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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, 2002
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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 or organization) (I.R.S. Employer
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 3, 2002 - $1,012,142,700.00
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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 3, 2002 - 69,922,793 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 12, 2002, are incorporated into
Part III of this Form 10-K to the extent stated herein.
Exhibit Index located on Pages 118-121 Total number of pages, 135
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DeVry INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED JUNE 30, 2002
TABLE OF CONTENTS
PAGE #
PART I
Item 1 - Business 3
Item 2 - Properties 44
Item 3 - Legal Proceedings 50
Item 4 - Submission of Matters to a Vote of Security Holders 51
- Executive Officers 52
PART II
Item 5 - Market for Common Equity and
Related Stockholder Matters 58
Item 6 - Selected Financial Data 59
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 59
Item 8 - Financial Statements and Supplementary Data 79
Item 9 - Changes in and Disagreements with Accountants 79
PART III
Item 10 - Directors and Executive Officers 111
Item 11 - Executive Compensation 111
Item 12 - Security Ownership of Beneficial Owners and Management 111
Item 13 - Certain Relationships and Transactions 111
PART IV
Item 14 - Exhibits, Financial Statements and Reports on Form 8-K 112
- Financial Statements 112
- Financial Statement Schedules 112
- Exhibits 112
- Reports on Form 8-K 112
- Signatures 114
- Certifications 116
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.
Forward-looking statements are based upon the Company's current
expectations and beliefs about future events. Such statements are
inherently uncertain and may involve risks that could cause future results
to differ materially from the forward-looking statements. Potential risks
and uncertainties include, but are not limited to, undergraduate program
concentration in information, electronics and telecommunication technology;
dependence on student financial aid; dependence on state and provincial
approvals and licensing requirements; dependence on continued accreditation
for DeVry University 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.
Copies of this Annual Report on Form 10-K may be obtained at the Company's
website, www.devry.com.
ITEM 1 - BUSINESS
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DeVry Inc. (the "Company") is incorporated under the laws of the State of
Delaware. The Company's executive offices are located at One Tower Lane,
Oakbrook Terrace, Illinois, 60181. The Company's telephone number is
(630)571-7700.
The Company, through its wholly-owned subsidiaries, owns and operates DeVry
University and Becker Conviser Professional Review ("Becker"). DeVry
University includes DeVry Institutes, with undergraduate programs in
technology and business, and Keller Graduate School of Management ("Keller
Graduate School"), with graduate programs in management.
In fiscal 1999, the holding company for the degree-granting operations was
renamed from Keller Graduate School of Management, Inc. to DeVry
University, Inc., to better reflect the comprehensive higher education
system that it has become. DeVry Institutes; DeVry Canada, Inc.; and
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Keller Graduate School of Management are a part of DeVry University. DeVry
University is 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.
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 ("DTC"). At the time of its 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. Effective
July 2001, Denver Technical College was integrated into DeVry University.
All new students, starting with the July 2001 term, were enrolled in DeVry
undergraduate programs and no further enrollments were accepted to the
original DTC programs. Students previously enrolled in the original DTC
programs are continuing their enrollment until they finish their program,
which is expected by the end of the Company's fiscal 2003.
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 certification exam.
As a complement to its Becker Conviser Professional Review operation, in
January 2001, the Company acquired the operations of Stalla Seminars
("Stalla"), a leading provider of review courses and study materials for
the CFA certification exams.
Following the 1999 renaming of the holding company for the degree granting
operations to DeVry University, the Company's resources and organization
were restructured to better serve the needs of its degree program students,
employers and shareholders through a single, unified operation. In
February 2002, the Higher Learning Commission of the North Central
Association of Colleges and Schools approved the merger of DeVry Institutes
and Keller Graduate School into one educational institution named DeVry
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University with single accreditation. To reflect these changes, the
Company's reportable segments have been realigned from those presented in
previous reports. In support of the realignment of its reportable
segments, the Company has provided the required selected financial results
and elements of financial position for both the current and previous
segmentation in Note 9 to the Consolidated Financial Statements, "Segment
Information."
The amounts of revenue and identifiable long-lived assets of the Company's
U.S. and foreign operations are presented in Note 9 to the Consolidated
Financial Statements, "Segment Information".
DeVry University Segment
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The DeVry undergraduate programs trace their origin to Dr. Herman DeVry and
for more than 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 undergraduate programs are offered on twenty one
campuses in the United States, three campuses in Canada and several smaller
DeVry University Center ("DVUC") teaching locations operated in conjunction
with graduate school program offerings at these sites.
Keller Graduate School was founded in Chicago in 1973 on the idea that the
most important components of management education are effective teaching
and student mastery of practical management skills. Building on its
original MBA program offering, as of the end of the fiscal year Keller now
offers a total of seven management masters degree programs and numerous
concentrations within some of these programs at 48 teaching centers.
Originally offering only undergraduate programs in electronics, DeVry
introduced its undergraduate computer information systems curriculum in
1979. As the number of high school graduates in the U.S. declined during
the 1980's, DeVry expanded its 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,
followed by the telecommunications management program and the introduction
of an accounting program in the spring of 1988. In 1994, DeVry introduced
the undergraduate technical management degree completion program which
focuses on business and management skills for students who already have an
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associate degree. In 1997, the undergraduate business operations program
was redefined and is now the business administration program, with a
concentration in accounting, replacing the previously separate accounting
program, and other concentrations in e-commerce, operations management,
project management and business information systems. In 1998, in response
to the increasing employment demands of the information technology field, a
one year Information Technology program was first offered at the Toronto-
area campuses to bachelor's level college graduates of any discipline and
is now offered at most undergraduate campuses in the United States. The
Information Technology program is designed for the bachelor's-level
graduate seeking career change and enhancement 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, DeVry introduced a new undergraduate 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 developed during the past several
years include new delivery formats, such as weekend class schedules,
compressed and accelerated course schedules and technology-assisted
delivery options including online courses.
In fiscal 2001, DeVry announced two new undergraduate educational program
delivery initiatives. The bachelor of business administration degree
program was the first undergraduate DeVry program to be offered in a fully
online format. Subsequently, the bachelor of information technology and
the bachelor of technical management programs were added in an online
format. Additional programs will be added in an online format in the
future. The online format allows DeVry to better serve place-bound
students and others whose schedules prevent them from attending classes in
person.
The second new delivery initiative was the formation of DeVry University
Centers. In fiscal 2001, DeVry University opened the first adult-learner
DeVry University Center in conjunction with the existing graduate school
teaching site in the downtown Chicago area. This teaching center is aimed
at providing both undergraduate and graduate education convenient to
working adults. At this expanded former graduate teaching center, DeVry
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University now offers selected accelerated undergraduate degree programs
formatted and oriented to adult students with the option to combine online
with on-site coursework. By the end of fiscal 2002, three additional DeVry
University Centers had been opened. Additional DeVry University Centers
are planned to be opened in fiscal 2003.
In addition to the Master of Business Administration ("MBA") program, which
Keller Graduate School 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 1995, Keller began
offering a Health Services Management ("HSM") concentration within its MBA
program. In 1997, Keller 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
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
Professional Review.
Concentrations in electronic commerce, international business and marketing
are among those that have been developed to broaden the scope and appeal of
the original MBA program. In fiscal 2002, the MBA program was offered with
a specialization in the management of public and private K-12 educational
systems, designed to prepare students to be effective educational leaders.
Also new for fiscal 2002, approval was granted to offer a 7th graduate
degree program, the Master of Public Administration ("MPA"). The MPA
consists of three tracks: Government Management, Nonprofit Management, and
Public Health Management. The MPA incorporates the same practitioner focus
as the other graduate programs and is designed for students who want to
become successful managers in the not-for-profit or government arenas. All
of the Keller graduate programs and concentrations are aimed at satisfying
the need for advanced education in high demand areas.
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In addition to its expanding network of classroom based program offerings,
Keller offers all of its programs in an online format. These offerings are
designed to allow students to efficiently complete their degrees entirely
online or in any combination of online and on-campus coursework that suits
their needs.
In addition to its programmatic expansion and new delivery method
initiatives, DeVry University embarked upon a strategy of facility
improvement and expansion in 1991 to attract and retain increased student
enrollment. This improvement and expansion strategy includes facility
renovations, expansion of existing campuses and openings of new campuses.
Similarly, graduate school teaching centers were relocated, renovated and
increased in number.
Expansions and improvements during the past several years include a new
undergraduate campus opened in Fremont, California, in July 1998 and in
November 1998, a new undergraduate campus opened in Long Island City, New
York. In November 1999, a new undergraduate campus opened in West Hills,
California, the third DeVry undergraduate campus in the Los Angeles area.
In July 2000, a new undergraduate campus opened in Tinley Park, Illinois,
the third DeVry campus in the Chicago area. In July 2000, the Company
acquired the operations of Denver Technical College with two undergraduate
campuses in Colorado, the Company's first campuses in that state. In
November 2000, a new undergraduate campus was opened in Orlando, Florida,
the first campus in that state. Further expansion was accomplished with
the completion of a technology center addition to the urban Chicago campus,
a renovation and expansion program at the Columbus, Ohio, campus and
completion of the expansion of the New York undergraduate campus into its
third floor leased space, bringing that campus to its full facility size.
In July 2001, a new undergraduate campus was opened in the Seattle,
Washington, area, the first in that state. In November 2001, a new
undergraduate campus was opened in the Washington, D.C. area, the first
campus in that area. In July 2002, a new undergraduate campus was opened
in the Philadelphia, Pennsylvania, area, the first DeVry University
undergraduate campus in that state.
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 2001 term, classes were being offered
at 42 locations nationwide, including the Online Education Center. At the
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start of the June 2002 term, classes were being offered at 48 locations
nationwide, including the Online Education Center. Additional teaching
centers are planned to be opened in fiscal 2003. Some of Keller's teaching
sites are co-located on DeVry undergraduate campuses and some are within a
DeVry University Center. Also, one classroom teaching site and the Online
Education Center are located in the Company's corporate headquarters in
Illinois. In addition, some Keller teaching sites host Becker exam review
classes where space and location are appropriate.
In addition to its expanding network of graduate teaching locations,
graduate programs were first offered 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 teaching center near where they
live or work.
At the beginning of the spring 2002 semester, which was the final semester
in the Company's fiscal year 2002, approximately 46,210 full and part-time
students were enrolled in DeVry University undergraduate day, evening and
online programs. The Company's undergraduate programs accounted for
approximately 85% of the Company's revenues in fiscal 2002. In addition,
there were approximately 9,925 coursetakers in graduate school programs for
the Spring term that began in February.
Classes began in July for the DeVry University undergraduate summer 2002
semester. This is the first semester in the Company's fiscal year 2003.
Although total DeVry undergraduate enrollments increased during fiscal 2002
from the previous year, these undergraduate program offerings are heavily
concentrated in the areas of computer and electronics technology. Interest
in these programs as careers has been adversely affected by the news of
employee layoffs and financial difficulty encountered by many firms in the
technology sector of the economy. As a result, new undergraduate student
enrollments declined from year-ago levels by 6.2%, 7.6% and 14.2% in the
final two semesters of fiscal 2002 and in the summer term (fiscal 2003),
respectively. As a result, total undergraduate enrollment for the summer
term was 43,567 compared to 47,415 in the previous summer. There were,
however, an increased number of students attending Keller graduate School,
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with approximately 8,209 coursetakers in graduate programs for the term
that began in June compared to 6,683 a year-ago. Historically, the summer
term has been the period of lowest DeVry University enrollment during the
year.
DeVry University operates in the $250 billion higher education segment of
the overall education market. Changing demographics in the United States
are expected to increase the size of the higher education market and
benefit the Company's future undergraduate enrollment. After a period of
nearly two decades during which the number of graduating high school
seniors declined by 25 percent to approximately 2.4 million, 1995 marked
the beginning of a slow but steady increase in the number of high school
graduates resulting from the "baby boom echo". The National Center for
Education Statistics forecasts that the number of graduating high school
seniors will increase to more than 3.1 million by 2007/2008. 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, further contributing
to future enrollment growth opportunities. Of the ten states with the
largest projected increase in high school graduates over the next nine
years, DeVry University has undergraduate campuses in seven of these
states.
Enrollment in U.S. degree granting postsecondary education institutions is
projected to increase by more than 15% to 17.7 million in 2011/2012 from
15.3 million in 1999/2000. College enrollments of students in the 18 to 24
year-old age cohort are expected to increase by 9% to 10,252,000 in 2007
and by 16% to 10,979,000 in 2011. Students in this age cohort represent a
substantial portion of DeVry University's full-time undergraduate day
school enrollments. Moreover, these students will be demographically
different from college bound generations of the past. They will include
more minorities, women, recent immigrants and lower income candidates.
Some of the DeVry undergraduate campuses rank near the top on the list of
institutions with degrees granted to minority students in the fields of
computer and information science, business and all academic disciplines
combined. DeVry undergraduate programs have attracted many students from
immigrant and minority populations, often these students are the first in
their family to attend college. In addition, growth in college enrollments
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is outpacing the growth in high school graduates as a greater percentage of
these graduates is going to college. From an enrollment rate of 49% in
1980, enrollment rates increased to 60% in 1990 and to 66% or more,
currently.
In addition to the projected growing number of traditional-age students,
more adults are returning to college. According to the U.S. Department of
Education, over 6 million, or nearly 40%, of all college students are 25
years of age or older. The increased number of older students attending
college today has positively influenced DeVry University enrollments and
has been fueled by (1) the development of the knowledge-based economy, (2)
the rapid pace of technological change in the workplace, (3) the growing
recognition of the strong correlation between education and income, (4) the
emergence of e-learning tools that make continuing education more
accessible and convenient, and (5) growing recognition of the importance of
lifelong learning. The number of college students who are 25 years and
over is projected to reach 6.5 million in 2007 and 6.7 million in 2011, an
increase of 6.5% and 9.8%, respectively, over 2002. Because less than a
quarter of American adults over 25 have a bachelor's degree or higher
today, adult student participation rates should continue to be stable and
favorable through at least the end of the decade.
At DeVry University, almost 50% of its new student undergraduate enrollees
are 25 years of age or older and approximately 25% of recent new
undergraduate student enrollees at its U.S. campuses had some prior college
experience. At Keller Graduate School, based upon a recent student survey,
the average student was determined to be 34 year old. Approximately 90% of
Keller students were employed full time. Nearly 70% take one course a term
and 30% take two or more courses. Just over 50% of Keller students are
women and minority students represent approximately 45% of total
enrollment.
Some undergraduate programs are being offered on weekends to serve the
working adult student and several programs are offered in an accelerated
delivery format 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. Graduate programs are offered in the evenings and
on weekends for maximum convenience to working adults.
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In today's information-driven economy, a higher education degree is
extremely important. In 1980, the pay difference between someone with a
high school education versus an undergraduate college education was 50%.
In 1995, the wage gap had increased to over 80% and today, that difference
is over 100%. The gap is even larger for those with graduate degrees.
Students recognize this wage gap and are seeking the skills and degrees
necessary to enhance their future career and earnings potential.
Online learning is growing rapidly within higher education. The U.S.
Department of Education estimates online education revenues at $7.0 billion
by 2004 and projects that nearly 90% of colleges and universities will
offer some form of e-learning by 2005. These projections suggest that
competition for online students will continue to increase and that online
education is increasingly recognized as an effective medium of educational
delivery. The U.S. Department of Education also estimates that the number
of degree-seeking students taking online courses will grow at a compounded
annual rate of 33% for the next several years, reaching 2.2 million
students by 2004.
The DeVry University approach to distance learning is to focus on the
quality of education delivered to the student. The technical feasibility
of the delivery system, while an integral component of online course
delivery, is not the sole or primary focus. Some classroom-based courses
also have a distance education component for learning enhancement.
DeVry University Online offers undergraduate and graduate programs in
business and technology via the Web. It builds on the successful model
initially implemented at the graduate level in 1998 and draws on the
content and pedagogy of both the undergraduate and graduate systems.
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DeVry University Online currently offers all of the Keller graduate
programs and the DeVry undergraduate Business Administration (BSBA),
Technical Management (BSTM), and Information Technology (IT) programs. As
part of the Higher Learning Commission of the North Central Association
Comprehensive Evaluation visit in August 2002, DeVry University has
requested approval to offer all of its programs and courses online.
DeVry University Online is a cornerstone of both the DVUC initiative and
the educational system capacity strategy in that it provides mix-and-match
capability, ensuring a full complement of courses at DVUCs and helping
optimize use of faculty and classroom space at all teaching locations.
Each of the undergraduate programs is designed to integrate general
education and technology or business. General education courses develop
skills and competencies that help graduates enhance both their professional
and personal capabilities. Businesses require graduates who can fit into
an organization by working collaboratively, having an understanding of how
business works, communicating clearly and having 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.
Undergraduate classes are generally offered in morning, afternoon or
evening sessions which help students maintain a part-time job. The
availability of part-time employment and government-provided financial aid
partially offset the competitive advantage of schools charging a lower
tuition. Each curriculum is generally consistent at all of the
undergraduate campuses, with content variations introduced to meet local
employment market needs. This common curriculum is another competitive
advantage that allows students to transfer, if necessary, to an
undergraduate campus at a different location without interrupting their
studies.
Graduate program 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
curricula, which like the undergraduate curricula are generally consistent
at all locations, are regularly reviewed for relevance to both students and
employers.
To facilitate student success, DeVry University devotes significant
resources to libraries and academic support services which can assist
students in any phase of their educational program. In addition, DeVry
undergraduate students are encouraged to participate in an array of offered
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activities. Each student is also required to complete a student success or
problem solving strategy course aiming at preparing students to assume
responsibility for their learning and growth through practical strategies
and methods for realizing success.
Professional and Training Segment
---------------------------------
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 and Certified
Management Accountant examinations.
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
a national provider of CPA review courses, serving approximately 12,000
students annually at more than 200 locations. With the Conviser Duffy
acquisition, Becker teaching sites now include numerous college campuses
throughout the United States. The combined CPA course operations are now
known as Becker Conviser CPA Review.
For the May 2002 CPA examination, Becker offered CPA review classes at
approximately 300 locations, including sites in approximately 30 foreign
countries, serving more than 30,000 students annually. 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
CD-ROM based presentation materials coupled with live classroom
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 nearly one half of all students passing the CPA exam.
In the spring of 2000, Becker offered a pilot version of its own CFA review
course for the Level 1 examination. In January 2001, the Company acquired
Stalla Seminars as a complement to its own review course. Stalla is a
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leading provider of CFA review courses and study materials, offering
classroom seminars in selected cities in the United States and in major
financial centers around the world. Stalla also offers CFA exam study
materials in print, on video as a supplement to its classroom based
seminars or for use in independent study and in an online format. The
number of candidates seeking the Chartered Financial Analyst professional
designation has increased significantly over the past several years and now
totals more than 80,000 annually for all three exam levels, more than half
of which are taking the Level 1 exam.
Customized educational and training programs are offered through the Center
for Corporate Education ("CCE"). CCE helps organizations achieve superior
performance through work force development, drawing on faculty and
curriculum resources from the DeVry University undergraduate and graduate
programs.
Competition
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DeVry University
----------------
The postsecondary education market is highly fragmented and competitive
with no single institution having a significant market share. There are
approximately 4,100 degree granting postsecondary education institutions in
the United States. DeVry University competes with other (1) for-profit
institutions, (2) community colleges, (3) public and private universities
that serve similar demographic segments, and (4) online learning programs.
The undergraduate programs 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 have begun to offer their employees
accredited college courses that may be applied toward degrees.
At the graduate level, DeVry University 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
it operates, there are numerous state institutions and private, not-for-
profit universities.
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In each market, local community colleges and state universities continue to
provide educational alternatives to students for whom lower tuition cost is
a high priority. In addition, some educational institutions are reaching
out to partner with local businesses to expand their educational reach.
Many are also recognizing the growing need for new and updated programs in
high employment demand occupations such as information systems, computer
networking and electronics. There are also a growing number of traditional
universities expanding their offerings into the online format.
There is growing competitive pressure from community colleges, traditional
universities and technical colleges that include industry-specific
certification programs, mostly aimed at the computer information area.
Proprietary and community colleges are offering these industry-specific
certification programs and other short-term certificate programs as a
pathway to the job market for students who do not want longer and more
comprehensive career preparation.
Tuition at independent not-for-profit institutions is, on average, higher
than the tuition at DeVry University. Publicly supported colleges may
offer similar programs 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.
DeVry University believes that its competitive strengths in undergraduate
program offerings 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 undergraduate career services
activities in obtaining education-related employment; national brand name
recognition and market presence; regional accreditation; authorization by
various states to grant degrees; modern facilities; well-equipped
laboratories; evening, weekend and online 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 undergraduate institution.
17
DeVry University differentiates itself in the graduate program 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.
Graduate programs are offered on a five 10-week term schedule 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, there is flexibility in course scheduling, a greater choice of
elective courses and a more convenient location than offered by its
competitors. There is also an accelerated format of the 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 DeVry University graduate programs 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 many of these states, DeVry University 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 of its graduate programs and an expanding list of
undergraduate programs in a distance delivery format, DeVry University has
expanded its availability to all qualified students without regard to their
location or daily schedule. By delivering courses both on-site, in an
expanding number of sites, and online, DeVry University benefits from the
competitive advantage of enhancing student satisfaction and success with
this scheduling and format flexibility.
Professional and Training Segment
---------------------------------
Becker competes with other methods of CPA exam preparation including self-
study; accounting firm-sponsored courses; courses offered by colleges and
universities; and courses offered by other private training companies.
According to reports by the National Association of State Boards of
Accountancy, two-thirds of first-time CPA candidates and more than half of
18
repeat candidates reported participating in a review course in the six
months prior to taking the exam. 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 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 or independent study, but not
passing the CPA exam, are testimony to the quality and value of the Becker
methodology. In each of the past six exams for which final exam scores
have been released, the top CPA exam score world-wide was awarded to a
Becker course graduate, including a Becker online course graduate.
CPA, CMA and CFA exam candidates can also take the Becker review course
content and methodology in conjunction with their DeVry University MBA or
MAFM programs in most states in which the classes are offered, earning full
graduate academic credit. These credits can also be used to fulfill the 150
hour rule educational requirement to sit for the CPA exam in those states
where the 150 hour rule has been enacted. This provides both Becker and
DeVry University with an important competitive advantage. To further
extend the marketing and operational benefits of joint operation, Becker
offers classes at some DeVry University undergraduate and graduate teaching
locations.
The CFA review course is taught live in a classroom setting in selected
large markets around the world and in an online format to help reach
potential exam takers not able to attend the classroom course. In the CFA
exam preparation market, much like the CPA exam preparation market, Becker
competes with courses offered by other training companies and student self-
study. During the past year the number of live course classroom locations
was expanded by utilizing current Becker CPA sites.
19
Student Recruiting
- ------------------
DeVry University
----------------
In order to broaden its market position and reverse the pattern of reduced
responses to its undergraduate marketing program, in the spring of 2002
DeVry University hired DraftWorldwide, a large advertising agency with
strong strategic branding and direct response capabilities. Students 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 undergraduate recruiting process because a
significant portion of undergraduate students come from outside the
immediate area in which the campus they attend is located. While all
graduate school students are recruited by admissions representatives, the
percentage of undergraduate enrollment which comes from both 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 undergraduate
total enrollments. DeVry University employs approximately 600
undergraduate 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 to student recruiters based on the
number of students they enroll. The Company believes that its method of
representative and recruiter compensation complies with the current
regulations. Recently, the Department of Education has proposed new rules
to better define and expand the acceptable methods of compensation to
conform to customary business practices. Final rules are expected to be
released in November 2002.
Admissions representatives are salaried, full-time Company employees. They
are located at each undergraduate campus and graduate and DVUC teaching
centers. They 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 a DeVry undergraduate program from nearby
20
community colleges. Each DeVry undergraduate campus 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 in U.S.
DeVry undergraduate programs had some prior college experience.
Field student recruiters are salaried, full-time Company employees. Field
recruiters meet individually with prospective undergraduate students who
are contacted primarily through high school, club and youth group
presentations. These student recruiters visited almost 7,800 high schools
in North America last year, making presentations on career choices and the
importance of a college education. These presentations offer 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 the expanding number of locations across the U.S.
are often near the home area to which the veteran will relocate.
In support of its admissions representatives and field recruiters, DeVry
University advertises on television and radio, in magazines and newspapers,
on various Internet sites, and utilizes 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 University's
own Internet site provides another avenue for students to receive
information and apply for admission.
To be admitted to an undergraduate program in the United States, an
applicant must be either a high school graduate, have a General Education
Development ("GED") certificate or hold a degree from an accredited
postsecondary institution. Applicants must also complete an interview with
21
a DeVry admissions representative. Students seeking admission to the
undergraduate online program complete their application process by
telephone, fax and e-mail with a central Admissions Office staff dedicated
to serving these applicants. In Canada, an applicant must meet either the
same criteria as in the U.S. or meet alternative "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 Computerized Placement Tests ("CPT"), which were designed in
collaboration with The College Board and Educational Testing Service, were
first used for undergraduate admissions. These exams help serve the needs
of applicants by better assessing their 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
undergraduate admission requirements.
To be admitted to a graduate 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 an 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 a personal interview.
To assist students who live distant from the campus that they attend, DeVry
University helps undergraduate students secure local living arrangements.
While DeVry University has no dormitory facilities, lists of nearby
available private apartments or rooms are maintained for students'
convenience. In addition, some campuses maintain furnished apartments for
shared rental by students. Students pay their housing rental and fees 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, similar to more traditional dormitory or apartment arrangements at
22
other colleges. In an effort to attract more new students, DeVry
University is evaluating several joint venture or other arrangements for
the operation of more traditional dormitory facilities adjacent to several
of its campuses.
Professional and Training Segment
---------------------------------
Becker markets its courses directly to potential students and to selected
employers, e.g., the large national and regional accounting and financial
services 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
then unable to pass the exam.
In response to the 150 credit hour requirement to take the CPA exam, some
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. In 1998, Keller introduced a new
a graduate program, Master of Accounting and Financial Management. The
MAFM program includes tracks for CPA, CMA, and CFA candidates and
culminates with a Becker Conviser review course.
Becker has introduced the CPA review course on CD-ROM and online for
students who are unable to attend classroom based instruction. With the
acquisition of Stalla Seminars, the CFA exam course is now offered in an
expanded number of classroom locations and also online.
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
23
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, 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 their 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.
Until February 2002, DeVry Institutes and Keller Graduate School were each
separately accredited by the Higher Learning Commission 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. Keller Graduate School was
first awarded its NCA accreditation status in 1977 and DeVry Institutes was
first awarded NCA accreditation status in 1981. The DeVry Institutes and
Keller accreditations were last reaffirmed by the Higher Learning
Commission of The North Central Association in 1992 for the maximum ten
year period.
In February 2002, the Higher Learning Commission of the North Central
Association approved the merger of DeVry Institutes and Keller Graduate
School of Management into a single educational institution with the name
DeVry University. This represents institutional recognition of the
corporate governance and comprehensive higher-education system that has
been created.
24
A comprehensive evaluation visit by NCA was conducted during August 2002.
In conjunction with this visit, DeVry University requested a continuation
of its accreditation for the maximum ten year period and permission to
offer all of its undergraduate programs not already approved
in an online format. A final report on the outcome of this visit will not
be available for several months but DeVry University expects a favorable
recommendation by the evaluation team.
Until recently, under Canadian law, the Canadian undergraduate campuses
were not permitted to grant degrees. However, students at the Canadian
campuses could transfer to campuses in the U.S. to complete their degree
requirements. In 1995, the Alberta Department of Advanced Education, the
State of Arizona and the Higher Learning Commission of the North Central
Association of Colleges and Schools approved the DeVry campus in Phoenix to
offer its bachelor of science degree-completion program on the Calgary
campus. This allowed 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 could transfer
to Calgary to participate in this program rather than transferring to a
DeVry campus in the United States. In February 2001, the province of
Alberta authorized DeVry Calgary to offer bachelor of technology degree
programs in electronics engineering technology and computer information
systems, as well as a bachelor of business operations degree program.
DeVry Calgary became the first private, for-profit institution in Canada to
be provincially accredited to grant baccalaureate degrees.
25
Accreditations of DeVry University in the United States and Canada are as
follows:
UNITED STATES CANADA
- ------------------------------------ ------------------------------------
Higher Learning Commission of the Calgary campus bachelor of
North Central Association of technology in Electronics
Colleges and Schools. Engineering Technology, bachelor of
technology in Computer Information
Eligible Electronics Engineering Systems and bachelor of Business
Technology baccalaureate programs Operations is accredited by the
and the Electronics Engineering Alberta Private Colleges and
Technology associate-level program Accreditation Board.
at the North Brunswick campus are
accredited by the Technology Calgary Campus Computer Engineering
Accreditation Commission of the Technology and Information
Accreditation Board for Engineering Technology curricula continue their
and Technology (TAC of ABET). accreditation under the DeVry
University campus in Phoenix as an
off-site instructional location.
The Electronics Engineering
Technology and the Electronics and
Computer Technology programs are
accredited by the Canadian
Technology Accreditation Board
(CTAB).
In the United States, each DeVry University location is approved to grant
associate, bachelor's or master's degrees by the respective state in which
it is located.
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 exam
preparation courses, and grant degrees. Generally, the addition of any new
program of study or new operating location also requires approval by the
appropriate licensing and regulatory agencies. Many states and provinces
require for-profit postsecondary education institutions to post surety
26
bonds for licensure. The Company has posted more than $6 million of surety
bonds with state and local regulatory authorities in the U.S. and
approximately $1 million (CDN) of surety bonds with regulatory agencies in
Canada. 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
- ----------------
DeVry University Segment
------------------------
Effective with the summer 2002 term, tuition at the United States
undergraduate campuses for two semesters (one academic year) ranged from
$9,240 to $10,300. Variations in tuition depend on the term of enrollment
and the particular campus attended. Based upon current tuition rates, for
a student enrolling in the five term undergraduate Electronics Technician
program, total tuition cost would range from $23,475 to $26,125. For a
student enrolled in the nine term undergraduate Computer Information
Systems program, total tuition cost based upon current rates would range
from $42,255 to $47,025. Students enrolled at a DVUC or in an online
program pay somewhat different tuition rates. Students enrolled on less
than a full time basis are charged somewhat lower tuition. Undergraduate
tuition rates at DeVry University are substantially below the average
tuition at four-year independent institutions, but are substantially higher
than the average at four-year publicly supported institutions. For the
academic year 2001/2002, the average annual tuition at four year private
schools was $17,123, an increase of 5.5% from last year, while the average
annual tuition at four year publicly supported institutions was $3,754, an
increase of 7.7% from last year. These tuition rate increases are
generally the largest rate increases since the late 1980s and early 1990s.
The DeVry University undergraduate tuition increase from summer 2001 was
between five and six percent, depending on the campus attended. Tuition
increases in previous years approximated the rate of increase at many other
postsecondary education institutions. In early 2002, some state supported
educational institutions, that were affected by reduced funding because of
27
declining state tax revenues, announced double digit tuition rate
increases. However, their tuition rates for students qualifying for in-
state tuition generally remain below those at DeVry University
undergraduate campuses. For the academic year 2001/2002, almost 70% of
full-time undergraduate students in the U.S. were enrolled at four-year
educational institutions with tuition rates less than $8,000 per year.
Tuition rates at the Canadian campuses are somewhat lower then those at
campuses in the U.S.
Certain undergraduate programs, such as the one year Information Technology
program, are charged at a total program price, not on an individual term
basis.
Effective with the September 2002 term, graduate program tuition per
classroom course (four quarter credit hours) ranges from $1,250 to $1,590,
depending on the location at which the student is enrolled. This compares
to tuition rates from $1,185 to $1,515 implemented in September 2001. The
price for courses taken online is $1,700.
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
the student, which varies with, but generally equals or exceeds, the
percentage of the term completed by the student. Amounts received by the
Company in excess of such set percentages of tuition are refunded to the
student or the appropriate financial aid funding source.
In addition to the tuition amounts described above, students at DeVry
University must purchase textbooks and supplies as part of their
educational program.
Professional and Training Segment
---------------------------------
The price of the complete classroom Becker CPA review course is $1,925,
which includes an enrollment fee. The complete CPA review course on CD-ROM
is priced at $1,670. The complete online review course is priced at
$2,070. Discounts from these tuition rates are offered under various
28
enrollment promotions at college campuses and for students employed by
participating accounting firms. Tuition rates may be increased later in
the fiscal year to be effective with the spring 2003 exam cycle.
Financial Aid and Financing Student Education
- ---------------------------------------------
Students attending DeVry University 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. undergraduate 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 1999-2000 study on
student financing of undergraduate education found that approximately 55%
of students received some form of financial aid from federal, state,
institutional or other sources.
DeVry University assists its 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 undergraduate students are employed to
help finance their costs of education. DeVry develops an assistance
package for students who require financial aid on the basis of a financial
aid application completed by the student and the student's family.
Government-sponsored financial aid is of great importance to the Company
because historically, almost 70% of the U.S. undergraduate tuition, book
and fee revenues have been financed by government-provided financial aid
received by its students.
Although not as significant for Keller Graduate School, government-
sponsored financial aid is utilized by more than an estimated 50% of its
graduate students. Additionally, the Company believes that approximately
65% of its graduate students receive some tuition reimbursement assistance
from their employers.
29
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. In the United States, 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 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.
Extensive and complex regulations in the United States and Canada govern
all of the government grant, loan and work study programs in which DeVry
University 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; standards of
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. These ratios include an equity ratio
which measures the institutions capital resources, a primary reserve ratio
which measures an institution's ability to fund its operations from current
resources and a net income ratio which measures an institution's ability to
operate profitably.
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
letter of credit 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.
30
Institutions that participate in U.S. federal financial aid programs must
disclose information about undergraduate 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, full-time degree-seeking" students. At DeVry University,
undergraduate admission requirements have been increased and student
support services have been added, both aimed at improving student
completion rates. For the fall 1995 freshman student cohort (the latest
period for which final completion statistics are available), the graduation
rates increased slightly from 1994 for both first-time freshman and for
students admitted with some prior college experience. Completion rates, as
defined by the Student-Right-To-Know Act at each of the U.S. undergraduate
campuses, generally fall within the range of completion rates, at selected
four-year urban public colleges in the areas in which these campuses are
located. Many students who previously attended another college are also
admitted to DeVry's undergraduate programs but are not included in these
completion rate statistics. Completion rates for the undergraduate
students entering with previous college experience are generally higher
than for first-time students.
DeVry University maintains a staff at its Oakbrook Terrace headquarters to
review, interpret and establish procedures for compliance with regulations
governing financial assistance programs and process financial aid
applications from its students. 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 DeVry University. Changes in or new
interpretations of applicable laws, rules or regulations could have an
adverse effect in the future.
In the United States, DeVry University has completed and submitted all
required audits of compliance with federal financial assistance programs
for fiscal 2001, and its independent accountants are currently conducting
the required audits of the one year period ending June 30, 2002. In
conjunction with previously filed audit reports on the processing of
financial aid on behalf of its student's participation in federal financial
aid programs, DeVry University has been required to post letters of credit,
generally of one year duration, in amounts totaling approximately $2
million.
31
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. In April 2002,
the Company received notice from the Office of Postsecondary Education of
the United States Department of Education of a limited scope program review
of federally funded student financial assistance programs administered by
DeVry on behalf of its undergraduate students. This review was conducted
at the Company's headquarters office in late May. The final report on this
review was issued by the Office of Postsecondary Education in June. It
included recommendations for process improvements but did not impose any
monetary liability on the Company. Such program reviews may be conducted
at any educational institution at any time and have been conducted in the
past at several DeVry campuses. Previous Department of Education program
reviews at DeVry have not resulted in material findings or adjustments.
Although the Company has no reason to believe that any proceeding against
the Company is presently contemplated, if such a proceeding were initiated
against the Company and resulted in a substantial curtailment of DeVry
University's participation in government grant or loan programs, the
Company could be adversely affected.
In Canada, the Toronto-area campuses have completed and submitted the
required annual review of Ontario Student Assistance Program administration
for fiscal 2001 and the Company's independent accountants are prepared to
begin the required audit for fiscal 2002. In conjunction with the required
annual review procedures related to its administration of financial aid
programs under the Ontario Student Aid Program, the Toronto-area DeVry
campuses have engaged in discussions with the Ontario Ministry of Education
relating to certain additional information requirements. These additional
information requirements could be interpreted as the basis for a Ministry
claim for the return of some amount of financial aid disbursed to students
attending these campuses. Discussion with the Ministry continues as to the
extent and purpose of the information requirements. Based upon its
discussions to-date, the Company believes that its discussions with the
Ministry will be successfully concluded and that there will be no
significant monetary liability.
The following is a description of the U.S. and Canadian financial aid
programs in which DeVry University students participate:
32
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 DeVry University 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) William D. Ford Federal Direct Student Loan Program
("FDSL"), (5) Federal Perkins Direct Student Loan program ("Perkins") and
(6) Federal Work Study ("FWS").
Grants: These funds, made available by the government to all eligible
students who demonstrate financial need, do not have to be repaid.
Only undergraduate students are eligible to participate in the Pell
and SEOG Grant programs. Eligible students could receive a Pell grant
which ranged in amount from $400 to $3,750 for fiscal year 2002. For
fiscal year 2003, the amount of available Pell grants to eligible
students ranges from $400 to $4,000. This is a $1,530 increase in the
maximum grant amount over the last six years.
SEOG is a supplement to the Pell grant, available to only the neediest
undergraduate 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 University 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 scholarship funds, discussed
separately in this section, or by externally provided scholarship
grants.
Loans: Students at DeVry University participate in the Stafford and
PLUS programs within the FFELP and FDSL program and in the Perkins
loan program. Under the FDSL program, students or parents borrow
directly from the Department of Education, rather than from commercial
lenders, under terms that are generally the same as for loans under
the FFELP. Total loan volume as reported by the Department of
Education for academic year 2000/2001 under FFELP to all student
recipients exceeded $28 billion.
33
STAFFORD LOANS: A subsidized Stafford loan, awarded on the basis
of student financial 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. Both the subsidized and unsubsidized loans are available
to undergraduate and graduate students.
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.
PERKINS LOANS: A Perkins loan is a low interest loan available to
only those undergraduate 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 DeVry
University undergraduate students and 100% of the federal financial
aid received by its graduate students has been provided by federal
student loans.
Work Study: Work opportunities, both on or off-campus, under FWS are
offered on a part-time basis to undergraduate students who demonstrate
financial need. Work Study wages are paid partly from federal funds
and partly from qualified employer funds.
34
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 University undergraduate campuses in Arizona,
California, Colorado, Florida, Georgia, Illinois, Missouri, New Jersey, New
York, Ohio and Pennsylvania.
"90/10 Rule": This U.S. Department of Education regulation affects only
for-profit postsecondary institutions, such as DeVry University. 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 revenue funded by
institutional scholarships. Final data for fiscal 2002 are not yet
complete but, in fiscal 2001, the U.S. undergraduate campus system derived
less than 65% of its revenues from these programs, ranging from a low of
approximately 50% to a high of approprimately 75% at individual campuses.
More than 50% of revenues from students enrolled in graduate programs was
derived from these defined financial aid programs.
For fiscal 2002, Each of the DeVry undergraduate campuses (except for those
that currently operate as an additional location of an established campus),
and the graduate teaching centers as a group are established as separate
institutions under the Higher Education Act ("HEA") provisions and must
separately meet the criteria for the "90/10 rule" and loan default rates.
For fiscal 2003, all of DeVry University will be combined into a single
rate.
In addition to the various financial aid programs described above, there
are a number of tax favored programs aimed at promoting savings for future
college expenses. These include state sponsored "529" college savings
plans, state sponsored prepaid tuition plans, education savings accounts
(formerly known as education IRAs), custodial accounts for minors, Hope and
Lifetime Learning credits and student loan interest tax deductions.
Canadian Government Financial Aid Programs: Canadian undergraduate
students, other than students from Quebec, are eligible for loans under the
Canada Student Loan Plan, which is financed by the Canadian government but
35
administered at the provincial level. Canadian Student Loans are available
to DeVry students who are Canadian citizens or permanent residents of
Canada. Students who meet residency requirements within the Province of
Ontario and attend an approved postsecondary institution, are eligible to
participate in the Ontario Student Loan Program. 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 education.
Company-Provided Financial Assistance: The Company's EDUCARD Plan is
available to undergraduate students attending U.S. campuses. Similar
installment payment options are available for the Canadian campuses. The
EDUCARD Plan is an installment loan program designed to assist students
unable to completely 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 12-24 months
following a student's graduation or termination of study. The receivable
balance related to DeVry University-provided financial aid at its U.S.
undergraduate campuses at June 30, 2002, was approximately $21 million.
Amounts owed by students under the EDUCARD Plan are subject to a monthly
interest charge of 1% of the average outstanding balance.
In September 2000, several undergraduate campuses began offering a
supplementary loan program 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 a limited DeVry University risk sharing for loan
defaults, has longer repayment periods, lower monthly payments and
generally lower interest rates on borrowings than offered by the EDUCARD
36
Plan, and is intended as an alternative to the current EDUCARD program.
This program has been expanded to additional campuses since its
introduction and is planned to be offered at all U.S. campuses by the end
of fiscal 2003.
In addition to the student financial assistance provided by the EDUCARD
Plan, numerous scholarships are offered to undergraduate students. For the
2003 academic year, scholarships valued at more than $5 million are being
offered. Scholarship offers have been made in previous years and are
expected to be offered in the future. The DeVry campuses have also
provided funds in the form of institutional grants which help those
students most in need of financial assistance.
Graduate 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.
The U.S. Congress has, from time to time, provided various tax benefits
related to educational expenses incurred by graduate and undergraduate
students. Educational expenses paid by an employer on behalf of an
employee generally are excludable from the employee's income if provided
under a qualified educational assistance plan. At present, the maximum
annual exclusion is $5,250.
Student Loan Defaults
- ---------------------
DeVry University believes that, historically, federal student loans
represented more than 80% of the federal aid received by its U.S.
undergraduate students and 100% of the federal aid received by its graduate
students. 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
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
37
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 campus 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.
DeVry University 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
program. Another significant factor in controlling student loan default
rates is the servicing and collection efforts by lenders and guaranty
agencies. DeVry University 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, DeVry University had FFELP U.S. student loan cohort default
rates for 2000 (the latest year for which statistics are available) ranging
from 4.5% to 11.5%. While the average cohort default rate for U.S.
colleges and universities increased slightly in fiscal 2000, the weighted
average DeVry University FFELP cohort default rate is preliminarily
reported at approximately 9.0%, the same weighted average rate as last
year. The reported rates for 2000 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 2001. Preliminary cohort default rates
are subject to revision by the Department of Education as new data becomes
38
available and are subject to appeal by schools contesting the accuracy of
the data. No DeVry University campus or teaching location is subject to
any restriction or termination under the student loan program. For fiscal
2001 default rates, all of DeVry University will be combined into a single
rate.
Undergraduate students who attend the U.S. DeVry campuses 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 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 campus Perkins loan cohort default rates for 2001 (the latest
year for which statistics are available) range from 12.3% to 24.1%. The
U.S. campus weighted average Perkins loan cohort default rate was
approximately 17.6%.
For 2000, the DeVry Perkins loan default rates ranged from 12.5% to 25.7%,
and the weighted average Perkins loan cohort default rate was approximately
17.7%. Several institutes received reduced new funding for the Perkins
loan program because their default rates exceeded the 20.0% regulatory
thresholds. At these campuses, 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, and funds
available for new loans from the repayment of outstanding loans, the
reduced level of funding has not had a material effect on the availability
of total financial aid available to DeVry University undergraduate
students. Student counseling and additional collection efforts, including
the assistance of outside loan service agencies, have been implemented and
have, in part, contributed to the reduction in the weighted average default
rate.
39
In Canada, 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. For DeVry's
Toronto-area campuses, the Ontario Student Loan default rate was below the
level at which there is required loan loss sharing and is also below the
average default rate at other Ontario postsecondary institutions in both
the private vocational and college sectors.
Professional and Training Segment
---------------------------------
Students attending the Becker CPA, CMA or CFA review courses are not
eligible for federal or state financial aid, but many of them receive
partial or full tuition reimbursement from their employers.
Career Services
- ---------------
DeVry University believes that the employment of its graduating students is
essential to its ability to attract and retain students. Currently, there
are approximately 150 career services professionals located at the U.S.
DeVry undergraduate campuses, 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 a campus.
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 University attempts to gather accurate data on the number of their
undergraduates 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 DeVry. At
40
the U.S. campuses, there were more than 48,000 graduates over the ten-year
period ending October 2001, 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 nearly 45,000 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 2001, were employed in
their chosen field within six months of graduation, based on data reported
to DeVry, as follows:
THE U.S. DEVRY UNIVERSITY 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
2001 Graduating
Classes (2/01,
6/01, 10/01) 6,625 5,770 4,990 86.5% 75.3%
- -----------------------------
(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.
41
The 2001 graduates achieved average annual starting compensation that
varies by program of study, ranging from $31,506 to $50,896. Individual
compensation levels vary depending upon the graduate's experience, program
of study and geographic area of employment.
In Canada, for the three classes which ended in calendar year 2001, over
68% 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 degree completion
program in Calgary or a bachelors degree awarded under the authority of the
Government of Alberta and those students who completed their degree
requirements at a U.S. DeVry campus, but does not include graduates of the
one year Information Technology program. At the Canadian undergraduate
campuses, there were more than 4,400 graduates over the past decade. For
the ten-year period ending October 2001, more than 85 percent of those
graduates who actively pursued employment or who were already employed when
they graduated help positions in their chosen fields within six months of
graduation.
The majority of employers of the DeVry graduates are in the electronics or
information processing industries. The Company believes that no single
employer has hired more than 5% of the DeVry graduates in recent years.
Major employers of the DeVry undergraduates include the following
companies: Accenture, Applied Materials, AT&T, Cellular One, Eastman Kodak,
EDS, General Electric Company, Hewlett-Packard, IBM, Intel Corp, MCI,
Motorola and Xerox.
Graduate program teaching centers maintain 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 DeVry University 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 generally occurs during the summer months. In the
42
Professional and Training Segment, Becker Conviser experiences higher
enrollments for its courses beginning in July, the period leading to the
fall CPA exam, than for its classes beginning in January, the period
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 11 to
the Company's Consolidated Financial Statements, "Quarterly Financial
Data."
Administration and Employees
- ----------------------------
Each DeVry undergraduate campus 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 a central organization responsible for
new student recruiting. Each graduate teaching center is managed by a
center director and has admissions representatives and appropriate academic
and administrative support staff. Becker Conviser is managed by a central
administrative staff headquartered in Oakbrook Terrace which supports
instructors and coordinates local operations.
The Company has approximately 4,300 regular full- and part-time employees.
Over 500 of these employees are located at the corporate headquarters in
Oakbrook Terrace, Illinois. In addition, the Company employs more than
1,600 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 relationship with its employees is
satisfactory.
Faculty
- -------
Each DeVry undergraduate campus president hires academic deans and faculty
members in accordance with criteria established by the Company, accrediting
standards and applicable state law. Most faculty members teaching in
technical areas have related industry experience. Sabbatical and other
leave programs have been initiated to allow faculty to engage in
developmental projects or consulting opportunities to maintain and enhance
43
their currency and teaching skills. Faculty members are evaluated each
semester based on student comments and observations by an academic dean.
There are approximately 1,200 full and part-time faculty member employees
among all of the DeVry undergraduate campuses. More than 85% of DeVry
full-time undergraduate faculty member employees hold advanced academic
degrees. In addition, DeVry engages adjunct and visiting faculty, as
needed, mostly in the evening programs, who teach on a part-time basis
while maintaining their employment in their technical field of specialty.
Graduate program 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, graduate school courses have
been taught selectively utilizing full-time faculty to respond to student
demand in areas of rapidly growing enrollment and to meet licensing
approval requirements in certain states. Less than 10% of graduate
instructors, excluding staff members who regularly teach, are full-time
employees. Approximately 700 active faculty teach graduate courses as
needed throughout the past 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 University" and variants thereof. All trademarks, service marks and
copyright registrations associated with the Company's businesses 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.
44
ITEM 2 - PROPERTIES
- --------------------
DeVry University
- ----------------
DeVry undergraduate campuses are housed in modern buildings that are
located in both suburban communities and urban neighborhoods. They are
easily accessible to major thoroughfares. Each campus includes teaching
facilities, admissions and administrative offices. Teaching facilities
include classrooms, laboratories, libraries, bookstores and student
lounges. Electronics laboratories include PC-based instrumentation and
microprocessor development/circuit simulation systems along with
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
including 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 campuses which are owned by the Company are subject to a
mortgage or other indebtedness.
In New York, in fiscal 2001 the Company completed its expansion
construction on the third floor at its leased site in Long Island City,
increasing the campus size by 59,000 square feet.
In Phoenix, Arizona, Pomona, California, and Kansas City, Missouri, the
Company leases additional space in adjacent office buildings in order to
house some administrative functions, permitting space within the campus
building to be used for additional classrooms and laboratories. These
expansions are necessary to accommodate increased student enrollments.
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.
45
Renovation and expansion of the Columbus DeVry Institute was begun in 1999.
This project, now complete, increases the campus size to approximately
114,000 square feet and replaces the modular space previously 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 additional space was completed and occupied for the
summer 2000 term. In September 2001, the Company completed acquisition of
the property from its landlord.
In Orlando, Florida, the Company completed construction on a leased campus
of approximately 72,000 square feet and classes were offered for the first
time in the fall of 2000.
In Federal Way (Seattle), Washington, the Company acquired approximately 11
acres of land and completed construction of an approximately 100,000 square
foot campus with classes offered for the first time in the summer of 2001.
In July 2001, the Company completed the purchase of an approximately 17
acre site in the Houston, Texas, area for the future construction of a new
DeVry campus, currently scheduled to begin offering classes in the fall of
2003.
In July 2001, the Company completed the purchase of its Pomona, California,
Institute which had been occupied under a lease.
Renovation has been completed on an approximately 87,000 square foot leased
site in Arlington, Virginia, (Washington D.C. area) for a new DeVry campus
with classes offered for the first time in the fall of 2001.
In October 2001, the Company announced that it had signed a lease for the
renovation of an existing building for a 104,000 square-foot campus in Fort
Washington (Philadelphia), Pennsylvania, the Company's first campus in that
state. Classes were offered for the first time in July 2002 in nearby
temporary facilities pending completion of the renovation.
The Company has a lease and construction is nearing completion on a 103,000
square foot facility for a new DeVry campus in Miramar, Florida, with
classes scheduled to be offered for the first time in the fall of 2002.
46
In March 2002, the Company announced that it signed a lease for the
construction of a 72,000 square-foot campus in Westminster (Denver),
Colorado. Classes are scheduled to be offered in this facility for the
first time in March 2003. This facility will replace the current smaller
facility acquired by the Company when it purchased Denver Technical
College.
In the Toronto-area, the Company is continuing its consolidation of
operations at the Scarborough campus into the Mississauga, Ontario, campus.
After July 2003, classes will be taught only at the Mississauga Campus.
Additional DeVry Institute facility renovations and expansions may be
undertaken in the future to improve and expand operations.
The table below sets forth certain information regarding the campus
properties at which DeVry undergraduate programs were conducted at June 30,
2002:
47
UNDERGRADUATE CAMPUSES
----------------------
June 2002
Area
(Approximate
Square Feet) Ownership
------------ ---------
Phoenix, Arizona 120,200 Owned
Orlando, Florida 72,000 Leased
Alpharetta (Atlanta), Georgia 65,000 Leased
Decatur (Atlanta), Georgia 107,500 Owned
Chicago, Illinois 160,000 Owned
Addison (Chicago), Illinois 110,000 Owned(1)
Tinley Park, Illinois 65,000 Owned
Kansas City, Missouri 74,500 Owned
Columbus, Ohio 114,000 Owned
North Irving (Dallas), Texas 95,250 Leased
Long Island City, New York 155,000 Leased
Pomona (Los Angeles), California 100,500 Owned(2)
Long Beach (Los Angeles),
California 98,200 Leased
West Hills, (Los Angeles),
California 105,000 Owned
Fremont (San Francisco),
California 99,000 Owned
North Brunswick, New Jersey 99,000 Owned
Denver, Colorado(3) 98,000 Owned
Arlington (Washington, D.C.) Virginia 87,000 Leased
Federal Way (Seattle), Washington 100,000 Owned
Calgary, Alberta, Canada 70,000 Leased
Ontario, Canada, Toronto-Area 105,400 Leased
Distance Learning (4)
- ------------------------------
(1) Acquired in September 2001.
(2) Acquired in July 2001.
(3) Includes 28,000 square foot leased facility in Colorado Springs,
Colorado.
(4) Operates at the Company's corporate headquarters location.
In addition to the large campus facilities at which DeVry offers its
undergraduate programs, selected undergraduate programs are also offered at
smaller, more conveniently located, DeVry University Centers which offer
both undergraduate and graduate programs.
Keller teaching centers and DeVry University Centers are housed in modern
buildings whose locations are chosen primarily for their convenience to
students. These teaching centers, which mostly range in size from
48
approximately 5,000 to more than 15,000 square feet, include teaching
facilities, admissions and administrative offices. Each of these teaching
facilities 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 2002, Keller opened six new teaching centers. Additional new
centers are planned for opening in fiscal 2003 and beyond.
The table below sets forth certain information regarding each of the
properties at which Keller conducted educational operations in the June
2002, term:
49
KELLER GRADUATE SCHOOL CENTERS
------------------------------
June 2002
Ownership
---------
Phoenix, Arizona (2)
Scottsdale, Arizona Leased
Mesa, Arizona Leased
Pomona, California (2)
Long Beach, California (2)
Irvine, California Leased
San Diego, California Leased
Fremont, California (2)
San Francisco, California Leased
West Hills, California (2)
Denver, Colorado Leased
Tampa Bay, Florida Leased
Orlando, Florida (south) (2)
Orlando, Florida Leased
Miami, Florida Leased
Decatur, Georgia (2)
Atlanta, Georgia Leased
Alpharetta, Georgia (2)
Atlanta/Buckhead, Georgia Leased
Gwinnett, Georgia Leased
Chicago Loop, Illinois Leased
Chicago/O'Hare, Illinois Leased
Schaumburg, Illinois Leased
Lincolnshire, Illinois Leased
Oakbrook Terrace, Illinois (1)
Lisle, Illinois Leased
Tinley 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
Charlotte, North Carolina Leased
Federal Way, Washington (2)
Bellevue, Washington Leased
Cleveland, Ohio Leased
Columbus, Ohio Leased
Columbus, Ohio (2)
Ft. Washington, Pennsylvania (2)
Dallas, Texas (2)
Houston, Texas Leased
Distance Learning (1)
- ------------------------
(1)Operates at the Company's corporate headquarters location
(2)Operates on a DeVry Institute campus
50
Professional and Training Segment
- ---------------------------------
Becker is headquartered 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 campuses and at
Keller teaching centers where the location and facility availability are
appropriate.
Corporate
- ---------
The Company's administrative offices are located in approximately 132,500
square feet of leased space in an office tower in Oakbrook Terrace,
Illinois. In addition, the Company leases more than 50,000 square feet of
storage, other miscellaneous use and additional 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 15 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 in the normal conduct of its business.
In March 2002, the Company received notice of a class-action complaint
filed under the Fair Labor Standards Act by several former field sales
representatives seeking overtime compensation for services rendered during
their period of employment.
In January 2002, the Company received notice of an antitrust complaint
concerning the alleged monopoly by operations of its Becker CPA Review Corp
subsidiary in California. This complaint was filed in federal district
court by the trustee in bankruptcy of a failed CPA review provider seeking
51
a substantial amount of damages. In April 2002, this complaint was
voluntarily dismissed by the plaintiff without prejudice. The complaint
was amended and has subsequently been refiled.
In January 2002, a graduate of one of DeVry University's Los Angeles-area
campuses filed a class-action complaint on behalf of all students enrolled
in the post-baccalaureate degree program in Information Technology. The
suit alleges that the program offered by DeVry did not conform to the
program as it was presented in the advertising and other marketing
materials.
In November 2000, three 1999 graduates of one DeVry University's Chicago-
area campuses filed a class-action complaint that alleges DeVry graduates
do not have appropriate skills for employability in the computer
information systems field. The complaint was subsequently dismissed by the
court, but was amended and refiled, this time including a current student
from a second Chicago-area campus.
The Company has recorded approximately $1 million associated with estimated
loss contingencies at June 30, 2002. While the ultimate outcome of these
contingencies is difficult to estimate at this time, the Company does
intend to vigorously defend itself with respect to these claims.
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.
52
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 . . . . . . . . . . .61 Mr. Keller co-founded Keller
Graduate School in 1973. From the
Chairman 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 . . . . . . . . . . .58 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. . . . . . . . . . .59 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.
53
EXECUTIVE OFFICERS OF THE REGISTRANT
Name, Age and Office Business Experience
- -------------------- -------------------
Michael J. LaForte . . . . . . . . . .56 Mr. LaForte joined the Company in
1996. Prior to joining DeVry, Mr.
Senior Vice President LaForte served as executive vice
president of XL/Datacomp. Mr.
LaForte was responsible for the
overall operations of DeVry
University which includes the DeVry
Institutes and Keller Graduate
School. Mr. LaForte retired from
the Company in September 2002.
O. John Skubiak. . . . . . . . . . . .56 Mr. Skubiak joined Keller Graduate
School more than 25 years ago as an
Executive Vice President admissions representative. In his
current position as Executive Vice
President of the Company, Mr.
Skubiak has responsibility for the
Company's marketing and its overall
educational operations.
Norman M. Levine . . . . . . . . . . .59 Mr. Levine has been with the
Company since 1982 and its Chief
Senior Vice President and Financial Officer since 1989. He
Chief Financial Officer became a Senior Vice President in
January 2001, assuming the added
responsibility for the Company's
tax planning and compliance.
Jack L. Calabro. . . . . . . . . . . .60 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.
James R. Dill. . . . . . . . . . . . .54 Mr. Dill joined the Company in
1972, originally working at the
Vice President, Regional DeVry Columbus campus. Most
Operations recently Mr. Dill has been the
president of the DeVry DuPage
campus. In his current position,
Mr. Dill is responsible for the
operation of several of the U.S.
DeVry campuses.
54
EXECUTIVE OFFICERS OF THE REGISTRANT
Name, Age and Office Business Experience
- -------------------- -------------------
Rose Marie Dishman . . . . . . . . . .58 Dr. Dishman joined the Company in
1992, serving originally as Dean of
Vice President, Regional Academic Affairs for the DeVry
Operations Pomona campus before becoming
president of the three Southern
California campuses. In her
current responsibilities, Dr.
Dishman is responsible for the
operation of several U.S. DeVry
campuses.
Thomas F. Donini . . . . . . . . . . .52 Mr. Donini joined DeVry in 1982,
serving in a variety of recruiting
Vice President, New Program positions and appointed to Vice
Development President, DeVry Institute Field
Recruitment in 1999. Mr. Donini is
currently responsible for
development of new recruiting
programs focusing on high schools,
business, community colleges,
military and international
students.
James A. Dugan . . . . . . . . . . . .56 Mr. Dugan joined the Company in
1980 serving in a number of
Vice President, Regional operating positions at the DeVry
Operations Phoenix campus, most recently as
its president. In his current
position, Mr. Dugan is responsible
for the operation of several of the
U.S. DeVry campuses.
George W. Fisher . . . . . . . . . . .50 Mr. Fisher joined the Company as
Vice President, Canadian Operations
Vice President, Regional in 1985. His responsibilities
Operations currently include operations of
several DeVry campuses in the U.S.
and Canada and new DeVry Institute
campus development.
55
EXECUTIVE OFFICERS OF THE REGISTRANT
Name, Age and Office Business Experience
- -------------------- -------------------
Galen Graham . . . . . . . . . . . . .53 Dr. Graham joined the Company in
1982 serving in a number of
Vice President, Regional operating positions at the DeVry
Operations Columbus campus, most recently as
its president. In his current
position, Dr. Graham is responsible
for the operation of several U.S.
DeVry campuses.
Jerome E. Hellman. . . . . . . . . . .54 Mr. Hellman joined the Company in
2001. He is responsible for
Vice President, Process Management Process Management for DeVry
University, including the
reengineering and standardization
of processes and implementation of
the Company's new student
information system now being
developed. Prior to joining the
Company, Mr. Hellman worked in
project and process management
positions, most recently at
Internet start-up, GFTS, and at
Bank One before that.
Timothy Joyce. . . . . . . . . . . . .41 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.
James Kho. . . . . . . . . . . . . . .57 Dr. Kho joined the Company in 2000,
serving originally as president of
Vice President, Regional the DeVry Fremont campus. In his
Operations current position, Dr. Kho is
responsible for the operation of
several U.S. DeVry campuses.
Bruno LaCaria. . . . . . . . . . . . .60 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.
56
EXECUTIVE OFFICERS OF THE REGISTRANT
Name, Age and Office Business Experience
- -------------------- -------------------
Patrick L. Mayers. . . . . . . . . . .62 Dr. Mayers joined Keller Graduate
School in 1978 as Dean of Academic
Vice President, Academic Affairs Affairs. 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. In 2002, Dr. Mayers
was promoted to Vice President of
Academic Affairs for DeVry
University.
Gerald Murphy. . . . . . . . . . . . .55 Mr. Murphy joined the Company in
1995 as a Vice President with
Vice President, DeVry Campus responsibility for the operation of
Operations several of the DeVry campuses in
the U.S. and Canada, following
which he was responsible for new
DeVry campus location and program
development. Mr. Murphy is
currently responsible for the
oversight of all the U.S. DeVry
campus operations.
Sharon Thomas-Parrott. . . . . . . . .51 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, government and
public relations.
Timothy H. Ricordati . . . . . . . . .46 In 2002, Dr. Ricordati was promoted
to head all enrollment management
Vice President, Enrollment activities at DeVry University.
Management Previously, Dr. Ricordati was Dean
of the Keller Graduate School and
also responsible for the Company's
University Center and Online
Education operations.
57
EXECUTIVE OFFICERS OF THE REGISTRANT
Name, Age and Office Business Experience
- -------------------- -------------------
Kenneth Rutkowski. . . . . . . . . . .55 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.
Edward J. Steffes. . . . . . . . . . .52 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 and sales promotion.
Thomas J. Vucinic. . . . . . . . . . .55 Mr. Vucinic has been the general
manager of the Becker Conviser
Vice President Professional Review since 1997.
Prior to that, Mr. Vucinic was the
Company's Director of Financial
Planning and Analysis.
Gerald J. Wawrzynek. . . . . . . . . .47 Mr. Wawrzynek has been with the
Company since 1987. He is
Vice President responsible for the Company's tax
planning and compliance and its
acquisition analysis.
Fred Weber . . . . . . . . . . . . . 54 Dr. Weber joined the Company in
2001. Mr. Weber is responsible for
Vice President, Regional the operation of several of the
Operations U.S. DeVry campuses. Prior to
joining the Company, Dr. Weber was
at Follett Higher Education Group,
last serving as Senior Vice
President of Strategic Planning and
Communications.
58
PART II
-------
ITEM 5 - MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
- ----------------------------------------------------------
(a) Market Information
------------------
The Company's common stock is listed 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.
FISCAL 2002 FISCAL 2001
------------------- ------------------
HIGH LOW HIGH LOW
------------------- ------------------
First Quarter $40.25 $29.81 $39.63 $27.25
Second Quarter 36.39 22.75 41.50 28.00
Third Quarter 34.76 26.62 38.29 30.05
Fourth Quarter 32.15 22.65 36.15 28.08
(b) Approximate Number of Security Holders
--------------------------------------
There were 749 holders of record of the Company's common stock as of
September 3, 2002. 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
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
59
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 113 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.
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, 2002 VS. FISCAL YEAR ENDED JUNE 30, 2001
- -------------------------------------------------------------------
Fiscal 2002 again set new records for financial performance. Total
consolidated revenues increased by $80.0 million, or 14.1%, compared to
last year. Tuition revenues, which are the largest component of total
revenues, increased by $76.4 million, or 14.6%, from the previous fiscal
year. Tuition revenue is reported net of tuition refunds, consistent with
the Securities and Exchange Commission's Staff Accounting Bulletin 101
entitled "Revenue Recognition in Financial Statements" and associated
guidance.
Other Educational Revenues is composed primarily of the sale of books and
supplies, including the Becker Conviser CPA Review course on CD-ROM and
other CPA and CFA review study materials, and interest or payment deferral
60
charges on students' outstanding receivable balances. Other Educational
Revenues increased by 9.7% as the number of students enrolled in the
Company's educational programs who purchase such materials increased from
last year. The rate of increase in Other Educational Revenues was less
than the rate of increase in tuition revenues, in part, because of the
continued outsourcing of DeVry University bookstore management, which is
discussed more fully below.
Interest income on the Company's short-term investments of cash balances
decreased by $0.6 million, or 52.7%, from last year because of somewhat
lower cash balances that were available for investment during the first
half of the year as the Company repaid borrowings under the revolving line
for the purchase of two DeVry University campuses, lower interest rates
available on investments and the application of cash balances to offset
fees for bank services instead of short-term investment.
The Company's principal business is providing postsecondary education. The
Company has presented its financial results in two reportable segments. In
February, the Higher Learning Commission of the North Central Association
approved the merger of DeVry Institutes (undergraduate programs) and Keller
Graduate School of Management (graduate programs) into a single educational
institution named DeVry University. The North Central Association is one
of six regional bodies that make up the nation's system for accrediting
colleges and universities. In support of the transition to DeVry
University, the Company's resources and organization have been restructured
to better serve the needs of its students, employers of its graduates and
shareholders. Accordingly, the reportable segments of the Company have
been realigned to reflect this combination and the prior year discussion of
results of operations has been revised for consistency with the new
structure.
DeVry University segment revenues increased by $74.7 million, or 13.9%,
from last year. Revenue increases resulted from increased cumulative total
student enrollment for the terms in the fiscal year in both the
undergraduate and graduate programs. At the start of the spring term,
which spans a part of the third quarter and the fourth quarter of the
fiscal year, there were 55,735 students enrolled in DeVry University
undergraduate and graduate programs compared to 53,409 students in the
spring term of the previous year.
61
Although total DeVry University enrollments have continued to increase,
undergraduate program offerings are heavily concentrated in the areas of
computer and electronics technology. Interest in these programs as careers
has been adversely affected by the news of employee layoffs and financial
difficulty encountered by many firms in the technology sector of the
economy. As a result, new undergraduate student enrollments have declined
from year-ago levels by 6.2%, 7.6% and 14.2% in the last three semesters,
fall, spring and summer (fiscal 2003), respectively. New undergraduate
campus openings in Federal Way (Seattle), Washington, and Crystal City
(Washington D.C.), Virginia, and several new graduate school center
openings during fiscal 2002 helped to reduce the effect of declining new
students enrollments at previously opened campuses and contributed to the
increased total student enrollment. Tuition rate increases of
approximately 6% also contributed to the increased revenues for the year.
At the start of the summer term, which is the first term in fiscal 2003,
total DeVry University enrollment was 51,551, compared to 51,887 last
summer.
DeVry University entered into an agreement with Follett Higher Education
Group ("Follett") during fiscal 2000 to manage some of the undergraduate
and graduate on-campus bookstores and provide Internet order capability to
students at these campuses. The wider range of ancillary merchandise and
experienced retail store management available from Follett is believed to
provide an improved level of student service. DeVry University receives a
commission from Follett based upon the level of bookstore sales at these
campuses. At fiscal year-end, Follett was managing 12 campus bookstores,
including those at the two new campuses opened during the year, compared to
nine campus bookstores under Follett management a year ago. Sales at
campus bookstores under Follett management, net of commissions paid to
DeVry University, were approximately $17.1 million and $11.0 million,
respectively, in fiscal 2002 and 2001. Responsibility for managing
additional campus bookstores may be transferred to Follett in the future,
based upon the needs of each campus.
In the Professional and Training segment, revenues increased by $5.3
million, or 16.4%. Increased numbers of students taking the Becker
Conviser CPA Review course in the classroom, on CD-ROM or online and
expanded offerings of the Stalla CFA Review program plus tuition price
increases contributed to the increased revenue.
62
In fiscal 2002, Cost of Educational Services increased by $43.5 million, or
14.3%. 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 and other educational materials, student education-
related support activities and the provision for uncollectible student
accounts. Additions to long-lived assets in DeVry University were $85.3
million, an increase of $11.1 million from last year, as the Company
continued its investment in new and expanded facilities and equipment for
students and staff. Included in the additions for fiscal 2002 was the
purchase for approximately $37.8 million, at the start of the year, of two
undergraduate campuses formerly occupied under lease. As a result of the
additions to facilities and equipment, including the two new campuses and
several graduate centers opened during the year, depreciation expense in
DeVry University, most of which is included in Cost of Educational
Services, increased by $4.4 million, or 16.3%.
Student Services and Administrative Expense increased by $21.4 million, or
12.8%, from last year. 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 reflects marketing costs associated with generating higher student
enrollments in the Company's educational programs for the terms that began
in fiscal 2002 and for the summer term of fiscal 2003, which began in July.
Generally, expenditures for new student recruitment precede the time
periods in which there is revenue generated by these new student
enrollments. During the year, to counter declining response rates to
advertising for the undergraduate technology programs, advertising expenses
were increased beyond those originally planned and beyond the historical
rate of increase in this expense category. Offsetting some of the
advertising expense increase were savings in selling expense as sales
representatives in some remote area sales territories were eliminated to
better match the costs with revenues generated in these territories.
Also, in response to the growing size and complexity of its educational
program offerings, the Company continued its design and development of a
new student information system to better support the educational process
and supporting activities. Information system development costs related to
this project, and to other system support and improvement initiatives, have
increased from last year. In accordance with accounting principles for
63
internal software development costs, certain wage and outside consulting
service costs are being capitalized. Indirect expenses related to the
project, such as training and employee communications, are charged to
expense as incurred. At the end of June, total capitalized costs were $8.6
million, of which $6.2 million was capitalized in fiscal year 2002. In
addition to the amounts capitalized, $2.6 million of related but indirect
activity was charged directly to expense during the year. During the
fourth quarter of the year, two elements of the overall system design were
put into service and amortization was initiated over the expected useful
lives, not exceeding five years. In the fourth quarter, a total of $0.1
million of previously capitalized student system development costs were
charged to amortization expense. One of the Company's Directors is also an
investor and director of a consulting firm engaged by the Company to assist
with systems development projects, including the new student information
system. Fees paid to this consulting firm during fiscal year 2002 totaled
$3.5 million. Fees paid to this consulting firm have been negotiated to a
level believed to be equal to those charged to similar customers. The
Company estimates that fees paid to this consulting firm in the coming year
will be reduced somewhat from the level incurred in fiscal 2002 as these
systems projects near completion.
Partly offsetting the increased student recruitment expenses and
information system development costs during the year was a reduction of
$3.1 million in amortization expense of intangible assets and goodwill
compared to the same period a year ago as a result of the Company's
adoption of Statement of Financial Accounting Standards ("SFAS") No. 142,
entitled "Goodwill and Other Intangible Assets." Goodwill and indefinite-
lived intangible assets arising from a business combination are no longer
amortized and charged to expense over time. Instead, goodwill and
indefinite-lived intangibles must be reviewed annually for impairment, or
more frequently if circumstances arise indicating potential impairment.
For goodwill, if the carrying amount of the reporting unit containing the
goodwill exceeds the fair value of that reporting unit, an impairment loss
is recognized to the extent the "implied fair value" of the reporting
unit's goodwill is less than the carrying amount of the goodwill. For
indefinite-lived intangible assets, if the carrying amount exceeds the fair
value, an impairment loss shall be recognized in an amount equal to that
64
excess. As of June 30, 2002, there was no impairment loss associated with
the Company's indefinite-lived intangible assets or goodwill associated
with the reporting units represented by the Company's two operating
segments.
In the DeVry University segment, although the amount of operating income
increased from last year by 9.2%, operating margin as a percent of revenues
declined from 17.5% last year to 16.8% in the current year. The increased
level of spending on student recruitment, increased spending on information
systems design and the opening of two new undergraduate campuses and
several graduate school centers all contributed to the lower operating
margin.
In the Professional and Training segment, operating margin increased from
21.5% last year to 27.9% this year. Operating efficiencies from increased
enrollments and higher tuition pricing all contributed to the higher
operating margin.
The Company's earnings from operations in fiscal 2002 - before interest
expense and taxes - were a record $111.4 million, increasing by 15.7% from
last year. Operating margin, which has increased during each of the past
several years, increased again from 17.0% last year to 17.2% this year.
Contributing to the increased margin was the adoption, at the start of the
fiscal year, of SFAS 142 relating to the amortization of goodwill and
intangible assets, which reduced amortization expense from the previous
year by approximately $3.1 million. Operating margin was also improved by
the continued outsourcing of low margin bookstore sales and operating
economies from increased student enrollments.
Interest expense increased to $0.8 million this year as the Company
borrowed money at the start of the fiscal year under its revolving loan
agreement to acquire two undergraduate campuses formerly occupied under
lease. The borrowings, which occurred in July, were not fully repaid until
April.
Taxes on income were incurred at a rate of 39.4% of pre-tax income for the
year, compared to 39.8% last year. Last year's rate was affected by
changes to future tax rates in Canada that reduced the carrying value of
the Company's net deferred tax assets in Canada and increased tax expense
for the year.
65
Net income of $67.1 million, or $0.95 per share (diluted), was a record for
any year. This compares to net income of $57.8 million, or $0.82 per share
(diluted) in 2001, which included $0.03 per share of goodwill and
intangible asset amortization that was discontinued in 2002 with the
adoption of SFAS 142.
Fiscal Year Ended June 30, 2001 vs. Fiscal Year Ended June 30, 2000
- -------------------------------------------------------------------
Fiscal 2001 set new records for financial performance. Total consolidated
revenues increased by $77.6 million, or 15.8%, compared to last year.
Tuition revenues, which are the largest component of total revenues,
increased by $80.1 million, or 18.1%, from the previous fiscal year.
Tuition revenue for previous years was restated to consistently reflect the
categorization of tuition refunds as a reduction in tuition revenue rather
than as a component of Cost of Educational Services, consistent with the
Securities and Exchange Commission's Staff Accounting Bulletin 101 ("SAB
101") entitled "Revenue Recognition in Financial Statements" and associated
guidance.
In the fourth quarter of fiscal 2001, the Company applied the accounting
and disclosure provisions of SAB 101. SAB 101 requires the deferral of
certain fees and other charges over the period of service (student
enrollment). Prior to fiscal 2001, the Company recognized enrollment fees
in the next academic period after which the applicant had no further right
to use or refund. Additionally, tuition refunds were reported as a Cost of
Educational Services and have been restated as previously discussed. In
accordance with the transition provisions of SAB 101, as of the start of
fiscal 2001, the Company deferred approximately $0.7 million of certain
fees. This deferred revenue will be recognized in future periods based
upon our historical experience of expected future student attendance.
Additionally, as of the start of the fiscal year, the Company has elected
to defer certain direct costs associated with new student enrollment
activities but limited to the extent of revenue deferral. These costs will
be subsequently amortized over the same period of expected future student
attendance used to recognize deferred revenues. As revenues from
enrollment fees and related costs were deferred in equal amounts as of the
66
start of the fiscal year, net income and cash flow from operations were not
affected. At June 30, 2001, the Company had approximately $0.7 million of
deferred revenue and related costs recorded on its balance sheet,
approximately the same amount as of the start of the fiscal year.
Other Educational Revenues is composed primarily of the sale of books and
supplies, including the Becker Conviser CPA Review course on CD-ROM and
other CPA and CFA review study materials, and interest or payment deferral
charges on students' outstanding receivable balances. Although there were
more students enrolled in the Company's educational programs and they
purchased more books and materials than in the past year, Other Educational
Revenues declined by $2.2 million, or 4.9%, from last year because of the
continued outsourcing of DeVry University bookstore management, which is
discussed more fully below.
Interest income on the Company's short-term investments of cash balances
decreased to $1.2 million because of the somewhat lower cash balances that
were available for investment during the year.
DeVry University segment revenues increased by $76.5 million, or 16.7%,
from last year. Revenue increases resulted from increased cumulative total
student enrollment for the terms in the fiscal year in both the
undergraduate and graduate programs. At the start of the spring 2001 term,
there were 53,409 students enrolled in DeVry University undergraduate and
graduate programs compared to 49,268 students in the spring term of the
previous year. Enrollments increased because of a new undergraduate campus
opening in Tinley Park, Illinois, in July 2000. This is the third
undergraduate campus in the Chicago area. Also, in November 2000, a new
undergraduate campus opened in Orlando, Florida, the first undergraduate
campus in that state. Enrollment at the previously opened undergraduate
campuses also increased somewhat during the year. Also during the year,
six new graduate centers were opened, bringing the total to 42, and tuition
was increased by approximately 6% during the year. During fiscal 2001,
DeVry University began to offer its undergraduate Business Administration
degree program via distance education on a limited basis. The start of
this first undergraduate distance education program offering did not
significantly contribute to enrollments or revenues during the year.
67
DeVry University entered into an agreement with Follett Higher Education
Group ("Follett") during fiscal 2000 to manage some of the undergraduate
and graduate on-campus bookstores and provide Internet ordering capability
to DeVry students at these campuses. The wider range of ancillary
merchandise and experienced retail store management available from Follett
is believed to provide an improved level of student service. DeVry
University receives a commission from Follett based upon the level of
bookstore sales at these campuses. At fiscal year-end, Follett was
managing nine campus bookstores, including those at the two new campuses
opened during the year, compared to four campus book stores under Follett
management at the previous June year-end. Sales at the campus bookstores
under Follett management, net of commissions paid to DeVry, were
approximately $11.0 and $1.5 million, respectively, in fiscal 2001 and
2000. In July 2001, Follett began managing two additional campus
bookstores. Responsibility for managing additional campus bookstores may
be transferred to Follett in the future, based upon the needs of each
campus.
In the Professional and Training segment, revenues increased by $1.1
million, or 3.4%, from last year. In January 2001, the Company acquired
the Stalla Seminars CFA exam review as a complement to its Becker Conviser
Professional Review programs, increasing the revenues in this segment.
However, enrollments and revenues in the CPA review program continued to be
negatively affected by additional state implementations of the "150 hour
rule" that requires CPA exam candidates to have completed 150 hours of
college credit, generally a fifth year of college, before they are eligible
to sit for the CPA exam.
In fiscal 2001, Cost of Educational Services increased by $34.9 million, or
12.9%. 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 and other educational materials cost of sales, student
education-related support activities and the provision for uncollectible
student accounts. Additions to long-lived assets in DeVry University were
$74.2 million, an increase of $8.5 million from last year as the Company
continued its investment in new and expanded facilities and equipment for
students and staff. As a result of these additions to facilities and
equipment, depreciation expense, most of which is included in the Cost of
Educational Services category, increased by $6.5 million from last year.
68
Although costs increased generally in support of increased enrollments and
new operating locations primarily in the DeVry University segment, the
consolidated Cost of Educational Services increased at a rate substantially
less than the rate of increase in tuition revenues. The lesser rate of
cost growth is due almost entirely to the elimination of the cost of sales
on books and supplies at the DeVry University bookstores now managed by
Follett. The Company now reports commission income in Other Educational
Revenues with no corresponding cost of sales. Economies of scale, as
enrollment increased at most existing operating locations, further
contributed to the lower rate of cost increase.
Student Services and Administrative Expense increased by $25.9 million, or
18.3%, from last year. 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 reflects marketing costs associated with generating higher student
enrollments in the Company's educational programs for the terms that began
in fiscal 2001 and for the summer term of fiscal 2002, which began in July.
Generally, expenditures for new student recruitment occur in time periods
that precede the time periods in which there is revenue generated by these
new student enrollments.
Also, in response to the growing size and complexity of its educational
program offerings, the Company began to design and develop a new student
information system to better support the educational process and supporting
activities. Information system development costs related to this project,
and to other system support and improvement initiatives, have increased
from last year. In accordance with accounting principles for internal
software development costs, certain wage and outside consulting service
costs are being capitalized. Indirect expenses related to the project,
such as training and employee communications, are charged to expense as
incurred. At the end of June 2001, total capitalized costs were
approximately $2.4 million, while approximately $1.6 million of systems
development costs were charged to expense as incurred. Amortization of
capitalized system development costs will begin in future periods as
portions of the project become operational.
69
In the DeVry University segment, the operating income margin for the year
improved from 17.1% last year to 17.5% in the current fiscal year because
of the effect of the outsourcing of certain low margin bookstore operations
to Follett and because of economies of scale as increased enrollments were
absorbed into the existing cost structure. Partially offsetting these
gains were the additional costs related to the two new undergraduate
campuses and six new graduate teaching centers opened during the year and
an approximately $0.5 million currency conversion loss with respect to
DeVry Canada as the value of the Canadian dollar declined relative to the
U.S. dollar during the year.
In the Professional and Training segment, the operating margin increased
from 17.5% in fiscal 2000 to 21.5% in fiscal 2001 because of the January
2001 acquisition of the Stalla Seminars CFA review program and operating
economies as the Conviser CPA operations acquired at the start of fiscal
2000 were further integrated into the Becker operations.
The Company's earnings from operations in fiscal 2001 - before interest and
taxes - were a record $96.3 million, increasing by 21.2% from last year.
Operating margin, which has steadily increased during each of the past
several years, reached 17.0% this year, up from 16.2% last year.
Contributing to the increase in margin has been the outsourcing of the low
margin bookstore sales and operating economies from increased student
enrollments.
Interest expense decreased by $1.0 million from last year as the Company
operated through most of the year either debt free or with very low levels
of debt despite record capital spending and the acquisition, for cash, of
Stalla Seminars.
Taxes on income for the year were affected by a change in tax rates
applicable to the Company's Canadian operations. During the fourth
quarter, Canadian Customs and Revenue received Royal Assent to reduce
federal and certain provincial income tax rates in future periods. The
effect of this change in enacted tax rates through the end of the third
quarter of the fiscal year was $634,000. Without the change in enacted tax
rates, tax expense for the total year would have been reduced by $855,000.
Further reductions in provincial enacted income tax rates are expected in
future periods. The effect of these future expected reductions, had they
been enacted in the fiscal year ended June 30, 2001, would have been to
70
reduce the carrying value of the net deferred tax assets by an additional
$369,000. The cumulative impact of these reductions will be reflected in
the quarter(s) when the rates are enacted by Royal Assent.
Net income of $57.8 million, or $0.82 per share (diluted), was a record for
any year, increasing by 20.9% from last year.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
- -------------------------------------------
The Company's financial statements include numerous estimates and
assumptions about the reported amounts of assets, liabilities, revenues and
expenses whose exact amounts will not be known until future periods.
Actual amounts may differ from the estimates included in the financial
statements. Note 1 of the Notes to Consolidated Financial Statements for
the fiscal year ended June 30, 2002, fully describes the method of
application of the more critical accounting policies listed below.
Significant estimates included in the Company's financial statements
include the method of revenue recognition across the academic periods,
determining the useful lives of equipment and facilities whose value is a
significant portion of the Company's total assets, determining the amount
and useful lives of acquired finite-lived intangible assets, assessing the
valuation of goodwill and indefinite-lived intangible assets, estimating
losses to be realized in the future on the collection of presently owed
student receivable balances, estimating costs associated with any
settlement of law suits in which the Company is a defendant and estimating
health care reimbursement claims for medical services rendered but not yet
processed or paid. The methodology by which each of these estimates has
been determined for fiscal 2002 is consistent with the manner in which such
estimates were made in prior years. Variances from estimate to the actual
expense for these items in past years have not been significant. Although
different assumptions about the factors affecting each of these estimates
could produce a different amount of estimate, the reasonably determined
range of estimates for each item would generally not be large enough to
significantly change the overall Company reported financial results.
71
CONTINGENCIES
- -------------
The Company is subject to occasional lawsuits, investigations and claims
arising in the normal conduct of its business.
In March 2002, the Company received notice of a class-action complaint
filed under the Fair Labor Standards Act by several former field sales
representatives seeking overtime compensation for services rendered during
their period of employment.
In January 2002, the Company received notice of an antitrust complaint
concerning the alleged monopoly by operations of its Becker CPA Review
Corp. subsidiary in California. This complaint was filed in federal
district court by the trustee in bankruptcy of a failed CPA review provider
seeking a substantial amount of damages. In April 2002, this complaint was
voluntarily dismissed by the plaintiff without prejudice. The complaint
was amended and has subsequently been refiled.
In January 2002, a graduate of one of DeVry University's Los Angeles-area
campuses filed a class-action complaint on behalf of all students enrolled
in the post-baccalaureate degree program in Information Technology. The
suit alleges that the program offered by DeVry did not conform to the
program as it was presented in the advertising and other marketing
materials.
In November 2000, three 1999 graduates of one of DeVry University's
Chicago-area campuses filed a class-action complaint that alleges DeVry
graduates do not have appropriate skills for employability in the computer
information systems field. The complaint was subsequently dismissed by the
court, but was amended and refiled, this time including a current student
from a second Chicago-area campus.
The Company has recorded approximately $1 million associated with estimated
loss contingencies at June 30, 2002. While the ultimate outcome of these
contingencies is difficult to estimate at this time, the Company does
intend to vigorously defend itself with respect to these claims.
72
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary source of liquidity is the cash received from
payments for student tuition, books and fees. These payments include funds
originating as student and family educational loans; other financial aid
from various federal, state and provincial loan and grant programs; and
student and family financial resources.
The pattern of cash receipts during the year is somewhat cyclical. The
level of accounts receivable from which payments are collected reaches a
peak immediately after the billing of tuition, books and fees each
semester. At DeVry University, the undergraduate semesters begin in July,
November and March. Collections of these receivables are heaviest during
the first two months of each term, generally reaching 70-80% of all
collections for the term. Collections during this period exceed payments
for operating expenses applicable to that period and generally provide
sufficient cash flow for the balance of the semester's operations when
collections are lower. 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 undergraduate 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. The graduate school has five
term starts per year. Most of the Professional and Training segment
operation has two term starts per year. Although their term start dates and
frequency may be different, there are similar cyclical patterns in cash
receipts based upon the respective academic term cycles.
At June 30, 2002, total Company accounts receivable, net of related
reserves, were approximately $26.1 million, an increase of 1.5%, compared
to $25.7 million last year. Although increased Company revenues, up 14%
for the year, created higher receivables, collection performance and
financial aid administration at DeVry University were improved during the
year and resulted in a lesser rate of increase in total receivables.
Reserves for uncollectible accounts for undergraduate student receivables
were increased as a percentage of outstanding receivables to reflect the
Company's current collection experience on balances owed. Reserves for
other uncollectible accounts were changed proportionately to the change in
receivable levels.
73
To help further reduce the level of Company-provided interim student
financing under the DeVry University undergraduate EDUCARD program,
students at several of the U.S. and Canadian DeVry Institutes participate
in supplementary loan programs funded by private lenders. The
supplementary loans are aimed at students whose eligibility for federal and
state funded financial aid is not sufficient to cover all their costs of
education. These loans are subject to a limited Company default risk
sharing agreement, and the Company maintains reserves equal to the full
extent of its share of the risk.
The Company is highly dependent upon the timely receipt of financial aid
funds at DeVry University in both the United States and Canada. The
Company estimates that historically, approximately 70% of its undergraduate
students' tuition, book and fee revenues were financed by government-
provided financial aid to students. Keller Graduate School collections
from student participation in federal loan programs represent more than 50%
of Keller revenues. The financial aid and assistance programs in which the
Company's students participate are subject to political and governmental
budgetary considerations. There is no assurance that such funding will be
maintained in the future.
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.
In April 2002, the Company received notice from the Office of Postsecondary
Education of the United States Department of Education of a limited scope
program review of federally funded student financial assistance programs
administered by the DeVry Institutes. This review was conducted in late
May at the Company's headquarters office. The final report on this review
was issued by the Office of Postsecondary Education in June. It included
recommendations for process improvements but did not impose any monetary
liability on the Company. Such program reviews may be conducted at any
educational institution at any time and have been conducted in the past at
several DeVry campuses. Previous Department of Education program reviews
at DeVry have not resulted in material findings or adjustments.
74
In conjunction with the required annual review procedures related to its
administration of financial aid programs under the Ontario Student Aid
Program, the Toronto-area DeVry campuses have engaged in discussions with
the Ontario Ministry of Education relating to certain additional
information requirements. These additional information requirements could
serve as the basis for a Ministry claim for the return of some amounts of
financial aid disbursed to students attending these campuses. Discussion
with the Ministry continues as to the extent and purpose of the information
requirements. Based upon its discussions to-date, the Company believes
that its discussions with the Ministry will be successfully concluded and
that there will be no significant monetary liability.
Under the terms of the Company's participation in governmental financial
aid programs, certain cash received from various state governments and the
U.S. Department of Education is maintained in restricted bank accounts.
These funds are either received subsequent to the completion of the
authorization and disbursement process for the benefit of the student or,
in a lesser number of instances, just prior to that authorization. Once
the authorization and disbursement process to the student has been
completed, the funds are transferred to unrestricted accounts and these
funds then become available for use by the Company in current operations.
This process generally occurs within the period of the academic term for
which such funds were authorized, with no academic term being more than 16
weeks in length. At June 30, 2002, cash in the amount of $19.3 million was
held in restricted bank accounts, in part, to provide funds for the final
disbursements for the undergraduate spring term that ended in June and, in
part, in anticipation of financial aid disbursements which occur at the
start of the undergraduate summer term that began in July. At June 30,
2001, cash in restricted bank accounts equaled $20.5 million.
Cash generated from operations in fiscal 2002 reached a new record of
$115.3 million, up more than 31% from last year. Contributing to this
increase in cash flow were the increased net income and the increased non-
cash charges for depreciation, tuition refunds and bad debt included in net
income; a reduction in restricted cash balances and increases in accrued
salaries and expenses; and increases in advanced tuition payments received
from students.
75
Capital expenditures in fiscal 2002 were a record $85.9 million. In just
the past three years, the Company has invested over $200 million for
expansion, facility improvement and replacement of school laboratories, and
teaching and administrative equipment for its educational offerings.
Contributing to the record capital spending in fiscal 2002 was the first
quarter purchase of two DeVry University campuses, in Pomona, California,
and Addison, Illinois, both formerly occupied under operating leases.
Theses purchases totaled $37.8 million.
For fiscal 2003, capital expenditures are expected to decline somewhat from
the record level in fiscal 2002 as new DeVry University campus openings in
fiscal 2003 will be in leased facilities and, therefore, require less
capital spending by the Company. Although new campus openings planned for
fiscal 2004 may be in Company-owned facilities, spending on these
facilities will be spread over the end of fiscal 2003 and the start of
fiscal 2004 and have a lesser effect on the level of capital expenditures
in fiscal 2003. Capital spending on improvements, including instructional
technology, and expansion is an integral component of the Company's
operating strategy.
In December 2001, the Company and its banks amended the $85 million
revolving loan agreement under which the Company has issued letters of
credit and borrowed to meet cyclical operating requirements and for capital
spending and acquisitions. The term of the agreement was extended by one
year to February 1, 2004. In addition, the covenant limiting capital
expenditures was eliminated and the fixed charge covenant was modified to
provide improved flexibility for the Company's future operations.
At the end of fiscal 2002, there were no borrowings under the revolving
loan agreement except for approximately $2.7 million in outstanding letters
of credit issued primarily in conjunction with DeVry University's
participation in student financial aid programs. Most of these letters of
credit have expiration dates of less than one year. To-date, no amount has
ever been drawn under any letter of credit issued on behalf of the Company.
Any amounts borrowed under the revolving loan agreement are payable at the
expiration of the agreement in 2004 unless the agreement is extended to a
later expiration date.
76
The Company's interest rate on bank borrowings 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 that would be
applicable to future borrowings. However, when the Company does borrow, it
fixes the interval of interest rate adjustment on most of its borrowings
for various periods to eliminate some of the possible variability in rates.
The Company periodically evaluates the need for interest rate protection in
light of projected changes in interest rates and borrowing levels.
The Company's only long-term contractual obligations consist of its
revolving line of credit, operating leases on facilities and equipment and
agreements for various services. At June 30, 2002, there were no
outstanding borrowings under the Company's revolving loan agreement and
required payments under non-cancelable operating leases with a term in
excess of one year are $28.9 million and $30.1 million for fiscal 2003 and
2004, respectively.
The Company is not a party to any off-balance sheet financing or contingent
payment arrangements nor are there any unconsolidated subsidiaries of the
Company. There are no loans extended to any officer, director or other
person affiliated with the Company. The Company has not entered into any
synthetic leases and there are no residual purchase or value commitments
related to any facility lease. The Company has not entered into any
derivative, swap, futures contract, put, call, hedge or non-exchange traded
contract. The Company does have over $6 million in outstanding surety
bonds to various governmental jurisdictions related primarily to its
student recruiting and educational operations in those jurisdictions. If
the Company were to fail to meet its obligations in these jurisdictions, it
could be responsible for payment up to the amount of the bond issued to
that jurisdiction. To-date, no surety bond has ever been paid in
connection with the Company failing to meet its obligations.
77
A summary of the Company's contractual obligations is presented below:
(Dollars in thousands)
Due In
------
Less Than 1-3 4-5 After
Total 1 Year Years Years 5 Years
-------------------------------------------------
Long-term debt - - - - -
-------------------------------------------------
Capital leases - - - - -
-------------------------------------------------
Operating lease $307,200 $30,700 $87,700 $50,500 $138,300
-------------------------------------------------
Other long-term obligations - - - - -
-------------------------------------------------
Total cash obligations $307,200 $30,700 $87,700 $50,500 $138,300
-------------------------------------------------
The Company believes that current balances of unrestricted cash, cash
generated from operations and, if necessary, the revolving loan facility
will be sufficient to fund both its current operations and its current
growth plans for the foreseeable future.
EFFECT OF NEW ACCOUNTING STANDARDS
- ----------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting
for Asset Retirement Obligations." SFAS 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated retirement costs. This statement is
effective for financial statements issued for fiscal years beginning after
June 15, 2002. This corresponds to the Company's fiscal year 2003, which
began in July.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. This statement is effective for fiscal years beginning after
December 15, 2001. This corresponds to the Company's fiscal year 2003,
which began in July.
78
The Company does not have any plans to retire or dispose of any long-lived
assets nor are any subject to any impairment at the present time.
Therefore, the Company does not expect that there will be any immediate
impact on its financial statements upon adoption of SFAS No. 143 or SFAS
144.
In May 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS 145 addresses financial accounting and reporting for
the extinguishment of debt, accounting for leases and technical corrections
and amendments to various existing pronouncements. This statement is
effective for transactions or fiscal years beginning after May 15, 2002.
This corresponds to the final months of the Company's fiscal year 2002,
which ended in June. The Company does not expect that there will be any
immediate impact on its financial statements upon adoption of SFAS 145.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities. This statement is effective for exit or disposal activities
initiated after December 31, 2002. The Company is not currently engaged in
any exit or disposal activities and does not expect that there will be any
immediate impact on its financial statements upon adoption of SFAS 146.
79
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 80 through 110 of this
report:
10K
Report Page
-----------
Consolidated Balance Sheets at
June 30, 2001 and 2000 80-81
Consolidated Statements of Income for the
years ended June 30, 2001, 2000 and 1999 82
Consolidated Statements of Cash Flows for
the years ended June 30, 2001, 2000 and 1999 83
Consolidated Statements of Shareholders'
Equity for the years ended June 30, 2001,
2000 and 1999 84
Notes to Consolidated Financial Statements 85-108
Schedule II. - Valuation and Qualifying Accounts 109
Report of Independent Accountants 110
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.
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.
80
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30,
2002 2001
--------- ---------
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 59,685 $ 29,213
Restricted Cash 19,264 20,484
Accounts Receivable, Net 26,054 25,664
Inventories 4,907 4,899
Deferred Income Taxes 5,448 5,221
Prepaid Expenses and Other 2,469 3,146
------- -------
Total Current Assets 117,827 88,627
------- -------
Land, Buildings and Equipment:
Land 58,928 42,583
Buildings 174,344 122,433
Equipment 173,115 147,437
Construction In Progress 1,626 20,808
------- -------
408,013 333,261
Accumulated Depreciation (150,386) (125,796)
------- -------
Land, Buildings and Equipment, Net 257,627 207,465
------- -------
Other Assets:
Intangible Assets, Net 35,692 32,027
Goodwill 42,391 46,825
Deferred Income Taxes 1,801 4,658
Perkins Program Fund, Net 10,180 9,753
Other Assets 2,110 2,320
------- -------
Total Other Assets 92,174 95,583
------- -------
TOTAL ASSETS $ 467,628 $ 391,675
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
81
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30,
2002 2001
--------- ---------
LIABILITIES:
Current Liabilities:
Accounts Payable $ 36,284 $ 34,573
Accrued Salaries, Wages and Benefits 27,595 23,782
Accrued Expenses 11,643 10,891
Advance Tuition Payments 15,883 14,179
Deferred Tuition Revenue 12,287 10,957
------- -------
Total Current Liabilities 103,692 94,382
------- -------
Other Liabilities:
Revolving Loan - -
Deferred Rent and Other 10,390 12,622
------- -------
Total Other Liabilities 10,390 12,622
------- -------
TOTAL LIABILITIES 114,082 107,004
------- -------
COMMITMENTS & CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common Stock, $0.01 Par Value, 200,000,000
Shares Authorized,69,898,540 and
69,755,491 shares Outstanding
at June 30, 2002 and 2001, Respectively 700 698
Additional Paid-in Capital 66,345 64,481
Retained Earnings 285,827 218,772
Accumulated Other Comprehensive Income 674 720
------- -------
TOTAL SHAREHOLDERS' EQUITY 353,546 284,671
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 467,628 $ 391,675
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
82
DEVRY INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except for Per Share Amounts)
For The Year Ended
June 30,
2002 2001 2000
-------- -------- --------
REVENUES:
Tuition $600,400 $523,995 $443,859
Other Educational 47,181 43,012 45,238
Interest 553 1,170 1,492
------- ------- -------
Total Revenues 648,134 568,177 490,589
------- ------- -------
COSTS AND EXPENSES:
Cost of Educational Services 347,986 304,532 269,663
Student Services and
Administrative Expense 188,712 167,330 141,443
Interest Expense 807 400 1,409
------- ------- -------
Total Costs and Expenses 537,505 472,262 412,515
------- ------- -------
Income Before Income Taxes 110,629 95,915 78,074
Income Tax Provision 43,574 38,139 30,293
------- ------- -------
NET INCOME $ 67,055 $ 57,776 $ 47,781
======= ======= =======
EARNINGS PER COMMON SHARE
Basic $0.96 $0.83 $0.69
======= ======= =======
Diluted $0.95 $0.82 $0.68
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
83
DEVRY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For The Year Ended June 30,
2002 2001 2000
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $67,055 $57,776 $47,781
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 32,725 28,132 21,545
Amortization 811 3,904 3,706
Provision for Refunds and
Uncollectible Accounts 34,249 29,663 24,186
Deferred Income Taxes 2,630 (4,321) (3,159)
Loss on Disposals and Adjustments to Land,
Buildings and Equipment 188 137 33
Changes in Assets and Liabilities, Net of
Effects from Acquisitions of Businesses:
Restricted Cash 1,220 (1,089) 1,516
Accounts Receivable (34,525) (29,719) (34,641)
Inventories (8) 1,492 304
Prepaid Expenses And Other 677 (1,687) (17)
Perkins Program Fund Contribution
and Other 193 (2,374) (695)
Accounts Payable 1,711 2,746 451
Accrued Salaries, Wages,
Expenses and Benefits 5,363 3,405 4,703
Advance Tuition Payments 1,704 (1,328) 2,079
Deferred Tuition Revenue 1,330 862 4,950
------- ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 115,323 87,599 72,742
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (85,873) (76,933) (40,797)
Payments for Purchases of Businesses, Net
of Cash Acquired - (8,572) (38,587)
------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES (85,873) (85,505) (79,384)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options 1,068 982 659
Proceeds from Revolving Credit Facility 55,000 24,000 40,000
Repayments Under Revolving Credit Facility (55,000) (24,000) (40,000)
------ ------ ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,068 982 659
Effects of Exchange Rate Differences (46) 286 (14)
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 30,472 3,362 (5,997)
Cash and Cash Equivalents at Beginning
of Year 29,213 25,851 31,848
------ ------ ------
Cash and Cash Equivalents at End of Year $59,685 $29,213 $25,851
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Year $807 $324 $1,545
Income Taxes Paid During the Year, Net 42,486 38,859 31,590
The accompanying notes are an integral part of these consolidated
financial statements.
84
DEVRY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)
Common Stock
------------------- Accumulated
Additional Other
Amount Paid-in Retained Comprehensive
$.01 Par Capital Earnings Income Total
------------------- --------- ------------ ---------
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
Comprehensive Income:
Net Income in 2001 57,776 57,776
Foreign Currency
Translation 286 286
---------
Comprehensive Income 58,062
---------
Proceeds from Exercise
of Stock Options 1 981 982
Tax Benefit from Exercise
of Stock Options 488 488
----------------------------------------------------
Balance at June 30, 2001 698 64,481 218,772 720 284,671
Comprehensive Income:
Net Income in 2002 67,055 67,055
Foreign Currency
Translation (46) (46)
---------
Comprehensive Income 67,009
---------
Proceeds from Exercise
of Stock Options 2 1,066 1,068
Tax Benefit from Exercise
of Stock Options 798 798
----------------------------------------------------
Balance at June 30, 2002 $700 $66,345 $285,827 $674 $353,546
====================================================
The accompanying notes are an integral part of these consolidated
financial statements.
85
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, offering both undergraduate and graduate
programs. Its DeVry undergraduate operations award associate and bachelor's
degrees in electronics, computer engineering technology, computer information
systems, information technology, business administration, business
operations, technical management and telecommunications management. The
undergraduate programs are offered at 20 large campus locations and several
smaller locations located in conjunction with graduate program teaching
sites, all in the United States, at three locations in Canada and through
DeVry University Online. Several new U.S. locations are scheduled to open in
fiscal 2003. Keller Graduate School of Management awards master's degrees in
business administration, accounting and financial management, information
systems management, human resource management, project management, public
administration and telecommunications management. Graduate school programs
are offered at 48 locations in the United States, including the Online
Education Center. Several additional locations are scheduled to open in
fiscal 2003. Becker Conviser Professional 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 through 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.
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
86
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents, continued
- -------------------------------------
and financial institutions with which it invests. Included in the reported
cash balance is $17.2 million and $15.4 million at June 30, 2002 and 2001,
respectively, for checks issued but not yet cleared through the Company's
bank accounts. These amounts are also included in accounts payable.
Financial Aid and Restricted Cash
- ---------------------------------
Financial aid and assistance programs, in which most of DeVry University'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 these students participate. DeVry University'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
DeVry University.
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. Restricted funds are held
in separate bank accounts. These funds are either received subsequent to
the completion of the authorization and disbursement process for the benefit
of the student or, in a limited number of instances, just prior to that
authorization. Once the authorization and disbursement process to the
student has been completed, the funds are transferred to unrestricted
accounts and these funds then become available for use in current operations.
This transfer generally occurs within the period of the academic term for
which such funds were authorized, with no term being more than 16 weeks in
length.
Revenue Recognition
- -------------------
Tuition and technology fee revenues are recognized ratably on a straight line
basis over the applicable academic term. The provision for refunds, which is
reported as a reduction to Tuition Revenue in the Consolidated Statements of
Income, and the provision for uncollectible accounts, which is included in
the Cost of Educational Services in the Consolidated Statements of Income,
also are recognized in the same straight line fashion as revenue to most
appropriately match these costs with the tuition revenue in that term.
Estimates of the Company's expected exposure to uncollectible accounts and
refunds are determined at the onset of each academic term based upon actual
experience in previous terms and monitored and adjusted as necessary within
87
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition, continued
- ------------------------------
the term. 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. All refunds issued are charged
fully to refund expense during the applicable academic term. Related reserves
with respect to uncollectible accounts and refunds are $13,890,000 and
$12,364,000 at June 30, 2002 and June 30, 2001, respectively.
Textbook sales and other educational product sales, including training
services and the Becker Conviser CD-ROM product, are included in Other
Educational Revenues in the Consolidated Statements of Income. Textbook and
other educational product revenues are recognized when the sale occurs,
generally at the start of each academic term. Revenue from training
services, which is generally short-term in duration, is recognized when the
training service is provided, without consideration for when payment is
received. Also included in Other Educational Revenues are receivable
interest billings from various student deferred tuition payment plans.
Interest charges are generally billed monthly and are recognized when billed.
In addition, fees from international licensees of the Becker Conviser
programs are included in Other Educational Revenues and recognized into
income when payment is received.
In the fourth quarter of fiscal 2001, the Company adopted the provisions of the
Securities and Exchange Commission's Staff Accounting Bulletin 101 ("SAB 101")
entitled "Revenue Recognition in Financial Statements" and associated
guidance. SAB 101 requires the deferral of certain fees and other charges
over the period of service (student enrollment). Additionally, tuition
refunds, which were previously reported as a Cost of Educational Services,
are now classified as a reduction in net revenue, with prior period
information restated to conform to this classification. In accordance with
SAB 101, the Company deferred approximately $700,000 of enrollment fees
as of July 1, 2000. This deferred revenue is recognized in subsequent
periods as student services are provided. Additionally, as permitted by
SAB 101, the Company elected to defer certain direct costs of activities
associated with these fees, limited to the extent of the revenue deferral
as of July 1, 2000. These costs are subsequently amortized over the
periods in which student services are provided. As deferred revenue and
equivalent deferred costs were recorded as of July 1, 2000, reported net
income and cash flows were not affected by the adjustments required to adopt
the guidance of SAB 101. Since changes to the deferrals require the recording
of equivalent amounts of revenues and costs, net income is also not affected in
periods subsequent to adoption. At June 30, 2002 and 2001, the Company has
$680,000 and $737,000, respectively, of deferred revenue and an equivalent
amount of deferred costs recorded associated with these fees.
88
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. These lives range from five to 31 years for buildings and
leasehold improvements and three to eight years for equipment.
Business Combinations, Intangible Assets and Goodwill
- -----------------------------------------------------
Intangible assets relate mainly to acquired business operations (see "Note 2-
Business Combinations"). These assets consist of the fair value of certain
identifiable assets acquired. Goodwill represents the excess of the purchase
price over the fair value of assets acquired and liabilities assumed.
In July 2001, the Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 141 and 142, entitled
"Business Combinations" ("SFAS 141") and "Goodwill and Other Intangible Assets"
("SFAS 142"), respectively.
SFAS 141 requires companies to use the purchase method of accounting for all
business combinations initiated after June 30, 2001 and eliminates use of the
pooling-of-interests method of accounting for business combinations. All of
the Company's acquisitions to-date have been accounted for using the purchase
method of accounting. SFAS 141 also establishes criteria that must be used to
determine whether acquired intangible assets should be recognized separately
from goodwill in the Company's financial statements.
SFAS 142 details the method by which companies will account for goodwill and
intangible assets after a business combination has been completed. As required
by this accounting standard, the Company has completed an assessment of the
categorization of its existing intangible assets and goodwill in accordance
with the new criteria and has reported them appropriately on the Consolidated
Balance Sheets (see "Note 3-Intangible Assets"). SFAS 142 provides that
goodwill and indefinite-lived intangibles arising from a business combination
will no longer be amortized and charged to expense over time. Instead,
goodwill and indefinite-lived intangibles must be reviewed annually for
89
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Business Combinations, Intangible Assets and Goodwill, continued
- ----------------------------------------------------------------
impairment, or more frequently if circumstances arise indicating potential
impairment. For goodwill, if the carrying amount of the reporting unit
containing the goodwill exceeds the fair value of that reporting unit, an
impairment loss is recognized to the extent the "implied fair value" of the
reporting unit goodwill is less than the carrying amount of the goodwill. For
indefinite-lived intangible assets, if the carrying amount exceeds the fair
value, an impairment loss shall be recognized in an amount equal to that
excess. See "Note 3-Intangible Assets" for the results of the Company's
required impairment analysis of its intangible assets and goodwill.
Amortization of intangible assets with finite lives will continue over the
expected economic lives of the intangible assets, generally six to 15 years.
Amortization of all intangible assets and goodwill is being deducted for tax
reporting purposes over statutory lives.
The Company expenses all curriculum development and new school opening costs as
incurred.
Perkins Program Fund
- --------------------
DeVry University is required, under federal aid program regulations, to make
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 $2,706,000 and $2,592,000 at June 30, 2002 and 2001,
respectively. The allowance for future loan losses is based upon an analysis
of actual loan losses experienced since the inception of the program. The
federal contributions to this revolving loan program do not belong to the
Company and are not recorded on the Company's financial statements. Upon
termination of the program by the federal government or withdrawal from
future participation by DeVry University, subsequent student loan repayments
would be divided between the federal government and DeVry University in
proportion to their relative cumulative contributions to the fund.
Internal Software Development Costs
- -----------------------------------
The Company capitalizes certain internal software development costs that are
amortized using the straight line method over the estimated lives of the
software not to exceed five years. Capitalized costs include external direct
costs of materials and services consumed in developing or obtaining internal-
use software and payroll and payroll related costs for employees who are
directly associated with the internal software development project.
Capitalization of such costs ceases no later than the point at which the
project is substantially complete and ready for its intended purpose.
Capitalized software development costs for projects not yet complete, which are
90
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
included as Equipment in the Land, Buildings and Equipment section of the
Consolidated Balance Sheets, were $6,862,000 and $2,381,000 as of June 30, 2002
and 2001, respectively.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts 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.
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, 2002, 2001 and 2000 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
- -------------------------
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 69,830,000, 69,704,000 and 69,525,000 in 2002, 2001 and
2000, 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 70,594,000, 70,662,000 and 70,390,000 in 2002, 2001 and
2000, respectively. Excluded from the June 30, 2002, 2001 and 2000
computations of diluted earnings per share were options to purchase 670,000,
42,000 and 182,000 shares of common stock, respectively. These outstanding
options were excluded because the option exercise prices were greater than the
average market price of the common shares and therefore, their effect would be
anti-dilutive.
91
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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, 2002, 2001 and 2000, in "Note 7-Shareholders' Equity."
Comprehensive Income
- --------------------
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.
Reclassifications
- -----------------
Certain previously reported amounts have been reclassified to conform to
current presentation format, with no effect on reported net income.
NOTE 2: BUSINESS COMBINATIONS
On January 5, 2001, using its available cash balances, the Company acquired
for approximately $8.6 million, substantially all of the tangible operating
assets, trademarks and trade names of Argentum Inc. and Xerxes Inc., which do
business as Stalla Seminars ("Stalla"). Stalla, which was based outside of
Cleveland, Ohio, developed and marketed exam preparation materials for the
Chartered Financial Analyst professional certification as administered by the
Association for Investment Management and Research.
92
NOTE 2: BUSINESS COMBINATIONS, continued
During fiscal 2002, the Company finalized the allocation of the purchase price
of Stalla. The goodwill from this acquisition that was recorded at June 30,
2001, was reduced by $4,434,000 and reallocated as follows:
Amortized Intangible Assets:
Class Materials $2,400,000
Non-compete Agreement 100,000
Other 34,000
---------
Total $2,534,000
=========
Unamortized Indefinite-Lived Intangible Assets:
Trade Name $1,900,000
=========
The $34,000 of Other amortized intangible assets was subsequently written-off
to expense as a part of the allocation process.
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
approximately $25.6 million in 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 was
one of the largest technical colleges in Colorado. The college offered
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 approximately $13.0
million in cash, from a unit of Harcourt General, Inc. Conviser Duffy was
a nationally known training firm preparing students to pass the CPA exam.
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. Beginning July 2001, these intangible assets and goodwill are being
accounted for under SFAS 141 and 142. See "Note 1-Business Combinations,
Intangible Assets and Goodwill" for a complete description of this accounting.
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.
93
NOTE 3: INTANGIBLE ASSETS
Intangible assets consist of the following:
As of June 30, 2002
----------------------------------
Gross Carrying Accumulated
Amount Amortization
----------------------------------
Amortized Intangible Assets:
License and Non-compete
Agreements $2,600,000 $(1,265,000)
Class Materials 2,900,000 (300,000)
Other 600,000 (300,000)
--------- ---------
Total $6,100,000 $(1,865,000)
========= =========
Unamortized Intangible Assets:
Trademark $ 1,645,000
Trade Names 15,872,000
Intellectual Property 13,940,000
----------
Total $31,457,000
==========
As of June 30, 2001
---------------------------------
Gross Carrying Accumulated
Amount Amortization
----------------------------------
Amortized Intangible Assets:
License and Non-compete
Agreements $2,500,000 $ (838,000)
Class Materials 500,000 (100,000)
Other 610,000 (202,000)
--------- ---------
Total $3,610,000 $(1,140,000)
========= =========
Unamortized Intangible Assets:
Trademark $ 1,645,000
Trade Names 13,972,000
Intellectual Property 13,940,000
----------
Total $29,557,000
==========
As part of its fiscal 2002 assessment of intangible assets, the Company
shortened the useful life of the Class Materials intangible asset and wrote-
off the $10,000 cost basis of another intangible asset.
94
NOTE 3: INTANGIBLE ASSETS, continued
Amortization expense for amortized intangible assets was $769,000 for the
year ended June 30, 2002. Amortization expense was $2,012,000 for both
amortized and unamortized intangible assets for the year ended June 30, 2001.
Estimated amortization expense for amortized intangible assets for the next
five fiscal years ended June 30 is as follows:
Fiscal Year
2003 $730,000
2004 730,000
2005 730,000
2006 230,000
2007 210,000
The original weighted-average amortization period for amortized intangible
assets is six years for License and Non-compete Agreements, 14 years for
Class Materials and six years for Other as of June 30, 2002.
Indefinite-lived intangible assets related to Trademarks, Trade Names and
Intellectual Property are not amortized as there are no legal, regulatory,
contractual, economic or other factors that limit the useful life of these
intangible assets to the reporting entity. As of July 1, 2001, there was no
impairment loss associated with such indefinite-lived intangible assets as fair
value exceeded the carrying amount. Similarly, as of the end of fiscal 2002,
there was no impairment loss associated with these indefinite-lived intangible
assets as fair value again exceeds the carrying amount.
Based upon the valuation analysis performed for the Company by independent
professional valuation specialists, there was no impairment in the value of
the Company's goodwill for any reporting units as of July 1, 2001 and as of
the end of fiscal 2002. The carrying amount of goodwill related to the DeVry
University reportable segment at July 1, 2001 and June 30, 2002 was unchanged
at $22,195,000. The carrying amount of goodwill related to Professional and
Training reportable segment was $24,630,000 at July 1, 2001 and $20,196,000 at
June 30, 2002. The decrease is the result of the finalization of the
allocation of the Stalla Seminars purchase price as described in "Note 2-
Business Combinations."
95
NOTE 3: INTANGIBLE ASSETS (continued)
As required by SFAS 142, the following is the Company's disclosure of what
reported net income would have been for the years ended June 30 2001 and 2000,
exclusive of amortization expense (including any related tax effects)
recognized in those periods related to goodwill, intangible assets that are no
longer being amortized and changes in amortization periods for intangible
assets that will continue to be amortized.
(Dollars in Thousands Except per Share Amounts)
For the Year Ended
June 30,
-------------------
2001 2000
---- ----
NET INCOME:
Net Income as Reported $57,776 $47,781
Goodwill Amortization 1,119 993
Trademark, Trade Name and
Intellectual Property
Amortization 896 891
Change in Useful Life of
Class Materials (12) (12)
------ ------
Adjusted Net Income $59,779 $49,653
====== ======
EARNINGS PER COMMON SHARE:
Basic Earnings per Common
Share as Reported $0.83 $0.69
Aggregate Changes in
Amortization Expense .03 .02
------ ------
Adjusted Basic Earnings per
Common Share $0.86 $0.71
====== ======
Diluted Earnings per Common
Share as Reported $0.82 $0.68
Aggregate Changes in
Amortization Expense .03 .03
------ ------
Adjusted Diluted Earnings per
Common Share $0.85 $0.71
====== ======
96
NOTE 4: INCOME TAXES
The components of income (loss) before income taxes are as follows:
For the Year Ended June 30,
---------------------------------------
2002 2001 2000
----------- ---------- ----------
U.S. $111,836,000 $100,064,000 $81,953,000
Foreign (1,207,000) (4,149,000) (3,879,000)
----------- ---------- ----------
Total $110,629,000 $ 95,915,000 $78,074,000
=========== ========== ==========
The net income tax provisions (benefits) related to the above results are as
follows:
For the Year Ended June 30,
--------------------------------------
2002 2001 2000
---------- ---------- ----------
Current Tax Provision:
U.S. Federal $35,178,000 $35,560,000 $28,062,000
State and Local 5,766,000 6,900,000 5,390,000
---------- ---------- ----------
Total Current 40,944,000 42,460,000 33,452,000
Deferred Tax Provision:
U.S. Federal 1,953,000 (2,493,000) (878,000)
State and Local 369,000 (1,558,000) (841,000)
Foreign 308,000 (270,000) (1,440,000)
---------- ----------- ----------
Total Deferred 2,630,000 (4,321,000) (3,159,000)
---------- ---------- ----------
Net Income Tax Provision $43,574,000 $38,139,000 $30,293,000
========== ========== ==========
The income tax provisions differ from those computed using the statutory
United States federal rate as a result of the following items:
For the Year Ended June 30,
---------------------------------------------------------
2002 2001 2000
---------------------------------------------------------
Income Tax at
Statutory Rates $38,720,000 35.0% $33,570,000 35.0% $27,326,000 35.0%
Higher Rates on
Foreign Operations 908,000 0.8% 532,000 0.6% (191,000) (0.2%)
State Income Taxes 3,788,000 3.4% 3,334,000 3.5% 2,835,000 3.6%
Other 158,000 0.2% 703,000 0.7% 323,000 0.4%
---------------------------------------------------------
Income Tax Provision $43,574,000 39.4% $38,139,000 39.8% $30,293,000 38.8%
=========================================================
97
NOTE 4: INCOME TAXES, continued
Deferred income tax assets (liabilities) result primarily from temporary
differences in the recognition of various expenses for tax and financial
statement purposes and from the recognition of the tax benefits of net
operating loss carryforwards. These assets and liabilities are composed of
the following:
For the Year Ended June 30,
--------------------------------------
2002 2001 2000
---------- --------- ---------
Loss Carryforwards $6,294,000 $6,155,000 $5,885,000
Employee Benefits 4,144,000 3,220,000 2,795,000
Receivable Reserves and
Other 4,782,000 4,779,000 3,186,000
---------- --------- ---------
Gross Deferred Tax Assets 15,220,000 14,154,000 11,866,000
---------- --------- ---------
Depreciation and Other 243,000 2,138,000 (2,957,000)
Amortization (8,214,000) (6,413,000) (3,351,000)
---------- --------- ---------
Gross Deferred Tax
Liabilities (7,971,000) (4,275,000) (6,308,000)
---------- --------- ---------
Net Deferred Taxes $7,249,000 $9,879,000 $5,558,000
========== ========= =========
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.
During June 2001, Canadian Customs and Revenue received Royal Assent to reduce
federal and certain provincial income tax rates in future periods. The effect
on the Company's total current and prior years' Canadian tax provisions and
related deferred tax asset balances was to reduce the current and prior years'
tax benefits recorded and to reduce the carrying value of the deferred tax
assets by $318,000 and $855,000 respectively, exclusive of Canadian net
operating losses utilized in the year ended June 30, 2002. Further reductions
in Canadian income tax rates are anticipated in future periods. The effect of
these future expected reductions, had they been enacted in the fiscal year
ended June 30, 2002, would have been to reduce the carrying value of the
deferred tax assets and the tax benefit recorded by an additional $71,000. The
cumulative impact of these future reductions will be reflected in the
quarter(s) when Royal Assent to the rate reductions is enacted.
98
NOTE 4: INCOME TAXES, continued
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,
-------------------------------------
2002 2001 2000
--------- --------- ---------
Recognition of Operating
Loss Carryforwards $ (139,000) $( 270,000) $(1,271,000)
Excess (Tax) Book
Depreciation and
Amortization 3,696,000 (2,033,000) (443,000)
Excess of Amounts Expensed
for (Book) Tax Purposes
Over Amounts Deductible
for Book (Tax) Purposes (927,000) (2,018,000) (1,445,000)
--------- --------- ---------
Deferred Tax Provision $2,630,000 $(4,321,000) $(3,159,000)
========= ========= =========
The Company has net operating loss carryforwards in various tax jurisdictions
expiring at various times through the years ending June 30, 2009.
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 November 1999, removing certain restrictions on
future acquisitions. The agreement was also amended in October 2000 and
December 2001, both times to extend its term and adjust certain financial
covenants. All borrowings and letters of credit under the revolving loan
agreement mature in February 2004, and no installment payments are required
until the loan agreement expires. There were no outstanding borrowings under
the revolving loan agreement at June 30, 2002 and June 30, 2001. Letters of
credit outstanding were $2,501,000 and $902,000, as of June 30, 2002 and
2001, respectively. As of June 30, 2002, 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.
As of June 30, 2001, the Company's revolving line of credit agreement
contained a covenant limiting the amount of capital expenditures the Company
and its subsidiaries could make in any fiscal year. The Company exceeded
this limitation in fiscal 2001, creating an Event of Default as defined by
99
NOTE 5: REVOLVING LOAN AGREEMENT, continued
the loan agreement. In August 2001, the lenders waived this default for
fiscal year 2001. In December 2001, the agreement was amended to provide the
Company more operating flexibility by eliminating the covenant limiting
capital expenditures and modifying the fixed charge financial covenant;
also, the term of the agreement was extended by one year.
The bank financing agreement contains certain other covenants that, among
other things, require maintenance of certain financial ratios as defined
in the agreement.
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 $2,312,000, $2,083,000 and $1,709,000
in 2002, 2001 and 2000, 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 $4,465,000, $4,363,000 and $3,257,000 in 2002, 2001
and 2000, 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, 2002, 2001 and 2000.
NOTE 7: SHAREHOLDERS' EQUITY
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.
100
NOTE 7: SHAREHOLDERS' EQUITY, continued
Stock Option Plans, continued
- -----------------------------
At June 30, 2002, 3,542,238 authorized but unissued shares of common stock
were reserved for issuance under the Company's stock option plans.
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, 1999 576,409 1,993,076 $11.43
Options Authorized 1,500,000 - -
Options Granted (237,500) 237,500 $21.44
Options Exercised - (245,529) $4.20
Options Canceled 43,822 (43,822) $19.68
--------- --------- ------
Balance at June 30, 2000 1,882,731 1,941,225 $13.38
Options Granted (318,350) 318,350 $32.45
Options Exercised - (118,819) $9.69
Options Canceled 36,591 (36,591) $20.08
Options Expired (8,990) - -
--------- --------- ------
Balance at June 30, 2001 1,591,982 2,104,165 $16.35
Options Granted (390,700) 390,700 $34.55
Options Exercised - (148,450) $8.08
Options Canceled 35,660 (35,660) $23.63
Options Expired (5,459) - -
--------- --------- ------
Balance at June 30, 2002 1,231,483 2,310,755 $19.85
========= ========= ======
A summary of outstanding and exercisable stock options as of June 30, 2002,
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
-----------------------------------------------------------------------------
$2.31- 3.69 324,900 1.93 $3.37 324,900 $3.37
$5.06-11.53 354,984 3.76 $9.19 354,984 $9.19
$12.63-19.81 269,298 5.16 $14.40 222,338 $14.32
$20.25-30.01 693,673 6.53 $21.58 353,677 $21.53
$31.45-38.81 667,900 8.71 $33.93 77,760 $33.45
-------------------------------------------------------------
$2.31-38.81 2,310,755 5.93 $19.85 1,333,659 $13.31
=============================================================
101
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 2002, 2001 and 2000 was $21.75, $16.04 and $12.27
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:
2002 2001 2000
---- ---- ----
Expected Life (in Years) 7.50 7.00 7.00
Expected Volatility 55.00% 50.30% 46.40%
Risk-free Interest Rate 5.05% 6.03% 6.17%
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, 2002, 2001 and 2000 (dollars in
thousands except for per share amounts):
2002 2001 2000
------- ------- -------
Net Income as Reported $67,055 $57,776 $47,781
Pro Forma Net Income $64,446 $55,822 $46,211
Diluted Earnings per Common Share
as Reported $0.95 $0.82 $0.68
Pro Forma Diluted Earnings
per Common Share $0.91 $0.79 $0.66
102
NOTE 7: SHAREHOLDERS' EQUITY, continued
Pro Forma Disclosure, continued
- -------------------------------
The pro forma effect on net income and earnings per common share for 2002,
2001 and 2000 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.
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, 2002, are as
follows:
Year Ended
June 30, Amount
---------- ------------
2003 $30,700,000
2004 31,900,000
2005 28,800,000
2006 27,000,000
2007 25,400,000
Thereafter 163,100,000
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, 2002, 2001 and 2000, were
$34,660,000, $31,940,000 and $24,290,000, respectively.
The Company is subject to occasional lawsuits, investigations and claims
arising in the normal conduct of its business.
In March 2002, the Company received notice of a class-action complaint filed
under the Fair Labor Standards Act by several former field sales
representatives seeking overtime compensation for services rendered during
their period of employment.
103
NOTE 8: COMMITMENTS AND CONTINGENCIES, continued
In January 2002, the Company received notice of an antitrust complaint
concerning the alleged monopoly by operations of its Becker CPA Review Corp.
subsidiary in California. This complaint was filed in federal district court
by the trustee in bankruptcy of a failed CPA review provider seeking a
substantial amount of damages. On April 15, 2002, this complaint was
voluntarily dismissed by the plaintiff without prejudice. The complaint was
amended and has subsequently been refiled.
In January 2002, a graduate of one of DeVry University's Los Angeles-area
campuses filed a class-action complaint on behalf of all students enrolled in
the post-baccalaureate degree program in Information Technology. The suit
alleges that the program offered by DeVry did not conform to the program as it
was presented in the advertising and other marketing materials.
In November 2000, three 1999 graduates of one of DeVry University's Chicago-
area campuses filed a class-action complaint that alleges DeVry graduates do
not have appropriate skills for employability in the computer information
systems field. The complaint was subsequently dismissed by the court, but was
amended and refiled, this time including a current student from a second
Chicago-area campus.
The Company has recorded approximately $1 million associated with estimated
loss contingencies at June 30, 2002. While the ultimate outcome of these
contingencies is difficult to estimate at this time, the Company does intend
to vigorously defend itself with respect to these claims.
In conjunction with the required annual review procedures related to its
administration of financial aid programs under the Ontario Student Aid
Program, the Toronto-area DeVry campuses have engaged in discussions with the
Ontario Ministry of Education relating to certain additional information
requirements. These additional information requirements could serve as the
basis for a Ministry claim for the return of some amounts of financial aid
disbursed to students attending these campuses. Discussions with the Ministry
continue as to the extent and purpose of the information requirements. Based
upon its discussions to-date, the Company believes that its discussions with
the Ministry will be successfully concluded and that there will be no
significant monetary liability.
104
NOTE 9: SEGMENT INFORMATION
The Company's principal business is providing post-secondary education. The
services of our operations are described in more detail in "Note 1-Summary
of Significant Accounting Policies" under "Nature of Operations." The
Company presents two reportable segments: the DeVry University
undergraduate and graduate operations (DeVry University) and the
professional examination review and training operations including Becker
Conviser Professional Review and Center for Corporate Education
(Professional and Training).
These segments are based on the method by which management evaluates
performance and allocates resources. Such decisions are based, in part,
upon each segment's operating income, which is defined as income before
interest expense, amortization and income taxes. Intersegment sales are
accounted for at amounts comparable to sales to nonaffiliated customers, and
are eliminated in consolidation. The accounting policies of the segments
are the same as those described in "Note 1 - Summary of Significant
Accounting Policies."
The segments as described above have changed from those previously reported.
In February 2002, the Higher Learning Commission of the North Central
Association approved the merger of DeVry Institutes (undergraduate programs)
and Keller Graduate School of Management (graduate programs) into a single
educational institution with the name of DeVry University. The North Central
Association is one of six regional bodies that make up the nation's system
for accrediting colleges and universities. In support of the transition to
DeVry University, the Company's resources and organization have been
restructured to better serve the needs of its students, employers and
shareholders and achieve the University's strategic goals. Accordingly, the
reportable segments of the Company have been realigned to reflect this
combination. As a result of these changes, in the tables below, the Company
has provided segment information based on both the current and previous
segmentation.
The consistent measure of segment profit excludes interest expense,
amortization and certain corporate related depreciation. As such, these
items are reconciling items in arriving at income before income taxes. The
consistent measure of segment assets excludes deferred income tax assets and
certain depreciable corporate assets. Additions to long-lived assets have
been measured in this same manner. Reconciling items are included as corporate
assets.
105
NOTE 9: SEGMENT INFORMATION, continued
Following is a tabulation of business segment information based on the
current segmentation for each of the years ended June 30, 2002, 2001 and
2000. Corporate information is included where it is needed to reconcile
segment data to the consolidated financial statements.
For the Year Ended June 30,
------------------------------------------
2002 2001 2000
------------------------------------------
Revenues:
DeVry University $610,495,000 $535,841,000 $459,310,000
Professional and Training 37,639,000 32,336,000 31,279,000
----------- ----------- -----------
Total Consolidated Revenues $648,134,000 $568,177,000 $490,589,000
----------- ----------- -----------
Operating Income:
DeVry University $102,503,000 $93,865,000 $78,424,000
Professional and Training 10,507,000 6,957,000 5,467,000
Reconciling Items:
Amortization Expense (811,000) (3,904,000) (3,706,000)
Interest Expense (807,000) (400,000) (1,409,000)
Depreciation and Other (763,000) (603,000) (702,000)
----------- ---------- ----------
Total Consolidated Income
before Income Taxes $110,629,000 $95,915,000 $78,074,000
----------- ---------- ----------
Segment Assets:
DeVry University $385,582,000 $307,172,000 $251,809,000
Professional and Training 62,496,000 61,558,000 55,360,000
Corporate 19,550,000 22,945,000 19,910,000
----------- ----------- -----------
Total Consolidated Assets $467,628,000 $391,675,000 $327,079,000
----------- ----------- -----------
Additions to Long-lived Assets:
DeVry University $85,268,000 $76,540,000 $65,671,000
Professional and Training 605,000 8,965,000 13,713,000
---------- ---------- ----------
Total Consolidated Additions
to Long-lived Assets $85,873,000 $85,505,000 $79,384,000
---------- ---------- ----------
Depreciation Expense:
DeVry University $31,421,000 $27,018,000 $20,530,000
Professional and Training 531,000 472,000 319,000
Corporate 773,000 642,000 696,000
---------- ---------- ----------
Total Consolidated Depreciation $32,725,000 $28,132,000 $21,545,000
---------- ---------- ----------
Amortization Expense:
DeVry University $ 31,000 $1,059,000 $1,059,000
Professional and Training 780,000 2,845,000 2,647,000
------- --------- ---------
Total Consolidated Amortization $811,000 $3,904,000 $3,706,000
------- --------- ---------
106
NOTE 9: SEGMENT INFORMATION, continued
Following is a tabulation of business segment information based on the
previously reported segmentation for each of the years ended June 30, 2002,
2001 and 2000. These segments were defined as the undergraduate operations
(Undergraduate) and graduate and professional examination review operations
including Keller Graduate School of Management and Becker Conviser Professional
Review (Graduate and Professional). Corporate information is included where it
is needed to reconcile segment data to the consolidated financial statements.
For the Year Ended June 30,
------------------------------------------
2002 2001 2000
------------------------------------------
Revenues:
Undergraduate $550,693,000 $488,007,000 $421,211,000
Graduate and Professional 99,472,000 81,373,000 70,273,000
Intersegment Elimination (2,031,000) (1,203,000) (895,000)
----------- ----------- -----------
Total Consolidated Revenues $648,134,000 $568,177,000 $490,589,000
----------- ----------- -----------
Operating Income:
Undergraduate $ 88,615,000 $84,315,000 $71,291,000
Graduate and Professional 24,395,000 16,507,000 12,600,000
Reconciling Items:
Amortization Expense (811,000) (3,904,000) (3,706,000)
Interest Expense (807,000) (400,000) (1,409,000)
Depreciation and Other (763,000) (603,000) (702,000)
----------- ---------- ----------
Total Consolidated Income
before Income Taxes $110,629,000 $95,915,000 $78,074,000
----------- ---------- ----------
Segment Assets:
Undergraduate $356,810,000 $289,648,000 $225,913,000
Graduate and Professional 91,268,000 79,082,000 81,256,000
Corporate 19,550,000 22,945,000 19,910,000
----------- ----------- -----------
Total Consolidated Assets $467,628,000 $391,675,000 $327,079,000
----------- ----------- -----------
Additions to Long-lived Assets:
Undergraduate $84,178,000 $75,299,000 $64,362,000
Graduate and Professional 1,695,000 10,206,000 15,022,000
---------- ---------- ----------
Total Consolidated Additions
to Long-lived Assets $85,873,000 $85,505,000 $79,384,000
---------- ---------- ----------
Depreciation Expense:
Undergraduate $30,408,000 $25,926,000 $19,642,000
Graduate and Professional 1,544,000 1,564,000 1,207,000
Corporate 773,000 642,000 696,000
---------- ---------- ----------
Total Consolidated Depreciation $32,725,000 $28,132,000 $21,545,000
---------- ---------- ----------
Amortization Expense:
Undergraduate $ 31,000 $1,059,000 $1,059,000
Graduate and Professional 780,000 2,845,000 2,647,000
------- --------- ---------
Total Consolidated Amortization $811,000 $3,904,000 $3,706,000
------- --------- ---------
107
NOTE 9: SEGMENT INFORMATION, continued
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 5% of total revenues for
the years ended June 30, 2002, 2001 and 2000. Revenues and long-lived assets
by geographic area are as follows:
For the Year Ended June 30,
------------------------------------------
2002 2001 2000
------------------------------------------
Revenues from Unaffiliated Customers:
Domestic Operations $623,374,000 $542,611,000 $465,278,000
International Operations 24,760,000 25,566,000 25,311,000
----------- ----------- -----------
Consolidated $648,134,000 $568,177,000 $490,589,000
----------- ----------- -----------
Long-lived Assets:
Domestic Operations $339,797,000 $291,753,000 $232,831,000
International Operations 10,004,000 11,295,000 12,284,000
----------- ----------- -----------
Consolidated $349,801,000 $303,048,000 $245,115,000
----------- ----------- -----------
No one customer accounted for more than 10% of the Company's consolidated
revenues.
NOTE 10: RELATED PARTIES
One of the Company's Directors is also an investor in and a director of a
consulting firm engaged by the Company to assist with system development
projects, including the new student information system. Fees paid to this
consulting firm during fiscal 2002 were approximately $3.5 million.
The chairman of the board and another director of a consulting firm that
specializes in solutions for higher education institutions are Directors of
the Company. The Company's Chairman of the Board is an investor in this
consulting firm. The Company did not utilize any services from this
consulting firm during fiscal 2002.
One of the Company's Directors is an officer of an educational materials and
textbook publishing company, McGraw-Hill Education. Purchases from McGraw-Hill
during fiscal 2002 were approximately $1.5 million.
108
NOTE 11: QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly data for the years ended June 30, 2002 and 2001,
are as follows. Previously reported quarterly revenues in fiscal 2001 have
been conformed to reflect the reclassification and revenue deferral associated
with the adoption of SAB 101 (See "Note 1-Revenue Recognition").
(Dollars in Thousands, Except for Per Share Amounts)
2002 Quarter
- ----- --------------------------------------
Total
First Second Third Fourth Year
-------------------------------------- --------
Revenues $154,632 $166,675 $164,814 $162,013 $648,134
Income Before Interest
and Taxes 23,389 30,686 30,451 26,910 111,436
Net Income 14,078 18,419 18,367 16,191 67,055
Earnings per Common Share
Basic 0.20 0.26 0.26 0.23 0.96
Diluted 0.20 0.26 0.26 0.23 0.95
2001 Quarter
- ---- --------------------------------------
Total
First Second Third Fourth Year
-------------------------------------- --------
Revenues $130,448 $145,948 $144,363 $147,418 $568,177
Income Before Interest
and Taxes 19,895 25,598 26,592 24,230 96,315
Net Income 12,166 15,722 16,037 13,851 57,776
Earnings per Common Share
Basic 0.17 0.23 0.23 0.20 0.83
Diluted 0.17 0.22 0.23 0.20 0.82
109
DEVRY INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended June 30, 2002, 2001 and 2000
(Dollars in Thousands)
Charged to
Balance at Charged to Other Balance at
Description of Allowances Beginning Costs and Accounts Deductions End of
and Reserves of Period Expenses1 2 Period
- ---------------------------------------------------------------------------------------------------------
2002
- ----
Deducted from accounts receivable
for refunds $ 215 $20,104 - $20,097 $ 222
Deducted from accounts receivable
for uncollectible accounts 12,149 13,608 - 12,089 13,668
Deducted from notes receivable for
uncollectible notes 4 - - - 4
For loss on disposition of inventory 132 12 - 81 63
For loss on DeVry capital contributions
to Perkins loan program 2,592 114 - - 2,706
2001
- ----
Deducted from accounts receivable
for refunds $117 $18,184 - $18,086 $ 215
Deducted from accounts receivable
for uncollectible accounts 9,235 11,119 - 8,205 12,149
Deducted from notes receivable for
uncollectible notes 4 - - - 4
For loss on disposition of inventory 112 74 - 54 132
For loss on DeVry capital contributions
to Perkins loan program 2,346 246 - - 2,592
2000
- ----
Deducted from accounts receivable
for refunds $117 $16,235 - $16,235 $ 117
Deducted from accounts receivable
for uncollectible accounts 6,367 7,586 620 5,338 9,235
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
- ----------------------------------------------------
1 Opening balances of acquired businesses.
2 Write-offs of uncollectible amounts or inventory.
110
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, 2002 and 2001 and the results of their operations and
their cash flows for each of the three years in the period ended
June 30, 2001, 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.
As discussed in Note 1 to the consolidated financial statement,
effective July 1, 2001, the Company adopted Statement of
Fiancial Accounting Standard, No. 142, "Goodwill and other
Intangible Assets." The Company also changed its method of
accounting for certain fees and assoiciated direct costs during
the year ended June 30, 2001, applying the accounting and
disclosure provisions of the Securities and Exchange
Commission's Staff Accounting Bulletin 101 ("SAB 101") entitled
"Revenue recognition in Financial Statements."
PricewaterhouseCoopers LLP
Chicago, Illinois
August 12, 2002
111
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 12, 2002, and is incorporated herein by
reference. Information regarding executive officers is included on pages
52 through 57 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 12, 2002, 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 12, 2002, 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 12, 2002, 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 12, 2002, and is incorporated herein by
reference.
112
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 80 through 110 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 109 of this Form 10-K.
(3) Exhibits
A complete listing of exhibits is included on pages 117 through 120 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, 2002.
113
FIVE-YEAR SUMMARY - OPERATING, FINANCIAL AND OTHER DATA
(Dollars in Thousands Except for Per Share Amounts)
YEAR ENDED JUNE 30, 2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------
OPERATING:
Revenues $648,134 $568,177 $490,589 $406,321 $340,770
Depreciation 32,725 28,132 21,545 16,109 12,397
Amortization of Intangible Assets 811 3,904 3,706 1,675 1,590
Earnings Before Interest and Taxes (EBIT) 111,436 96,315 79,483 63,410 51,396
EBIT as a Percent of Revenues 17.2% 17.0% 16.2% 15.6% 15.1%
Interest Expense 807 400 1,409 300 913
Net Income 67,055 57,776 47,781 38,830 30,724
Change from Prior Year in Net Income 16.1% 20.9% 23.1% 26.4% 27.0%
Diluted Earnings per Common Share (EPS) 0.95 0.82 0.68 0.55 0.44
Shares Used in Calculating Diluted EPS
(in Thousands) 70,594 70,662 70,390 70,454 70,144
FINANCIAL POSITION:
Cash and Cash Equivalents 59,685 29,213 25,851 31,848 31,881
Total Assets 467,628 391,675 327,079 260,691 223,892
Total Funded Debt - - - - 10,000
Total Shareholders' Equity 353,546 284,671 225,139 175,305 136,256
OTHER SELECTED DATA:
Cash Provided by Operating Activities 115,323 87,599 72,742 54,567 47,599
Capital Expenditures 85,873 76,933 40,797 44,819 31,845
DeVry University Fall Term
Student Enrollment 57,521 54,482 49,351 43,458 38,031
Number of Undergraduate Learning Centers 28 21 19 16 15
Number of Graduate Learning Centers 48 42 36 31 26
Shares Outstanding at Year-end
(in Thousands) 69,899 69,755 69,642 69,414 69,305
Closing Price of Common Stock
at Year-end 22.84 36.12 26.44 22.38 21.94
Price Earnings Ratio on Common Stock1 24 44 39 41 50
1 Computed on trailing four quarters of earnings per common share.
114
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 23, 2002 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 9/23/02
/s/Ronald L. Taylor
- --------------------
Ronald L. Taylor President, Chief Operating
Officer and Director 9/23/02
/s/Norman M. Levine
- --------------------
Norman M. Levine Senior Vice President, Chief
Financial Officer, and
Principal Accounting Officer 9/23/02
/s/Ewen M. Akin
- --------------------
Ewen M. Akin Director
/s/Charles A. Bowsher
- ---------------------
Charles A. Bowsher Director
115
SIGNATURES (CONTINUED)
Signature Title Date
- --------- ----- ----
/s/David S. Brown
- ---------------------
David S. Brown Director
/s/Robert E. King
- ---------------------
Robert E. King Director
/s/Frederick A. Krehbiel
- ------------------------
Frederick A. Krehbiel Director
/s/Thurston E. Manning
- ----------------------
Thurston E. Manning Director
/s/Robert C. McCormack
- ----------------------
Robert C. McCormack Director
/s/Julie A. McGee
- ---------------------
Julie A. McGee Director
/s/Hugo J. Melvoin
- ---------------------
Hugo J. Melvoin Director
/s/Harold T. Shapiro
- ---------------------
Harold T. Shapiro Director
116
CERTIFICATIONS
--------------
I, Norman M. Levine, certify that:
1. I have reviewed this annual report on Form 10-K of DeVry Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statement made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
Date: September 23, 2002
-------------------
/s/Norman M. Levine
-----------------------
Senior Vice President &
Chief Financial Officer
117
CERTIFICATIONS
--------------
I, Dennis J. Keller, certify that:
1. I have reviewed this annual report on Form 10-K of DeVry Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statement made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
Date: September 23, 2002
-------------------
/s/Dennis J. Keller
------------------------------------
Chairman and Chief Executive Officer
118
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,
#33-40151 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.
119
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 Exhibit 4(e) to the
December 3, 1999 to Amended Company's Form 10-K
and Restated Financing for the year ended
Agreement between DeVry June 30, 2000
University, Inc., certain
financial institutions and
Bank of America National
Trust and Savings
Association.
4(f) Fifth Amendment dated as of Exhibit 4 (f) to
August 1, 2001 to Amended the Company's Form
and Restated Financing 10-K for the year
Agreement between DeVry ended June 30, 2001
University, Inc., certain
financial institutions and
Bank of America, N.A.
4(g) Sixth Amendment dated as of 122-129
November 15th, 2002 to
Amended and Restated
Financing Agreement between
DeVry University, Inc.,
certain financial
institutions and Bank of
America, N.A.
120
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
- -------------------------------------------------------------------------
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 Form S-3,
#333-22457 dated
February 27, 1997
10(d) Registrants' 1999 Stock Exhibit 10(d) to
Incentive Plan the Company's Form
10-K for the year
ended June 30, 2000
10(e) Amended and Restated DeVry 130-133
Inc. 1999 Stock Incentive
Plan
10(f) 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(g) 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(h) 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(i) 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(j) 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
121
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
- -------------------------------------------------------------------------
10(k) Employee Stock Purchase Plan Exhibit 10(f) to
the Company's Form
S-3, #33-58636
dated February 22,
1993
10(l) 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(m) Deferred Compensation Plan Exhibit 10(k) to
the Company's Form
10-K for the year
ended June 30, 1999
10(n) 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
10(o) 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 134
Registrant
23 Consent of Pricewaterhouse- 135
Coopers LLP, independent
accounts