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 and nine month period ended March 31, 2003
Commission file number 0-12751
DeVRY INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3150143
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Tower Lane, Oakbrook Terrace, Illinois 60181
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(630) 571-7700
------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X
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 on
May 1, 2003: 69,955,575
Total number of pages: 33
2
DeVRY INC.
----------
FORM 10-Q INDEX
For the Quarter and Nine Months Ended March 31, 2003
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at
March 31, 2003, June 30, 2002,
and March 31, 2002 3-4
Consolidated Statements of Income
for the quarters and nine months ended
March 31, 2003 and 2002 5
Consolidated Statements of Cash
Flows for the nine months ended
March 31, 2003 and 2002 6
Notes to Consolidated Financial
Statements 7-17
Item 2. Management's Discussion and
Analysis of Results of Operations
and Financial Condition 18-23
Item 4. Controls and Procedures 23
Part II. Other Information
Item 1. Legal Proceedings 24
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
CERTIFICATIONS 28-33
3
PART I - Financial Information
Item 1 - Financial Statements
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
March 31, June 30, March 31,
2003 2002 2002
------------ ------------ ------------
(Unaudited) (Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $177,263 $ 59,685 $ 78,297
Restricted Cash 39,246 19,264 50,820
Accounts Receivable, Net 80,523 26,054 105,186
Inventories 3,234 4,907 3,085
Prepaid Income Taxes 2,321 - -
Deferred Income Taxes 5,448 5,448 5,221
Prepaid Expenses and Other 3,890 2,469 2,723
------- ------- -------
Total Current Assets 311,925 117,827 245,332
------- ------- -------
Land, Buildings and Equipment
Land 58,942 58,928 58,892
Buildings 176,336 174,344 172,685
Equipment 194,300 173,115 166,165
Construction In Progress 3,498 1,626 383
------- ------- -------
433,076 408,013 398,125
Accumulated Depreciation (172,613) (150,386) (144,436)
------- ------- -------
Land, Buildings and
Equipment, Net 260,463 257,627 253,689
------- ------- -------
Other Assets
Intangible Assets, Net 35,148 35,692 35,919
Goodwill 42,391 42,391 42,391
Deferred Income Taxes - 1,801 3,413
Perkins Program Fund, Net 10,617 10,180 10,201
Other Assets 2,150 2,110 2,155
------- ------- -------
Total Other Assets 90,306 92,174 94,079
------- ------- -------
TOTAL ASSETS $662,694 $467,628 $593,100
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
March 31, June 30, March 31,
2003 2002 2002
------------ ------------ ------------
(Unaudited) (Unaudited)
LIABILITIES
Current Liabilities
Accounts Payable $ 49,570 $ 36,284 $ 38,399
Accrued Salaries, Wages &
Benefits 35,922 27,595 31,789
Accrued Expenses 11,616 11,643 9,896
Advance Tuition Payments 5,276 15,883 8,833
Deferred Tuition Revenue 139,860 12,287 143,646
------- ------- -------
Total Current Liabilities 242,244 103,692 232,563
------- ------- -------
Other Liabilities
Revolving Loan - - 14,000
Deferred Income Taxes 4,899 - -
Deferred Rent and Other 12,816 10,390 10,372
------- ------- -------
Total Other Liabilities 17,715 10,390 24,372
------- ------- -------
TOTAL LIABILITIES 259,959 114,082 256,935
------- ------- -------
SHAREHOLDERS' EQUITY
Common Stock, $0.01 par value,
200,000,000 Shares Authorized,
69,953,575, 69,898,540 and
69,885,847, Shares Issued and
Outstanding at March 31,
2003, June 30, 2002 and
March 31, 2002,
Respectively 700 700 699
Additional Paid-in Capital 66,561 66,345 65,454
Retained Earnings 334,826 285,827 269,636
Accumulated Other Comprehensive
Income 648 674 376
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 402,735 353,546 336,165
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $662,694 $467,628 $593,100
======= ======= =======
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 Nine Months
Ended March 31, Ended March 31,
---------------------- ----------------------
2003 2002 2003 2002
---------------------- ----------------------
REVENUES:
Tuition $155,166 $151,775 $465,480 $450,261
Other Educational 14,090 12,954 39,391 35,449
Interest 111 85 313 411
------- ------- ------- -------
Total Revenues 169,367 164,814 505,184 486,121
------- ------- ------- -------
COSTS AND EXPENSES:
Cost of Educational Services 88,312 87,827 273,963 261,089
Student Services and
Administrative Expense 56,714 46,536 164,442 140,506
Interest Expense 47 143 141 744
------- ------- ------- -------
Total Costs and Expenses 145,073 134,506 438,546 402,339
------- ------- ------- -------
Income Before Income Taxes 24,294 30,308 66,638 83,782
Income Tax Provision 9,402 11,941 25,789 32,918
Non-Recurring Tax Benefits - - (8,150) -
------- ------- ------- -------
NET INCOME $ 14,892 $ 18,367 $ 48,999 $ 50,864
======= ======= ======= =======
EARNINGS PER COMMON SHARE
Basic $0.21 $0.26 $0.70 $0.73
===== ===== ===== =====
Diluted $0.21 $0.26 $0.70 $0.72
===== ===== ===== =====
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 Nine Months
Ended March 31,
--------------------
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 48,999 $ 50,864
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 28,108 24,163
Amortization of Intangible Assets and Goodwill 544 542
Amortization of Other Assets 32 33
Provision for Refunds and
Uncollectible Accounts 26,566 26,126
Deferred Income Taxes 6,700 1,245
Loss on Disposals and Adjustments to
Land, Buildings and Equipment 61 287
Changes in Assets and Liabilities:
Restricted Cash (19,982) (30,336)
Accounts Receivable (80,919) (105,555)
Inventories 1,673 1,814
Prepaid Expenses And Other (1,941) 562
Accounts Payable 13,286 3,826
Accrued Salaries, Wages,
Expenses and Benefits 8,300 7,012
Advance Tuition Payments (10,607) (5,346)
Deferred Tuition Revenue 127,573 132,689
------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 148,393 107,926
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (31,005) (73,472)
------- ------
NET CASH USED IN INVESTING ACTIVITIES: (31,005) (73,472)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Exercise of Stock Options 216 974
Proceeds From Revolving Credit Facility - 55,000
Repayments Under Revolving Credit Facility - (41,000)
------- ------
NET CASH PROVIDED BY FINANCING ACTIVITIES 216 14,974
Effects of Exchange Rate Differences (26) (344)
------- ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 117,578 49,084
Cash and Cash Equivalents at Beginning
of Period 59,685 29,213
------- ------
Cash and Cash Equivalents at End of Period $177,263 $78,297
======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Period $ 139 $ 741
Income Tax Payments During the Period, Net 15,131 35,228
The accompanying notes are an integral part of these consolidated
financial statements.
7
DEVRY INC.
Notes to Consolidated Financial Statements
For the Quarter and Nine Months Ended March 31, 2003
----------
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
quarters ended September 30, 2002 and December 31, 2002, each as filed with
the Securities and Exchange Commission.
The results of operations for the nine months ended March 31, 2003, 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 $36.3, $17.2 and $22.6 million at
March 31, 2003, June 30, 2002 and March 31, 2002, 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 is 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 $11,029,000, $6,862,000 and $6,327,000 as
of March 31, 2003, June 30, 2002 and March 31, 2002, respectively.
Capitalized software development costs for completed projects, which are also
included as Equipment in the Land, Building and Equipment section of the
Consolidated Balance Sheets, were (gross) $1,901,000 and $1,748,000 at March
31, 2003 and June 30, 2002, respectively. No projects were complete as of
March 31, 2002.
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 nine months ended
March 31, 2003 the Company recorded an expense accrual of approximately
$1.8 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.
Guarantees
- ----------
The Company adopted the accounting requirements of Financial Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness to Others," for guarantees issued
or modified after December 31, 2002. The adoption did not have an impact on
the Company's financial statements as of March 31, 2003.
Under its bylaws, the Company has agreed to indemnify its officers and
directors for certain events or occurrences while the officer or director is
at its request in such capacity. The indemnification agreement period is for
the officer's or
9
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Guarantees, continued
- ---------------------
director's lifetime. The maximum potential amount of future payments the
Company could be required to make under these indemnification agreements is
unlimited; however, the Company has a directors and officer liability insurance
policy that limits its exposure and enables it to recover a portion of any
future amounts paid. As a result of its insurance policy coverage, the Company
believes the estimated fair value of these indemnification agreements is
minimal. The Company has no liabilities recorded for these agreements of March
31, 2003.
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 69,943,000 and 69,855,000 for the third quarters
ended March 31, 2003 and 2002, respectively and 69,927,000 and 69,810,000 for
the nine months ended March 31, 2003 and 2002, 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 70,278,000 and 70,611,000 for the third
quarters ended March 31, 2003 and 2002, respectively and 70,271,000 and
70,618,000 for the nine months ended March 31, 2003 and 2002, respectively.
Excluded from the computations of diluted earnings per share were options to
purchase 1,679,000 shares of common stock for the third quarter and nine months
ended March 31, 2003 and 677,000 and 604,000 shares of common stock, for the
third quarter and nine months ended March 31, 2002, 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 nine months ended March 31, 2003, 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.
The Company accounts for its stock option plan using Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," which results
in no charge to earnings when options are issued at fair market value. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation -Transition and Disclosure," to stock-based employee compensation.
10
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Stock-based Compensation, continued
- -----------------------------------
For the Quarter For the Nine Months
Ended March 31, Ended March 31,
------------------ -------------------
2003 2002 2003 2002
------------------ -------------------
Net Income, as Reported $14,892 $18,367 $48,999 $50,864
Deduct: Total stock-based employee
compensation expense determined
under the fair value based method
for all awards, net of related tax
effects 714 670 2,095 1,996
----------------- -----------------
Pro forma net income $14,178 $17,697 $46,904 $48,868
================= =================
Earnings per share:
Basic - as reported $0.21 $0.26 $0.70 $0.73
Basic - pro forma $0.20 $0.25 $0.67 $0.70
Diluted - as reported $0.21 $0.26 $0.70 $0.72
Diluted - pro forma $0.20 $0.25 $0.67 $0.69
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 nine months ended March 31,
2003 and 2002.
NOTE 3: PENDING ACQUISITION
During the third quarter, the Company signed a definitive agreement to acquire
Dominica Management, Inc., which owns and operates Ross University School of
Medicine and Ross University School of Veterinary Medicine (together "Ross
University"). Ross University is one of the world's largest providers of
medical and veterinary education with approximately 2,500 enrolled students.
The medical and veterinary campuses are located in the Caribbean countries of
Dominica and St. Kitts/Nevis. Ross University's curricula follow the models
used in U.S. medical and veterinary schools. Students of Ross University are
primarily citizens or permanent residents of the United States, and are
eligible for financial assistance under Title IV of the Higher Education Act.
Consideration for the acquisition will be $310 million in cash, subject to
a final adjustment on the date of closing based on the level of current
assets. Funding for the acquisition will include approximately $50 million
of cash from the Company's current operations and approximately $260
million in bank loans and senior debt (see Note 7). Subject to completion
of customary regulatory approvals, the acquisition is expected to close
during the Company's fiscal fourth quarter ending June 30, 2003.
11
NOTE 4: INTANGIBLE ASSETS
Intangible assets consist of the following:
As of March 31, 2003
----------------------------------
Gross Carrying Accumulated
Amount Amortization
----------------------------------
Amortized Intangible Assets:
License and Non Compete
Agreements $2,600,000 $(1,584,000)
Class Materials 2,900,000 (450,000)
Other 600,000 (375,000)
--------- ---------
Total $6,100,000 $(2,409,000)
========= =========
Unamortized Intangible Assets:
Trademark $ 1,645,000
Trade Names 15,872,000
Intellectual Property 13,940,000
----------
Total $31,457,000
==========
As of March 31, 2002
----------------------------------
Gross Carrying Accumulated
Amount Amortization
----------------------------------
Amortized Intangible Assets:
License and Non Compete
Agreements $2,600,000 $(1,153,000)
Class Materials 2,900,000 (210,000)
Other 600,000 (275,000)
--------- ---------
Total $6,100,000 $(1,638,000)
========= =========
Unamortized Intangible Assets:
Trademark $ 1,645,000
Trade Names 15,872,000
Intellectual Property 13,940,000
----------
Total $31,457,000
==========
Amortization expense for amortized intangible assets was $182,000 and
$544,000 for the quarter and nine months ended March 31, 2003, respectively,
and $137,000 and $542,000 for the quarter and nine months ended March 31,
2002, respectively. Estimated amortization expense for amortized intangible
12
NOTE 4: INTANGIBLE ASSETS, continued
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.
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. The Company does not believe that
there is any impairment in value at March 31, 2003.
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 Company does not believe that there is any impairment in value at March
31, 2003. The carrying amount of goodwill related to the DeVry University
reportable segment at March 31, 2003 and 2002 was unchanged at $22,195,000.
The carrying amount of goodwill related to the Professional and Training
reportable segment at March 31, 2003 and 2002 was unchanged at $20,196,000.
NOTE 5: 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
additional declines in financial performance in Canada during the first half of
fiscal 2003.
The assessment performed by the Company 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.
13
NOTE 6: INCOME TAXES
As described in Note 5 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 upon its estimates of future cash flows and taxable income
associated with the Canadian operations, the Company 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 was recorded as it was
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 7: COMMITMENTS AND CONTINGENCIES
In connection with its planned acquisition of Ross University (see Note 3),
the Company is negotiating several borrowing arrangements with banks and
other financial institutions. These arrangements will provide approximately
$300 million in financing. Though due diligence has been largely completed,
final terms of these agreements have not yet been finalized. All the
borrowing agreements are contingent on the closing of the acquisition.
Should the acquisition not be completed, the Company would be required to
record as expense, fees and other costs already incurred by the lenders and
14
NOTE 7: COMMITMENTS AND CONTINGENCIES, continued
other parties to the transaction for which it is liable. These amounts are
currently estimated to total approximately $3 million.
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. In March 2003, the Company participated in a
required mediation session but no resolution was reached.
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 re-filed.
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 March
2003, the complaint was dismissed by the court with limited right to amend
and re-file.
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 re-filed, this time including a student from a second
Chicago-area campus.
The Company has recorded approximately $1 million associated with estimated
loss contingencies at March 31, 2003, which reflects our current likely best
estimate. 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.
15
NOTE 7: COMMITMENTS AND CONTINGENCIES, continued
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.
NOTE 8: 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-
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
were 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 were realigned in the months following
the approval of single accreditation to reflect this combination.
The consistent measure of segment profit excludes interest expense,
amortization and certain corporate related depreciation. As such, these
16
NOTE 8: SEGMENT INFORMATION, continued
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.
Following is a tabulation of business segment information for the quarters and
for the nine months ended March 31, 2003 and 2002. Corporate information is
included where it is needed to reconcile segment data to the consolidated
financial statements.
For the Quarter For the Nine Months
Ended March 31, Ended March 31,
------------------- -------------------
2003 2002 2003 2002
------------------- -------------------
Revenues:
DeVry University $160,821 $158,304 $474,382 $459,855
Professional and Training 8,546 6,510 30,802 26,266
------------------ ------------------
Total Consolidated Revenues $169,367 $164,814 $505,184 $486,121
------------------ ------------------
Operating Income:
DeVry University $ 23,880 $ 30,140 $ 59,136 $ 78,935
Professional and Training 873 653 8,814 6,721
Reconciling Items:
Amortization Expense (192) (148) (576) (575)
Interest Expense (47) (143) (141) (744)
Depreciation and Other (220) (194) (595) (555>
------------------ ------------------
Total Consolidated Income
before Income Taxes $ 24,294 $ 30,308 $ 66,638 $ 83,782
------------------ ------------------
Segment Assets:
DeVry University $569,964 $507,698 $569,964 $507,698
Professional and Training 73,246 64,273 73,246 64,273
Corporate 19,484 21,129 19,484 21,129
------------------ ------------------
Total Consolidated Assets $662,694 $593,100 $662,694 $593,100
------------------ ------------------
Additions to Long-lived Assets:
DeVry University $ 10,795 $ 10,935 $ 30,846 $ 73,037
Professional and Training 103 49 159 435
------------------ ------------------
Total Consolidated Additions
to Long-lived Assets $ 10,898 $ 10,984 $ 31,005 $ 73,472
------------------ ------------------
Depreciation Expense:
DeVry University $ 9,152 $ 8,115 $ 27,236 $ 23,186
Professional and Training 95 134 286 397
Corporate 195 193 586 580
------------------ ------------------
Total Consolidated Depreciation $ 9,442 $ 8,442 $ 28,108 $ 24,163
------------------ ------------------
Amortization Expense:
DeVry University $ 8 $ 8 $ 23 $ 23
Professional and Training 184 140 553 552
------------------ ------------------
Total Consolidated Amortization $ 192 $ 148 $ 576 $ 575
------------------ ------------------
17
NOTE 8: 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 nine months ended March 31, 2003 and 2002. Revenues
and long-lived assets by geographic area are as follows:
For the Quarter For the Nine Months
Ended March 31, Ended March 31,
-------------------- --------------------
2003 2002 2003 2002
-------------------- --------------------
Revenues from Unaffiliated Customers:
Domestic Operations $164,655 $159,130 $490,008 $468,106
International Operations 4,712 5,684 15,176 18,015
------------------ ------------------
Consolidated $169,367 $164,814 $505,184 $486,121
================== ==================
Long-lived Assets:
Domestic Operations $348,504 $337,724 $348,504 $337,724
International Operations 2,265 10,044 2,265 10,044
------------------ ------------------
Consolidated $350,769 $347,768 $350,769 $347,768
================== ==================
No one customer accounted for more than 10% of the Company's consolidated
revenues.
18
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 quarters ended September 30, and
December 31, 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, estimates and assumptions used
in the preparation of the Company's financial statements 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, resolution 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 $4.6 million, or 2.8%,
and $19.1 million, or 3.9%, for the third quarter and first nine months,
respectively. Tuition revenue, representing approximately 92% of total
revenue, increased by 2.2% and 3.3%, respectively, for the third quarter and
nine months to-date. 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.
19
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 $1.1 million and $3.9 million from the
third quarter and first nine months of last year, respectively. Contributing
to the year-to-year increase was the undergraduate program Technology and
Software Supplies charge first assessed in November 2001. At the end
of the third quarter, a total of 14 of the DeVry University undergraduate
campus bookstores had been outsourced to Follett Higher Education Group
compared to 12 that had been outsourced as of the third quarter of last year.
Similarly, sales of books to students enrolled in online programs have been
outsourced to another company but sales of books and supplies remained under
Company management at all other undergraduate and graduate teaching locations.
DeVry University segment revenues increased by $2.5 million, or 1.6%, for the
third quarter compared to last year. For the nine months to-date, segment
revenues increased by $14.5 million, or 3.2%. Contributing to the increased
revenues were higher graduate program enrollments, the undergraduate program
Technology and Software Supplies fee that was not charged during the first
four months of last fiscal year 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, for which revenue
continued to be recognized during the first two months of this quarter, total
enrollment declined by 5.9% to 45,200 compared to 48,032 students enrolled
last year. For the undergraduate academic term which began in March, whose
revenue was recognized, in part, during the month of March, total enrollment
declined by 6.0% to 43,045 compared to 45,810 students enrolled last year.
The Company believes that although undergraduate enrollments in business
Programs continue to increase, declines in enrollment in its technology
programs have been caused by the reductions in technology field employment
that have lessened applicant interest in these fields. Complimenting the
undergraduate business program enrollment increases, the number of coursetakers
in the Keller graduate school programs for the term that began in February
increased by 18.0% to 11,715 compared to 9,925 coursetakers last year as
interest in graduate management programs remains high.
Professional and Training segment revenues increased by $2.0 million, or
31.3%, and $4.5 million, or 17.3%, for the third quarter and first nine
months, respectively. The increased revenue results from higher course prices
and an increased number of students enrolled in the Becker Conviser CPA Review
course in preparation for the November and May CPA exams.
The Company's Cost of Educational Services increased by $0.5 million or 0.6%
from the third quarter of last year. For the first three quarters, the Cost
of Educational Services increased by $12.9 million, or 4.9% from last year.
Continued cost reduction efforts and fewer undergraduate enrollments
contributed to the low rate of cost increase compared to last year. For the
year-to-date, cost increases were incurred throughout all of the Company's
operations. At DeVry University, there were three new large undergraduate
campuses and 20 additional University Center locations offering undergraduate
programs. Graduate programs were offered in six more teaching locations 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 $3.9 million for the first nine months of the year
because of the investment in new facilities and associated equipment and
because of improvements to existing facilities. In addition, investments in
new equipment are required to support continuous improvement to the Company's
20
educational programs. Further contributing to the increased depreciation for
the year-to-date 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.
Student Services and Administrative Expense increased by $10.2 million, or
21.9%, and $23.9 million, or 17.0%, from the third quarter and first nine
months of last year, respectively. Spending for advertising remains at high
levels compared to previous years to try and offset the decline in
undergraduate new student enrollments experienced in each of the last five
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
three quarters, the Company capitalized $4.3 million and charged an additional
$4.0 million directly to expense related to work on the new student
information system. In addition, $0.3 million of previously capitalized costs
were amortized to expense.
Included in the higher year-to-date level of Student Services and
Administrative Expense, was an approximately $1.8 million accrual to reflect
the costs for the current period relating to the employment agreements with
the Company's co-Chief Executive Officers that were completed during the
second quarter of the year. 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.
The total Cost of Educational Services and Student Services and Administrative
Expense for the third quarter increased from last year by 7.9%. This increase
in spending, when compared to the prior year, is the smallest rate of spending
increase in any of the previous nine 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 and third
quarters. Along with continued restraint on spending in all areas of
activity, 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 $6.3 million and
$19.8 million, respectively, for the third quarter and first nine months 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 lower undergraduate
enrollments coupled with expenses, as described above, that have continued to
increase. The increased expenses are associated with more teaching locations,
higher levels of advertising directed at trying to offset the declining
undergraduate enrollments, accrual of costs related to the co-chief executive
employment agreements and the recognition of an impairment loss on leasehold
improvements in the Canadian operations. Despite the factors cited above that
have caused operating costs to increase, operating income in the third quarter
declined from the third quarter of last year by $2.8 million less than the
decline in the second quarter. The lesser rate of decline reflects the
continuing efforts at cost reduction throughout the organization.
21
In the Professional and Training segment, operating income increased by $0.2
million for the third quarter and by $2.1 million for the year-to-date.
Higher tuition rates and increased enrollments in the Becker Conviser CPA
Review course for the November and May CPA examinations produced the higher
income.
Interest expense was lower than last year by $0.1 million in the third quarter
and by $0.6 million for the first three quarters. In the current year, there
were no borrowings under the Company's revolving line of credit agreement.
This compares to borrowings that were outstanding during the first three
quarters of last year, principally to provide funds for the first quarter
acquisition of two DeVry University undergraduate campuses.
Taxes on income for the first nine months, excluding the non-recurring tax
benefits recorded during the second quarter, were at an effective rate of
38.7% compared to a rate of 39.3% for the same period last year. Contributing
to the lower tax rate 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
its 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.
Also during the second quarter, the Company 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 that 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 third quarter was $14.9 million, or $0.21 per share fully
diluted, compared to $18.4 million, or $0.26 per share, last year. For the
first nine months, Net Income, including the Non-Recurring Tax Benefits, was
$49.0 million, or $0.70 per share, compared to $50.9 million, or $0.72 per
share, last year.
Liquidity and Capital Resources
- -------------------------------
Cash generated from operations reached $148.4 million for the first nine
months, an increase of approximately 37.5% from the same period last year.
Higher non-cash charges for depreciation, higher deferred taxes on income and
higher accounts payable coupled with lower accounts receivable and lower
22
levels of restricted cash 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
March. Almost 70% of the collections of U.S. undergraduate revenues come from
federal and state financial aid programs.
Capital spending for the first three quarters was $31.0 million compared to
$73.5 million in the first nine months 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 the level incurred during
the first three quarters of the year.
The Company has not made any borrowings under its revolving line of credit
agreement during the year. Cash balances at the end of last fiscal year and
cash generated from operations throughout the current 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
$3.2 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.
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 party 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 Company does not have any unconsolidated subsidiaries.
During the third quarter, the Company entered into an agreement with various
financial institutions to provide $300 million of senior financing in
connection with its pending acquisition of Dominica Management Inc., which
owns and operates Ross University School of Medicine and Ross University
School of Veterinary Medicine. The Company expects to use approximately $50
million of existing cash on hand plus borrowings under this new financing to
pay the $310 million purchase price and all associated fees. The acquisition
is expected to be completed during the fourth quarter of the Company's fiscal
year. This new financing agreement will replace the Company's existing
revolving line of credit agreement with a group of banks. The financing
agreements are contingent upon the closing of the acquisition. If the
acquisition is not completed, the Company would be required to record as
expense, fees and other costs already incurred by the lenders and other parties
to the transaction for which it is liable. These amounts are currently
estimated to total approximately $3 million.
The principal source of the Company's liquidity is its operating cash flow
that is significantly dependent upon DeVry University's continued compliance
with and participation in 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%
23
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 borrowings under its new senior financing
agreement will be sufficient to fund its current operations, including its
planned acquisition of Dominica Management, Inc., and plans for the
foreseeable future.
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.
24
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 March 2003, the Company participated in a
required mediation session but no resolution was reached.
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 March
2003, the complaint was dismissed by the court, with limited right to amend
and re-file.
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 March 31, 2003, which reflects our current likely best
estimate. 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.
25
Item 5 - Other Information
- --------------------------
In the third quarter, DeVry Inc. announced that it had signed a definitive
agreement to acquire, for cash, the stock of Dominica Management, Inc., which
owns and operates Ross University School of Medicine and Ross University
School of Veterinary Medicine (together "Ross University"). Ross University
is one of the world's largest providers of medical and veterinary education
with approximately 2,500 students currently enrolled. The medical school and
veterinary school campuses are located in the Caribbean countries of Dominica
and St. Kitts/Nevis, respectively. Students attending Ross University are
primarily citizens or residents of the United States and are eligible to
receive financial assistance under Title IV of the Higher Education Act.
Consideration for the acquisition, which is expected to close during the
Company's fourth quarter, will be $310 million in cash. The Company is
completing arrangements for a new $300 million senior financing to help
finance the acquisition.
DeVry University announced that it will begin offering new degree programs in
the fields of biomedical engineering technology, biomedical informatics and
health information technology. These new programs, which are at the
intersection of technology and health services, are in response to the
increasing demand for technology professionals with an understanding of
health-related fields.
26
Item 6 - Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
During the third quarter, the Company filed the following reports on
Form 8-K:
1. March 20, 2003, reporting the signing of a definitive agreement
to purchase Dominica Management, Inc. that operates Ross University
School of Medicine and Ross University School of Veterinary Medicine
2. March 25, 2003, reporting information presented at an investor
conference regarding the acquisition of Ross University
3. March 28, 2003, reporting information presented at an investor
conference regarding the acquisition of Ross University
27
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: MAY 9, 2003 /s/Ronald L. Taylor
------------------------------------
Ronald L. Taylor
Co-Chief Executive Officer, President
and Chief Operating Officer
Date: MAY 9, 2003 /s/Norman M. Levine
-------------------------
Norman M. Levine
Senior Vice President and
Chief Financial Officer
28
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
29
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: May 9, 2003
-----------
/s/Norman M. Levine
-----------------------
Senior Vice President &
Chief Financial Officer
30
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
31
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: May 9, 2003
-----------
/s/Ronald L. Taylor
--------------------------
Co-Chief Executive Officer
32
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
33
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: May 9, 2003
-----------
/s/Dennis J. Keller
-------------------------------
Chairman and Co-Chief Executive
Officer