1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly month and six period ended December 31, 2002
Commission file number 0-12751
DeVRY INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-315014
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Tower Lane, Oakbrook Terrace, Illinois 60181
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(630) 571-7700
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES X
Number of shares of Common Stock, $0.01 par value, outstanding at
January 31, 2003: 69,944,447
Total number of pages: 63
2
DeVRY INC.
FORM 10-Q INDEX
For the Quarter and Six Months Ended December 31, 2002
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at
December 31, 2002, June 30, 2002,
and December 31, 2001 3-4
Consolidated Statements of Income
for the quarters and six months ended
December 31, 2002 and 2001 5
Consolidated Statements of Cash
Flows for the six months ended
December 31, 2002 and 2001 6
Notes to Consolidated Financial
Statements 7-16
Item 2. Management's Discussion and
Analysis of Results of Operations
and Financial Condition 17-21
Item 4. Controls and Procedures 22
Part II. Other Information
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote
of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
CERTIFICATIONS 27-32
EXHIBITS 33-63
3
PART I - Financial Information
Item 1 - Financial Statements
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
December 31, June 30, December 31,
2002 2002 2001
------------ ------------ ------------
(Unaudited) (Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 134,575 $ 59,685 $ 76,108
Restricted Cash 41,173 19,264 28,934
Accounts Receivable, Net 46,845 26,054 65,416
Inventories 3,022 4,907 2,184
Prepaid Income Taxes 11,101 - 327
Deferred Income Taxes 5,448 5,448 5,221
Prepaid Expenses and Other 4,036 2,469 4,275
------- ------- -------
Total Current Assets 246,200 117,827 182,465
------- ------- -------
Land, Buildings and Equipment
Land 58,936 58,928 58,892
Buildings 175,564 174,344 171,067
Equipment 188,842 173,115 157,131
Construction In Progress 989 1,626 237
------- ------- -------
424,331 408,013 387,327
Accumulated Depreciation (165,391) (150,386) (136,094)
------- ------- -------
Land, Buildings and
Equipment, Net 258,940 257,627 251,233
------- ------- -------
Other Assets
Intangible Assets, Net 35,330 35,692 36,056
Goodwill 42,391 42,391 42,391
Deferred Income Taxes - 1,801 3,560
Perkins Program Fund, Net 10,617 10,180 9,958
Other Assets 2,007 2,110 2,225
------- ------- -------
Total Other Assets 90,345 92,174 94,190
------- ------- -------
TOTAL ASSETS $595,485 $467,628 $527,888
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
December 31, June 30, December 31,
2002 2002 2001
------------ ------------ ------------
(Unaudited) (Unaudited)
LIABILITIES
Current Liabilities
Accounts Payable $ 31,285 $ 36,284 $ 34,476
Accrued Salaries, Wages &
Benefits 31,288 27,595 26,578
Accrued Expenses 11,945 11,643 7,431
Advance Tuition Payments 19,211 15,883 7,730
Deferred Tuition Revenue 97,355 12,287 99,509
------- ------- -------
Total Current Liabilities 191,084 103,692 175,724
------- ------- -------
Other Liabilities
Revolving Loan - - 25,000
Deferred Income Taxes 4,888 - -
Deferred Rent and Other 11,849 10,390 9,890
------- ------- -------
Total Other Liabilities 16,737 10,390 34,890
------- ------- -------
TOTAL LIABILITIES 207,821 114,082 210,614
------- ------- -------
SHAREHOLDERS' EQUITY
Common Stock, $0.01 par value,
200,000,000 Shares Authorized,
69,928,447, 69,898,540 and
69,807,822, Shares Issued and
Outstanding at December 31,
2002, June 30, 2002 and
December 31, 2001,
Respectively 700 700 698
Additional Paid-in Capital 66,481 66,345 64,924
Retained Earnings 319,934 285,827 251,269
Accumulated Other Comprehensive
Income 549 674 383
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 387,664 353,546 317,274
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $595,485 $467,628 $527,888
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
5
DEVRY INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except for Per Share Amounts)
(Unaudited)
For The Quarter For The Six Months
Ended December 31, Ended December 31,
-------------------- --------------------
2002 2001 2002 2001
-------------------- --------------------
REVENUES:
Tuition $159,159 $153,727 $310,314 $298,486
Other Educational 13,272 12,814 25,301 22,495
Interest 117 134 202 326
------- ------- ------- -------
Total Revenues 172,548 166,675 335,817 321,307
------- ------- ------- -------
COSTS AND EXPENSES:
Cost of Educational Services 93,480 90,135 185,651 173,262
Student Services and
Administrative Expense 55,271 45,854 107,728 93,970
Interest Expense 47 291 94 601
------- ------- ------- -------
Total Costs and Expenses 148,798 136,280 293,473 267,833
------- ------- ------- -------
Income Before Income Taxes 23,750 30,395 42,344 53,474
Income Tax Provision 8,949 11,976 16,387 20,977
Non-Recurring Tax Benefits (8,150) - (8,150) -
------- ------- ------- -------
NET INCOME $ 22,951 $ 18,419 $ 34,107 $ 32,497
======= ======= ======= =======
EARNINGS PER COMMON SHARE
Basic $0.33 $0.26 $0.49 $0.47
===== ===== ===== =====
Diluted $0.33 $0.26 $0.49 $0.46
===== ===== ===== =====
The accompanying notes are an integral part of these consolidated
financial statements.
6
DEVRY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For The Six Months
Ended December 31,
-------------------
2002 2001
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 34,107 $32,497
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 18,666 15,721
Amortization of Intangible Assets and Goodwill 362 405
Amortization of Other Assets 22 22
Provision for Refunds and
Uncollectible Accounts 17,931 17,267
Deferred Income Taxes 6,689 1,098
Loss on Disposals and Adjustments to
Land, Buildings and Equipment 128 201
Changes in Assets and Liabilities:
Restricted Cash (21,909) (8,450)
Accounts Receivable (38,606) (56,990)
Inventories 1,885 2,715
Prepaid Expenses And Other (11,681) (1,224)
Accounts Payable (4,999) (97)
Accrued Salaries, Wages,
Expenses and Benefits 3,995 (991)
Advance Tuition Payments 3,328 (6,449)
Deferred Tuition Revenue 85,068 88,552
------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 94,986 84,277
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (20,107) (62,488)
------- ------
NET CASH USED IN INVESTING ACTIVITIES: (20,107) (62,488)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Exercise of Stock Options 136 443
Proceeds From Revolving Credit Facility - 55,000
Repayments Under Revolving Credit Facility - (30,000)
------- ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 136 25,443
Effects of Exchange Rate Differences (125) (337)
------- ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 74,890 46,895
Cash and Cash Equivalents at Beginning
of Period 59,685 29,213
------- ------
Cash and Cash Equivalents at End of Period $134,575 $76,108
======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Period $93 $591
Income Tax Payments During the Period, Net 14,552 24,481
The accompanying notes are an integral part of these consolidated
financial statements.
7
DEVRY INC.
Notes to Consolidated Financial Statements
For the Quarter and Six Months Ended December 31, 2002
----------
NOTE 1: INTERIM FINANCIAL STATEMENTS
The interim consolidated financial statements include the accounts of DeVry
Inc. (the Company) and its wholly-owned subsidiaries. These financial
statements are unaudited but, in the opinion of management, contain all
adjustments, consisting only of normal, recurring adjustments, necessary to
present fairly the financial condition and results of operations of the
Company. The June 30, 2002 data, which is presented, is derived from audited
financial statements.
The interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2002
and in conjunction with the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 2002, each as filed with the Securities and
Exchange Commission.
The results of operations for the six months ended December 31, 2002, are
not necessarily indicative of results to be expected for the entire fiscal
year.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
- -------------------------
Included in the reported cash balance is $18.4, $17.2 and $22.4 million at
December 31, 2002, June 30, 2002 and December 31, 2001, respectively, for
checks issued but not yet cleared through the Company's bank accounts. As
these checks have not yet been paid, these amounts are also included in
accounts payable.
Intangible Assets and Goodwill
- ------------------------------
Intangible assets relate mainly to acquired business operations. 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.
Goodwill and indefinite lived intangibles are reviewed annually for
impairment, or more frequently if circumstances arise indicating 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.
Amortization of intangible assets with finite lives will continue over the
expected economic lives of the intangible assets, generally six to 15 years.
8
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Intangible Assets and Goodwill, continued
- -----------------------------------------
Amortization of all intangible assets and goodwill is being deducted for tax
reporting purposes over statutory lives.
Internal Software Development Costs
- -----------------------------------
The Company capitalizes certain internal software development costs that are
amortized using the straight line method over the estimated useful 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 included as Equipment in the Land, Buildings and Equipment section of the
Consolidated Balance Sheets, were $9,861,000, $6,862,000 and $4,398,000 as of
December 31, 2002, June 30, 2002 and December 31, 2001, respectively.
Post-employment Benefits
- ------------------------
During the quarter ended December 31, 2002, the Company completed new
employment agreements with its co-Chief Executive Officers. These
agreements provide certain post-employment benefits that require accrual
over the expected future service period. For the six months ended
December 31, 2002 the Company recorded an expense accrual of approximately
$1.1 million related to these agreements. This accrual is based on
recording, over the period of active service, the amount that will
represent the present value of the obligation through the date the
executive attains full eligibility for the benefits, discounted using a 6%
rate and using the sinking fund accrual method.
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 69,927,000 and 69,797,000 for the second quarters
ended December 31, 2002 and 2001, respectively and 69,919,000 and 69,788,000
for the six months ended December 31, 2002 and 2001, 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 70,227,000 and
70,545,000 for the second quarters ended December 31, 2002 and 2001,
respectively and 70,269,000 and 70,624,000 for the six months ended
December 31, 2002 and 2001, respectively. Excluded from the computations of
diluted earnings per share were options to purchase 1,708,000 shares of common
stock for the second quarter and six months ended December 31, 2002 and 685,000
and 412,000 shares of common stock, for the
9
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Earnings Per Common Share, continued
- ------------------------------------
second quarter and six month ended December 31, 2001, respectively. These
outstanding options were excluded because the option exercise prices were
greater than the average market price of the common shares during these periods
and therefore, their effect would be anti-dilutive.
Stock-based Compensation
- ------------------------
During the six month ended December 31, 2002, the Company granted options at
fair market value to purchase up to 462,000 shares of the Company's common
stock under the 1999 Stock Incentive Plan.
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.
This change was immaterial for the quarters and six months ended December 31,
2002 and 2001.
Reclassifications
- -----------------
Certain previously reported prepaid asset amounts have been reclassified to
conform to current presentation format, with no effect on reported net
income.
NOTE 3: INTANGIBLE ASSETS
Intangible assets consist of the following:
As of December 31, 2002
----------------------------------
Gross Carrying Accumulated
Amount Amortization
----------------------------------
Amortized Intangible Assets:
License and Non Compete
Agreements $2,600,000 $(1,477,000)
Class Materials 2,900,000 (400,000)
Other 600,000 (350,000)
--------- ---------
Total $6,100,000 $(2,227,000)
========= =========
Unamortized Intangible Assets:
Trademark $ 1,645,000
Trade Names 15,872,000
Intellectual Property 13,940,000
----------
Total $31,457,000
==========
10
NOTE 3: INTANGIBLE ASSETS, continued
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 December 31, 2001
----------------------------------
Gross Carrying Accumulated
Amount Amortization
----------------------------------
Amortized Intangible Assets:
License and Non Compete
Agreements $2,600,000 $(1,051,000)
Class Materials 2,900,000 (200,000)
Other 600,000 (250,000)
--------- ---------
Total $6,100,000 $(1,501,000)
========= =========
Unamortized Intangible Assets:
Trademark $ 1,645,000
Trade Names 15,872,000
Intellectual Property 13,940,000
----------
Total $31,457,000
==========
11
NOTE 3: INTANGIBLE ASSETS, continued
Amortization expense for amortized intangible assets was $180,000 and
$362,000 for the quarter and six months ended December 31, 2002,
respectively, and $259,000 and $405,000 for the quarter and six months ended
December 31, 2001, respectively. Estimated amortization expense for amortized
intangible assets for the next five fiscal years ending 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 December 31, 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 by the Company. As of the end of fiscal 2002, there was no
impairment loss associated with these indefinite lived intangible assets as
fair value exceeded 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 the
end of fiscal 2002. The carrying amount of goodwill related to the DeVry
University reportable segment at December 31, 2002 and 2001 was unchanged
at $22,195,000. The carrying amount of goodwill related to
Professional and Training reportable segment at December 31, 2002 and 2001
was unchanged at $20,196,000.
NOTE 4: IMPAIRMENT OF LONG-LIVED ASSETS
During the quarter ended December 31, 2002, the Company assessed the expected
future results of its DeVry University Canadian operations. The Company
recently consolidated campuses in the Toronto area and has proceeded further
with other rationalization and cost cutting efforts in response to declining
enrollment. However, there has been a further decline in enrollment producing
further adverse effects on financial performance in Canada during the first
half of fiscal 2003. The assessment included estimates of expected future cash
flows associated with the Canadian operations, which indicated an impairment
loss with respect to certain long-lived assets that are held and used by the
Company. Upon completing this analysis, it was determined that recognition of
an impairment loss related to Canadian leasehold improvements was appropriate.
This resulted in a charge in the quarter ended December 31, 2002 of
approximately $800,000 that is classified as Cost of Educational Services in
the Consolidated Statements of Income and related to the DeVry University
reportable segment.
12
NOTE 5: INCOME TAXES
As described in Note 4 above, during the quarter ended December 31, 2002, the
Company assessed the expected future results of its DeVry University Canadian
operations. The assessment also included an analysis of the previously recorded
Canadian net deferred tax assets, which were primarily comprised of net
operating loss carryforwards and property and equipment tax basis in excess of
book basis. Based on these recent estimates of future cash flows and taxable
income associated with the Canadian operations, it was determined that, with
respect to the realization of the deferred tax asset, a valuation allowance for
100 percent of the Canadian deferred tax assets was appropriate at this time.
This resulted in an additional income tax provision in the quarter ended
December 31, 2002 of approximately $6.5 million.
The Company also determined that it would deduct the full amount of the tax
basis of its investment in its Canadian subsidiary in this quarter. This
reflects the negative value ascribed to the investment as determined by
independent valuations of the business which were undertaken as a part of the
assessment. This United States income tax deduction results in a tax benefit
totaling approximately $14.6 million. Such a benefit has been recorded as it
has been determined that the difference in the US tax basis of the investment,
which exceeds the book value, will reverse in the foreseeable future.
The effect of the above actions is a net tax benefit of approximately $8.1
million, categorized as "Non-recurring Tax Benefits" in the Consolidated
Statements of Income.
The Company is continuing to assess the operations in Canada and will take
further actions to reduce the level of losses being incurred. However, such
losses and the future obligations associated with leases and providing
instruction in Canada are significant factors in the current assessment of
expected future operating results.
Also, during the second quarter ended December 31, 2002, the Company completed
a study that identified certain business incentive tax credits relating
primarily to employment at its DeVry University operations in Long Beach,
California. These credits contributed to a reduced ongoing effective tax rate
of 38.7 percent for fiscal 2003. For the first half of fiscal 2003, tax
expense was adjusted to this effective tax rate. The current effective tax rate
does not include the effect of the previously described non-recurring tax
benefit related to the Company's Canadian operations.
NOTE 6: SEGMENT INFORMATION
The Company's principal business is providing post-secondary education. The
services provided by our operations are described in more detail under "Nature
of Operations" in Note 1 to the consolidated financial statements contained in
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2002. The Company presents two reportable segments: the DeVry University under-
13
NOTE 6: SEGMENT INFORMATION, continued
graduate 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 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 to the consolidated financial statements contained in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2002.
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.
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.
14
NOTE 6: SEGMENT INFORMATION, continued
Following is a tabulation of business segment information for the quarters and
for the six months ended December 31, 2002 and 2001. Corporate information is
included where it is needed to reconcile segment data to the consolidated
financial statements.
For the Quarter For the Six Months
Ended December 31, Ended December 31,
------------------ ------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
DeVry University $159,103 $155,294 $313,561 $301,551
Professional and Training 13,445 11,381 22,256 19,756
------- ------- ------- -------
Total Consolidated Revenues $172,548 $166,675 $335,817 $321,307
------- ------- ------- -------
Operating Income:
DeVry University $18,170 $27,270 $35,256 $48,795
Professional and Training 6,014 3,880 7,941 6,068
Reconciling Items:
Amortization Expense (192) (270) (384) (427)
Interest Expense (47) (291) (94) (601)
Depreciation and Other (195) (194) (375) (361)
------ ------ ------ ------
Total Consolidated Income
before Income Taxes $23,750 $30,395 $42,344 $53,474
------ ------ ------ ------
Segment Assets:
DeVry University $497,311 $443,732 $497,311 $443,732
Professional and Training 69,714 62,360 69,714 62,360
Corporate 28,460 21,796 28,460 21,796
------- ------- ------- -------
Total Consolidated Assets $595,485 $527,888 $595,485 $527,888
------- ------- ------- -------
Additions to Long-lived Assets:
DeVry University $10,021 $7,133 $20,051 $62,102
Professional and Training 42 137 56 386
------ ----- ------ ------
Total Consolidated Additions
to Long-lived Assets $10,063 $7,270 $20,107 $62,488
------ ----- ------ ------
Depreciation Expense:
DeVry University $ 9,770 $7,875 $18,084 $15,071
Professional and Training 97 142 191 263
Corporate 196 194 391 387
------ ----- ------ ------
Total Consolidated Depreciation $10,063 $8,211 $18,666 $15,721
------ ----- ------ ------
Amortization Expense:
DeVry University $ 7 $ 7 $ 15 $ 15
Professional and Training 185 263 369 412
--- --- --- ---
Total Consolidated Amortization $192 $270 $384 $427
--- --- --- ---
15
NOTE 6: 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 quarters and for the six months ended December 31, 2002 and 2001. Revenues
and long-lived assets by geographic area are as follows:
For the Quarter For the Six Months
Ended December 31, Ended December 31,
-------------------- --------------------
2002 2001 2002 2001
-------------------- --------------------
Revenues from Unaffiliated Customers:
Domestic Operations $167,072 $160,743 $325,353 $308,976
International Operations 5,476 5,932 10,464 12,331
------------------ ------------------
Consolidated $172,548 $166,675 $335,817 $321,307
================== ==================
Long-lived Assets:
Domestic Operations $346,931 $334,971 $346,931 $334,971
International Operations 2,354 10,452 2,354 10,452
------------------ ------------------
Consolidated $349,285 $345,423 $349,285 $345,423
================== ==================
No one customer accounted for more than 10% of the Company's consolidated
revenues.
NOTE 7: COMMITMENTS AND CONTINGENCIES
The Company is subject to occasional lawsuits, regulatory reviews associated
with financial assistance programs and claims arising in the normal conduct
of its business. These are described in "Item 6 - Other Information" later in
this report. The Company has accrued amounts it believes are appropriate to
vigorously pursue its defense in these matters. At this time, the Company
does not believe that the outcome of current claims, regulatory reviews and
lawsuits will have a material effect on its results of operations or
financial position.
The following updates the status of litigation and claims previously disclosed:
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.
16
NOTE 7: 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 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 for fiscal year
2001 related to its administration of financial aid programs under the
Ontario Student Aid Program, the Toronto-area DeVry campuses 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 amounts of financial aid disbursed to students attending these
campuses. Discussions with the Ministry as to the extent and purpose of the
information requirements resulted in the submission of additional data.
Based upon its discussions to-date, the Company believes that its discussions
with the Ministry with respect to these requests for fiscal 2001 have been
successfully concluded and that there should be no monetary liability.
17
Item 2 - Management's Discussion and Analysis of Results of Operations and
Financial Condition
- --------------------------------------------------------------------------
Certain information contained in this quarterly report may constitute forward-
looking statements made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. 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 of differ materially from the forward-looking statements.
Potential risks and uncertainties include, but are not limited to,
undergraduate program concentration in selected areas of technology,
dependence on student financial aid, dependence on state and provincial
approvals and licensing requirements, dependence on continued accreditation
for DeVry University and other factors detailed in the Company's Securities
and Exchange Commission filings, including those discussed under the heading
entitled "Risk Factors" in the Company's Registration Statement on Form S-3
(No. 333-22457).
The following discussion of the Company's results of operations and financial
condition should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto as included in the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 2002 and the
Company's annual report on Form 10-K for the fiscal year ended June 30, 2002.
The Company's annual report on Form 10-K includes a description of
significant accounting policies and estimates and assumptions used in the
preparation of the Company's financial statement including, but not limited
to, revenue recognition, useful lives of equipment and facilities, useful
lives of acquired finite-lived intangible assets, valuation of goodwill and
indefinite-lived intangible assets, losses on the collection of student
receivable balances, settlements of law suits and health care costs for
incurred but not yet paid medical services.
Because of the somewhat seasonal pattern of the Company's enrollments and its
educational program starting dates, which affect the results of operations and
the timing of cash inflows, the Company's management believes that comparisons
of its results of operations should be made to the corresponding period in the
preceding year. Comparisons of financial position should be made to both the
end of the previous fiscal year and to the end of the corresponding interim
quarterly period in the preceding year.
Copies of the Company's annual and quarterly reports on Form 10-K and Form
10-Q as filed with the Securities and Exchange Commission may be obtained at
the Company's website, www.devry.com.
Results of Operations
- ---------------------
The Company's total consolidated revenues increased by $5.9 million, or 3.5%,
and $14.5 million, or 4.5%, for the second quarter and first half,
respectively. Tuition revenue, which is the largest component of revenue,
representing over 92% of total revenue, increased by 3.5% and 4.0%,
respectively, for the second quarter and first half. The increase in tuition
revenues is the result of higher enrollments in DeVry University's graduate
programs and Becker Conviser Professional Review plus tuition increases in all
of the Company's operations compared to last year.
18
Other Educational Revenues, which are composed primarily of the sale of books,
supplies, fee charges and interest or payment deferral charges in the
Company's educational programs, increased by $0.5 million and $2.8 million
from the second quarter and first half, respectively. The larger rate of
increase for the first half compared to the second quarter is caused by the
Technology and Software Supplies charge billed each term to most DeVry
University undergraduate students. This charge was first assessed in November
2001 and, therefore, there was no charge in the first quarter of last year
compared to the charge in the first quarter of this year. During the second
quarter, a total of 14 of the DeVry University undergraduate campus bookstores
were outsourced to Follett Higher Education Group compared to 12 that were
outsourced during the second quarter of last year. Sales of books and
supplies remain under Company management at the other undergraduate and
graduate teaching locations.
DeVry University segment revenues increased by $3.8 million, or 2.5%, for the
second quarter compared to last year. For the first half, segment revenues
increased by $12.0 million, or 4.0%. Contributing to the increased revenues
were higher graduate program enrollments, the undergraduate program Technology
and Software Supplies charge described above and approximately 6% tuition rate
increases, all of which more than offset the lower enrollment in undergraduate
programs. For the undergraduate academic term which began in November, total
enrollment declined by 5.9% to 45,200 compared to 48,032 students enrolled
last year. The Company believes that undergraduate program enrollments
continue to be affected by the reductions in technology field employment that
have lessened applicant interest in these fields. The number of coursetakers
in the Keller graduate school programs for the term that began in November
increased by 22.0% to 10,761 compared to 8,823 coursetakers last year as
interest in graduate management programs remains high.
Professional and Training segment revenues increased by $2.1 million, or
18.1%, and $2.5 million, or 12.7%, for the second quarter and first half,
respectively. The increased revenue results from higher course prices and an
increased number of students enrolled in the Becker Conviser CPA Review course
preparing for the November CPA exam.
The Company's Cost of Educational Services increased by $3.3 million or 3.7%
from the second quarter of last year. For the first half, the Cost of
Educational Services increased by $12.4 million, or 7.2% from last year. Cost
increases were incurred throughout all of the Company's operations. At DeVry
University, there were two new large undergraduate campuses and 14 additional
University Center locations offering undergraduate programs. Graduate
programs were offered in seven more teaching centers than last year. Expanded
operations in the undergraduate and graduate online programs also contributed
to the cost increases.
Depreciation expense, most of which is included in Cost of Educational
Services, increased by $2.9 million for the first half of the year because of
the investment in new facilities and associated equipment and because of
improvements to existing facilities and the new equipment required to support
continuous improvement to the Company's educational programs. Further
contributing to the increased depreciation for the first six months was the
recognition during the second quarter of an approximately $0.8 million
impairment loss in accordance with SFAS 144 on the long-lived leasehold
improvements in the Company's Canadian operations. The recognition of this
impairment loss followed an assessment of the expected future results and cash
flows of the Canadian operations where enrollment declines have adversely
affected financial results.
19
Student Services and Administrative Expense increased by $9.4 million, or
20.5%, and $13.8 million, or 14.6%, from the second quarter and first half of
last year, respectively. Spending for advertising was increased to try and
offset the decline in undergraduate new student enrollments experienced in
each of the last four terms. Also contributing to the increase in this
expense category was the continued spending on a new student information
system to provide better support for educational processes and related
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. During the first half, the Company capitalized $3.1 million and
charged an additional $2.6 million directly to expense related to work on the
new student information system. In addition, $0.2 million of previously
capitalized costs were amortized to expense during the first half.
Included in the higher level of Student Services and Administrative Expense,
was an approximately $1.1 million accrual to reflect the costs for the current
period relating to new employment agreements with the Company's co-Chief
Executive Officers. This accrual is based on recording, over the period of
their future active service, the present value of the obligation using the
sinking fund accrual method. Under this method of accrual, future quarters in
the remaining 2 1/2 year accrual period will be less than the charge recorded
in the current quarter.
The total Cost of Educational Services and Student Services and Administrative
Expense for the second quarter increased from last year by 9.4%. This
increase in spending, when compared to the prior year, is the smallest rate of
spending increase in any of the eight previous quarters as the Company
initiated staff and budget reductions to better match expenses to revenues.
In the first quarter, the Company eliminated about 70 staffed and 100 unfilled
positions and further reduced discretionary spending through the second
quarter. These expense reductions have helped to offset a portion of the cost
increases associated with the previously discussed increases in spending on
advertising and spending at the new DeVry University undergraduate and
graduate teaching locations opened during the past year.
In the DeVry University segment, operating income declined by $9.1 million and
$13.5 million, respectively, for the second quarter and first half of the
year. Contributing to the decline in income was a lesser rate of revenue
growth than experienced in previous years as a result of declining
undergraduate enrollments. Expenses, as described above, have increased at a
faster rate. The increased expenses are associated with more teaching
locations, higher levels of advertising directed at trying to offset the
declining undergraduate enrollments, accrual of the current period cost
related to the new employment agreements and the recognition of an impairment
loss on leasehold improvements in the Canadian operations.
In the Professional and Training segment, operating income increased by $2.1
million for the second quarter and by $1.9 million for the first six months.
Higher tuition rates and increased enrollments in the Becker Conviser CPA
Review course for the November CPA examination produced the higher income.
Interest expense was lower than last year by $0.2 million in the second
quarter and by $0.5 million for the first half. During the first half of this
year there were no borrowings under the Company's revolving line of credit
agreement. This compares to borrowings that were outstanding during both the
first and second quarters of last year, principally to provide funds for the
first quarter acquisition of two DeVry University undergraduate campuses.
20
Taxes on income for the first six months, excluding the non-recurring tax
benefits during the second quarter, were at an effective rate of 38.7%
compared to a rate of 39.2% for the first six months of last year.
Contributing to the lower tax rate in the first half of this year were certain
business incentive tax credits. During the second quarter the Company
completed a study that identified and quantified the amount of these tax
credits relating primarily to employment at the DeVry University campus in
Long Beach, California. Additional credits in lesser amounts may also be
available next year.
During the second quarter, the Company recorded approximately $8.1 million of
net non-recurring tax benefits related to its Canadian operations. In this
period, the Company assessed the expected future results of its DeVry
University Canadian operations including future cash flows and taxable income.
This assessment included an analysis of the previously recorded Canadian
deferred tax assets. These deferred tax assets consisted primarily of net
operating loss carryforwards and a tax basis higher than book basis for
property and equipment. Based upon this assessment, it was determined that a
valuation allowance of 100 percent was required for these deferred tax assets.
This resulted in an additional income tax expense provision in the second
quarter of approximately $6.5 million.
The Company also determined, based upon this same assessment, that it would
deduct the full amount of the tax basis of its investment in its Canadian
subsidiary. This reflects the negative value ascribed to the investment as
determined by the independent valuations of the business which were undertaken
as a part of the assessment. The U.S. income tax deduction results in a tax
benefit totaling approximately $14.6 million. The net effect of these two
actions is a benefit to net income of approximately $8.1 million, categorized
as "Non-Recurring Tax Benefits" in the Statement of Income.
Net Income for the quarter, including these Non-Recurring Tax Benefits, was
$23.0 million, or $0.33 per share fully diluted, compared to $18.4 million, or
$0.26 per share, last year. For the first half, Net Income was $34.1 million,
or $0.49 per share, compared to $32.5 million, or $0.46 per share, last year.
Liquidity and Capital Resources
- -------------------------------
Cash generated from operations reached $95.0 million for the first six months,
an increase of approximately 12.7% from the first half of last year. Higher
net income, higher non-cash charges for depreciation and refunds and bad debt
plus lower levels of accounts receivable and increases in advanced tuition
payments from students all contributed to the higher level of cash generated
by operating activities. The reduction in accounts receivable is primarily
attributable to improved collection performance on amounts owed by
undergraduate students who were attending the academic term that began in
November. The reduction in accounts receivable is also attributable to an
approximately $3.5 million reduction in the amount of money owed to DeVry
University under various state and federal financial aid programs as a result
of more timely requests for the funds owed. Approximately 65% of the
collections of U.S. undergraduate revenues come from federal and state
financial aid programs.
21
Capital spending for the first half was $20.1 million compared to $62.5
million in the first half of last year. Included in the capital spending
during the first quarter of last year was the purchase of two DeVry University
undergraduate campuses for $37.8 million. Previously these campuses had been
occupied under lease. Both operating and capital expenditures remain under
review to better match spending with revenues in the coming quarters. Capital
spending for the balance of this fiscal year is expected to remain at a level
approximately equal to that incurred during the first half of the year.
The Company did not make any borrowings under its revolving line of credit
agreement during the first half. Cash balances at the end of last fiscal year
and cash generated from operations during the first half of the year were
sufficient to meet requirements for both operating and capital needs and
produce additional unrestricted cash balances compared to last year. There
were approximately $2.7 million in outstanding letters of credit under the
revolving line during the quarter. These letters of credit were issued in
conjunction with various insurance coverage policies, a rental agreement on a
leased teaching facility and for DeVry University's participation in federal
financial aid programs. Approximately $0.5 million of additional amounts of
letters of credit are being issued in the third quarter in conjunction with
these federal financial aid programs. The Company is seeking approval from
its banks for an amendment to extend the revolving credit agreement until
February 1, 2005.
The Company's long-term contractual obligations consist only of its revolving
line of credit, operating leases on facilities and equipment and agreements
for various services. The Company is not otherwise a part to any off-balance
sheet financing or contingent payment arrangements. The Company has not
entered into any synthetic leases and there are no residual purchase or value
commitments related to any lease. The Company has not entered into any
derivative, swap, futures contract, put, call, hedge or non-exchange traded
contract.
The principal source of the Company's liquidity is its operating cash flow
that is significantly dependent upon DeVry University's continued
participation in and compliance with federal, state and provincial financial
aid programs. The Company is highly dependent upon the timely receipt of
these financial aid funds in both its U.S. and Canadian operations. The
Company estimates that almost 70% of its undergraduate student and
approximately 40% of its graduate student tuition, bookstore and fee revenues
have been financed by government-provided financial aid to students. These
financial aid and assistance programs are subject to political and
governmental budgetary considerations. There is no assurance that such
funding will be maintained.
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.
The Company believes that current balances of unrestricted cash, cash
generated from operations and, if needed, borrowings under its revolving
credit agreement will be sufficient to fund its current operations and plans
for the foreseeable future.
22
Item 4 - Controls and Procedures
- --------------------------------
The Company's Co-Chief Executive Officers and its Chief Financial Officer have
evaluated the effectiveness of the design and operation of the Company's
disclosure controls and internal control procedures upon which these financial
statements and management discussion are based. This review was made within 90
days of the filing date of this quarterly report. Based upon this evaluation,
and with the participation of management, the above named officers have
concluded that these controls and procedures are effective and appropriate to
ensure the correctness and completeness of this report.
There were no significant changes in internal controls, procedures or other
factors that could significantly affect these controls subsequent to the date
of their evaluation that would indicate the existence of material weakness or
the need for corrective action.
23
Part II - Other Information
- ---------------------------
Item 1 - Legal Proceedings
- --------------------------
The following updates the status of litigation and claims previously
disclosed:
In March 2002, the Company received notice of a collective-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
Corporation 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 student from a second Chicago-area
campus.
The Company has recorded approximately $1 million associated with estimated
loss contingencies at December 31, 2002. While the ultimate outcome of these
contingencies is difficult to estimate at this time, the Company does intend
to vigorously defend itself with the respect to these claims.
24
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Company's regular annual meeting of stockholders was held in Chicago,
Illinois, on Tuesday, November 12, 2002, pursuant to notice duly given.
Proxies for the meeting were solicited in accordance with the Securities
Exchange Act of 1934 and there was no solicitation in opposition to those of
management.
At the meeting, three Directors of the Company were elected to serve as Class
II Directors to hold office until 2005 or until their respective successors
are elected and qualified. The results of the voting for Directors, whether
in person or by proxy, were as follows:
Class II For Against Withheld
-------- --- ------- --------
David S. Brown 58,003,781 - 2,054,814
Dennis J. Keller 54,377,836 - 5,680,759
Frederick A. Krehbiel 59,292,182 - 766,413
The terms of office of the following Directors continued after the meeting:
Charles A. Bowsher, Thurston E. Manning, Robert C. McCormack, Julie A. McGee,
Hugo J. Melvoin, Harold T. Shapiro and Ronald L. Taylor.
Also submitted to a vote of the stockholders at this meeting was a proposal
for the ratification of the appointment of PricewaterhouseCoopers LLP as
independent public accountants for the Company for the current fiscal year.
The following table presents the results of the stockholders' vote on this
matter:
For Against Withheld
--- ------- --------
56,975,702 3,040,435 42,457
Item 5 - Other Information
- --------------------------
In the second quarter, DeVry University received approval from the Higher
Learning Commission of the North Central Association to offer five additional
undergraduate programs via distance learning.
In late January, the Illinois Student Aid Commission began a scheduled
biennial audit for fiscal years 2001 and 2002 of state financial aid program
administration at the Company's two suburban Chicago-area campuses. An audit
at the Chicago campus is expected to begin in March or April.
In late January, the Higher Education Services Corporation began a scheduled
triennial audit of the DeVry University New York undergraduate campus of state
financial aid program administration.
25
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
A complete listing of exhibits is included on page 33 of this Form 10-Q
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the quarter
ended December 31, 2002.
26
Signatures
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: FEBRUARY 12, 2003 /s/Ronald L. Taylor
-------------------------------------
Ronald L. Taylor
Co-Chief Executive Officer, President
and Chief Operating Officer
Date: FEBRUARY 12, 2003 /s/Norman M. Levine
-------------------------------------
Norman M. Levine
Senior Vice President and
Chief Financial Officer
27
CERTIFICATIONS
---------------
I, Norman M. Levine, certify that:
1. I have reviewed this quarterly report on Form 10-Q of DeVry Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
28
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: February 12, 2003
/s/Norman M. Levine
-----------------------
Senior Vice President &
Chief Financial Officer
29
CERTIFICATIONS
--------------
I, Ronald L. Taylor, certify that:
1. I have reviewed this quarterly report on Form 10-Q of DeVry Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
30
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: February 12, 2003
/s/Ronald L. Taylor
--------------------------
Co-Chief Executive Officer
31
CERTIFICATIONS
I, Dennis J. Keller, certify that:
1. I have reviewed this quarterly report on Form 10-Q of DeVry Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
32
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: February 12, 2003
/s/Dennis J. Keller
-------------------------------
Chairman and Co-Chief Executive
Officer
33
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------- ------- ------------
10(a) Employment Agreement between
the Registrant and each of
Ronald L. Taylor and
Dennis J. Keller 34-49
10(b) Senior Advisor Agreement between
the Registrant and each of
Ronald L. Taylor and
Dennis J. Keller 50-63