Filing summary
Entity and period: The supplied filing is DeVry Inc.’s Form 10-K for the fiscal year ended June 30, 2013, filed August 29, 2013. This does not match the request metadata identifying Covista Inc. and “2012 Q4.” The figures below are DeVry’s fiscal 2013 annual results unless otherwise specified.
Business context
DeVry provided postsecondary and professional education through DeVry University, medical and nursing schools, Carrington Colleges, DeVry Brasil, and Becker Professional Education. Its three reportable segments were Business, Technology and Management; Medical and Healthcare; and International and Professional Education. Advanced Academics was classified as held for sale and discontinued operations after management decided to divest it.
Financial performance and liquidity
| Metric | FY2013 | FY2012 | Change / context |
|---|---|---|---|
| Revenue | $1,964.4 million | $2,071.8 million | Down 5.2% |
| Operating income | $166.9 million | $238.9 million | Down 30.1%; operating margin 8.5%, versus 11.5% |
| Income from continuing operations attributable to DeVry | $123.7 million | $169.1 million | Down 26.9% |
| Net income attributable to DeVry | $106.8 million | $141.6 million | Down 24.6%; net margin 5.4%, versus 6.8% |
| Diluted EPS | $1.65 | $2.09 | Includes discontinued-operation losses |
| Operating cash flow | $261.5 million | $277.4 million | Continuing operations generated $267.2 million |
| Capital expenditures | $111.8 million | $125.3 million | Lower year over year |
| Cash and cash equivalents | $196.6 million | $174.0 million | Also held $3.0 million of marketable securities and $7.0 million of restricted cash |
| Debt | $0 borrowings | $0 borrowings | $400 million revolving facility; $14.7 million of letters of credit outstanding |
At June 30, 2013, current assets were $442.2 million and current liabilities were $316.2 million (current ratio approximately 1.40). Net accounts receivable rose to $139.8 million from $93.0 million, largely because of timing of federal financial-aid receipts subsequently collected in July and growth in other operations. Approximately $148.3 million of cash was held in international operations and management intended to reinvest it abroad; it was not available for domestic general corporate purposes. DeVry reported compliance with its debt covenants.
Reported results included $57.0 million of non-cash Carrington impairment charges, $26.2 million of restructuring expenses, and an after-tax $16.9 million loss from discontinued operations. Management’s non-GAAP measure of continuing income excluding specified items was $185.0 million, or $2.86 per diluted share, compared with $227.0 million, or $3.35, in FY2012; this measure is supplemental and not GAAP.
Material changes and segment trends
- DeVry University: Business, Technology and Management revenue fell 15.9% to $1,096.7 million; segment operating income fell 55.2% to $90.0 million. Undergraduate enrollment and graduate coursetakers declined across the reported terms. Management cited economic uncertainty, unemployment, concerns about degree value and student debt, competition, and internal execution.
- Medical and Healthcare: Revenue rose 9.9% to $672.6 million and segment operating income increased to $54.1 million from $9.6 million. Chamberlain’s May 2013 enrollment reached 13,953, up 24.4% year over year. Carrington’s June enrollment rose 9.6% to 7,111, although its FY2013 revenue declined 2.2% and it recorded the impairment.
- International and Professional Education: Revenue grew 25.8% to $196.6 million and segment operating income rose 32.5% to $50.6 million. Growth reflected DeVry Brasil acquisitions and enrollment, plus a full-year contribution from Falcon Physician Reviews. DeVry Brasil’s growth included acquired schools; excluding acquisitions, reported enrollment growth was more modest.
- DeVry acquired Favip in Brazil in September 2012 for approximately $32.2 million in cash, with a possible additional payment. It acquired Facid on July 1, 2013, after year-end, for approximately $13.7 million.
Outlook, risks and unusual items
- Management expected FY2014 revenue to decline, driven by continued DeVry University enrollment weakness, partly offset by growth at other institutions. It described FY2015–FY2016 as a potential recovery and growth period, conditional on modest University enrollment growth, Carrington recovery, and continued growth elsewhere.
- Management froze DeVry University undergraduate and graduate tuition for the FY2014 school year and planned targeted scholarships, including a Career Catalyst program committing more than $15 million over three years. It expected FY2014 capital expenditures of $110–$120 million.
- Management reported more than $100 million of FY2013 cost and expense savings. The filing describes expected restructuring-related FY2014 expense reductions of approximately $60 million in one discussion and annual savings of approximately $30–$40 million in another; the estimates’ scope and timing should be verified.
- Carrington’s $57.0 million impairment followed weaker-than-expected fourth-quarter enrollment and a delayed restart of fully online certificate programs, now expected in FY2015. Remaining Carrington goodwill and indefinite-lived intangibles were $98.8 million and $67.2 million, respectively, and remained subject to further impairment if projections were not achieved.
- Advanced Academics’ FY2013 discontinued-operations loss was $16.9 million after tax. It included operating losses, a $4.8 million asset impairment, severance costs, and a reserve related to the collectability of a large customer receivable. Management noted that further losses of up to $3.0 million could arise on disposition.
- Regulatory exposure includes dependence on federal Title IV aid and possible changes to the Higher Education Act. FY2013 Title IV revenue percentages were not available in the filing; FY2012 figures included 89% for Ross Veterinary Medicine, near the 90/10 threshold. The comprehensive Department of Education review of DeVry University remained open. Illinois and Massachusetts authorities also had pending investigations concerning incentive compensation and student aid claims.
- A shareholder securities case was dismissed with prejudice, but an appeal was filed and stayed pending a sanctions issue. DeVry said it did not expect pending litigation to materially affect results, while noting that the timing and outcome of the state investigations could not be predicted.
- DeVry reported effective disclosure controls and internal control over financial reporting; its independent auditor gave an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Confirm the issuer and reporting period: the filing is DeVry Inc. FY2013, not a Covista Inc. 2012 Q4 filing.
- Track DeVry University enrollment, retention, and operating performance against management’s FY2014 decline and subsequent recovery assumptions.
- Assess whether the stated restructuring savings are comparable estimates, and whether they are realized alongside the expected revenue decline.
- Monitor Carrington’s enrollment recovery, online-program relaunch, and the assumptions supporting its remaining goodwill and intangible-asset values.
- Review the Advanced Academics sale, customer receivable collections, and potential additional disposition losses.
- Check FY2013 Title IV revenue ratios, the Department of Education review, and the status and implications of the Illinois and Massachusetts investigations.
- Distinguish total reported cash from restricted cash and international cash not intended for domestic use; verify working-capital and aid-receipt timing.