Business Context and Reporting Period
Company: DeVry Inc. (Note: Input metadata referenced "Covista Inc.", but the filing text identifies the registrant as DeVry Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended December 31, 2001.
Business Overview: DeVry Inc. provides post-secondary education through two reportable segments: Undergraduate operations (DeVry Institutes) and Graduate and Professional examination review operations (Keller Graduate School of Management and Becker Conviser Professional Review).
Key Financial Metrics
| Metric (Dollars in Thousands) | Quarter Ended Dec 31, 2001 | Six Months Ended Dec 31, 2001 |
|---|---|---|
| Total Revenues | $166,675 | $321,307 |
| Net Income | $18,419 | $32,497 |
| Earnings Per Share (Diluted) | $0.26 | $0.46 |
| Operating Cash Flow (6 Months) | N/A | $84,277 |
| Cash and Cash Equivalents (Dec 31, 2001) | $76,108 | $76,108 |
| Revolving Loan Balance (Dec 31, 2001) | $25,000 | $25,000 |
| Total Assets (Dec 31, 2001) | $527,888 | $527,888 |
Margins (Six Months): Operating margins were 15.8% for the Undergraduate segment and 23.8% for the Graduate and Professional segment.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 14.2% for the quarter and 16.3% for the six months compared to the prior year periods. Tuition revenue, representing over 92% of total revenue, grew 14.8% (quarter) and 18.0% (six months), driven by higher enrollments and price increases.
- Profitability: Net income increased 17.2% for the quarter and 16.5% for the six months. This growth was aided by a reduction in amortization expense due to the adoption of SFAS 142 (Goodwill and Other Intangible Assets), which eliminated the amortization of goodwill and indefinite-lived intangibles.
- Capital Expenditures: Capital spending reached a record $62.5 million for the six months, primarily due to the purchase of two DeVry Institute campuses (Pomona, CA and Addison, IL) for approximately $37.8 million.
- Enrollment: Undergraduate summer term enrollment increased over 9% to 47,415. Fall term enrollment increased 3.5% to 48,698. Graduate segment course enrollments increased significantly (24% and 19% for respective terms).
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management expects capital spending for the remainder of the year to continue at a rate similar to the first half, excluding the one-time campus purchases. The company believes current cash balances and operating cash flow are sufficient to fund operations and growth.
- Accounting Changes: Adoption of SFAS 142 in July 2001 resulted in the cessation of goodwill amortization. Adjusted net income for the prior year would have been higher without the amortization expense recognized then.
- Liquidity: The company borrowed $55 million under its revolving credit facility in the first quarter to fund capital spending and cyclical needs. As of December 31, 2001, $25 million remained outstanding. The credit facility was amended in December 2001 to extend the term to 2004 and remove the capital expenditure covenant limit.
- Risks and Contingencies:
- Regulatory Dependence: Approximately 70% of Undergraduate segment revenues are financed by government financial aid programs. The company is subject to complex regulations and periodic reviews.
- Legal Proceedings: In January 2002, the company received notice of an antitrust complaint regarding its Becker CPA Review subsidiary and a class-action suit regarding advertising claims for an Information Technology program. Management intends to vigorously defend these claims.
Investor Verification Checklist
- Verify the sustainability of enrollment growth rates (9% summer, 3.5% fall) in a competitive environment.
- Confirm the impact of the SFAS 142 accounting change on future earnings comparisons and the absence of goodwill impairment charges.
- Monitor the status of the revolving credit facility ($25 million outstanding) and the company's ability to service debt given the high capital expenditure cycle.
- Assess the potential financial impact of ongoing litigation (antitrust and class-action suits) and regulatory reviews of financial aid programs.
- Review the effectiveness of the new student information system and the capitalization of related software development costs.