CVSA

SEC Filing Summary: DeVry Inc. (Form 10-Q)

Business Context and Reporting Period

This filing is a Quarterly Report on Form 10-Q for DeVry Inc. for the period ended September 30, 2008 (First Quarter of Fiscal Year 2009). DeVry is a provider of post-secondary education operating through three segments: DeVry University, Medical and Healthcare (including Ross University and Chamberlain College of Nursing), and Professional and Training. A significant event during the period was the acquisition of U.S. Education Corporation (parent of Apollo College and Western Career College) on September 18, 2008, for approximately $290 million.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 21.3% year-over-year, driven by enrollment growth across all segments, tuition price increases, and the contribution of the newly acquired U.S. Education ($5.6 million in revenue).
• Profitability: Net income rose 29.8% to $34.8 million. Operating income increased 38.1% to $46.8 million, aided by improved operating leverage and the absence of the $3.7 million pre-tax loss on facility sales recorded in the prior year.
• Balance Sheet Expansion: Total assets increased from $952.5 million to $1.4 billion, primarily due to the acquisition of U.S. Education, which added significant goodwill ($215.4 million) and intangible assets ($78.7 million).
• Debt Incurrence: The company moved from zero debt to $165.9 million in outstanding debt to finance the U.S. Education acquisition. This includes $120 million under the revolving credit facility and $45.9 million secured by auction-rate securities.
• Accounts Receivable: Net accounts receivable more than doubled to $154.7 million (from $75.8 million), attributed to revenue growth, acquisitions, and temporary financial aid system implementation issues.

Guidance, Outlook, Risks, and Unusual Items

• Capital Expenditures: Management anticipates full-year fiscal 2009 capital spending in the range of $70 million to $80 million to support growth, including a new clinical center for Ross University in Grand Bahama.
• Auction-Rate Securities (ARS) Liquidity: DeVry holds $59.5 million in ARS which have become illiquid due to market disruptions. These were reclassified from current to long-term assets with a $2.4 million temporary impairment. However, UBS has agreed to purchase these securities at par beginning June 30, 2010. Management believes this will not materially impact operations.
• Offshore Cash: Approximately $143.3 million of cash is held by Ross University in international operations and is intended to be indefinitely reinvested offshore, avoiding U.S. taxation. Management plans to utilize a portion of this cash to temporarily pay down domestic borrowings.
• Legal Proceedings: Several Qui Tam actions regarding recruiter compensation practices are pending. The government has declined to intervene in recent inquiries, but DeVry intends to vigorously defend these actions. No material impact on financial position is currently expected.
• Stock Repurchase: A $50 million share repurchase program authorized in May 2008 remains active, but no shares were repurchased under this plan as of September 30, 2008.

Investor Verification Checklist

• Acquisition Integration: Verify the progress of integrating U.S. Education operations and the realization of projected synergies.
• Accounts Receivable Management: Monitor the resolution of financial aid system issues and the collection rate of the significantly increased receivables balance.
• Debt Servicing: Track the utilization of offshore cash to reduce domestic debt and the associated interest expense savings.
• ARS Resolution: Confirm the timeline and execution of the UBS agreement to purchase the illiquid auction-rate securities.
• Regulatory Compliance: Review updates on pending litigation regarding recruiter compensation and Title IV compliance.