DeVry Inc. (DV) - 10-K Summary for Fiscal Year Ended June 30, 2009
Business Context and Reporting Period
This Annual Report on Form 10-K covers the fiscal year ended June 30, 2009. DeVry Inc. is a global provider of educational services operating through four primary segments: Business, Technology and Management (DeVry University); Medical and Healthcare (Ross University, Chamberlain College of Nursing, U.S. Education); Professional Education (Becker Professional Education); and Other Educational Services (Advanced Academics and Fanor). The company serves students in secondary through postsecondary education and professional certification markets.
Key Financial Metrics
| Metric | Fiscal 2009 | Fiscal 2008 | Change |
|---|---|---|---|
| Total Revenues | $1,461.5 million | $1,091.8 million | +33.9% |
| Net Income | $165.7 million | $125.5 million | +32.0% |
| Diluted EPS | $2.28 | $1.73 | +31.8% |
| Operating Income | $234.8 million | $162.3 million | +44.7% |
| Operating Margin | 16.1% | 14.9% | +120 bps |
| Operating Cash Flow | $249.6 million | $198.6 million | +25.7% |
| Total Assets | $1,434.3 million | $1,018.4 million | +40.9% |
| Total Debt | $124.8 million | $0 | New Borrowings |
| Cash & Equivalents | $165.2 million | $217.2 million | -23.9% |
Material Changes vs. Prior Period
- Acquisitions: Revenue growth was significantly driven by the acquisition of U.S. Education (Apollo College and Western Career College) in September 2008 and Fanor (Brazilian education provider) in April 2009. These acquisitions contributed approximately $150.7 million in revenue growth.
- Enrollment Growth: DeVry University undergraduate enrollment reached a record high of 55,979 in Summer 2009, a 21.9% increase year-over-year. Online coursetakers increased by 26.6%.
- Segment Performance: The Medical and Healthcare segment revenues surged 113.6% due to the U.S. Education acquisition and organic growth at Ross University and Chamberlain. Conversely, the Professional Education segment saw slowed growth (3.8% revenue increase) due to the economic downturn affecting financial firms.
- Debt Structure: The company moved from zero debt in 2008 to $124.8 million in 2009, primarily to finance the U.S. Education acquisition and a collateralized line of credit against auction rate securities.
- Unusual Items: The company recorded a $4.9 million litigation settlement reserve and a $4.0 million pre-tax charge related to a lease buyout in New York.
Guidance, Outlook, and Risks
- Capital Expenditures: Management anticipates fiscal 2010 capital spending in the range of $95 million to $105 million to support facility expansions and IT systems.
- Dividends: The Board declared a semi-annual dividend of $0.08 per share in May 2009, targeting an annual rate of $0.16.
- Stock Repurchases: Under a $50 million program authorized in May 2008, DeVry repurchased 707,533 shares for approximately $33.7 million during fiscal 2009. Approximately $16.3 million of authorization remained.
- Key Risks:
- Regulatory Compliance: Heavy reliance on federal financial aid (Title IV) creates risk regarding the "90/10 Rule" and student loan default rates.
- Liquidity of Investments: Approximately $59.5 million in auction rate securities remain illiquid due to market disruptions. While the company has a "put right" to sell these back to its broker (UBS) at par, there is uncertainty regarding the broker's ability to fulfill this obligation.
- Goodwill Impairment: Goodwill and intangible assets totaled $715.8 million (approx. 50% of total assets). Significant deterioration in business results could trigger impairment charges.
Investor Verification Checklist
- Acquisition Integration: Verify the operational integration and revenue retention of U.S. Education and Fanor in subsequent quarters.
- Auction Rate Securities: Monitor the status of the $59.5 million illiquid investment portfolio and the enforceability of the put right with UBS.
- Regulatory Status: Confirm continued compliance with Title IV regulations, specifically the 90/10 revenue rule and student loan default rates across all segments.
- Enrollment Trends: Track whether the record enrollment growth at DeVry University is sustainable amidst economic headwinds and increased competition.
- Debt Covenants: Review compliance with the new revolving credit facility covenants, including fixed charge coverage and leverage ratios.