vice President, Government as an officer in the U.S.
Relations Department of Education's Office of
Student Financial Assistance. She
served the Company in several
student finance positions before
being elected to her position which
currently includes responsibility
for student finance, corporate
communications and government
relations.
Raul Valdes-Pages. . . . . . . . . . .50 Mr. Valdes-Pages joined the Company
in July 1999. In his current
Vice President, New Program position, he is responsible for
Development developing new product and program
initiatives. Prior to joining the
Company, Valdes-Pages was president
of Denver Technical College.
<PAGE>63
Name, Age and Office Business Experience
-------------------- -------------------
Jane Perlmutter. . . . . . . . . . . .52 Dr. Perlmutter joined the Company
in 1997 as a Vice President with
Vice President, Regional responsibility for the operation of
Operations several U.S. DeVry Institutes.
Prior to joining the Company, Dr.
Perlmutter managed the Bellcore
Training & Education Center in
Lisle, Illinois.
Kenneth Rutkowski. . . . . . . . . . .53 Mr. Rutkowski joined the Company in
1985 as Director of Operations and
Vice President, Operations Administrative Services and was
Services and Administration promoted to his current position in
1991. His current responsibilities
include managing the Company's real
estate and various administrative
functions.
Vijay Shah . . . . . . . . . . . . . .49 Mr. Shah joined the Company in 1977
progressing from representative in
Vice President, Admissions 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. . . . . . . . . . .50 Mr. Steffes joined the Company in
1984 as director of marketing and
Vice President, Marketing was promoted to his current
position in 1986. Mr. Steffes is
responsible for the Company's
advertising, sales promotion and
public relations.
<PAGE>64
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.
FISCAL 2000 FISCAL 1999
-----------------------------------------------------------------
HIGH LOW HIGH LOW
-----------------------------------------------------------------
First Quarter $24 13/16 $18 $26 3/4 $17 1/8
Second Quarter 23 15/16 15 5/8 30 5/8 16 1/16
Third Quarter 30 1/2 16 1/16 30 3/8 24 1/4
Fourth Quarter 31 3/4 22 1/2 31 7/8 20
------------------------------------------------------------------
(b) Approximate Number of Security Holders
------------------------------------------
There were 709 holders of record of the Company's common stock as of
September 1, 2000. 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
<PAGE>65
restrictions by covenants in the subsidiaries' debt agreements. The
Company has not paid any dividends on its common stock and expects for the
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 are
included in the exhibit, "Five-Year Summary - Operating, Financial and
Other Data", on page 107 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.
Fiscal Year Ended June 30, 2000, vs. Fiscal Year Ended June 30, 1999
--------------------------------------------------------------------
Fiscal 2000 was another year of record financial performance. Tuition
revenues in fiscal 2000 increased by $77.3 million, or 20.2%, from fiscal
1999. The increase in tuition revenue was produced by higher enrollments
tuition rate increases at DeVry Institutes, Keller Graduate School of
Management and Becker Conviser CPA Review.
Fiscal 2000 marked the 10th consecutive year at DeVry Institutes in which
cumulative total student enrollment for the three semesters during the year
has increased, up 14.5% from the previous year. Enrollment increases at
DeVry Institutes reflect the opening of a new campus in West Hills,
<PAGE>66
California; continued enrollment increases in previously opened sites; and
enrollments at Denver Technical College's two Colorado campuses, which were
acquired in July 1999. At Keller Graduate School, cumulative total student
enrollment for the five terms of fiscal 2000 grew by 16.8% compared with
fiscal 1999, reflecting the opening of five new teaching centers during the
year and enrollment growth at previously opened centers, including the
Online Education Center. At Becker Conviser CPA Review, the July 1999
acquisition of the Conviser Duffy CPA Review operations increased
enrollments to more than 30,000 per year.
Tuition revenues also increased because of tuition rate increases of
approximately 6.2% at DeVry Institutes, which occurred in the spring
semester of fiscal 1999 and that were in effect throughout fiscal 2000, and
somewhat lesser increases at Keller Graduate School and Becker Conviser CPA
Review during the current fiscal year. At DeVry Institutes, tuition
increases have historically been implemented effective with the spring term
that begins in March. In fiscal 2000, the tuition increase was realigned
to become effective with the start of the summer term, which corresponds
with the beginning of the new financial aid year and is consistent with the
pattern of DeVry Institutes' high school recruiting program. As a result,
the Company's tuition revenues in March-and for the fourth fiscal quarter-
were almost $8 million lower than they would have been if the historical
tuition increase pattern had applied.
Other Educational Revenues, composed primarily of sales of books, supplies,
other educational materials and interest charges on DeVry Institutes'
outstanding student receivables, increased by $8.6 million, or 23.6%,
because of the increased number of students attending the Company's
education programs. Contributing further to the increase were growing
sales of the Becker Conviser CD-ROM product and other CPA review study
materials acquired in July 1999 with Conviser Duffy. The DeVry Institutes
have entered into an agreement with Follett Higher Education Group
("Follett") to manage several of the on-campus Institute bookstores and
<PAGE>67
also to provide Internet order capability to students at these campuses.
The wider range of ancillary merchandise and experienced retail store
management available from Follett should provide an improved level of
service to DeVry Institute students. At fiscal year-end, Follett was
managing four institute bookstores and began managing a fifth store in
July. The institutes will receive a commission from Follett based upon the
level of sales at these campuses. Responsibility for managing additional
DeVry Institute campus bookstores may be transferred to Follett in the
future, reducing reported revenues but with no significant effect on net
income. Interest income on the Company's short-term investments of cash
balances increased slightly to $1.5 million because of somewhat higher cash
balances held during the year, although at fiscal year-end, cash balances
were lower than they were last year.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101") entitled "Revenue Recognition in
Financial Statements." This bulletin provides the SEC Staff's views on
applying generally accepted accounting principles to selected revenue
recognition issues, including the recognition of fee income. The
principles outlined in this bulletin are subject to further detailed
guidance on application. Current implementation dates require the
application of SAB 101 no later than the fourth quarter of the Company's
fiscal year 2001. The Company derives most of its revenues from tuition
charges that are appropriately recognized ratably over the academic term.
Application fees and other similar charges, which currently represent less
than 1% of total revenue, are recognized as revenue at the time application
processing and testing services are provided. The Company is awaiting the
SEC's release of further guidance with respect to SAB 101 and then will
complete the process of evaluating the full effects of this pronouncement.
SAB 101 requires the deferral of certain fees and other charges over the
period of service (student enrollment); however, based on a preliminary
<PAGE>68
analysis, the Company does not expect SAB 101 to have a significant effect
on its consolidated results of operations, financial position and cash
flows.
In fiscal 2000, Cost of Educational Services increased by $49.7 million, or
21.1%, 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 student accounts. The acquisition of the Denver Technical
College and Conviser Duffy operations added both revenue and expense this
year. However, higher wage, benefit, supply, service and facility expenses
associated with the growing number of students and the expanded number of
operating locations at DeVry Institutes and Keller Graduate School
contributed the greatest portion of the increase in cost. New operating
locations, such as DeVry Institute's West Hills, California, campus (opened
in November 1999) and the new Keller Graduate School centers opened during
the year, typically incur expenses greater than their revenues during the
first year of operation.
Depreciation expense, included in the Cost of Educational Services,
increased by $5.4 million, or 33.7%, from fiscal 1999 as a result of record
spending during the past several years on capital improvements and
systemwide expansion. Provision for refunds and uncollectible accounts at
DeVry Institutes, although higher in absolute amount than last year,
decreased as a percentage of tuition revenue from fiscal 1999. This is
believed to result from higher admission standards, increased academic
support and student service quality initiatives that favorably affect
student retention and contribute to increased operating margins.
<PAGE>69
Student Services and Administrative Expense increased by $20.4 million, or
16.8%, from fiscal 1999. Student Services and Administrative Expense
includes the costs of new student recruiting, general and administrative
costs and expenses associated with curriculum development. The increased
spending primarily reflects marketing costs associated with generating
higher student enrollments at DeVry Institutes, Keller Graduate School and
Becker Conviser CPA Review for terms that began in fiscal 2000 and for the
summer term of fiscal 2001, which began in July. Marketing and
administrative expenses associated with the Denver Technical College and
Conviser Duffy operations also contributed to the year's increased costs,
but economies were achieved from the combination of their operations with
DeVry Institutes and Becker CPA Review, respectively. Marketing costs were
also incurred for the new DeVry Institute in Tinley Park, Illinois, opened
in July 2000, and for the new DeVry Institute in Orlando, Florida,
scheduled to open in November 2000. All marketing costs are expensed as
incurred, and the level of spending reflects efforts toward student
enrollments, revenues from which will not be realized until future periods.
Amortization expense of intangible assets, primarily resulting from
goodwill created by purchase accounting on the Company's acquisitions, is
included in the Student Services and Administrative Expense category. In
fiscal 2000, this expense equaled $3.6 million, increasing by approximately
$2.0 million from last year because of the acquisitions of Denver Technical
College and Conviser Duffy.
Administrative efforts and required remediation associated with correcting
Y2K computer processing deficiencies were generally completed before the
start of the calendar year. Subsequent to the start of the year, only
minor modifications were required, and there was no measurable adverse
effect on the Company's operations. Incremental spending on Y2K-related
issues was charged to expense as incurred and was not material relative to
overall revenues or expenses.
<PAGE>70
The Company's earnings from operations in fiscal 2000 - before interest and
taxes - were a record $79.5 million, increasing more than 25% from the
previous year. Operating margins, which have increased steadily in each of
the past several years, increased again, to 15.7% in fiscal 2000, up from
15.1% and 14.5% in fiscal 1999 and 1998, respectively. Although
depreciation and amortization charges have both increased at a rate greater
than the increase in tuition revenues, operating margins have increased
because of higher new student enrollments, improved student retention,
greater facility utilization, continued operating improvement and cost
controls that were further enhanced by synergies and operating economies
from the two acquisitions at the start of the year, particularly the
acquisition of Conviser Duffy, whose operations were quickly integrated
into Becker CPA Review.
Interest Expense increased by $1.1 million from the prior year, as debt was
incurred in July to fund the Company's two acquisitions, which were both
made for cash. By year-end, all borrowings had been fully repaid.
Net Income of $47.8 million, or $0.68 per share (diluted), was a record for
any year, increasing by more than 23% from fiscal 1999.
Fiscal Year Ended June 30, 1999, vs. Fiscal Year Ended June 30, 1998
--------------------------------------------------------------------
Tuition revenues in fiscal 1999 increased by $61.8 million, or 19.2%, from
fiscal 1998. The increase in tuition revenue was produced by enrollment
increases at DeVry Institutes, Keller Graduate School of Management and
Becker CPA Review (currently known as Becker Conviser CPA Review). Fiscal
1999 marked the ninth consecutive year at DeVry Institutes in which
cumulative total student enrollment for the three semesters during the year
increased, up 12.8% from the previous year. Enrollment increases at DeVry
Institutes reflect the opening of new institutes in Fremont, California,
and Long Island City, New York, in addition to enrollment increases in
previously opened institutes. At Keller Graduate School, cumulative total
student enrollment for the five terms of fiscal 1999 grew by 17.0% compared
<PAGE>71
with fiscal 1998, reflecting the opening of five new teaching centers
during the year and enrollment growth at previously opened centers.
Tuition revenues also increased because of tuition rate increases of
approximately 6.2% at DeVry Institutes in March 1999 and somewhat lesser
increases at Keller Graduate School and Becker CPA Review during the year.
Other Educational Revenues, composed primarily of sales of books, supplies
and the Becker course on CD-ROM, increased by $5.7 million, or 18.6%,
because of the increased number of students attending the Company's
educational programs, to whom these materials are sold. Interest income on
the Company's short-term investments of cash balances decreased to $1.2
million because increased demands on the Company's cash for investment in
new facilities and equipment and higher accounts receivable from increased
student enrollment, reduced the average cash balances held during the year.
In fiscal 1999, Cost of Educational Services increased by $37.9 million, or
19.1%, 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 students and the expanded
number of operating locations at DeVry Institutes and Keller Graduate
School contributed to the increase in cost. New operating locations
typically incur expenses greater than their revenues during the first year
of operation. Depreciation expense increased by $3.7 million, or 30.0%,
from fiscal 1998 as a result of record spending during the past several
years on capital improvements and additions throughout the system. Also
included in educational services costs this year is the final portion of
the expense associated with resolution and reinstatement by the Ontario
Ministry of Education and Training of full financial aid eligibility for
students enrolled at the Toronto-area DeVry Institute campuses. Tuition
<PAGE>72
refund expense at DeVry Institutes, although higher in absolute amount,
decreased slightly as a percent of tuition revenue from fiscal 1998. This
is believed to result from higher admission standards, increased academic
support and student service quality initiatives that favorably affect
student retention and contribute to increased operating margins.
Student Services and Administrative Expense increased by $17.3 million, or
16.6%, from fiscal 1998. Student Services and Administrative Expense
includes the costs of new student recruiting, general and administrative
costs, and expenses associated with curriculum development. The increased
spending primarily reflects marketing costs associated with generating
higher student enrollments at DeVry Institutes, Keller Graduate School and
Becker CPA for the terms that began in fiscal 1999 and for the summer term,
which began in July, for which revenue is included in the subsequent year.
Student recruiting costs are charged to expense in the year during which
these funds are spent. Marketing costs were also incurred for the new
DeVry Institute in West Hills, California, which opened in November 1999.
Administrative expenses have also increased from the prior year in part to
support continuing efforts by the Company related to what is commonly
referred to as the Y2K problem. In mid-1997, the Company initiated a
project to determine the magnitude of its exposure from its own systems and
from those of significant business partners. Through audit, testing and
remediation, the Company identified and evaluated the readiness of its
information technology (IT) 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 have been completed, and
those systems have been made Y2K-compliant through change or replacement.
An inventory of PC hardware and software has been completed, and a plan was
developed and implemented to replace any non-compliant hardware prior to
<PAGE>73
the end of the calendar year. Software vendors were contacted and are
being tracked for follow-up as necessary. An upgrade or replacement plan
was developed and implemented for any non-compliant software.
Critical suppliers of non-IT goods and services have also been identified
and contacted for their compliance status. In addition, the Company is
developing a contingency plan, targeted for completion prior to year-end,
for critical functions at its headquarters and other operating locations.
Although efforts related to Y2K issues were comprehensive in nature,
incremental spending on these efforts has not been material in any period
and is being charged to expense as incurred.
The Company's earnings in fiscal 1999 from operations, before interest and
taxes, were a record $63.4 million, increasing more than 23% from the
previous year. Operating margins, which have increased steadily in each of
the past several years, increased again to 15.1%, up from 14.5% and 13.9%
in fiscal 1998 and 1997, respectively. Operating margins increased because
of higher new-student enrollments, improved student retention, enhanced
facility utilization and continued operating improvements.
Interest Expense decreased by $0.6 million from the prior year, as
previously incurred debt was completely repaid during the year.
Net Income of $38.8 million, or $0.55 per share (diluted), was a record for
any year, increasing by more than 26% from fiscal 1998.
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
student and family educational loans; from other financial aid under
various federal, state and provincial programs; and from student and family
resources.
<PAGE>74
The pattern of cash receipts is somewhat cyclical. 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 DeVry Institutes' semesters, which begin in July, November and
March. Collections of DeVry Institutes' 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, providing sufficient cash flow for the balance of the
semester's operations. 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. Keller Graduate School and Becker
Conviser CPA Review also experience a similar cyclical pattern in their
cash receipts and expenditures based upon their respective operating
cycles. At June 30, 2000, total Company accounts receivable, net of the
related reserves, were approximately $25.0 million. Included in these
receivables is an approximately $6.1 million greater receivable this year
than last, owed to the Company under various federal student financial aid
programs. This receivable represents funds owed to DeVry for aid
disbursements in the latter part of the spring term but not yet collected
from the Department of Education or other funding source. Similar
receivable levels have occurred in the past and can occur again.
The Company is highly dependent upon the timely receipt of financial aid
funds. The Company estimates that historically, approximately 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.
<PAGE>75
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, 2000, cash in the amount
of $19.4 million was held in restricted banks accounts, in part, to provide
funds for the disbursements completed in the latter part of the spring term
and, in part, to provide funds in anticipation of financial aid
disbursements which occur at the start of DeVry Institutes' summer term.
Cash generated from operations in fiscal 2000 reached a record $73.0
million, up $18.5 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 higher accounts receivable
and other working capital account changes. Traditionally, the Company has
been able to help fund its expansion by operating with very little, or even
negative, working capital whenever necessary. The generation and use of
cash during the year reflects the cyclical operating patterns discussed
above. During some periods just prior to the start of a semester, cash
balances may be supplemented by temporary borrowings under the Company's
revolving line of credit. Cash generated from operations each year has
been sufficient to meet all of the Company's operating and capital
investment needs while reducing debt on a regular basis.
<PAGE>76
Capital expenditures in fiscal 2000 were $40.8 million, down $2.5 million
from the record level set in fiscal 1999. In just the past three years,
capital spending has exceeded $114 million for expansion and facility
improvements, replacement and upgrading of school laboratories, and for
teaching and administrative equipment. Contributing to the fiscal 2000
spending was the completion of construction of the new DeVry Institute in
West Hills, California, completion of the new technology center addition to
the campus in Chicago, Illinois, and completion of the new DeVry Institute
in Tinley Park (Chicago), Illinois. In addition, expansion and renovation
of the Columbus, Ohio, DeVry Institute was started, continuing on into
fiscal 2001.
Capital expenditures in fiscal 2001 are expected to be comparable to the
fiscal 2000 level. New and expanded DeVry Institute campuses, expansion of
Keller Graduate School and Becker Conviser CPA Review into new operating
sites, and new laboratory and teaching equipment associated with changing
technologies will continue to require substantial capital spending in the
coming years. 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, is anticipated to be sufficient to
cover expansion plans in the future.
In May 1999, the Company and its banks renegotiated the revolving loan
agreement, amending it again to extend its term to August 1, 2001. On July
1, 1999, the Company borrowed $40 million under its revolving loan
agreement in conjunction with the purchase, for cash, of the operations of
Denver Technical College and Conviser Duffy CPA Review. In November 1999,
the Company and its banks again renegotiated the revolving loan agreement,
removing certain restrictions on future acquisitions and waiving the
untimely delivery of loan guarantees by newly formed subsidiaries. At June
30, 2000, all borrowings under the revolving line had been fully repaid.
<PAGE>77
Future borrowings and/or repayments will be based on the Company's cyclical
cash flow cycle and amounts required for capital spending and possible
future acquisitions.
In July, 2000, the Company borrowed $6.0 million to meet cyclical needs
prior to the cash inflows associated with the start of DeVry Institutes'
summer term. This temporary borrowing was subsequently repaid in full.
The Company's bank borrowing interest rate is a floating rate of prime or
LIBOR plus 0.35%, at the Company's option, and will remain at that level
based on continued achievement of certain financial ratios. Interest rates
are adjustable quarterly, based upon these 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 its borrowings for periods of up to
three months to eliminate some of the possible variability in rates. The
Company periodically evaluates its need for interest rate protection in
light of projected changes in interest rates and projected 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>78
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
The following financial and supplemental schedule statements of the Company
and its subsidiaries are included below on pages 79 through 103 of this
report:
10K
Report Page
-----------
Consolidated Balance Sheets at
June 30, 2000 and 1999 79-80
Consolidated Statements of Income for the
years ended June 30, 2000, 1999 and 1998 81
Consolidated Statements of Cash Flows for
the years ended June 30, 2000, 1999 and 1998 82
Consolidated Statements of Shareholders'
Equity for the years ended June 30, 2000,
1999 and 1998 83
Notes to Consolidated Financial Statements 84-101
Report of Independent Accountants 103
Schedule II. - Valuation and Qualifying Accounts 102
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.
<PAGE>79
<TABLE>
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
June 30,
2000 1999
------- -------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 25,851 $ 31,848
Restricted Cash 19,395 20,766
Accounts Receivable, Net 25,362 14,217
Inventories 6,371 6,592
Deferred Income Taxes 3,526 4,536
Prepaid Expenses and Other 1,459 982
------- -------
Total Current Assets 81,964 78,941
------- -------
Land, Buildings and Equipment:
Land 38,516 37,833
Buildings 101,689 73,175
Equipment 113,586 92,304
Construction In Progress 6,403 12,741
------- -------
260,194 216,053
Accumulated Depreciation (101,393) (80,842)
------- -------
Land, Buildings and Equipment, Net 158,801 135,211
------- -------
Other Assets:
Intangible Assets, Net 74,134 37,841
Deferred Income Taxes 2,032 -
Perkins Program Fund, Net 8,316 7,375
Other Assets 1,832 1,323
------- -------
Total Other Assets 86,314 46,539
------- -------
TOTAL ASSETS $327,079 $260,691
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>80
<TABLE>
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30,
2000 1999
------- -------
<C> <S> <S>
LIABILITIES:
Current Liabilities:
Accounts Payable $ 31,827 $ 29,080
Accrued Salaries, Wages and Benefits 24,715 22,339
Accrued Expenses 7,041 5,500
Advance Tuition Payments 15,507 11,979
Deferred Tuition Revenue 10,095 5,145
------- -------
Total Current Liabilities 89,185 74,043
------- -------
Other Liabilities:
Revolving Loan - -
Deferred Income Tax Liability - 2,137
Deferred Rent and Other 12,755 9,206
------- -------
Total Other Liabilities 12,755 11,343
------- -------
TOTAL LIABILITIES 101,940 85,386
------- -------
COMMITMENTS & CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common Stock, $0.01 Par Value, 200,000,000
Shares Authorized,69,642,047 and
69,414,020 Shares Outstanding
at June 30, 2000 and 1999, Respectively 697 694
Additional Paid-in Capital 63,012 60,948
Retained Earnings 160,996 113,215
Accumulated Other Comprehensive Income 434 448
------- -------
TOTAL SHAREHOLDERS' EQUITY 225,139 175,305
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $327,079 $260,691
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>81
<TABLE>
DEVRY INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except for Per Share Amounts)
<CAPTION>
For The Year Ended
June 30,
-------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
REVENUES:
Tuition $460,094 $382,801 $321,029
Other Educational 45,238 36,614 30,877
Interest 1,492 1,220 1,565
------- ------- -------
Total Revenues 506,824 420,635 353,471
------- ------- -------
COSTS AND EXPENSES:
Cost of Educational Services 285,898 236,170 198,273
Student Services and
Administrative Expense 141,443 121,055 103,802
Interest Expense 1,409 300 913
------- ------- -------
Total Costs and Expenses 428,750 357,525 302,988
------- ------- -------
Income Before Income Taxes 78,074 63,110 50,483
Income Tax Provision 30,293 24,280 19,759
------- ------- -------
NET INCOME $ 47,781 $ 38,830 $ 30,724
======= ======= =======
EARNINGS PER COMMON SHARE
Basic $0.69 $0.56 $0.44
======= ======= =======
Diluted $0.68 $0.55 $0.44
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>82
<TABLE>
DEVRY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<CAPTION>
For The Year Ended June 30,
---------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $47,781 $38,830 $30,724
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 21,545 16,109 12,397
Amortization 3,706 1,675 1,590
Provision for Refunds and
Uncollectible Accounts 24,186 20,284 15,984
Deferred Income Taxes (3,159) (4,461) (1,007)
Loss on Disposals and Adjustments to Land,
Buildings and Equipment 33 52 331
Changes in Assets and Liabilities, Net of
Effects from Acquisitions of Businesses:
Restricted Cash 1,516 (3,891) (4,771)
Accounts Receivable (34,641) (22,378) (15,375)
Inventories 304 (1,250) (669)
Prepaid Expenses And Other (17) 1,342 (1,299)
Perkins Program Fund Contribution
and Other (695) 392 342
Accounts Payable 451 4,887 1,815
Accrued Salaries, Wages,
Expenses and Benefits 3,295 887 4,895
Advance Tuition Payments 2,079 2,777 2,608
Deferred Tuition Revenue 4,950 (688) 34
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 71,334 54,567 47,599
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (40,797) (44,819) (31,845)
Payments for Purchases of Businesses, Net
of Cash Acquired (38,587) - -
------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES (79,384) (44,819) (31,845)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options
Including Related Tax Benefits 2,067 341 129
Proceeds from Revolving Credit Facility 40,000 - 6,000
Repayments Under Revolving Credit Facility (40,000) (10,000) (29,000)
------ ------ ------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,067 (9,659) (22,871)
Effects of Exchange Rate Differences (14) (122) 133
------ ------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,997) (33) (6,984)
Cash and Cash Equivalents at Beginning
of Year 31,848 31,881 38,865
------ ------ ------
Cash and Cash Equivalents at End of Year $25,851 $31,848 $31,881
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Year $1,545 $298 $967
Income Taxes Paid During the Year 31,590 27,243 18,940
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>83
<TABLE>
DEVRY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<CAPTION>
Common Stock
------------------- Accumulated
Additional Other
Amount Paid-in Retained Comprehensive
$.01 Par Capital Earnings Income Total
-------- ---------- --------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 $690 $60,482 $ 43,661 $437 $105,270
Comprehensive Income:
Net Income in 1998 30,724 30,724
Foreign Currency
Translation 133 133
--------
Comprehensive Income 30,857
--------
Proceeds from exercise
of stock options 3 126 129
-------- ---------- --------- ------------- --------
Balance at June 30, 1998 693 60,608 74,385 570 136,256
Comprehensive Income:
Net Income in 1999 38,830 38,830
Foreign Currency
Translation (122) (122)
--------
Comprehensive Income 38,708
--------
Proceeds from exercise
of stock options 1 340 341
-------- ---------- --------- ------------- --------
Balance at June 30, 1999 694 60,948 113,215 448 175,305
Comprehensive Income:
Net Income in 2000 47,781 47,781
Foreign Currency
Translation (14) (14)
--------
Comprehensive Income 47,767
--------
Proceeds from exercise
of stock options 3 656 659
Tax benefit from exercise
of stock options 1,408 1,408
-------- ---------- --------- ------------- --------
Balance at June 30, 2000 $697 $63,012 $160,996 $434 $225,139
======== ========== ========= ============= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>84
DEVRY INC.
Notes to Consolidated Financial Statements
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
DeVry Inc. (the Company), through its wholly owned subsidiaries,
including DeVry University, operates an international system of
degree-granting, career-oriented higher education schools and a
leading international training firm. DeVry University 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.
The DeVry Institutes are located on 14 campuses in the United States
and three campuses in Canada. A 15th U.S. campus opened in July
2000 and a 16th is scheduled to open in November 2000.
Denver Technical College offers undergraduate programs in
electronics, computer technology and business at its two campuses
in Colorado. 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 36 locations in the United States,
including the Online Education Center. Several additional locations
are scheduled to open in fiscal 2001. Becker Conviser CPA Review
(Becker Conviser) is the leading international training firm
preparing students to pass the Certified Public Accountant (CPA),
Certified Management Accountant (CMA) and Chartered Financial
Analyst (CFA) examinations. Currently, the CPA exam review course
is offered at approximately 300 locations worldwide.
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 Conviser 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 Conviser 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>85
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 original 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 periodically 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 received from 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 $9,352,000 and
$6,484,000 at June 30, 2000 and 1999, respectively. Textbook sales
and other educational product sales and revenues are recognized when
they occur. Revenue from training services is recognized when the
training is provided.
<PAGE>86
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. Assets under construction are
reflected in Construction In Progress until they are ready for their
intended use. Interest is capitalized as a component of cost on
major projects during the construction period.
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 acquired business operations. These
assets consist of the fair value of certain identifiable assets
acquired and goodwill, which represents the excess of the purchase
price over the fair value of assets acquired and liabilities assumed
(Note 3). Amortization is computed using the straight line method
over the assets' estimated useful lives, generally 25 years.
At each balance sheet date, the Company evaluates the realizability of
goodwill and other long-lived assets based upon the expectations of
the operating results for each subsidiary having a material goodwill
balance. Based upon its most recent analysis, the Company believes
that there is no impairment of goodwill or other intangible assets
at June 30, 2000 and 1999.
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 new contributions 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
$2,346,000 and $2,080,000 at June 30, 2000 and 1999, respectively.
<PAGE>87
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 are measured using the 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
Accumulated Other Comprehensive Income. Transaction gains or
losses during the years ended June 30, 2000, 1999 and 1998, were
not material.
Income Taxes
------------
Income taxes are provided by applying statutory rates to income
recognized for financial statement purposes. Deferred income taxes are
provided for temporary differences between the financial reporting and
income tax bases of assets and liabilities. Effects of statutory rate
changes are recognized for financial reporting purposes in the year in
which enacted by law.
Earnings Per Common Share
-------------------------
In accordance with Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings Per Share" ("SFAS 128"), 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 the
stock split (Note 7). Shares used in this computation were 69,525,000,
69,361,000 and 69,139,000 in 2000, 1999 and 1998, 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 the stock split (Note 7), were 70,390,000, 70,454,000 and
70,144,000 in 2000, 1999 and 1998, respectively.
<PAGE>88
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, 2000, 1999 and
1998, in Note 7.
Comprehensive Income
--------------------
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), as of July 1, 1998.
SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in the financial statements.
The Company's only item that meets the definition for adjustment to
arrive at comprehensive income is the change in cumulative translation
adjustment. Changes in cumulative translation adjustment are included
in the Consolidated Statements of Shareholders' Equity.
Recent Accounting Pronouncements
--------------------------------
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin 101 ("SAB 101"). SAB 101 requires deferral
of certain revenue items over the period that the related service is
provided. Implementation of SAB 101 is required by the Company's
fourth quarter of fiscal 2001. The Company is awaiting the SEC's
release of further guidance with respect to SAB 101 and then will
complete the process of evaluating the full effects of this
pronouncement. SAB 101 requires the deferral of certain fees and
other charges over the period of service (student enrollment);
however, based on preliminary analysis, the Company does not expect
SAB 101 to have a significant effect on its consolidated results
of operations, financial position and cash flows.
<PAGE>89
NOTE 2: ACQUISITIONS
On July 1, 1999, the Company acquired substantially all of the
tangible operating assets, trademarks and trade names and assumed
certain liabilities of the Denver Technical College ("DTC"). These
assets were purchased, for cash, from Educational Development
Corporation and its stockholders. On this same date, the Company
acquired certain land and buildings used by DTC from Niagara Limited
Partnership for cash. DTC is one of the largest technical colleges in
Colorado. The college offers undergraduate programs in electronics,
computer technology and business at campuses in Denver and Colorado
Springs.
On July 2, 1999, Becker CPA Review acquired certain tangible operating
assets, trademarks and trade names of Conviser Duffy CPA Review Course
("Conviser Duffy"). These assets were purchased, for cash, from a unit
of Harcourt General, Inc. Conviser Duffy is a nationally known
training firm preparing students to pass the CPA exam.
Funding for the above 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, with any residual
purchase price allocated to goodwill. The intangible assets are
being amortized using the straight line method over periods of
six to 25 years for financial reporting purposes and are being
deducted for tax reporting purposes over statutory lives. The results
of DTC and Conviser Duffy for the full year have been included in
the Company's Statement of Income for the year ended June 30, 2000.
Pro forma information for the year ended June 30, 2000, is not
provided, as the acquisitions occurred in close proximity to the
beginning of the year. Pro forma information for the year ended
June 30, 1999, is not provided because there is no significant effect
on the Company's consolidated results of operations and financial
position.
<PAGE>90
NOTE 3: INTANGIBLE ASSETS
Intangible assets that were not yet fully amortized at June 30 consist
of the following:
2000 1999
---------- ----------
Trademarks $ 2,521,000 $ 2,521,000
License and Non-compete Agreements 3,100,000 100,000
Trade Names 17,465,000 17,465,000
Intellectual Property 17,425,000 17,425,000
Goodwill and Other 42,588,000 5,658,000
---------- ----------
83,099,000 43,169,000
Accumulated Amortization (8,965,000) (5,328,000)
---------- ----------
$74,134,000 $37,841,000
========== ==========
<PAGE>91
NOTE 4: INCOME TAXES
The components of income (loss) before income taxes are as follows:
For the Year Ended June 30,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
U.S. $81,953,000 $69,973,000 $56,091,000
Foreign (3,879,000) (6,863,000) (5,608,000)
---------- ---------- ----------
Total $78,074,000 $63,110,000 $50,483,000
========== ========== ==========
The net income tax provisions (benefits) related to the above
results are as follows:
For the Year Ended June 30,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
Current Tax Provision:
U.S. Federal $28,062,000 $24,134,000 $17,643,000
State and Local 5,390,000 4,607,000 3,123,000
---------- ---------- ----------
Total Current 33,452,000 28,741,000 20,766,000
Deferred Tax Provision:
U.S. Federal (878,000) (1,431,000) 1,038,000
State and Local (841,000) (1,769,000) 198,000
Foreign (1,440,000) (1,261,000) (2,243,000)
---------- ----------- ----------
Total Deferred (3,159,000) (4,461,000) (1,007,000)
---------- ---------- ----------
Net Income Tax Provision $30,293,000 $24,280,000 $19,759,000
========== ========== ==========
The income tax provisions differ from those computed using the
statutory United States federal rate as a result of the following items:
<TABLE>
<CAPTION>
For the Year Ended June 30,
-----------------------------------------------------------
2000 1999 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Tax at Statutory
Rates $27,326,000 35.0% $22,089,000 35.0% $17,669,000 35.0%
Higher Rates on
Foreign Operations (191,000) (0.2%) (318,000) (0.5%) (262,000) (0.5%)
State Income Taxes 2,835,000 3.6% 2,372,000 3.8% 2,108,000 4.1%
Other 323,000 0.4% 137,000 0.2% 244,000 0.5%
-----------------------------------------------------------
Income Tax Provision $30,293,000 38.8% $24,280,000 38.5% $19,759,000 39.1%
===========================================================
</TABLE>
<PAGE>92
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:
For the Year Ended June 30,
--------------------------------------
2000 1999 1998
---------- --------- ---------
Loss Carryforwards $ 5,885,000 $4,427,000 $1,476,000
Employee Benefits 2,795,000 2,388,000 1,734,000
Rental and Occupancy - - 362,000
Receivable Reserves and
Other 3,186,000 2,148,000 2,170,000
---------- --------- ---------
Gross Deferred Tax Assets 11,866,000 8,963,000 5,742,000
Depreciation and Other (2,957,000) (3,290,000) (5,356,000)
Amortization (3,351,000) (3,274,000) (2,448,000)
---------- --------- ---------
Gross Deferred Tax
Liabilities (6,308,000) (6,564,000) (7,804,000)
---------- --------- ----------
Net Deferred Taxes $ 5,558,000 $2,399,000 ($2,062,000)
========== ========= =========
Based on the Company's expectations for future operating earnings, management
believes that, more likely than not, operating income in respective
jurisdictions 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:
For the Year Ended June 30,
-------------------------------------
2000 1999 1998
--------- --------- ---------
Recognition of Operating
Loss Carryforwards ($1,271,000) ($2,951,000) ($1,476,000)
Excess (Tax) Book
Depreciation and
Amortization (443,000) (1,241,000) (129,000)
Excess of Amounts Expensed
for (Book) Tax Purposes
Over Amounts Deductible
for Book (Tax) Purposes (1,445,000) (269,000) 598,000
--------- --------- ---------
Deferred Tax Provision ($3,159,000) ($4,461,000) ($1,007,000)
========= ========= =========
The Company has net operating loss carryforwards in various tax
jurisdictions expiring at various times through the years ending
June 30, 2007.
<PAGE>93
NOTE 5: REVOLVING LOAN AGREEMENT
All of the Company's borrowings and letters of credit under its
revolving loan agreement are through DeVry University. This agreement
consists of a revolving credit facility in an aggregate amount not
to exceed $85,000,000. The agreement was amended in March 1998 to
extend its term and expand the range of acquisitions or
investments allowed within the terms of the agreement. The
agreement was amended in May 1999 to extend its term. The
agreement was amended again in November 1999, removing certain
restrictions on future acquistions. All borrowings and letteres of
of credit under the revolving loan agreement mature in August 2001,
and no installment payments are required. There were no outstanding
borrowings under the revolving loan agreement at June 30, 2000 and
June 30, 1999. At June 30, 2000, there were no letters of credit
outstanding under this agreement. Letters of credit outstanding at
June 30, 1999 were $422,000. As of June 30, 2000, 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.
Both interest rate and letter of credit fees are adjustable quarterly,
based upon the Company's achievement of certain financial ratios.
The Company's revolving line of credit agreement contains a
covenant requiring guarantees to the lenders from the Company
and its subsidiaries. Several new subsidiaries, formed by
the Company to facilitate acquisitions during the first and
second quarters of fiscal 2000, did not deliver such
guarantees until after the required period, creating an Event
of Default as defined by the loan agreement. In November 1999,
the lenders waived this default for all prior periods.
The bank financing agreement contains certain other 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.
In July 2000, the Company borrowed $6,000,000 under the revolving
loan agreement to meet cyclical needs prior to the cash flows
associated with the start of DeVry Institutes' summer term.
<PAGE>94
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 2.0% of the
total eligible compensation of employees who make contributions under
the plan. Matching contributions under the plan were approximately
$1,797,000, $1,275,000 and $1,183,000 in 2000, 1999 and 1998,
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 $3,169,000, $3,210,000 and $2,173,000 in 2000,
1999 and 1998, 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,
2000, 1999 and 1998.
<PAGE>95
NOTE 7: SHAREHOLDERS' EQUITY
Stock Split
-----------
On June 19, 1998, the Company's common stock was split two-for-
one in the form of a 100% stock dividend. The par value of the
additional shares arising from the split 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 the stock split as though it had occurred at the
beginning of the initial period presented.
Stock Option Plans
------------------
The Company maintains four stock-based award plans: the Amended
and Restated Stock Incentive Plan, established in 1988, the 1991
Stock Incentive Plan, the 1994 Stock Incentive Plan and the 1999
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, the 1994
Stock Incentive Plan and the 1999 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 four 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, 2000, 3,822,736 authorized but unissued shares of
common stock were reserved for issuance under the Company's stock
option plans.
<PAGE>96
NOTE 7: SHAREHOLDERS' EQUITY (continued)
A summary of activity under the stock option plans is as follows:
Options Outstanding
------------------------
Weighted
Shares Average
Available Number Exercise
for Grant Outstanding Price
---------------------- --------
Balance at June 30, 1997 1,416,700 1,584,940 $4.73
Options Granted (311,848) 311,848 $14.44
Options Exercised - (315,160) $1.36
Options Canceled 9,240 (9,240) $9.45
----------------------
Balance at June 30, 1998 1,114,092 1,572,388 $7.31
Options Granted (608,008) 608,008 $21.33
Options Exercised - (116,215) $4.51
Options Canceled 70,110 (70,110) $16.36
----------------------
Balance at June 30, 1999 576,194 1,994,071 $11.43
Options Authorized 1,500,000 - -
Options Granted (237,500) 237,500 $21.44
Options Exercised - (247,529) $4.27
Options Canceled 37,788 (37,788) $19.86
----------------------
Balance at June 30, 2000 1,876,482 1,946,254 $13.39
======================
A summary of outstanding and exercisable stock options as of
June 30, 2000, is as follows:
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
-----------------------------------------------------------------------------
$1.66-3.69 449,640 3.69 $3.24 449,640 $3.24
$5.06-6.28 180,684 5.15 $5.50 138,044 $5.51
$11.19-14.59 539,388 6.68 $13.01 283,520 $12.73
$18.00-21.50 596,322 8.46 $21.02 76,184 $20.91
$22.25-29.94 180,220 8.23 $22.56 34,150 $22.40
-------------------------------------------------------------
$1.66-29.94 1,946,254 6.54 $13.39 981,538 $8.34
=============================================================
<PAGE>97
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 is
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 2000, 1999 and 1998 was
$12.27, $9.98 and $7.76 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:
2000 1999 1998
------ ------ ------
Expected Life (in Years) 7.00 5.90 8.00
Expected Volatility 46.40% 39.70% 36.00%
Risk-free Interest Rate 6.17% 5.46% 6.08%
<PAGE>98
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, 2000, 1999 and 1998 (dollars in
thousands except for per share amounts):
2000 1999 1998
------- ------- -------
Net Income as Reported $47,781 $38,830 $30,724
Pro Forma Net Income $46,211 $37,569 $30,147
Diluted Earnings Per Common Share
as Reported $0.68 $0.55 $0.44
Pro Forma Diluted Earnings
Per Common Share $0.66 $0.53 $0.43
The pro forma effect on net income and earnings per common share for
2000, 1999 and 1998 is not necessarily 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.
<PAGE>99
NOTE 8: COMMITMENTS AND CONTINGENCIES
DeVry University and Becker Conviser 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, 2000, are as
follows:
Year Ended
June 30, Amount
---------- ------------
2001 $20,560,000
2002 21,250,000
2003 21,320,000
2004 20,770,000
2005 19,980,000
Thereafter 117,580,000
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.
Rent expenses for the years ended June 30, 2000, 1999 and 1998,
were $24,290,000, $20,690,000 and $18,995,000, 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.
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. In 1999, the Company obtained
full unconditional reinstatement as a participant in the Province's
student financial aid programs.
<PAGE>100
NOTE 9: SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the way
that public business enterprises report certain information about
operating segments in the financial reports. It also establishes
standards for related disclosures about products and services,
geographic areas and major customers.
The Company's operations are aggregated into a single reportable
segment based upon their similar economic and operating
characteristics. The Company's educational operations are conducted
in similar markets and produce similar economic results. These
operations provide post-secondary education, primarily in an
instructor-led setting, to a similar class of learners. The Company's
operations are also subject to a similar regulatory environment,
which includes licensing and accreditation.
The Company conducts its educational operations in the United States,
Canada, Europe, the Middle East and the Pacific Rim. International
revenues, which are derived principally from Canada, were less than
10% of total revenues for the years ended June 30, 2000 and 1999.
Revenues and long-lived assets by geographic area are as follows:
For the Year Ended June 30,
-------------------------------------------
2000 1999 1998
----------- ----------- -----------
Revenues:
Domestic Operations $480,894,000 $399,412,000 $332,405,000
International Operations 25,930,000 21,223,000 21,066,000
----------- ----------- -----------
Consolidated $506,824,000 $420,635,000 $353,471,000
=========== =========== ===========
Long-lived Assets:
Domestic Operations $232,831,000 $175,474,000 $149,661,000
International Operations 12,284,000 6,276,000 4,511,000
----------- ----------- -----------
Consolidated $245,115,000 $181,750,000 $154,172,000
=========== =========== ===========
No one customer accounted for more than 10% of the Company's consolidated
revenues.
<PAGE>101
NOTE 10: QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly data for the years ended June 30, 2000
and 1999, are as follows (dollars in thousands, except for per share
amounts):
2000 Quarter
---- ------------------------------------ Total
First Second Third Fourth Year
------------------------------------------------
Revenues $118,282 $133,248 $130,132 $125,162 $506,824
Income Before Interest
and Taxes 16,789 21,364 22,045 19,285 79,483
Net Income 9,907 12,791 13,297 11,786 47,781
Earnings Per Common Share
Basic 0.14 0.18 0.19 0.17 0.69
Diluted 0.14 0.18 0.19 0.17 0.68
1999 Quarter
---- ------------------------------------ Total
First Second Third Fourth Year
------------------------------------------------
Revenues $93,858 $107,813 $110,234 $108,730 $420,635
Income Before Interest
and Taxes 12,965 16,950 17,178 16,317 63,410
Net Income 7,818 10,299 10,623 10,090 38,830
Earnings Per Common Share
Basic 0.11 0.15 0.15 0.15 0.56
Diluted 0.11 0.15 0.15 0.14 0.55
<PAGE>102
<TABLE>
DEVRY INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended June 30, 2000, 1999 and 1998
(Dollars in Thousands)
<CAPTION>
Charged to
Balance at Charged to Other Balance at
Description of Allowances Beginning Costs and Accounts Deductions End of
and Reserves of Period Expenses <FN1> <FN2> Period
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
---------
Deducted from accounts receivable
for refunds and uncollectible accounts $6,484 $23,821 $620 $21,573 $9,352
Deducted from notes receivable for
uncollectible notes 4 - - - 4
For loss on disposition of inventory 89 45 - 22 112
For loss on DeVry capital contributions
to Perkins loan program 2,080 266 - - 2,346
1999
---------
Deducted from accounts receivable
for refunds and uncollectible accounts $4,720 $19,827 - $18,063 $6,484
Deducted from notes receivable for
uncollectible notes 42 5 - 43 4
For loss on disposition of inventory 65 47 - 23 89
For loss on DeVry capital contributions
to Perkins loan program 1,879 201 - - 2,080
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
<FN>
<FN1> Opening balances of acquired businesses.
<FN2> Write-offs of uncollectible amounts or inventory.
</FN>
</TABLE>
<PAGE>103
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of DeVry Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the
financial position of DeVry Inc. and its subsidiaries at June 30, 2000
and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 2000, in conformity
with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule
listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on
our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of
America, 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 our opinion.
PricewaterhouseCoopers LLP
Chicago, Illinois
August 11, 2000
<PAGE>104
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>105
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 14, 2000, and is incorporated herein by
reference. Information regarding executive officers is included on pages
59 through 63 in Part I of this Form 10-K.
Information regarding compliance with Section 16(a) filings is included in
the Proxy Statement for the Annual Meeting of Stockholders to be held
November 14, 2000, 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 14, 2000, 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 14, 2000, 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 14, 2000, and is incorporated herein by
reference.
<PAGE>106
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 required financial statements of the Company and its subsidiaries
are included in Part II, Item 8, on pages 79 through 103 of this Form
10-K.
(2) Supplemental Financial Statement Schedules
-----------------------------------------------
The required supplemental schedule of the Company and its subsidiaries
is included in Part II, Item 8 on page 102 of this Form 10-K.
(3) Exhibits
-------------
A complete listing of exhibits is included on pages 110 through 113 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, 2000.
<PAGE>107
<TABLE>
FIVE-YEAR SUMMARY - OPERATING, FINANCIAL AND OTHER DATA
(Dollars in Thousands Except for Per Share Amounts)
<CAPTION>
YEAR ENDED JUNE 30, 2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING:
Revenues $506,824 $420,635 $353,471 $308,319 $260,007
Depreciation 21,545 16,109 12,397 9,676 7,516
Amortization of Intangible Assets 3,706 1,675 1,590 1,586 63
Earnings Before Interest and Taxes (EBIT) 79,483 63,410 51,396 42,704 33,761
EBIT as a Percent of Revenues 15.7% 15.1% 14.5% 13.9% 13.0%
Interest Expense 1,409 300 913 2,848 1,063
Net Income 47,781 38,830 30,724 24,186 19,245
Change from Prior Year in Net Income 23.1% 26.4% 27.0% 25.7% 29.2%
Diluted Earnings Per Common Share (EPS) 0.68 0.55 0.44 0.35 0.29
Shares Used in Calculating Diluted EPS
(In Thousands) 70,390 70,454 70,144 68,170 67,322
FINANCIAL POSITION:
Cash and Cash Equivalents 25,851 31,848 31,881 38,865 29,948
Total Assets 327,079 260,691 223,892 208,652 178,089
Total Funded Debt - - 10,000 33,000 61,500
Total Shareholders' Equity 225,139 175,305 136,256 105,270 57,287
OTHER SELECTED DATA:
Cash Provided by Operating Activities 71,334 54,567 47,599 42,427 28,368
Capital Expenditures 40,797 44,819 31,845 28,807 18,352
Total DeVry and Keller Fall Term
Student Enrollment 49,351 43,458 38,031 34,596 32,612
Number of Undergraduate Campuses 19 16 15 14 13
Number of Keller Graduate School Centers 36 31 26 20 18
Shares Outstanding at Year-end
(in Thousands) 69,642 69,414 69,305 69,008 66,488
Closing Price of Common Stock
at Year-end 26 7/16 22 3/8 21 15/16 13 1/2 11 1/4
Price Earnings Ratio on Common Stock <FN1> 39 41 50 39 39
<FN>
<FN1> Computed on trailing four quarters of earnings per common share.
</FN>
</TABLE>
<PAGE>108
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 25, 2000 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 9/25/00
/s/Ronald L. Taylor
-------------------
Ronald L. Taylor President, Chief Operating
Officer and Director 9/25/00
/s/Norman M. Levine
-------------------
Norman M. Levine Vice President, Chief
Financial Officer, and
Principal Accounting Officer 9/25/00
/s/Ewen M. Akin
---------------
Ewen M. Akin Director 9/19/00
/s/Charles A. Bowsher
---------------------
Charles A. Bowsher Director 9/20/00
<PAGE>109
SIGNATURES (CONTINUED)
----------------------
Signature Title Date
--------- ----- ----
/s/David S. Brown
-----------------
David S. Brown Director 9/20/00
/s/Robert E. King
-----------------
Robert E. King Director 9/20/00
/s/Frederick A. Krehbiel
------------------------
Frederick A. Krehbiel Director 9/19/00
/s/Thurston E. Manning
----------------------
Thurston E. Manning Director 9/19/00
/s/Robert C. McCormack
----------------------
Robert C. McCormack Director 9/19/00
/s/Julie A. McGee
-----------------
Julie A. McGee Director 9/20/00
/s/Hugo J. Melvoin
------------------
Hugo J. Melvoin Director 9/19/00
<PAGE>110
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
------- ------- ------------- ---------------
2(a) Agreements regarding Exhibit 2 to the
purchase of Denver Technical Company's Form 8-K
College assets dated as of filed July 16, 1999
July 1, 1999
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
#333-40151 dated
May 21, 1991
4(a) 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
4(b) 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.
<PAGE>111
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
------- ------- ------------- ---------------
4(c) Second Amendment, dated as Exhibit 4(e) to the
of March 23, 1998 to Amended Company's Form 10-K
and Restated Financing for the year ended
Agreement between Keller June 30, 1998
Graduate School of
Management, Inc., certain
financial institutions and
Bank of America National
Trust and Savings
Association.
4(d) Third Amendment dated as of Exhibit 4(d) to the
May 11, 1999 to Amended and Company's Form 10-K
Restated Financing Agreement for the year ended
between Keller Graduate June 30, 1999
School of Management, Inc.,
certain financial
institutions and Bank of
America National Trust and
Savings Association.
4 (e) Fourth Amendment dated as of
December 3, 1999 to Amended
and Restated Financing
Agreement between DeVry
University, Inc., certain
financial institutions and
Bank of America National
Trust and Savings
Association. 114-119
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 From S-3,
#333-22457 dated
February 27, 1997
10 (d) Registrants' 1999 Stock
Incentive Plan 120-122
<PAGE>112
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
------- ------- ------------- ---------------
10(e) 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(f) 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
10(g) 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(h) 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(i) 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(j) Employee Stock Purchase Plan Exhibit 10(f) to
the Company's Form
S-3, #33-58636
dated February 22,
1993
10(k) 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(l) Deferred Compensation Plan Exhibit 10(k) to
the Company's Form
10-K for the year
ended June 30, 1999
10(m) 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
<PAGE>113
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
------- ------- ------------- ---------------
10(n) 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 123
23 Consent of Pricewaterhouse-
Coopers LLP, independent
accounts 124
27 Financial Data Schedule 125
