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-K Annual Report
Reporting Period: Fiscal year ended June 30, 1999
Business Overview: DeVry Inc. operates a system of private, degree-granting, regionally accredited higher education institutions (DeVry Institutes, Keller Graduate School of Management, Denver Technical College) and professional certification training (Becker Conviser CPA Review). The company serves approximately 42,926 students across its educational programs as of the start of fiscal 2000.
Key Financial Metrics
| Metric | Fiscal 1999 | Fiscal 1998 | Change |
|---|---|---|---|
| Total Revenues | $420.6 million | $353.5 million | +19.0% |
| Tuition Revenues | $382.8 million | $321.0 million | +19.2% |
| Net Income | $38.8 million | $30.7 million | +26.4% |
| Diluted EPS | $0.55 | $0.44 | +25.0% |
| Operating Margin | 15.1% | 14.5% | +0.6 pts |
| Cash from Operations | $54.6 million | $47.6 million | +14.7% |
| Capital Expenditures | $44.8 million | $31.8 million | +40.9% |
| Total Assets | $260.7 million | $223.9 million | N/A |
| Total Liabilities | $85.4 million | $87.6 million | -2.5% |
| Shareholders' Equity | $175.3 million | $136.3 million | +28.6% |
Liquidity & Debt: As of June 30, 1999, the company held $31.8 million in cash and cash equivalents and $20.8 million in restricted cash. The company had no outstanding borrowings under its $85 million revolving credit facility at year-end, though it utilized $40 million of this facility on July 1, 1999, to fund acquisitions.
Material Changes vs. Prior Period
- Revenue Growth: Driven by a 12.8% increase in cumulative enrollment at DeVry Institutes and a 17.0% increase at Keller Graduate School. Tuition rate increases of approximately 6.2% at DeVry Institutes also contributed.
- Expense Increases: Cost of educational services rose 19.1% due to higher faculty/staff costs and facility expenses. Student services and administrative expenses increased 16.6%, primarily due to marketing costs for new enrollments and Y2K compliance efforts.
- Profitability: Operating income reached a record $63.4 million. Operating margins improved to 15.1% due to higher enrollment, improved retention, and better facility utilization.
- Capital Spending: Capital expenditures hit a record $44.8 million, funding new campuses in Fremont, CA, and Long Island City, NY, as well as expansions in Chicago and land purchases for future sites.
Guidance, Outlook, and Risks
Outlook: Management expects capital expenditures in fiscal 2000 to decline slightly from 1999 levels as major construction projects complete, though spending will remain substantial for new campus openings. Enrollment growth is expected to continue, supported by demographic trends (increasing high school graduates) and the "baby boomer echo."
Recent Acquisitions (Subsequent Events):
- Denver Technical College (DTC): Acquired July 1, 1999, for cash. Offers diploma and degree programs in electronics, computer technology, and medical technology.
- Conviser Duffy CPA Review: Acquired July 2, 1999, for cash. Merged with Becker to form Becker Conviser CPA Review.
Risks and Contingencies:
- Financial Aid Dependence: Approximately 70% of DeVry Institutes' U.S. tuition revenue is financed by government-provided financial aid. Changes in federal funding or regulations (e.g., the "90/10 rule") could materially impact operations.
- Regulatory Compliance: The company is subject to strict state and federal regulations regarding student loan default rates and financial responsibility. Failure to meet these standards could result in suspension from federal aid programs.
- Student Loan Defaults: While no institute exceeded the 25% default threshold for three consecutive years, some institutes faced reduced Perkins loan funding due to higher default rates.
- Y2K Compliance: The company completed remediation of IT systems for the Year 2000 transition, though incremental spending was not material.
Investor Verification Checklist
- Acquisition Integration: Verify the financial impact and integration progress of the Denver Technical College and Conviser Duffy acquisitions completed in July 1999.
- Financial Aid Exposure: Monitor federal and state budgetary decisions regarding student aid programs, given the company's 70% reliance on these funds for tuition revenue.
- Default Rates: Track student loan cohort default rates to ensure they remain below regulatory thresholds (25% for three consecutive years) to maintain eligibility for federal aid.
- Capital Expenditure ROI: Assess the enrollment growth and revenue generation from the new campuses in Fremont, Long Island City, and the upcoming West Hills and Tinley Park locations.
- Compliance Status: Confirm continued compliance with the "90/10 rule" (revenue from federal aid must not exceed 90% of total revenue) across all individual institutes.