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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended: JUNE 30, 1999
Commission file number: 0-12751
DeVRY INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-3150143
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE TOWER LANE, SUITE 1000, OAKBROOK TERRACE, ILLINOIS 60181
- ------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number; including area code (630) 571-7700
Securities registered pursuant to section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
SEPTEMBER 1, 1999 - $1,205,247,000.00
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State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The market value was computed using the closing
sale price of the common stock on the date indicated. Shares of common stock
held directly or controlled by each director and executive officer have been
excluded in that such persons may be deemed to be affiliates.
SEPTEMBER 1, 1999 - 69,421,113 shares of common stock, $0.01 par value
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents incorporated by reference and the Part of
the Form 10-K (e.g. Part I, Part II, etc.) into which the document is
incorporated:
Certain portions of the Registrant's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on November 16, 1999, are
incorporated into Part III of this Form 10-K to the extent stated herein.
Exhibit Index located on Pages 97-99 Total number of pages, 126
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DeVry INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED JUNE 30, 1999
TABLE OF CONTENTS
PAGE #
PART I ------
Item 1 - Business 3
Item 2 - Properties 42
Item 3 - Legal Proceedings 48
Item 4 - Submission of Matters to a Vote of Security
Holders 49
- Executive Officers 50
PART II
Item 5 - Market for Common Equity and
Related Stockholder Matters 55
Item 6 - Selected Financial Data 56
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 56
Item 8 - Financial Statements and Supplementary Data 66
Item 9 - Changes in and Disagreements with Accountants 90
PART III
Item 10 - Directors and Executive Officers 91
Item 11 - Executive Compensation 91
Item 12 - Security Ownership of Beneficial Owners and
Management 91
Item 13 - Certain Relationships and Transactions 91
PART IV
Item 14 - Exhibits, Financial Statements and Reports on
Form 8-K 92
- Financial Statements 92
- Financial Statement Schedules 92
- Exhibits 92
- Reports on Form 8-K 92
- Signatures 94
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PART I
------
Certain information contained in this Annual Report on Form 10-K may constitute
forward-looking statements made pursuant to the safe harbor provision of the
Private Securities Litigation Reform Act of 1995. Such statements may involve
risks and uncertainty that could cause actual results to differ materially from
the forward-looking statements. Potential risks and uncertainties include, but
are not limited to, dependence on student financial aid, state and provincial
approval and licensing requirements, and the other factors detailed in the
company's SEC filings, including those discussed under the heading entitled
"Risk Factors" in the Company's Registration Statement on Form S-3
(No. 333-22457) filed with the Securities and Exchange Commission.
ITEM 1 - BUSINESS
- -----------------
DeVry Inc. (the "Company") is incorporated under the laws of the State of
Delaware. The Company, through its wholly-owned subsidiaries, owns and
operates the DeVry Institutesof Technology ("DeVry Institutes"), the Keller
Graduate School of Management ("Keller Graduate School"), Becker Conviser CPA
Review ("Becker") and Denver Technical College ("DTC"). In 1999, the holding
company for the degree-granting operations was renamed DeVry University, Inc.,
to better reflect the nature of this higher education system. DeVry Institutes,
DeVry Canada, Inc., Denver Technical College and Keller Graduate School of
Management are a part of DeVry University. DeVry Institutes and Keller
Graduate School collectively form one of the largest private, degree-granting,
regionally accredited higher education systems in North America. Becker
prepares candidates for the Certified Public Accountant ("CPA") and Certified
Management Accountant ("CMA") professional certification examinations.
On July 1st, the Company completed its acquisition of substantially all of the
net tangible operating assets, trademarks and other intangible assets of the
Denver Technical College. The college offers diploma and undergraduate degree
programs in electronics, computer technology, business and medical technology
to approximately 1,700 students on campuses in Denver and Colorado Springs,
Colorado.
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On July 2nd, the Company completed its acquisition of certain tangible
operating assets, trademarks and other intangible assets of Conviser Duffy CPA
Review ("Conviser Duffy"). Conviser Duffy, which had operated as a unit of
Harcourt General, Inc., is a nationally known training firm preparing
approximately 12,000 students annually to pass the CPA exam.
The amounts of revenue and identifiable long-lived assets of the Company's U.S.
and foreign operations are included in Note 8 to the Consolidated Financial
Statements, Segment Information.
DeVry Institutes
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The DeVry Institutes were founded by Dr. Herman DeVry and for nearly 70 years
have provided career-oriented technology-based education to high school
graduates in the United States and Canada. The first DeVry Institute was
opened in Chicago in 1931 as an electronics school. Today, the DeVry
Institutes are located on thirteen campuses in the United States and three
campuses in Canada.
Originally offering only programs in electronics, DeVry introduced the
computer information systems curriculum in 1979. As the number of high school
graduates in the U.S. declined during the 1980s, the DeVry Institutes expanded
their program offerings and delivery schedule into the evening hours to serve
larger numbers of working adults. In the summer of 1986, a bachelor's degree
program in business operations was introduced. That fall, the DeVry Institutes
introduced the telecommunications management program, followed by the
introduction of an accounting program in the spring of 1988. In 1994, the
DeVry Institutes introduced the technical management degree completion program.
In 1997, the business operations program was redefined and is now titled
business administration. In response to the increasing employment demands of
the information technology field, in 1998 a one year Information Technology
program was first offered in Canada to bachelor's level college graduates of
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any discipline. This program is currently offered at several institutes in the
United States and will be offered at others in the coming terms. Other
programmatic initiatives include new delivery formats, such as weekend
schedules, compressed and accelerated course schedules and technology-assisted
delivery options.
The DeVry Institutes initiated a facility improvement and expansion program
in 1991 to attract and retain increased student enrollment. The program
has included renovation and expansion of the Atlanta campus; relocation and
expansion of the suburban Chicago, Dallas, Los Angeles and New Jersey
Institutes; and opening of new branch or satellite campuses in Long Beach,
California; Scarborough and Mississauga (Toronto), Canada; and Alpharetta,
Georgia. In July 1998 a new campus was opened in Fremont, California, and
in November 1998, a new campus was opened in Long Island City, New York.
At the beginning of the spring 1999 semester, which is the final semester
in the Company's 1999 fiscal year, approximately 37,021 full and part-time
students were enrolled in the DeVry Institutes' diploma, associate and
bachelor's degree day and evening programs in electronics, electronics
engineering technology, computer information systems, accounting, business
administration, technical management and telecommunications management.
In response to the facility expansions and improvements and new programs
initiated in the past several years, fiscal 1999 marks the ninth
consecutive year that total cumulative enrollment has increased from the
prior year. Cumulatively, total student enrollment for the three semesters
of fiscal 1999 increased by 12.8% compared with fiscal 1998. In the nine
years since fiscal 1990, cumulative annual total student enrollment at the
DeVry Institutes has increased by nearly 63%. The DeVry Institutes'
operations accounted for approximately 87% of the Company's revenues in
both fiscal 1999 and 1998.
Classes began on July 12th for the summer 1999 semester. In this first
semester in the Company's fiscal year 2000, which includes the acquisition
of Denver Technical Colleges' two campuses, a total of 38,336 students were
enrolled in undergraduate programs, a 15.9% increase from the number of
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students enrolled in the summer term last year. This was the twenty sixth
consecutive term in which total enrollments exceeded the prior year level.
Historically, the summer semester has been the period of lowest
undergraduate enrollment during the year.
Changing demographics in the United States are expected to continue to
benefit the Company's future undergraduate enrollment. The "baby boom
echo" is producing more high school graduates. After a period of nearly
two decades during which the number of graduating high school seniors
declined by 25 percent to 2.4 million, 1995 marked the beginning of a slow
but steady increase in the number of high school graduates. The National
Center for Education Statistics forecasts that there will be 3.0 million
high school graduates by 2004, reaching 3.1 million by 2008, equalling the
previous record of 3.1 million in 1979. The forecasted rate of increase in
the number of high school graduates in many of the states in which the
DeVry Institutes are located is greater than the forecasted national rate
of increase during this period and should contribute to future enrollment
growth. The Department of Education's National Center for Education
Statistics reports that the percentage of high school graduates who
currently enroll in college in the subsequent 12 months has increased to
65% from 51% in 1980. In addition, higher rates of enrollment growth for
students age 25 and older, for female students, for part-time students and
for minorities is expected to continue to contribute to undergraduate
enrollment growth in the coming years. In today's information-driven
economy, a higher education degree is extremely important. In 1980, the
pay difference between someone who had a high school education and a
college education was 50%. Today, that difference is over 100% and
growing. More students recognize this and are seeking the skills and
degrees necessary to enhance their future.
Approximately 25% of recent new student enrollments at the U.S. DeVry
Institutes had some prior college experience. The Company estimates that
more than 40% of the students enrolling at its DeVry Institutes are 25
years of age or older. To attract the growing number of adults returning to
college, the DeVry Institutes introduced in 1994 a bachelor of science
degree completion program in technical management which focuses on business
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and management skills vital to career advancement for students who already
have an associate degree. In response to the growing demand for computer
and systems professionals, DeVry Institutes began last year to offer an
advanced program in Information Technology at selected locations to current
bachelors degree holders. Similar information technology programs are being
offered at the Denver Technical College campuses.
Some DeVry programs are being offered on weekends to serve the working
adult student and DeVry Institutes have also developed several accelerated
program curricula with a shorter term length and time to completion. While
these programs present an intensive and demanding experience, they enable
students to fulfill their other responsibilities while completing these
educational programs.
Each of the DeVry Institutes' programs is designed to integrate general
education and technology or business. The DeVry Institutes' general
education courses develop skills and competencies that help graduates
enhance both their professional and personal capabilities. Businesses
require graduates who can fit into an organization, work in teams, have an
understanding of how business works, interface well with customers and have
the in-depth technical knowledge to get the job done. Laboratory courses
throughout each curriculum provide the opportunity to translate classroom
learning into a practical, hands-on experience that better prepares the
student for the workplace.
Distance delivery of education is becoming increasingly prominent. The
DeVry Institutes' approach to distance learning is to focus on the quality
of education, not the technical feasibility of the delivery system.
Distance learning initiatives are being explored throughout the system as
an adjunct to current classroom and laboratory instruction to enhance
student learning opportunities.
At the DeVry Institutes, classes are generally offered in morning,
afternoon or evening sessions which help students maintain a part-time job.
This availability of part-time employment and government-provided financial
8
aid partially offsets the competitive advantage of those schools with lower
tuition levels. Each curriculum is generally the same at all of the DeVry
Institutes, with content variations introduced to meet local employment
market needs. This common curriculum allows students to transfer, if
necessary, to a DeVry Institute at a different location without
interrupting their studies.
To facilitate student success, DeVry devotes significant resources to
libraries and academic support services which can assist students in any
phase of their educational program. In addition, the DeVry Institutes
encourage students to participate in campus activities and offer student
success or problem solving strategy courses aimed at preparing students to
assume responsibility for their learning and growth through practical
strategies and methods for realizing success. In response to these efforts
and higher required minimum admission and placement scores on its
computerized entrance examination, retention rates have increased for
students in the early terms of their program, where students are most
likely to discontinue their studies.
Keller Graduate School of Management
- ------------------------------------
Keller Graduate School was founded in 1973 and offers practitioner-based
graduate management programs leading to a master's degree. In addition to
the Master of Business Administration ("MBA") program, which Keller began
offering in 1977, Keller introduced a Master of Project Management ("MPM")
degree program in 1991 and a Master of Human Resource Management ("MHRM")
degree program in 1993. In September 1995, Keller began offering a Health
Services Management ("HSM") concentration within its MBA program. This HSM
concentration is being offered in response to the growing demands of the
health services industry professionals and professionals in related
industries such as insurance or pharmaceuticals. In February 1997, Keller
introduced a Master of Telecommunications Management ("MTM") program to
meet the need for expertise in this growing field. The MTM program at
Keller Graduate School was developed in conjunction with the DeVry
Institutes, which offer an undergraduate telecommunications program. In
1998, Keller began offering two new programs, the Master of Information
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Systems Management ("MISM") and the Master of Accounting and Financial
Management ("MAFM"). A new concentration in International Business has
recently been developed for the MBA program and an Electronic Commerce
concentration is now offered within the Information Systems Management
program. The Keller programs and concentrations are aimed at satisfying
the need for advanced education in these high demand areas.
Keller emphasizes practitioner orientation, excellence in teaching and
service to working adults, offering classes in the evenings and on
weekends. At the start of the June 1999 term, classes were being offered
at thirty-one locations nationwide, including the distance education
center. Several additional teaching centers are scheduled to begin
offering classes in fiscal 2000. Eight of Keller's teaching sites are
co-located on DeVry Institute campuses in Arizona, California, Georgia and
Missouri and one teaching site is located at the Company's corporate
headquarters in Illinois.
Keller Graduate School's faculty members are practicing professionals who
bring their expertise to the classroom, emphasizing theory and practices
that will best serve students in their work as managers. Critical
competencies in areas such as business communications, technology, quality
and international issues are woven throughout the curricula. Keller's
curricula are regularly reviewed for relevance to both students and
employers through advisory councils composed of representatives of
distinction and achievement in business and community affairs.
In addition to expanding its network of teaching locations, Keller has
developed and offers distance-education delivery. The Online Education
Center extends delivery of all of Keller's master's degree programs to
students who reside beyond the geographic reach of local centers, whose
schedules preclude attending weekly classes onsite and/or who cannot find
their desired course at the Keller center near where they live or work.
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At the start of the June 1999 term, which falls primarily in the Company's
fiscal year 2000, enrollment at Keller Graduate School was 4,590, an
increase of more than 700 from the previous June. Historically, the June
term has been the period of lowest enrollment during the year.
Keller also provides continuing and professional education offerings
required for career advancement and lifelong learning through Becker CPA
Review and the School's Center for Corporate Education (CCE). Becker is
the world's leading provider of preparatory coursework for the Certified
Public Accountant and Certified Management Accountant exams, while CCE
helps organizations achieve superior performance through onsite work force
development.
At the start of the summer 1999 semester, which is the first semester in
the Company's fiscal year 2000, a combined total of approximately 42,926
full and part-time students were enrolled in the Company's DeVry Institute,
Denver Technical College and Keller Graduate School educational programs,
up 16.2% from a total of 36,945 full and part-time students in the summer
1998 semester.
Becker Conviser CPA
- -------------------
In June 1996, the Company acquired the Becker CPA Review. Becker is a
leading international training firm preparing students to take the national
Certified Public Accountant exam and Certified Management Accountant exam.
For the May 1999 CPA examination, Becker, which is headquartered in Los
Angeles, offered CPA review classes at approximately 190 locations in the
United States and internationally. The CMA exam preparation course, which
is offered at selected sites in the United States, was developed for the
many accountants who have moved to the corporate management and strategic
planning side of business. To reach students for whom class attendance is
not practical because of location or schedule, Becker offers the complete
CPA review course conveniently packaged on CD-ROM. Every word in the
classroom version of the course is on the CD-ROM. The CD-ROM product
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is interactive, bridging the gap between classroom study and self study. The
structured lesson plan emphasizes the "work and remember" teaching system
which has been so successful in the Becker classroom environment.
Becker's proprietary course materials and teaching methods result in pass
rates on the CPA exam for Becker students which the Company believes are
substantially higher than the national average pass rate, producing more
than one-third of all students passing the CPA exam. Approximately 20,000
students either attend Becker review courses at its U.S. and international
locations or study for the CPA exam using the CD-ROM materials. Becker CPA
alumni now number over 210,000 since the course was founded in 1957.
In July 1999, the Company acquired the operations of Conviser Duffy CPA
Review. Conviser is a national provider of CPA review courses, serving
approximately 12,000 students annually at more than 200 locations. The
combined operations are now known as Becker Conviser CPA Review.
Competition
- -----------
The postsecondary education market is highly fragmented and competitive
with no single institution having a significant market share. There are
more than 10,000 institutions in the United States that offer postsecondary
education. The Company believes that it is one of the largest private,
degree-granting, regionally accredited, higher education school systems in
North America. The undergraduate DeVry Institutes and Denver Technical
College compete with traditional publicly supported and independent two-year
and four-year colleges, other for-profit schools and alternatives to
higher education, such as employment and military service. Also, some
large corporations, such as Motorola, now offer accredited college courses
that may be applied toward degrees. Harcourt General has announced its
plans to create an independent university offering its courses via
distance-education. Jones International University recently became the
first regionally accredited Internet-only school to grant college degrees
and other on-line-only schools have begun the accreditation process.
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Publicly supported colleges may offer programs similar to those of the
DeVry Institutes at a lower tuition level due to government subsidies,
government and foundation grants, tax-deductible contributions and other
financial sources not available to for-profit schools. Publicly supported
colleges may also benefit from regulatory approvals not available to
private schools. For example, in Florida, recently passed legislation now
permits community colleges to offer baccalaureate degrees in conjunction
with other public or private universities, increasing educational
opportunities to students without immediate access to a four-year college
campus. Tuition at independent not-for-profit institutions is, on average,
higher than the tuition at the DeVry Institutes. Other for-profit schools
offer programs that compete, to a limited extent, with those of the DeVry
Institutes. According to Company surveys of prospective students, the most
common alternative to attending a DeVry Institute is attending a four-year
college.
The DeVry Institutes believe their competitive strengths include career-
oriented curricula developed with regular structured employer input which
helps ensure that graduates will be marketable to employers; faculty with
related industry experience; the demonstrated effectiveness of their career
services activities in obtaining education-related employment; their
national brand name; name recognition and market presence through national
advertising and student recruitment; accreditations granted to the
institutes; authorization by various states to grant degrees; modern
facilities; well-equipped laboratories; evening and weekend class schedules
and a semester schedule that allows attendance year-round, thereby
permitting earlier graduation. Only a limited number of traditional
colleges offer a bachelor's degree program which can be completed in three
years. This results in a significant financial advantage to DeVry students
who are able to enter the work force one year earlier than if they had
attended a traditional four-year institution.
Keller Graduate School competes with numerous other MBA programs offered in
all markets in which it has operations. Competition with Keller's other
programs varies by the market area in which it is offered, but is generally
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more moderate than competition for the MBA program. Fewer schools in the
country offer a master's degree in these other programs, but increasing
interest in these fields is beginning to attract similar offerings.
Keller differentiates itself in the marketplace by stressing a practitioner
approach to education, excellence in teaching by a faculty of practicing
professionals and a high level of service to the adult student. The
average Keller student is 34 years of age. To help improve student
performance, satisfaction and retention, Keller utilizes an innovative
teaching technique called System Supported Teaching and Learning (SSTL)TM.
This instructional process focuses on providing students and their
instructors with more frequent feedback and correctives using quizzes and
retests. The process is outcomes driven and is applied to problem-based
core courses in which student learning can be most significantly improved.
Keller offers five 10-week terms each year. Classroom based courses meet
once a week, either in the evening or on Saturday. This schedule allows
students with heavy travel or other demands on their time to fit courses
into their schedules. In addition, in most markets Keller is able to offer
flexibility in course scheduling, a greater choice of elective courses and
a more convenient location than its competitors. Keller also offers an
accelerated format of its MBA program on Saturdays at some locations for
students who wish to complete their degree more quickly and without
disrupting their work week. As the market for adult education programs has
expanded in recent years, other schools have implemented multi-location
evening and weekend programs. However, enrollments at Keller continue to
increase, demonstrating the recognition it has earned as an innovator in
providing quality practical education.
With educational centers in an expanding number of states and multiple
locations within most of these states, Keller offers distributed access
points throughout the country to adults who may be transferred from one
part of the country to another by their employer or who capitalize upon
personal career opportunities in other locations. Additionally, with the
expansion of its distance delivery offerings, Keller has expanded its
availability to all qualified students without regard to their location or
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daily schedule. As with classroom based instruction, there are a growing
number of distance education programs being offered by other colleges and
universities.
Becker competes with other methods of CPA exam preparation by self-study;
firm-sponsored courses; courses offered by colleges and universities; and
by other private training companies. According to reports by the National
Association of State Boards of Accountancy, two-thirds of first-time CPA
candidates and more than half of repeat candidates reported participating
in a review course in the six months prior to taking the exam. Taking a
privately offered course was cited by 88% of these first-time candidates
and 90% of repeat candidates, with college and firm-sponsored courses
representing the remainder. Courses offered by colleges and private
competitors generally have a lower total course cost to help attract
students. Becker differentiates itself from its competitors by providing
more classroom hours of instruction, extensive and constantly updated
review and practice test materials and experienced, qualified instructors
for each of the four areas of specialty included in the exam. Becker's CPA
courses undergo regular review and revision to stay current with the latest
accounting practice. The high success rate of students who take the Becker
review course and the numbers of students enrolling after taking other
review courses but not passing the CPA exam are testimony to the quality
and value of the Becker methodology.
CPA candidates can also take the Becker review course content and
methodology in conjunction with their Keller Graduate School MBA or MAFM
programs in most states in which Keller offers classes, earning full
graduate academic credit. These credits can also be used to fulfill
educational requirements to sit for the CPA exam. This provides both
Becker and Keller with an important competitive advantage. Efforts are
underway to extend the granting of credit to all the states in which Keller
operates. To further extend the marketing and operational benefits of
joint operation, Becker offers classes at approximately 20 Keller
locations. Becker classes are also offered on five DeVry Institute
campuses.
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In addition to its July 1999 acquisition of the national Conviser Duffey
CPA Review, Becker acquired in fiscal 1999 the assets of Fox Gearty CPA
Review Course, the largest CPA review course company in New Jersey and a
major provider in New York. This acquisition further expands the Becker
presence in important East coast markets. Further acquisitions could occur
in other selected local markets.
Student Recruiting
- ------------------
Students at the DeVry Institutes are recruited by admissions
representatives at on-campus admissions offices and by field student
recruiters. Field student recruiters are an important nationwide element
of the recruiting process because a significant portion of the DeVry
Institutes' students come from outside the immediate area in which the
DeVry Institute campus they attend is located. The percentage of
enrollment coming from these two recruiting sources varies campus by
campus, but is predicated largely on each school's location. Overall,
admissions representatives currently generate over two-thirds of the DeVry
Institutes' total enrollments. The DeVry Institutes employ nearly 500
admissions representatives and field recruiters throughout the United
States and Canada. In order to recruit students in certain states and
Canadian provinces, representatives and recruiters must be licensed or
authorized by the appropriate regulatory agency. Regulations governing
student participation in U.S. federal financial assistance programs
prohibit the payment of commissions, bonuses or incentives for student
recruitment. The Company believes that its method of representative and
recruiter compensation complies with the regulations.
The admissions representatives are salaried, full-time Company employees.
They are located at each DeVry campus and work with potential applicants
who respond to the Company's advertising or otherwise learn of the school.
Admissions representatives generally work with older students, many of them
working adults wanting to attend class in the evening or on weekends,
recently unemployed adults seeking to improve their job skills as a way to
re-enter the workforce and students transferring to DeVry from nearby
community colleges. Each of the DeVry Institutes has entered into
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articulation agreements with nearby community colleges to facilitate the
enrollment of their students seeking to transfer course credits into a
DeVry program. Approximately 25% of new students recently enrolled at the
U.S. DeVry Institutes had some prior college experience.
Field student recruiters are salaried, full-time Company employees. Field
recruiters meet individually with prospective students who are contacted
primarily through high school, club and youth group presentations. These
student recruiters visited over 10,000 high schools in North America last
year and made presentations on career choices and the importance of a
college education. Field recruiters also receive student inquiries
generated by direct mail and television advertising in the particular
recruiter's territory. Follow-up interview sessions with prospective
students are generally held in the student's home with the student and his
or her parents. The downsizing of the U.S. military and base closings also
present recruiting opportunities. Veterans with military-specific
technical training are attracted to DeVry's practical career-oriented
education, and DeVry's locations across the U.S. are often near the home
area to which the veteran will relocate.
In support of its admissions representatives and field recruiters, the
DeVry Institutes advertise on television and radio, in magazines and
newspapers, on various Internet sites, and utilize telemarketing and direct
mail to reach prospective students. Prospective students are also
frequently referred by their employers, alumni or currently enrolled
students. In addition to these more traditional recruiting methods,
DeVry's own Internet site provides another avenue for students to receive
information about and apply for admission.
To be admitted to a DeVry Institute program in the United States, an
applicant must be either a high school graduate or have a General Education
Development ("GED") certificate or hold a degree from an accredited
postsecondary institution and complete an interview with a DeVry admissions
representative. In Canada, an applicant must either meet the same criteria
as in the U.S. or meet "mature student" criteria. Applicants must also
meet minimum admissions and placement examination scores which vary
17
depending on the program to which they are applying. In 1996, the DeVry
Institutes implemented the Computerized Placement Tests ("CPT") which were
designed in collaboration with The College Board and Educational Testing
Service. These exams help DeVry Institutes serve the needs of its students
by better assessing students' achievement levels and developmental needs
during the admission process. Since its introduction, minimum admission
and placement scores on the CPT have been raised several times in an effort
to better identify and serve those students most likely to successfully
complete their educational program. Submission of ACT or SAT examination
scores deemed appropriate for the desired program or the submission of
acceptable grades in qualifying college-level work completed at an approved
postsecondary institution can also be used to meet DeVry Institute
admission requirements.
Denver Technical College recruits new students with advertising on
television, radio and in newspapers aimed primarily at the market areas in
which its campuses are located and from inquiries to its Internet site.
Other promotional activities include attending career expos and job fairs.
Similar in fashion to the DeVry Institute operations, Admissions
representatives conduct student interviews and oversee the application
process. Representatives also visit local high schools, but student
interviews are generally conducted on campus because of the applicants'
proximity.
Keller Graduate School recruits students primarily through direct mail,
radio advertising, telemarketing, print advertising and referrals from
employers, alumni or current students. Keller's Internet site is also
becoming a valuable source of applicant inquiries. Keller employs on-campus
admissions representatives at each teaching center who meet with,
counsel and evaluate admission qualifications of prospective students. To
be admitted to a Keller program, applicants must hold a baccalaureate
degree from a U.S. institution that is accredited by or in candidacy status
with a regional accrediting agency. Foreign applicants must hold a degree
recognized to be equivalent to a U.S. bachelors' degree. Applicants must
also achieve acceptable scores on either the Graduate Management Admission
Test ("GMAT"), the Graduate Record Examination ("GRE") or Keller's
18
alternative admission test, designed and validated by Educational Testing
Service. All admissions decisions are based on evaluation of a candidate's
academic credentials, entrance test scores and personal interview.
Becker markets its courses directly to potential students and to some of
their employers, e.g., the large national and regional accounting firms.
Alumni referrals, direct mail, print advertising and a network of on-campus
recruiters at colleges and universities across the country generate the new
students who take the CPA or CMA review courses, which are offered twice
each year. The Becker Internet site provides another source of information
to interested applicants. Becker also enrolls many students who have
previously completed a competitor's course or a self-study program but were
unable to pass the exam.
According to data published by the National Association of State Boards of
Accountancy, the number of CPA examination candidates has declined by 15%
from the all-time high in 1990. More than 40 states have either adopted or
introduced legislation that requires 150 semester units (the equivalent of
five years of college) before a candidate can sit for the CPA exam. This
has the effect of delaying enrollment in Becker's review class by some
students in those states. However, thus far the rule has not been widely
implemented. It does not take effect in Illinois until 2001 and in New
York until 2009. California is among the states that have not yet passed
this legislation. If the 150 semester unit legislation is eventually
broadly implemented, it might have the effect of reducing the number of
candidates for the CPA exam. To overcome these recruiting challenges,
Becker has expanded its operations in key East coast markets with the
acquisition of two prominent local CPA review courses during the past two
years and, with the acquisition of the national Conviser Duffy CPA Review,
expanded onto numerous college campuses across the country. As previously
described, Becker has also introduced the course on CD-ROM for students who
are unable to attend classroom based instruction.
19
Accreditation and Approvals
- ---------------------------
Accreditation is a process for recognizing educational institutions and the
programs offered by those institutions for achieving a level of quality
that entitles them to the confidence of the educational community and the
public they serve. In the United States, this recognition is extended
primarily through nongovernmental, voluntary, regional or specialized
accrediting associations. Accredited institutions are subject to periodic
review by accrediting bodies to ensure that these institutions maintain the
level of performance, evidence institutional and program improvement,
demonstrate integrity and fulfill requirements established by the
accrediting body.
Although regional accreditation in the United States is a voluntary process
designed to promote educational quality and improvement, it is an important
strength of the DeVry Institutes and Keller Graduate School, providing
significant advantages over most other for-profit colleges. College and
university administrators depend on the accredited status of an institution
in evaluating transfers of credit and applications to graduate schools.
Employers rely on the accredited status of an institution when evaluating a
candidate's credentials, and parents and high school counselors look to
accreditation for assurance that an institution meets quality educational
standards. Moreover, accreditation is necessary for students to qualify
for eligibility for federal financial assistance. Also, most scholarship
commissions restrict their awards to students attending accredited
institutions.
Both DeVry Institute and Keller Graduate School are each accredited by the
Commission on Institutions of Higher Education of the North Central
Association of Colleges and Schools, one of the six regional collegiate
accrediting agencies recognized by the U.S. Department of Education. The
North Central Association is the same accrediting agency that accredits
other four-year publicly supported and independent colleges and
universities in the North Central region. The DeVry Institutes and Keller
accreditations were last reaffirmed by the North Central Commission in 1992
for the maximum ten year period. A scheduled interim progress monitoring
visit was conducted at the DeVry Institutes in May 1997. In response to
20
this visit, DeVry Institutes submitted a report in May 1999 detailing the
status of the increase in library resources. The North Central Commission
has acknowledged receipt of this report but has not responded to nor
commented on its content. The next comprehensive visits remain at their
originally scheduled 2002 date.
Accreditations of the DeVry Institutes and Keller in the United States and
of the DeVry Institutes in Canada are as follows:
UNITED STATES CANADA
Commission on Institutions of The electronic engineering
Higher Education of the North technology and electronics
Central Association of Colleges and engineering technician programs are
Schools. accredited by the Canadian
Technology Accreditation Board
The baccalaureate electronics (CTAB).
engineering technology (EET)
programs at all DeVry U.S.
campuses, except North Brunswick,
Fremont and Alpharetta, and the
Electronics Technology program at
DeVry/New York, are separately
accredited by the Technology
Accreditation Commission of the
Accreditation Board of Engineering
and Technology (TAC/ABET). The
associate-level EET program at
DeVry's North Brunswick campus is
also TAC/ABET accredited. The
North Brunswick, New York, Fremont
and Alpharetta DeVry Institutes
will apply for TAC/ABET
accreditation once their first
classes have graduated.
21
Denver Technical College is accredited by the Accrediting Commission of
Career Schools/Colleges of Technology, Washington D.C. In addition, the
Medical Assistant program is accredited by the Accrediting Bureau of Health
Education Schools, Washington, D.C. and the Physical Therapist Assistant
program by The American Physical Therapy Association, Washington, D.C.
In the United States, each DeVry Institute is approved to grant associate
and bachelor's degrees by the respective state where it is located. In New
Jersey, however, authorization is at the bachelor's degree level only for
the electronics engineering technology program and at the associate degree
level for three programs - electronics engineering technology, computer
information systems and telecommunications management. Students at the
DeVry Institute, North Brunswick, are encouraged, upon completion of their
associate's degree, to transfer to other DeVry Institutes to complete
bachelor's degree requirements.
Under current Canadian law, the Canadian DeVry Institutes are not permitted
to grant degrees. However, students at the Canadian Institutes are allowed
to transfer to DeVry Institutes in the U.S. to complete their degree
requirements. In 1995, the Alberta Department of Advanced Education, the
State of Arizona and the Commission on Institutions of Higher Education of
the North Central Association of Colleges and Schools approved the DeVry
Institute in Phoenix to offer its bachelor of science degree-completion
program on the Calgary campus. This allows students attending classes at
the Calgary campus to complete their degree studies without relocating to a
campus in the United States. Students attending one of the Toronto-area
campuses may transfer to Calgary to participate in this program rather than
transferring to a DeVry campus in the United States.
Denver Technical College is authorized by the Colorado Commission on Higher
Education as a private college or university under the Degree Authorization
Act.
Keller Graduate School is authorized to operate and award degrees under
authority of the Illinois Board of Higher Education and the appropriate
approval boards in the other states in which it has operations.
22
State and Provincial Approval and Licensing
- -------------------------------------------
Authorizations from state or provincial licensing agencies or ministries
are required to recruit students, operate the Company's schools and grant
degrees. Many states and provinces require for-profit postsecondary
education institutions to post surety bonds for licensure. The Company has
posted over $5 million of surety bonds with state and local regulatory
authorities in the U.S. and more than $1 million (CDN) of surety bonds with
regulatory agencies in Canada. In Colorado, Denver Technical College has
agreed to maintain a reserve cash account in lieu of other security
arrangements. Certain states have set standards of financial
responsibility different from those prescribed by federal regulation but
the Company believes it is currently in material compliance with state and
Canadian provincial regulations. If the Company were unable to meet these
tests and could not otherwise demonstrate that it was financially
responsible, it could be required to cease operations in that state. To
date, the Company has successfully demonstrated its financial
responsibility where required.
Tuition and Fees
Effective with the spring 1999 term, tuition at most of the DeVry
Institutes in the United States for two semesters (one academic year)
ranged from $7,750 to $7,825. Variations in tuition depend on term of
enrollment. The Fremont, California, and Long Island City, New York,
Institutes, both of which began operation in fiscal 1999, charge tuition
ranging from $8,750 to $8,825. Students enrolled on less than a full time
basis are charged somewhat lower tuition. DeVry's tuition rates are
substantially below the average tuition at four-year independent
institutions but substantially higher than the average at four-year
publicly supported institutions. DeVry's increase in tuition from spring
1998 was approximately six percent. This increase approximates the rate of
increase at many other postsecondary education institutions. Based upon
current tuition rates, for a student enrolled in the DeVry Institute's 5
term electronics technician program, total tuition cost would be $19,475.
For a student enrolled in the 9 term computer information systems program,
total tuition cost based upon current rates would be $34,975.
23
Effective with the spring 1999 term, tuition in Canada ranged from $7,030
to $7,225 (CDN) for the two semester period, an increase of more than five
percent from spring 1998. Variations in tuition depend upon the campus
attended and the term of enrollment.
Tuition at Denver Technical College ranges from $12,465 for the medical
assistant program to $18,995 for the network systems administration
program. Variations in tuition depend upon the program type and length.
Effective with the September 1999, term, Keller Graduate School tuition per
course (four quarter credit hours) ranges from $1,065 to $1,305, depending
on the state in which the student is enrolled. This compares to tuition
rates from $1,010 to $1,235 implemented in September 1998. The price for
courses taken by distance education is $1,440.
The price of the complete classroom Becker CPA review course is $1,595,
which includes an enrollment fee. The price of the complete Becker CMA
review course is $1,160, which also includes an enrollment fee. The
complete CPA review course on CD-ROM is priced at $1,295.
In addition to the tuition amounts described above, students at the DeVry
Institutes, Denver Technical College and Keller Graduate School must
purchase textbooks and supplies as part of their educational program.
If a student leaves school prior to completing a term, federal, state and
Canadian provincial regulations and accreditation criteria permit the
Company to retain only a set percentage of the total tuition received from
such student, which varies with, but generally equals or exceeds, the
percentage of the term completed by such student. Amounts received by the
Company in excess of such set percentages of tuition are refunded to the
student or the appropriate funding source.
Financial Aid and Financing Student Education
- ---------------------------------------------
Students attending the DeVry Institutes finance their education through a
combination of family contributions, individual resources (including
earnings from full- or part-time employment), financial aid (including
24
Company-provided financial aid) and tuition reimbursement from their
employers.
The Company believes that more than 70% of the U.S. DeVry Institutes'
students receive some government-sponsored financial aid and that a similar
percentage of the students attending the Canadian DeVry Institutes receive
some government-sponsored financial assistance. A 1996 National
Postsecondary Student Aid Study found that approximately 80% of full-time
students attending private four-year institutions received some form of
financial aid.
A substantial portion of the students attending Denver Technical College's
day and evening programs finance their education through government aid
programs and employer tuition reimbursement plans.
The Company believes that approximately 20% of Keller Graduate School
students have received government-sponsored financial aid. In addition,
approximately 80% of Keller students receive some tuition reimbursement
assistance from their employers. Students attending the Becker CPA or CMA
review courses are not eligible for financial aid, but many of them receive
partial or full tuition reimbursement from their employers.
The DeVry Institutes assist their undergraduate students in locating part-
time employment. Data from the National Center for Education Statistics
indicates that almost half of all full-time college students between the
ages of 16 and 24 are employed. The Company believes that a substantially
greater percentage of its full-time students are employed to help finance
their costs of education. On the basis of a financial aid application
completed by the student and the student's family, the DeVry Institutes
develop an assistance package for students who require financial aid.
Government-sponsored financial aid is of great importance to the Company
because historically, approximately 70% of the DeVry Institutes' U.S.
tuition, book and fee revenues have been financed by government-provided
financial aid received by its students.
25
The government-provided financial aid and assistance programs in which many
of the Company's students participate are subject to political and
governmental budgetary considerations. The Higher Education Act guides the
federal government's support of postsecondary education. The Act was most
recently reauthorized in the fall of 1998, redefining and extending the
numerous financial aid programs currently in existence. There is no
assurance, however, that federal funding will be continued at its present
level or in its present form. A reduction in funding levels to financial
aid programs could result in lower enrollments or an increased amount of
Company-provided financial aid to its students.
The 1997 Tax Relief Act provided several new incentives to help students
finance their education. First, employer-provided undergraduate
educational assistance of up to $5,250 per year will remain excluded from
taxable income for courses beginning prior to June 1, 2000. Second, a HOPE
tax credit of up to $1,500 for each student has been provided for expenses
paid during each of the first two years of college. For college juniors,
seniors, graduate students and employees upgrading skills, a Lifetime
Learning Credit of up to $1,000 per year has been provided for expenses
paid on or after July 1, 1998. This will be increased to $2,000 after
January 1, 2003. Also, student loan interest expense during the first 60
months of payments, in amounts ranging from $1,500 in 1999 to $2,500 in
2001 and beyond, will be allowed as a deduction from taxable income.
Extensive and complex regulations in the United States and Canada govern
all of the government grant, loan and work programs in which the Company
and its students participate. Regulations and standards that an
institution must satisfy in order for its students to participate in
federal financial assistance programs include, among others, maximum
student loan default rates; limits on the proportion of an institution's
revenue that can be derived from federal aid programs; prohibition of
certain types of incentive payments to student recruiters; and financial
responsibility and administrative capability requirements.
26
In 1998, the Department of Education introduced a new standard of financial
responsibility test. The standard is based upon a composite score of three
ratios which are designed to measure various aspects of an educational
institution's financial stability. The Company believes that, based upon
its computations, for fiscal year 1999 it has demonstrated a high level of
financial stability as measured by these tests. Failure to achieve these
financial responsibility standards or otherwise demonstrate, within the
regulations, its ability to continue to provide the educational services it
offers could result in the Company being required to post a surety bond to
permit its students to continue to participate in federal financial
assistance programs. In addition to the regulations and standards which
must be met by the institution, student recipients of financial aid must
maintain satisfactory progress toward completion of their program of study
and an appropriate grade point average.
Institutions that participate in Title IV financial aid programs must
disclose information upon request about student completion rates to current
and prospective students. The federal Student-Right-To-Know Act defines
the cohort of students on which the institution must report as "first-time,
full-time degree-seeking" students. Completion rates, as defined by the
Act, at each of the U.S. DeVry Institutes generally fall within the range
of completion rates, as published by U.S. News and World Report, 1999
America's Best Colleges, at selected four-year urban public colleges in the
areas in which the DeVry Institutes operate. DeVry also admits many
students who previously attended another college and whose completion rates
are not included in these statistics. Completion rates for the students
entering DeVry with previous college experience are generally higher than
for first-time students.
The Company maintains a staff at its Oakbrook Terrace headquarters to
review, interpret and establish procedures for compliance with regulations
governing financial assistance programs. Because financial assistance
programs are required to be administered in accordance with the standard of
care and diligence of a fiduciary, any regulatory violation could be the
basis for disciplinary action, including the initiation of a suspension,
limitation or termination proceeding against the Company. Changes in or
27
new interpretations of applicable laws, rules or regulations could have an
adverse effect on the Company in the future.
In the United States, the Company has completed and submitted all required
audits of compliance with federal financial assistance programs for fiscal
1998, and its independent accountants are currently conducting the required
audits of the one year period ending June 30, 1999. The Department of
Education may periodically conduct site visits at any of the Company's
locations as a part of its program of periodic review of the administration
of student financial assistance programs. Although the Company has no
reason to believe that any proceeding against the Company is presently
contemplated, if such a proceeding were initiated against the Company and
resulted in a substantial curtailment of the Company's participation in
government grant or loan programs, the Company could be adversely affected.
In Canada, the DeVry Institutes' Toronto-area campuses were notified at the
end of August 1995, that the Ontario Ministry of Education and Training had
temporarily suspended the processing of new financial aid applications from
DeVry students pending review of inaccuracies found in applications filed
by some students. A Ministry audit of these applications, with DeVry's
full cooperation, began in September 1995, and was subsequently completed.
Effective with the spring 1996 term, which began in March 1996, the
Ministry conditionally reinstated approval for the processing of financial
aid applications. As a result of these actions, the results of operations
of the Company's Canadian operations were adversely affected. During the
third quarter of fiscal 1999, the Company successfully concluded the
resolution of all outstanding issues with the Ontario Ministry of Education
and Training, including the remaining portion of the full refund of amounts
believed to have been inappropriately disbursed. DeVry's Toronto-area
campuses have now been unconditionally reinstated as participants in the
Province's student financial aid programs.
The following is a description of the U.S. and Canadian financial aid
programs in which the Company's students participate:
28
United States Government Financial Aid Programs The following U.S.
Department of Education financial aid programs under Title IV of the Higher
Education Act are utilized by the Company's students in the United States:
(1) Federal Pell Grant ("Pell"), (2) Federal Supplemental Educational
Opportunity Grant ("SEOG"), (3) Federal Family Education Loan Program
("FFELP"), (4) Federal Perkins Direct Student Loan program ("Perkins"), (5)
Federal Work Study ("FWS") and (6) William D. Ford Federal Direct Student
Loan Program ("FDSL").
Grants These funds, made available by the government to eligible
students who demonstrate financial need, do not have to be repaid.
The Company's students are eligible to participate in the Pell and
SEOG Grant programs, which are programs for undergraduate students.
Eligible students can receive a Pell grant ranging in amount from $400
to $3,125 per year. SEOG is a supplement to the Pell grant, available
to only the neediest students because SEOG funds are limited in amount
at each institution based upon a federally determined formula. In
addition to these federal assistance funds, DeVry is required to make
a 25% institutional matching contribution of all federal SEOG funds.
The institutional matching contribution may be satisfied, in whole or
in part, by the DeVry Institutes' scholarship funds, discussed
separately in this section, or by externally provided scholarship
grants.
Loans Students at the DeVry Institutes participate in the Stafford
and PLUS programs within the FFELP and in the Perkins loan program.
STAFFORD LOANS A subsidized Stafford loan, awarded on the basis
of need, is a low interest loan with interest charges and
principal repayment not scheduled to begin until six months after
a student no longer attends school on at least a half-time basis.
An unsubsidized Stafford loan may be awarded to students who do
not meet the needs test and incurs interest charges from the time
the loan is disbursed, however, the interest payment may be
deferred until the principal payments begin.
29
PLUS LOANS A PLUS loan enables parents of dependant students to
borrow for the cost of their children's education. These loans
are not based on financial need, they are not subsidized and
interest charges and repayment begin upon receipt of the loan.
PERKINS LOANS A Perkins loan is a low interest loan available to
only those students who demonstrate exceptional financial need.
Funding for this program is provided, in part, by the Department
of Education and, in part, by the participating institution. As
loans are repaid, the principal and interest from these
repayments is returned to the pool of funds available for future
loans to students at that institution. New funding from the
Department of Education is limited in amount based upon federally
determined rules.
Historically, over 80% of the financial aid received by students
attending the Company's U.S. DeVry Institutes has been provided by
federal student loans. Students at Keller Graduate School currently
participate in the FDSL and FFELP, which represent 100% of the federal
financial aid received by these students.
In 1993, Congress passed legislation creating the Direct Student Loan
Program. Under this program, students may complete all loan
application and processing steps at their educational institution.
Besides the benefit of one-stop processing, which can be done at the
institution in conjunction with the application for aid under other
programs, this loan program offers other benefits to student borrowers
such as income-based repayments, lower loan fees and lower loan
interest rates. The U.S. Congress has considered various proposals to
eliminate this program or to cap loans made under this program at some
percentage of all federal student loans until there is more experience
with its success and realized cost savings. Federal student loans
would remain available to the Company's eligible students under the
Stafford program should direct student loan availability be curtailed.
30
Work Study Work Study wages are 75% paid from federal funds and 25%
from qualified employer funds. Work opportunities, both on or off-campus,
under FWS are offered on a part-time basis by the U.S. DeVry
Institutes to undergraduate students who demonstrate financial need.
Starting in the fall of 1999, college students can use the Internet to seek
and manage financial aid as a part of a new pilot program. This program is
part of a larger federal effort to cut costs and expand access to services.
The DeVry Institute in Addison (Chicago), Illinois, was chosen as one of
just seven schools to participate in this pilot program.
State Financial Aid Programs In addition to the various federal loan and
grant programs, state grant assistance may be received by eligible students
attending DeVry Institutes in Arizona, California, Georgia, Illinois, Ohio
and New Jersey.
Denver Technical College Students attending Denver Technical College
participate in the same federal undergraduate financial aid programs as
students attending a DeVry Institute. In addition, there are several State
of Colorado programs available for students at DTC.
A new provision of the Higher Education Act Amendments of 1998 allows
institutions that undergo a change in ownership resulting in a change in
control to continue to receive Title IV funding while the application for
approval of the change is being reviewed. The Company believes that it has
complied with all of the appropriate requirements and that students
attending Denver Technical College will continue to receive financial aid
without interruption or delay.
"85/15 Rule" This U.S. Department of Education regulation affects only
for-profit postsecondary institutions, such as the Company. Under this
regulation, students attending a for-profit institution that derived more
than 85% of its revenues from federal financial assistance programs in any
year were not able to participate in these programs for the following year.
This regulation is commonly referred to as the "85/15 rule." In 1999, this
rule was changed to 90%/10%, but the definition of revenues was modified to
31
exclude institutional scholarships. Final data for fiscal 1999 is not yet
complete but, in 1998, the U.S. Institutes derived less than 70% of their
revenues from these programs and only one institute within the DeVry system
derived more than 80% of its revenues from these programs. In 1997, the
U.S. Institutes derived approximately 68% of their revenues from these
defined federal assistance programs.
Keller Graduate School derived approximately 20% of its 1998 and 1997
revenues from these defined aid programs.
Each of the DeVry Institutes (except for the Long Beach, California,
Institute, which currently operates as an additional location of the
Pomona, California, Institute, the Fremont, California, Institute which
currently operates as an additional location of the Phoenix, Arizona,
Institute, the Alpharetta, Georgia, Institute, which currently operates as
an additional location of the Decatur, Georgia, Institute and the Long
Island City, New York, Institute, which currently operates as an additional
location of the Columbus, Ohio, Institute), Denver Technical College and
Keller is established as a separate institution under the Higher Education
Act ("HEA") provisions and must separately meet the criteria for the now
"90/10 rule" and for loan default rates.
Canadian Government Financial Aid Programs Canadian students, other than
students from Quebec, are eligible for loans under the Canada Student Loan
Plan, which is financed by the Canadian government but administered at the
provincial level. Canadian Student Loans are available to students who are
Canadian citizens or a permanent resident of Canada enrolled at approved
postsecondary institutions. Students from Quebec are eligible for loans
under the Quebec Student Loan Plan. The loans are interest-free while the
student is in school, and repayment begins six months after the student
leaves school. Canada Study Grants for students whose financial needs and
special circumstances cannot otherwise be met, tax-free withdrawals from
retirement savings plans, tax-free education savings plans, loan repayment
extensions and interest relief on loans are also available to qualified
32
applicants to help finance their education. All other forms of government
financial aid in Canada, both loans and grants, are financed and
administered by the provinces.
Postsecondary institutions whose students participate in the Ontario
Student Loan program are now required to make available to prospective
students information about graduation rates and student loan default rates.
In addition, postsecondary institutions whose student default rates exceed
certain thresholds will be required to provide the Ontario Ministry of
Education and Training with a security deposit for loan default losses that
might exceed the regulatory threshold. The Company's Toronto-area campuses
have posted the required surety bond and promissory note and believe that
full compliance with these regulations will not have a material effect on
their operations.
Company-Provided Financial Assistance The Company's EDUCARD Plan is
available to students attending the U.S. DeVry Institutes. The EDUCARD
Plan is an installment loan program designed to assist students unable
completely to cover educational costs with student and family
contributions, federal and state grants and loans. The installment loan
feature of the EDUCARD Plan is available to a student only after other
student financial assistance has been applied toward the payment of
tuition, books and fees and is available only for those purposes.
Repayment of EDUCARD Plan balances is worked out in accordance with the
financial circumstances of the particular student, but is typically on a
monthly basis with all balances required to be paid within 12 months
following a student's graduation or termination of study. The receivable
balance related to Company-provided financial aid at the U.S. DeVry
Institutes at June 30, 1999, was approximately $13.0 million. In 1999,
accounts receivable increased at approximately the same rate as tuition
revenues. Amounts owed by students under the EDUCARD Plan are subject to a
monthly interest charge of 1% of the average outstanding balance. In
Canada, to assist students who are unable to pay their tuition in full at
the start of each term, students are allowed to participate in a multi-payment
plan over the length of each semester.
33
In addition to the student financial assistance provided by the EDUCARD
Plan, the U.S. and Canadian DeVry Institutes offer a Dean's Scholarship
national competition and a Presidential Scholarship campus competition to
current high school graduates. The Dean's scholarships are renewable
partial scholarship awards to high school seniors who apply to DeVry and
submit qualifying ACT/SAT scores. Presidential Scholarships, which cover
full tuition for any of DeVry's full-time degree programs, are limited to
two per campus. Similar scholarship offers have been made to high school
graduates in previous years and are expected to be offered in the future.
To attract students who attend community or junior colleges, the U.S. DeVry
Institutes also offer a limited number of half-tuition scholarships to
recent graduates from an accredited community/junior college. The DeVry
Institutes have also provided funds in the form of institutional grants
which help students most in need of financial assistance.
At Keller, students who wish to defer tuition payment may choose from a two
or three-payment plan and students eligible for tuition reimbursement plans
may be able to have their tuition billed directly to their employer.
Student Loan Defaults
- ---------------------
The Company believes that, historically, federal student loans represented
more than 80% of the federal aid received by students at the U.S. DeVry
Institutes and 100% of the federal aid received by students at Keller
Graduate School. For a variety of reasons, high student loan default rates
on federal student loans are most often found in proprietary institutions,
institutions having large minority populations and community colleges, all
of which tend to have a higher percentage of low income students enrolled
than do four-year publicly supported and independent colleges and
universities. In 1989, the U.S. Department of Education instituted strict
regulations that penalize educational institutions whose students have high
loan default rates. These regulations were further tightened by the 1992
Higher Education Reauthorization Act. Any individual institution with a
FFELP or FDSL cohort default rate exceeding 20% for the year is required to
develop a default management plan in order to reduce defaults, although the
institution's operations and its students' ability to utilize student loans
34
are not restricted. Any individual institution with a FFELP or FDSL cohort
default rate of 25% or more for three consecutive years is ineligible for
participation in these loan programs and cannot offer student loans
administered by the U.S. Department of Education for the fiscal year in
which the ineligibility determination is made and for the two succeeding
fiscal years. In addition, students attending an institution whose cohort
default rate has exceeded 25% for three consecutive years will be
ineligible for Pell grants. Any institution with a FFELP or FDSL cohort
default rate of 40% or more in any year is subject to immediate limitation,
suspension or termination proceedings from all federal aid programs. No
DeVry Institute has ever had a FFELP cohort default rate of 25% or more for
three consecutive years nor a cohort default rate of 40% or more in any one
year. Due to the recent introduction of the FDSL program, default rates
for this program have not yet been reported.
The Company carefully monitors its students' loan default rate. To help
reduce student loan default rates, the Department of Education requires
that all educational institutions wait 30 days before disbursing funds to
first-time, first-year undergraduates to prevent potential early-term
dropouts from defaulting on their loans. Students who leave school in the
early part of their educational program typically default on their loans at
a higher rate than those students who remain and complete the course.
Another significant factor in controlling student loan default rates is the
servicing and collection efforts by lenders and guaranty agencies. The
Company assists the efforts of these lenders and agencies by contacting its
students who are delinquent in their loan repayments and advising them of
their responsibilities and rights to deferments or collection forbearance
if they are eligible.
According to preliminary, pre-published reports by the U.S. Department of
Education, the U.S. DeVry Institutes had FFELP student loan cohort default
rates for 1997 (the latest year for which statistics are available) ranging
from 3.5% to 22.9%. The weighted average FFELP cohort default rate is
preliminarily reported at approximately 15.1%. The reported rates for 1997
reflect the proportion of former students who were due to begin repaying
their loans during that year but who were in default by the end of 1998.
35
Cohort default rates are subject to revision by the Department of Education
as new data becomes available and are subject to appeal by schools
contesting the accuracy of the data. For 1996 (the latest year for which
"final" statistics are available), the U.S. DeVry Institutes' weighted
average FFELP cohort default rate was 16.8%.
No DeVry Institute had a FFELP cohort loan default rate greater than 25% in
1994, 1995, 1996 or 1997. Default rate management plans and reduction
initiatives have been implemented at each institute. No DeVry Institute is
subject to any restrictions or termination under the student loan program.
Students who attend the U.S. DeVry Institutes also participate in the
Federal Perkins loan program. The program, including the responsibility
for collection of outstanding loans, is administered by the institution.
Any institution with a Perkins loan cohort default rate exceeding 15% must
establish a default reduction plan. Any institution with a Perkins loan
cohort default rate between 20% and 30% will receive a reduced annual
federal contribution to the program. If the Perkins loan cohort default
rate exceeds 30%, the institution will not receive any new federal
contribution to the program. However, new loans to eligible students may
continue to be made from the pool of funds created by monthly repayments on
previous loans.
The DeVry Institutes Perkins loan cohort default rates for 1998 (the latest
year for which statistics are available) range from 12.0% to 25.6%. The
U.S. DeVry Institutes weighted average Perkins loan cohort default rate was
21.7%. For 1997, the DeVry Institutes' Perkins loan default rates ranged
from 14.7% to 36.8%, and the U.S. DeVry Institutes weighted average Perkins
loan cohort default rate was approximately 25.0%. Several institutes
receive reduced or no new funding for the Perkins loan program because
their default rates exceed the regulatory thresholds. At these institutes,
new loans continue to be granted from the revolving loan fund, but at lower
levels then if new federal funding were received. Because of the
relatively small amounts of funding available for this program, the reduced
level of funding has not had a material effect on the availability of total
financial aid available to DeVry students. Student counseling and
36
additional collection efforts have been implemented at each institute and
have, in part, contributed to the current reduction in default rates.
Career Services
- ---------------
The Company believes that the employment of its graduating students is
essential to its ability to attract and retain students. Currently, more
than 100 career services professionals are located at the U.S. DeVry
Institutes, working with students in the areas of career choice activity,
resume preparation and job interviewing. The staff also maintains contact
with local and national employers to determine job opportunities and
arrange interviews. In many cases, company hiring representatives conduct
interviews at an institute campus.
The shortage of skilled employees has placed an increased premium on
educated workers in our economy as evidenced by the widening gap in wages
of college vs. high-school graduates to 100% or more today from
approximately 50% in 1980. By the year 2000, it is estimated that 85% of
the jobs in the United States will require education or training beyond
high school, up from only 65% as recently as 1991.
The DeVry Institutes attempt to gather accurate data on the number of its
graduates employed in education-related positions within six months
following graduation. To a large extent, the reliability of such data is
dependent on the information that graduates report to the DeVry Institutes.
At the U.S. DeVry Institutes, there were more than 44,000 graduates over
the ten-year period ending October 1998, who were eligible for career
services assistance (i.e. excluding graduates who continued their
education, students from foreign countries not legally eligible to work in
the U.S., etc.). Of the more than 42,000 graduates who actively pursued
employment or were already employed, 93% held positions in their chosen
fields within six months of graduation.
Full and part-time U.S. degree and diploma program graduates for the three
classes which ended in calendar year 1998, and for the three classes which
37
ended in calendar year 1997, were employed in their chosen field within six
months of graduation, based on data reported to the DeVry Institutes, as
follows:
THE U.S. DEVRY INSTITUTES' GRADUATE EMPLOYMENT STATISTICS
Percent of
Graduates
Who
Number of Actively
Graduates Pursued
Who Number of and
Actively Graduates Obtained
Pursued Employed Employment
Employment in and Those Percent
Number or Were Education Who were Of Net
of Net Already Related Already Graduates
Graduates(1) Employed(2) Positions Employed(2) Employed(1)
------------ ----------- --------- ----------- -----------
Calendar Year
1998 Graduating
Classes (2/98,
6/98, 10/98) 4,822 4,734 4,538 95.9% 94.1%
Calendar Year
1997 Graduating
Classes (2/97,
6/97, 10/97) 4,503 4,419 4,290 97.1% 95.3%
- ------------------------------
(1)Net graduates exclude students continuing their education, students
from foreign countries who are legally ineligible to work in the United
States and students ineligible for employment because of extreme
circumstances.
(2)Does not include students who actively pursued employment for less
than 6 months and did not obtain employment.
The 1998 graduates achieved average annual starting compensation that
varied by program of study, ranging from $27,156 to $40,159. Individual
compensation levels vary depending upon the graduate's experience, program
of study and geographical area of employment.
38
In Canada, for the three classes which ended in calendar year 1998, 92.2%
of those graduates who actively pursued employment had obtained employment
or were already employed in their chosen field within six months of
graduation. This includes those students who received diplomas, who
received bachelor's degrees through the DeVry Phoenix Institute's degree
completion program in Calgary and those students who completed their degree
requirements at a U.S. DeVry Institute.
The majority of employers of the DeVry Institutes' graduates are in the
electronics or information processing industries. The Company believes
that no single employer has hired more than 5% of the DeVry Institutes'
graduates in recent years. Major employers of the DeVry Institutes'
graduates include the following companies: Andersen Consulting Group,
Applied Materials, AT&T, Cellular One, Eastman Kodak, EDS, General Electric
Company, Hewlett-Packard, IBM, Intel Corp, MCI, Motorola and Xerox.
At DTC, Career Services Department personnel assist students in resume
preparation, job search strategies and interviewing skill development. To
further assist its students in obtaining employment upon graduation, DTC
offers a unique Skills Guarantee Program. This program guarantees to
qualified employers that the DTC graduate possesses a specific set of job
skills. If an employer hires a graduate who fails to demonstrate these
skills, DTC will reimburse the employer the graduate's first month's
salary, up to $1,500.
Keller Graduate School maintains a career services office to assist current
and past graduates. This office offers a full range of services designed
to enhance each individual's career development skills and is available to
graduates, at no charge, on a lifetime basis.
Seasonality
- -----------
The Company's business is somewhat seasonal. Highest enrollment and
revenues at the DeVry Institutes, DTC and Keller typically occur during the
fall back-to-school period which corresponds to the second and third
quarters of the Company's fiscal year. Slightly lower enrollment is
experienced in the spring, and the lowest enrollment occurs during the
39
summer months. Becker experiences higher enrollments for its courses
beginning in June and July leading to the fall CPA exam than for its
classes beginning in December and January leading to the spring CPA exam.
Results of operations reflect both this seasonal enrollment pattern and the
pattern of student recruiting activity costs that precede the start of
every term. Revenues, income before interest and taxes and net income by
quarter for each of the past two fiscal years are included in Note 9 to the
Company's Consolidated Financial Statements, Quarterly Financial Data.
Administration and Employees
- ----------------------------
Each of the DeVry Institute's campuses is managed by a president and has a
staff of academic deans, faculty and academic support staff, career service
and student service personnel and other professionals. Each campus also
has an admissions director who reports to the Company's vice president of
admissions. A similar organizational structure is employed at DTC. Each
Keller Graduate School center is managed by a center director and has
admissions representatives and appropriate center support staff.
The Company has more than 3,200 regular full- and part-time employees.
Over 300 of these employees, or slightly less than 10% of the total work
force, are at the corporate headquarters in Oakbrook Terrace, Illinois,
including Keller Graduate School management and staff. In addition, the
Company employs as many as 1,400 students during peak periods as faculty
assistants and in other part-time positions. Becker is managed by an
administrative staff headquartered in Los Angeles and Oakbrook Terrace and
by regional administrative staffs which support instructors and coordinate
local recruiting efforts. None of the Company's employees is represented
by a union. The Company believes that its relationships with its employees
are satisfactory.
Faculty
- -------
Each DeVry Institutes' campus president hires academic deans and faculty
members in accordance with criteria established by the Company and
40
applicable state law. Most faculty members teaching in technical areas
have related industry experience. The DeVry Institutes have initiated
sabbatical and other leave programs to allow faculty to engage in
developmental projects or consulting opportunities to maintain and enhance
their currency and teaching skills. Faculty members are evaluated each
semester based on student comments and observations by an academic dean.
There are approximately 800 full-time faculty members among all of the
DeVry Institutes' campuses. More than 80% of the U.S. DeVry Institutes'
faculty members hold advanced academic degrees. In Canada, more than 60%
of the faculty hold advanced academic degrees. In addition, DeVry
Institutes engage part-time, adjunct and visiting faculty, as needed,
mostly in the evening programs. Recruiting qualified new faculty members
for some upper term technical courses has become more difficult as the
economic expansion cycle continues. In some classes, regular full-time
faculty have been supplemented with adjunct faculty teaching on a part-time
basis while maintaining employment in their technical field of specialty.
Keller Graduate School faculty members are practicing business
professionals who are engaged to teach on a course-by-course basis. A
multi-session training course is used to train and develop new faculty
throughout Keller's national system. Over the past several years, Keller
has begun selectively utilizing full-time faculty to respond to student
demand in rapidly developing areas and to meet licensing approval
requirements in certain states. Less than 10% of Keller's instructors,
excluding staff members who regularly teach, are full-time employees. More
than 90% of Keller's faculty have advanced degrees. Keller draws upon more
than 700 active faculty who teach courses as needed throughout the year.
Becker's faculty, numbering more than 500 each term, are primarily
practicing professionals who teach part-time on a course-by-course basis.
41
Trademarks and Service Marks
- ----------------------------
The Company owns and uses numerous trademarks and service marks including
"DeVry Institute of Technology" and variants thereof. All trademarks,
service marks and copyright registrations associated with the business are
registered in the name of the Company or one of its subsidiaries and expire
over various periods of time. The Company vigorously defends against
infringements of its trademarks, service marks and copyrights.
42
ITEM 2 - PROPERTIES
- --------------------
DeVry Institutes
- ----------------
The DeVry Institute campuses are located in both suburban communities and
urban neighborhoods. They are easily accessible to major thoroughfares.
Each Institute campus includes teaching facilities, admissions and
administrative offices. Teaching facilities are housed in modern buildings
that include classrooms, laboratories, libraries, bookstores and student
lounges. Electronics laboratories include PC-based instrumentation and
microprocessor development/circuit simulation systems along with analog and
digital oscilloscopes, digital multimeters, power supplies, signal
generators and other equipment. Computer laboratories include both stand-alone
and networked PC-compatible workstations that support all curricula
areas. Resources available to students include access to a central
mainframe owned and operated by a third party, UNIX and numerous software
packages supporting a variety of business, engineering and scientific
applications. Connections to the Internet and World Wide Web are included
through the computer laboratories as a part of the program curriculum.
Telecommunications laboratories provide central office simulation, PBX
administration, inter-networking and teaching LAN environments.
None of the DeVry Institute campuses or the Denver campus of DTC, which are
owned by the Company, are subject to a mortgage or other indebtedness.
A new DeVry Institute began operation in July 1997 in Alpharetta (Atlanta),
Georgia, in a build-to-suit, leased campus of approximately 65,000 square
feet.
In the fourth quarter of fiscal 1997, the Company completed the purchase of
land in Fremont (San Francisco), California, for construction of a campus
to serve the Northern California area. This campus opened for classes in
July 1998, the start of the summer term, in a 99,000 square foot Company-owned
facility.
In Calgary (Alberta), Canada, the Company leased a new build-to-suit campus
of approximately 70,000 square feet to replace its former location.
43
Classes were offered in this new and larger facility in July 1998, the
start of the summer term.
In the Toronto-area, the Company consolidated its operations into its two
newer campuses in Scarborough and Mississauga, Ontario. Effective with the
summer 1998 term, classes were no longer offered in the original North York
location. Additional space was leased in both Scarborough and Mississauga
to accommodate this consolidation.
In New York, the Company completed renovation on a leased site in Long
Island City. Classes were offered for the first time in November 1998, the
start of the fall term. Initially occupying approximately 96,000 square
feet, plans are underway to expand the campus by 59,000 square feet for
occupancy in fiscal 2001.
44
The table below sets forth certain information regarding each of the
properties at which the DeVry Institutes conducted educational operations
at June 30, 1999:
DeVRY INSTITUTE CAMPUSES
Full and
June 1999 Part-Time
Area Students
(Approximate Attending
Square Feet) Spring 1999 Ownership
------------ ----------- ---------
Phoenix, Arizona 120,200 3,442 Owned
Alpharetta (Atlanta), Georgia 65,000 941 Leased
Decatur (Atlanta), Georgia 107,500 2,854 Owned
Chicago, Illinois 104,850 3,658 Owned
Addison (Chicago), Illinois 91,600 3,768 Leased
Kansas City, Missouri 74,500 2,517 Owned
Columbus, Ohio 106,480(1) 3,041 Owned
North Irving (Dallas), Texas 95,250 2,774 Leased
Long Island City, New York 96,000 714 Leased
Pomona (Los Angeles), California 100,500 3,516 Leased
Long Beach (Los Angeles),
California 98,240 2,403 Leased
Fremont (San Francisco),
California 99,000 958 Owned
North Brunswick, New Jersey 99,000 3,318 Owned
Calgary, Alberta, Canada 70,000 1,285 Leased
Scarborough (Toronto), Ontario,
Canada 44,800 820 Leased
Mississauga (Toronto), Ontario,
Canada 60,600 1,012 Leased
------
37,021
======
- --------------------------
(1) Includes 14,400 square feet of modular buildings.
A parcel of land was purchased in the fourth quarter of fiscal 1997 in the
San Fernando Valley, California, for construction of a third campus in the
Los Angeles area. Purchase of an adjoining parcel of land, necessary to
complete the site, was completed in August 1997. Construction is nearly
complete on this 105,000 square foot Company-owned facility. Classes are
scheduled to be offered beginning in November 1999 for the fall term.
In Phoenix, Arizona, Pomona, California, and Kansas City, Missouri, the
Company leases additional space in adjacent office buildings in order to
45
relocate some administrative functions, permitting that space within the
campus building to be used for additional classrooms and laboratories.
These expansions were necessary to accommodate increased student
enrollments.
At the Chicago DeVry Institute, construction began in 1998 on a 55,000
square foot expansion. Located on the same Company owned property and
adjacent to the existing facility, this expansion, which is expected to be
available in November for the fall 1999 term, will permit further
enrollment growth and an enhanced environment for the students, faculty and
staff.
In fiscal 1999, the Company purchased approximately 16.9 acres of land in
Tinley Park (Chicago), Illinois, for construction of a 72,000 square foot
DeVry Institute with classes scheduled to be offered for the first time in
the summer 2000 term.
Renovation and expansion of the Columbus DeVry Institute was begun in 1999.
This project, which will take several years to complete, will add
approximately 24,000 square feet of space to the building and replace the
14,400 square feet of adjacent modular space currently in use.
Negotiations are currently under way with the owner of the DuPage (suburban
Chicago) Institute to acquire an additional parcel of land and add
approximately 20,000 square feet of classroom and administrative space.
Additional DeVry Institute facility renovations and expansions may be
undertaken in the future to improve and expand operations in these
locations.
Denver Technical College operates in an approximately 70,000 square foot
Company-owned facility in Denver housing both administrative and classroom
space. In addition, classes are conducted at a leased site in Colorado
Springs with approximately 28,000 square feet of space.
46
Keller Graduate School
- ----------------------
Keller centers are housed in modern buildings whose locations are chosen
primarily for their convenience to students. Keller centers, which mostly
range in size from approximately 4,000 to 10,000 square feet, include
teaching facilities, admissions and administrative offices. Each Keller
facility has an information center designed to enhance students' success
and to support coursework requiring data and information beyond that
provided in course texts and packets. The information centers include
personal computers; all software required in courses; Internet access;
alternate texts; sample business plans; popular business periodicals;
videos of selected courses; a career services video and texts, and access
to more than three hundred electronic data-bases.
During fiscal 1999, Keller opened five new teaching centers, including its
distance education center. Additional new centers are planned for opening
in fiscal 2000 and beyond.
At the start of the April 1999 term, the last complete term in fiscal 1999,
approximately 5,555 course-takers were enrolled in Keller's classroom and
distance education programs. The table below sets forth certain
information regarding each of the properties at which Keller conducted
educational operations in the April, 1999, term:
47
KELLER GRADUATE SCHOOL CENTERS
April 1999
Ownership
----------
Chicago, Illinois Leased
Schaumburg, Illinois Leased
Lincolnshire, Illinois Leased
Oakbrook Terrace, Illinois (1)
Lisle, Illinois Leased
Orland Park, Illinois Leased
Elgin, Illinois Leased
Merrillville, Indiana Leased
Tysons Corner, Virginia Leased
Crystal City, Virginia Leased
Milwaukee, Wisconsin Leased
Waukesha, Wisconsin Leased
St. Louis, Missouri Leased
St. Louis, Missouri (downtown) Leased
Kansas City, Missouri (2)
Kansas City, Missouri (downtown) Leased
Phoenix, Arizona (2)
Scottsdale, Arizona Leased
Mesa, Arizona Leased
Decatur, Georgia (2)
Atlanta, Georgia Leased
Alpharetta, Georgia (2)
Buckhead, Georgia Leased
Pomona, California (2)
Long Beach, California (2)
Irvine, California Leased
San Diego, California Leased
Fremont, California (2)
Tampa Bay, Florida Leased
Orlando, Florida Leased
Distance Learning (1)
- ------------------------
(1)Operates at the Company's corporate headquarters location
(2)Operates on a DeVry Institute campus
Becker
- ------
Becker is headquartered both in leased offices in Encino, California, and
at the Company's corporate headquarters in Oakbrook Terrace, Illinois.
Classes are conducted in leased facilities, fewer than twenty of which are
leased on a full-time basis. The remainder of the classes are conducted in
48
facilities which are leased on an as-needed basis, allowing classes to be
expanded or relocated as enrollments require. Becker classes are also
currently offered on several DeVry Institute campuses and at Keller
Graduate School centers where the location and facility availability are
appropriate.
Corporate
- ---------
The Company's administrative offices are located in approximately 80,000
square feet of leased space in an office tower in Oakbrook Terrace,
Illinois. In addition, the Company leases more than 18,000 square feet of
storage and other miscellaneous use space at this facility. Negotiations
are under way with the landlord to secure both additional office and
miscellaneous use space.
The Company's leased facilities are occupied under leases whose remaining
terms range from one to 14 years. A majority of these leases contain
provisions giving the Company the right to renew its lease for additional
periods at various rental rates.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
The Company is subject to occasional lawsuits, investigations and claims
arising out of the normal conduct of its business. Neither the Company nor
any of its subsidiaries is currently a party to any legal proceeding which
the Company believes is material. Although the outcomes of these lawsuits
cannot be predicted with certainty, the Company believes the resolution of
these matters will not have a material effect on the Company's financial
position, results of operations or liquidity.
In fiscal 1996, the Ontario Ministry of Education and Training temporarily
suspended and later conditionally reinstated the processing of financial
aid applications for students attending the Company's Toronto-area schools.
During the third quarter of fiscal 1999, the Company successfully concluded
the resolution of all outstanding issues with the Ontario Ministry of
Education and Training, including the full refund of amounts believed to
49
have been inappropriately disbursed. DeVry's Toronto-area campuses have
now received full unconditional reinstatement as a participant in the
Province's student financial aid programs.
In July, 1996, the Company and DeVry Canada were served with a purported
class action lawsuit in Canada by a former student alleging breach of
contract and misrepresentation about the quality of the DeVry Institutes'
educational programs, seeking up to CDN $400 million in compensatory and
punitive damages. In July 1998, the Canadian court rejected the
plaintiffs' motion to certify the lawsuit as a class action in the Province
of Ontario.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year.
50
EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age and current position of
each executive officer of the Company
are:
Name, Age and Office Business Experience
- -------------------- -------------------
Dennis J. Keller . . . . . . . . . . . 58 Mr. Keller co-founded Keller
Chairman of the Board and Chief Graduate School in 1973. From the
Executive Officer inception of the Company, Mr.
Keller has been Chairman of the
Board and Chief Executive Officer.
Mr. Keller is a graduate of
Princeton University and holds a
Masters degree in Business
Administration from the University
of Chicago Graduate School of
Business.
Ronald L. Taylor . . . . . . . . . . .55 Mr. Taylor co-founded Keller
Director, President and Chief Graduate School in 1973 and has
Operating Officer been a director since its
inception. Mr. Taylor was Dean of
Keller Graduate School from its
inception until 1981, when he
became President and Chief
Operating Officer of KGSM. Mr.
Taylor is a graduate of Harvard
University and holds a Master of
Business Administration degree
from Stanford University.
Marilynn J. Cason. . . . . . . . . . .56 Ms. Cason joined the Company in
Senior Vice President, General 1989 with responsibility for the
Counsel and Corporate Secretary Company's legal affairs and human
resources. In her current position
as a Senior Vice President, Ms.
Cason has responsibility for
facilities planning, purchasing
and management information systems
addition to her responsibilities
for legal affairs and human
resources.
51
Michael J. LaForte . . . . . . . . . .53 Mr. LaForte joined the Company in
Senior Vice President 1996. Prior to joining DeVry, Mr.
LaForte served as executive vice
president of XL/Datacomp after
spending 12 years at IBM in a
variety of regional and national
marketing positions. Mr. LaForte
is responsible for the operations
of the DeVry Institutes, including
student recruitment.
O. John Skubiak. . . . . . . . . . . .53 Mr. Skubiak joined Keller Graduate
Senior Vice President School more than 19 years ago,
progressing from admissions
representative to Dean of Keller
Graduate School. In his current
position as a Senior Vice
President of the Company,
Mr. Skubiak has responsibility for
the Company's marketing, other
than sales, and the operations of
Keller and Becker Becker CPA
Review.
Norman M. Levine . . . . . . . . . . .56 Mr. Levine has been Controller of
Vice President, Controller and the Company since 1987 and has
Chief Financial Officer been the Chief Financial Officer
since 1989. From 1982 to 1987,
Mr. Levine was Controller of the
DeVry Institutes.
Jack L. Calabro. . . . . . . . . . . .57 Mr. Calabro joined DeVry in 1999
Vice President, Human Resources as Vice President of Human
Resources. Prior to joining DeVry,
Mr. Calabro was vice chancellor of
human resources at City Colleges
of Chicago and vice president of
human resources at Helene Curtis
Industries.
Thomas F. Donini . . . . . . . . . . .49 Mr. Donini joined DeVry in 1982,
Vice President, Field Recruitment serving in a variety of recruiting
positions. Appointed to his
current position in 1999, his
responsibilities include the more
than 250 DeVry Institute sales
representatives who make career
presentations at over 10,000 high
schools in North America each
year.
52
James A. Dugan . . . . . . . . . . . .53 Mr. Dugan joined the Company in
Vice President, Regional 1980 serving in a number of
Operations operating positions at the Phoenix
DeVry Institute, most recently as
its president. In his current
position, Mr. Dugan is responsible
for the operation of several of
the U.S. DeVry Institutes.
George W. Fisher . . . . . . . . . . .47 Mr. Fisher joined the Company as
Vice President, Regional Vice President, Canadian
Operations Operations in 1985. His
responsibilities currently include
operations of several of the DeVry
Institutes in the U.S. and Canada.
Bruno LaCaria. . . . . . . . . . . . .57 Mr. LaCaria joined the Company in
Vice President, Chief Information August 1998 as Vice President and
Officer chief information officer. Prior
to joining the Company,
Mr. LaCaria was the Director of
Information Systems at the
University of Pittsburgh.
Patrick L. Mayers. . . . . . . . . . .59 Dr. Mayers joined Keller Graduate
Vice President, Academic Affairs School in 1978 as Dean of Academic
Affairs. Dr. Mayers, who obtained
his B.A., M.A., M.B.A., and Ph.D.
Degrees from the University of
Chicago, was elected an officer of
the Company in 1987. Dr. Mayers
served as Vice President of
Academic Affairs for Keller until
1997 at which time he became the
Vice President of Academic Affairs
for the DeVry Institutes.
Gerald Murphy. . . . . . . . . . . . .52 Mr. Murphy joined the Company in
Vice President, Institutional late 1995 as a Vice President with
Development responsibility for the operation
of several of the DeVry Institutes
in the U.S. and Canada. He is
currently responsible for new
DeVry Institute location and
program development. Prior to
joining the Company, Mr. Murphy
served as a Vice President of
Educational Management Corp. and
of the Universal Technical
Institute.
53
James Otten. . . . . . . . . . . . . .50 Dr. Otten joined the Company in
Vice President, Regional late 1995 as a Vice President with
Operations responsibility for the operation
of several of the U.S. DeVry
Institutes. Prior to joining the
Company, Dr. Otten served as
President of the Katherine Gibbs
School in Boston and of the Brown
Institute in Minneapolis.
Sharon Thomas-Parrott. . . . . . . . .48 Ms. Thomas-Parrott joined the
Vice President, Government Company in 1982 after several
Relations years as an officer in the U.S.
Department of Education's Office
of Student Financial Assistance.
She served the Company in several
student finance positions before
being elected to her current
position which includes
responsibility for both student
finance and government relations.
Jane Perlmutter. . . . . . . . . . . .51 Dr. Perlmutter joined the Company
Vice President, Regional in 1997 as a Vice President with
Operations responsibility for the operation
of several U.S. DeVry Institutes.
Prior to joining the Company, Dr.
Perlmutter managed the Bellcore
Training & Education Center in
Lisle, Illinois.
Kenneth Rutkowski. . . . . . . . . . .52 Mr. Rutkowski joined the Company
Vice President, Operations in 1985 as Director of Operations
Services and Administration and Administrative Services and
was promoted to his current
position in 1991. His current
responsibilities include managing
the Company's real estate and
various administrative functions.
Vijay Shah . . . . . . . . . . . . . .48 Mr. Shah joined the Company in
Vice President, Admissions 1977 progressing from
representative in a DeVry
Institute admissions office to
director of admissions. He has
been DeVry's National Director of
Admissions since 1989 and was
promoted to his current position
in August 1994.
54
Edward J. Steffes. . . . . . . . . . .49 Mr. Steffes joined the Company in
Vice President, Marketing 1984 as director of marketing and
was promoted to his current
position in 1986. Mr. Steffes is
responsible for the Company's
advertising, sales promotion and
public relations.
55
PART II
ITEM 5 - MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
- ----------------------------------------------------------
STOCKHOLDER MATTERS
- -------------------
(a) Market Information
The Company's common stock is traded on the New York Stock Exchange and the
Chicago Stock Exchange under the symbol "DV."
The following table sets forth the high and low sales price information by
quarter for the past two years. All sales price information has been
restated to reflect the Company's two-for-one stock splits, in the form of
a 100% stock dividend, effective June 19, 1998, and December 18, 1996.
FISCAL 1999 FISCAL 1998
------------------- -------------------
HIGH LOW HIGH LOW
------------------- -------------------
First Quarter $26 3/4 $17 1/8 $15 3/16 $12 7/8
Second Quarter 30 5/8 16 1/16 16 1/2 12 1/2
Third Quarter 30 3/8 24 1/4 17 13/16 14
Fourth Quarter 31 7/8 20 22 3/8 16 3/8
(b) Approximate Number of Security Holders
- ------------------------------------------
There were 718 holders of record of the Company's common stock as of
September 1, 1999. The number of holders of record does not include
beneficial owners of its securities whose shares are held by various
brokerage firms and other financial institutions. The Company believes
that there are over 10,000 beneficial holders of its common stock.
Dividends
- ---------
The Company is a holding company and, as such, is dependent on the earnings
of its subsidiaries for funds to pay cash dividends. Cash flow from the
Company's subsidiaries may be restricted by law and is subject to some
restrictions by covenants in the subsidiaries' debt agreements. The
Company has not paid any dividends on its common stock and expects for the
56
foreseeable future to retain all of its earnings from operations for use in
the Company's business. From time to time, the board of directors will
review the Company's dividend policy. Any payment of dividends will be at
the discretion of the board of directors and will be dependent on the
earnings and financial requirements of the Company and other factors as the
board of directors deems relevant.
ITEM 6 - SELECTED FINANCIAL DATA
- --------------------------------
Selected financial data for the Company for the last five years is included
in the exhibit, Five-Year Summary - Operating, Financial and Other Data,
on page 93 of this report.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto appearing
elsewhere in this report.
All references in the financial statements to the number of shares
outstanding and per share amounts have been restated to reflect the
Company's two-for-one stock splits effective December 18, 1996 and
June 19, 1998.
Fiscal Year Ended June 30, 1999, vs. Fiscal Year Ended June 30, 1998
- --------------------------------------------------------------------
Tuition revenues in fiscal 1999 increased by $61.8 million, or 19.2%, from
fiscal 1998. The increase in tuition revenue was produced by enrollment
increases at DeVry Institutes, Keller Graduate School of Management and
Becker CPA (currently known as Becker Conviser CPA Review). Fiscal 1999
marked the ninth consecutive year at DeVry Institutes in which cumulative
total student enrollment for the three semesters during the year increased,
up 12.8% from the previous year. Enrollment increases at DeVry Institutes
reflect the opening of new institutes in Fremont, California, and Long
Island City, New York, in addition to enrollment increases in previously
opened institutes. At Keller Graduate School, cumulative total student
57
enrollment for the five terms of fiscal 1999 grew by 17.0% compared to
fiscal 1998, reflecting the opening of five new teaching centers during the
year and enrollment growth at previously opened centers. Tuition revenues
also increased because of tuition rate increases of approximately 6.2% at
DeVry Institutes in March 1999 and somewhat lesser increases at Keller
Graduate School and Becker CPA during the year.
Other educational revenues, composed primarily of sales of books, supplies
and the Becker course on CD-ROM, increased by $5.7 million, or 18.6%,
because of the increased number of students attending the Company's
educational programs, to whom these materials are sold. Interest income on
the Company's short-term investments of cash balances decreased to $1.2
million because increased demands on the Company's cash for investment in
new facilities and equipment, and higher accounts receivable from increased
student enrollment, reduced the average cash balances held during the year.
Cost of educational services increased by $37.9 million, or 19.1%, in
fiscal 1999 from the previous year. Cost of educational services includes
the cost of faculty and related staff, which represents approximately 60%
of this expense category. Also included in this expense category are the
costs of facilities, supplies, bookstore sales, other student education-
related support activities and the cost of tuition refunds and
uncollectible accounts. Higher wage, benefit, supply, service and facility
expenses associated with the growing number of students and the expanded
number of operating locations at DeVry Institutes and Keller Graduate
School contributed to the increase in cost. New operating locations
typically incur expenses greater than their revenues during the first year
of operation. Depreciation expense increased by $3.7 million, or 30.0%,
from fiscal 1998 as a result of record spending during the past several
years on capital improvements and additions throughout the system. Also
included in educational services costs this year is the final portion of
the expense associated with resolution and reinstatement by the Ontario
Ministry of Education and Training of full financial aid eligibility for
students enrolled at the Toronto-area DeVry Institute campuses. Tuition
refund expense at DeVry Institutes, although higher in absolute amount,
decreased slightly as a percent of tuition revenue from fiscal 1998. This
58
is believed to result from higher admission standards, and education
programs and student service quality initiatives that favorably affect
student retention and contribute to increased operating margins.
Student services and administrative expense increased by $17.3 million, or
16.6%, from fiscal 1998. Student services and administrative expense
includes the costs of new student recruiting, general and administrative
costs and expenses associated with curriculum development. The increased
spending primarily reflects the marketing costs associated with generating
higher student enrollments at DeVry Institutes, Keller Graduate School and
Becker CPA for the terms that began in fiscal 1999 and for the summer term,
which began in July, for which revenue is included in the subsequent year.
Student recruiting costs are charged to expense in the year during which
these funds are spent. Marketing costs were also incurred for the new
DeVry Institute in West Hills, California, which is scheduled to open in
November 1999.
Administrative expenses have also increased from the prior year in part to
support continuing efforts by the Company related to what is commonly
referred to as the Y2K problem. In mid-1997, the Company initiated a
project to determine the magnitude of its exposure from its own systems and
from those of significant business partners. Through audit, testing and
remediation, the Company identified and evaluated the readiness of its
information technology (IT) and non-IT systems, which, if not Y2K-
compliant, could have a material effect on the Company.
The review and testing of all internal IT systems have been completed, and
those systems have been made Y2K-compliant through change or replacement.
An inventory of PC hardware and software has been completed, and a plan was
developed and implemented to replace any non-compliant hardware prior to
the end of the calendar year. Software vendors were contacted and are
being tracked for follow-up as necessary. An upgrade or replacement plan
was developed and implemented for any non-compliant software.
Critical suppliers of non-IT goods and services have also been identified
and contacted for their compliance status. In addition, the Company is
59
developing a contingency plan, targeted for completion prior to year-end,
for critical functions at its headquarters and other operating locations.
Although efforts related to Y2K issues were comprehensive in nature,
incremental spending on these efforts has not been material in any period
and is being charged to expense as incurred.
The Company's earnings in fiscal 1999 from operations, before interest and
taxes, were a record $63.4 million, increasing more than 23% from the
previous year. Operating margins, which have increased steadily in each of
the past several years, increased again to 15.1%, up from 14.5% and 13.9%
in fiscal 1998 and 1997, respectively. Operating margins increased because
of higher new student enrollments, improved student retention, enhanced
facility utilization and continued operating improvements.
Interest expense decreased by $0.6 million from the prior year, as
previously incurred debt was completely repaid during the year.
Net income of $38.8 million, or $0.55 per share (diluted), was a record for
any year, increasing by more than 26% from fiscal 1998.
Fiscal Year Ended June 30, 1998, vs. Fiscal Year Ended June 30, 1997
- --------------------------------------------------------------------
Tuition revenues in fiscal 1998 increased by $40.3 million, or 14.3% from
fiscal 1997. The increase in tuition revenues was produced by enrollment
increases at DeVry Institutes and Keller Graduate School. Fiscal 1998
marked the eighth consecutive year at DeVry Institutes in which cumulative
total student enrollment for the three semesters during the year increased,
up 9.4% from the previous year. Enrollment increases at DeVry Institutes
reflect the opening of a new institute in Alpharetta, Georgia, and
increases in enrollments at existing institutes. At Keller Graduate
school, cumulative total student enrollment for the five terms of fiscal
1998 grew by 17.5% compared to fiscal 1997, reflecting the opening of new
centers in California, Georgia, Indiana and Missouri. Tuition revenues
also increased because of tuition rate increases of approximately 5.0% at
DeVry Institutes in March 1998 and at Keller Graduate School in September
1997.
60
Other educational revenues, composed primarily of sales of books and
supplies, increased by $4.3 million, or 16.3%, because of sales to the
increased number of students attending the Company's educational programs
and the introduction of the Becker CPA Review course on CD-ROM. Interest
income on the Company's short-term investments of cash balances increased
to $1.6. million because of increased average cash balances in excess of
those needed for daily operations.
Cost of educational services increased by $20.1 million, or 11.3%, in
fiscal 1998 from the previous year. Cost of educational services includes
the cost of faculty and related staff, which represents approximately 60%
of this expense category. Also included in this expense category are the
cost of facilities, supplies, bookstore sales, other student education-related
support activities and the cost of tuition refunds and
uncollectible accounts. Higher wage, benefit, supply, service and facility
expenses associated with the growing number of operating locations and
increased student enrollments contributed to the increase in cost.
Depreciation expense increased by $2.7 million, or 28.1%, from fiscal 1997
as a result of another year of extensive capital improvements and additions
throughout the system. Also included in educational services this year is
the cost of consolidating teaching operations from three locations to the
two newer and more modern sites in the Toronto area. Tuition refunds and
bad debt expense declined by approximately $800,000 from fiscal 1997, even
as total student enrollment and revenues increased. This is believed to
result from higher admission standards, and education programs and student
service quality initiatives that favorably affect student retention.
Student services and administrative expense increased by $16.3 million, or
18.7%, from fiscal 1997. Student services and administrative expense
includes the costs of new student recruiting, general and administrative
costs, and curriculum development. The increased spending reflects the
marketing costs associated with generating the higher student enrollments
at DeVry Institutes and Keller Graduate School for the terms that began in
fiscal 1998 and for the summer term, revenue for which is included in
fiscal 1999. Marketing costs for the July 1998 opening of the new DeVry
Institute in Fremont, California, and the November 1998 opening of the new
61
campus in New York also contributed to the increase.
Administrative expenses also increased from the prior year to support the
Company's expanding operations. In addition, spending on implementation
efforts for the Company's new financial system contributed to the increased
expense. The financial system, which has been used for reporting beginning
in July 1998, offers enhanced financial controls, reporting and analysis
and overcomes Y2K processing deficiencies in the previous system. In
addition, the Company appointed a coordinator with responsibility for all
other aspects for the Y2K project. Efforts were initiated to address the
Y2K processing requirements, focusing initially on mission-critical systems
and extending to all the Company's hardware and software, whether
internally developed or purchased, and to ensure compliance by the many
providers of products and services to the Company. The Company believes
that it is on schedule for completion of the project during 1999. Costs
associated with this effort are not expected to have a material effect on
the Company's results of operations and are being charged to expense as
incurred.
The Company's fiscal 1998 earnings from operations, before interest and
taxes, were a record $51.4 million. Operating margins, which had been
increasing steadily each year, increased again to 14.5%, up from 13.9% and
13.0% in fiscal 1997 and fiscal 1996, respectively. Operating margin
increases were generated by improved facility utilization from increased
enrollments and by continued operating improvements.
Interest expense decreased by $1.9 million from the prior year, as debt
incurred for the acquisition of Becker CPA in June 1996 was being repaid
from cash generated by operations.
Net income of $30.7 million, or $0.44 per share, was a record for any year,
increasing by 27.0% from fiscal 1997.
Liquidity and Capital Resources
- -------------------------------
The Company's primary source of liquidity is the cash received from student
payments for tuition, fees and books. These payments include cash from
62
student and family educational loans; from other financial aid under
various federal, state and provincial programs; and from student and family
resources.
The pattern of cash receipts is somewhat seasonal. The level of accounts
receivable from which cash payments are collected reaches a peak
immediately after the billing of tuition, fees and books at the beginning
of each of the DeVry Institutes' semesters, which begin in July, November
and March. Collections of DeVry Institute receivables are heaviest at the
start of each semester. In the first two months of each semester,
collections typically exceed payments for operating expenses applicable to
that period. Accounts receivable reach their lowest level just prior to
the start of the next semester, dropping to their lowest point in the year
at the end of June. The end of June corresponds to both the end of the
spring semester and the end of a financial aid year, at which time
substantially all financial aid for the previous 12 months has been
disbursed to students' accounts. Keller Graduate School and Becker CPA
also experience similar seasonality in their cash receipts and expenditures
based upon their respective operating cycles. At June 30, 1999, total
Company accounts receivable, net of the related reserves, were $14.2
million, an increase of 19.7% from last June 30, approximately the same
rate of increase as tuition and other educational revenues for the year.
The Company is highly dependent upon the timely receipt of financial aid
funds. The Company estimates that historically, approximately 70% of DeVry
Institutes' tuition, bookstore and fee revenues have been financed by
government-provided financial aid to its students. These financial aid and
assistance programs are subject to political and governmental budgetary
considerations. There is no assurance that such funding will be maintained
at current levels. If funds flow from the federal or state governments is
temporarily delayed in conjunction with year 2000 processing difficulties,
the Company could use its available cash resources and borrowings under its
revolving term loan agreement until such financial aid funding was
restored. The Department of Education and most student loan processing
agencies report that they are now Y2K-compliant.
63
Extensive and complex regulations in the United States and Canada govern
all of the government financial assistance programs in which the Company's
students participate. The Company's administration of these programs is
periodically reviewed by various regulatory agencies. Any regulatory
violation could be the basis for disciplinary action, including initiation
of a suspension, limitation or termination proceeding against the Company.
Under the terms of the Company's participation in governmental financial
aid programs, certain cash received from the U.S. Department of Education
is maintained in restricted bank accounts. This cash becomes available for
general use by the Company only after student loans and grants have been
credited to the accounts of students and the cash is transferred to an
unrestricted operating cash account. At June 30, 1999, cash held in
restricted bank accounts was $20.8 million, largely in anticipation of
enrollments and financial aid disbursements at the start of DeVry
Institutes' summer term.
Cash generated from operations in fiscal 1999 reached a record $54.6
million, up $7.0 million from last year. Higher earnings and the increased
non-cash sources of depreciation and amortization accounted for the
increased cash flow, more than offsetting higher accounts receivable and
other working capital account changes. Traditionally, the Company has been
able to help fund its expansion by operating with very little or even
negative working capital whenever necessary. The generation and use of
cash during the year reflects the seasonal operating patterns discussed
above. During some periods just prior to the start of a semester, cash
balances may be supplemented by temporary borrowings under the Company's
revolving line of credit. Cash generated from operations each year has
been sufficient to meet all of the Company's operating and capital
investment needs while reducing debt on a regular basis.
Capital expenditures in fiscal 1999 reached another record, totalling $44.8
million, up $13.0 million from the previous record level set only last
year. Capital expenditures were made for expansion and facility
improvements, replacement and upgrading of school laboratories and for
teaching and administrative equipment. Contributing to 1999's record
64
spending was the completion of construction on the new DeVry Institute in
Fremont (San Francisco), California, and completion of renovations for the
new DeVry Institute in Long Island City, New York, both of which opened for
classes in fiscal 1999. Also, land was purchased for a new DeVry Institute
in Tinley Park (Chicago), Illinois, and construction was started for the
new DeVry Institute in West Hills (Los Angeles), California and on an
expansion of the Chicago DeVry Institute campus. Capital expenditures in
fiscal 2000 are expected to decline somewhat from the record 1999 level as
construction is completed on the new West Hills campus and Chicago campus
expansion but begins at the new DeVry Institute campus in Tinley Park.
These new and expanded DeVry Institute campuses, as well as expansion of
Keller Graduate School and Becker CPA into new operating sites, plus
possible further DeVry Institutes expansion, will continue to require
substantial capital spending in the coming years. Cash generated from
operations and existing cash resources have been sufficient to meet capital
requirements in the past and, with the Company's revolving line of credit,
is anticipated to be sufficient to cover expansion plans in the future.
In March 1998, the Company and its banks renegotiated the Company's 1996
revolving term loan agreement, extending its term to August 1, 2000, and
expanding the range of acquisitions or investments within the terms of the
agreement. In May 1999, the revolving loan agreement was amended again to
extend its term to August 1, 2001. At June 30, 1999, only $0.4 million of
the revolving line had been utilized, all for letters of credit. On July 1,
1999, the Company borrowed $40 million under its revolving loan agreement
in conjunction with the purchase, for cash, of the operations of Denver
Technical College and Conviser Duffy CPA Review. Future borrowings and/or
repayments will be based on the Company's seasonal cash flow cycle and
payment requirements for capital spending and possible future acquisitions.
Effective October 1, 1997, the Company's bank borrowing interest rate was
reduced to a floating rate of prime or LIBOR plus 0.35%, at the Company's
option, and has remained at that level based on continued achievement of
certain financial ratios. Interest rates are adjustable quarterly, based
upon these financial ratios. At the present time, the Company does not
have an interest rate swap or other form of protection against increases in
65
the floating rate but does fix the interval of interest rate adjustment on
most of its borrowings for periods of up to three months to eliminate some
of the possible variability in rates. The Company periodically evaluates
its need for additional protection in light of projected changes in
interest rate and borrowing levels.
The Company believes that current balances of unrestricted cash, cash
generated from operations and, if needed, the revolving loan facility will
be sufficient to fund its operations for the foreseeable future.
66
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The following financial statements of the Company and its subsidiaries are
included below on pages 67 through 89 and page 96 of this report:
10K
Report Page
-----------
Consolidated Balance Sheets at
June 30, 1999 and 1998 67-68
Consolidated Statements of Income for the
years ended June 30, 1999, 1998 and 1997 69
Consolidated Statements of Cash Flows for
the years ended June 30, 1999, 1998 and 1997 70
Consolidated Statements of Shareholders'
Equity for the years ended June 30, 1999,
1998 and 1997 71
Notes to Consolidated Financial Statements 72-88
Report of Independent Accountants 89
Schedule II. -Valuation and Qualifying Accounts 96
Schedules other than the one listed above are omitted for the reason
that they are not required or are not applicable, or the required
information is shown on the financial statements or the notes thereto.
67
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30,
1999 1998
-------- --------
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 31,848 $ 31,881
Restricted Cash 20,766 16,875
Accounts Receivable, Net 14,217 11,878
Inventories 6,592 5,218
Deferred Income Taxes 4,536 1,550
Prepaid Expenses and Other 982 2,318
------- -------
Total Current Assets 78,941 69,720
------- -------
Land, Buildings and Equipment:
Land 37,833 35,142
Buildings 73,175 62,371
Equipment 92,304 73,039
Construction In Progress 12,741 2,541
------- -------
216,053 173,093
Accumulated Depreciation (80,842) (64,988)
------- -------
Land, Buildings and Equipment, Net 135,211 108,105
------- -------
Other Assets:
Intangible Assets, Net 37,841 37,908
Perkins Program Fund, Net 7,375 6,660
Other Assets 1,323 1,499
------- -------
Total Other Assets 46,539 46,067
------- -------
TOTAL ASSETS $260,691 $223,892
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
68
DEVRY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30,
1999 1998
-------- --------
LIABILITIES:
Current Liabilities:
Accounts Payable $ 29,080 $ 24,116
Accrued Salaries, Wages and Benefits 22,339 18,422
Accrued Expenses 5,500 8,504
Advance Tuition Payments 11,979 9,202
Deferred Tuition Revenue 5,145 5,735
------- -------
Total Current Liabilities 74,043 65,979
------- -------
Other Liabilities:
Revolving Loan - 10,000
Deferred Income Tax Liability 2,137 3,612
Deferred Rent and Other 9,206 8,045
------- -------
Total Other Liabilities 11,343 21,657
------- -------
TOTAL LIABILITIES 85,386 87,636
------- -------
COMMITMENTS & CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common Stock, $0.01 Par Value, 200,000,000
Shares Authorized,69,305,070 and
69,414,020 Shares Outstanding
at June 30, 1999 and 1998, Respectively 694 693
Additional Paid-in Capital 60,948 60,608
Retained Earnings 113,215 74,385
Accumulated Other Comprehensive Income 448 570
------- -------
TOTAL SHAREHOLDERS' EQUITY 175,305 136,256
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $260,691 $223,892
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
69
DEVRY INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except for Per Share Amounts)
For The Year Ended
June 30,
1999 1998 1997
-------- -------- --------
REVENUES:
Tuition $382,801 $321,029 $280,774
Other Educational 36,614 30,877 26,558
Interest 1,220 1,565 987
------- ------- -------
Total Revenues 420,635 353,471 308,319
------- ------- -------
COSTS AND EXPENSES:
Cost of Educational Services 236,170 198,273 178,135
Student Services and
Administrative Expense 121,055 103,802 87,480
Interest Expense 300 913 2,848
------- ------- -------
Total Costs and Expenses 357,525 302,988 268,463
------- ------- -------
Income Before Income Taxes 63,110 50,483 39,856
Income Tax Provision 24,280 19,759 15,670
------- ------- -------
NET INCOME $ 38,830 $ 30,724 $ 24,186
======= ======= =======
EARNINGS PER COMMON SHARE
Basic $0.56 $0.44 $0.36
======= ======= =======
Diluted $0.55 $0.44 $0.35
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
70
DEVRY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For The Year Ended June 30,
1999 1998 1997
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $38,830 $30,724 $24,186
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 16,109 12,397 9,676
Amortization 1,675 1,590 1,586
Provision for Refunds and
Uncollectible Accounts 20,284 15,984 16,786
Deferred Income Taxes (4,461) (1,007) 1,978
Loss (Gain) on Disposals of Land,
Buildings and Equipment 52 331 (116)
Changes in Assets and Liabilities:
Restricted Cash (3,891) (4,771) 4,486
Accounts Receivable (22,378) (15,375) (19,257)
Inventories (1,250) (669) (1,259)
Prepaid Expenses And Other 1,342 (1,299) (1,746)
Perkins Program Fund Contribution
and Other 392 342 274
Accounts Payable 4,887 1,815 3,442
Accrued Salaries, Wages,
Expenses and Benefits 887 4,895 1,322
Advance Tuition Payments 2,777 2,608 (1,023)
Deferred Tuition Revenue (688) 34 2,092
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 54,567 47,599 42,427
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (44,819) (31,845) (28,807)
------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES (44,819) (31,845) (28,807)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options 341 129 217
Net Proceeds from Common Stock Offering - - 23,583
Proceeds from Revolving Credit Facility - 6,000 15,000
Repayments Under Revolving Credit Facility (10,000) (29,000) (43,500)
------ ------ ------
NET CASH USED IN FINANCING ACTIVITIES (9,659) (22,871) (4,700)
Effects of Exchange Rate Differences (122) 133 (3)
------ ------ ------
NET(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (33) (6,984) 8,917
Cash and Cash Equivalents at Beginning
of Year 31,881 38,865 29,948
------ ------ ------
Cash and Cash Equivalents at End of Year $31,848 $31,881 $38,865
====== ====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid During the Year $298 $967 $2,893
Income Taxes Paid During the Year 27,243 18,940 16,778
The accompanying notes are an integral part of these consolidated
financial statements.
71
DEVRY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)
Common Stock
------------------- Accumulated
Additional Other
Amount Paid-in Retained Comprehensive
$.01 Par Capital Earnings Income Total
------------------- --------- ------------- -------
Balance at July 1, 1996 $666 $36,694 $19,487 $440 $57,287
Comprehensive Income:
Net Income in 1997 24,186 24,186
Foreign Currency
Translation (3) (3)
------
Comprehensive Income 24,183
------
Proceeds from public
offering 24 23,571 23,595
Proceeds from exercise
of stock options 217 217
Effect of stock split (12) (12)
---------------------------------------------------
Balance at June 30, 1997 690 60,482 43,661 437 105,270
Comprehensive Income:
Net Income in 1998 30,724 30,724
Foreign Currency
Translation 133 133
------
Comprehensive Income 30,857
------
Proceeds from exercise
of stock options 3 126 129
---------------------------------------------------
Balance at June 30, 1998 693 60,608 74,385 570 136,256
Comprehensive Income:
Net Income in 1999 38,830 38,830
Foreign Currency
Translation (122) (122)
------
Comprehensive Income 38,708
------
Proceeds from exercise
of stock options 1 340 341
---------------------------------------------------
Balance at June 30, 1999 $694 $60,948 $113,215 $448 $175,305
===================================================
The accompanying notes are an integral part of these consolidated
financial statements.
72
DEVRY INC.
Notes to Consolidated Financial Statements
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
DeVry Inc. (the Company), through its wholly owned subsidiaries,
including DeVry University, operates an international system of
degree-granting, career-oriented higher-education schools and a
leading international training firm. DeVry University is one of the
largest regionally accredited higher-education systems in North
America. Its DeVry Institutes award associate and bachelor's degrees
in electronics, computer information systems, business administration,
accounting, technical management and telecommunications management.
The DeVry Institutes are located on 13 campuses in the United States
and three campuses in Canada. A fourteenth U.S. site is scheduled to
open in November 1999. Keller Graduate School of Management awards
master's degrees in business administration, accounting and financial
management, information systems management, human resource management,
project management and telecommunications management. Keller Graduate
School classes are offered at 31 locations in Arizona, California,
Florida, Georgia, Illinois, Indiana, Missouri, Virginia and Wisconsin.
Several additional locations are scheduled to open in fiscal 2000.
Through its Center for Corporate Education division, Keller Graduate
School offers on-site management and technical training programs for
larger corporations and government agencies. Becker CPA Review
(Becker CPA) is the leading international training firm preparing
students to pass the Certified Public Accountant (CPA) and Certified
Management Accountant (CMA) examinations. Currently, the CPA exam
review course is offered at approximately 190 locations worldwide.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
Becker CPA accounts are consolidated based on an April 30 fiscal
year end, which is its natural year end based on its business cycle.
There were no events occurring at Becker CPA during the intervening
period before June 30 that materially affected the financial
position or results of operations of the Company. Unless indicated,
or the context requires otherwise, references to years refer to the
Company's fiscal years then ended.
73
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
Cash and cash equivalents can include time deposits, commercial paper,
municipal bonds and bankers acceptances with maturities of three
months or less or that are highly liquid and readily convertible to
a known amount of cash. These investments are stated at cost, which
approximates market, due to their short duration or liquid nature.
The Company limits the amount of credit exposure with any one
investment instrument or with any one financial institution. The
Company periodically evaluates the credit-worthiness of the security
issuers and financial institutions with which it invests.
Financial Aid and Restricted Cash
Financial aid and assistance programs, in which most of the
Company's students participate, are subject to political and
governmental budgetary considerations. There is no assurance that
such funding will be maintained at current levels. Extensive and
complex regulations in the United States and Canada govern all of the
government financial assistance programs in which the Company's
students participate. The Company's administration of these
programs is periodically reviewed by various regulatory agencies.
Any regulatory violation could be the basis for disciplinary action,
including the initiation of a suspension, limitation or termination
proceeding against the Company.
A significant portion of revenues is received from students who
participate in government financial aid and assistance programs.
Restricted cash represents amounts received from the United States and
state governments under various student aid grant and loan programs.
The cash is held in separate bank accounts and does not become
available for general use by the Company until the financial aid is
credited to the accounts of students and the cash is transferred to an
operating cash account.
Revenue Recognition
Tuition revenue and provisions for refunds and uncollectible
accounts are recognized ratably over each of the academic terms in a
fiscal year. The provisions for refunds and uncollectible accounts
are included in the cost of educational services in the Consolidated
Statements of Income. Related reserves are $6,484,000 and
$4,720,000 at June 30, 1999 and 1998, respectively. Textbook sales
and other educational product sales and revenues are recognized when
they occur. Revenue from training services is recognized when the
training is provided.
74
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories consist mainly of textbooks, electronics kits and
supplies held for sale to students enrolled in the Company's educational
programs. Inventories are valued at the lower of cost (first-in,
first-out) or market.
Land, Buildings and Equipment
Land, buildings and equipment are recorded at cost. Cost includes
additions and those improvements that increase the capacity or
lengthen the useful lives of the assets. Repairs and maintenance
costs are expensed as incurred. Assets under construction are
reflected in Construction in Progress until they are ready for their
intended use.
Depreciation is computed using the straight line method over
estimated service lives ranging from three to 31 years.
Intangible Assets
Intangible assets relate mainly to acquired business operations. These
assets consist of the purchase prices allocated to the estimated fair
value of certain assets acquired (Note 2). Amortization is computed
using the straight line method over the assets' estimated useful
lives, generally 25 years.
The Company expenses all marketing and new school opening costs as
incurred.
Perkins Program Fund
The Company makes contributions to the Perkins Student Loan Fund at
a rate equal to 33% of new contributions by the federal government.
As previous borrowers repay their Perkins loans, their payments are
used to fund new loans, thus creating a permanent revolving loan
fund. The Company carries its investment in such contributions at
original values net of allowances for losses on loan collections of
$2,080,000 and $1,879,000 at June 30, 1999 and 1998, respectively.
75
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
The carrying amount reported in the Consolidated Balance Sheets for
cash and cash equivalents, restricted cash, accounts receivable,
accounts payable, accrued expenses, and advanced and deferred
tuition payments approximate fair value because of the immediate or
short-term maturity of these financial instruments. The carrying
amount reported for borrowings under the revolving loan agreement
approximates fair value because the underlying instruments are
variable-rate notes.
Foreign Currency Translation
The financial position and results of operations of the Company's
foreign subsidiary and other foreign operations are measured using
local currencies as the functional currencies. Assets and
liabilities of the foreign subsidiary and other foreign operations
are translated to U.S. dollars using exchange rates in effect at the
balance sheet dates. Income and expense items are translated at
monthly average rates of exchange. The resultant translation
adjustments are included in the component of shareholders' equity
designated as Accumulated Other Comprehensive Income. Transaction
gains or losses during the years ended June 30, 1999, 1998 and 1997,
were not material.
Income Taxes
Income taxes are provided by applying statutory rates to income
recognized for financial statement purposes. Deferred income taxes are
provided for temporary differences between the financial reporting and
income tax bases of assets and liabilities. Effects of statutory rate
changes are recognized for financial reporting purposes in the year in
which enacted by law.
Earnings Per Common Share
The Company adopted the Financial Accounting Standards Board (FASB)
Statement No. 128, "Earnings Per Share" ("SFAS 128"), in the second
quarter of fiscal 1998. All prior period earnings per share data have
been restated to conform with the provisions of SFAS 128. Under this
statement, basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding during the
period after giving retroactive effect to stock splits (Note 6). Shares
used in this computation were 69,361,000, 69,139,000 and 67,135,000 in 1999,
1998 and 1997, respectively. Diluted earnings per share is computed by
dividing net income by the weighted average number of shares assuming dilution.
Dilutive shares reflect the additional shares that would be outstanding if
dilutive stock options were exercised during the period. Shares used in this
computation, after giving retroactive effect to stock splits (Note 6), were
70,454,000, 70,144,000 and 68,170,000 in 1999, 1998 and 1997, respectively.
76
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the amounts of revenues and
expenses during the reported period. Actual results could differ
from those estimates.
Stock-based Compensation
The Company has elected to continue to account for its stock-based
awards in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB Opinion No. 25"), and
has provided the pro forma disclosures as required by FASB Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"),for the years ended June 30, 1999, 1998 and
1997, in Note 6.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), as of July 1, 1998.
SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements.
The Company's only item that meets the definition for adjustment to
arrive at comprehensive income is the change in cumulative translation
adjustment. Changes in cumulative translation adjustment are included
in the Consolidated Statements of Shareholders' Equity.
NOTE 2: INTANGIBLE ASSETS
Intangible assets that were not yet fully amortized at June 30 consist
of the following:
1999 1998
----------- -----------
Trademarks $2,521,000 $2,521,000
Trade Names 17,465,000 17,465,000
Intellectual Property 17,425,000 17,425,000
Goodwill and Other 5,758,000 4,178,000
----------- -----------
43,169,000 41,589,000
Accumulated Amortization (5,328,000) (3,681,000)
----------- -----------
$37,841,000 $37,908,000
=========== ===========
77
NOTE 3: INCOME TAXES
The components of income (loss) before income taxes are as follows:
For the Year Ended June 30,
---------------------------------------
1999 1998 1997
---------------------------------------
U.S. $69,973,000 $56,091,000 $44,731,000
Foreign (6,863,000) (5,608,000) (4,875,000)
---------------------------------------
Total $63,110,000 $50,483,000 $39,856,000
=======================================
The net income tax provisions (benefits) related to the above
results are as follows:
For the Year Ended June 30,
---------------------------------------
1999 1998 1997
---------------------------------------
Current Tax Provision:
U.S. Federal $24,134,000 $17,643,000 $12,575,000
State and Local 4,607,000 3,123,000 2,412,000
Foreign - - (1,295,000)
---------------------------------------
Total Current 28,741,000 20,766,000 13,692,000
Deferred Tax Provision:
U.S. Federal (1,431,000) 1,038,000 1,982,000
State and Local (1,769,000) 198,000 455,000
Foreign (1,261,000) (2,243,000) (459,000)
---------------------------------------
Total Deferred (4,461,000) (1,007,000) 1,978,000
---------------------------------------
Net Income Tax Provision $24,280,000 $19,759,000 $15,670,000
=======================================
The income tax provisions differ from those computed using the
statutory United States federal rate as a result of the following items:
For the Year Ended June 30,
------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------
Expected Provision $22,089,000 35.0% $17,669,000 35.0% $13,950,000 35.0%
(Higher) Lower Rates
on Foreign Operations (318,000) (0.5%) (262,000) (0.5%) (48,000) (0.1%)
State Income Taxes 2,372,000 3.8% 2,108,000 4.1% 1,864,000 4.7%
Other 137,000 0.2% 244,000 0.5% (96,000) (0.3%)
------------------------------------------------------------
Income Tax Provision $24,280,000 38.5% $19,759,000 39.1% $15,670,000 39.3%
============================================================
78
NOTE 3: INCOME TAXES (continued)
Deferred income tax assets (liabilities) result primarily from the
recognition of the tax benefits of net operating loss carryforwards
and from temporary differences in the recognition of various expenses
for tax and financial statement purposes. These assets and
liabilities are composed of the following:
For the Year Ended June 30,
---------------------------------------
1999 1998 1997
---------------------------------------
Loss Carryforwards $4,427,000 $1,476,000 $ -
Employee Benefits 2,388,000 1,734,000 1,785,000
Rental and Occupancy - 362,000 607,000
Receivable Reserves and
Other 2,148,000 2,170,000 2,472,000
---------------------------------------
Gross Deferred Tax Assets 8,963,000 5,742,000 4,864,000
Depreciation and Other (3,290,000) (5,356,000) (5,419,000)
Amortization (3,274,000) (2,448,000) (2,514,000)
---------------------------------------
Gross Deferred Tax Liabilities (6,564,000) (7,804,000) (7,933,000)
---------------------------------------
Net Deferred Taxes $2,399,000 ($2,062,000) ($3,069,000)
=======================================
Based on the Company's expectations for future operating earnings, management
believes that, more likely than not, operating income in respective
jurisdictions will be sufficient to recognize fully all deferred tax assets.
Deferred income tax provisions (benefits) result primarily from
temporary differences in the recognition of various expenses for tax
and financial statement purposes. The sources and tax effects of
these differences are as follows:
For the Year Ended June 30,
---------------------------------------
1999 1998 1997
---------------------------------------
Recognition of Operating
Loss Carryforwards ($2,951,000) ($1,476,000) $ -
Excess (Tax) Book
Depreciation and
Amortization (1,241,000) (129,000) 1,920,000
Excess of Amounts Expensed
for (Book) Tax Purposes
Over Amounts Deductible
for Book (Tax) Purposes (269,000) 598,000 58,000
---------------------------------------
Deferred Tax Provision ($4,461,000) ($1,007,000) $1,978,000
=======================================
The Company has net operating loss carryforwards in various tax
jurisdictions expiring at various times through the years ending
June 30, 2008.
79
NOTE 4: REVOLVING LOAN AGREEMENT
All of the Company's borrowings and letters of credit under its
revolving loan agreement are through DeVry University. This agreement
consists of a revolving credit facility in an aggregate amount not to
exceed $85,000,000. This agreement was amended in June 1997 to permit
increased annual capital expenditures in conjunction with the
Company's expansion plans. A second amendment to the agreement, in
March 1998, extended its term and expanded the range of acquisitions
or investments allowed within the terms of the agreement. The
agreement was amended again in May 1999 to extend its term. All
borrowings and letters of credit under the revolving loan agreement
mature in August 2001, and no installment payments are required. There
were no outstanding borrowings under the revolving loan agreement at
June 30, 1999. Outstanding borrowings were $10,000,000 at June 30,
1998. Letters of credit outstanding under this agreement were $422,000
and $1,440,000 at June 30, 1999 and 1998, respectively. As of June 30,
1999, outstanding borrowings under the revolving loan agreement bear
interest, payable quarterly, at either the prime rate or a Eurodollar
rate plus 0.35%, at the option of the Company. Outstanding letters
of credit under the revolving loan agreement are charged an annual
fee equal to 0.35% of the undrawn face amount of the letter of credit,
payable quarterly. Both interest rate and letter of credit fees are
adjustable quarterly, based upon the Company's achievement of certain
financial ratios.
The bank financing agreement contains certain covenants that, among
other things, limit annual capital expenditures and require
maintenance of certain financial ratios as defined in the agreement.
None of these covenants negatively impacts the Company's liquidity
or capital resources.
On July 1, 1999, the Company borrowed $40,000,000 under the revolving
loan agreement in conjunction with the acquisitions described in Note 10.
80
NOTE 5: EMPLOYEE BENEFIT PLANS
Profit Sharing Retirement Plan
All employees who meet certain eligibility requirements can
participate in the Company's 401(k) Profit Sharing Retirement Plan.
The Company contributes to the plan an amount up to 1.5% of the
total eligible compensation of employees who make contributions under
the plan. Matching contributions under the plan were approximately
$1,275,000, $1,183,000 and $1,115,000 in 1999, 1998 and 1997,
respectively. In addition, the Company's board of directors may also
make discretionary contributions for the benefit of all eligible
employees. Provisions for discretionary contributions under the plan
were approximately $3,210,000, $2,173,000 and $2,165,000 in 1999,
1998 and 1997, respectively.
Employee Stock Purchase Plan
Under provisions of the DeVry Employee Stock Purchase Plan, any
eligible employee may authorize the Company to withhold up to $25,000
of annual earnings to purchase common stock of the Company on the
open market at 100% of the prevailing market price. The Company pays
all brokerage commissions and administrative fees associated with the
plan. These expenses were insignificant for the years ended June 30,
1999, 1998 and 1997.
81
NOTE 6: SHAREHOLDERS' EQUITY
Stock Splits
On December 18, 1996, and again on June 19, 1998, the Company's
common stock was split two-for-one in the form of 100% stock
dividends. The par value of the additional shares arising from both
splits has been reclassified from retained earnings to common stock.
In addition, all references in the financial statements to the
number of shares outstanding, per share amounts, stock option data
and market prices of the Company's common stock have been restated
to reflect both stock splits as though they had occurred at the
beginning of the initial period presented.
Stock Offering
In April 1997, the Company and certain shareholders completed an
offering of the Company's common stock. In this offering, the
Company sold 2,400,000 shares of its common stock. The Company's
proceeds of the offering, net of underwriting discounts and
commissions and other related expenses, were approximately
$23,580,000. Substantially all the net proceeds were used to
repay indebtedness. The Company did not receive any proceeds
from the sale of shares by the selling shareholders.
Stock Option Plans
The Company maintains three stock-based award plans: the Amended
and Restated Stock Incentive Plan, established in 1988, the 1991
Stock Incentive Plan and the 1994 Stock Incentive Plan. Under
these plans, directors, key executives and managerial employees
are eligible to receive incentive stock or nonqualified options
to purchase shares of the Company's common stock. The Amended
and Restated Stock Incentive Plan and the 1994 Stock Incentive
Plan are administered by a Plan Committee of the board of
directors. Plan Committee members are granted automatic,
nondiscretionary annual options. The 1991 Stock Incentive Plan
is administered by the board of directors. Options under all
three plans are granted for terms of up to 10 years and vest over
periods of one to five years. The option price under the plans
is the fair market value of the shares on the date of the grant.
At June 30, 1999, 2,570,265 authorized but unissued shares of
common stock were reserved for issuance under the Company's stock
option plans.
82
NOTE 6: SHAREHOLDERS' EQUITY (continued)
A summary of activity under the stock option plans is as follows:
Options Outstanding
-------------------------
Weighted
Shares Average
Available Number Exercise
for Grant Outstanding Price
----------------------- ---------
Balance at June 30, 1996 1,700,100 1,423,040 $3.01
Options Granted (313,000) 313,000 $11.54
Options Exercised - (121,500) $1.79
Options Canceled 29,600 (29,600) $5.95
-----------------------
Balance at June 30, 1997 1,416,700 1,584,940 $4.73
Options Granted (311,848) 311,848 $14.44
Options Exercised - (315,160) $1.36
Options Canceled 9,240 (9,240) $9.45
-----------------------
Balance at June 30, 1998 1,114,092 1,572,388 $7.31
Options Granted (608,208) 608,208 $21.33
Options Exercised - (116,215) $4.51
Options Canceled 66,815 (66,815) $16.48
-----------------------
Balance at June 30, 1999 572,699 1,997,566 $11.43
=======================
A summary of outstanding and exercisable stock options as of
June 30, 1999, is as follows:
Options Outstanding Options Exercisable
--------------------------------- ------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number of Contractual Exercise Number of Exercise
Prices Shares Life Price Shares Price
-----------------------------------------------------------------------------
$0.88-3.24 368,490 4.54 $2.95 302,090 $2.88
$3.28-6.28 490,360 5.35 $4.39 402,680 $4.16
$11.19-14.59 562,348 7.68 $13.00 180,590 $12.54
$16.19-20.94 411,118 9.07 $20.91 1,325 $19.37
$22.25-27.56 165,250 9.14 $22.36 - -
--------------------------------------------------------------
$0.88-27.56 1,997,566 6.93 $11.43 886,685 $5.45
==============================================================
83
NOTE 6: SHAREHOLDERS' EQUITY (continued)
Pro Forma Disclosure
As permitted under SFAS 123, the Company has elected to continue
to follow APB Opinion No. 25 in accounting for stock-based
awards. Under APB Opinion No. 25, the Company generally
recognizes no compensation expense with respect to such awards,
since the exercise price of the common stock options awarded is
equal to the fair market value of the underlying security on the
date of the grant.
Pro forma information regarding net income and earnings per share
is required by SFAS 123 for awards granted after June 30, 1995, as
if the Company had accounted for its stock-based awards under the
fair value method of SFAS 123. The fair value of the Company's
stock-based awards was estimated as of the date of grant using
the Black-Scholes option pricing model. The Black-Scholes model
was developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards.
This model also requires highly subjective assumptions, including
future stock price volatility and expected time until exercise,
which greatly affect the calculated grant date fair value.
The weighted average estimated grant date fair value, as defined
by SFAS 123, for options granted at market price under the
Company's stock option plans during fiscal 1999, 1998 and 1997 was
$9.98, $7.76 and $6.29 per share, respectively. The fair value of
the Company's stock option awards was estimated assuming no expected
dividends and the following weighted average assumptions:
1999 1998 1997
------ ------ ------
Expected Life (in Years) 5.90 8.00 8.10
Expected Volatility 39.70% 36.00% 34.59%
Risk-free Interest Rate 5.46% 6.08% 6.80%
84
NOTE 6: SHAREHOLDERS' EQUITY (continued)
Had the Company recorded compensation based on the estimated
grant date fair value, as defined by SFAS 123, for awards granted
under its stock option plans, the Company's net income and net
income per share would have been reduced to the pro forma amounts
below for the years ended June 30, 1999, 1998 and 1997 (dollars in
thousands except for per share amounts):
1999 1998 1997
------- ------- -------
Net Income as Reported $38,830 $30,724 $24,186
Pro Forma Net Income $37,569 $30,147 $23,885
Diluted Earnings Per Common Share
as Reported $0.55 $0.44 $0.35
Pro Forma Diluted Earnings
Per Common Share $0.53 $0.43 $0.35
The pro forma effect on net income and earnings per common share for
1999, 1998 and 1997 is not necessarily representative of the pro forma
effect on net income in future years because it is not required to take
into consideration pro forma compensation expense related to grants made
prior to fiscal year 1996.
85
NOTE 7: COMMITMENTS AND CONTINGENCIES
DeVry University and Becker CPA lease certain equipment and
facilities under non-cancelable operating leases, some of which
contain renewal options, escalation clauses and requirements to
pay taxes, insurance and maintenance costs. Future minimum rental
commitments for all non-cancelable operating leases having a
remaining term in excess of one year at June 30, 1999, are as
follows:
Year Ended
June 30, Amount
--------- --------------
2000 $15,990,000
2001 17,200,000
2002 17,950,000
2003 15,370,000
2004 14,210,000
Thereafter 82,440,000
The Company recognizes rent expense on a straight line basis over
the term of the lease, although the lease may include escalation
clauses that provide for lower rent payments at the start of the
lease term and higher lease payments at the end of the lease term.
Rent expenses for the years ended June 30, 1999, 1998 and 1997,
were $20,690,000, $18,995,000 and $15,990,000, respectively.
The Company is subject to occasional lawsuits, investigations and
claims arising in the normal conduct of its business. Neither
the Company nor any of its subsidiaries is currently a party to
any material legal action.
During 1996, the Ontario Ministry of Education and Training
temporarily suspended, and later conditionally reinstated, the
processing of financial aid applications for students attending
the Company's Toronto-area schools. In 1999, the Company obtained
full unconditional reinstatement as a participant in the Province's
student financial aid programs.
86
NOTE 8: SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the way
that public business enterprises report certain information about
operating segments in the financial reports. It also establishes
standards for related disclosures about products and services,
geographic areas and major customers.
The Company's operations are aggregated into a single reportable
segment based upon their similar economic and operating
characteristics. The Company's educational operations are conducted
in similar markets and produce similar economic results. These
operations provide post-secondary education, primarily in an
instructor-led classroom setting, to a similar class of learners. The
Company's operations are also subject to a similar regulatory
environment, which includes licensing and accreditation.
The Company conducts its educational operations in the United States,
Canada, Europe, the Middle East and the Pacific Rim. International
revenues, which are derived principally from Canada, were less than
10% of total revenues for the year ended June 30, 1999. Revenues and
long-lived assets by geographic area are as follows:
For the Year Ended June 30,
--------------------------------------------
1999 1998 1997
--------------------------------------------
Revenues:
Domestic Operations $399,412,000 $332,405,000 $287,190,000
International Operations 21,223,000 21,066,000 21,129,000
--------------------------------------------
Consolidated $420,635,000 $353,471,000 $308,319,000
============================================
Long-lived Assets:
Domestic Operations $175,474,000 $149,661,000 $131,482,000
International Operations 6,276,000 4,511,000 4,705,000
--------------------------------------------
Consolidated $181,750,000 $154,172,000 $136,187,000
============================================
No one customer accounted for more than 10% of the Company's consolidated
revenues.
87
NOTE 9: QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly data for the years ended June 30, 1999
and 1998, are as follows (dollars in thousands, except for per share
amounts):
1999 Quarter
- ---- ------------------------------------ Total
First Second Third Fourth Year
------------------------------------------------
Revenues $93,858 $107,813 $110,234 $108,730 $420,635
Income Before Interest
and Taxes 12,965 16,950 17,178 16,317 63,410
Net Income 7,818 10,299 10,623 10,090 38,830
Earnings Per Common Share
Basic 0.11 0.15 0.15 0.15 0.56
Diluted 0.11 0.15 0.15 0.14 0.55
1998 Quarter
- ---- ------------------------------------ Total
First Second Third Fourth Year
------------------------------------------------
Revenues $80,421 $90,342 $92,854 $89,854 $353,471
Income Before Interest
and Taxes 10,696 13,923 14,089 12,688 51,396
Net Income 6,279 8,347 8,437 7,661 30,724
Earnings Per Common Share
Basic 0.09 0.12 0.12 0.11 0.44
Diluted 0.09 0.12 0.12 0.11 0.44
88
NOTE 10: SUBSEQUENT EVENTS
On July 1, 1999, the Company acquired substantially all of the
tangible operating assets, trademarks and trade names and assumed
certain liabilities of the Denver Technical College ("DTC"). These
assets were purchased, for cash, from Educational Development
Corporation and its stockholders. On this same date, the Company
acquired certain land and buildings used by DTC from Niagara Limited
Partnership for cash. DTC is one of the largest technical colleges in
Colorado. The college offers undergraduate and post-graduate degree
programs in electronics, computer technology, business and medical
technology at campuses in Denver and Colorado Springs.
On July 2, 1999, Becker CPA acquired certain tangible operating
assets, trademarks and trade names of Conviser Duffy CPA Review Course
("Conviser Duffy"). These assets were purchased, for cash, from a unit
of Harcourt General, Inc. Conviser Duffy is a nationally known
training firm preparing students to pass the CPA exam.
Funding for the above acquisitions was obtained through borrowings
under the Company's revolving credit facility (Note 4).
The acquisitions will be accounted for under the purchase method of
accounting. Accordingly, the purchase prices will be allocated to the
tangible and identifiable intangible assets acquired and liabilities
assumed based on their estimated fair values. The intangible assets
will be amortized using the straight line method over a 25-year
period for financial reporting purposes and will be deducted for tax
reporting purposes over shorter statutory lives.
89
Report of Independent Accountants
To the Board of Directors
Of Shareholders of DeVry Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of DeVry Inc. and its subsidiaries at June 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1999, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and the
financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
August 2, 1999
90
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
There were no changes in or disagreements with accountants on accounting and
financial disclosure.
91
PART III
--------
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
- ----------------------------------------------------------------------
Information regarding directors and nominees for directors of the Company
is included in the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 16, 1999, and is incorporated herein by
reference. Information regarding executive officers is included on pages
50 through 54 in Part I of this Form 10-K.
Information regarding compliance with Section 16(a) filings will be
included in the Proxy Statement for the Annual Meeting of Stockholders to
be held November 16, 1999, and is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
Information regarding compensation of executive officers of the Company is
included in the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 16, 1999, and is incorporated herein by
reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Information regarding security ownership of certain beneficial owners and
management is included in the definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on November 16, 1999, and is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------
Information regarding certain relationships and related transactions is
included in the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on November 16, 1999, and is incorporated herein by
reference.
92
PART IV
--------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements
The required financial statements of the Company and its subsidiaries
are included in Part II, Item 8, on pages 66 through 89 of this Form
10-K.
(2) Supplemental Financial Statement Schedules
The required supplemental schedule of the Company and its
subsidiaries is included on Part II, Item 8 on page 96 of this Form 10-K.
(3) Exhibits
A complete listing of exhibits is included on pages 97 through 99 of
this Form 10-K.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
fourth quarter of its fiscal year ending June 30, 1999.
93
FIVE-YEAR SUMMARY - OPERATING, FINANCIAL AND OTHER DATA
(Dollars in Thousands Except for Per Share Amounts)
YEAR ENDED JUNE 30, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
OPERATING:
Revenues $420,635 $353,471 $308,319 $260,007 $228,593
Depreciation 16,109 12,397 9,676 7,516 6,157
Amortization of Intangible Assets 1,675 1,590 1,586 63 63
Earnings Before Interest and Taxes (EBIT) 63,410 51,396 42,704 33,761 28,829
EBIT as a Percent of Revenues 15.1% 14.5% 13.9% 13.0% 12.6%
Interest Expense 300 913 2,848 1,063 3,070
Net Income 38,830 30,724 24,186 19,245 14,896
Change from Prior Year in Net Income 26.4% 27.0% 25.7% 29.2% 21.8%
Diluted Earnings Per Common Share (EPS) 0.55 0.44 0.35 0.29 0.22
Shares Used in Calculating Diluted EPS
(In Thousands) 70,454 70,144 68,170 67,322 66,908
FINANCIAL POSITION:
Cash and Cash Equivalents 31,848 31,881 38,865 29,948 26,252
Total Assets 260,691 223,892 208,652 178,089 126,671
Total Funded Debt - 10,000 33,000 61,500 33,029
Total Shareholders' Equity 175,305 136,256 105,270 57,287 37,968
OTHER SELECTED DATA:
Cash Provided by Operating Activities 54,567 47,599 42,427 28,368 28,200
Capital Expenditures 44,819 31,845 28,807 18,352 14,551
Total DeVry and Keller Fall Term
Student Enrollment 43,458 38,031 34,596 32,612 29,884
Number of DeVry Institutes 16 15 14 13 13
Number of Keller Centers 31 26 20 18 17
Shares Outstanding at Year-end
(in Thousands) 69,414 69,305 69,008 66,488 66,454
Closing Price of Common Stock
at Year-end 22 3/8 21 15/16 13 1/2 11 1/4 5
Price Earnings Ratio on Common Stock 41 50 39 39 23
Computed on trailing four quarters of earnings per common share.
94
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DeVRY INC.
Date: September 24, 1999 By /s/Dennis J. Keller
-------------------
Dennis J. Keller
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and dates indicated below.
Signature Title Date
- --------- ----- ----
/s/Dennis J. Keller
- -------------------
Dennis J. Keller Chairman, Chief Executive
Officer and Director 9/24/99
/s/Ronald L. Taylor
- -------------------
Ronald L. Taylor President, Chief Operating
Officer and Director 9/24/99
/s/Norman M. Levine
- -------------------
Norman M. Levine Vice President, Chief
Financial Officer, Controller
and Principal Accounting Officer 9/24/99
/s/Ewen M. Akin
- ---------------
Ewen M. Akin Director 9/14/99
/s/Charles A. Bowsher
- ---------------------
Charles A. Bowsher Director 9/10/99
95
SIGNATURES (CONTINUED)
Signature Title Date
- --------- ----- ----
/s/David S. Brown
- -----------------
David S. Brown Director 9/9/99
/s/Robert E. King
- -----------------
Robert E. King Director 9/2/99
/s/Frederick A. Krehbiel
- ------------------------
Frederick A. Krehbiel Director 9/13/99
/s/Thurston E. Manning
- ----------------------
Thurston E. Manning Director 9/10/99
/s/Robert C. McCormack
- ----------------------
Robert C. McCormack Director 9/16/99
/s/Julie A. McGee
- -----------------
Julie A. McGee Director 9/23/99
/s/Hugo J. Melvoin
- ------------------
Hugo J. Melvoin Director 9/17/99
96
DEVRY INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended June 30, 1999, 1998 and 1997
(Dollars in Thousands)
Balance at Charged to Charged to Balance at
Description of Allowances Beginning Costs and Other Deductions End of
and Reserves of Period Expenses Accounts Period
- ---------------------------------------------------------------------------------------------------------
1999
- ---------
Deducted from accounts receivable
for refunds and uncollectible accounts $4,720 $19,827 - $18,063 $6,484
Deducted from notes receivable for
uncollectible notes 42 5 - 43 4
For loss on disposition of inventory 65 47 - 23 89
For loss on DeVry capital contributions
to Perkins loan program 1,879 201 - - 2,080
1998
- ---------
Deducted from accounts receivable
for refunds and uncollectible accounts $5,956 $15,819 - $17,055 $4,720
Deducted from notes receivable for
uncollectible notes 50 - - 8 42
For loss on disposition of inventory 63 10 - 8 65
For loss on DeVry capital contributions
to Perkins loan program 1,714 165 - - 1,879
1997
- ---------
Deducted from accounts receivable
for refunds and uncollectible accounts $6,603 $16,592 - $17,239 $5,956
Deducted from notes receivable for
uncollectible notes 15 36 - 1 50
For loss on disposition of inventory 61 38 - 36 63
For loss on DeVry capital contributions
to Perkins loan program 1,547 167 - - 1,714
Write-offs of uncollectible amounts or inventory.
97
INDEX TO EXHIBITS
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
2(a) Agreement regarding purchase Exhibit 2 to the
of Becker CPA assets dated Company's Form 8-K
as of June 19, 1996 filed July 3, 1996
2(b) Agreements regarding Exhibit 2 to the
purchase of Denver Technical Company's Form 8-K
College assets dated as of filed July 16, 1999
July 1, 1999
3(a) Certificate of Amendment of Exhibit 3(a) to the
Restated Certificate of Company's Form 10-K
Incorporation of the for the year ended
Registrant June 30, 1995
3(b) Certificate of Amendment of Exhibit 3.1 to the
Restated Certificate of Company's Form S-3
Incorporation of the #333-22457 dated
Registrant February 27, 1997
3(c) Amended and Restated By-Laws Exhibit 3(d) to
of the Registrant Amendment #1 of the
Company's Form S-1
#33-40151 dated
July 21, 1991
4(a) Amended and Restated Exhibit 4(c) to the
Financing Agreement, dated Company's Form 10-K
as of June 12, 1996, between for the year ended
Keller Graduate School of June 30, 1996
Management, Inc., certain
financial institutions and
Bank of America Illinois
4(b) First Amendment, dated as of Exhibit 4(d) to the
June 6, 1997, to Amended and Company's Form 10-K
Restated Financing Agreement for the year ended
between Keller Graduate June 30, 1997
School of Management, Inc.,
certain financial
institutions and Bank of
America Illinois.
98
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
4(c) Second Amendment, dated as Exhibit 4(e) to the
of March 23, 1998 to Amended Company's Form 10-K
and Restated Financing for the year ended
Agreement between Keller June 30, 1998
Graduate School of
Management, Inc., certain
financial institutions and
Bank of America National
Trust and Savings
Association.
4(d) Third Amendment dated as of
May 11, 1999 to Amended and
Restated Financing Agreement
between Keller Graduate
School of Management, Inc.,
certain financial
institutions and Bank of
America National Trust and
Savings Association. 100-103
10(a) Registrant's Amended and Exhibit 10.1 to the
Restated Stock Incentive Company's Form S-3,
Plan #333-22457 dated
February 27, 1997
10(b) Registrant's 1991 Stock Exhibit 10.3 to the
Incentive Plan Company's Form S-3
#333-22457 dated
February 27, 1997
10(c) Registrant's 1994 Stock Exhibit 10.2 to the
Incentive Plan Company's Form S-3
#333-22457 dated
February 27, 1997
10(d) DeVry Inc. Amended and Exhibit 10(d) to the
Restated Profit Sharing Company's Form 10-K
Retirement Plan dated for the year ended
effective as of July 1, 1992 June 30, 1996
10(e) First Amendment to DeVry Exhibit 10(e) to
Inc. Amended and Restated the Company's Form
Profit Sharing Retirement 10-K for the year
Plan ended June 30, 1996
99
Exhibit Sequentially Incorporated by
Number Exhibit Numbered Page Reference to
10(f) Amendment to DeVry Inc. Exhibit 10(f) to
Amended and Restated Profit the Company's Form
Sharing Retirement Plan 10-K for the year
ended June 30, 1997
10(g) Amendment to DeVry Inc. Exhibit 10(g) to
Amended and Restated Profit the Company's Form
Sharing Retirement Plan 10-K for the year
ended June 30, 1997
10(h) Amendment to DeVry Inc. Exhibit 10(h) to
Amended and Restated Profit the Company's Form
Sharing Retirement Plan 10-K for the year
ended June 30, 1997
10(i) Employee Stock Purchase Plan Exhibit 10(f) to
the Company's Form
S-3, #33-58636
dated February 22,
1993
10(j) First Amendment to Employee Exhibit 10(h) to
Stock Purchase Plan the Company's Form
10-K for the year
ended June 30, 1994
10(k) Deferred Compensation Plan 104-123
10(l) Form of Indemnification Exhibit 10(d) to
Agreement between the the Company's Form
Registrant and its directors S-1, #33-40151
dated April 24,
1991
10(m) Employment Agreement between Exhibit 10(f) to
the registrant and each of the Company's Form
Dennis J. Keller and Ronald 10-K for the year
L. Taylor ended June 30, 1991
21 Subsidiaries of the
Registrant 124
23 Consent of Pricewaterhouse-
Coopers LLP, independent
accountants 125
27 Financial Data Schedule 126