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Securities
registered pursuant to section 12(b) of the Act:
Title
of Each Class
Name
of Each Exchange on Which Registered:
Common
Stock $0.01 Par Value
NYSE,
CSE
Common
Stock Purchase Rights
NYSE
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes R No £
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes £ No R
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes R No £
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
one):
Large
Accelerated Filer Yes R
Accelerated
Filer £
Non
Accelerated Filer £
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes £ No R
State
the
aggregate market value of the voting and non-voting common equity held by
nonaffiliates as of the last business day of the Registrant’s most recently
completed second fiscal quarter computed by reference to the price at which
the
common equity was last sold. Shares of common stock held directly or controlled
by each director and executive officer have been excluded. Determination of
stock ownership by non-affiliates was made solely for the purpose of responding
to this requirement and the Registrant is not bound by this determination for
any other purpose.
Certain
portions of the Registrant’s definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on November 7, 2007, are incorporated into
Part III of this Form 10-K to the extent stated herein.
Certain
statements contained in this annual report on Form 10-K, including those
that affect DeVry’s expectations or plans, may constitute forward-looking
statements subject to the Safe Harbor Provision of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements generally can
be
identified by phrases such as DeVry Inc. or its management “anticipates,”“believes,”“estimates,”“expects,”“forecasts,”“foresees,” or other words or
phrases of similar import. Actual results may differ materially from those
projected or implied by these forward-looking statements. Potential risks and
uncertainties that could affect DeVry’s results are described more fully in
Item 1A, “Risk Factors” and in the subsections of “Item 1 —
Business” entitled “Competition,”“Student Recruiting and Admission,”“Accreditation,”“Approval and Licensing,”“Tuition and Fees,”“Financial Aid
and Financing Student Education,”“Student Loan Defaults,”“Career
Services,”“Seasonality,” and “Employees.” The forward looking
statements should be considered in the context of the risk factors listed above
and discussed elsewhere in this Form 10-K.
DeVry
Inc. (“DeVry”) is incorporated under the laws of the State of Delaware. DeVry’s
executive offices are located at One Tower Lane, Suite 1000, Oakbrook
Terrace, Illinois, 60181, and the telephone number is
(630) 571-7700.
DeVry,
through its wholly-owned subsidiaries, owns and operates DeVry University,
Ross
University, Chamberlain College of Nursing, and Becker CPA Review (d/b/a Becker
Professional Review).
DeVry
University, founded by Dr. Herman DeVry in 1931, offers
undergraduate and graduate degree programs in technology; undergraduate and
graduate degree programs in business and healthcare technology; and graduate
degree programs in management offered through the University’s Keller Graduate
School of Management. DeVry University is one of the largest private,
degree-granting, regionally accredited, higher education systems in North
America. Undergraduate and graduate degree programs are offered at 86 locations
in the United States, Canada and online.
Ross
University, which was founded in 1978, is one of the world’s largest
providers of medical and veterinary medical education. Ross University comprises
Ross University School of Medicine, located in the Caribbean country of
Dominica, and Ross University School of Veterinary Medicine, located in St.
Kitts/Nevis. DeVry acquired Ross University in May 2003.
Chamberlain
College of Nursing, formerly Deaconess College of Nursing, was founded
in 1889 and acquired by DeVry in March 2005. Chamberlain offers
several nursing degree and degree completion programs at its campuses in St.
Louis, Missouri and Columbus, Ohio and online. With Ross University, Chamberlain
makes up DeVry’s Medical and Healthcare segment.
Becker
Professional Review, founded in 1957 as the Becker CPA review and
acquired by DeVry in 1996,prepares candidates for the
Certified Public Accountant (“CPA”) and Chartered Financial Analyst (“CFA”)
professional certification examinations, and offers continuing professional
education programs and seminars in accounting and finance. These classes are
taught in nearly 300 locations, including sites in 27 foreign countries and
DeVry University teaching sites. Becker comprises DeVry’s
Professional and Training segment.
Financial
and descriptive information about DeVry’s operating segments is presented in
Note 15, “Segment Information,” to the Consolidated Financial
Statements.
Unless
indicated, or the context requires otherwise, references to years refer to
DeVry’s fiscal years then ended.
DEVRY
UNIVERSITY
Undergraduate
Programs
DeVry
University provides career-oriented, business- and technology-based education
to
high school students and graduates in the United States and Canada both in
traditional classrooms and online. DeVry University’s undergraduate programs
accounted for 63% of total revenues in fiscal year 2007.
The
first
DeVry Institute was opened in Chicago in 1931 as an electronics school. After
offering only undergraduate programs in electronics for almost five decades,
DeVry spent several years expanding and diversifying its course offerings.
Today, DeVry University offers the following undergraduate degree
programs:
Associate
Degree Programs
Bachelor’s
Degree Programs
Accounting
Business
Administration with majors/concentrations in:
Electroneurodiagnostic
Technology
Accounting
Electronics &
Computer Technology
Business
Information Systems
Health
Information Technology
Finance
Network
Systems Administration
Health
Services Management
Web
Graphic Design
Hospitality
Management
Human
Resource Management
Operations
Management
Project
Management
Sales
& Marketing
Security
Management
Small
Business Management & Entrepreneurship
Technical
Communication
Biomedical
Engineering Technology
Computer
Engineering Technology
Computer
Information Systems with specific tracks in:
Business/Management
Computer
Forensics
Database
Management
Information
Systems Security
Systems
Analysis and Integration
Web
Development and Administration
Electronics
Engineering Technology
Game
and Simulation Programming
Information
Technology
Network
and Communications Management
Technical
Management with specialization in:
Criminal
Justice
Health
Information Management
Business
Administration
General
Technical Management
Some
of
the more significant developments from the past several years are summarized
below.
·
In
2003, DeVry University introduced additional interdisciplinary degree
programs.
·
Biomedical
engineering technology covers engineering design and implementation of
equipment and processes for life sciences. This bachelor’s degree program
has applications in pharmaceuticals and environmental science, as
well as
in areas of physical science, such as development of artificial limbs
and
biomedical computing.
·
Health
information technology, an associate degree program, addresses the
management of electronic patient record systems, including maintenance,
analysis, assurance of privacy, and records
security.
·
In
2005, a bachelor’s degree in game and simulation programming was
introduced, targeted for students who plan to work in the computer
and
video game industry or in career fields utilizing simulations such
as
crime scene investigation, education, and military
training.
·
In
2006, a criminal justice specialty within the bachelor’s degree technical
management program was introduced. The criminal justice specialty
is
designed for students with at least one year of professional experience
in
law enforcement, criminal justice, or a closely related field, and
for
students who wish to obtain additional credentials for career
advancement.
Laboratory
courses throughout each curriculum prepare students for the workplace by
integrating classroom learning with a practical, hands-on experience and applied
learning activities that enhance technical skills. For some courses, laboratory
activities are delivered in a specialized classroom featuring advanced equipment
and software. In addition, some laboratory activities take place in a
lecture-lab classroom, using PCs and various software packages.
DeVry
University also invests in resources for libraries and academic support services
that can assist students in any phase of their educational program. DeVry
University offers undergraduate students an array of social and professional
activities including student organizations closely linked to students’
professional aspirations. Campuses regularly invite technology and business
leaders into the classroom. Faculty members serve as mentors for student
chapters of professional associations and sponsor a wide range of student
co-curricular projects. Students are required to complete a course that teaches
practical strategies and methods for realizing success so they will be prepared
to assume responsibility for their own learning and growth.
As
we
have developed new programs and course offerings and enhanced those already
offered, we have continued to expand the reach of DeVry University’s programs by
offering weekend classes, compressed and accelerated course schedules,
technology-assisted delivery options for classroom-based courses, and courses
offered completely online. In 2001, DeVry University introduced the concept
of
DeVry University centers, which are smaller than our campus facilities and
are
more conveniently located for working adults. DeVry University centers may
offer
both graduate and undergraduate programs. Our online initiatives and the DeVry
University centers are discussed in more detail below.
Keller
Graduate School of Management of DeVry University
Keller
Graduate School of Management was founded in Chicago in 1973 by Dennis J. Keller
and Ronald L. Taylor. Keller Graduate School of Management emphasizes excellence
in teaching, student mastery of practical management skills, and service to
working adults. The curricula, like the undergraduate curricula, are subject
to
regular review for relevance to both students and employers.
Keller
students can work toward master’s degrees in the following fields:
·
Accounting
and Financial Management
·
Business
Administration
·
Human
Resource Management
·
Information
Systems Management
·
Network
and Communications Management
·
Project
Management
·
Public
Administration
To
broaden the scope and appeal of these programs, Keller has developed
concentrations and graduate certificates. In addition, Keller offers all seven
of its degree programs in an online format, and enables students to complete
their degrees using whatever combination of online and onsite coursework suits
their needs.
The
Master of Accounting and Financial Management program offers students a choice
of three professional certification exam-preparation emphases: Certified Public
Accountant, Certified Fraud Examiner, or Chartered Financial Analyst. The
Certified Public Accountant and Chartered Financial Analyst concentrations
were
developed in conjunction with Becker Professional Review. The Master of Public
Administration program offers students a choice of three tracks: government
management, nonprofit management, and health management.
Keller
offers classes in the evening and on weekends. Most faculty members are
practicing professionals who bring their expertise to the classroom, emphasizing
theory and practices that will best serve students in their work as managers.
Critical competencies in areas such as business communications, electronic
commerce, technology, ethics, quality, and international matters are woven
throughout the curricula.
Graduate
Program in Educational Technology
In
addition to the graduate program offerings of Keller Graduate School of
Management, in July 2007, DeVry University began offering a masters degree
in
educational technology.
DeVry
University operates on a uniform academic calendar for both the undergraduate
and graduate degree programs across all methods of educational delivery —
onsite and online. The calendar consists of three academic periods of
16 weeks each, comprising either a 15-week semester or two 8-week sessions.
All online courses and Keller Graduate School programs are offered in 8-week
sessions.
Online
Delivery and Technology
DeVry
University has offered online graduate programs since September 1998, and online
undergraduate programs since 2001. Our online course offerings have increased
every year, and we expect to continue to add online programs and concentrations
in the future. By offering courses online, we can better serve students whose
schedules or personal circumstances prevent them from attending classes in
person, optimize use of faculty and classroom space, and offer students the
latest educational technologies.
The
majority of DeVry University’s online students are adults attracted by the
quality, inherent flexibility and convenience of the program. We also have
many
students who “mix and match” onsite and online courses to best meet their
individual needs and schedules.
All
of
the Keller master’s degree programs are offered online. DeVry University offers
the following undergraduate degree programs in an online format:
·
Accounting
·
Business
Administration
·
Computer
Information Systems
·
Game
and Simulation Programming
·
Health
Information Technology
·
Network
and Communications Management
·
Network
Systems Administration
·
Technical
Management
In
2006,
DeVry University began offering a new online finance concentration within its
bachelor’s degree business administration program (BSBA) and a new online health
information management (HIM) technical specialty within its bachelor’s degree in
technical management (BSTM). The online associate degree program in accounting
technology was first offered in May 2006.
In
addition to our online degree programs, many undergraduate and graduate courses
are taught using an integrated learning system, or “hybrid model,” that
incorporates both onsite and instructor-guided online activities.
In
spring
2005, DeVry University began to offer a limited number of graduate and
undergraduate onsite and online courses using electronic textbook materials
(“eBooks”) in place of conventional text materials. eBooks are available to
students at the start of the course and eliminate the occasional risk that
a
printed textbook will be out of stock. eBooks also afford a good deal of
flexibility: students can do text searches, highlight key materials, annotate
text with notes and comments, and print only pages they want in paper format.
Currently, eBooks are utilized in more than 200 courses with further expansion
planned during the coming years.
Facilities
Improvement and Optimization
As
we
expand programs and enhance course delivery methods, DeVry University also
is
engaged in a program of facility improvement and optimization. In the past
several years, we have renovated many of our facilities and expanded our DeVry
University center locations.
DeVry
University is executing an ongoing real estate optimization strategy, which
involves evaluating its current facilities and locations in order to ensure
the
optimal mix of large campuses, small campuses and DeVry University centers
to
meet the demand in each market that it serves. This process also
improves capacity utilization and enhances economic value. These
plans may include actions such as reconfiguring campuses; renegotiating lease
terms; sub-leasing excess space; co-locating other educational offerings and
administrative functions at campuses; and relocating to smaller locations within
the same geographic area to improve cost effective use of space and increase
market penetration. Future actions under this program could result in
accounting gains and/or losses depending upon real estate market conditions,
whether the facility is owned or leased and other market factors.
DeVry
made progress in executing its real estate optimization strategy during fiscal
year 2007. Such accomplishments include:
·
DeVry
sold its facility located in West Hills, California for $36.0
million. In connection with this sale, DeVry recorded a pre-tax
gain of $19.9 million during the first quarter of fiscal year
2007. DeVry relocated its West Hills operation to a leased
facility in nearby Sherman Oaks,
California.
·
During
September 2006, DeVry University co-located its Academics Department,
which previously occupied space at DeVry Inc. headquarters in Oakbrook
Terrace, Illinois, with its campus in nearby Addison,
Illinois. DeVry University also co-located admissions advisors
for its online program offerings with its campus in Phoenix,
Arizona.
·
DeVry
sold unused land adjacent to its campus in Tinley Park, Illinois
for $1.9
million. In connection with the sale, DeVry recorded a pre-tax
gain of approximately $1.0 million during the third quarter of fiscal
year
2007.
·
During
March 2007, Chamberlain College of Nursing began offering nursing
degree
programs at its new campus in Columbus, Ohio. The new location
is co-located with DeVry University’s existing campus in
Columbus.
·
DeVry
University sublet approximately 27,000 square feet of its Calgary,
Alberta, campus in May 2007 for the remainder of its six year
lease-term.
For
additional information on DeVry’s properties, please refer to
Item 2-Properties, which begins on page 33.
Enrollment
Trends
Student
enrollments in DeVry’s degree granting programs, including DeVry University,
Ross University and Chamberlain College of Nursing, for the fall 2006 term
were
as follows:
Percent
of Enrollments by Degree
Percent
of Enrollments by Program
Doctoral
7.3
%
Technology
43.5
%
Master’s
21.8
%
Business
46.7
%
Bachelor’s
60.9
%
Medical
and Health
9.8
%
Associate
10.0
%
DeVry
University
In
spring
2007, 40,637 full and part-time students were enrolled in DeVry University’s
undergraduate day, evening, and online programs. There were 14,290 coursetakers
in Keller graduate programs for the term that began in May 2007. The
term coursetaker refers to the number of courses taken by a
student. Thus, one student taking two courses is counted as two
coursetakers.
Total
undergraduate enrollment in summer 2007 was 40,774, an increase of 9.8% compared
to 37,132 in the previous summer. At Keller Graduate School, there were 14,023
coursetakers in the July term, an increase of 11.1% from the same term of last
year. Coursetaker enrollment in DeVry University online program offerings in
summer was 36,001, an increase of 26.0% over the prior year.
The
following table provides historical enrollment data for DeVry University’s
undergraduate operation.
New
Students
Enrollment
%
Change Over Prior Year
Fiscal
Year
Summer
Fall
Spring
Summer
Fall
Spring
2008
13,906
9.7
%
2007
12,671
11,930
11,075
12.2
%
11.9
%
6.9
%
2006
11,293
10,663
10,359
7.3
%
6.4
%
16.4
%
2005
10,522
10,018
8,902
0.9
%
(5.8
)%
6.4
%
2004
10,431
10,633
8,366
4.3
%
6.2
%
6.1
%
Enrollment
%
Change Over Prior Year
Fiscal
Year
Summer
Fall
Spring
Summer
Fall
Spring
2008
40,774
9.8
%
2007
37,132
40,434
40,637
2.5
%
4.9
%
5.5
%
2006
36,220
38,546
38,523
(4.8
)%
(2.3
)%
1.2
%
2005
38,036
39,450
38,083
(5.8
)%
(8.3
)%
(6.8
)%
2004
40,398
43,001
40,870
(4.1
)%
(2.5
)%
(3.1
)%
Online
Coursetakers*
Enrollment
%
Change Over Prior Year
Fiscal
Year
Summer
Fall
Spring
Summer
Fall
Spring
2008
36,001
26.0
%
2007
28,580
32,369
35,417
35.7
%
32.9
%
22.5
%
2006
21,068
24,357
28,912
67.3
%
50.0
%
46.3
%
2005
12,590
16,236
19,759
92.8
%
78.9
%
79.1
%
2004
6,531
9,077
11,032
146.3
%
137.4
%
110.4
%
____________
*
Online
coursetakers are included in the new and total undergraduate and
graduate
student coursetaker counts.
The
following table provides historical enrollment for Keller Graduate School of
Management coursetakers.
Enrollment
Fiscal
Year
July
September
November
January
March
May
2008
14,023
2007
12,617
14,069
13,920
15,278
14,756
14,290
2006
11,434
12,732
12,777
13,776
14,029
13,148
2005
10,276
12,129
12,368
12,597
12,496
12,113
2004
9,483
11,132
11,274
11,909
11,812
11,140
%
Change Over Prior Yr
July
September
November
January
March
May
2008
11.1
%
2007
10.3
%
10.5
%
8.9
%
10.9
%
5.2
%
8.7
%
2006
11.3
%
5.0
%
3.3
%
9.4
%
12.3
%
8.5
%
2005
8.4
%
9.0
%
9.7
%
5.8
%
5.8
%
8.7
%
2004
15.5
%
3.9
%
4.8
%
*
*
*
____________
*
In
2004, Keller adopted a six term, eight-week academic calendar. Therefore
the 2004 January, March and May sessions are not directly
comparable.
Population
trends
The
total
postsecondary student population can be thought of as two categories of
students: career-launchers, who are mostly traditional college-age students;
and
career-enhancers, who are mostly working adults.
According
to the U.S. Department of Education between 1995 and 2005, enrollment in
degree granting institutions increased by 23%, from 14.3 million to 17.5
million. Enrollment increases may be affected both by population
growth and by rising rates of enrollment. Between 1995 and 2005, the
number of 18- to 24-year olds increased from 25.5 million to 29.3 million,
and
the percentage of 18- to 24-year olds enrolled in college rose from 34% to
39%.
The
number of young students has been growing more rapidly than the number of older
students, but this pattern is expected to change. The U.S. Department
of Education estimates that between 1990 and 2005 enrollment of students under
age 25 increased by 32%. Enrollment of persons 25 and over rose by
19% during the same period. From 2005 to 2015, the National Center
for Education Statistics projects a rise of 11% in enrollments of persons under
25, and a rise of 18% in enrollments of persons 25 and over. Many
external forces have combined to inspire older students to attend college today:
the development of the knowledge-based economy; the rapid pace of technological
change in the workplace; the emergence of e-learning tools that make continuing
education more feasible; and growing recognition of the importance of lifelong
learning.
The
National Center for Education Statistics estimates that in 2005 as many as
40%
of all college students were at least 25 years old, up from about 28% in
1970 and 39% in 2000. DeVry believes that more than half of our undergraduate
students are at least 25 years old. More significantly, at DeVry University
online and DeVry University centers, which are designed for the adult student
and have been the fastest growing parts of our operations, we estimate that
at
least 80% of the students are age 25 or older. Projections indicate that
the percentage of this age group attending college will remain constant at
approximately 40% until 2014. The Bureau of Labor Statistics projects that
through 2010, job categories requiring at least some postsecondary education
(primarily bachelor’s and associate degrees) will grow nearly twice as fast as
those not requiring such education.
Another
strong motivation for students considering a postsecondary education is the
prospective income premium. According to the U.S. Census Bureau, in 2004, the
average income of U.S. employees with a bachelor’s degree was approximately
$51,550, more than 80% higher than the average for those with only a high school
education. The wage gap is even larger for those with graduate
degrees.
DeVry
University’s student body is increasingly more diverse than past generations:
students include racial minorities, women, and recent immigrants, and many
come
from lower income families. Some DeVry campuses rank at or near the top of
the
list of institutions in the number of degrees granted to minority students
in
the fields of computer and information science, business, and all academic
disciplines combined. Often these students are the first in their families
to
attend college. Demographic information based on DeVry University’s fall term
enrollments follow.
Ross
University operates two schools: Ross University School of Medicine confers
the
Doctor of Medicine (M.D.) degree, and Ross University School of Veterinary
Medicine confers the Doctor of Veterinary Medicine (D.V.M.) degree.
Together, the two Ross schools had over 3,700 students enrolled in the May
2007
semester. Nearly 6,000 graduates have received Ross M.D. degrees since 1978;
these individuals are practicing in all 50 states. Over 2,000 graduates
have received Ross D.V.M. degrees.
Ross
medical students complete a four-semester (approximately 16 months) basic
science and pre-clinical curriculum in modern classrooms and laboratories at
a
campus located in Dominica, followed by a one-semester course entitled Advanced
Introduction to Clinical Medicine at the Dominica campus or at the Ross location
in Miami. After students successfully complete Step 1 of the U.S. Medical
Licensing Examinationtm, which
assesses
whether medical school students understand and can apply scientific concepts
that are basic to the practice of medicine, they can complete the remainder
of
the ten-semester program by participating in clinical rotations under Ross
University direction, and conducted at more than 50 affiliated teaching
hospitals in the United States.
Ross’
educational program is modeled after the educational programs typically offered
at U.S. medical schools. However, Ross’ program consists of
three academic semesters per year — beginning in May, September, and
January — which allows the students to complete their basic science and
clinical curriculum in less time than they would at a U.S. medical school.
The program prepares students for general medical practice and provides the
foundation for postgraduate specialty training primarily in the United
States.
Ross
veterinary students complete a seven-semester pre-clinical curriculum in a
large
modern facility in St. Kitts. This program is structured to provide a veterinary
education that is modeled after educational programs at U.S. veterinary
schools. After completing their pre-clinical curriculum, Ross veterinary
students enter a clinical clerkship lasting approximately 48 weeks under
Ross University direction at one of 24 affiliated U.S. Colleges of
Veterinary Medicine.
New
Students
Enrollment
%
Change Over Prior Yr
Fiscal
Year
September
January
May
September
January
May
2007
628
496
416
9.2
%
28.2
%
(5.2
)%
2006
575
387
439
40.6
%
67.5
%
63.8
%
2005
409
231
268
(12.4
)%
(36.7
)%
26.4
%
2004
467
365
364
8.1
%
(10.3
)%
14.1
%
Total
Students
Enrollment
%
Change Over Prior Year
Fiscal
Year
September
January
May
September
January
May
2007
3,724
3,747
3,767
15.4
%
14.8
%
9.9
%
2006
3,227
3,264
3,428
(3.8
)%
4.5
%
13.2
%
2005
3,353
3,122
3,029
5.6
%
(3.3
)%
(8.5
)%
2004
3,174
3,229
3,310
17.0
%
11.1
%
16.1
%
The
average Ross medical student is 26 years old — two years older than
the U.S. medical school average — and the student population is
approximately 55% male. The average Ross veterinary student also is
26 years old — one year older than the U.S. veterinary school
average — and the student population is over 70% female. Most Ross students
are either citizens or permanent residents of the United States.
Chamberlain
College of Nursing
DeVry
acquired Chamberlain College of Nursing in March 2005. Founded as Deaconess
College of Nursing more than a century ago, Chamberlain offers programs in
nursing education leading to one of two degrees: a Bachelor of Science in
Nursing (“BSN”), or an Associate of Science in Nursing (“ASN”). Chamberlain had
approximately 1,089 students enrolled in the July 2007 semester.
Chamberlain’s
BSN program is a traditional on-campus baccalaureate program. The BSN
program enables students to complete their BSN degree in three years of full
time study as opposed to typical four year BSN programs where students take
the
summer off. Students who already have achieved Registered Nurse
(“RN”) designation through a diploma or associate degree can complete their BSN
online through Chamberlain’s “fast track” RN to BSN completion program in as
little as three semesters. The ASN program is a six-semester year
round program offered onsite or online. In addition, Licensed
Practical Nurses (“LPNs”) receive up to 10 hours of credit for their previous
work and can complete an ASN degree through either the onsite or online
programs.
Both
degree programs provide nursing skill training and general education. Students
who have not previously completed clinical training and the associated licensing
are required to do so at hospitals or other healthcare facilities. Chamberlain
has developed numerous partnerships with hospitals for this
purpose.
Ninety
percent of Chamberlain students are female. Students in the on-campus BSN
program tend to be recent high school graduates whereas those in the ASN program
tend to be non-traditional adult students who are changing careers.
PROFESSIONAL
AND TRAINING
Becker
Professional Review is a global leader in professional education and training
serving the accounting and finance professions. Its primary product lines are
review courses preparing students to take the Certified Public Accountant and
Chartered Financial Analyst examinations. Through its CPA and CFA review
courses, Becker served more than 47,000 students in fiscal year
2007. In June 2007, Becker celebrated its 50th anniversary
of
offering high quality CPA review courses.
DeVry
has
expanded the Becker Professional Review franchise in the past
decade:
·
In
1999, DeVry acquired the operations of Conviser Duffy CPA Review,
a
national program which served approximately 12,000 students annually
at
more than 200 locations. With the Conviser Duffy acquisition, Becker
gained teaching sites at numerous college campuses throughout the
United
States.
·
In
2001, DeVry acquired Stalla Seminars, now called Stalla Review for
the CFA
Exams — a leading provider of CFA review courses and study materials.
Stalla offers live, online and self study CFA review programs in
the
United States and in major financial centers around the
world.
·
In
2005, DeVry acquired Gearty CPE, a provider of continuing professional
education programs and seminars in accounting and finance in the
New
York/New Jersey metropolitan area. This acquisition provided an entrée
into the CPE marketplace and complements Becker’s existing exam review
business.
To
reach
students who cannot attend class because of location or schedule conflicts,
Becker CPA Review offers complete review courses in more flexible formats,
including CD-ROM or online. Becker’s online products are interactive, and offer
the same instructor-led lessons and materials available in the classroom course.
The online course also provides each student an online instructor who offers
individualized attention and assistance as needed. CD-ROM and online review
course enrollments have grown steadily over the past several years, equaling
approximately 55% of total enrollment.
Based
on
published exam pass rate statistics supplied by the American Institute of
Certified Public Accountants, Becker CPA Review students pass at twice the
rate
of all CPA exam candidates who did not take a Becker review
course. Becker CPA exam review course students represent nearly
one-half of all students passing the CPA exam. At the request of the CFA
Institute, the professional association that administers the CFA
exam, Stalla and other providers do not disclose pass rate
performance.
Enrollment
trends
Becker
CPA Exam Review
The
November 2003 CPA exam was the last to be offered in the traditional paper
and
pencil, fixed date and place format. Since April 2004, the exam has been offered
only in a computer-based, on-demand format for eight months of the year. In
anticipation of the change in exam format and schedule, Becker enrollments
increased for the review course leading up to the November 2003 exam, and then
declined significantly. For the first twelve months following the new exam
offering, the overall number of exam candidates and examination parts taken
declined significantly. In 2005 and through June 2006, the number of candidates
and examination parts taken has increased, although examination parts taken
are
still not to 2004 levels.
The
CFA
exam review is a graduate-level curriculum and examination program intended
to
expand a candidate’s working knowledge and skills relating to the investment
decision-making process. The curriculum is broken into three “levels,” each of
which builds upon another and concludes with an examination. The CFA designation
is often referred to in practice as the “gold standard” for investment
professionals, serving as a standard for measuring practitioner-oriented
competence and integrity in fields including corporate finance, portfolio
management, securities analysis and ethical and professional standards. Stalla’s
approach to CFA exam preparation — The “Stalla System” — combines
expert, comprehensive instruction, an integrated suite of learning tools and
the
support of a Personal Tutor in a program personalized to fit candidates’ unique
learning styles and scheduling requirements.
Becker
began offering a CFA review course for the Level 1 examination in 2000. The
2001 acquisition of Stalla Seminars (predecessor of Stalla Review for the
CFA® Exam)
enhanced that program and added review courses for the respective Level 2 and
Level 3 examinations. Stalla also offers CFA exam study materials in print,
and
its course offerings are also available in more flexible online and self study
formats.
More
than
98,000 candidates from 160 countries or territories enrolled in the June 2007
exam, bringing total enrollments for fiscal year 2007 to 140,000 — an
increase of almost 20% over 2006. Of the total enrollments for fiscal year
2007,
32% of candidates were from the United States, 37% were from Asia-Pacific,
14%
were from Europe and 8% were from Canada. The majority of the remaining
candidates were from Africa and the Middle East. The strongest recent candidate
enrollment growth has come from outside of North America — particularly
within the Asia/Pacific area. Stalla has demonstrated positive enrollment and
revenue growth in North American and other markets.
Continuing
Professional Education
Becker
offers customized educational and training programs in the fields of accounting
and finance to help organizations achieve superior performance through work
force development. Since instruction can be conducted at the organization’s
site, Becker provides a unique and cost effective continuing education
model.
COMPETITION
DeVry
University
The
postsecondary education market is highly fragmented and competitive; no single
institution has a significant market share. There are approximately 6,440
degree-granting postsecondary education institutions in the United States,
including approximately 2,570 private, for-profit (“market-funded”) schools;
approximately 2,010 public, non-profit schools (“publicly-funded” e.g. state
institutions and community colleges); and approximately 1,860 private,
non-profit (“privately-funded”) schools. According to the U.S. Department
of Education, in the fall of 2005 approximately 17.5 million students were
attending degree-granting institutions that participate in the various financial
aid programs under Title IV of the Higher Education Act. Approximately 86%,
or 15.0 million students, were enrolled in undergraduate programs, with
another 2.5 million in graduate programs.
In
every
market in which DeVry University operates, there are numerous state
institutions, community colleges, and privately-funded universities. In
particular, there is growing competitive pressure from community colleges,
traditional universities, and technical colleges that offer industry-specific
certification programs, particularly in the computer information field. These
short-term certificate programs offer a pathway to the job market for students
but do not provide the longer and more expensive, but more comprehensive, career
preparation that DeVry University offers. In addition, there is growing
competition from online programs (both by market-funded and other traditional
institutions) and site-based market-funded school programs. In 2005, a freshman
study by the Higher Education Research Institute at UCLA found that 26.1% of
students applied to six or more schools, up from 17.7% in 1995 and just 11.8%
in
1985 as competition in student recruiting increased. Our undergraduate programs
also compete with alternatives to higher education, such as employment and
military service. Finally, some large corporations conduct and offer their
employees accredited college courses that may be applied toward
degrees.
Tuition
at independent privately-funded institutions is, on average, higher than the
tuition at DeVry University. Publicly supported colleges may offer similar
programs at a lower tuition level because of government subsidies,
tax-deductible contributions, and other financial sources not available to
market-funded schools. In fact, many local community colleges offer programs
similar in content to DeVry University’s associate degree programs, but at a
much lower tuition. While community college enrollments have grown significantly
in recent years and these institutions may be viewed as competitors, they also
provide DeVry an opportunity to serve their graduates: we have a number of
articulation and transfer agreements in place with community colleges that
make
it easier for their graduates to continue their education to earn a bachelor’s
degree at DeVry.
For
more
information on DeVry University tuition, please read the section entitled
“Tuition and Fees.”
Geography
and Consistency
DeVry
University campuses and teaching centers are located within a growing number
of
states, with multiple locations within many of the states. As such,
we offer a national system of educational offerings to adults who may be
transferred or choose to move from one part of the country to another. In
addition, we offer all our graduate programs and selected undergraduate programs
through DeVry University online, making these programs available to all
qualified students without regard to their location or daily
schedule.
To
ensure
that students can readily transfer from one DeVry location to another without
disrupting their studies, our graduate and undergraduate curricula generally
are
consistent at all locations (with some content variations to meet local
employment market and/or regulatory requirements).
Undergraduate
Programs
DeVry
University’s competitive strengths in the market for undergraduate programs
include:
·
Career-oriented
curricula developed with employer input to ensure that graduates
learn
marketable skills;
·
Faculty
with relevant industry experience;
·
Well
developed undergraduate career service
program;
·
National
brand-name recognition and market
presence;
·
Regional
accreditation;
·
Modern
facilities and well-equipped
laboratories;
·
Evening,
weekend, and online class
schedules;
·
Year-round
academic schedule that permits more flexible attendance and earlier
graduation; and
·
Bachelor’s
degree programs that can be completed in three years, giving DeVry
University students the financial advantage of entering the work
force one
year earlier than their counterparts at traditional four-year
undergraduate institutions.
In
recent
years, DeVry has increased its competitiveness by enhancing several of the
undergraduate programs, expanding DeVry University online offerings, and adding
DeVry University centers. As a result, we offer more locations, and more
flexible class schedules and learning formats, than most other educational
institutions. Undergraduate classes at DeVry University campuses generally
are
offered in morning, afternoon, or evening sessions, which help students maintain
part-time jobs. Undergraduate classes at DeVry University centers generally
are
offered in the evening for the convenience of the predominantly working adult
students, but daytime classes are offered at centers in markets where there
is
deemed to be sufficient demand.
Keller
Graduate School of Management
DeVry
University’s competitive strengths in the market for graduate programs
include:
·
A
practitioner approach to education that stresses skills and strategies
that employers value;
·
Excellence
in teaching by a faculty of practicing
professionals;
·
A
high level of service to the adult student, including flexible schedules
and locations that are convenient to central business districts where
many
students work;
Convenience
of more than 80 onsite teaching locations in major metropolitan areas
nationwide; and
·
Flexible
schedules with six, eight-week, sessions annually enabling new students
to
start their program any time of the year and continuing students
to take a
session off, if necessary, to accommodate their
schedules..
Graduate
programs, both onsite and online, are offered in six, eight-week, sessions
each
year. Classroom-based courses generally meet once a week, either in the evening
or on Saturday, for the convenience of students with heavy travel or other
demands on their time. In most markets where it operates, DeVry University
offers a broader range of elective course options than its
competitors.
As
the
market for adult education programs has expanded in recent years, other schools
have implemented multi-location evening and weekend programs. However,
enrollments in DeVry University’s graduate programs continue to increase,
demonstrating the recognition it has earned as an innovator in providing quality
practical education.
Medical
and Healthcare
Ross
University
In
the
medical education market, Ross University competes with the 126 U.S.-based
schools of medicine, 23 U.S. colleges of osteopathic medicine, and
approximately 20 Caribbean-based medical schools. In the veterinary education
market, Ross competes with AVMA accredited schools, of which 28 are U.S, 4
are
Canadian and 4 are international veterinary schools. In addition,
Ross competes with 2 non-AVMA Caribbean veterinary schools.
Ross
University attracts potential students for several reasons. For some, Ross
is
their first or only choice of schools because of our commitment to and focus
on
teaching. The majority of our students applied to U.S.-based medical or
veterinary schools but were not admitted. Others elected not to apply to U.S.
schools because of self-perceived deficiencies in their academic record or
standardized test scores.
For
2006,
it is estimated that applications to U.S. medical and veterinary medical
schools aggregated over 39,000 and 6,000, respectively. From these applicant
pools, approximately 44% and 43% students, respectively, were accepted. An
additional estimated 4,000 students are accepted to U.S. osteopathic
medical schools. Acceptance levels have remained largely unchanged for more
than
two decades, but have recently started to increase with the authorization or
opening of several new allopathic and osteopathic schools.
Medical
and veterinary school applicants who were denied admission to U.S. schools
constitute a large segment of prospective students for Ross University. However,
based upon the number of Medical College Admission Test (“MCAT”) takers, which
increased to approximately 70,900 in 2006 (up from approximately 65,000 in
2005), management believes the potential market for medical school students
is
much larger than the denied applicant pool alone.
According
to the Association of American Medical Colleges, the demand for medical
education is expected to increase over the next decade by approximately 30%,
spurred by a physician supply/demand imbalance that is projected to grow. The
capacity of U.S. medical schools has not changed materially in over two
decades. However, some expansion is likely in the U.S. medical
education industry in the future because of the growing supply/demand imbalance
for medical doctors. Management believes the veterinary medical education market
is subject to some of the same forces.
Compared
to its market-funded competitors, Ross University enjoys several competitive
advantages, including a large alumni base and strong reputation, federal
financial aid eligibility for its students, and the historically large network
of diverse geographical opportunities for clinical rotations.
In
the
last year for which there is published data (September 2002), more Ross
University School of Medicine graduates obtained first year residency positions
at U.S. teaching hospitals than graduates from any other medical school in
the world, including those schools in the United States. Those residency
appointments have been in virtually every medical specialty and
subspecialty.
Chamberlain
College of Nursing
Nursing
constitutes the largest occupation in healthcare, with over 2.3 million
nursing jobs in the United States alone. It is estimated that more new nursing
jobs will be created in the United States during the next decade than in any
other healthcare profession. The strong job market for nurses has spurred
applications to nursing schools, but has not yet produced an increase in
educational capacity. It is estimated by the American Association of
Colleges of Nursing that over 32,000 qualified applicants were turned away
from
U.S. nursing schools in 2006 because of lack of capacity.
Nationally,
Chamberlain competes in the nursing education market with more than 700 programs
leading to RN licensure. These include both 4-year educational
institutions and 2-year community colleges. However, Chamberlain has
an advantage over many of its competitors because it offers an accelerated
three
year BSN program and an ASN program that can be taken either onsite or
online.
Professional
and Training
Becker
competes with other methods of CPA and CFA exam preparation, including
self-study courses sponsored by the CFA Institute and affiliated societies,
courses offered by colleges and universities, and courses offered by other
private training companies. Becker typically charges more for exam preparation
than colleges and private competitors.
With
its
50 year history and track record of preparing students to pass the CPA exam,
Becker differentiates itself from competitors by providing:
·
Extensive
and constantly updated review and practice test
materials;
·
Experienced,
well qualified instructors for each of the areas of specialty included
in
the exam; and
·
Courses
available in several formats, including live class, self study CD,
and
online sessions, to meet candidate needs for flexibility and
control.
With
the
introduction of the new computerized exam format, Becker added practice
simulations, similar to those used in the actual exam. Becker’s CD-ROM and
online courses offer a wider range of study alternatives than other course
providers. Becker students have a high success rate on the exam; some of Becker
students enroll after taking other review courses or studying independently
without success.
Stalla
differentiates itself from competitors by employing an expert-led, comprehensive
approach to preparation focused on helping candidates master and apply CFA
curriculum topics. Other advantages over competing programs
include:
·
A
curriculum produced by more than 50 CFA Charterholders and subject
matter
experts;
·
An
instructional team that includes Charterholders, practitioners and
subject
matter experts, all of whom are skilled
teachers;
·
Materials
that are continually updated to reflect the most recent CFA curriculum,
with a rigorous quality assurance process in
place;
·
Courses
that are available in several formats, including live class, self
study
CD, and online sessions, to meet candidate needs for flexibility
and
control; and
·
Access
for all Stalla System candidates to a personal tutor who is a CFA
Charterholder, upon whom they can rely for ongoing
support.
CPA
and
CFA exam candidates can take advantage of the Becker review course content
and
methodology in conjunction with their DeVry University MBA or Master of
Accounting and Financial Management programs in several states, earning full
academic credit. These credits also may be used to fulfill the 150-hour
educational requirement that most states have made a prerequisite to sitting
for
the CPA exam. Extending the marketing and administrative benefits of joint
operation, Becker offers classes at DeVry University locations.
The
Stalla CFA review course is taught live in a classroom setting in selected
large
financial markets around the world and in an online format and self-study CD
format to reach potential exam takers not able to attend the classroom course.
In the CFA exam preparation market, much like the CPA exam preparation market,
Stalla competes with courses offered by local CFA Society chapters, other
training companies, and student self-study.
DeVry
University employs approximately 1,000 admissions advisors, not including
managers and other administrative staff who support the recruiting process,
throughout the United States and Canada. Admissions advisors are salaried,
full-time DeVry employees. There are admissions advisors at each DeVry
University location to work with potential applicants.
Undergraduate
students applying to DeVry University to take courses online are recruited
primarily by admissions advisors, either at a DeVry University location if
the
applicant lives or works in the area, or by a central staff of admissions
advisors who are dedicated to serving online applicants. Some applicants to
online programs, who are in areas remote from a DeVry University location,
including active military personnel on military bases, are recruited by a
central staff of admissions advisors.
All
graduate school students are recruited by admissions advisors.
Certain
states and Canadian provinces require advisors and student recruiters to be
licensed or authorized by a particular regulatory agency. Regulations governing
student participation in U.S. federal financial assistance programs
prohibit schools from paying commissions, bonuses, or incentives to student
recruiters based directly or indirectly on the number of students they enroll.
DeVry believes that its compensation practices comply with current
regulations.
Many
of
our applicants are older working adults who want to attend class in the evening
or on weekends, recently unemployed adults seeking to improve their job skills,
and students transferring to a DeVry University undergraduate program from
nearby community colleges. DeVry University has entered into articulation
agreements with community colleges to facilitate the enrollment of their
students seeking to transfer course credits to DeVry. A growing number of new
students enrolling in our undergraduate programs have some prior college
experience. In addition, military veterans with military-specific technical
training are attracted to DeVry’s practical career-oriented education and
extensive geographic reach.
Admissions
advisors visited over 5,000 high schools, community colleges, military bases,
and other locations in North America last year, making presentations on career
choices — particularly in business and technology-related fields — and
on the importance of a college education. Participating students complete career
surveys, which provide a large and important source of recruiting leads.
Admissions advisors also receive student inquiries generated by DeVry’s website,
the Internet, direct mail, and television advertising. Follow-up interview
sessions with prospective students generally take place at a DeVry University
location or in the student’s home with his or her parents.
DeVry
University also recruits students through its Corporate Education Program
(“CEP”). The program is designed to meet the education needs of
corporate clients and their employees with DeVry program offerings. A
national network of corporate account managers directs its student recruiting
efforts primarily at Fortune 1000 companies leveraging relationships with these
clients through DeVry’s career services organization.
Marketing
and Outreach
To
enhance the productivity of our admissions advisors, DeVry University increased
its emphasis on local marketing and outreach, recognizing that potential
applicants in different market areas can be better recruited by targeted means
and messages. We also have increased efficiency by creating specialized staff
positions to generate inquiries and schedule interviews.
DeVry
University advertises on television and radio, in magazines and newspapers,
and
on various Internet sites, and utilizes telemarketing and direct mail to reach
prospective students. We continuously update our marketing programs in order
to
better communicate the quality of our degree programs and the value of a DeVry
education. As part of this effort, we have initiated new relationships with
several marketing and advertising agencies — some with particular expertise
in the areas of website design and web-based search engine marketing — and
have updated DeVry University’s own website. New agency relationships were
established to focus on marketing our graduate programs. Prospective students
also are frequently referred by high school counselors, employers, alumni,
or
currently enrolled students. DeVry personnel actively cultivate these referral
sources.
DeVry
has
undertaken a number of marketing initiatives to expand enrollment. For example,
since July 2004, we have worked with the Chicago Public School system to create
the DeVry Advantage Academy. This program allows high school students with
an
aptitude for mathematics and technology to complete their junior and senior
year
of high school coursework at DeVry’s Chicago campus while also taking
college-level courses taught by DeVry University faculty. After completing
the
Advantage Academy, students will graduate with both a high school diploma and
an
associate degree in Network Systems Administration. All tuition, textbooks,
and
educational materials are paid for by the Chicago Board of Education and DeVry
University. This program began with an initial enrollment of 128 students three
years ago. From this first class, which graduated in June 2006, approximately
90% earned their high school diploma, and approximately 81% earned their
associate degree. The second class of more than 100 students graduated in June
2007 (enrolled in September 2006), and a new class of approximately 100 students
will begin in September 2007.
DeVry
University replicated this model program in conjunction with the Columbus,
Ohio
School District in July 2006, and efforts are underway to launch similar
programs in other metropolitan areas.
DeVry
University markets to technology-minded students in several unique ways. Each
year we sponsor local FIRST Robotics high school teams and provide sponsorship,
mentors and judges for local competitions. The purpose of the competition is
to
stimulate the next generation of scientists and inventors by challenging high
school students to design and build a robot that can complete a pre-determined
task. Similarly, in 2006, in conjunction with Banco Popular, DeVry University
initiated two new scholarship opportunities, offering partial-tuition
scholarships to qualifying students.
Other
outreach and recruitment initiatives include weekend SAT preparatory classes
for
high school seniors, Career Reality workshops to teach students and educators
about trends in business and industry, free summer classes for high school
students seeking a head start on business and technology college credits, and
fellowships for high school and community college faculty and
administrators.
Admissions
Standards
To
be
admitted to a DeVry University undergraduate program in the United States,
an
applicant must be either a high school graduate, have a General Education
Development (“GED”) certificate, or hold a degree from a DeVry
University-approved postsecondary institution. Applicants for admission must
be
at least 17 years old and complete an interview with an admissions advisor.
In Canada, an applicant must meet either the same criteria as in the
United States, or meet alternative “mature student” criteria.
All
applicants must meet prescribed admission qualifications and attain minimum
placement examination scores, which vary depending on the program. Students
can
elect to take the Computerized Placement Tests, which were designed in
collaboration with The College Board and Educational Testing Service, to assess
applicants’ achievement levels and developmental needs during the admission
process. ACT or SAT examination scores deemed appropriate for the desired
program, or acceptable grades in qualifying college-level work completed at
an
approved postsecondary institution, also can be used to meet undergraduate
admission requirements.
After
prospective students complete an application, our admissions advisors contact
them through phone calls, mailings, and invitations to site-based workshops
or
other events to improve the rate at which such applicants begin their program
of
study.
To
be
admitted to a graduate program, applicants must hold a bachelor’s degree from a
U.S. institution that is accredited by or is in candidacy status with a
regional accrediting agency recognized by the U.S. Department of Education.
International applicants must hold a degree recognized to be equivalent to
a
U.S. baccalaureate degree. Applicants whose undergraduate cumulative grade
point average is 2.70 or higher are eligible for admission. Applicants with
a
cumulative grade point average below 2.70 must achieve acceptable scores on
the
Graduate Management Admission Test (“GMAT”), the Graduate Record Examination
(“GRE”) or the Keller-administered alternative admissions test. Admissions
decisions are based on evaluation of a candidate’s academic credentials,
entrance test scores, and a personal interview.
Medical
and Healthcare
Ross
University
The
Ross
University School of Medicine and School of Veterinary Medicine focus their
marketing efforts on attracting highly qualified, primarily U.S. and Canadian
applicants, with the motivation and requisite academic ability to complete
their
educational programs and to pass the United States Medical Licensing Exam and
the North American Veterinary Licensure Examination
respectively. Ross’ marketing effort includes direct e-mail
marketing, visits to undergraduate campuses to meet students and their
pre-med/pre-vet advisors, targeted direct mail campaigns, information seminars
in 40 major markets throughout the United States, Canada, and Puerto Rico,
alumni referrals, a national undergraduate poster campaign, radio advertisements
in select markets, print ads in major magazines, newspapers, as well as college
newspapers.
Ross
employs regional admissions representatives in eleven cities throughout the
U.S.
who seek out and pursue student interest in our two programs. Senior
Associate Directors of Admissions and Associate Directors of Admission recruit,
interview, admit, and enroll all new students to each of our three entering
cohorts. Admission requirements include a minimum of 90 earned
undergraduate credit hours, though a bachelor’s degree is strongly
preferred. The successful applicant must have all prerequisite
sciences (with labs), mathematics, and English courses as dictated by the
admissions committee of both the medical and veterinary schools
respectively. All candidates for admission must interview with an
associate director at one of our sites in New Jersey, Miami, Boston, Atlanta,
Dallas, Seattle, Los Angeles, Sacramento, Detroit or Chicago. All
admission decisions are made by the admissions committees of the medical and
veterinary schools.
Chamberlain
College of Nursing
Chamberlain
utilizes varied marketing approaches to generate interest from potential
students. Chamberlain recruiters visit Missouri, Southern Illinois and Ohio
high
schools, employ targeted direct mail campaigns, cultivate alumni referrals,
and
participate in information seminars and career fairs. Chamberlain holds open
house events to attract local prospective students, and advertises in healthcare
career publications, in newspapers, and on television and radio. Chamberlain’s
extensive informational website generates nearly one-third of all potential
applicant leads.
Chamberlain
employs regional admissions representatives who arrange for student interviews
and campus tours. Admission requirements include a high school diploma or GED;
minimum cumulative grade point average requirements vary depending upon the
program. Applicants must pass the Chamberlain standard pre-admission exam or
obtain a prescribed minimum score on the ACT exam, depending upon the program
in
which the applicant is interested. Admissions decisions are made by an
admissions committee.
Professional
and Training
Becker
markets its courses directly to potential students and to selected employers,
primarily the large national and regional accounting and financial services
firms. Alumni referrals, direct mail, print advertising, and a network of
on-campus recruiters at colleges and universities across the country also
generate new students for Becker’s CPA and CFA review courses. The Becker web
site is another source of information for interested applicants.
Becker
delivers its CPA review courses on about 70 college campuses, recruiting
students attending that institution. Becker also is the preferred provider
of
CPA review for several of the country’s largest CPA firms.
With
the
acquisition of Stalla Seminars, the CFA exam review course is now offered in
an
expanded number of classroom locations and online. Several investment analyst
societies, including those in Toronto, Washington D.C., Chicago, and Hong Kong,
have adopted Stalla as their preferred provider of CFA test preparation courses.
Also, several prominent investment firms are on the Stalla client roster,
further expanding the reach and prominence of the Stalla brand.
ACCREDITATION
Educational
institutions and their individual programs can earn “accreditation” by achieving
a level of quality that entitles them to the confidence of the educational
community and the public they serve. Accredited institutions are subject to
periodic review by accrediting bodies to ensure continued high performance
and
institutional and program improvement and integrity, and to confirm that
accreditation requirements continue to be satisfied.
DeVry
University
Regional
accreditation in the United States is a voluntary process designed to promote
educational quality and improvement, and is an important strength for DeVry
University. Management believes accreditation offers DeVry University a
significant advantage over most other market-funded colleges. DeVry University
has been accredited by the Higher Learning Commission of the North Central
Association of Colleges and Schools (“NCA”), which is one of the six regional
collegiate accrediting agencies. College and university administrators depend
on
the accredited status of an institution when evaluating transfers of credit
and
applications to their schools; employers rely on the accredited status of an
institution when evaluating a candidate’s credentials; and parents and high
school counselors look to accreditation for assurance that an institution meets
quality educational standards. Moreover, accreditation is necessary for students
to qualify for federal financial assistance, and most scholarship commissions
restrict their awards to students attending accredited
institutions.
Keller
Graduate School was first awarded its NCA accreditation in 1977, and DeVry
Institutes was first awarded NCA accreditation in 1981. Each school was
separately accredited until February 2002, when the NCA approved the merger
of
DeVry Institutes and Keller Graduate School into a single institution with
the
name DeVry University. After a comprehensive evaluation visit in August 2002,
the NCA approved a 10 year re-accreditation for DeVry University. NCA
further affirmed that DeVry University can offer, without restriction, any
of
its programs onsite, online, or through any combination of the two.
In
addition to the NCA accreditation, the baccalaureate electronics engineering
technology programs at most of DeVry University’s U.S. locations are
accredited by ABET, Inc. (“ABET”), an accreditation board for applied science,
computing, engineering, and technical educations. Baccalaureate computer
engineering technology programs at several DeVry University U.S. locations
are also accredited by ABET. The associate level electronics engineering
technology programs in North Brunswick, New Jersey also are ABET
accredited.
DeVry
campuses will apply for Technology Accreditation Commission of ABET
accreditation for the biomedical engineering technology program, and additional
campuses will apply for accreditation of the computer engineering technology
program, when their first classes graduate from these programs. Similarly,
newer
DeVry campus locations will apply for ABET accreditation for their eligible
programs when their first classes graduate.
The
associate degree health information technology programs offered online and
at
DeVry University locations in Atlanta, Chicago, Dallas and Southern California
are accredited by the Commission on Accreditation for Health Informatics and
Information Management Education. Additional DeVry campuses are in the process
of applying for this accreditation for their programs.
The
province of Alberta granted accreditation to DeVry Calgary to confer bachelor
of
technology degrees in 2001 and accreditation to confer Bachelor of Science
degrees in 2006. DeVry Calgary was the first market-funded institution in Canada
to be provincially accredited to grant bachelor’s degrees. Through an
arrangement with the Alberta Department of Advanced Education, the State of
Arizona, and the NCA, the computer engineering technology and network and
communications management curricula offered at DeVry Calgary fall under the
accreditation of DeVry Phoenix as an off-site instructional location. The
computer engineering technology and electronics engineering technology programs
are accredited by the Canadian Technology Board (CTAB).
Medical
and Healthcare
Ross
University
The
Commonwealth of Dominica authorizes Ross University School of Medicine to confer
the Doctor of Medicine degree. The medical school has been recognized and
accredited as a University and School of Medicine by the Dominican Medical
Board
(“DMB”). The National Committee on Foreign Medical Education of the
U.S. Department of Education has affirmed that the DMB has established and
enforces standards of educational accreditation that are comparable to those
promulgated by the U.S. Liaison Committee on Medical Education. In
addition, the states of New York, New Jersey, California, and Florida — the
only four states to require separate approval for medical schools — have
approved or found the Ross Medical program of study to be
acceptable.
The
Veterinary School has been recognized and accredited as a University and School
of Veterinary Medicine by the government of the Federation of St. Christopher
and Nevis (“St. Kitts”) and is chartered to confer the Doctor of Veterinary
Medicine degree. The Veterinary School is American Veterinary Medical
Association (“AVMA”) listed and has affiliations with 24 AVMA-accredited
U.S. colleges of veterinary medicine so that Ross students can complete
their final three semesters of study in the United States. Only students who
graduate from an AVMA-listed school are eligible for
U.S. licensure.
The
Veterinary School has undergone a consultative visit from the AVMA Council
on
Education as a precursor to the potential of the University applying to the
AVMA
for accreditation as an international school. The University has
received a site visit report covering the consultative visit from the AVMA
Council on Education and is evaluating the AVMA’s recommendations.
Chamberlain
College of Nursing
Chamberlain
College of Nursing is NCA accredited. Both the ASN and BSN programs are approved
by the Missouri State Board of Nursing and the State of Ohio Board of Nursing
and accredited by the National League for Nursing Accrediting Commission. The
BSN program is also accredited by the Commission on Collegiate Nursing
Education.
DeVry
needs authorizations from many state or Canadian provincial licensing agencies
or ministries to recruit students, operate schools, conduct exam preparation
courses, and grant degrees. Generally, the addition of any new program of study
or new operating location also requires approval by the appropriate licensing
and regulatory agencies. In the United States, each DeVry University and
Chamberlain College of Nursing location is approved to grant associate,
bachelor’s and/or master’s degrees by the respective state in which it is
located.
Many
states and Canadian provinces require market-funded postsecondary education
institutions to post surety bonds for licensure. In the United States, DeVry
has
posted approximately $14.7 million of surety bonds with regulatory
authorities on behalf of DeVry University, Chamberlain College of Nursing and
Becker Professional Review. We have posted CDN $0.3 million of surety bonds
with regulatory agencies in Canada.
Certain
states have set standards of financial responsibility that differ from those
prescribed by federal regulation. DeVry believes it is in material compliance
with state and Canadian provincial regulations. If DeVry were unable to meet
the
tests of financial responsibility for a specific state, and could not otherwise
demonstrate financial responsibility, we could be required to cease operations
in that state. To date, DeVry has successfully demonstrated its financial
responsibility where required.
TUITION
AND FEES
DeVry
University
Effective
with the summer 2007 term, tuition at DeVry’s U.S. undergraduate locations
for two, fifteen-week, semesters (one academic year) ranges from $12,900 to
$14,320. Variations in tuition depend on location. Current tuition is
approximately 4.5% to 5% higher than it was last year.
Based
upon current tuition rates, a full-time student enrolling in the five-term
undergraduate network systems administration program will pay total tuition
ranging from $32,250 to $35,800. A full-time student enrolled in the eight-term
undergraduate business administration program will pay total tuition ranging
from $51,650 to $57,330, including the application fee and tuition deposit.
Students enrolled in an online program generally pay a higher tuition rate.
Students attending school part-time are charged a lower tuition that varies
with
the number of credit hours taken each semester, but the total tuition cost
for a
program taken on a part-time basis will be higher than if taken on a full-time
basis.
Undergraduate
tuition rates at DeVry University are below the average tuition at four-year
independent institutions, but generally are higher than the average at four-year
publicly supported institutions. For the academic year 2006-2007, the average
annual tuition and fees at four-year private schools was reported by the College
Board to be $22,218, an increase of 5.9% from last year. The average annual
tuition and fees at four-year publicly supported institutions increased 6.3%
from last year to $5,836, and two-year publicly supported institutions
reportedly increased their tuition by 4.1% to $2,272 per year. While these
increases were significantly lower than the double-digit increases in the recent
past, they continue to increase faster than the rate of inflation.
Effective
with the July 2007 term, Keller graduate program tuition per classroom course
(four quarter credit hours) ranges from $1,715 to $2,050, depending on location.
This is an increase of approximately 0% to 5%, depending on location. The price
for a graduate course taken online is $2,050, compared to $2,015
previously.
If
a
student leaves school before completing a term, federal, state, and Canadian
provincial regulations and accreditation criteria permit schools to retain
a set
percentage of the total tuition received. This amount varies with, but generally
equals or exceeds, the percentage of the term the student completes. Excess
amounts are refunded to the student or the appropriate financial aid funding
source.
In
addition to the tuition amounts described above, undergraduate students at
DeVry
University incur technology charges each semester that vary depending upon
their
location and enrollment status. Some DeVry programs, including the
computer information systems and electronics and computer technology programs,
require students to purchase a laptop computer at some locations. Students
also
must purchase their own textbooks and supplies.
Effective
September 2007, tuition and fees for the beginning basic sciences portion of
the
programs at the medical and veterinary schools are $12,950 per semester.
This tuition rate represents an increase from September 2006 tuition rates
of
approximately 6.8%. Tuition and fees for the final clinical portion of the
programs are $14,250 per semester for the medical school, and
$16,250 per semester for the veterinary school. These amounts do not
include the cost of books, supplies, transportation or living
expenses.
DeVry
believes that Ross University’s tuition is at the middle of the range among
private medical and veterinary schools, but approximately equal to or higher
than tuition in publicly supported medical and veterinary schools. Tuition
rates
at most medical and veterinary schools, including Ross University, have
increased every year, and management believes rates will continue to
increase.
Chamberlain
College of Nursing
Tuition
for the 2007-08 academic year for onsite and online programs is $478 and
$488 per credit hour, respectively. Students enrolled on a full-time basis
(between 12 and 17 credit hours) are charged a flat tuition amount of
$6,214 per semester. This represents an increase from 2006-07 academic year
tuition rates of approximately 5%.
DeVry
believes that Chamberlain’s tuition is in the middle of the range among private
nursing schools, but equal to or higher than tuition in publicly supported
schools. Tuition rates at most nursing schools have increased every year, and
management believes they will continue to increase.
Professional
and Training
The
price
of the complete classroom Becker CPA review course is $2,690. The complete
CPA
review course on CD-ROM and the complete online review course are the same
price. Exam candidates may elect to enroll for individual sections of the exam
review course at a price of $865 per section. Becker offers discounts from
these tuition rates under various enrollment promotions at college campuses
and
for students employed by participating accounting firms.
The
current list price for the CFA exam course ranges from $1,190 to $1,490, and
Stalla offers various promotional program discounts.
FINANCIAL
AID AND FINANCING STUDENT EDUCATION
DeVry
University
Students
attending DeVry University finance their education through a combination of
family contributions, individual savings, financial aid (including
university-provided financial aid), employer-provided tuition assistance,
veteran’s benefits and private loans.
DeVry
believes that more than 80% of our U.S. undergraduate students receive some
government-sponsored financial aid, and that a similar percentage of the
students at the Calgary, Canada campus receive some government-sponsored
financial assistance. These estimates are consistent with recent studies by
the
U.S. Education Department’s National Center for Education Statistics.
Nationally, the percentage of students receiving financial aid varies greatly
by
the type of school, ranging from 89% in market-funded schools such as those
run
by DeVry, to 47% in public 2-year colleges. In fiscal 2006, approximately 75%
of
DeVry’s U.S. undergraduate tuition, book, and fee revenues came from
government-provided financial aid received by our students.
DeVry
University assists its undergraduate students in locating part-time employment
to supplement their incomes and help finance their education. Data from the
National Center for Education Statistics indicates that almost half of all
full-time college students between the ages of 18 and 24 are employed, but
we
believe the employment rate among DeVry full-time undergraduate students is
higher.
At
Keller
Graduate School, student reliance on government-sponsored financial aid in
the
form of student loans has been increasing for the past several years, providing
almost 60% of revenues in fiscal year 2006. Additionally, we believe that more
than half of Keller graduate students receive some tuition reimbursement
assistance from their employers.
Government-provided
financial aid and assistance programs are subject to political and governmental
budgetary considerations. In the United States, the Higher Education Act (“HEA”)
authorizes several federal grant, loan and work-study programs. The
HEA was most recently reauthorized in the fall of 1998 to redefine and extend
the numerous financial aid programs then in existence. Typically, the
HEA is reviewed and amended every five years, but this process has been
delayed. During September 2006, the United States Congress again
extended the HEA, through June 2007, and in July 2007, the HEA was extended
again through October 2007. As the reauthorization process moves
forward, there may be proposals for change that could adversely affect the
amount of financial aid available to students. There is no assurance
that such federal funding will be continued at its present level or in its
present form.
Compliance
with Legislative and Regulatory Requirements
Extensive
and complex regulations in the United States and Canada govern all the
government grant, loan, and work study programs in which DeVry University,
Ross
University and Chamberlain College of Nursing and their respective students
participate. Accordingly, DeVry must comply with many rules and standards,
including maximum student loan default rates, limits on the proportion of its
revenue that can be derived from federal aid programs, prohibitions on certain
types of incentive payments to student recruiters, standards of financial
responsibility, and administrative capability requirements.
The
financial responsibility test for continued participation by an institution’s
students in federal financial assistance programs is based upon a composite
score of three ratios: an equity ratio that measures the institution’s capital
resources; a primary reserve ratio that measures an institution’s ability to
fund its operations from current resources; and a net income ratio that measures
an institution’s ability to operate profitably. A minimum score of 1.5 is
necessary to meet the Department of Education’s financial
standards.
For
the
past several years, DeVry’s composite score has exceeded the required minimum of
1.5. Management believes it will continue to demonstrate the required level
of
financial stability. If DeVry were unable to meet requisite financial
responsibility standards or otherwise demonstrate, within the regulations,
its
ability to continue to provide educational services, then DeVry could be
required to post a letter of credit to enable its students to continue to
participate in federal financial assistance programs.
Institutions
that participate in U.S. federal financial aid programs must disclose
information about undergraduate student “completion rates” to current and
prospective students. The federal Student-Right-To-Know Act defines the cohort
of students on which the institution must report as “first-time, full-time,
degree-seeking” students. Completion rates calculated in accordance with the
statute at each of DeVry University’s U.S. undergraduate campuses generally
fall within the range of completion rates at selected four-year urban public
colleges in the areas in which its campuses are located. However, its overall
completion rate actually is higher than reported in these statistics: many
DeVry
University students have previously attended other colleges (and completion
rates for undergraduate students entering with previous college experience
generally are higher than for first-time students), but these students are
not
included in the completion rate statistics that are defined by the
Student-Right-To-Know Act. In an effort to improve our completion rates as
defined by the statute, DeVry University has changed undergraduate admission
requirements and added student support services. For the 2000 freshman student
cohorts (the latest period for which final completion statistics are available),
the graduation rate for DeVry University U.S. undergraduates was 34.1% as
compared to the 1999 rate of 35.0%.
Specialized
staff at DeVry’s Oakbrook Terrace, Illinois headquarters reviews, interprets,
and establishes procedures for compliance with regulations governing financial
assistance programs and processes financial aid applications. Because financial
assistance programs are required to be administered in accordance with the
standard of care and diligence of a fiduciary, any regulatory violation could
be
the basis for disciplinary action, including the initiation of a suspension,
limitation, or termination proceeding.
In
the
United States, DeVry University has completed and submitted all required audits
of compliance with federal financial assistance programs for fiscal 2006.
DeVry’s independent public accountants are currently conducting the required
audits of the one-year period ended June 30, 2007. In conjunction with
previously filed financial aid audit reports, DeVry University has been required
to post letters of credit. As of August 2007, there were approximately
$2.3 million in letters of credit outstanding relating to participation in
federal financial aid assistance programs. These letters of credit expire in
less than one year. No amount has ever been drawn under these letters of credit
issued on behalf of DeVry.
As
a part
of its effort to monitor the administration of student financial assistance
programs, the U.S. Department of Education and state grant agencies may conduct
site visits and program reviews at any educational institution at any time.
Reviews at several DeVry University campuses have not resulted in any adverse
material findings or adjustments. Although management has no reason to believe
that any proceeding against DeVry University is presently contemplated, if
such
a proceeding were initiated and caused the Department of Education to
substantially curtail DeVry University’s participation in government grant or
loan programs, DeVry University’s enrollments, revenues and accounts receivable
could be all adversely affected.
In
addition to the requirements that educational institutions must meet, student
recipients of financial aid must maintain satisfactory academic progress toward
completion of their program of study and an appropriate grade point
average.
Information
about Particular Government Financial Aid
Programs
DeVry
University, Chamberlain College of Nursing and Ross University students
participate in many U.S. and Canadian financial aid programs. Each of these
programs is briefly described below.
United
States federal financial aid programs
DeVry
University students in the United States rely on three types of
U.S. Department of Education financial aid programs under Title IV of
the Higher Education Act.
1. Grants. More
than 10% of the financial aid received by DeVry University undergraduate
students is in the form of federal grants. DeVry students participate
in the Pell, Federal Supplemental Education Opportunity Grant, National Science
and Mathematics Access to Retain Talent Grant and the Academic Competitiveness
Grant.
·
Federal
Pell grants. These funds, available to all eligible
undergraduate students who demonstrate financial need, do not have
to be
repaid. For the 2007-2008 school year, eligible students could receive
Pell grants ranging from $400 to $4,310. Increases in Pell
grant limits tend to lag behind the rate of tuition
increases.
·
Federal
Supplemental Educational Opportunity Grant (“FSEOG”). This
is a supplement to the Pell grant, and is only available to the neediest
undergraduate students. Federal rules restrict the amount of FSEOG
funds
that may go to a single institution. The maximum individual FSEOG
award is
$4,000 per academic year, and educational institutions are required
to supplement that amount with a 25% matching contribution. Institutional
matching contributions may be satisfied, in whole or in part, by
state
grants, scholarship funds (discussed below) or by externally provided
scholarship grants.
·
National
Science and Mathematics Access to Retain Talent Grant
(“SMART”). New in 2006-2007, this grant was authorized by
Congress to stimulate enrollment in certain critical and strategic
subject
areas, including science, mathematics, certain engineering programs
and
foreign languages. Most of DeVry’s undergraduate programs
qualify as an eligible program of study. The awards are
restricted to Pell-eligible juniors and seniors who achieve and maintain
a
3.0 cumulative grade point average. The awards are $4,000 per
academic year.
·
Academic
Competitiveness Grant (“ACG”). New in 2006-2007, this
grant was authorized by Congress to stimulate enrollment in rigorous
secondary courses of study. The awards are restricted to
Pell-eligible students in their first or second year of post-secondary
degree-seeking studies who have completed a rigorous secondary course
of
study. Rigorous courses of study are defined by State Education
Authorities. Award amounts are $1,350 for students in their
first year of study and $2,000 for students in their second year
of
study. Students in their second year of study must have
attained a 3.0 cumulative grade point
average.
2. Loans. More
than 65% of the financial aid received by DeVry University undergraduate
students, and 100% of the federal financial aid received by our graduate
students, is in the form of federal student loans. DeVry students participate
in
the Stafford and PLUS programs within the Federal Family Education Loan Program
(“FFELP”) and the Federal Perkins Direct Student Loan Program.
·
Subsidized
Stafford loan: awarded on the basis of student financial
need, it is a low-interest loan with interest charges and principal
repayment delayed until six months after a student no longer attends
school on at least a half-time basis. Loan limits per academic year
range
from $3,500 for dependent students in their first academic year to
$5,500
for students in their third or higher academic year, increasing to
$8,500 per academic year for graduate
students.
·
Unsubsidized
Stafford loan: awarded to students who do not meet the
needs test. These loans incur interest from the time funds are disbursed,
but actual interest payments may be deferred until the principal
payments
begin. Unsubsidized loan limits per academic year range from $4,000
for
students in their first academic year to $5,000 or $6,000 in later
years,
increasing to $12,000 per academic year for graduate and professional
program students.
PLUS
loan: enables a graduate student or parents of a dependant
student to borrow additional funds to meet the cost of the graduate
student’s education. These loans are not based on financial need, nor are
they subsidized. Interest begins to accrue, and repayment obligations
begin, immediately after the loan is
disbursed.
·
Federal
Perkins loan: is a low-interest loan available only to
those undergraduate students who demonstrate exceptional financial
need.
Perkins loans are available up to a maximum of $4,000 per award year.
Ongoing funding for this program is provided from collections on
loans
issued in previous years. When students repay principal and interest
on
these loans, that money goes to the pool of funds available for future
loans to students at the same institution. Available funding in recent
years has been higher than expected as a result of borrowers consolidating
Perkins loans with FFELP and direct loans which may offer lower interest
rates. Perkins loans represent less than 5% of total financial aid
received by DeVry University
students.
3. Federal
work-study. This program offers work opportunities, both on or
off campus, on a part-time basis to undergraduate students who demonstrate
financial need. Work-study wages are paid partly from federal funds and partly
from qualified employer funds.
A
U.S. Department of Education regulation known as the “90/10 Rule” affects
only market-funded postsecondary institutions, such as DeVry University, Ross
University and Chamberlain. Under this regulation, an institution that derives
more than 90% of its revenues from federal financial assistance programs in
any
year may not participate in these programs for the following year. Final data
for fiscal 2007 are not yet complete, but in fiscal 2006, the DeVry University
U.S. undergraduate system derived approximately 70% of its revenues from
federal financial assistance programs, and its graduate programs derived
approximately 60% of revenues from federal financial assistance.
State
financial aid programs
Several
states, including California, Colorado, Florida, Georgia, Illinois, Minnesota,
New Jersey, New York, Ohio and Pennsylvania, offer state grant and loan
assistance to eligible undergraduate students.
Private
Loan Programs
Increasingly,
DeVry University students rely on private (nonfederal) loan programs for
financial assistance. These programs are used to finance the gap between a
student’s educational and living costs and their financial aid awards. The
amount of the typical loan varies significantly according to the student’s
enrollment and financial aid awards. The typical DeVry University student
borrows less than $10,000 per award year under these programs.
Most
private loans are approved using the student or co-borrower’s credit
history. The cost of these loans varies, but in almost all cases will be
more costly than the federal programs. The application process is separate
from the traditional financial aid process. DeVry University coordinates
these processes to assure that all students receive assistance from the federal
and state programs first. A small percentage (less than 15%) of these
loans is issued from opportunity or school-backed pools. Opportunity pools
are made available to students with little or no credit history or some adverse
credit history, who otherwise would not qualify for a private loan.
School-backed programs typically contain an up-front cost-sharing component
or a
recourse provision for defaulted loans. Less than 2% of the total private
loans to DeVry University’s students were made under a school-backed program
and, while it participates in certain cost sharing programs, DeVry University
has no current agreement with a recourse provision.
In
February 2007, DeVry University received an inquiry from the New York Attorney
General regarding its student lender practices. DeVry
University was one of more than 60 colleges and universities that received
such
an inquiry. The New York Attorney General's Office focused on
relationships between higher education institutions and student loan providers
designated as "preferred lenders" by these institutions for their
students.
As
a
result of an internal review prompted by the inquiry, DeVry University
determined that no employee of DeVry received from any lender any form of
consideration such as stock, payments for consulting work or honoraria for
sitting on any advisory board. During the 2004-2005 school year, DeVry
University did receive $88,122 in fees associated with a single private loan
program from one of its nine preferred lenders at the time, Citibank. The
private loan program with Citibank was distinct from DeVry University's
need-based financial aid program. Citibank was on the list of recommended
lenders prior to and during the one year the fees were paid, but has not been
a
recommended lender since that time. DeVry University determined that it has
not
accepted any referral or marketing fees from any other lenders.
DeVry
University maintains a recommended lender list as a service to students, and
selects the lenders through open and competitive requests for proposals. The
recommended list helps students sort through an array of loan offers they may
receive from scores of lenders. DeVry University develops the list of
recommended lenders based on their ability to provide services including the
following:
·
Competitive
rates and terms for students;
·
Access
to and reliable delivery of both federal and private funds;
and
·
High-quality
customer service to borrowers.
In
the
past, DeVry University's recommended lenders have hosted or sponsored business
meetings and/or training seminars for the school's student finance staff -
all
of which were related to improving service to students. Several university
employees have been appointed to sit on lender advisory boards. In the future,
DeVry University will absorb any costs related to employees who sit on lender
advisory boards, attend any lender-sponsored training, or receive any
lender-sponsored services.
In
April
2007, DeVry University adopted a new College Code of Conduct established by
the
New York Attorney General’s Office to encourage best practices in student
lending. The Illinois Attorney General's Office has joined with the
New York Attorney General's Office in recognizing DeVry University's adoption
of
the Code. In adherence to the Code of Conduct and a settlement
agreement with the Attorneys General of New York and Illinois, DeVry University
refunded $88,122 to Citibank. Citibank will disburse such funds to
borrowers who took out these private loans in 2004-2005 to help cover costs
of
their DeVry University education. Under the new Code of Conduct,
DeVry University will continue its current practice of not accepting fees from
lenders.
Tax-favored
programs
The
United States has a number of tax-favored programs aimed at promoting savings
for future college expenses. These include state-sponsored “529” college savings
plans, state-sponsored prepaid tuition plans, education savings accounts
(formerly known as education IRAs), custodial accounts for minors, Hope and
Lifetime Learning credits, and tax deductions for interest on student
loans.
Canadian
government financial aid programs
Undergraduate
students who are Canadian citizens or permanent residents of Canada (other
than
students from Quebec) are eligible for loans under the Canada Student Loan
Plan,
which is financed by the Canadian government but administered at the provincial
level. The loans are interest-free while the student is in school, and repayment
begins six months after the student leaves school. Qualified students also
may
benefit from Canada Study Grants (designed for students whose financial needs
and special circumstances cannot otherwise be met), tax-free withdrawals from
retirement savings plans, tax-free education savings plans, loan repayment
extensions, and interest relief on loans.
DeVry-Provided
Financial Assistance
DeVry
University’s EDUCARD® Plan is available to its U.S.-based undergraduate
students; a similar option is available at the Calgary, Canada campus. The
EDUCARD® Plan is a proprietary loan program designed to assist students who are
unable to completely cover educational costs by other means. EDUCARD®
proprietary loans may be used only for tuition, books, and fees, and are
available only after all other student financial assistance has been applied
toward those purposes. Repayment plans for EDUCARD® Plan balances are developed
to address the financial circumstances of the particular
student. Under the deferred payment plan, certain students can
arrange to defer all payments on all charges for twelve weeks when the full
amount is due. Interest charges accrue each month on the unpaid
balance. Under the revolving loan plan, amounts owed by current students are
subject to a monthly interest charge of one percent of the average outstanding
balance. After a student leaves school, the student typically will
have a monthly installment repayment plan with all balances due within 12 to
24
months.
The
remaining gross receivable balance under DeVry University’s EDUCARD® Plan for
current and former U.S. undergraduate students at June 30, 2007, was
approximately $52.9 million, compared to approximately $51.7 million
last year. DeVry believes that the principal factors leading to the increase
in
accounts receivable are increased enrollment, higher tuition rates with no
commensurate increase in government financial aid, extended monthly payment
plans to better serve DeVry’s growing population of military and adult students,
and an increased population of part-time students, who have fewer financial
aid
options than full-time students. Also, the shorter eight-week sessions at DeVry
University centers and DeVry University online program offerings have produced
a
slower collection of receivables, as administrative systems and staff adjust
to
the new and shorter collection cycle.
DeVry
University undergraduate students also are eligible for numerous scholarships.
Scholarship programs generally are designed to attract recent high school
graduates and students enrolled at community colleges, with awards that range
from $1,000 per term up to the amount of full tuition. DeVry University
also has provided funds in the form of institutional grants to help those
students most in need of financial assistance.
Keller
graduate students may choose from several deferred tuition payment plans.
Students eligible for tuition reimbursement plans may have their tuition billed
directly to their employers. Educational expenses paid by an employer on behalf
of an employee generally are excludable from the employee’s income if provided
under a qualified educational assistance plan. At present, the maximum annual
exclusion is $5,250.
Medical
and Healthcare
Ross
University
Approximately
85% of Ross University students receive some form of federal financial aid,
all
of which is in the form of student loans. Ross students may participate in
two
federal programs, Stafford Loans and Graduate PLUS. Loan limits are
$20,500 per academic year, with a $138,500 Stafford Loan aggregate
borrowing limit that includes Stafford Loan amounts borrowed as an
undergraduate. Of the $20,500 in academic year borrowings, no more than $8,500
may be in subsidized loans. Students may also borrow funds through the federal
Graduate PLUS up to the cost of attendance which includes an allowance for
tuition, fees and living expenses. Final data for fiscal 2007 are not yet
complete; but in fiscal 2006, Ross University derived approximately 63% of
its
revenues from federal assistance programs.
Ross
University students have historically relied heavily on private loan programs
to
meet the small gap between tuition and Stafford loan eligibility as well as
to
meet living costs. Legislation introduced in February 2006, expanded the
parent loan program (PLUS) eligibility to graduate students. This
lower-cost, non-credit based program is now used in place of private loan
programs
Many
Ross
students also borrow under private loan programs to pay the portion of their
tuition that exceeds federal loan limits, as well as to meet living expenses
while they are in school. Ross University offers a limited number of full
tuition scholarships to eligible students.
Chamberlain
College of Nursing
Approximately
70% of students attending Chamberlain College of Nursing receive some form
of
financial assistance. Chamberlain students are eligible for most of the same
financial aid programs available to undergraduate students attending DeVry
University. In fiscal year 2006, Chamberlain derived approximately
35% of its revenues from federal assistance programs.
Professional
and Training
Students
attending the Becker CPA or Stalla CFA review courses are not eligible for
federal or state financial aid, but many receive partial or full tuition
reimbursement from their employers.
STUDENT
LOAN DEFAULTS
The
U.S. Department of Education has instituted strict regulations that
penalize institutions whose students have high default rates on federal student
loans. For a variety of reasons, high default rates are most often found in
proprietary institutions and community colleges — all of which tend to have
a higher percentage of low income students enrolled than do four-year publicly
supported and independent colleges and universities.
Educational
institutions are penalized to varying degrees under the Federal Family Education
Loan Program or the William D. Ford Federal Direct Student Loan Program,
depending on the default rate for the “cohort” defined in the statute. An
institution with a cohort default rate that exceeds 20% for the year is required
to develop a plan to reduce defaults, but the institution’s operations and its
students’ ability to utilize student loans are not restricted. An institution
with a cohort default rate of 25% or more for three consecutive years is
ineligible to participate in these loan programs and cannot offer student loans
administered by the U.S. Department of Education for the fiscal year in
which the ineligibility determination is made and for the next two fiscal years.
Students attending an institution whose cohort default rate has exceeded 25%
for
three consecutive years also are ineligible for Pell grants. Any institution
with a cohort default rate of 40% or more in any year is subject to immediate
limitation, suspension, or termination proceedings from all federal aid
programs.
DeVry
University carefully monitors students’ loan default rate, and has never had a
cohort default rate of 25% or more for three consecutive years, or of 40% or
more in any one year. We are not subject to any restriction or termination
under
any student loan program.
According
to the U.S. Department of Education, the cohort default rate for all
colleges and universities eligible for federal financial aid increased from
4.5%
in fiscal year 2003 to 5.1% for fiscal year 2004 (the latest period for which
data is available). DeVry University had a Federal Family Education Loan Program
student loan cohort default rate for 2004 of approximately 6.5%. This compares
to a weighted system average of 5.7% for 2003 and 7.3% for the year 2002. The
reported rates for 2004 reflect the percentage of former students who were
due
to begin repaying their loans during that year but who were in default by the
end of 2005. Default rates for 2005 have not yet been released.
Under
the
Federal Perkins loan program, the institution is responsible for collecting
outstanding loans. Any institution with a Perkins loan cohort default rate
exceeding 15% must establish a default reduction plan.
For
fiscal 2005 (the latest year for which data is available), DeVry’s Perkins loan
cohort default rate was approximately 6.9%, compared to 8.5% for 2004, and
11.7%
for 2003. DeVry has worked to reduce the default rate by implementing student
counseling and additional collection efforts and retaining outside loan service
agencies.
Keller
Graduate School of Management
Default
rates under Title IV loans for 2004, 2003 and 2002 were 2.3%, 2.0% and 2.7%
respectively. Default rates for 2005 have not yet been released.
Medical
and Healthcare
Ross
University
Default
rates under Title IV loans for 2004 were 0.2% for the medical school and
0.4% for the veterinary school. For 2003 the default rates were 0.1% for the
medical school and 0.0% for the veterinary school. Default rates for 2005 have
not yet been released.
Chamberlain
College of Nursing
Default
rates under Title IV loans for 2004 and 2003 were 0.7% and 0.0%,
respectively. Default rates for 2005 have not yet been released.
CAREER
SERVICES
DeVry
University believes that the employment of its graduates is essential to its
ability to attract and retain students. Career services professionals located
at
DeVry undergraduate campuses work with students to choose careers, craft
resumes, and prepare for job interviews. The staff also maintains contact with
local and national employers to proactively identify job opportunities and
arrange interviews. In many cases, company hiring representatives conduct
interviews on DeVry University campuses.
The
need
for skilled employees has placed an increased premium on educated workers in
our
economy, as evidenced by the widening gap in wages for college and high school
graduates. In 2000, the median income of U.S. employees with a bachelor’s
degree was approximately $50,000, more than 60% higher than the median income
for those with only a high school education. It is estimated that 85% of all
jobs in the United States currently require education or training beyond high
school, up from only 65% as recently as 1991.
DeVry
University attempts to gather accurate data to determine how many of its
undergraduates are employed in positions related to their program of study
within six months following graduation. To a large extent, the reliability
of
such data depends on the quality of information that graduates
self-report.
In
the
ten-year period ending October 2006, our U.S. campuses graduated more than
65,000 students who were eligible for career services assistance (this excludes
graduates who continued their education, students from foreign countries not
legally eligible to work in the United States, and other categories of students
who were not available for employment). More than 55,000 graduates during this
ten-year period actively pursued employment or were already employed; 90% of
those held positions related to their program of study within six months of
graduation.
For
the
three undergraduate classes that ended in calendar year 2006, there were 7,526
graduates from DeVry University’s U.S. undergraduate degree and diploma
programs eligible for career service assistance, excluding the one-year
post-baccalaureate information technology program (this excludes students
continuing their education, students from foreign countries legally ineligible
to work in the United States, and others ineligible for employment). From that
pool of graduates, 6,661 actively pursued employment or were already employed.
Within six months of graduation, 6,120, or 91.9% of those graduates were
employed in positions related to their program of study. This compares to 88.1%
who were employed in positions related to their program of study for the three
classes that ended in calendar year 2005, and 84.7% who were employed in
positions related to their program of study for the three classes that ended
in
calendar year 2004.
DeVry
University believes that a significant number of graduating students currently
employed in positions not directly related to their program of study have chosen
to not actively seek other employment opportunities. For the three graduating
classes in calendar year 2006, there were 579 graduates who were employed but
not in positions related to their program of study. Of these individuals, 72%
did not conduct an active employment search through DeVry University’s career
services offices.
DeVry
University’s 2006 graduates achieved annual starting compensation ranging from
$29,470 to $46,083. Individual compensation levels vary depending upon the
graduate’s previous employment experience, program of study, and geographic area
of employment.
DeVry
University’s Calgary campus graduated more than 2,900 students over the past
decade who were eligible for career services assistance. For the ten-year period
ending October 2006, over 86% of those graduates who actively pursued employment
or who were already employed when they graduated held positions related to
their
program of study within six months of graduation. For the three classes that
ended in calendar year 2006, over 95% of the Calgary graduates who actively
pursued employment secured jobs or were already employed in positions related
to
their program of study within six months of graduation. This includes students
who received diplomas, those who received bachelor’s degrees through the DeVry
University Phoenix degree completion program in Calgary or bachelor’s degrees
awarded under the authority of the Government of Alberta, and those students
who
completed their degree requirements at a DeVry University U.S. campus, but
does
not include graduates of the one-year information technology
program.
DeVry
University believes that no single employer has hired more than 5% of our
graduates in recent years. Major employers of DeVry undergraduates include
Abbott Laboratories, Accenture, Cingular Wireless, Federal Express, GE Medical
Systems, Hewlett-Packard, IBM, Intel, Motorola, Northrop Grumman, Schlumberger,
Siemens, UPS and Xerox.
Management
considers its career services commitment an important element of its service
to
students. In 2006, we developed and implemented the student national job
database, allowing students to log into one site to view, apply for, and learn
more about job leads appropriate to their experience and education
level. In 2007, plans include the development of the preferred
employer program. This program will provide an avenue for businesses
to easily partner with DeVry in cross-functional areas such as career services,
curriculum development, and continued employee education. Our
existing website and national employer database will be enhanced to facilitate
this interaction with employers.
SEASONALITY
DeVry
University’s enrollment is somewhat seasonal. The schools’ highest enrollment
and revenues typically occur in the fall, which corresponds to the second and
third quarters of DeVry’s fiscal year. Enrollment is slightly lower in the
spring, and the lowest enrollment generally occurs during the summer months.
At
Ross University, the September term typically has larger enrollments, with
the
January and May terms having a somewhat smaller total student population. In
contrast, Becker historically experienced higher enrollments for its courses
beginning in July (the period leading to the fall CPA exam) than for its classes
beginning in January (the period leading to the spring CPA exam). With the
introduction of the new on-demand exam format, Becker’s seasonal pattern is
somewhat less pronounced.
Results
of operations reflect both this seasonal enrollment pattern and the pattern
of
student recruiting activity costs that precede the start of every term.
Revenues, operating income, and net income by quarter for each of the past
two
fiscal years are included in Note 17 to the Consolidated Financial
Statements, “Quarterly Financial Data.”
EMPLOYEES
DeVry
has
approximately 5,400 regular full- and part-time employees. Approximately 1,300
of these individuals work at the headquarters in Oakbrook Terrace, Illinois,
and
another nearby office in Naperville, Illinois that serves online students.
In
addition to its regular employees, DeVry employs nearly 500 students at campuses
during peak periods as faculty assistants and in other part-time
positions.
Staff
at
DeVry’s Oakbrook Terrace, Illinois, headquarters supports the faculty and staff
at each DeVry University location by providing a broad range of services. Among
the centrally-provided support services are curriculum development, academic
management, licensing and accreditation, marketing and recruiting management,
computer services, financial aid processing, regulatory compliance, internal
audit, legal, tax, payroll, and finance and accounting.
The
only
employees represented by a union are approximately 180 administrative and
support employees of Ross University’s medical school in Dominica. These
employees are covered by a collective bargaining agreement with a local
union.
DeVry
believes that its relationship with its employees is satisfactory.
DeVry
University
Each
DeVry University campus is managed by a president or campus dean and has a
staff
of academic deans, faculty and academic support staff, career service and
student service personnel, and other professionals. Each campus also has an
admissions director, who reports to a central organization responsible for
new
student recruiting. Each DeVry University center is managed by a center director
and has admissions representatives and appropriate academic and administrative
support staff. Group vice presidents of operations oversee the campuses and
centers in geographically defined areas.
Each
DeVry University campus president hires academic deans and faculty members
in
accordance with internal criteria, accrediting standards, and applicable state
law. There are approximately 800 full and part-time faculty member employees
across all the DeVry University teaching locations. More than 85% of our
full-time undergraduate faculty members hold advanced academic degrees, and
most
faculty members teaching in technical areas have related industry experience.
DeVry University offers sabbatical and other leave programs to allow faculty
to
engage in developmental projects or consulting opportunities so they can
maintain and enhance their currency and teaching skills.
In
addition to its regular faculty, DeVry University engages adjunct and visiting
faculty — especially in the evening programs and at DeVry University
Online — who teach on a part-time basis while continuing to work in their
technical field or specialty.
Graduate
program faculty members are primarily practicing business professionals who
are
engaged to teach on a course-by-course basis. We offer a multi-session course
to
train and develop new faculty throughout Keller’s national system. To support
its practitioner faculty, DeVry University employs a core of academically and
professionally qualified staff that includes curriculum managers and program
directors. Over the past several years, graduate school courses have
been taught selectively by full-time faculty to respond to student demand in
areas of rapidly growing enrollment and to meet licensing approval requirements
in certain states. Less than 10% of our graduate instructors, excluding
non-faculty employees who teach courses on an occasional basis, are employed
on
a full-time basis.
DeVry
University faculty members have teaching schedules that may include both day
and
evening classes. Some faculty may teach both graduate and undergraduate courses,
depending upon their qualifications and the demand at specific locations or
for
specific courses.
Faculty
members are evaluated periodically based on student comments and observations
by
an academic dean. DeVry University does not offer tenure.
During
the third quarter of fiscal 2007, DeVry offered a voluntary separation plan
(VSP) to eligible DeVry University campus-based employees. The
decision to take this action resulted from a thorough analysis which revealed
that a reduction in the number of employees at DeVry University campuses was
warranted to address the subsidiary’s cost structure. The VSP was
offered at 22 DeVry University campuses with 285 employees eligible to
participate. Seventy employees accepted this separation
plan. Separation of employment was effective no later than June30, 2007. In April 2007, DeVry announced plans for an involuntary
reduction in force (RIF) that reduced its workforce by approximately an
additional 150 positions at its DeVry University campus-based
operations.
The
Ross
University School of Medicine and School of Veterinary Medicine are managed
by
deans with appropriate department chairs and course directors to oversee the
educational operations. In addition, each campus has student services staff
to
assist with financial aid, housing, and other student-related matters. The
campuses are supported by Dominica Management, Inc., a central administrative
staff, located in Edison, New Jersey, and Miami, Florida.
Ross
University has approximately 510 employees. An additional 110 individuals are
employed by Dominica Management, Inc., Ross University’s administrative services
provider, and work in Edison, New Jersey. The medical school employs
approximately 65 full-time faculty members, who teach the basic science
program. Each of these individuals has a Ph.D. or an M.D. degree or both. The
full-time faculty is supplemented by visiting or part-time instructors who
are
engaged to lecture on very specialized or emerging subjects.
The
veterinary school employs approximately 40 full-time faculty members, who
teach the basic science pre-clinical portion of the program. Each of these
individuals has either a Ph.D. or D.V.M. degree or both.
Faculty
members are not tenured, but each faculty member generally has an employment
agreement of one to five years in length.
Chamberlain
College of Nursing
Chamberlain
College of Nursing campuses are managed by a campus president (St. Louis) or
a
campus dean (Columbus). The president or dean is supported by a
national director of nursing programs and program coordinators who are
responsible for standardized delivery of curricula on each campus. Student
services staff is available to assist campus and online students with
admissions, financial aid, housing, and other aspects of student life.
Administration of the Chamberlain online program offerings is supported, in
part, by staff at DeVry University Online. The campuses and online
program offerings are supported by a central administrative/management staff
located in Oakbrook Terrace, Illinois.
Chamberlain
College of Nursing has approximately 80 employees. Included in this total are
22 full-time faculty members. In addition, there are more than
30 part-time faculty members, who are employed on a per course basis. Most
faculty members have a Master of Science in Nursing, and several have a Ph.D.
Those faculty without a master’s degree are enrolled in a graduate program in
nursing. General education courses in the St. Louis nursing program are
taught by faculty at a nearby university. General education courses on the
Columbus campus are taught by DeVry University faculty. Chamberlain
faculty members are not tenured.
Professional
and Training
Becker
Professional Review is managed by a staff of approximately 135 employees
headquartered primarily in Oakbrook Terrace that supports its operations.
Certain regional operations, as well as some other functions such as curriculum
development, are managed and located throughout the United States and Canada.
Becker’s faculty consists primarily of practicing professionals and university
professors who teach the review courses on a part-time, course-by-course
basis.
TRADEMARKS
AND SERVICE MARKS
DeVry
owns and uses numerous trademarks and service marks, such as “DeVry,”“DeVry
University,”“Keller,”“Becker Professional Review,”“Ross University,”“Chamberlain,”“EDUCARD®,” and variants thereof. All trademarks, service marks,
and copyright registrations associated with its businesses are registered in
the
name of DeVry Inc. or one of its subsidiaries. Copyright registrations expire
over various periods of time. DeVry vigorously defends against infringements
of
its trademarks, service marks, and copyrights.
Through
its website, DeVry offers (free of charge) the Annual Report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and all
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d))
as soon as reasonably practicable after it electronically files such material
with, or furnishes such material to, the SEC. The Web site also includes copies
of the following:
DeVry
Corporate Governance Principles
Policy
for Communication with Directors
Policy
for Communicating Allegations Related to Accounting Complaints
Copies
of
the DeVry’s filings with the SEC and the above-listed policies and charters also
may be obtained by written request to the Director of Investor Relations at
DeVry’s executive offices. In addition, DeVry’s filings with the SEC
can be read or copied at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. Information on the operation of the Public
Reference Room can be obtained by calling the SEC at
1-800-SEC-0330. The SEC maintains a website that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC; the website address is at
http://www.sec.gov.
DeVry’s
business operations are subject to numerous risks and uncertainties that could
materially and adversely affect DeVry’s business, results of operations and
financial condition. Some of these are described below. Because of their very
nature, management cannot predict all the possible risks and uncertainties
that
may arise. Risks and uncertainties that may affect DeVry’s business include, but
are not limited to:
DeVry
is subject to risks relating to enrollment of
students.
DeVry’s
undergraduate and graduate educational programs are concentrated in selected
areas of technology, healthcare and business. If applicant career interests
shift away from these fields, and we do not anticipate or adequately respond
to
that trend, future enrollment and revenue may decline.
If
employment opportunities for DeVry graduates in fields related to their
educational programs decline, future enrollment and revenue may decline as
potential applicants choose to enroll at other educational institutions offering
different courses of study.
DeVry
may
experience increased competition from other educational institutions in
recruiting new students and retaining students already enrolled, causing
enrollment and revenues to decline.
DeVry
is subject to risks relating to financial aid and student
finance.
DeVry’s
students are highly dependent on government-funded financial aid programs.
If
there are changes to financial aid program regulations that restrict student
eligibility or reduce funding levels, DeVry’s enrollment and/or collection of
student billings may suffer, causing revenues to decline. Conversely, increases
in state funding levels to taxpayer-supported educational institutions could
generate further price competition that adversely affects DeVry’s ability to
recruit and retain students.
Changes
in tax laws or reduced corporate earnings both could affect corporate
educational benefit plans. If employers reduce tuition reimbursement amounts,
working students may be less likely to enroll in a DeVry program, causing
enrollment and revenues to decline.
DeVry
is subject to risks relating to operating
matters.
If
other
educational institutions reduce their price of tuition, a DeVry education could
become less attractive to prospective students. In addition, DeVry may be
unable, for competitive reasons, to maintain and increase tuition rates in
the
future, adversely affecting future revenues and earnings.
DeVry
may
be unable to hire and retain key faculty and staff with appropriate educational
qualifications and experience, causing DeVry to incur higher wage expense and/or
provide less student support and customer service which could adversely affect
enrollment, revenues and expense.
Unauthorized
access to DeVry’s computer networks — either administrative networks or
those supporting educational programs — could interrupt operations and may
result in loss or misuse of student and other critical data, causing disruption
to operations, compromising confidential information and causing attendant
risks, including reputation, therefrom and increasing expense.
DeVry
may
experience business interruptions resulting from natural disasters, inclement
weather, transit disruptions, or other events in one or more of the geographic
areas in which it operates. These events could cause DeVry to close
schools — temporarily or permanently — and could affect student
recruiting opportunities in those locations, causing enrollment and revenues
to
decline.
DeVry
is subject to risks relating to regulatory
matters.
DeVry
University, Ross University, or Chamberlain College of Nursing may be unable
or
otherwise fail to comply with state and federal regulatory requirements relating
to financial aid program administration, causing their students to lose
financial aid eligibility or causing one or more of DeVry’s schools to lose
authorization to operate.
DeVry
could lose or suffer limitations in accreditations and licensing approvals
that
could affect its ability to recruit students, operate schools in some locations,
and grant degrees.
Unforeseen
changes to laws or regulations governing DeVry’s operations may adversely affect
current operations or future growth opportunities.
Some
of
these risks and uncertainties are described more fully in this annual report
on
Form 10-K, especially in the subsections of “Item 1 — Business”
entitled “Competition,”“Student Recruiting and Admission,”“Accreditation,”
Approval and Licensing,” “Tuition and Fees,”“Financial Aid and Financing
Student Education,”“Student Loan Defaults,”“Career Services,”“Seasonality,” and “Employees.”
DeVry
University campuses are large and modern buildings located in suburban
communities or urban neighborhoods. They are easily accessible to major
thoroughfares, have available parking areas, and many are served by public
transportation. Each campus includes teaching facilities, admissions and
administrative offices. Teaching facilities include classrooms, laboratories,
libraries, bookstores and student lounges. Laboratories include computers and
various telecommunications, electronic and biomedical equipment necessary to
provide an appropriate environment for students’ development of the required
technical skills for their programs of study. Computer laboratories include
both
stand-alone and networked PC-compatible workstations that support all curricular
areas with numerous software packages offering a variety of business,
engineering and scientific applications. Connections to the Internet are
included through the computer laboratories as a part of the program
curriculum.
No
campus
that is owned by DeVry is subject to a mortgage or other
indebtedness.
In
Fremont, California, DeVry owns an 84,000 square foot dormitory adjacent to
its campus. This dormitory began housing students in July 2005, the start of
the
summer semester. Capacity of this dormitory is approximately 300
students.
During
September 2006, DeVry sold its facility located in West Hills, California,
and
relocated its campus operations to a leased facility in nearby Sherman Oaks,
California. In March 2007, DeVry sold unused land adjacent to its
campus in Tinley Park, Illinois. Effective May 1, 2007, DeVry sublet
approximately 40% of its Calgary campus. Effective July 1, 2007,
DeVry renegotiated its lease for the Dallas campus, reducing the space from
95,000 square feet to 55,000 square feet and established a new ten-year
term.
The
following table sets forth certain information regarding the 23 large campus
properties at which DeVry University undergraduate programs were conducted
at
June 30, 2007:
June 2007
Area
(Approximate
Square
Feet)
Ownership
Phoenix,
Arizona
120,000
Owned
Westminster
(Denver), Colorado
72,000
Leased
Pomona
(Los Angeles), California
100,500
Owned
Long
Beach (Los Angeles), California
98,000
Leased
Sherman
Oaks, (Los Angeles), California
35,000
Leased
Fremont
(San Francisco), California
99,000
Owned
Orlando,
Florida
72,000
Leased
Miramar,
Florida
99,000
Leased
Alpharetta
(Atlanta), Georgia
65,000
Leased
Decatur
(Atlanta), Georgia
108,000
Owned
Chicago,
Illinois
156,000
Owned
Addison
(Chicago), Illinois
113,000
Owned
Tinley
Park (Chicago), Illinois
70,000
Owned
Kansas
City, Missouri
75,000
Owned
North
Brunswick, New Jersey
99,000
Owned
Long
Island City, New York
155,000
Leased
Columbus,
Ohio
114,000
Owned
Fort Washington
(Philadelphia), Pennsylvania
105,000
Leased
North
Irving (Dallas), Texas
55,000
Leased
Houston,
Texas
101,000
Owned
Arlington
(Washington, D.C.) Virginia
86,000
Leased
Federal
Way (Seattle), Washington
102,000
Owned
Calgary,
Alberta, Canada
70,000
Leased
In
addition to the undergraduate programs that are taught at these campuses, Keller
graduate degree programs and Becker CPA Review programs are also available
at
some sites.
In
July
2007, there were 63 DeVry University centers throughout the United States in
operation. Undergraduate degree programs are offered at 56 of these centers.
DeVry plans to open four to six new DeVry University center locations in fiscal
2008.
DeVry
University centers are established in convenient metropolitan locations in
modern buildings. These teaching centers, which mostly range in size from
approximately 5,000 to 20,000 square feet, include classrooms, computer
labs with Internet access, reference materials, admissions and administrative
offices. Teaching centers have an information center designed to enhance
students’ success and support coursework requiring data and information beyond
that provided in course texts and packets. The information centers include
personal computers; all software required in courses; Internet access; alternate
texts; popular business periodicals; videos of selected courses; and access
to
numerous electronic data-bases.
Examples
of smaller DeVry University centers include those in Scottsdale, Arizona
(4,000 square feet); Waukesha, Wisconsin (4,800 square feet); and
Kansas City, Missouri (5,200 square feet). Larger DeVry University centers
include Chicago, Illinois (16,050 square feet); Columbus, Ohio
(16,200 square feet); Colorado Springs, Colorado (17,500 square feet);
and Las Vegas, Nevada (18,500 square feet).
The
medical school’s basic science instructional facilities are located on an
approximately 27 acre campus in the Caribbean country of Dominica, of which
approximately 16 acres are occupied under lease.
In
addition to classrooms and auditoriums, educational facilities include a gross
anatomy lab, a multi-purpose lab, library and learning resource centers,
offices, bookstore, cafeteria and recreational space. Classrooms and
laboratories are furnished with state of the art audio-visual equipment. During
fiscal 2004, a new 33,000 square foot multi-purpose building that includes
a 308 seat auditorium, problem-based learning labs and faculty offices was
completed and put into service. A new 21,000 square foot facility with a
300 seat classroom, patient simulator labs and a patient exam center was
also completed and put into service. During fiscal 2005, the medical school
refurbished 78 housing units that occupied part of the land acquired in the
previous fiscal year. The refurbished housing units are being used for students
and visiting faculty. During fiscal 2006, a 6,000 square foot building was
leased and outfitted as an auditorium with seating capacity of approximately
400
students. Current construction includes a 12,000 square foot student
center and gym and two 6,000 square foot multi-purpose buildings.
The
veterinary school’s pre-clinical instructional facilities are located on a
50 acre site in St. Kitts. Ross University owns 27 acres and
23 acres of pasture land are leased from the government. Educational
facilities include an anatomy/clinical building, pathology building, classroom
buildings, administration building, bookstore, cafeteria and a library/learning
resource center. The library/learning resource center is believed to be the
largest electronic learning lab in veterinary medical education. Animal care
facilities include kennels, an aviary, livestock barns and a paddock. In 2005,
additional emergency backup electrical generating capacity was added. In May
2007, the University opened a section of its new 150 bed housing facility for
first semester students and expects all beds to be occupied for the September
2007 semester. Plans are being finalized for the construction of two new 180
to
200 seat classroom buildings to further increase student capacity.
Dominica
Management, Inc., Ross University’s administrative services provider, is located
in approximately 18,000 square feet of leased office space in Edison, New
Jersey. Management expects to co-locate its administrative services
office space within a DeVry University owned facility in nearby North Brunswick,
New Jersey, by mid to late fiscal year 2008.
Chamberlain
College of Nursing
Chamberlain
leases approximately 55,000 square feet of space in a hospital facility
located in St. Louis, Missouri. The Chamberlain facilities include
classrooms, dormitory space and administrative offices. During March
2007, Chamberlain College of Nursing began offering associate and bachelor’s
degrees in nursing programs at its new campus in Columbus, Ohio. This
new location is co-located with DeVry University’s campus in Columbus where it
occupies approximately 5,000 square feet.
PROFESSIONAL
AND TRAINING
Becker
Professional Review is headquartered at DeVry’s administrative office in
Oakbrook Terrace, Illinois. In addition to this main administrative center,
Becker leases approximately 8,300 square feet of space in Southern
California for staff devoted to curriculum and other development efforts. Becker
also leases approximately 3,500 square feet of space in Melville, New York
for its eastern regional sales and administrative staff.
CPA
and
CFA review classes are conducted in leased facilities, fewer than ten of which
are leased on a full-time basis. The remaining classes are conducted in
facilities which are leased on an as-needed basis, allowing classes to be added,
expanded, relocated or closed as current enrollments require. Becker classes
are
also offered at several DeVry University locations.
CORPORATE
DeVry’s
administrative offices are located in approximately 123,000 square feet of
leased space in an office tower in Oakbrook Terrace, Illinois, a suburb of
Chicago. In addition, it leases more than 50,000 square feet in an adjacent
building for a data center, additional office space and storage.
In
fiscal
2005, DeVry purchased a 108,000 square foot building in Naperville,
Illinois, a nearby suburban location, to house its expanding online operations.
With the relocation of staff associated with the online operations to the
Naperville facility and the relocation of some administrative functions to
a
nearby underutilized campus, space requirements in the Oakbrook Terrace
headquarters were reduced in 2006.
DeVry’s
leased facilities are occupied under leases whose remaining terms range from
one
to 15 years. A majority of these leases contain provisions giving DeVry the
right to renew its lease for additional periods at various rental rates, though
generally at rates higher than are currently being paid.
DeVry
is
subject to occasional lawsuits, administrative proceedings, regulatory reviews
associated with financial assistance programs and other claims arising in the
normal conduct of its business. The following is a description of pending
litigation that may be considered other than ordinary and routine litigation
that is incidental to the business.
Brigette
Dean Hines, a former student of Ross University Veterinary School of Medicine
was dismissed from the school and denied re-enrollment. This former student
filed a claim in June 2005 in the Superior Court of New Jersey for Middlesex
County. In this suit, she claimed that the dismissal was based upon
her disability and she was seeking compensatory damages for economic and
non-economic harm, punitive damages, cost of the suit, attorney’s fees and other
relief deemed appropriate by the Court. In May 2007, this matter was
settled.
On
August25, 2005, DeVry filed a complaint in the Superior Court of California, County
of
Alameda, against Sierra Bay Contractors, Inc., the general contractor
responsible for the construction of a dormitory facility on the DeVry
University, Fremont, California campus. DeVry's complaint seeks
monetary damages arising out of Sierra Bay's failure to keep the project free
from liens filed by subcontractors, and indemnification against subcontractor
claims. Sierra Bay filed a counterclaim in December 2005, asserting
that DeVry owes approximately $3 million for work allegedly performed on the
project. DeVry filed additional complaints against the architect, the
project manager and an engineering firm, and the Court subsequently consolidated
all claims relating to the project, including those of the subcontractors,
into
the principal case filed by DeVry against Sierra Bay.
On
December 23, 2005, Saro Daghlian, a former DeVry University student in
California, commenced a putative class action against DeVry University and
DeVry
Inc. (collectively the “defendants”) in Los Angeles Superior Court, asserting
various claims predicated upon defendants’ alleged failure to comply with
disclosure requirements under the California Education Code relating to the
transferability of academic units earned at DeVry
University. Defendants denied the allegations and removed the action
to the U.S. District Court for the Central District of California. On
June 11, 2007, the District Court issued an Order certifying a class under
the
California Unfair Competition Law, California Business & Professions Code,
section 17200 (“UCL”), comprised of students who enrolled and paid tuition at a
California DeVry school in the four years prior to the date when the suit was
filed. Defendants have now filed a Motion for Summary Judgment
seeking dismissal of all claims due to the unconstitutionality of the California
Education Code (a statute that has since sunset, is currently "inoperative,"
and
will be repealed as of January 2008) because it discriminates against out of
state regionally accredited universities and it compels speech in violation
of
the First Amendment. Defendants also seek judgment for the separate
and independent reason that Plaintiffs have failed to meet their burden of
proving a viable theory of restitution or entitlement to injunctive relief
under
their UCL claim.
As
of
June 30, 2007, there is an accrual of less than $1.0 million for the resolution
of all legal claims.
While
the
ultimate outcome of pending contingencies is difficult to estimate at this
time,
DeVry intends to vigorously defend itself with respect to the pending claims.
At
this time, DeVry does not believe that the outcome of current claims,
administrative proceedings, regulatory reviews and lawsuits will have a material
effect on its cash flows, results of operations or financial
position.
ITEM
4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
There
were no matters submitted to a vote of DeVry’s security holders during the
fourth quarter of the fiscal year.
The
name,
age and current position of each executive officer of DeVry are:
Name,
Age and Office
Business
Experience
Dennis
J. Keller
Director
and Board Chair, DeVry Inc.
66
Mr.
Keller co-founded Keller Graduate School of Management in 1973. From
the
inception of DeVry, Mr. Keller has been Chair of the Board.
Mr. Keller previously held the position of Chief Executive Officer.
In November 2002 he became Co-Chief Executive Officer until July
2004.
Daniel
M. Hamburger
President
and Chief Executive Officer, DeVry Inc.
43
Mr.
Hamburger joined DeVry in November 2002 as Executive Vice President
with
responsibility for DeVry’s online programs and Becker Professional Review
division. In July 2004, Mr. Hamburger was appointed President and
Chief Operating Officer of DeVry. Mr. Hamburger was appointed
Chief Executive Officer in November 2006. Prior to joining
DeVry, Mr. Hamburger was Chairman and Chief Executive Officer of
Indeliq, a developer of simulation-based training software, which
merged
with Accenture Learning in 2002.
David
Pauldine
Executive
Vice President, DeVry Inc. and President, DeVry University,
Inc.
50
Mr.
Pauldine joined DeVry in October 2005. In July 2006, he became President
of DeVry University, Inc. Prior to joining DeVry, Mr. Pauldine was
Executive Vice President at EDMC and President of The Art Institutes
from
July 2001 to October 2005.
Thomas
C. Shepherd
Executive
Vice President, DeVry Inc. and President, Ross University
57
Dr.
Shepherd joined DeVry in October 2004 as President of Ross University.
Prior to joining DeVry, Dr. Shepherd was President of Bastyr
University, a Washington based university with offerings in healthcare
education. He also co-founded Royale Healthcare, a hospital management
company, and has served in senior management roles for several hospitals
and healthcare facilities.
Richard
M. Gunst
Senior
Vice President, Chief Financial Officer and Treasurer, DeVry
Inc.
51
Mr.
Gunst joined DeVry in July 2006 as Senior Vice President, Chief Financial
Officer and Treasurer. Prior to joining DeVry, Mr. Gunst served as
Senior Vice President and Chief Financial Officer of Sagus International
and ConAgra Foods. He was also Chief Financial Officer of Quaker
Foods and
Beverages.
Sharon
Thomas Parrott
Senior
Vice President, Government and Regulatory Affairs and Chief Compliance
Officer, DeVry Inc.
57
Ms. Thomas
Parrott joined DeVry in 1982 after several years as an officer in
the
U.S. Department of Education’s Office of Student Financial
Assistance. She served DeVry in several student finance positions
and
later assumed responsibility for corporate communications and government
and public relations. In her current position, she is responsible
for
implementing and maintaining DeVry’s corporate and government compliance
program. She is also responsible for managing relations with key
external
audiences, including government officials, education policymakers
and
legislators.
Gregory
S. Davis
Vice
President, General Counsel and Corporate Secretary, DeVry
Inc.
45
Mr.
Davis joined DeVry in July 2007 as Vice President, General Counsel
and
Corporate Secretary. Prior to joining DeVry, Mr. Davis was Vice
President, General Counsel and Secretary of LaPetite Academy, Inc.
which
operated nearly 650 schools offering education and care to children
ages 6
months to 12 years. Prior to that, Mr. Davis was a partner at
Andersen Worldwide with merger and acquisition and legal related
responsibilities.
Donna
N. Jennings
Vice
President, Human Resources, DeVry Inc.
45
Ms.
Jennings joined DeVry in October 2006 as Vice President of Human
Resources. Prior to joining DeVry, Ms. Jennings was Vice President,
Human Resources and Communications, of Velsicol Chemical Corporation
from
1994 to 2006.
Vice
President, Chief Information Officer, DeVry
Inc.
55
Mr.
Leffring joined DeVry in January 2006 as Vice President and Chief
Information Officer. Prior to joining the Company, Mr. Leffring was
the Chief Information Officer at Siegel Robert Automotive and also
at
Archibald Candy Corp.
Steven
Riehs
Vice
President and General Manager, Online Operations, DeVry
Inc.
47
Mr.
Riehs joined DeVry in 2004 as Vice President and General Manager
of all
online operations, including enrollment growth, program development
and
student services. Prior to joining DeVry, Mr. Riehs was Chief
Executive Officer of BrainX, Inc., an education software company;
Vice
President in the medical division of Kaplan Educational Centers and
Vice
President and Chief Operating Officer of Compass Medical Education
Network.
Thomas
J. Vucinic
Vice
President, DeVry Inc. and President, Becker Professional
Review
60
Mr.
Vucinic has been the President of Becker Professional Review since
July
2006 and General Manager since 1997. Prior to that, Mr. Vucinic was
DeVry’s director of financial planning and analysis.
Patrick
J. Unzicker
Corporate
Controller, DeVry Inc.
36
Mr.
Unzicker joined DeVry in March 2006 as its Corporate Controller.
Prior to
joining DeVry, Mr. Unzicker was Vice President — Controller at
Whitehall Jewellers, Inc. Mr. Unzicker previously served as Vice
President of Finance at Galileo
International.
PART
II
ITEM
5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market
Information
DeVry’s
common stock is listed on the New York Stock Exchange and the Chicago Stock
Exchange under the symbol “DV.” The stock transfer agent and
registrar is Computershare Investor Services, L.L.C.
The
following table sets forth the high and low sales price and dividends paid
per
share of common stock by quarter for the past two years as reported in the
consolidated transaction reporting system.
Fiscal
2007
Fiscal
2006
Dividends
Paid
High
Low
Dividends
Paid
High
Low
First
Quarter
$
-
$
23.61
$
19.75
$
-
$
20.92
$
17.40
Second
Quarter
-
28.75
21.11
-
24.84
19.00
Third
Quarter
0.05
29.90
26.46
-
24.68
18.50
Fourth
Quarter
-
36.09
27.44
-
27.75
21.25
(b) Approximate
Number of Security Holders
There
were 585 holders of record of DeVry’s common stock as of August 1, 2007.
The number of holders of record does not include beneficial owners of its
securities whose shares are held by various brokerage firms, other financial
institutions, DeVry’s 401(k) and profit sharing plan and its employee stock
purchase plan. DeVry believes that there are more than 10,000 beneficial holders
of its common stock including employees who own stock through the exercise
of
stock options, who own stock through participation in the employee stock
purchase plan or who own stock through their investment election in DeVry’s
401(k) and profit sharing plan.
(c) Dividends
DeVry
is
a holding company and, as such, is dependent on the earnings of its subsidiaries
for funds to pay cash dividends. Cash flow from DeVry’s subsidiaries may be
restricted by law and is subject to some restrictions by covenants in the
subsidiaries’ debt agreements, including maintaining consolidated net worth,
fixed charge coverage and leverage at or above specified levels. DeVry generated
sufficient cash flow in fiscal 2007 to fund its current operations, reinvest
in
capital equipment as appropriate, reduce outstanding debt and remain in full
compliance with the covenants in its debt agreements. In November 2006, the
Board of Directors declared a dividend of $0.05 per share of common stock,
paid
in January 2007. Prior to November 2006, DeVry had not declared any
dividends on its common stock. In May 2007, the Board of Directors
declared a second dividend of $0.05 per share of common stock, paid in July
2007. DeVry's Board of Directors stated its intent to declare
dividends on a semi-annual basis, resulting in an annual dividend rate of $0.10
per share. There is no guarantee that dividends will be declared in
the future, and payment of dividends will be at the discretion of the Board
of
Directors and will be dependent on projections of future earnings, cash flow,
financial requirements of DeVry and other factors as the board of directors
deems relevant.
1On
November 15,2006, the Board of Directors approved a stock repurchase program, pursuant
to
which up to $35 million of DeVry common stock may be repurchased within the
next
two years. This program was announced in DeVry’s report on Form 8-K,
which was filed on November 15, 2006. The total remaining
authorization under the repurchase program was $24,468,595 as of June 30,2007. The expiration date of the repurchase program is November 15,2008.
Other
Purchases of Equity Securities
Period
Total
Number of
Shares
Purchased2
Average
Price Paid
per
Share
Total
Number of
Shares
Purchased
as
part of Publicly
Announced
Plans
or
Programs
Approximate
Dollar
Value
of Shares that
May
Yet Be Purchased
Under
the Plans or
Programs
April
2007
1,706
$
28.55
N/A
N/A
May
2007
6,027
$
33.99
N/A
N/A
June
2007
-
-
N/A
N/A
Total
7,733
$
32.79
N/A
N/A
2Represents
shares delivered back to the issuer under a swap agreement resulting from
employees’ exercise of incentive stock options pursuant to the terms of DeVry’s
stock incentive plans.
Performance
Graph
The
following graph and chart compare the total cumulative return (assuming dividend
reinvestment) on the Company's
Common Stock during the period from June 30, 2002 through June 30, 2007 with
the
cumulative return on the
NYSE Stock Market Index (U.S. Companies), and an industry group
index.
COMPARISON OF CUMULATIVE TOTAL RETURN SINCE JUNE 30
2002
AMONG DEVRY INC., NYSE MARKET INDEX,
AND INDUSTRY GROUP INDEX
June
30
2002
2003
2004
2005
2006
2007
DeVry
Inc.
100.0
102.0
120.1
87.2
96.2
149.0
NYSE
Market Index - U.S. Companies
100.0
97.6
117.2
128.1
147.7
182.6
Industry
Group Index (1)
100.0
147.6
203.9
184.3
147.9
187.4
Data
for this graph was prepared by Zacks Investment Research
Assumes
$100 was invested on June 30, 2002 in DeVry Inc. Common Stock, the NYSE Stock
Market Index (U.S. Companies) and the Industry Group (1), and that all dividends
were reinvested.
(1)
The Industry Group consists of the following companies selected on the basis
of
the similarity in the nature of their business: Apollo Group, Inc.,
Apollo Group, Inc.-University of Phoenix, Career Education Corp., Concorde
Career Colleges, Corinthian Colleges, Inc., Education Management Corp., ITT
Educational Services, Inc., Laureate Education Inc., Lincoln Educational
Services, Strayer Education, Inc., and Universal Technical Institute. The
Company believes that, including itself, these companies represent the majority
of the market value of publicly traded companies whose primary business is
education.
Selected
financial data for DeVry for the last five years are included in the exhibit,
“Five-Year Summary — Operating, Financial and Other Data”, on page 89
of this report.
ITEM 7 —
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS
OF OPERATIONS
The
following discussion of DeVry’s results of operations and financial condition
should be read in conjunction with the consolidated financial statements and
the
notes thereto appearing elsewhere in this report.
OVERVIEW
DeVry
posted record revenues and net income for fiscal year 2007 based on increasing
enrollments and continued execution of its five-year strategic
plan. Fiscal year 2007 earnings per share of $1.07 was a significant
increase compared to $0.61 per share a year-ago on improved operating
performance and gains on asset sales. Operational and financial
highlights for fiscal year 2007 include:
·
Total
revenues and operating profits increased within all three of its
business
segments primarily because of continued demand for DeVry’s high quality
educational programs and improved operational
execution.
·
The
Summer 2007 term marked DeVry University’s eighth consecutive period of
positive undergraduate new student growth and the fifth consecutive
period
of positive total student enrollment
growth.
·
DeVry
University implemented both voluntary and involuntary workforce reductions
to realign the campus cost structures with revenue streams. The
workforce reductions resulted in eliminating 220 positions and a
$6.3
million severance charge. These reductions will provide annual
savings of approximately $10 million in fiscal 2008 and
beyond.
·
Becker
Professional Review posted solid financial results in fiscal year
2007,
with record revenues of $67.9 million, largely attributable to increasing
market share and continued strong demand for accounting and finance
professionals.
·
During
the June 2007 graduation ceremony, Ross University conferred a record
number of Doctor of Medicine and Doctor of Veterinary Medicine degrees
to
more than 950 graduates. Ross University recorded record
revenues and operating profit in fiscal year 2007 while making investments
for future enrollment growth.
·
Chamberlain
College of Nursing received approval from the Ohio Board of Regents
to
establish a new campus in Columbus, Ohio. The new location,
which is co-located with DeVry University’s campus in Columbus, began
offering associate and bachelor’s degrees in nursing programs in March
2007.
·
In
connection with DeVry’s real estate optimization strategy, the DeVry
University facility in West Hills, California and excess land adjacent
to
the campus in Tinley Park, Illinois, were sold for $37.9 million
resulting
in a total pre tax gain of $20.8 million. Net of tax, the
total gain on the sales was $12.7 million, or $0.18 per
share.
·
In
November 2006, the Board of Directors declared DeVry’s first-ever
dividend. The first dividend of $0.05 per share was paid in
January 2007, and the second dividend of $0.05 per share was paid
in July
2007. DeVry's Board of Directors stated its intent to declare dividends
on
a semi-annual basis, resulting in an annual dividend rate of $0.10
per
share.
·
DeVry
repurchased approximately 355,500 shares of its common stock at a
total
cost of approximately $10.5 million. The stock repurchase
program, which was approved by its Board of Directors in November
2006,
allows DeVry to buy back up to $35.0 million of its common stock
within
the next two years.
·
DeVry’s
cash flow generation increased from 2006 and was used to invest in
operations, reduce debt, pay dividends and repurchase
shares.
The
following table illustrates the effects of the gain on the sales of the West
Hills facility and excess land adjacent to the Tinley Park campus and the charge
for separation plan severance on DeVry’s earnings. The non-GAAP
disclosure of earnings is not preferable to GAAP net income but is shown as
a
supplement to such disclosure for comparability to prior period earnings (in
thousands, except per share data):
Fiscal
Year
2007
2006
2005
Net
Income
$
76,188
$
43,053
$
18,011
Earnings
per Share (diluted)
$
1.07
$
0.61
$
0.26
Cumulative
Effect of Change in Accounting (net of tax)
--
--
1,810
Earnings
per Share (diluted)
--
--
$
0.02
Gain
on Sale of Assets (net of tax)
$
12,672
$
273
--
Earnings
per Share (diluted)
$
0.18
--
--
Separation
Plan Severance (net of tax)
$
(3,807
)
--
$
(5,356
)
Earnings
per Share (diluted)
$
(0.05
)
--
$
(0.08
)
Income
Excluding the Cumulative Effect of Change in Accounting, Gain on
Sale of
Assets and Separation Plan Severance (net of tax)
$
67,323
$
42,780
$
21,557
Earnings
per Share (diluted)
$
0.94
$
0.61
$
0.31
RESULTS
OF OPERATIONS
The
following table presents information with respect to the relative size to
revenue of each item in the Consolidated Statements of Income for the current
and prior fiscal years. Percents may not add because of
rounding.
Fiscal
Year
2007
2006
2005
Revenue
100.0
%
100.0
%
100.0
%
Cost
of Educational Services
52.1
%
54.0
%
55.6
%
Separation
Plan Severance
0.7
%
--
1.1
%
Gain
on Sale of Assets
(2.2
%)
(0.1
%)
--
Student
Services & Admin. Exp
38.5
%
38.5
%
39.4
%
Total
Operating Expenses
89.0
%
92.4
%
96.1
%
Operating
Income
11.0
%
7.6
%
3.9
%
Interest
Income
0.8
%
0.5
%
0.1
%
Interest
Expense
(0.5
%)
(1.2
%)
(1.2
%)
Net
Interest Income (Expense)
0.3
%
(0.8
%)
(1.1
%)
Income
Before Income Taxes and Cumulative Change in Accounting
11.2
%
6.8
%
2.8
%
Income
Tax Provision
3.1
%
1.7
%
0.7
%
Income
Before Cumulative Effect of Change in Accounting
8.2
%
5.1
%
2.1
%
Cumulative
Effect of Change in Accounting
--
--
0.2
%
Net
Income
8.2
%
5.1
%
2.3
%
All
periods presented in the Consolidated Statements of Income have been revised
to
remove investment interest income and interest expense from operating income
and
present the amounts as a separate component of income before income taxes and
cumulative effect of change in accounting. Investment interest income
was previously presented as a separate component of
revenues. Interest expense was previously presented as a separate
component of operating costs and expenses.
Total
consolidated revenues for fiscal 2007 of $933.5 million increased
$94.0 million, or 11.2%, as compared to last year. Revenues are reported
net of tuition refunds applicable to students who withdraw from the academic
term for which they are enrolled during the period specified by the refund
policy. Revenues increased at all three of DeVry’s business segments as a result
of continued growth in student enrollments and tuition price increases as
compared to the year ago period. In addition, revenues increased because of
higher sales of Becker Professional Review materials and the expanding sale
of
electronic text books (“eBooks”).
DeVry
University
During
fiscal year 2007, DeVry University revenues increased by 7.8% to
$728.4 million as compared to fiscal year 2006. Tuition revenues are the
largest component of total revenues in the DeVry University Segment. The two
principal factors that influence revenues are enrollment and tuition rates.
Key
trends in these two components are set forth below.
Total
undergraduate enrollment by term:
·
Increased
by 2.5% from summer 2005 (36,220 students) to summer 2006 (37,132
students);
·
Increased
by 4.9% from fall 2005 (38,546 students) to fall 2006 (40,434
students);
·
Increased
by 5.5% from spring 2006 (38,523 students) to spring 2007 (40,637
students); and
·
Increased
by 9.8% from summer 2006 (37,132 students) to summer 2007 (40,774
students). This was DeVry University’s fifth consecutive period
of positive total undergraduate student enrollment
growth.
New
undergraduate enrollment by term:
·
Increased
by 12.2% from summer 2005 (11,293 students) to summer 2006 (12,671
students);
·
Increased
by 11.9% from fall 2005 (10,663 students) to fall 2006 (11,930
students);
·
Increased
by 6.9% from spring 2006 (10,359 students) to spring 2007 (11,075
students); and
·
Increased
by 9.7% from summer 2006 (12,671 students) to summer 2007 (13,906
students). The summer 2007 term was the eighth consecutive term in
which
new undergraduate student enrollments increased from the year-ago
level.
Graduate
coursetaker enrollment:
The
term
“coursetaker” refers to the number of courses taken by a
student. Thus, one student taking two courses is counted as two
coursetakers.
·
Increased
by 10.3% from the July 2005 session (11,434 coursetakers) to the
July 2006
(12,617 coursetakers) session;
·
Increased
by 10.5% from the September 2005 session (12,732 coursetakers) to
the
September 2006 session (14,069
coursetakers);
·
Increased
by 8.9% from the November 2005 session (12,777 coursetakers) to the
November 2006 session (13,920
coursetakers);
·
Increased
by 10.9% from the January 2006 session (13,776 coursetakers) to the
January 2007 session (15,278
coursetakers);
·
Increased
by 5.2% from the March 2006 session (14,029 coursetakers) to the
March
2007 session (14,756 coursetakers);
·
Increased
by 8.7% from the May 2006 session (13,148 coursetakers) to the May
2007
session (14,290 coursetakers); and
·
Increased
by 11.1% from the July 2006 session (12,617 coursetakers) to the
July 2007
session (14,023 coursetakers).
Undergraduate
program tuition increased by approximately 4.5% in July 2006 and
by
approximately 4.5% in July
2007; and
·
Graduate
school program tuition increased by approximately 4.5% for the July
2006
session following a 5.0% increase for the September 2005
session.
The
increasing undergraduate new student enrollments were attributable to greater
investments in marketing and recruiting, continued demand for DeVry’s high
quality educational programs and its position within the working adult
market. Management believes that efforts at Keller to create new
brand awareness through improved messaging have produced positive enrollment
results, and it will continue to focus on further improvements in the
future. Also contributing to higher total revenues in the DeVry
University segment was an increase in Other Educational Revenues partly from
sales of eBooks.
Partly
offsetting the increases in revenue from improved enrollments and higher tuition
rates were an increase in DeVry University scholarships and a growing proportion
of working adult undergraduate students who typically enroll for less than
a
full-time academic load. These students are primarily enrolled in online
programs and at programs offered at DeVry University centers. These part-time
students pay a lesser total average tuition amount each term than do full-time
students at the undergraduate campus locations. Therefore, the higher revenue
per student resulting from tuition increases has been partially offset by a
greater proportion of part-time students. In addition, interest
charges (included in Other Educational Revenue) on undergraduate student
accounts receivable decreased in fiscal year 2007, as compared to the prior
year
periods. These receivables are generally subject to a monthly
interest charge of one percent under DeVry University’s EDUCARD® proprietary
loan program for financing students’ education. Lower interest
charges are primarily a result of a decrease in the average accounts receivable
balance on enrolled, undergraduate student accounts. The timeliness
of receivable collections improved as compared to the prior year.
Professional
and Training
Professional
and Training segment revenues reached a record high of $67.9 million for
fiscal year 2007, increasing by $14.3 million, or 26.8% from the prior
year. The primary reason for the increased revenue during fiscal year 2007
was
increased enrollment in Becker Professional Review’s CPA review courses and from
increased sales of CPA and CFA review courses on CD-ROM. Management believes
that these increases are being driven by an increase in market share and the
continued demand for accounting and finance professionals. Also
contributing to the growth in revenues was a price increase of approximately
5%.
Medical
and Healthcare
The
Medical and Healthcare segment posted record revenues of $137.2 million in
fiscal year 2007, representing an increase of $26.8 million, or 24.2% as
compared to last year. While Ross University accounted for the
majority of the revenue increase in this segment, increasing enrollments at
Chamberlain College of Nursing also contributed to segment revenue
growth. The two principal factors that influence revenues are
enrollment and tuition rates. Key trends in these two components are set forth
below.
Ross
University total enrollment by term:
·
Increased
by 13.2% from May 2005 (3,029 students) to May 2006 (3,428
students);
·
Increased
by 15.4% from September 2005 (3,227 students) to September 2006 (3,724
students);
·
Increased
by 14.8% from January 2006 (3,264 students) to January 2007 (3,747
students); and
·
Increased
by 9.9% from May 2006 (3,428 students) to May 2007 (3,767
students).
Ross
University new student enrollment by term:
·
Increased
by 63.8% from May 2005 (268 students) to May 2006 (439
students);
·
Increased
by 9.2% from September 2005 (575 students) to September 2006 (628
students);
·
Increased
by 28.2% from January 2006 (387 students) to January 2007 (496 students);
and
Decreased
by 5.2% from May 2006 (439 students) to May 2007 (416 students) as
a
result of a lower number of transfer students in May 2007 as compared
to
the prior year term.
Chamberlain
College of Nursing total enrollment by term:
·
Increased
by 83.3% from July 2006 (594 students) to July 2007 (1,089
students).
Tuition
rates:
·
Tuition
and fees for the Ross University beginning basic sciences programs
increased by approximately 5.4% for the September 2006 term and
approximately 6.8% effective with the September 2007
term;
·
Tuition
and fees for the Ross University final clinical portion of the programs
increased by approximately 5.0% for the September 2006 term and
approximately 7.2% effective with the September 2007 term;
and
·
Tuition
for Chamberlain College of Nursing increased approximately 5% for
the
2006-2007 academic year (effective July 2006) and approximately 5%
for the
2007-2008 academic year (effective July
2007).
Management
believes that the increasing enrollments at Ross University for the past several
terms resulted from enhancements made to its marketing and recruiting
functions. In addition, continued demand for medical doctors and
veterinarians positively influenced career decisions of new students towards
these respective fields of study. To prepare for increasing student
demand, Ross University is adding faculty, classrooms, laboratories and student
housing.
During
March 2007, Chamberlain College of Nursing began offering associate and
bachelor’s degrees in nursing programs at its new campus in Columbus,
Ohio. This new location is co-located with DeVry University’s campus
in Columbus.
Other
Educational Revenues
Other
Educational Revenues increased by 22.7% to $70.8 million during fiscal year
2007 as compared to the prior year. As discussed above, the primary drivers
for
the increase in Other Educational Revenues were strong sales of Becker
Professional Review course materials on CD-ROM and eBooks at DeVry
University.
COSTS
AND EXPENSES
Cost
of Educational Services
The
largest component of Cost of Educational Services is the cost of faculty and
the
staff that supports educational operations. This expense category also includes
the costs of facilities, supplies, bookstore and other educational materials,
student education-related support activities, and the provision for
uncollectible student accounts.
Cost
of
Educational Services increased 7.4% to $486.7 million during fiscal year 2007
as
compared to last year. Cost increases were incurred in support of
expanding online program enrollments and five additional DeVry University
centers. In addition, cost increases were incurred at Ross University
to support increasing student enrollments. Also contributing to
the higher cost of educational services was an increase in salary expense due
to
annual merit increases. In addition, provision for doubtful accounts
increased primarily as a result of revenue growth. Partially
offsetting these increases was a decrease in depreciation expense in fiscal
year
2007 because of lower capital spending during each of the past several
years.
As
a
percent of revenue, Cost of Educational Services decreased to 52.1% in fiscal
year 2007 from 54.0% during the prior year period. The decrease was a
result of increased operating leverage with existing facilities and staff and
revenue gains, which more than offset incremental investments at all three
business segments.
Separation
Plan Severance
During
the third quarter of fiscal 2007, DeVry offered a voluntary separation plan
(VSP) to eligible DeVry University campus-based employees. The
decision to take this action resulted from a thorough analysis which revealed
that a reduction in the number of employees at DeVry University campuses was
warranted to address the subsidiary’s cost structure. The VSP was
offered at 22 DeVry University campuses with 285 employees being eligible to
participate. Seventy employees accepted this separation
plan. Separation of employment was effective no later than June30, 2007. DeVry recorded a pre-tax charge of approximately $3.7
million in the third and fourth quarters of fiscal 2007 in relation to these
employees. This charge consists of severance pay and extended medical
and dental benefits coverage.
In
April
2007, DeVry announced plans for an involuntary reduction in force (RIF) that
further reduced its workforce by approximately 150 positions at its DeVry
University campus-based operations. This resulted in an additional
pre-tax charge in the fourth quarter of fiscal 2007 of approximately $2.6
million that will represent severance pay and benefits in relation to these
employees.
Cash
payments for the VSP will begin in the first quarter of fiscal year 2008 and
extend until the period of benefit coverage has expired. Cash
payments for the RIF were $1.1 million in the fourth quarter of fiscal 2007.
These payments will extend until the period of benefit coverage has
expired. Of
the
total amount accrued for the 2007 VSP and RIF, approximately $5.1 million
remained to be paid as of June 30, 2007.
Gain
on Sale of Assets
During
fiscal year 2007, DeVry sold its facility located in West Hills, California
for
$36.0 million. DeVry relocated its West Hills campus operations to a
leased facility in nearby Sherman Oaks, California. In March 2007,
DeVry sold unused land adjacent to its campus in Tinley Park, Illinois for
$1.9
million. In connection with these sales, DeVry recorded a pre-tax
gain of approximately $20.8 million ($12.7 million, net of tax, or $0.18 per
share) during fiscal year 2007. These gains are separately classified
in the Consolidated Statements of Income as a component of Total Costs and
Expenses and are related to the DeVry University segment.
These
transactions were executed as a part of DeVry’s ongoing real estate optimization
strategy, which involves evaluating DeVry’s current facilities and locations in
order to ensure the optimal mix of large campuses, small campuses and DeVry
University centers to meet the demand of each market that it
serves. This process also improves capacity utilization and enhances
economic value. These plans may include actions such as reconfiguring
large campuses; renegotiating lease terms; sub-leasing excess space and
relocating to smaller locations within the same geographic area to increase
market penetration. DeVry will also consider co-locating other
educational offerings such as Chamberlain College of Nursing at DeVry University
campuses. Future actions under this program could result in
accounting gains and/or losses depending upon real estate market conditions,
whether the facility is owned or leased and other market factors.
Student
Services and Administrative Expense
This
expense category includes recruiting and advertising costs, general and
administrative costs, expenses associated with curriculum development, and
the
amortization expense of finite-lived intangible assets related to acquisitions
of businesses. All new student recruitment expenditures are charged to expense
as incurred.
Student
Services and Administrative Expense grew by 11.1% to $359.0 million during
fiscal year 2007 as compared to the prior year. The increase in
expenses primarily represents additional investments in recruiting, advertising
and systems to drive and support future growth in new student
enrollments. High school presenters and advisors have been added in
connection with DeVry University’s strategy to increase enrollment of recent
high school graduates. Also, admissions advisors have been added
during fiscal year 2007 to support the growing online program enrollments and
at
new DeVry University centers. Increased new student enrollments, as
described above, at DeVry University, Becker Professional Review and Ross
University are believed to be, in part, attributable to the higher level and
effectiveness of this spending. In addition, expense attributed to
stock-based awards included in Student Services and Administrative Expense
increased during fiscal year 2007 as more new stock options were granted during
this period.
Partially
offsetting these increases in student recruiting expense was lower amortization
of finite-lived intangible assets in connection with acquisitions of businesses,
primarily related to Ross University. Amortization expense is included entirely
in the Student Services and Administrative Expense category. For fiscal 2007,
amortization expense for finite-lived intangible assets was $6.8 million
compared to $9.9 million in the year-ago period.
DeVry
University generated operating income of $38.4 million in fiscal 2007 as
compared to $18.4 million in fiscal 2006. Revenue
increases and gross margin improvements were partially offset by increased
spending on recruiting, advertising and systems infrastructure to drive future
enrollment gains and enhance student services. Also contributing
to the increase in operating income for fiscal year 2007 were the gains on
the
sale of assets of $20.8 million, which were partially offset by the severance
plan charges of $6.3 million, as discussed above.
Professional
and Training
Professional
and Training operating income rose 42.6% to $25.8 million during fiscal
year 2007 as compared to the prior year. The increase in operating income was
the result of higher revenues and improved operating leverage as discussed
above. The increase was partially offset by a higher allocation of
corporate expenses to this business segment, including information technology,
human resources and legal, based upon the current usage of such
services.
Medical
and Healthcare
Operating
income of $47.0 million for the Medical and Healthcare segment increased by
approximately $8.9 million, or 23.4%, from fiscal 2006. At Ross University,
increases in student enrollments and tuition produced higher revenues and
operating income for the current year as compared to the prior year periods
even
as faculty, staff and facilities were being added to accommodate future
enrollment growth. Operating income at Chamberlain College of Nursing
increased because of higher revenues from growing enrollments but was partially
offset by costs associated with opening its new campus in Columbus,
Ohio.
INTEREST
Fiscal
year 2007 interest income of $7.4 million was a significant increase over last
year. The increase was attributable to higher levels of short-term
investments with higher short-term interest rates as compared to the prior
year.
Interest
expense decreased $5.4 million to $4.8 million in fiscal year 2007 as compared
to the prior year. The decrease in interest expense was attributable
to lower average borrowings. The decrease was partially offset by the
write-off of unamortized deferred financing costs related to the pre-payment
of
the Senior Notes and the change in the members of the bank group related to
the
Third Amendment to DeVry’s revolving credit agreement. During July
and October 2006, DeVry repaid the remaining Senior Notes totaling $115
million. In connection with the debt prepayments, DeVry charged to
expense approximately $0.8 million of unamortized deferred financing costs
in
fiscal year 2007. During January 2007, DeVry amended its revolving
credit agreement to, among other things, reduce the spread on applicable
interest and fee rates; extend the remaining term from two to five years; revise
and loosen certain financial covenants; and provide increased flexibility for
acquisitions, dividends and/or share repurchase programs. DeVry
deferred approximately $0.2 million in financing costs incurred in relation
to
this refinancing and charged to expense approximately $0.1 million of previously
deferred financing costs.
INCOME
TAXES
The
effective tax rate was 27.4% for fiscal year 2007, compared to 25.1% for the
prior year. The higher effective income tax rate in fiscal year 2007
was primarily due to gains on the sale of the West Hills facility and excess
land adjacent to the Tinley Park campus, which carried a tax rate of 39.1%
and
changes to prior and current year income tax estimates for Ross University’s
domestic operations. These increases in the effective tax rate were
partially offset by an increase in the relative proportion of earnings from
Ross
University’s international operations to U.S. sourced income.
Earnings
of Ross University’s international operations are not subject to
U.S. federal or state taxes and also are exempt from income taxes in the
jurisdictions in which the schools operate. The medical and
veterinary schools have agreements with the governments that exempt them from
local taxation through the years 2043 and 2023, respectively. DeVry
intends to indefinitely reinvest Ross University’s international earnings and
cash flow to improve and expand operations at the medical and veterinary
schools, and pursue other business opportunities outside the United States.
Accordingly, DeVry has not recorded a current provision for the payment of
U.S. income taxes on these earnings.
Total
consolidated revenue for fiscal 2006 of $839.5 million increased
$58.9 million, or 7.5%, as compared to fiscal year 2005. Revenues are
reported net of tuition refunds applicable to students who withdraw from the
academic term for which they are enrolled during the period specified by the
refund policy. Revenues increased within all three of DeVry’s business segments
as a result of new student enrollment growth and tuition and price increases
as
compared to the year ago period. In addition, revenues increased due in part
to
higher sales of Becker CPA review materials, the expanding sale of eBooks and
higher interest revenues on undergraduate accounts receivable under DeVry’s
student financing program.
DeVry
University
In
the
DeVry University segment, revenues of $675.5 million increased by
$30.2 million, or 4.7%, as compared to fiscal 2005. Tuition revenues are
the largest component of total revenues in the DeVry University segment. The
two
principal factors that influence revenues are enrollment and tuition rates.
Key
trends in these two components are set forth below.
Total
undergraduate enrollment by term:
·
Declined
by 4.8% from summer 2004 to summer
2005;
·
Declined
by 2.3% from fall 2004 to fall
2005; and
·
Increased
by 1.2% from spring 2005 to spring
2006.
New
undergraduate enrollment by term:
·
Increased
by 7.3% from summer 2004 to summer
2005;
·
Increased
by 6.4% from fall 2004 to fall 2005;
and
·
Increased
by 16.4% from spring 2005 to spring
2006.
Graduate
coursetaker enrollment:
·
Increased
by 8.2% during the six sessions of fiscal
2006; and
·
Increased
by 10.3% from the July 2005 session to the July 2006
session.
Tuition
rates:
·
Undergraduate
program tuition increased by approximately 5% in July
2005; and
·
Graduate
school program tuition increased by approximately 5% for the September
2005 session following a similar increase in January
2005.
DeVry
believes that the increasing undergraduate new student enrollments in fiscal
2006 were the result of better integration of marketing and recruiting
functions, an improved overall marketing communication plan and better
management of lead flow. Also, management believes that demand for technology
graduates continues to improve, positively influencing career decisions of
new
students towards this field of study. Further diversification of programs has
offered another avenue for enrollment growth. DeVry University announced a
new
online specialty within its bachelor of science in technical management degree
program, called Health Information Management (“HIM”). This new specialty
provides an opportunity for those who hold an associate degree in health
information, such as graduates of DeVry’s HIM program, to move seamlessly to a
bachelor’s degree and advance within this field.
DeVry
believes that efforts at Keller to create new brand awareness through improved
messaging have produced positive results and will continue to focus on further
improvements in the future.
Also
contributing to higher total revenues in the DeVry University segment was an
increase in Other Education Revenue partly from sales of electronic textbook
materials (“eBooks”).
In
the
first quarter of fiscal 2005, DeVry completed an agreement with Follett Higher
Education Group (“Follett”) to manage the nine remaining U.S. DeVry
University campus bookstores not already managed by Follett. As a result,
reported bookstore sales revenue was lower than it had been in previous periods.
However, DeVry University sales of eBooks in selected graduate and undergraduate
online and onsite courses beginning in the latter part of fiscal 2005 has more
than offset the reduction in revenues from the bookstores previously managed
by
DeVry University. DeVry reports the sale of eBooks at their full selling price
which is a higher unit price sale than the commission income it reports on
book
and supply sales by Follett.
Further
contributing to the increase in Other Educational Revenue were higher interest
charges on undergraduate student accounts receivable which were generally higher
in fiscal 2006 than they were in the prior year. These receivables are generally
subject to a monthly interest charge of one percent under DeVry University’s
EDUCARD® revolving charge plan for financing students’ education. These charges
generated approximately $2.4 million more in student financing charges in
fiscal 2006 than in the prior year.
Partially
offsetting the increases in revenue from improved enrollments and higher tuition
rates is a growing proportion of working adult undergraduate students who
typically enroll for less than a full-time academic load. These students are
primarily enrolled in online programs and at programs offered at DeVry
University centers. These part-time students pay a lesser total average tuition
amount each term than do full-time students at the undergraduate campus
locations. Therefore, the higher revenue per student resulting from tuition
increases has been partially offset by a greater proportion of part-time
students.
Professional
and Training
In
the
Professional and Training segment, revenues of $53.6 million increased
$9.3 million, or 20.9% from fiscal 2005. The primary reason for the
increase was increased enrollment in the Becker Professional Review’s CPA review
courses and from increased sales of CPA review courses on CD-ROM. Management
believes that these increases are being driven by the continued demand for
CPAs
by accounting and consulting firms. Further contributing to growth in this
segment was increased enrollment in the Stalla CFA review course in preparation
for the administration of the Level 1 exam which was administered in
December and June. This is only the second year in which Level 1 of the
exam has been offered in December.
To
further strengthen Becker Professional Review results in future periods, Becker
hired a new director of international operations and two directors of business
operations responsible for sales and marketing of all Becker products in Canada
and in the heavily populated east coast market.
In
July
2005, DeVry completed the acquisition of Gearty CPE. Gearty CPE is a provider
of
continuing professional education programs and seminars in accounting and
finance, predominantly serving customers in the New York/New Jersey metro area.
The acquisition complements the Becker Professional Review CPA exam review
business. The acquisition is being integrated into the Becker operations in
other appropriate markets across the country but has not yet contributed
significantly to the revenues or operating income of the Professional and
Training segment.
Medical
and Healthcare
In
the
Medical and Healthcare segment, revenues of $110.4 million increased by
approximately $19.4 million, or 21.3%, in fiscal 2006 as compared to last
year. Included in this segment are $5.3 million in revenues for fiscal 2006
at Chamberlain as compared to $1.1 million for fiscal 2005. DeVry acquired
Chamberlain in March 2005.
Ross
University revenues increased by approximately $15.2 million, or 16.9%, as
compared to the prior year. The revenue gain is attributable to a 13.2% increase
in total student enrollments with the May 2006 semester and a tuition price
increase of approximately 5% effective with the September 2005 semester, and
a
price increase of slightly less than 8% in January 2005. New and total student
enrollments at Ross University increased in both the January and May 2006
semesters, reversing a decline in enrollment in the September 2005 semester.
To
prepare for future enrollment growth, medical school student capacity is being
expanded with the leasing of additional space adjacent to the campus to be
used
as another auditorium for approximately 400 students.
Other
Educational Revenues
During
fiscal 2006, Other Educational Revenues increased by $14.2 million, or
32.6%, to $57.7 million as compared to the prior year. This line item
consists of the sale of books and supplies in connection with DeVry’s
educational programs, including the commission income earned from Follett;
the
sale of Becker CPA Review course materials on CD-ROM; and the sale of other
CPA
and CFA review study materials. Other components of Other Educational Revenues
are application and other non-refundable student fees; and interest or payment
deferral charges on students’ outstanding accounts receivable balances as
discussed above.
DeVry
adopted SFAS 123(R) effective with the start of the first quarter of fiscal
2006. Financial results for fiscal years 2005 and 2004 have been restated to
reflect the modified retrospective approach of adoption. Accordingly, expenses
relating to stock-based awards have been included in the various expense
categories for both years as appropriate.
SFAS 123(R)
establishes the accounting for stock-based awards issued in exchange for
employee services. To-date, all of DeVry’s stock-based awards have been granted
in the form of stock options. Stock based compensation is measured at the grant
date of the option, based on the fair value of the award. The fair value is
recognized as expense over the employee’s requisite service period which is the
period over which these options vest.
From
the
beginning of fiscal 2005, DeVry’s stock-based awards were valued using a
binomial model. Previously, these awards were valued using the Black-Scholes
model for purposes of pro forma disclosure pursuant to SFAS 123 and
SFAS 148. The binomial model requires estimates of several important
factors, e.g. expected life of an option, stock price volatility, risk-free
rate
of return, forfeiture rate for options granted and the stock dividend yield.
The
expected life of an option takes into account the contractual term of the option
and the effects of the employees’ expected exercise and post-vesting employment
termination behavior. DeVry has granted stock options to hundreds of employees
over a period of time that extends back longer than the maximum ten-year
contractual life of most of its option awards and, therefore, has a history
upon
which estimates of the expected life of the option and the forfeiture rate
can
be based. DeVry’s stock has been publicly traded since 1991 and, therefore,
there is a history upon which estimates of future stock price volatility can
be
determined. In making its determination of the appropriate estimates, and for
computing the actual valuation in a binomial model, DeVry engaged the assistance
of an independent professional actuarial service.
Cost
of Educational Services
DeVry’s
Cost of Educational Services increased by $11.1 million, or 2.5%, from
fiscal 2005. The largest component of Cost of Educational Services is the cost
of faculty and the staff that supports educational operations. This expense
category also includes the costs of facilities, supplies, bookstore and other
educational materials, student education-related support activities, and the
provision for uncollectible student accounts.
During
fiscal 2006, cost increases were incurred in support of the higher number of
DeVry University centers and expanding online program enrollments. For the
spring 2006 term, courses were being offered at eight new DeVry University
locations compared to a year-ago, and the number of online coursetakers
increased by approximately 46% from last year to 28,912. Also contributing
to
the higher cost of educational services was an increase in the provision for
doubtful accounts, primarily in the DeVry University undergraduate operations,
as student receivables increased from last year through the summer and fall
semesters. However, at the start of the spring semester in March 2006, the
timeliness of receivable collections improved from prior periods as the result
of internal process improvements which partially offset the increase in accounts
receivable and the provision for doubtful accounts during the first part of
the
year.
Partially
offsetting these increases were the wage savings from workforce reductions
implemented last year and continued spending restraint in operations during
fiscal 2006. Included in fiscal 2005 Cost of Educational Services was a
$6.7 million workforce reduction charge, principally at DeVry University
and $0.4 million of severance related costs associated with DeVry’s
agreement with RCC College of Technology for the final phases of the teach
out
of the Toronto-area campus programs. There are no corresponding charges for
workforce reductions in fiscal 2006. Further savings in Cost of Educational
Services were generated by $2.8 million of lower expense attributed to
stock-based awards as fewer new option grants have been issued this year
compared to last year.
Also,
lower capital spending during each of the past several years has resulted in
$37.6 million of depreciation expense for fiscal 2006 compared to
$42.4 million last year. Most depreciation expense is included in the Cost
of Educational Services. Included in fiscal 2005 Cost of Educational Services
was a $1.5 million impairment loss related to a DeVry owned building in the
Denver, Colorado, area which was sold in the current year.
Student
Services and Administrative Expense increased by $14.0 million, or 4.5%,
from fiscal 2005. This expense category includes recruiting costs, general
and
administrative costs, expenses associated with curriculum development, and
the
amortization expense of finite-lived intangible assets related to acquisitions
of businesses. The increased cost primarily reflects efforts to generate higher
new student enrollments in all of DeVry’s educational programs through improved
and more efficient advertising and student recruiting. Admissions advisors
have
been added to support the growing online program enrollments and newly opened
DeVry University centers and at Ross University to offset the previous declines
in new student enrollments. Increased new student enrollments, as described
above, at DeVry University, Becker Professional Review and Ross University
are
believed to be, in part, attributable to the higher level and effectiveness
of
this spending. All new student recruitment expenditures are charged to expense
as incurred.
Largely
offsetting these increases in student recruiting expense was lower amortization
of finite-lived intangible assets related to acquisitions of businesses
including, most recently, Ross University and Chamberlain College of Nursing.
Amortization expense is included entirely in the Student Services and
Administrative Expense category. For fiscal 2006, amortization expense for
finite-lived intangible assets was $9.9 million compared to
$14.1 million in the year-ago period. Also, workforce reduction costs
included in the Student Services and Administrative Expense category totaled
$1.7 million in fiscal 2005. There are no corresponding workforce reduction
program charges in the current year. In addition, expense attributed to
stock-based awards included in the Student Services expense decreased by
$5.9 million in fiscal 2006 as compared to fiscal 2005 as fewer new option
grants were issued in fiscal 2006. These decreases helped to partially offset
the increases in student recruitment spending.
OPERATING
INCOME
DeVry
University
The
DeVry
University segment generated operating income of $18.4 million in fiscal
2006 as compared to a $0.8 million operating loss in fiscal 2005. As
discussed above, the improvement in operating income was the result of improving
enrollments, higher tuition rates and controlled spending. DeVry realized
additional savings from the consolidation of its online operations into a
building in Naperville, Illinois, a nearby suburb to DeVry’s headquarters
location. The acquisition of this building in fiscal 2005 permitted DeVry to
relinquish some of its higher cost office space at the headquarters site. In
addition, DeVry University’s Canadian operation, which included the teach out
cost for the former undergraduate Toronto-area campuses in fiscal 2005, is
no
longer incurring further charges for the teach out activity. In fiscal 2005,
DeVry University incurred operating losses of approximately $3.3 million at
its Canadian operation. In the current year, the Canadian operations had a
reduced operating loss of approximately $0.2 million.
Professional
and Training
In
the
Professional and Training segment, operating income of $18.1 million was
another record high, increasing $4.2 million from fiscal 2005. The increase
in operating income was primarily due to increased revenue growth in fiscal
2006
as discussed above.
Medical
and Healthcare
Operating
income of $38.1 million for the Medical and Healthcare segment increased by
approximately $5.9 million from fiscal 2005. At Ross University, which is
the dominant portion of this segment, an increase in student enrollments in
January and May 2006 and tuition increases combined to produce the higher
revenues and operating income for fiscal 2006 compared to last year even as
faculty, staff and facilities are being added to accommodate future enrollment
growth.
INTEREST
Interest
income on DeVry’s short-term investments of cash balances increased by $3.1
million. The increase was the result of generally higher levels of
short-term investments and higher short-term interest rates for these
investments as compared to the prior year.
Interest
expense on DeVry’s borrowings was $10.2 million, an increase of
$1.1 million from fiscal 2005. The increase in interest expense was the
result of increases in short-term interest rates partially offset by lower
average borrowings during fiscal 2005. At June 30, 2006, the interest rate
on DeVry’s Senior Notes was 6.38%, compared to 4.44% one year
earlier.
Taxes
on
income were 25.1% of pretax income for fiscal 2006, compared to 25.5% for fiscal
2005. The lower rate was primarily affected by the impact from stock-based
compensation expense deductibility partially offset by the relative proportions
of U.S. sourced income to income generated by Ross University as compared
to the prior year. Earnings of Ross University’s offshore operations are not
subject to U.S. federal or state taxes and also are exempt from income
taxes in the jurisdictions in which the schools operate. We intend to
indefinitely reinvest Ross University earnings and cash flow to eliminate the
outstanding debt as of June 30, 2006, improve and expand facilities and
operations at the medical and veterinary schools, and pursue other business
opportunities outside the United States. Accordingly, DeVry has not recorded
a
current provision for the payment of U.S. income taxes on these
earnings.
APPLICATION
OF CRITICAL ACCOUNTING POLICIES
Note 2,
Summary of Significant Accounting Policies, in the Notes to Consolidated
Financial Statements for the fiscal year ended June 30, 2007, describes in
more detail the method of application of significant accounting policies and
should be read in conjunction with the discussion below.
Revenue
Recognition
DeVry
University tuition and technology fees, Ross University tuition for the basic
science semesters, and Chamberlain College of Nursing tuition all are billed
at
the start of each academic term. The revenue is recognized ratably on a
straight-line basis over that academic term. Revenue from Ross University
clinical terms is recognized based upon the student’s weekly schedule of actual
attendance. Refunds of tuition and other charges are reported as a reduction
of
revenues. Textbook and other educational supply sales, and commissions received
from bookstore sales (which are operated by an outside party), are recognized
when the sale occurs.
Tuition
revenue from Becker Professional Review is recognized ratably on a straight-line
basis over the course term. Becker Professional Review self-study CD ROM and
textbook and other educational product revenues are recognized when the sale
occurs. Revenue from training services, which are generally short-term in
duration, is recognized when the training service is provided.
Expense
Recognition
Advertising
costs are charged to expense in the period in which materials are purchased
or
services are rendered. Similarly, start-up expenses related to new operating
locations and new curriculum development costs are charged directly to expense
as incurred.
Allowance
for Uncollectible Accounts
The
allowance for uncollectible accounts is determined by analyzing the current
level of accounts receivable and loss rates on collections of accounts
receivable. In addition, management considers projections of future receivable
levels and collection loss rates. We perform this analysis periodically
throughout the year. Provisions required to maintain the allowance at
appropriate levels are charged to expense in each period as
required.
Internally
Developed Software
Selected
costs associated with developing DeVry’s information technology systems have
been capitalized in accordance with the rules on accounting for costs of
computer software developed for internal use.
Stock-Based
Compensation
Effective
with the start of fiscal 2006, stock-based compensation is recorded as
compensation expense in accordance with SFAS 123(R). Financial results for
fiscal year 2005 reflect the modified retrospective adoption. Accordingly,
expenses relating to stock-based awards have been included in the various
expense categories, as appropriate.
If
factors change and different assumptions are employed in the application of
SFAS 123(R) in future periods, the stock-based compensation expense that
DeVry records may differ significantly from what was recorded in the prior
period.
Impairment
of Goodwill and Other Intangible Assets
In
accordance with Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets” (“SFAS 142”), management annually
compares the fair value of DeVry’s reporting units to their carrying value to
identify potential impairment of goodwill. Similarly, management compares the
fair value to the carrying value of intangible assets arising from business
combinations. This assessment is performed annually, or more frequently if
circumstances require. The valuation is based upon several factors, including
estimates of future revenues and earnings and a discounted cash flow analysis
for several future years, and includes other assumptions, such as future income
tax and interest discount rates. Such estimates require significant judgment,
and over future periods, actual results may differ from these estimates.
Although management believes its estimates are appropriate, if earnings and/or
cash flow are less than our projections indicate, or other assumptions
underlying the analysis change significantly, DeVry could incur impairment
charges in future periods.
At
June 30, 2007, intangible assets from business combinations totaled
$56.9 million, and goodwill totaled $291.1 million. Together these
assets equal approximately 41% of total assets, and any impairment could
significantly affect future results of operations.
Impairment
of Long-Lived Assets
DeVry
evaluates the carrying amount of its major long-lived assets whenever changes
in
circumstances or events indicate that the value of such assets may not be fully
recoverable in accordance with Statement of Financial Accounting Standards
No. 144, “Accounting for Impairment or Disposal of Long-Lived
Assets.”
Income
Tax Liabilities
DeVry
recognizes income tax expense based upon income earned. However, some expenses,
such as depreciation, may be recorded in one period for financial statement
reporting but in the tax return for another period. These timing differences
create deferred tax assets and liabilities that are recorded on the balance
sheet to reflect the subsequent payment of these amounts. DeVry’s deferred tax
items are regularly analyzed and valuation reserves are established as required
when the realization of a deferred tax asset is in doubt.
Estimates
and Assumptions
DeVry’s
financial statements include estimates and assumptions about the reported
amounts of assets, liabilities, revenues, and expenses whose exact amounts
will
not be known until future periods. Management and DeVry’s independent registered
public accountants have discussed with the Audit Committee of the Board of
Directors the critical accounting policies discussed above and the significant
estimates included in the financial statements in this report. Although
management believes its assumptions and estimates are reasonable, actual amounts
may differ from the estimates included in the financial statements and could
produce materially different results in the future.
DeVry’s
financial statements reflect the following significant estimates and
assumptions:
·
the
method of revenue recognition across the academic
periods;
·
the
useful lives of equipment and facilities whose value is a significant
portion of DeVry’s total assets;
·
the
value and useful lives of acquired finite-lived intangible
assets;
·
the
value of indefinite-lived intangible
assets;
·
the
pattern of the amortization of finite-lived intangible assets over
their
economic life;
·
losses
to be realized in the future on the collection of presently owed
student
receivable balances;
·
the
value of deferred tax assets
·
costs
associated with any settlement of claims and lawsuits in which DeVry
is a
defendant;
·
health
care reimbursement claims for medical services rendered but for which
claims have not yet been processed or
paid; and
the
value of stock-based compensation awards and related compensation
expense.
The
methodology management used to derive each of the above estimates for fiscal
2007 is consistent with the manner in which such estimates were made in prior
years, although management regularly analyzes the parameters used in setting
the
value of these estimates and may change those parameters as conditions warrant.
Actual results could differ from those estimates.
CONTINGENCIES
DeVry
is
subject to occasional lawsuits, administrative proceedings, regulatory reviews
associated with financial assistance programs and other claims arising in the
normal conduct of its business. The following is a description of pending
litigation that may be considered other than ordinary and routine litigation
that is incidental to the business.
Brigette
Dean Hines, a former student of Ross University Veterinary School of Medicine
was dismissed from the school and denied re-enrollment. This former student
filed a claim in June 2005 in the Superior Court of New Jersey for Middlesex
County. In this suit, she claimed that the dismissal was based upon
her disability and she was seeking compensatory damages for economic and
non-economic harm, punitive damages, cost of the suit, attorney’s fees and other
relief deemed appropriate by the Court. In May 2007, this matter was
settled.
On
August25, 2005, DeVry filed a complaint in the Superior Court of California, County
of
Alameda, against Sierra Bay Contractors, Inc., the general contractor
responsible for the construction of a dormitory facility on the DeVry
University, Fremont, California campus. DeVry's complaint seeks
monetary damages arising out of Sierra Bay's failure to keep the project free
from liens filed by subcontractors, and indemnification against subcontractor
claims. Sierra Bay filed a counterclaim in December 2005, asserting
that DeVry owes approximately $3 million for work allegedly performed on the
project. DeVry filed additional complaints against the architect, the
project manager and an engineering firm, and the Court subsequently consolidated
all claims relating to the project, including those of the subcontractors,
into
the principal case filed by DeVry against Sierra Bay.
On
December 23, 2005, Saro Daghlian, a former DeVry University student in
California, commenced a putative class action against DeVry University and
DeVry
Inc. (collectively the “defendants”) in Los Angeles Superior Court, asserting
various claims predicated upon defendants’ alleged failure to comply with
disclosure requirements under the California Education Code relating to the
transferability of academic units earned at DeVry
University. Defendants denied the allegations and removed the action
to the U.S. District Court for the Central District of California. On
June 11, 2007, the District Court issued an Order certifying a class under
the
California Unfair Competition Law, California Business & Professions Code,
section 17200 (“UCL”), comprised of students who enrolled and paid tuition at a
California DeVry school in the four years prior to the date when the suit was
filed. Defendants have now filed a Motion for Summary Judgment
seeking dismissal of all claims due to the unconstitutionality of the California
Education Code (a statute that has since sunset, is currently "inoperative,"
and
will be repealed as of January 2008) because it discriminates against out of
state regionally accredited universities and it compels speech in violation
of
the First Amendment. Defendants also seek judgment for the separate
and independent reason that Plaintiffs have failed to meet their burden of
proving a viable theory of restitution or entitlement to injunctive relief
under
their UCL claim.
As
of
June 30, 2007, there is an accrual of less than $1.0 million for the resolution
of all legal claims.
While
the
ultimate outcome of pending contingencies is difficult to estimate at this
time,
DeVry intends to vigorously defend itself with respect to the pending claims.
At
this time, DeVry does not believe that the outcome of current claims,
administrative proceedings, regulatory reviews and lawsuits will have a material
effect on its cash flows, results of operations or financial
position.
LIQUIDITY
AND CAPITAL RESOURCES
Student
Payments
DeVry’s
primary source of liquidity is the cash received from payments for student
tuition, books, educational supplies and fees. These payments include funds
originating as student and family educational loans; other financial aid from
various federal, state and provincial loan and grant programs; and student
and
family financial resources.
The
pattern of cash receipts during the year is somewhat seasonal. DeVry’s accounts
receivable peak immediately after bills are issued each semester. At DeVry
University, the principal undergraduate semesters begin in July, November and
March, but it also offers shorter eight-week session courses that begin six
times per year. These shorter sessions have the effect of somewhat
smoothing the cash flow peaks throughout the year as they represent a new
revenue billing and collection cycle within the longer semester
cycle.
Collections
of student receivables generally peak during the first half of each academic
period, reaching seventy to eighty percent of collections for that entire
period. These early collections have historically exceeded operating expenses
for the semester so they have provided sufficient cash flow for operations
at
the end of the semester when collections are lower.
Historically,
accounts receivable reach their lowest level at the end of each semester,
dropping to their lowest point during the year at the end of June. This is
when
the DeVry University undergraduate spring semester, the Keller Graduate School
May term, and the student financial aid year all come to an end and
substantially all financial aid for the previous 12 months has been
disbursed. Ross University experiences a similar operating pattern, but its
semesters begin in May, September and January, thus smoothing the cyclical
pattern of cash flows from DeVry University. With the on-demand CPA exam format,
the Becker Professional Review has a somewhat smoother enrollment and cash
flow
pattern throughout the year.
At
June 30, 2007, total accounts receivable, net of related reserves, were
$43.1 million, compared to $46.6 million last year. The decrease in
net accounts receivable was the result of continued improvements in the
timeliness of collections of DeVry University receivables, partially offset
by
the impact on receivables from revenue growth across all three of DeVry’s
business segments as compared to the year-ago period.
To
reduce
the level of interim student financing under the DeVry University undergraduate
EDUCARD®
program, many students participate in supplementary loan programs funded by
private lenders. The supplementary loans are aimed at students whose federal
and
state funded financial aid is not sufficient to cover all their costs of
education. DeVry has entered into a limited default risk sharing arrangement
for
some of these loans. At June 30, 2007, DeVry had reserved for and
recognized as expense the amount of DeVry’s share of the default
risk.
Financial
Aid
DeVry
is
highly dependent upon the timely receipt of financial aid funds. Management
estimates that approximately 75% of its DeVry University undergraduate students’
tuition, book and fee revenues have been financed by government-provided
financial aid to students. Keller Graduate School collections from student
participation in federal loan programs have increased during the past several
years and are now approximately 70% of revenues. Ross University collections
from student participation in federal loan programs are approximately 63% of
revenues at both the medical and veterinary schools. Chamberlain
collections from student participation in federal financial aid programs are
approximately 35% of revenues.
All
financial aid and assistance programs are subject to political and governmental
budgetary considerations. In the United States, the Higher Education Act (“HEA”)
guides the federal government’s support of postsecondary
education. The HEA was most recently reauthorized in the fall of 1998
to redefine and extend the numerous financial aid programs then in
existence. Typically, the HEA is amended every five years, but this
process has been delayed. During September 2006, the United States
Congress again extended the HEA, through June 2007, and in July 2007, the HEA
was extended again through October 2007. As reauthorization moves
forward, there may be proposals for change that could adversely affect the
amount of financial aid available to students. There is no assurance that such
federal funding will be continued at its present level or in its present
form.
In
addition, government-funded financial assistance programs are governed by
extensive and complex regulations in both the United States and Canada. Like
any
other educational institution, DeVry’s administration of these programs is
periodically reviewed by various regulatory agencies. Any regulatory violation
could be the basis for disciplinary action, including initiation of a
suspension, limitation or termination proceeding. Previous Department of
Education and state regulatory agency program reviews have not resulted in
material findings or adjustments against DeVry.
Under
the
terms of DeVry’s participation in financial aid programs, certain cash received
from state governments and the U.S. Department of Education is maintained
in restricted bank accounts. DeVry receives these funds either after the
financial aid authorization and disbursement process for the benefit of the
student is completed, or just prior to that authorization. Once the
authorization and disbursement process for a particular student is completed,
the funds may be transferred to unrestricted accounts and become available
for
DeVry to use in current operations. This process generally occurs during the
academic term for which such funds were authorized. At June 30, 2007, cash
in the amount of $14.5 million was held in restricted bank accounts,
compared to $20.6 million at June 30, 2006.
As
described in more detail in “Item 1. Description of Business,” institutions
must meet a financial responsibility test if their students participate in
federal financial assistance programs. The Department of Education relies on
a
test that considers equity, primary reserve, and net income ratios, with a
minimum required score of 1.5. In 2004, DeVry received notice from the
Department of Education that its financial responsibility ratios yielded a
composite score of 1.4 for the year ended June 30, 2003. The primary reason
for this deficient score was that the Department of Education calculation
included intangible assets from the Ross University acquisition. Because of
this
deficiency, certain restrictions were imposed on DeVry University’s procedures
for submitting requests for financial aid funds for its students. These
restrictions did not require DeVry to significantly alter its existing
practices.
DeVry’s
composite score has exceeded the required minimum 1.5 since June 2004, so all
restrictions on our operations have been lifted. Management has calculated
DeVry’s composite score at June 30, 2007, and determined that it exceeds
1.5. Management believes DeVry can continue to demonstrate the required level
of
financial stability.
Cash
from Operations
Cash
generated from operations in fiscal 2007 was $125.2 million, compared to
$90.8 million in fiscal 2006. Cash flow from operations
increased because of higher net income (excluding the gain on sale of
assets). Also, driving greater cash flow was a
$7.4 million greater source of cash compared to the prior year for changes
in accounts receivable; $12.9 million for changes in restricted funds; and
$17.0
million for changes in levels of accrued expenses. Net accounts
receivable decreased due in part to continued improvements in the timeliness
of
collections of DeVry University enrolled student undergraduate
receivables. Variations in the levels of accrued expenses from period
to period are caused, in part, by the timing of the year-end relative to DeVry’s
payroll and bill payment cycles. These increases in cash flow were partially
offset by a decrease in accounts payable ($14.6 million) and lower non-cash
charges (including depreciation and amortization).
Capital
Expenditures
Capital
spending on improvements, including instructional technology and expansion,
is
an integral component of DeVry’s operating strategy. Capital expenditures in
fiscal 2007 were $38.6 million compared to $25.3 million in fiscal
2006. The increase in capital expenditures is being driven by
facility expansion at both the Ross University medical and veterinary schools;
renovations at DeVry University campuses, including investments for the
co-location of the Chamberlain College of Nursing at selected locations; and
costs of opening additional DeVry University centers. Over the past four years,
DeVry has invested nearly $150 million for expansion, facility improvement,
and the replacement and improvement of teaching and administrative equipment
along with school laboratories for its educational program
offerings.
During
September 2006, DeVry sold its West Hills facility for $36 million. In
March 2007, DeVry sold unused land adjacent to its campus in Tinley Park,
Illinois for $1.9 million. Proceeds from these sales were used to pay income
taxes attributed to the gain on the sales, reduce debt and for general corporate
purposes.
For
fiscal 2008, management expects capital expenditures to increase to support
future growth. Although there are no new large DeVry University campus sites
planned or under construction, there are further facility expansion plans at
the
Ross University medical and veterinary schools and Chamberlain College of
Nursing, and spending to support its real estate optimization
strategy. In addition, spending on information systems is likely to
increase in fiscal year 2008. Other new or expanded operating locations are
expected to be in leased facilities, thus requiring less capital
spending.
Cash
from Financing Activities
In
July
and October 2006, DeVry prepaid the remaining $115.0 million of Senior
Notes without penalty. In connection with the prepayments, DeVry
charged to expense approximately $0.8 million of unamortized deferred financing
costs. This prepayment was funded through a combination of available
cash and $40.0 million of increased borrowings under DeVry’s revolving credit
agreement, which bears a lower interest rate than the Senior
Notes. During the third quarter of fiscal year 2007, DeVry repaid all
outstanding borrowings under the revolving credit agreement and remained debt
free as of June 30, 2007.
On
November 15, 2006, the Board of Directors adopted a share repurchase program
to
buyback up to $35 million of DeVry common stock within the next two
years. As of June 30, 2007, DeVry has repurchased, on the open
market, 355,473 shares of its common stock at a total cost of approximately
$10.5 million. These buybacks were funded through available cash
balances. The timing and amount of any future repurchases will be
determined by company management based on its evaluation of market conditions
and other factors. These repurchases may be made through the open market,
including block purchases, or in privately negotiated transactions, or
otherwise. The buyback will be funded through available cash balances and/or
borrowings under its revolving credit agreement and may be suspended or
discontinued at any time.
The
Board
of Directors declared DeVry’s first-ever dividend on November 15, 2006, of $0.05
per share to common stockholders of record as of December 20,2006. The dividend which totaled $3,545,000 was paid on January 12,2007. On May 6, 2007, DeVry’s Board of Directors declared a second
dividend of $0.05 per share. This dividend was paid on July 12, 2007, to common
stockholders of record as of June 18, 2007. The total dividend
declared on May 8, 2007 of $3,557,000 was recorded as a reduction to retained
earnings as of June 30, 2007. DeVry’s Board of Directors stated its
intent to declare future dividends on a semi-annual basis. There is
no guarantee that dividends will be declared in the future, and payment of
dividends will be at the discretion of the Board of Directors and will be
dependent on projections of future earnings, cash flow, financial requirements
of DeVry and other factors as the Board of Directors deems
relevant.
Revolving
Credit Agreement
In
January 2007, DeVry amended its revolving credit agreement to, among other
things, reduce the spread on applicable interest and fee rates; extend the
remaining term from two to five years; revise and loosen certain financial
covenants; and provide increased flexibility for acquisitions, dividends and/or
share repurchase programs. All borrowings and letters of credit issued under
the
revolving credit agreement are through DeVry and Global Education International
(“GEI”), an international subsidiary.
The
following table summarizes the terms of the revolving credit agreement, as
amended in January 2007, and its status as of June 30, 2007:
Revolving
Credit Agreement, as amended in January 2007
DeVry
Inc.
GEI
Borrowing
limit
$125 million,
with option to increase to $225 million
$50 million
Interest
rate
At
DeVry’s discretion, either the prime rate or a Eurodollar rate plus
0.50% — 1.25%, depending upon the achievement of certain financial
ratios.
At
DeVry’s discretion, either the prime rate or a Eurodollar rate plus
0.50% — 1.25%, depending upon the achievement of certain financial
ratios.
No
amount
has ever been drawn under the letter of credit issued on behalf of
DeVry.
DeVry
and
GEI are not required to repay any borrowings under the revolving credit
agreement until its maturity dates, but we can make prepayments without penalty
at any time.
Other
Contractual Arrangements
DeVry’s
only long-term contractual obligations consist of its revolving line of credit
(discussed above), operating leases on facilities and equipment, and agreements
for various services. At June 30, 2007, there were no outstanding
borrowings nor any required payments under DeVry’s revolving credit agreement
prior to its maturity.
DeVry
is
not a party to any off-balance sheet financing or contingent payment
arrangements, nor are there any unconsolidated subsidiaries. DeVry has not
extended any loans to any officer, director or other affiliated person. DeVry
has not entered into any synthetic leases, and there are no residual purchase
or
value commitments related to any facility lease. DeVry has not entered into
any
derivative, swap, futures contract, put, call, hedge or non-exchange traded
contract except for the now-expired interest rate cap agreements noted above.
Under the terms of those interest rate cap agreements, DeVry did not incur
any
further payment liability beyond their original purchase price.
As
of the
end of the fiscal year, DeVry had posted more than $14.7 million of surety
bonds to various governmental jurisdictions on behalf of DeVry University,
Chamberlain College of Nursing and Becker Professional Review in the United
States, and approximately CDN $0.3 million in Canada. The surety bonds are
related primarily to student recruiting and educational operations. If DeVry
were to fail to meet its obligations in these jurisdictions, it could be
responsible for payment up to the amount of the related bond. To date, no surety
bond has ever been paid because DeVry failed to meet its
obligations.
A
summary
of DeVry’s contractual obligations at June 30, 2007, is presented
below:
Due
In
Total
Less
Than
1 Year
1-3 Years
4-5 Years
After
5 Years
(Dollars
in thousands)
Operating
Leases
$
284,500
$
44,000
$
110,600
$
53,000
$
76,900
Employment
Agreements
$
7,277
992
$
3,017
$
661
$
2,607
Other
Long-term Obligations
—
—
—
—
—
Total
Cash Obligations
$
291,777
$
44,992
$
113,617
$
53,661
$
79,507
DeVry’s
consolidated cash balances of $129.2 million at June 30, 2007, include
approximately $72.4 million of cash attributable to the Ross University
offshore operations. It is DeVry’s intention to indefinitely reinvest this cash
and subsequent earnings and cash flow to improve and expand operations of Ross
University and pursue future business opportunities outside the United
States. Therefore, cash held by Ross University will not be available
for domestic general corporate purposes.
Management
believes that current balances of unrestricted cash, cash generated from
operations and, if necessary, the revolving loan facility, will be sufficient
to
fund both DeVry’s current operations and growth plans, future dividend payments
and share repurchases for the foreseeable future unless future significant
investment opportunities, similar to the acquisition of Ross University, should
arise.
RECENT
ACCOUNTING PRONOUNCEMENTS
SFAS 154 —
Accounting Changes and Error Corrections
In
May
2005, the FASB issued Statement of Financial Accounting Standards No. 154,
“Accounting Changes and Error Corrections,” (“SFAS 154”). This statement
replaces APB Opinion No. 20, “Accounting Changes,” and FASB Statement
No. 3, “Reporting Accounting Changes in Interim Financial Statements.”
SFAS 154 changes the requirements for the accounting for and reporting of a
change in accounting principle. For DeVry, SFAS 154 was effective at the
beginning of fiscal year 2007. The adoption of SFAS 154 did not have
any impact on DeVry’s consolidated financial statements.
SFAS 157 —
Fair Value Measurements
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, “Fair Value Measurements,” (“SFAS 157”). SFAS 157 defines and
establishes a framework for measuring fair value. In addition, SFAS
157 expands disclosures about fair value measurements. For DeVry,
SFAS 157 is effective beginning in fiscal year 2009. DeVry does not
expect that the adoption of SFAS 157 will have a material impact on its
consolidated financial statements.
FIN 48 —
Accounting for Uncertainty in Income Taxes —
anInterpretation of FASB
Statement 109
In
July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes — an Interpretation of FASB Statement 109”
(“FIN 48”), which clarifies the accounting for uncertainty in income taxes
recognized in a company’s financial statements in accordance with
SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for DeVry beginning in fiscal year 2008.
DeVry is currently evaluating the impact of FIN 48.
ITEM 7A —
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT
MARKETRISK
DeVry
is
not dependent upon the price levels, nor affected by fluctuations in pricing,
of
any particular commodity or group of commodities. However, more than 50% of
DeVry’s costs are in the form of employee wages and benefits. Changes in
employment market conditions or escalations in employee benefit costs could
cause DeVry to experience cost increases at levels beyond what it has
historically experienced.
The
financial position and results of operations of Ross University’s Caribbean
operations are measured using the U.S. dollar as the functional currency.
Substantially all Ross University financial transactions are denominated in
the
U.S. dollar.
The
financial position and results of operations of DeVry’s Canadian educational
programs are measured using the Canadian dollar as the functional currency.
The
Canadian operations have not entered into any material long-term contracts
to
purchase or sell goods and services, other than the lease agreement on a
teaching facility. DeVry does not have any foreign exchange contracts or
derivative financial instruments designed to mitigate changes in the value
of
the Canadian dollar. Because Canada-based assets constitute less than 2.5%
of
DeVry’s overall assets, and its Canadian liabilities constitute a similarly
small percentage of overall liabilities, changes in the value of Canada’s
currency at rates experienced during the past several years are unlikely to
have
a material effect on DeVry’s results of operations or financial position. Based
upon the current value of the net assets in the Canadian operations, a change
of
$0.01 in the value of the Canadian dollar relative to the U.S. dollar would
result in a translation adjustment of less than $100,000.
DeVry’s
customers are principally individual students enrolled in its various
educational programs. Accordingly, concentration of accounts receivable credit
risk is small relative to total revenues or accounts receivable.
DeVry’s
cash is held in accounts at various large, financially secure depository
institutions. Although the amount on deposit at a given institution typically
will exceed amounts subject to guarantee, DeVry has not experienced any deposit
losses to date, nor does management expect to incur such losses in the
future.
The
interest rate on DeVry’s debt is based upon Eurodollar interest rates for
periods typically ranging from one to three months. Based upon our borrowings
of
$50.0 million at December 31, 2006, a 1.0% increase in short-term interest
rates
would result in approximately $0.5 million of additional annual interest
expense. At June 30, 2007, DeVry had no outstanding
borrowings. However, future investment opportunities and cash flow
generated from operations may affect the level of outstanding borrowings and
the
effect of a change in interest rates.
ITEM 8 —
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA
The
following financial statements and supplemental schedules of DeVry and its
subsidiaries are included below on pages 60 through 86 of this
report:
Consolidated
Statements of Cash Flows for the years ended June 30, 2007, 2006 and
2005
62
Consolidated
Statements of Shareholders’ Equity for the years ended June 30, 2007,
2006 and 2005
63
Notes
to Consolidated Financial Statements
64
Schedule II1. —
Valuation and Qualifying Accounts
84
Report
of Independent Registered Public Accounting Firm
85
1Schedules
other than
the one listed above are omitted for the reason that they are not required
or
are not applicable, or the required information is shown on the financial
statements or notes thereto.
ITEM 9 — CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
ONACCOUNTING AND FINANCIAL
DISCLOSURE
Principal
Executive, CEO, and Principal Financial Officer, CFO,
Certificates
The
required compliance certificates signed by DeVry’s CEO and CFO are included as
Exhibits 31 and 32 of this Annual Report on Form 10-K.
Disclosure
Controls and Procedures
Disclosure
controls and procedures are designed to help ensure that all the information
required to be disclosed in DeVry’s reports filed under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified by the applicable rules and forms.
DeVry
has
a Senior Vice President and Chief Compliance Officer to oversee all of its
regulatory affairs, internal controls and compliance efforts, including those
related to disclosure controls and procedures and those relating to internal
control over financial reporting. In addition, DeVry has a Corporate Compliance
Officer, reporting to this Senior Vice President to further enhance DeVry’s
efforts in these important areas. DeVry has also engaged Deloitte &
Touche LLP to work in conjunction with its own internal audit resources to
conduct the testing and review that leads to management’s assessment of internal
controls.
Evaluations
required by Rule 13a — 15 of the Securities Exchange Act of 1934 of
the effectiveness of DeVry’s disclosure controls and procedures as of the end of
the period covered by this Report have been carried out under the supervision
and with the participation of its management, including its Chief Executive
Officer and its Chief Financial Officer. Based upon these evaluations, the
Chief
Executive Officer and Chief Financial Officer have concluded that DeVry’s
disclosure controls and procedures were effective as required, and have attested
to this in Exhibit 31 of this Report.
Management’s
Report on Internal Control Over Financial Reporting
The
management of DeVry is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined by Rule 13a —
15(f) of the Securities Exchange Act. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because
of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
As
of
June 30, 2007, DeVry’s management has assessed the effectiveness of its
internal control over financial reporting, using the criteria embodied by the
Committee of Sponsoring Organizations of the Treadway Commission’s 1992 report
Internal Control — Integrated Framework. Based upon this
assessment, DeVry concluded that as of June 30, 2007, its internal control
over financial reporting was effective based upon these criteria.
The
effectiveness of DeVry’s internal control over financial reporting as of
June 30, 2007 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which
appears herein.
Changes
in Internal Control Over Financial Reporting
There
were no changes in internal control over financial reporting identified in
connection with the evaluation referred to above that occurred during the fourth
quarter of fiscal year 2007 that materially affected, or are reasonably likely
to materially affect, DeVry’s internal control over financial
reporting.
DeVry
Inc. (“DeVry”), through its wholly owned subsidiaries, including DeVry
University, Dominica Management, Inc. (“DMI”), Becker CPA Review Corp. (d/b/a
Becker Professional Review) and Ross University School of Nursing &
Health Sciences operates an international system of degree-granting,
career-oriented higher education schools and a leading international training
firm.
DeVry
University is one of the largest regionally accredited higher education systems
in North America, offering both undergraduate and graduate programs. DeVry
University’s undergraduate operations award associate and bachelor’s degrees in
technology, healthcare technology and business. Keller Graduate School of
Management of DeVry University awards master’s degrees in business
administration, accounting and financial management, information systems
management, human resource management, project management, public administration
and telecommunications management. At June 30, 2007, DeVry University
programs were offered at 23 large campus locations and 63 smaller teaching
centers, all in the United States, except for one campus location in Canada
and
through DeVry University Online. Several additional DeVry University locations
are planned to open in fiscal 2008.
DMI
operates the Ross University School of Medicine and the Ross University School
of Veterinary Medicine (collectively referred to as “Ross University”), with
campuses in the Caribbean countries of Dominica and St. Kitts/Nevis,
respectively. Ross University students complete their basic science curriculum
in modern, fully equipped campuses in the Caribbean and complete their clinical
education in U.S. teaching hospitals and veterinary schools under
affiliation with Ross University.
Ross
University School of Nursing & Health Sciences operates the Chamberlain
College of Nursing (“Chamberlain”), (formerly Deaconess College of Nursing).
Through its locations in St. Louis, Missouri, and Columbus, Ohio,
Chamberlain offers associate and bachelor’s degree programs in nursing. In
addition, Chamberlain offers a bachelor’s degree completion program designed for
registered nurses who have previously completed an associate degree or nursing
diploma program. Non-clinical coursework is offered both on campus and
online.
Becker
Professional Review (“Becker”) prepares candidates for the Certified Public
Accountant (“CPA”) and Chartered Financial Analyst (“CFA”) professional
certification examinations, and offers continuing professional education
programs and seminars in accounting and finance. These classes are taught in
more than 250 locations, including sites in 30 foreign countries and some DeVry
University teaching sites.
NOTE 2: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of DeVry and its wholly
owned subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation. Unless indicated, or the context requires
otherwise, references to years refer to DeVry’s fiscal years.
Cash
and Cash Equivalents
Cash
and
cash equivalents can include time deposits, high-grade commercial paper, money
market funds and bankers acceptances with original maturities of three months
or
less or that are highly liquid and readily convertible to a known amount of
cash. Short-term investment objectives are to minimize risk and maintain
liquidity. These investments are stated at cost, which approximates
market, because of their short duration or liquid nature. DeVry places its
cash
and temporary cash investments with high credit quality institutions. Cash
and
cash equivalent balances are generally in excess of the FDIC insurance limit.
DeVry has not experienced any losses on its cash and cash
equivalents.
Management
periodically evaluates the creditworthiness of the security issuers and
financial institutions with which it invests and maintains deposit
accounts.
Financial
aid and assistance programs, in which most DeVry University, Ross University
and
Chamberlain students participate, are subject to political and governmental
budgetary considerations. There is no assurance that such funding will be
maintained at current levels. Extensive and complex regulations in the United
States and Canada govern all of the government financial assistance programs
in
which students participate. Administration of these programs is periodically
reviewed by various regulatory agencies. Any regulatory violation could be
the
basis for disciplinary action, including the initiation of a suspension,
limitation or termination proceeding.
A
significant portion of revenue is received from students who participate in
government financial aid and assistance programs. Restricted cash represents
amounts received from the federal and state governments under various student
aid grant and loan programs. These funds are either received subsequent to
the
completion of the authorization and disbursement process for the benefit of
the
student or just prior to that authorization. Restricted funds are held in
separate bank accounts. Once the authorization and disbursement process to
the
student has been completed, the funds are transferred to unrestricted accounts,
and these funds then become available for use in DeVry’s current operations.
This authorization and disbursement process that precedes the transfer of funds
generally occurs within the period of the academic term for which such funds
were authorized, with no term being more than 16 weeks in
length.
In
fiscal
year 2007, as part of continuing operations in Pennsylvania, DeVry was required
to maintain a “minimum protective endowment” of at least $500,000. These
funds are required as long as DeVry operates campuses in the state. DeVry
accounts for these funds as restricted cash.
Revenue
Recognition
DeVry
University tuition and technology fee revenues are recognized ratably on a
straight-line basis over the applicable academic term. Ross University basic
science curriculum revenues are recognized ratably on a straight-line basis
over
the academic term. The clinical portion of the Ross University education program
is conducted under the supervision of the U.S. teaching hospitals and
veterinary schools. Ross University is responsible for the billing and
collection of tuition from its students during the period of clinical education.
Revenues are recognized on a weekly basis based on actual education program
attendance during the period of the clinical program. Fees paid to the hospitals
and veterinary schools for supervision of Ross University students are charged
to expense on the same basis. Chamberlain tuition and fee revenues are
recognized ratably on a straight-line basis over the applicable academic term.
The provision for refunds, which is reported as a reduction to Tuition Revenues
in the Consolidated Statements of Income, and the provision for uncollectible
accounts, which is included in the Cost of Educational Services in the
Consolidated Statements of Income, also are recognized in the same straight-line
fashion as revenue to most appropriately match these costs with the tuition
revenue in that term.
Estimates
of DeVry’s expected refunds are determined at the onset of each academic term,
based upon actual experience in previous terms, and monitored and adjusted
as
necessary within the term. If a student leaves school prior to completing a
term, federal, state and/or Canadian provincial regulations and accreditation
criteria permit DeVry to retain only a set percentage of the total tuition
received from such student, which varies with, but generally equals or exceeds,
the percentage of the term completed by such student. Payment amounts received
by DeVry in excess of such set percentages of tuition are refunded to the
student or the appropriate funding source. All refunds are charged against
revenue during the applicable academic term. Reserves for uncollectible accounts
are analyzed periodically in light of current collection and loss experience.
Related reserves with respect to uncollectible accounts and refunds totaled
$35,889,000 and $36,582,000 at June 30, 2007 and June 30, 2006,
respectively.
Textbook
sales and other educational product sales, including training services and
the
Becker CD-ROM product, are included in Other Educational Revenues in the
Consolidated Statements of Income. Textbook and other educational product
revenues are recognized when the sale occurs, generally at the start of each
academic term. Revenues from training services, which are generally short-term
in duration, is recognized when the training service is provided. Also included
in Other Educational Revenues are receivable interest billings from various
student-deferred tuition payment plans. Interest charges are generally billed
monthly and are recognized when billed. In addition, fees from international
licensees of the Becker programs are included in Other Educational Revenues
and
recognized into income when confirmation of course delivery is
received.
DeVry
defers DeVry University enrollment fee revenue. This deferred revenue is
recognized in subsequent periods as student services are provided. Additionally,
DeVry has elected to defer certain direct costs of activities associated with
these fees, limited to the extent of the revenue deferral. These costs are
subsequently amortized over the periods in which student services are provided.
Similar enrollment fee revenue deferrals are recorded at Ross University and
Becker. Since changes to the deferrals involve the recording of equivalent
amounts of revenues and costs, net income is not affected.
Inventories
consist mainly of textbooks and educational materials on electronic media,
electronics kits and supplies held for sale to students enrolled in DeVry’s
educational programs. Inventories are valued at the lower of cost (first-in,
first-out) or market.
Land,
Buildings and Equipment
Land,
buildings and equipment are recorded at acquisition cost. Cost also includes
additions and those improvements that enhance performance, increase the capacity
or lengthen the useful lives of the assets. Repairs and maintenance costs are
expensed as incurred. Upon sale or retirement of an asset, the accounts are
relieved of the cost and the related accumulated depreciation, with any
resulting profit or loss included in income in the period incurred. Assets
under
construction are reflected in Construction in Progress until they are placed
into service for their intended use. Interest is capitalized as a component
of
cost on major projects during the construction period.
Leasehold
improvements are amortized using the straight-line method over the term of
the
lease or the estimated useful life of the asset, whichever is shorter. Leased
property meeting certain criteria is capitalized, and the present value of
the
related lease payments is recorded as a liability. Amortization of capitalized
leased assets is computed on the straight-line method over the term of the
lease
or the life of the related asset, whichever is shorter.
Depreciation
is computed using the straight-line method over estimated service lives. These
lives range from five to 31 years for buildings and leasehold improvements,
and from three to eight years for computers, furniture and
equipment.
Business
Combinations, Intangible Assets and Goodwill
Intangible
assets relate mainly to acquired business operations (see “Note 6-Business
Combinations”). These assets consist of the fair value of certain identifiable
assets acquired. Goodwill represents the excess of the purchase price over
the
fair value of assets acquired less liabilities assumed.
Statement
of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
Assets” (“SFAS 142”) provides that goodwill and indefinite-lived
intangibles arising from a business combination are not amortized and charged
to
expense over time. Instead, goodwill and indefinite-lived intangibles must
be
reviewed annually for impairment, or more frequently if circumstances arise
indicating potential impairment. This impairment review was most recently
completed at the end of fiscal 2007. For goodwill, if the carrying amount of
the
reporting unit containing the goodwill exceeds the fair value of that reporting
unit, an impairment loss is recognized to the extent the “implied fair value” of
the reporting unit goodwill is less than the carrying amount of the
goodwill.
For
indefinite-lived intangible assets, if the carrying amount exceeds the fair
value, an impairment loss is recognized in an amount equal to that excess.
See
“Note 7-Intangible Assets” for results of DeVry’s required impairment
analysis of its intangible assets and goodwill.
Intangible
assets with finite lives are amortized over their expected economic lives,
generally five to 15 years. Amortization of all intangible assets and
certain goodwill is being deducted for tax reporting purposes over statutory
lives.
DeVry
expenses all curriculum development, new school opening and student recruiting
costs as incurred.
Perkins
Program Fund
DeVry
University is required, under federal aid program regulations, to make
contributions to the Perkins Student Loan Fund, most recently at a rate
equal to 33% of new contributions by the federal government. No new federal
contributions were received in fiscal 2007. As previous borrowers repay their
Perkins loans, their payments are used to fund new loans, thus creating a
revolving loan fund. DeVry carries its investment in such contributions at
original values, net of allowances for expected losses on loan collections,
of
$2,562,000 at June 30, 2007 and 2006. The allowance for future loan losses
is based upon an analysis of actual loan losses experienced since the inception
of the program. The federal contributions to this revolving loan program do
not
belong to DeVry and are not recorded on its financial statements. Under current
law, upon termination of the program by the federal government or withdrawal
from future program participation by DeVry University, subsequent student loan
repayments would be divided between the federal government and DeVry University
in proportion to their relative cumulative contributions to the
fund.
DeVry
capitalizes certain internal software development costs that are amortized
using
the straight-line method over the estimated lives of the software, not to exceed
five years. Capitalized costs include external direct costs of materials and
services consumed in developing or obtaining internal-use software, and
payroll-related costs for employees directly associated with the internal
software development project. Capitalization of such costs ceases at the point
at which the project is substantially complete and ready for its intended
purpose. Capitalized software development costs for projects not yet complete
are included as equipment in the Land, Buildings and Equipment section of the
Consolidated Balance Sheets There were no costs capitalized during fiscal 2007,
2006 and 2005. The gross capitalized software development costs for completed
projects, which are also included as Equipment in the Land, Building and
Equipment section of the Consolidated Balance Sheets, were $20,605,000 at
June 30, 2007 and 2006.
Fair
Value of Financial Instruments
The
carrying amounts reported in the Consolidated Balance Sheets for cash and cash
equivalents, restricted cash, accounts receivable, accounts payable, accrued
expenses, and advanced and deferred tuition payments approximate fair value
because of the immediate or short-term maturity of these financial instruments.
All of DeVry’s current maturities and long-term debt (see
“Note 11-Long-Term Debt”) bear interest at a floating rate reset to current
rates on a periodic basis not currently exceeding six months. Therefore, the
carrying amount of DeVry’s long-term debt, if any, approximates fair
value.
Foreign
Currency Translation
The
financial position and results of operations of Ross University’s Caribbean
operations are measured using the U.S. dollar as the functional currency.
As such, there is no translation gain or loss associated with these operations.
The financial position and results of operations of DeVry’s Canadian operations
are measured using the local currency as the functional currency. Assets and
liabilities of the Canadian operations are translated to U.S. dollars using
exchange rates in effect at the balance sheet dates. Income and expense items
are translated at monthly average rates of exchange. The resultant translation
adjustments are included in the component of Shareholders’ Equity designated as
Accumulated Other Comprehensive Income (Loss). Transaction gains or losses
during the years ended June 30, 2007, 2006 and 2005 were not
material.
Income
Taxes
Income
taxes are provided by applying statutory rates to income recognized for
financial statement purposes. Deferred income taxes are provided for temporary
differences between the financial reporting and income tax basis of assets
and
liabilities. Effects of statutory rate changes are recognized for financial
reporting purposes in the year in which enacted by law. The Ross University
operating subsidiaries in Dominica and St. Kitts/Nevis have agreements with
their respective governments that exempt them from local income taxation through
the years 2043 and 2023, respectively. Also, DeVry intends to indefinitely
reinvest existing cash balances, subsequent earnings and cash flow in Ross
University or other business opportunities outside the United States.
Accordingly, no provision for current income taxes is being recorded for income
attributable to these taxing jurisdictions.
Guarantees
Under
its
bylaws, DeVry has agreed to indemnify its officers and directors for certain
events or occurrences while the officers or directors are performing at DeVry’s
request in such capacity. The indemnification agreement period is for an
officer’s or director’s lifetime. The maximum potential amount of future
payments DeVry could be required to make under these indemnification agreements
is unlimited; however, DeVry has a director and officer liability insurance
policy that limits its exposure and enables it to recover a portion of any
future amounts paid. As a result of its insurance policy coverage, management
believes the estimated fair value of these indemnification agreements is
minimal. DeVry has no liabilities recorded for these agreements of June 30,2007 and 2006.
DeVry
has
used derivative financial instruments to manage its exposure to movements in
interest rates. DeVry has not used any such financial instruments since the
first quarter of fiscal 2006. The use of these financial instruments
modifies the exposure of these risks with the intent to reduce the risk to
DeVry. DeVry does not use financial instruments for trading purposes, nor does
it use leveraged financial instruments. Credit risk related to derivative
financial instruments is considered minimal and is managed by requiring periodic
settlements and high credit standards for its counterparties
All
derivative contracts are reported at fair value, with changes in fair value
reported in earnings or deferred, depending on the nature and effectiveness
of
the offset or hedging relationship. Any ineffectiveness in a hedging
relationship is recognized immediately into earnings.
Earnings
per Common Share
Basic
earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is computed by dividing net income by the weighted average number of
shares assuming dilution. Dilutive shares are computed using the Treasury Stock
Method and reflect the additional shares that would be outstanding if dilutive
stock options were exercised during the period. Excluded from the June 30,2007, 2006 and 2005 computations of diluted earnings per share were options
to
purchase 915,000, 1,750,000 and 2,915,000 shares of common stock,
respectively. These outstanding options were excluded because the option
exercise prices were greater than the average market price of the common shares;
thus, their effect would be anti-dilutive.
The
following is a reconciliation of basic shares to diluted shares.
During
the third quarter of fiscal 2007, the Company initiated a stock repurchase
program (see “Note 4 – Dividends and Stock Repurchase Program”). Shares that are
repurchased by the Company are recorded as Treasury Stock at cost and result
in
a reduction of Shareholders’ Equity.
From
time
to time, shares of its common stock are delivered back to DeVry under a swap
arrangement resulting from employees’ exercise of incentive stock options
pursuant to the terms of the DeVry Stock Incentive Plans (see “Note 3 –
Stock-Based Compensation”). These shares are recorded as Treasury Stock at cost
and result in a reduction of Shareholders’ Equity.
Treasury
shares are reissued on a monthly basis at market value, to the DeVry Employee
Stock Purchase Plan in exchange for employee payroll deductions. When
treasury shares are reissued, DeVry uses an average cost method to reduce the
treasury stock balance. Gains on the difference between the average
cost and the reissuance price are credited to Additional Paid-in Capital. Losses
on the difference are charged to Additional Paid-in Capital to the extent that
previous net gains from reissuance are included therein; otherwise such losses
are charged to Retained Earnings.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates. A
more detailed description of these estimates and assumptions is included in
the
Management Discussion and Analysis under the caption “APPLICATION OF CRITICAL
ACCOUNTING POLICIES –Estimates and Assumptions”.
The
differences between changes in the fair values of the cash flow hedging
instruments described above in “Derivative Instruments and Hedging Activities,”
and the amount of these instruments being amortized to earnings are reported
as
a component of Comprehensive Income. The amount recorded in Other Comprehensive
Income is a gain of $12,000 for the fiscal year ended June 30, 2006, and a
loss of $30,000 for the fiscal year ended June 30, 2005. DeVry’s only other
item that meets the definition for adjustment to arrive at Comprehensive Income
is the change in cumulative translation adjustment. The amounts recorded in
Other Comprehensive Income for the changes in translation rates were losses
of
$494,000, $702,000 and $424,000 for the fiscal years ended June 30, 2007,
2006 and 2005, respectively.
The
Accumulated Other Comprehensive Income (Loss) balance at June 30, 2007 and
2006, is composed entirely of cumulative translation losses of $918,000 and
$424,000, respectively.
Advertising
Expense
Advertising
costs are recognized as expense in the period in which materials are purchased
or services are performed. Advertising expense, which is included in
student services and administrative expense in the Consolidated Statements
of
Income, was $112.6 million, $107.1 million, and $88.2 million for the fiscal
years ended June 30, 2007, 2006 and 2005, respectively.
Reclassifications
and Revisions
The
previously reported amounts in the Consolidated Balance Sheets for Additional
Paid-in Capital have been revised to disclose the balance in Treasury Stock
in
order to conform to the current presentation format.
All
periods presented in the Consolidated Statements of Income have been revised
to
relocate investment interest income and interest expense from operating income
and present the amounts as a separate component of income before income taxes
and cumulative effect of change in accounting. Investment interest
income was previously presented as a separate component of
revenues. Interest expense was previously presented as a separate
component of operating costs and expenses.
Recent
Accounting Pronouncements
SFAS 154 —
Accounting Changes and Error Corrections
In
May
2005, the FASB issued Statement of Financial Accounting Standards No. 154,
“Accounting Changes and Error Corrections,” (“SFAS 154”). This statement
replaces APB Opinion No. 20, “Accounting Changes,” and FASB Statement
No. 3, “Reporting Accounting Changes in Interim Financial Statements.”
SFAS 154 changes the requirements for the accounting for and reporting of a
change in accounting principle. For DeVry, SFAS 154 was
effective at the beginning of fiscal year 2007. The adoption of SFAS
154 did not have any impact on DeVry’s consolidated financial
statements.
SFAS 157 —
Fair Value Measurements
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, “Fair Value Measurements,” (“SFAS 157”). SFAS 157 defines and
establishes a framework for measuring fair value. In addition, SFAS
157 expands disclosures about fair value measurements. For DeVry,
SFAS 157 is effective beginning in fiscal year 2009. DeVry does not
expect that the adoption of SFAS 157 will have a material impact on its
consolidated financial statements.
FIN 48 —
Accounting for Uncertainty in Income Taxes — an Interpretation of FASB
Statement 109
In
July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes — an Interpretation of FASB Statement 109”
(“FIN 48”), which clarifies the accounting for uncertainty in income taxes
recognized in a company’s financial statements in accordance with
SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for DeVry beginning in fiscal year 2008.
DeVry is currently evaluating the impact of FIN 48.
DeVry
maintains six stock-based award plans: the Amended and Restated Stock Incentive
Plan, established in 1988, the 1991 Stock Incentive Plan, the 1994 Stock
Incentive Plan, the 1999 Stock Incentive Plan, the 2003 Stock Incentive Plan
and
the 2005 Incentive Plan. Under these plans, directors, key executives and
managerial employees are eligible to receive incentive stock or nonqualified
options to purchase shares of its common stock. The 2005 Incentive Plan also
permits the award of stock appreciation rights, restricted stock, performance
stock and other stock and cash based compensation. The 1999 and 2003 Stock
Incentive Plans are administered by a Plan Committee of the Board of Directors
subject to approval by the Compensation Committee of the Board of
Directors. The 2005 Incentive Plan is administered by the
Compensation Committee of the Board of Directors. Plan Committee
members are granted automatic, nondiscretionary annual options. Options are
granted for terms of up to 10 years and can vest immediately or over
periods of up to five years. The requisite service period is equal to the
vesting period. The option price under the plans is the fair market value of
the
shares on the date of the grant.
DeVry
accounts for options granted to retirement eligible employees that fully vest
upon an employees’ retirement under the non-substantive vesting period approach
to these options. Under this approach, the entire compensation cost is
recognized at the grant date for options issued to retirement eligible
employees.
At
June 30, 2007, 6,733,778 authorized but unissued shares of common stock
were reserved for issuance under DeVry’s stock incentive plans.
Effective
July 1, 2005, DeVry adopted the provisions of SFAS 123(R) which
establishes accounting for stock-based awards exchanged for employee services.
Accordingly, stock-based compensation cost is measured at grant date, based
on
the fair value of the award, and is recognized as expense over the employee
requisite service period.
The
following is a summary of options activity for the fiscal year ended
June 30, 2007:
The
total
intrinsic value of options exercised for the years ended June 30, 2007,
2006 and 2005 was $8,266,000, $2,626,000 and $4,033,000,
respectively.
The
fair
value of DeVry’s stock-based awards was estimated using a binomial model. This
model uses historical cancellation and exercise experience of DeVry to determine
the option value. It also takes into account the illiquid nature of employee
options during the vesting period.
The
weighted average estimated grant date fair values, as defined by
SFAS 123(R), for options granted at market price under DeVry’s stock option
plans during fiscal years 2007, 2006 and 2005 were $10.58, $10.12 and $9.09,
per
share, respectively. The fair values of DeVry’s stock option awards were
estimated assuming the following weighted average assumptions:
The
expected life of the options granted is based on the weighted average exercise
life with age and salary adjustment factors from historical exercise behavior.
The expected life of options granted in fiscal years 2005 and 2006 was based
on
a projected exercise pattern that accounts for the shorter vesting provisions
of
the majority of the options granted during that period.
DeVry’s
expected volatility is computed by combining and weighting the implied market
volatility, its most recent volatility over the expected life of the option
grant, and DeVry’s long-term historical volatility.
If
factors change and different assumptions are employed in the application of
SFAS 123(R) in future periods, the stock-based compensation expense that
DeVry records may differ significantly from what was recorded in the previous
period.
The
following table shows total stock-based compensation expense included in the
Consolidated Statement of Earnings:
As
of
June 30, 2007, $9.0 million of total pre-tax unrecognized compensation
costs related to non-vested awards is expected to be recognized over a weighted
average period of 3.0 years. The total fair value of options vested during
the years ended June 30, 2007, 2006 and 2005 was approximately $5,000,000,
$5,100,000 and $11,600,000, respectively.
There
were no capitalized stock-based compensation costs at June 30, 2007 and
2006.
DeVry
has
an established practice of issuing new shares of common stock to satisfy share
option exercises. However, DeVry also may issue treasury shares to
satisfy option exercises under certain of its plans.
DeVry
elected to adopt SFAS 123(R) under the modified retrospective application
method. Management believes that the modified retrospective application of
this
standard achieves the highest level of clarity and comparability among the
presented periods. Accordingly, the amounts presented in the financial
statements for fiscal 2005 were restated to reflect the fair value method of
expensing prescribed by SFAS 123(R).
The
following table details the retroactive application impact of SFAS 123(R)
on previously reported results, (dollars in thousands except per share
amounts):
On
November 15, 2006, DeVry’s Board of Directors declared a dividend of $0.05 per
share. This dividend was paid on January 15, 2007, to common stockholders of
record as of December 20, 2006. The total dividend paid of $3,545,000
was recorded as a reduction to retained earnings. On May 8, 2007,
DeVry’s Board of Directors declared a second dividend of $0.05 per share. This
dividend was paid on July 12, 2007, to common stockholders of record as of
June18, 2007. The total dividend declared of $3,557,000 was recorded as a
reduction to retained earnings as of June 30, 2007. The Board stated its intent
to declare dividends on a semi-annual basis, resulting in an annual dividend
rate of $0.10 per share. Future dividends will be at the discretion of the
Board
of Directors.
On
November 15, 2006, DeVry also announced that the Board of Directors had
established a stock repurchase plan. The stock repurchase plan allows DeVry
to
buy back up to $35 million of its common stock within the next two years. As
of
June 30, 2007, DeVry has repurchased, on the open market, 355,473 shares of
its
common stock at a total cost of approximately $10.5 million. These buybacks
were
funded through available cash balances. The timing and amount of any
future repurchases will be determined by management based on its evaluation
of
market conditions and other factors. These repurchases may be made through
the
open market, including block purchases, or in privately negotiated transactions,
or otherwise. The buyback will be funded through available cash balances and/or
borrowings under its revolving credit agreement and may be suspended or
discontinued at any time.
Shares
of
stock repurchased under the program are held as treasury shares. These
repurchased shares have reduced the weighted average number of shares of common
stock outstanding for basic and diluted earnings per share
calculations
NOTE 5: CHANGE
IN ACCOUNTING — CHANGED FISCAL YEAR OF SUBSIDIARY
Prior
to
July 1, 2004, the accounts of Becker were consolidated based on an
April 30 fiscal year end, which management believed was its natural
year-end based on its then business cycle. As a result of a change in the CPA
exam schedule, DeVry has aligned the Becker fiscal year end to that of DeVry
Inc. The results of operations for the two-month period from May 1, 2004
through June 30, 2004, are included as a cumulative effect of change in
accounting in the Consolidated Statements of Income for the first quarter of
fiscal 2005. The cumulative effect of this change in accounting added
$1,810,000, or $0.02 per share to net income for the first quarter of
fiscal 2005. This amount is net of income tax expense of
$1,189,000.
Net
Income and basic and diluted earnings per share for the year ended June 30,2005 are set forth below as if the consolidation of the Becker operations had
been accounted for in the same manner for all periods presented.
In
July
2005, DeVry acquired Gearty CPE for $2.0 million in cash. Gearty CPE, which
operates in the New York/New Jersey metro area, is a provider of continuing
professional education (CPE) programs and seminars in accounting and finance
predominantly serving chief financial officers and controllers of Fortune
500 companies.
There
is
no pro forma presentation of prior year operating results related to this
acquisition due to the insignificant effect on consolidated
operations.
Chamberlain
College of Nursing
On
March 24, 2005, Ross University School of Nursing and Health Sciences, a
newly formed, wholly owned subsidiary of DeVry, acquired the operations of
Deaconess College of Nursing (Deaconess) for $5,391,000 in cash. DeVry changed
the name of Deaconess to Chamberlain College of Nursing in the fourth quarter
of
fiscal 2006. Funding was provided from DeVry’s existing operating cash balances.
The results of Chamberlains’ operations have been included in the consolidated
financial statements of DeVry since the date of acquisition.
Located
in St. Louis, Missouri, Chamberlain had approximately 450 students enrolled
at
the date of purchase and offers associate and bachelor’s degree programs in
nursing. In addition, Chamberlain offers a bachelor’s degree completion program
designed for registered nurses who have previously completed an associate degree
program. Classes are offered days, evenings and weekends with non-clinical
coursework offered both on campus and online. The addition of Chamberlain has
further diversified DeVry’s curricula.
The
following table summarizes the estimated fair values of the assets acquired
and
liabilities assumed at the date of acquisition. These amounts were finalized
along with the purchase price during the third quarter of fiscal 2006. This
resulted in no change to the purchase price; however, Current Assets decreased
by $460,000, Current Liabilities Assumed decreased by $655,000, and Goodwill
was
reduced by $195,000.
Of
the
$1,470,000 of acquired intangible assets, $470,000 was assigned to the value
of
the Chamberlain Title IV financial aid eligibility and $730,000 was
assigned to accreditations, both of which have been determined to not be subject
to amortization, and $270,000 was assigned to student relationships that have
an
average useful life of approximately 3 years. DeVry determined this
allocation based upon a number of factors, including a valuation analysis
prepared by an independent professional valuation specialist. The $4,716,000
of
goodwill was all assigned to the Medical & Healthcare operating
segment.
There
is
no pro forma presentation of prior year operating results related to this
acquisition because of the insignificant effect on consolidated
operations.
NOTE 7: INTANGIBLE
ASSETS
Intangible
assets consist of the following (dollars in thousands):
Chamberlain
Title IV Eligibility and Accreditations
1,200
Total
$
51,857
Amortization
expense for amortized intangible assets was $6,842,000 and $9,937,000 for the
years ended June 30, 2007 and 2006, respectively. Estimated amortization
expense for amortized intangible assets for the next five fiscal years ending
June 30 is as follows (dollars in thousands):
The
weighted-average amortization period for amortized intangible assets is three
and five years for Chamberlain and Ross University Student Relationships,
respectively, six years for License and Non-compete Agreements, 14 years
for Class Materials, four years for Trade Names and six years for Other.
These intangible assets, except for the Ross University Student Relationships,
are being amortized on a straight-line basis. The amount being amortized for
the
Ross University Student Relationships is based on the estimated progression
of
the students through the respective medical and veterinary programs, giving
consideration to the revenue and cash flow associated with both existing
students and new applicants. This results in the basis being amortized at an
annual rate for each of the five years of estimated economic life as
follows:
Year
1
27.4
%
Year
2
29.0
%
Year
3
21.0
%
Year
4
14.5
%
Year
5
8.1
%
Indefinite-lived
intangible assets related to Trademarks, Trade Names, Title IV Eligibility,
Accreditations and Intellectual Property are not amortized, as there are no
legal, regulatory, contractual, economic or other factors that limit the useful
life of these intangible assets to the reporting entity. As of the end of fiscal
years 2007 and 2006, there was no impairment loss associated with these
indefinite-lived intangible assets, as fair value exceeds the carrying
amount.
DeVry
determined that as of the end of fiscal 2007 and 2006, there was no impairment
in the value of DeVry’s goodwill for any reporting units. This determination was
made after considering a number of factors including a valuation analysis
prepared by management. The carrying amount of goodwill related to the DeVry
University, Professional & Training and Medical & Healthcare reportable
segments at June 30, 2007 and 2006, were unchanged at $22,195,000,
$24,716,000, $244,202,000, respectively.
NOTE 8: SALE
OF FACILITIES
In
March 2007, DeVry sold unused land located adjacent to its DeVry University
campus in Tinley Park, Illinois for approximately $1.9 million. In
connection with the sale, DeVry recorded a pre-tax gain of approximately $0.9
million during the third quarter of fiscal year 2007. In
September 2006, DeVry sold its facility located in West Hills, California
for $36.0 million. In connection with the sale, DeVry recorded a pre-tax
gain of $19.9 million during the first quarter of fiscal year
2007. DeVry relocated its West Hills campus operations to a leased
facility in nearby Sherman Oaks, California. These gains are
separately classified in the Consolidated Statements of Income as a component
of
Total Operating Costs and Expenses and are related to the DeVry University
reportable segment.
In
November 2005, a DeVry owned building in the Denver, Colorado area was sold
for
$1,798,000. As a result of this sale, DeVry realized a pre-tax gain of $451,000.
This gain is separately classified in the Consolidated Statements of Income
as a
component of Total Operating Costs and Expenses and related to the DeVry
University reportable segment. This building was acquired in 1999 with the
acquisition of Denver Technical College. This facility was no longer essential
to its operations, having been largely replaced by a new and larger DeVry
University campus serving the Denver market.
NOTE 9: REDUCTION
IN WORKFORCE CHARGES
Fiscal
Year 2007 Charges
During
the third quarter of fiscal 2007, DeVry offered a voluntary separation plan
(VSP) to eligible DeVry University campus-based employees. The
decision to take this action resulted from a thorough analysis which revealed
that a reduction in the number of employees at DeVry University campuses was
warranted to address the subsidiary’s cost structure. The VSP was
offered at 22 DeVry University campuses with 285 employees being eligible to
participate. Seventy employees accepted this separation
plan. Separation of employment was effective no later than June30, 2007. DeVry recorded a pre-tax charge of approximately $3.7
million in the third and fourth quarters of fiscal 2007 in relation to these
employees. This charge consists of severance pay and extended medical
and dental benefits coverage.
In
April
2007, DeVry announced plans for an involuntary reduction in force (RIF) that
further reduced its workforce by approximately 150 positions at its DeVry
University campus-based operations. This resulted in an additional
pre-tax charge in the fourth quarter of fiscal 2007 of approximately $2.6
million that will represent severance pay and benefits in relation to these
employees.
The
VSP
and RIF charges are separately classified in the Consolidated Statements of
Income as a component of Total Operating Costs and Expenses and are related
to
the DeVry University reportable segment.
Cash
payments for the VSP will begin in the first quarter of fiscal year 2008 and
extend until the period of benefit coverage has expired. Cash
payments for the RIF were $1.1 million in the fourth quarter of fiscal 2007.
These payments will extend until the period of benefit coverage has
expired. Of
the
total amount accrued for the 2007 VSP and RIF, approximately $5,100,000 remained
to be paid as of June 30, 2007.
Fiscal
Year 2005 Charges
During
fiscal year 2005, DeVry offered voluntary separation plans and implemented
an
involuntary reduction in force which resulted in workforce reductions of
approximately 230 employees. In relation to these voluntary and involuntary
reductions in force, DeVry recorded pre-tax charges of approximately
$8.4 million in fiscal year 2005. These charges consisted of severance pay
and in some cases, extended medical and dental benefits coverage. These
workforce reductions related to actions across several of DeVry’s businesses
resulting from process improvements and its continuing efforts to realign costs
with revenues. The majority of the workforce reductions occurred in the U.S.
and
included managerial, professional, clerical and instructor
positions.
Cash
payments for the fiscal year 2005 voluntary separation plans and the involuntary
reductions in force were approximately $455,000 and $2.8 million for the years
ended June 30, 2007 and 2006, respectively. Of the total amount accrued for
these events, approximately $210,000 remained to be paid as of June 30, 2007.
Payments will continue throughout fiscal year 2008.
NOTE 10: INCOME
TAXES
The
components of income before income taxes are as follows (dollars in thousands).
All fiscal 2005 amounts reflect the adjustments necessary under the provisions
of the modified retrospective application method of
SFAS 123(R).
Deferred
income tax assets (liabilities) result primarily from temporary differences
in
the recognition of various expenses for tax and financial statement purposes,
and from the recognition of the tax benefits of net operating loss
carryforwards. These assets and liabilities are composed of the
following (dollars in thousands):
DeVry
has
net operating loss carryforwards in various tax jurisdictions expiring at
various times through the years ending June 30, 2027.
As
of
June 30, 2007, valuation allowances have been established for approximately
$10.3 million as compared to $7.1 million as of June 30, 2006 and
2005. The increase in valuation allowances in fiscal year 2007 was
primarily related to the reclassification of a previously identified reserve
for
state income taxes of $2.9 million. The valuation allowances are composed of
$6.5 million related to our Canadian subsidiary and $3.8 million for certain
state net operating loss carryforwards that may expire before their benefits
are
utilized. The Canadian valuation allowances are composed of net
operating losses of $2.5 million, depreciation of $3.5 million and $0.5 million
of other deferred tax benefits.
Based
on
DeVry’s expectations for future taxable income, management believes that it is
more likely than not that operating income in respective jurisdictions will
be
sufficient to recognize fully all deferred tax assets, except as explained
above.
DeVry
has
not recorded a tax provision for the undistributed international earnings of
the
Medical and Veterinary Schools. It is DeVry’s intention to
indefinitely reinvest accumulated cash balances, future cash flows and
post-acquisition undistributed earnings and profits to improve the facilities
and operations of the Schools and pursue future opportunities outside of the
United States. In accordance with this plan, cash held by Ross
University will not be available for general company purposes and under current
laws will not be subject to U.S. taxation. Included in DeVry’s
consolidated cash balances were approximately $72.4 million and $69.0 million
attributable to Ross University’s international operations as of June 30, 2007
and 2006, respectively. As of June 30, 2007 and 2006, cumulative
undistributed earnings were approximately $94.3 million and $56.1 million,
respectively.
The
effective tax rate was 27.4% for fiscal year 2007, compared to 25.1% for the
prior year. The higher effective income tax rate in fiscal year 2007
was primarily due to gains on the sale of the West Hills facility and excess
land adjacent to the Tinley Park campus, which carried a tax rate of 39.1%
and
changes to prior and current year income tax estimates for Ross University’s
domestic operations. These increases in the effective tax rate were
partially offset by an increase in the relative proportion of earnings from
Ross
University’s international operations to U.S. sourced income.
During
the third quarter of fiscal year 2006, the Internal Revenue Service began an
audit of DeVry’s consolidated federal income tax returns for fiscal years 2003
and 2004 and certain refund claims for prior years. During the first
quarter of fiscal year 2007, the Internal Revenue Service completed this audit
and no adjustments were required to be made for those income tax returns and
refund claims.
All
of
DeVry’s borrowings and letters of credit under its long-term debt agreements are
through DeVry Inc. and Global Education International, Inc. (GEI), an
international subsidiary. As of June 30, 2007, DeVry had no outstanding
borrowings. Long-term debt consists of the following at June 30,2006 (dollars in thousands):
Borrowings
Effective
Interest
Rate
Revolving
Credit Agreement(a):
DeVry
Inc. as borrower
$
10,000
6.35
%
GEI
as borrower
—
—
Total
$
10,000
6.35
%
Senior
Notes(b):
DeVry
Inc. as borrower
$
75,000
6.38
%
GEI
as borrower
40,000
6.38
%
Total
$
115,000
6.38
%
Total
Outstanding Debt
$
125,000
6.37
%
Current
Maturities of Debt
$
60,000
6.37
%
Total
Long-term Debt
$
65,000
6.38
%
____________
(a)
The
revolving credit facility became effective on May 16, 2003, and was
amended as of September 30, 2005 and again on January 11, 2007. There
were no borrowings under this facility as of June 30,2007. Borrowings and letters of credit under this agreement
cannot exceed $175,000,000 in total. DeVry Inc. aggregate commitments
cannot exceed $125,000,000, and GEI aggregate commitments cannot
exceed
$50,000,000. At the request of DeVry, the maximum borrowings and
letters
of credit can be increased to $275,000,000 with aggregate DeVry
commitments increased to $225,000,000. There are no required payments
under this revolving credit agreement and all borrowings and letters
of
credit mature on January 11, 2012. As a result of the agreement extending
beyond one year, all borrowings are classified as long-term with
the
exception of amounts expected to be repaid in the 12 months
subsequent to the balance sheet date. DeVry Inc. letters of credit
outstanding under this agreement were $1,491,000 and $1,988,000 as
of
June 30, 2007 and 2006, respectively. As of June 30, 2007, any
outstanding borrowings under this agreement would bear interest,
payable
quarterly or upon expiration of the interest rate period, at the
prime
rate or a Eurodollar rate plus 0.50%, at the option of DeVry. Outstanding
letters of credit under the revolving credit agreement are charged
an
annual fee equal to 0.50% of the undrawn face amount of the letter
of
credit, payable quarterly. The agreement also requires payment of
a
commitment fee equal to 0.1% of the undrawn portion of the credit
facility. The interest rate, letter of credit fees and commitment
fees are
adjustable quarterly, based upon DeVry’s achievement of certain financial
ratios.
(b)
The
Senior Note agreement was entered into on May 16, 2003. In the fourth
quarter of fiscal 2006, DeVry prepaid $10.0 million of the Senior
Notes,
and in July and October 2006, DeVry prepaid the remaining
$115.0 million of Senior Notes. All of these prepayments
were made without penalty. These prepayments were funded through
a
combination of available cash and $40.0 million of increased borrowings
under DeVry’s revolving credit agreement, which bears a lower interest
rate than the Senior Notes.
The
revolving credit agreement contains certain covenants that, among other things,
require maintenance of certain financial ratios, as defined in the agreements.
These financial ratios include a consolidated fixed charge coverage ratio,
a
consolidated leverage ratio and a composite Equity, Primary Reserve and Net
Income, Department of Education, financial responsibility ratio (“DOE Ratio”).
Failure to maintain any of these ratios or violation of other covenants
contained in the agreement will constitute an event of default and could result
in termination of the agreements and, required payment of all outstanding
borrowings. DeVry was in compliance with all debt covenants as of June 30,2007.
The
stock
of certain of the subsidiaries of DeVry is pledged as collateral for the
borrowings under the revolving credit facility.
In
connection with entering into the two borrowing agreements in May 2003, DeVry
incurred $3,986,000 of financing costs that were deferred. In June 2004 and
January 2007, the revolving credit facility was amended and DeVry paid $360,000
and $246,000, respectively, of additional financing fees that were deferred.
DeVry also expensed $130,000 of original deferred financing costs in fiscal
2007
in relation to the January 11, 2007 amendment. In connection with the
prepayments of the Senior Notes, DeVry charged to expense a prorated portion
of
the deferred financing fees associated with this debt. These charges
were $0.8 million and $77,000 in fiscal 2007 and 2006,
respectively. The deferred financing fees related to the Senior Notes
were fully expensed with the October 2007 debt repayment. The
unamortized balance of the original and amendment related financing costs
associated with the revolving credit facility are being amortized over the
extended 5-year term of the loan. Amortization and write-offs of deferred
financing costs, which are included in interest expense were $1,186,000,
$555,000 and $1,096,000 for the years ended June 30, 2007, 2006 and 2005,
respectively.
All
employees, except those of DMI and Ross University, who meet certain eligibility
requirements can participate in DeVry’s 401(k) Profit Sharing Retirement Plan.
DeVry contributes to the plan an amount up to 2.0% of the total eligible
compensation of employees who make contributions under the plan. Employees
of
DMI and Ross University participate in two separate plans and receive matching
contributions of up to 5% of total eligible compensation. Matching contributions
under the plans were approximately $4,554,000, $4,009,000 and $4,110,000 in
fiscal 2007, 2006 and 2005, respectively. In addition, DeVry’s Board of
Directors may also make discretionary contributions for the benefit of all
eligible employees, except those of DMI and Ross University. Provisions for
discretionary contributions under the plan were approximately $4,983,000,
$3,644,000 and $2,358,000 in fiscal 2007, 2006 and 2005, respectively. At the
current time, DeVry is re-issuing treasury shares to satisfy employee share
purchases under this plan.
Employee
Stock Purchase Plan
Under
provisions of DeVry’s Employee Stock Purchase Plan, any eligible employee may
authorize DeVry to withhold up to $25,000 of annual earnings to purchase common
stock of DeVry at 95% of the prevailing market price on the purchase date.
The
purchase date is defined as the last business day of each month. DeVry
subsidizes the remaining 5% and pays all brokerage commissions and
administrative fees associated with the plan. These expenses were insignificant
for the years ended June 30, 2007, 2006 and 2005. Total shares issued to
the Plan were 36,242 and 14,075 in fiscal 2007 and 2006, respectively. This
Plan
is intended to qualify as an “employee stock purchase plan” within the meaning
of Section 423 of the Internal Revenue Code.
Postemployment
Benefits
DeVry’s
employment agreements with its Chair of the Board of Directors and former Chief
Executive Officer provide certain benefits upon a change in their respective
responsibilities that required accrual over the service period which ended
June30, 2005. For the fiscal years ended June 30, 2007 and 2006,
DeVry recognized expense of approximately $300,000 and $48,000, respectively,
representing the present value of the obligation related to these agreements,
discounted using a 6.27% rate as of June 30, 2007, and using the sinking
fund accrual method. For the fiscal year ended June 30, 2005, DeVry
recognized expense of approximately $2.7 million representing service cost
related to these agreements.
NOTE 13: SHAREHOLDER
RIGHTS PLAN
On
November 24, 2004, DeVry adopted a shareholder rights plan. In connection
with this plan, DeVry’s Board of Directors declared a dividend of one Common
Stock Purchase Right (“Right” or “Rights”) for each outstanding share of DeVry
Inc. Common Stock. The dividend was distributed on December 6, 2004 to
shareholders of record on that date. Each shareholder is automatically entitled
to the Rights and no physical distribution of new certificates was
made.
Each
Right, as represented by DeVry’s Common Stock certificates, currently entitles
the holder to buy one one-thousandth of a share of DeVry’s Common Stock at an
exercise price of $75 subject to adjustment, e.g. for stock splits or stock
dividends. However, following the acquisition of 15% or more of DeVry Inc.
Common Stock by a person or group, the holders of the Rights (other than the
acquiring person or group) will be entitled to purchase shares of DeVry Inc.
Common Stock at half of the then current fair market value. Further, in the
event of a subsequent merger or other acquisition of DeVry, the holder of the
Rights (other than the acquiring person or group) will be entitled to buy shares
of common stock of the acquiring entity at one-half of the market price of
these
shares.
The
Rights are redeemable for $.001 per Right, subject to adjustment, before
the acquisition by a person or group of 15% or more of DeVry’s Common Stock. The
Rights will expire on December 6, 2014.
DeVry,
DeVry University, Becker, Ross University and Chamberlain lease certain
equipment and facilities under non-cancelable operating leases, some of which
contain renewal options, escalation clauses and requirements to pay taxes,
insurance and maintenance costs.
Future
minimum rental commitments for all non-cancelable operating leases having a
remaining term in excess of one year at June 30, 2007, are as follows
(dollars in thousands):
Year
Ended June 30,
Amount
2008
$
44,000
2009
42,700
2010
37,000
2011
30,900
2012
28,600
Thereafter
101,300
DeVry
recognizes rent expense on a straight line basis over the term of the lease,
although the lease may include escalation clauses that provide for lower rent
payments at the start of the lease term and higher lease payments at the end
of
the lease term.
Rent
expenses for the years ended June 30, 2007, 2006 and 2005, were
$50,531,000, $47,033,000 and $46,455,000, respectively.
DeVry
is
subject to occasional lawsuits, administrative proceedings, regulatory reviews
associated with financial assistance programs and other claims arising in the
normal conduct of its business. The following is a description of pending
litigation that may be considered other than ordinary and routine litigation
that is incidental to the business.
Brigette
Dean Hines, a former student of Ross University Veterinary School of Medicine
was dismissed from the school and denied re-enrollment. This former student
filed a claim in June 2005 in the Superior Court of New Jersey for Middlesex
County. In this suit, she claimed that the dismissal was based upon
her disability and she was seeking compensatory damages for economic and
non-economic harm, punitive damages, cost of the suit, attorney’s fees and other
relief deemed appropriate by the Court. In May 2007, this matter was
settled.
On
August25, 2005, DeVry filed a complaint in the Superior Court of California, County
of
Alameda, against Sierra Bay Contractors, Inc., the general contractor
responsible for the construction of a dormitory facility on the DeVry
University, Fremont, California campus. DeVry's complaint seeks
monetary damages arising out of Sierra Bay's failure to keep the project free
from liens filed by subcontractors, and indemnification against subcontractor
claims. Sierra Bay filed a counterclaim in December 2005, asserting
that DeVry owes approximately $3 million for work allegedly performed on the
project. DeVry filed additional complaints against the architect, the
project manager and an engineering firm, and the Court subsequently consolidated
all claims relating to the project, including those of the subcontractors,
into
the principal case filed by DeVry against Sierra Bay.
On
December 23, 2005, Saro Daghlian, a former DeVry University student in
California, commenced a putative class action against DeVry University and
DeVry
Inc. (collectively the “defendants”) in Los Angeles Superior Court, asserting
various claims predicated upon defendants’ alleged failure to comply with
disclosure requirements under the California Education Code relating to the
transferability of academic units earned at DeVry
University. Defendants denied the allegations and removed the action
to the U.S. District Court for the Central District of California. On
June 11, 2007, the District Court issued an Order certifying a class under
the
California Unfair Competition Law, California Business & Professions Code,
section 17200 (“UCL”), comprised of students who enrolled and paid tuition at a
California DeVry school in the four years prior to the date when the suit was
filed. Defendants have now filed a Motion for Summary Judgment
seeking dismissal of all claims due to the unconstitutionality of the California
Education Code (a statute that has since sunset, is currently "inoperative,"
and
will be repealed as of January 2008) because it discriminates against out of
state regionally accredited universities and it compels speech in violation
of
the First Amendment. Defendants also seek judgment for the separate
and independent reason that Plaintiffs have failed to meet their burden of
proving a viable theory of restitution or entitlement to injunctive relief
under
their UCL claim.
As
of
June 30, 2007, there is an accrual of less than $1.0 million for the resolution
of all legal claims.
While
the
ultimate outcome of pending contingencies is difficult to estimate at this
time,
DeVry intends to vigorously defend itself with respect to the pending claims.
At
this time, DeVry does not believe that the outcome of current claims,
administrative proceedings, regulatory reviews and lawsuits will have a material
effect on its cash flows, results of operations or financial
position.
NOTE 15: SEGMENT
INFORMATION
DeVry’s
principal business is providing post-secondary education. The services of our
operations are described in more detail in “Note 1- Nature of Operations.”
DeVry presents three reportable segments: the DeVry University undergraduate
and
graduate operations (DeVry University), the professional exam review and
training operations including Becker Professional Review and the Center for
Corporate Education (Professional and Training), and the Ross University medical
and veterinary school and Chamberlain College of Nursing operations
(Medical & Healthcare).
These
segments are consistent with the method by which management evaluates
performance and allocates resources. Such decisions are based, in part, on
each
segment’s operating income, which is defined as income before interest income
and expense, amortization and income taxes. Intersegment sales are accounted
for
at amounts comparable to sales to nonaffiliated customers and are eliminated
in
consolidation. The accounting policies of the segments are the same as those
described in “Note 2 — Summary of Significant Accounting
Policies.”
The
consistent measure of segment profit excludes interest income and expense,
amortization and certain corporate-related depreciation and expenses. As such,
these items are reconciling items in arriving at income before income taxes.
The
consistent measure of segment assets excludes deferred income tax assets and
certain depreciable corporate assets. Additions to long-lived assets have been
measured in this same manner. Reconciling items are included as corporate
assets.
Following
is a tabulation of business segment information based on the current
segmentation for each of the years ended June 30, 2007, 2006 and 2005.
Corporate information is included where it is needed to reconcile segment data
to the consolidated financial statements.
Reconciliation
to Consolidated Financial Statements:
Capital
Expenditures
$
38,558
$
25,265
$
42,909
Purchase
of Goodwill and Intangible Assets
—
2,000
4,861
Total
Increase in Consolidated Long-lived Assets
$
38,558
$
27,265
$
47,770
Depreciation
Expense:
DeVry
University
$
29,799
$
32,149
$
37,277
Professional
and Training
453
451
524
Medical &
Healthcare
4,739
4,028
3,564
Corporate
988
988
988
Total
Consolidated Depreciation
$
35,979
$
37,616
$
42,353
Intangible
Asset Amortization Expense:
DeVry
University
$
—
$
—
$
—
Professional
and Training
253
266
774
Medical &
Healthcare
6,589
9,671
13,343
Total
Consolidated Amortization
$
6,842
$
9,937
$
14,117
In
September 2006, DeVry sold its facility located in West Hills,
California. In connection with the sale, DeVry recorded a pre-tax
gain of $19.9 million during the first quarter of fiscal year 2007. In
March 2007, DeVry sold unused land adjacent to its campus in Tinley Park,
Illinois. In connection with the sale, DeVry recorded a pre-tax gain
of approximately $0.9 million during the third quarter of fiscal year 2007.
Both
of theses gains are included in operating income of the DeVry University
reportable segment for year ended June 30, 2007. Also in March and
April 2007, DeVry recorded pre-tax charges totaling $6.3 million for separation
plan severance expense. This expense reduced operating income of the DeVry
University reportable segment for the year ended June 30, 2007. DeVry
recorded pre-tax severance charges of approximately $8.4 million in fiscal
year 2005, which reduced operating income in this reportable
segment.
DeVry
conducts its educational operations in the United States, Canada, the Caribbean
countries of Dominica and St. Kitts/Nevis, Europe, the Middle East and the
Pacific Rim. Other international revenues, which are derived principally from
Canada, were less than 5% of total revenues for the years ended June 30,2007, 2006 and 2005. Revenues and long-lived assets by geographic area are
as
follows:
No
one
customer accounted for more than 10% of DeVry’s consolidated
revenues.
NOTE 16: RELATED
PARTIES
Until
November 2005, one of the DeVry’s directors was also an investor in, and a
director of, a consulting firm engaged by DeVry to assist with system
development projects, including the new student information system. There were
no fees paid to this consulting firm in fiscal years 2007 and
2006. Fees paid to this consulting firm during fiscal year 2005 were
approximately $10,000.
NOTE 17: QUARTERLY
FINANCIAL DATA (UNAUDITED)
Summarized
unaudited quarterly data for the years ended June 30, 2007 and 2006, are as
follows.
Quarter
Total
2007
First
Second
Third
Fourth
Year
(Dollars
in thousands, except for per share amounts)
Revenues
$
219,215
$
235,604
$
245,825
$
232,829
$
933,473
Operating
Profit
32,968
21,786
29,587
17,946
102,287
Net
Income
20,920
16,397
22,924
15,947
76,188
Earnings
per Common Share
Basic
0.30
0.23
0.32
0.22
1.07
Diluted
0.29
0.23
0.32
0.22
1.07
Cash
Dividend Declared per Common Share
—
0.05
—
0.05
0.10
Quarter
Total
2006
First
Second
Third
Fourth
Year
Revenues
$
196,361
$
209,430
$
219,070
$
214,652
$
839,513
Operating
Profit
8,762
16,526
22,588
16,012
63,888
Net
Income
4,732
10,828
15,682
11,811
43,053
Earnings
per Common Share:
Basic
0.07
0.15
0.22
0.17
0.61
Diluted
0.07
0.15
0.22
0.17
0.61
In
September 2006, DeVry sold its facility located in West Hills,
California. In connection with the sale, DeVry recorded a pre-tax
gain of $19.9 million during the first quarter of fiscal year
2007. In March 2007, DeVry sold unused land adjacent to its campus in
Tinley Park, Illinois. In connection with the sale, DeVry recorded a
pre-tax gain of approximately $0.9 million during the third quarter of fiscal
year 2007. Also in the third and fourth quarters of fiscal 2007,
DeVry recorded pre-tax charges totaling $1.2 million and $5.1 million,
respectively, for separation plan severance expense.
Deducted
from accounts receivable for uncollectible accounts
35,276
25,041
16
(a)
25,381
34,952
Deducted
from notes receivable for uncollectible notes
3,158
1,338
23
(a)
—
4,519
Deducted
from contributions to Perkins loan program for uncollectible
loans
2,562
—
—
—
2,562
Deducted
from deferred tax assets for loss of realizable value
8,996
—
400
(a)
—
9,396
2006
Deducted
from accounts receivable for refunds
$
348
$
23,407
$
2
(a)
$
22,451
$
1,306
Deducted
from accounts receivable for uncollectible accounts
28,740
23,774
36
(a)
17,274
35,276
Deducted
from notes receivable for uncollectible notes
2,969
147
42
(a)
—
3,158
For
loss on disposition of inventory
2
—
—
—
2
Deducted
from contributions to Perkins loan program for uncollectible
loans
2,722
(160
)
—
—
2,562
Deducted
from deferred tax assets for loss of realizable value
8,319
—
677
(a)
—
8,996
2005
Deducted
from accounts receivable for refunds
$
259
$
22,132
$
2
(a)
$
22,045
$
348
Deducted
from accounts receivable for uncollectible accounts
19,082
21,150
371
(b)
11,863
28,740
Deducted
from notes receivable for uncollectible notes
2,195
752
22
(a)
—
2,969
For
loss on disposition of inventory
216
101
17
(a)
332
2
Deducted
from contributions to Perkins loan program for uncollectible
loans
3,031
(309
)
—
—
2,722
Deducted
from deferred tax assets for loss of realizable value
7,939
—
380
(a)
—
8,319
____________
(a)
Effect
of foreign currency translation charged to Accumulated Other Comprehensive
Income.
(b)
This
amount is comprised of the opening balances of acquired businesses
charged
to Goodwill of $333 and the effect of foreign currency translation
charged
to Accumulated Other Comprehensive Income of
$38.
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Shareholders of DeVry Inc.:
We
have
completed integrated audits of DeVry Inc.’s consolidated financial statements
and of its internal control over financial reporting as of June 30, 2007 in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Our opinions, based on our audits, are presented
below.
Consolidated
financial statements and financial statement schedule
In
our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of DeVry
Inc. and its subsidiaries at June 30, 2007 and 2006, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2007 in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We
conducted our audits of these statements in accordance with the standards of
the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
of
financial statements includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As
discussed in Note 3 to the financial statements, the Company changed the
manner in which it accounts for stock-based compensation in 2006.
As
discussed in Note 5 to the financial statements, the Company changed the
fiscal year-end of the Becker Professional Review subsidiary in
2005.
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in Management’s Report on
Internal Control Over Financial Reporting appearing under Item 9A, that the
Company maintained effective internal control over financial reporting as of
June 30, 2007 based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), is fairly stated, in all
material respects, based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of June 30, 2007, based on criteria established
in Internal Control — Integrated
Framework issued by the COSO. The Company’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express opinions on management’s assessment
and on the effectiveness of the Company’s internal control over financial
reporting based on our audit. We conducted our audit of internal control over
financial reporting in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The
information called for by Item 10 relating to Directors and Nominees for
election to the Board of Directors is incorporated by reference to DeVry’s
definitive Proxy Statement to be filed in connection with the solicitation
of
proxies for the Annual Meeting of Stockholders to be held November 7, 2007
(the “Proxy Statement”). The information called for by Item 10 with respect
to Executive Officers is set forth at the end of Part I of this Annual
Report on Form 10-K.
The
information called for by Item 10 with respect to Regulation S-K,
Item 405 disclosure of delinquent Form 3, 4 or 5 filers is
incorporated by reference to the Proxy Statement.
In
accordance with the information called for by Item 10 relating to
Regulation S-K, Item 406 disclosures about DeVry’s Code of Business Conduct
and Ethics, DeVry has a Code of Conduct and Ethics which applies to its
directors, officers (including the Chief Executive Officer, the Chief Financial
Officer and the Controller), and all other employees. The full text
of the Code is available on DeVry’s website. DeVry intends to satisfy
the requirements of the Securities and Exchange Commission regarding amendments
to, or waivers from, the Code by posting such information on its
website. To-date, there have been no waivers from the
Code.
The
information called for by Item 10 relating to Regulation S-K,
Item 407(c)(3) disclosure of procedures by which security holders may
recommend nominees to DeVry’s board of directors is incorporated by reference to
the Proxy Statement. The information called for by Item 10
relating to Regulation S-K, Item 407(d)(4) and (d)(5) disclosure of the
DeVry’s audit committee financial experts and identification of the DeVry’s
audit committee is incorporated by reference to the Proxy
Statement.
The
annual Chief Executive Officer certification to the New York Stock Exchange
(“NYSE”) following the Annual Meeting of Stockholders in November 2006 was
submitted pursuant to the NYSE Listed Company Manual (Section 303A) stating
that
the CEO was unaware of any violation by DeVry of the NYSE’s corporate governance
listing standards as of the date of the certification.
ITEM 11.
EXECUTIVE COMPENSATION
The
information called for by Item 11 is incorporated by reference to the Proxy
Statement (as defined in Item 10).
ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The
information called for by Item 12 is incorporated by reference to the Proxy
Statement (as defined in Item 10).
ITEM
13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The
information called for by Item 13 is incorporated by reference to the Proxy
Statement (as defined in Item 10).
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information called for by Item 14 is incorporated by reference to the Proxy
Statement (as defined in Item 10).
The
required financial statements of DeVry and its subsidiaries are included in
Part II, Item 8, on pages 60 through 86 of this Annual Report on
Form 10-K.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Credit
Agreement, dated as of May 16, 2003, between DeVry Inc. and Global
Education International, Inc. as borrowers, and certain financial
institutions and Bank of America, N.A. as lenders
Note
Purchase Agreement, dated as of May 16, 2003, between DeVry Inc. and
Global Education International, Inc. as borrowers, and certain financial
institutions as lenders
Waiver
to Credit Agreement dated as of June 9, 2004, between DeVry Inc. and
Global Education International, Inc. as borrowers and certain financial
institutions and Bank of America, N.A. as lenders
First
Amendment, dated as of June 29, 2004 to Credit Agreement between
DeVry Inc. and Global Education International, Inc. as borrowers
and
certain financial institutions and Bank of America, N.A. as
lenders
Second
Amendment, dated as of September 30, 2005 to Credit Agreement between
DeVry Inc. and Global Education International, Inc. as borrowers
and
certain financial institutions and Bank of America, N.A. as
lenders
Third
Amendment, dated as of January 11, 2007 to Credit Agreement between
DeVry Inc. and Global Education International, Inc. as borrowers
and
certain financial institutions and Bank of America, N.A. as
lenders
