CVSA

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

Business Context and Reporting Period

This is a Quarterly Report on Form 10-Q for DeVry Inc. for the period ended December 31, 2008 (Second 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 U.S. Education), and Professional and Training. The filing reflects the impact of the September 2008 acquisition of U.S. Education Corporation.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 35.0% in Q2 and 28.5% for the six months, driven by the acquisition of U.S. Education, enrollment growth across all segments, and tuition price increases.
• Acquisition Impact: The acquisition of U.S. Education (Apollo College and Western Career College) for approximately $302 million significantly boosted the Medical and Healthcare segment revenue and operating income.
• Investment Impairment: The company recorded a net investment loss of $1.7 million in Q2 due to the reclassification of auction-rate securities (ARS) from "available-for-sale" to "trading" securities. This resulted in a $10.3 million other-than-temporary impairment charge, partially offset by an $8.6 million gain on the fair value of put rights granted by broker UBS.
• Debt Levels: Total debt increased from zero at June 30, 2008, to $155.1 million at December 31, 2008, primarily to finance the U.S. Education acquisition.

Guidance, Outlook, and Risks

• Capital Expenditures: Management anticipates full-year fiscal 2009 capital spending in the range of $60 million to $70 million to support growth, including Ross University's expansion in Grand Bahama.
• Dividends: The Board increased the annual dividend rate by 33.3% to $0.16 per share. A dividend of $0.08 per share was declared in November 2008.
• Stock Repurchases: Under a $50 million program authorized in May 2008, DeVry repurchased 98,100 shares for approximately $5.4 million in Q2. Approximately $44.6 million remains authorized.
• Liquidity Risks: The company holds $59.5 million in auction-rate securities which are currently illiquid due to market disruptions. While management believes current cash and borrowing capacity ($50 million available under the revolving credit facility) are sufficient to fund operations, future impairment charges could occur if the broker (UBS) fails to meet obligations under the put rights agreement.
• Legal Proceedings: DeVry is defending against a qui tam action regarding recruiter compensation practices (Shultz v. DeVry) and a class action appeal regarding academic unit transferability (Daghlian v. DeVry). Management does not expect these to have a material effect on financial position.

Investor Verification Checklist

• Auction-Rate Securities (ARS): Verify the status of the $59.5 million ARS portfolio and the enforceability of the put rights agreement with UBS, as liquidity remains constrained.
• U.S. Education Integration: Monitor the integration progress and financial performance of the newly acquired U.S. Education segment, which contributed significantly to Q2 results.
• Accounts Receivable: Review the increase in accounts receivable ($137.6 million vs. $76.8 million prior year), noting management's attribution to revenue growth and temporary financial aid system implementation issues.
• Debt Covenants: Confirm continued compliance with debt covenants, specifically the fixed charge coverage and leverage ratios, given the increased debt load.
• Regulatory Compliance: Track the outcome of the Department of Justice inquiry and pending litigation regarding recruiter compensation and Title IV funding regulations.