<PAGE>1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission file number 0-12751
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 (I.R.S. Employer
incorporation or organization) Identification No.)
One Tower Lane, Oakbrook Terrace, Illinois 60181
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(Address of principal executive offices) (Zip Code)
(630) 571-7700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X
Number of shares of Common Stock, $0.01 par value, outstanding at October 31,
2000: 69,683,957
Total number of pages: 13
<PAGE>2
DeVRY INC.
FORM 10-Q INDEX
For the Quarter ended September 30, 2000
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at
September 30, 2000, June 30, 2000,
and September 30, 1999 3-4
Consolidated Statements of Income
for the quarter ended
September 30, 2000, and 1999 5
Consolidated Statements of Cash Flows
for the quarter ended
September 30, 2000, and 1999 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and
Analysis of Results of Operations
and Financial Condition 8-11
Part II. Other Information
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>3
PART I - Financial Information
Item 1 - Financial Statements
<TABLE>
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
September 30, June 30, September 30,
2000 2000 1999
------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 30,635 $ 25,851 $ 34,871
Restricted Cash 22,519 19,395 26,193
Accounts Receivable, Net 66,725 25,362 41,324
Inventories 4,652 6,371 4,765
Deferred Income Taxes 3,526 3,526 4,536
Prepaid Expenses and Other 2,701 1,459 2,614
------- ------- -------
Total Current Assets 130,758 81,964 114,303
------- ------- -------
Land, Buildings and Equipment
Land 42,062 38,516 38,419
Buildings 113,119 101,689 78,595
Equipment 121,529 113,586 99,455
Construction In Progress 2,347 6,403 16,248
------- ------- -------
279,057 260,194 232,717
Accumulated Depreciation (107,324) (101,393) (85,456)
------- ------- -------
Land, Buildings and
Equipment, Net 171,733 158,801 147,261
------- ------- -------
Other Assets
Intangible Assets, Net 73,219 74,134 75,872
Deferred Income Taxes 2,035 2,032 -
Perkins Program Fund, Net 8,316 8,316 7,375
Other Assets 2,266 1,832 1,517
------- ------- -------
Total Other Assets 85,836 86,314 84,764
------- ------- -------
TOTAL ASSETS $388,327 $327,079 $346,328
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>4
<TABLE>
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
September 30, June 30, September 30,
2000 2000 1999
------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
LIABILITIES
Current Liabilities
Accounts Payable $ 27,187 $ 31,827 $ 26,033
Accrued Salaries, Wages &
Benefits 28,155 24,715 22,677
Accrued Expenses 15,540 7,041 15,398
Advance Tuition Payments 6,916 15,507 8,656
Deferred Tuition Revenue 59,988 10,095 45,233
------- ------- -------
Total Current Liabilities 137,786 89,185 117,997
------- ------- -------
Other Liabilities
Revolving Loan - - 29,000
Deferred Income Tax Liability - - 2,137
Deferred Rent and Other 12,765 12,755 11,927
------- ------- -------
Total Other Liabilities 12,765 12,755 43,064
------- ------- -------
TOTAL LIABILITIES 150,551 101,940 161,061
------- ------- -------
SHAREHOLDERS' EQUITY
Common Stock, $0.01 par value,
200,000,000 Shares Authorized,
69,679,874, 69,642,087 and
69,432,273, Shares Issued and
Outstanding at September 30,
2000, June 30, 2000 and
September 30, 1999,
Respectively 697 697 695
Additional Paid-in Capital 63,311 63,012 61,015
Retained Earnings 173,162 160,996 123,122
Accumulated Other Comprehensive
Income 606 434 435
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 237,776 225,139 185,267
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $388,327 $327,079 $346,328
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>5
<TABLE>
DEVRY INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except for Per Share Amounts)
(Unaudited)
<CAPTION>
For The Quarter Ended
September 30,
2000 1999
-------- --------
<S> <C> <C>
REVENUES:
Tuition $124,034 $106,863
Other Educational 11,130 11,115
Interest 255 304
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Total Revenues 135,419 118,282
------- -------
COSTS AND EXPENSES:
Cost of Educational Services 78,309 71,227
Student Services and
Administrative Expense 37,215 30,266
Interest Expense 113 574
------- -------
Total Costs and Expenses 115,637 102,067
------- -------
Income Before Income Taxes 19,782 16,215
Income Tax Provision 7,616 6,308
------- -------
NET INCOME $ 12,166 $ 9,907
======= =======
EARNINGS PER COMMON SHARE
Basic $0.17 $0.14
======= =======
Diluted $0.17 $0.14
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>6
<TABLE>
DEVRY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<CAPTION>
For The Quarter
Ended September 30,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $12,166 $ 9,907
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 6,105 4,608
Amortization 933 915
Provision for Refunds and
Uncollectible Accounts 7,249 6,009
Deferred Income Taxes (3) -
Loss on Disposals and Adjustments to
Land, Buildings and Equipment (35) 32
Changes in Assets and Liabilities, Net of
Effects from Acquisitions of Businesses:
Restricted Cash (3,124) (5,282)
Accounts Receivable (48,612) (32,691)
Inventories 1,719 1,910
Prepaid Expenses And Other (1,684) (522)
Accounts Payable (4,640) (5,343)
Accrued Salaries, Wages,
Expenses and Benefits 11,939 9,614
Advance Tuition Payments (8,591) (4,772)
Deferred Tuition Revenue 49,893 40,088
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NET CASH PROVIDED BY OPERATING ACTIVITIES 23,315 24,473
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (19,002) (12,319)
Payments for Purchases of Businesses, Net
of Cash Acquired - (38,186)
------ ------
NET CASH USED IN INVESTING ACTIVITIES: (19,002) (50,505)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Exercise of Stock Options 299 68
Proceeds From Revolving Credit Facility 6,000 40,000
Repayments Under Revolving Credit Facility (6,000) (11,000)
------ ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 299 29,068
Effects of Exchange Rate Differences 172 (13)
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,784 3,023
Cash and Cash Equivalents at Beginning
of Period 25,851 31,848
------ ------
Cash and Cash Equivalents at End of Period $30,635 $34,871
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Period $83 $490
Income Tax (Refunds)Payments During the Period, Net (170) 286
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>7
DEVRY INC.
Notes to Consolidated Financial Statements
For the Quarter Ended September 30, 2000
----------
1. The interim consolidated financial statements include the accounts of
DeVry Inc. (the Company) and its wholly-owned subsidiaries. These
financial statements are unaudited but, in the opinion of management,
contain all adjustments, consisting only of normal, recurring
adjustments, necessary to present fairly the financial condition and
results of operations of the Company.
The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K as filed
with the Securities and Exchange Commission for the fiscal year ended
June 30, 2000.
The results of operations for the three months ended September 30,
2000, are not necessarily indicative of results to be expected for the
entire fiscal year.
2. Basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding during the
period. Shares used in this computation were 69,660,000 and
69,421,000 for the first quarters ended September, 2000 and 1999,
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 were 70,820,000 and
70,363,000 for the first quarters ended September 30, 2000 and 1999,
respectively.
3. 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. Adoption of SAB 101 is required by the Company's
fourth quarter of fiscal 2001. The SEC has recently issued
interpretive guidance on the implementation of this bulletin, and
the Company is completing an evaluation of its effects. 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.
4. In October, the Company and its banks renegotiated the revolving loan
agreement; extending the term of the agreement, increasing the
permissible level of capital spending and adjusting one of the
financial covenants.
<PAGE>8
Item 2 - Management's Discussion and Analysis of Results of
Operations and Financial Condition
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Certain information contained in this quarterly report may constitute
forward looking statements made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such statements may
involve risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements. Potential risks and
uncertainties include, but are not limited to, dependence on student financial
aid, state and provincial approval and licensing requirements, and the other
factors detailed in the Company's SEC filings, including those discussed
under the heading entitled "Risk Factors" in the Company's Registration
Statement on Form S-3 (No. 333-22457) filed with the Securities and
Exchange Commission
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto as included in the
Company's annual report on Form 10-K for the fiscal year ended June 30,
2000, as filed with the Securities and Exchange Commission. All
references to per share amounts have been restated to reflect the June 19,
1998, two-for-one stock split.
Because of the somewhat seasonal pattern of the Company's enrollments
and its term starting dates, which affect the results of operations and the
timing of cash inflows, the Company's management believes that
comparisons of its results of operations should be made to the
corresponding period in the preceding year. Comparisons of financial
position should be made to both the end of the previous fiscal year and to
the end of the corresponding period in the preceding year. Because of the
seasonality of student enrollments, the Company's second and third
quarters have historically represented the periods of highest revenues and
net income within a fiscal year.
Results of Operations
---------------------
Tuition revenues for the first quarter increased by $17.2 million, or 16.1%,
compared to the first quarter of last year. The increase in these revenues
was produced by several positive factors. First, enrollments at the
Company's undergraduate campuses increased by 13.1% from last summer.
This is the 29th consecutive term that exceeds the prior-year results for
total student enrollment. Contributing to the revenue and enrollment growth
from the prior year was the opening, last fall, of a new DeVry Institute in
West Hills (Los Angeles), California, and a new DeVry Institute opening at
the start of this year's summer term (July) in Tinley Park (Chicago),
Illinois. Second, for Keller Graduate School, enrollment for the term which
began in late June increased by 15.2% from last June. Contributing to
Keller's enrollment increase was the opening of 5 new teaching centers
since last year, bringing the total for the June term this year to 36. Third,
the DeVry Institutes implemented an approximately 6% tuition rate increase
effective with the start of the summer term. A somewhat smaller price
increase was implemented by Keller Graduate School effective with their
term that began at the start of September.
<PAGE>9
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 entitled "Revenue Recognition in Financial
Statements" ("SAB 101"). 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 SEC has
recently issued interpretive guidance on SAB 101 which must be
implemented by the fourth quarter of the Company's current fiscal year.
The Company is continuing its evaluation of the effects of SAB 101,
including the possible requirement for the deferral and subsequent
amortization of revenue and related expenses for its application fee and
other fee income. Such fees provide only a relatively small portion of the
Company's revenues each period. The Company does not expect the
adoption of SAB 101 to have a significant effect on its consolidated results
of operations, financial position and cash flows.
Other Educational Revenues is composed primarily of sales of books and
supplies to students enrolled in the Company's undergraduate, graduate and
Becker review programs. This category of revenue did not increase from
last year as it has historically. Last year, the DeVry Institutes entered into
an agreement with Follett Higher Education Group ("Follett") to outsource
the management of several of the on-campus DeVry Institute bookstores.
At year-end fiscal 2000, Follett had taken over the management of 4 stores.
During the first quarter, several other DeVry Institute bookstores were
transitioned to Follett management. The wider range of ancillary
merchandise and improved retail store management, plus an online ordering
capability, should provide an improved level of service to DeVry students.
Bookstore sales revenue and cost of sales expense are no longer reported by
DeVry for those stores under Follett management. In its place, DeVry
receives a commission from Follett based upon the level of sales at the
stores they operate. Responsibility for the management of additional DeVry
Institute bookstores may be transferred to Follett in future quarters, further
reducing this category of reported revenues but with no significant effect on
income.
Interest income on the Company's short term investments decreased slightly
from the first quarter of last year. Cash balances available for investment
were generally lower during this year's first quarter because of record
capital spending on improvements and growth.
Cost of Educational Services increased by $7.1 million, or 9.9%, from the
first quarter of last year. The increase reflects the cost of additional
facilities, faculty, staff, student service efforts, supplies, tuition refunds
and uncollectible account costs relating to higher enrollments and new
operating locations opened since last year. Partly offsetting these cost
increases was the reduction in bookstore cost of sales at those bookstores
now under Follett management as discussed above. Excluding all of the DeVry
Institute bookstore cost of sales from both the first quarter of this year and
the first quarter of last year, the Cost of Educational Services expense
would have increased by approximately 11.5%. Contributing to the lower
rate of increase in this cost category vs. the rate of increase in tuition
revenue, were continued cost controls and operating efficiencies from
higher enrollments, particularly at the locations opened in FY 2000 and
1999 where fixed cost infrastructure is in place and enrollment increases do
not require commensurate cost increases. Also contributing to the lower
rate of cost increase is the consolidation of additional Conviser Duffy CPA
Review sites into the Becker system. The Conviser sites were acquired at
the start of last fiscal year and many of them were run independently for the
November 1999 CPA Review exam cycle because classes had already
begun. By the start of this year, the remaining duplicate operating locations
and costs had been eliminated.
<PAGE>10
Depreciation expense, most of which is included in Cost of Educational
Services, increased by $1.5 million from last year. The increased cost
reflects the Company's continued capital spending for improvement and
expansion of its educational operations.
Student Services and Administrative Expense increased by $6.9 million, or
23.0%, from last year. The increase reflects the marketing, administrative
and curriculum development costs associated with the Company's
expanding operations. Marketing efforts for the DeVry Institute campus
opening in Orlando this November and the planned opening in Seattle for
next July are already underway, contributing to the cost increase in advance
of any tuition revenues from these sites. Both Orlando and Seattle are new
locations for DeVry and initial marketing expenses are higher than they
would be in an existing DeVry Institute market such as the recent opening
in West Hills (Los Angeles), California. In addition, marketing was
initiated for several Keller centers that are planned to open in November,
again in advance of tuition revenues from these sites.
In response to the growing size and complexity of its operations, the
Company has begun design and development efforts on a new student
information system to serve the needs of the educational programs and
supporting activities at all of its divisions. Information system department
and operations area support spending on these early development efforts are
included in the Student Services and Administrative Expense category,
contributing to the increase in cost.
The Company's earnings from operations, before interest expense and
taxes, ("EBIT") were a record for any first quarter period. The EBIT
margin, which has increased steadily in each of the past years, increased
again. This increase in EBIT margin reflects both the economies of scale as
the Company continues to grow and the effect of the reduced level of
bookstore sales, with their historically low margin, as discussed above.
The reduction in interest expense reflects the Company's repayment of
borrowings for the two acquisitions, for cash, made last year and funded by
the using the revolving line of credit agreement. All borrowings had been
fully repaid by the end of last fiscal year. During the first quarter there
was a temporary borrowing to fund operations during the cyclically low cash
flow period at the beginning of the new fiscal year. These temporary
borrowings were fully repaid before the end of the quarter.
Net income of $12.2 million, or $0.17 per share, increased by
approximately 23% from last year. This continues the pattern of year-over-
year earnings growth at a rate of 20+%.
Liquidity and Capital Resources
-------------------------------
Cash generated from operations was $23.3 million for the first quarter of
the year, slightly lower than the $24.5 million in the first quarter of last
year. Higher net income, including higher non-cash charges for
depreciation, and higher accrued wages and expenses all represented an
increased source of cash flow from operations. However, offsetting these
increases was a higher level of accounts receivable. The increased
receivable level reflects the higher level of student enrollments and revenues
realized this year and an increase of nearly $8 million in the receivable
owed to the Company under various federal financial aid programs.
<PAGE>11
This increase in the amount owed under financial aid programs, which funds
represent over 60% of the collections for U.S. Institute revenue, will be
collected in the coming months as the Company completes the detailed
administrative processes established by the Department of Education related
to collection. Similar receivable levels have occurred in the past and may
occur again.
Capital spending for the quarter was $19.0 million, an increase of $6.7
million from last year. Capital spending is aimed at improvement and
expansion of the Company's educational operations. Included in the
spending for the first quarter was the completion of the land purchase in
Seattle for the planned opening of a DeVry Institute campus next July. The
Company expects that its capital spending in the coming quarters will
remain at a high level as expansion and improvement efforts continue
throughout the system.
During the first quarter, the Company borrowed $6.0 million under its
revolving line of credit agreement to meet cyclical operating needs prior to
the cash inflows from the start of DeVry Institutes' summer term. This
temporary borrowing was fully repaid by the end of the quarter. Similarly,
at the start of November the Company borrowed under its revolving line of
credit to meet cyclical operating needs prior to the cash inflows from the
start of DeVry Institutes' fall term.
The Company believes that the current balances of unrestricted cash, cash
generated from operations and, if needed, its revolving loan facility will be
sufficient to fund its operations for the foreseeable future.
<PAGE>12
PART II - Other information
---------------------------
Item 5 - Other Information
--------------------------
In October, the Company and its banks renegotiated the revolving loan
agreement, extending the term of the agreement, increasing the permissible
level of capital spending and adjusting one of the financial convenants.
Future changes and adjustments to this agreement may be required in the
future to meet the Company's expanding operating needs.
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
quarter ended September 30, 2000.
<PAGE>13
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: NOVEMBER 8, 2000 /s/ Ronald L. Taylor
-----------------------------
Ronald L. Taylor
President and Chief Operating
Officer
Date: NOVEMBER 8, 2000 /s/Norman M. Levine
-----------------------------------
Norman M. Levine
Vice President Finance, Controller,
Chief Financial and Accounting
Officer
