DeVry Inc. 10-K Summary: Fiscal Year Ended June 30, 1996
Business Context and Reporting Period
This Form 10-K covers DeVry Inc. for the fiscal year ended June 30, 1996. DeVry is a holding company operating one of North America's largest private, degree-granting, regionally accredited higher education systems. Its primary operations include the DeVry Institutes of Technology (career-oriented technical education), Keller Graduate School of Management (KGSM), Corporate Educational Services (CES), and, following a June 1996 acquisition, Becker CPA Review. The company operates campuses in the United States and Canada.
Key Financial Metrics
| Metric | 1996 | 1995 |
|---|---|---|
| Total Revenues | $260.0 million | $228.6 million |
| Tuition Revenues | $236.6 million | $207.5 million |
| Net Income | $19.2 million | $14.9 million |
| Earnings Per Share | $1.14 | $0.89 |
| Operating Margin | 13.0% | 12.6% |
| Cash from Operations | $28.4 million | $28.2 million |
| Total Assets | $178.1 million | $126.7 million |
| Total Liabilities | $120.8 million | $88.7 million |
| Shareholders' Equity | $57.3 million | $38.0 million |
| Revolving Loan Balance | $61.5 million | $33.0 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 14.0% to $260.0 million, driven by an 8.6% increase in cumulative enrollment at DeVry Institutes and a 16.7% increase at KGSM, alongside a ~5% tuition increase.
- Profitability: Net income rose 29.2% to $19.2 million. Operating margin improved to 13.0% due to revenue growth and cost containment.
- Acquisition: In June 1996, the company acquired Becker CPA Review for approximately $36.4 million ($18.5 million for tangible assets/trademarks and $17.9 million for intellectual property), funded by borrowings under its revolving credit facility.
- Capital Expenditures: Capital spending reached a record $18.4 million, primarily for facility expansions (including a new campus in North Brunswick, NJ) and laboratory upgrades.
- Debt Levels: Outstanding borrowings under the revolving credit facility increased from $33.0 million to $61.5 million to finance the Becker acquisition and ongoing operations.
Outlook, Risks, and Management Commentary
- Enrollment Trends: Management reports 17 consecutive terms of enrollment growth. Summer 1996 enrollment was up 4.6% year-over-year. The company anticipates continued growth driven by an increasing number of high school graduates and adult learners.
- Regulatory Risks:
- Financial Aid: Approximately 68-79% of revenues depend on government financial aid. Changes in funding or regulations could adversely affect the company.
- California Compliance: The company failed to meet the 1.25:1 current asset-to-liability ratio required by California law (actual ratio was 1.17:1) but believes it has demonstrated sufficient financial strength to continue operations.
- Canada Financial Aid: The Ontario Ministry of Education temporarily suspended financial aid processing for Toronto-area schools due to application inaccuracies. The company refunded ~$1.6 million CDN and posted a letter of credit; processing was conditionally reinstated in spring 1996.
- Student Loan Defaults: The system-wide FFELP default rate for 1994 was reported at 17.7%, with one institute exceeding the 20% threshold. The company has filed appeals regarding calculation errors and is implementing reduction initiatives.
- Liquidity: Management believes cash from operations and the $85 million revolving credit facility are sufficient to fund operations and expansion plans for the foreseeable future.
Investor Verification Checklist
- Becker Integration: Verify the financial performance and integration progress of the newly acquired Becker CPA Review in the upcoming fiscal year.
- Regulatory Status: Confirm the status of the Ontario Ministry of Education's review and the final resolution of the California fiscal test compliance.
- Default Rates: Monitor the outcome of the company's appeal regarding 1993/1994 student loan default rate calculations and future default trends.
- Debt Covenants: Review the specific financial ratios required to maintain the lower interest rates on the $85 million revolving credit facility.
- Capital Spending: Assess the return on investment for the record $18.4 million in capital expenditures, particularly regarding new campus openings.