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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended: JUNE 30, 1998
Commission file number: 0-12751
DeVRY INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3150143
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
ONE TOWER LANE, SUITE 1000, OAKBROOK TERRACE, ILLINOIS 60181
(Address of principal executive offices) (Zip Code)
Registrant's telephone number; including area code (630) 571-7700
Securities registered pursuant to section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of class)
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 [X]. 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. [ ]
SEPTEMBER 1, 1998 - $1,029,071,000
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The market value was computed using the
closing sale price of the common stock on the date indicated. Shares of
common stock held directly or controlled by each director and executive
officer have been excluded in that such persons may be deemed to be
affiliates.
SEPTEMBER 1, 1998 - 69,314,102 shares of common stock, $0.01 par value
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents incorporated by reference and the Part of the
Form 10-K (e.g. Part I, Part II, etc.) into which the document is incorporated:
Certain portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on November 17, 1998, are incorporated into
Part III of this Form 10-K to the extent stated herein.
Exhibit Index located on Pages 92-94 Total number of pages, 116
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DeVry INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE #
PART I
Item 1 - Business 3
Item 2 - Properties 38
Item 3 - Legal Proceedings 43
Item 4 - Submission of Matters to a Vote of Security Holders 44
- Executive Officers 45
PART II
Item 5 - Market for Common Equity and
Related Stockholder Matters 49
Item 6 - Selected Financial Data 50
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 50
Item 8 - Financial Statements and Supplementary Data 60
Item 9 - Changes in and Disagreements with Accountants 84
PART III
Item 10 - Directors and Executive Officers 85
Item 11 - Executive Compensation 85
Item 12 - Security Ownership of Beneficial Owners and Management 85
Item 13 - Certain Relationships and Transactions 85
PART IV
Item 14 - Exhibits, Financial Statements and Reports on Form 8-K 86
- Financial Statements 86
- Financial Statement Schedules 86
- Exhibits 87
- Reports on Form 8-K 87
- Signatures 89
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PART I
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Certain information contained in this Annual Report on Form 10-K may
constitute forward-looking statements made pursuant to the safe harbor
provision of the Private Securities Litigation Reform Act of 1995. Such
statements may involve risks and uncertainty that could cause actual
results to differ materially from the forward-looking statements.
Potential risks and uncertainties include, but are not limited to,
dependence on student financial aid, state and provincial approval and
licensing requirements, and the other factors detailed in the company's SEC
filings, including those discussed under the heading entitled "Risk
Factors" in the Company's Registration Statement on Form S-3 (No. 333-22457)
filed with the Securities and Exchange Commission.
ITEM 1 - BUSINESS
DeVry Inc. (the "Company") is incorporated under the laws of the State of
Delaware. The Company, through its wholly-owned subsidiaries, owns and
operates the DeVry Institutes of Technology ("DeVry Institutes") and the
Keller Graduate School of Management ("Keller Graduate School") which
collectively form one of the largest private, degree-granting, regionally
accredited higher education systems in North America. The Company also
owns and operates the Becker CPA Review ("Becker"), which prepares
candidates for the Certified Public Accountant ("CPA") and Certified
Management Accountant ("CMA") professional certification examinations.
The amounts of revenue, earnings before interest and taxes and identifiable
assets of the Company's U.S. and foreign operations are included in Note 9
to the Consolidated Financial Statements, Operations by Geographic Area.
DeVry Institutes
The DeVry Institutes were founded by Dr. Herman DeVry and for more than 67
years have provided career-oriented technical education to high school
graduates in the United States and Canada. The first DeVry Institute was
opened in Chicago in 1931 as an electronics school. Today, the DeVry
Institutes are located on twelve campuses in the United States and three
campuses in Canada.
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Originally offering only programs in electronics, DeVry introduced the
computer information systems curriculum in 1979. As the number of high
school graduates in the U.S. declined during the 1980s, the DeVry
Institutes expanded their program offerings and delivery schedule into the
evening hours to serve larger numbers of working adults. In the summer of
1986, a bachelor's degree program in business operations was introduced.
That fall, the DeVry Institutes introduced the telecommunications
management program, followed by the introduction of an accounting program
in the spring of 1988. In 1994, the DeVry Institutes introduced the
technical management degree completion program. In 1997, the business
operations program was reconfigured and is now titled business
administration. Other programmatic initiatives include new delivery
formats, such as weekend schedules, accelerated course schedules and
technology-assisted delivery options.
The DeVry Institutes initiated a facility improvement and expansion program
in 1991 to attract and retain increased student enrollment. The program
has included renovation and expansion of the Atlanta campus; relocation and
expansion of the suburban Chicago, Dallas, Los Angeles and New Jersey
Institutes; and opening of new branch or satellite campuses in Long Beach,
California; Scarborough and Mississauga (Toronto), Canada; and Alpharetta,
Georgia. In July, 1998 a new campus was opened in Fremont, California.
At the beginning of the spring 1998 semester, which is the final semester
in the Company's 1998 fiscal year, approximately 32,991 full and part-time
students enrolled in the DeVry Institutes' diploma, associate and
bachelor's degree day and evening programs in electronics, electronics
engineering technology, computer information systems, accounting, business
administration, technical management and telecommunications management.
In response to the facility expansions and improvements and new programs
initiated in the past several years, fiscal 1998 marks the eighth
consecutive year that total cumulative enrollment has increased from the
prior year. Cumulatively, total student enrollment for the three semesters
of fiscal 1998 increased by 9.4% compared with fiscal 1997. Since fiscal
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1990, cumulative annual total student enrollment at the DeVry Institutes
has increased by more than 44%. The DeVry Institutes' operations accounted
for approximately 87% of the Company's revenues in both 1998 and 1997.
Classes began on July 13th for the summer 1998 semester. In this first
semester in the Company's 1999 fiscal year, which included the opening of a
new DeVry Institute campus in Fremont, California, a total of 33,088
students were enrolled in the DeVry Institutes' programs, a 12.1% increase
from the number of students enrolled in the summer term last year. This
was the twenty third consecutive term in which total enrollments exceeded
the prior year level. Historically, the summer semester has been the
period of lowest enrollment during the year.
Changing demographics in the United States are expected to continue to
benefit the DeVry Institutes' future enrollment. The "baby boom echo" is
producing more high school graduates. After a period of nearly two decades
during which the number of graduating high school seniors declined by 25
percent to 2.4 million, 1995 marked the beginning of a rise in the number
of high school graduates. The National Center for Education Statistics
forecasts that we will reach 3.1 million graduates by 2005, rivaling the
previous peak of 3.1 million in the late 1970's. Within the states where
the DeVry Institutes are currently located, the percent change in the
number of high school graduates from 1995-96 to 2004-2005, as projected by
the Western Interstate Commission for Higher Education, is expected to
increase by as much as 40% in Arizona, 36% in Georgia, 20% in Texas, 15% in
California and 12% in Illinois. The rate of increase in the number of high
school graduates in some of the states in which the DeVry Institutes are
located is greater than the national rate of increase during this period
and should contribute to future DeVry Institute enrollment growth. In
addition, the Department of Education's National Center for Education
Statistics reports that in 1994, 62% of high school graduates (ages 16-24)
went directly to college, up from 51% in 1975. In today's information-driven
economy, a higher education degree is extremely important. In 1979,
median compensation for male college graduates was 42% higher than for male
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high school graduates. Nearly two decades later, this wage gap has
increased to 89%. More students recognize this and are seeking the skills
and degrees necessary to enhance their future.
Recent data from the U.S. Department of Education also indicates that more
than one third of U.S. undergraduate students are 25 years of age or older
and that these older students will continue to be a significant portion of
college enrollments in the coming years. The Company estimates that more
than 40% of the students enrolling at its DeVry Institutes are 25 years of
age or older.
Over 20% of recent new students enrolled at the DeVry Institutes had some
prior college experience. To attract the growing number of adults
returning to college, the DeVry Institutes introduced a bachelor of science
degree completion program in technical management which focuses on business
and management skills vital to career advancement for students who already
have an associate degree. In response to the growing demand for computer
and systems professionals, this November the U.S. DeVry Institutes will
begin to offer an advanced program in Information Technology at selected
locations to current bachelors degree holders. A similar program is
currently being offered at the Toronto-area DeVry Institutes. An
undergraduate degree completion program in business information technology
is also being considered for introduction.
Some DeVry programs are being offered on weekends to serve the working
adult student and DeVry Institutes have also developed several accelerated
program curricula with a shorter term length and time to completion. While
these programs present an intensive and demanding experience, they enable
students to fulfill their other responsibilities while completing these
educational programs.
Each of the DeVry Institutes' programs is designed to integrate general
education and technology or business. The DeVry Institutes' general
education courses develop skills and competencies that help graduates
enhance both their professional and personal capabilities. Businesses
require graduates that can fit into an organization, work in teams, have an
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understanding of how business works, interface well with customers and have
the in-depth technical knowledge to get the job done. Laboratory courses
throughout each curriculum provide the opportunity to translate classroom
learning into a practical, hands-on experience that better prepares the
student for the workplace.
Distance delivery of education is becoming increasingly prominent. The
DeVry Institutes' approach to distance learning is to focus on the quality
of education, not the technical feasibility of the delivery system.
Distance learning initiatives are being explored throughout the system to
enhance student learning opportunities.
At the DeVry Institutes, classes are generally offered in morning,
afternoon or evening sessions which help students maintain a part-time job.
This availability of part-time employment and government-provided financial
aid partially offsets the competitive advantage of those schools with lower
tuition levels. Each curriculum is generally the same at all of the DeVry
Institutes with content variations introduced to meet local employment
market needs. This common curriculum allows students to transfer, if
necessary, to a DeVry Institute at a different location without
interrupting their studies.
To facilitate student success, DeVry devotes significant resources to
libraries and academic support services which can assist students in any
phase of their educational program. In addition, the DeVry Institutes
encourage students to participate in campus activities and offer a student
success strategies course aimed at preparing students to assume
responsibility for their learning and growth through practical strategies
and methods for realizing success.
Keller Graduate School of Management
Keller Graduate School was founded in 1973 and offers practitioner-based
graduate management programs leading to a master's degree. In addition to
the Master of Business Administration ("MBA") program, which Keller began
offering in 1977, Keller introduced a Master of Project Management ("MPM")
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degree program in 1991 and a Master of Human Resource Management ("MHRM")
degree program in 1993. In September 1995, Keller began offering a Health
Services Management ("HSM") concentration within its MBA program. This HSM
concentration is being offered in response to the growing demands of the
health services industry professionals and professionals in related
industries such as insurance or pharmaceuticals. In February 1997, Keller
introduced a Master of Telecommunications Management ("MTM") program to
meet the need for expertise in this growing field. The MTM program at
Keller Graduate School was developed in conjunction with the DeVry
Institutes, which offer an undergraduate telecommunications program. In
September 1998, Keller will begin offering at selected sites, two new
programs, the Master of Information Systems Management ("MISM") and the
Master of Accounting and Financial Management ("MAFM"). These programs are
aimed at satisfying the need for advanced education in these high demand
areas.
Keller emphasizes a practitioner orientation, excellence in teaching and
service to working adults, offering classes in the evenings and on
weekends. At June 1998, classes were being offered at twenty six locations
nationwide. Additional teaching centers are scheduled to begin offering
classes in fiscal 1999. Seven of Keller's teaching sites are co-located on
DeVry Institute campuses in Arizona, California, Georgia and Missouri.
Keller Graduate School's 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, technology, quality
and international issues are woven throughout the curricula. Keller's
curricula are regularly reviewed for relevance to both students and
employers through advisory councils composed of representatives of
distinction and achievement in business and community affairs.
In addition to expanding its network of teaching locations, Keller
developed and offers distance-education delivery in selected courses.
Distance-education programs provide convenience and flexibility for
students who are physically distant from classrooms, who find it difficult
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to attend weekly classes and/or who cannot find their desired courses at
the Keller center near where they live or work. After piloting distance
education course offerings, Keller applied for and has recently received
approval from the North Central Association of Colleges and Schools to
deliver via distance education all courses leading to and to award the
Master of Business Administration degree.
At the start of the June term, which falls primarily in the Company's 1999
fiscal year, enrollment at Keller Graduate School was 3,857, an increase of
725 students or 23.1% from the previous June. Historically, the summer
term has been the period of lowest enrollment during the year.
Through its Center for Corporate Education (previously Corporate
Educational Services), Keller also offers on-site management and technical
training programs for larger corporations and government agencies.
At the start of the summer 1998 semester, which is the first semester in
the Company's 1999 fiscal year, a combined total of approximately 36,945
full and part-time students were enrolled in the Company's DeVry and Keller
educational programs, up 13.2% from a total of 32,642 full and part-time
students in the summer 1997 semester.
Becker CPA
In June 1996, the Company acquired the Becker CPA Review. Becker is a
leading international training firm preparing students to take the national
Certified Public Accountant exam and Certified Management Accountant exam.
Becker, which is headquartered in Los Angeles, offers CPA classes at
approximately 190 locations in the United States and international
locations. The CMA exam preparation course, which is offered at selected
sites in the United States, was developed for the many accountants who have
moved to the corporate management and strategic planning side of business.
To reach students for whom class attendance is not practical because of
location or schedule, Becker offers the complete CPA course conveniently
packaged on CD-ROM with the same supplementary printed materials as would
be received in a classroom.
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Becker's proprietary course materials and teaching methods result in pass
rates on the CPA exam for Becker students which the Company believes are
substantially higher than the national average pass rate, producing more
than one-third of all students passing the CPA exam. Approximately 20,000
students either attend Becker review courses at its U.S. and international
locations or study for the CPA exam using the CD-ROM materials. Becker CPA
Review alumni now number over 200,000 since the course was founded in 1957.
Competition
The postsecondary education market is highly fragmented and competitive
with no single institution having a significant market share. There are
more than 10,000 institutions in the United States that offer postsecondary
education. The Company believes that it is one of the largest private,
degree-granting, regionally accredited, higher education school systems in
North America. The DeVry Institutes compete with traditional publicly
supported and independent two-year and four-year colleges, other for-profit
schools and alternatives to higher education, such as employment and
military service. Also, an increasing number of corporations, including
Apple, AT&T and Intel, now offer accredited college courses that may be
applied toward degrees.
Publicly supported colleges may offer programs similar to those of the
DeVry Institutes at a lower tuition level due to government subsidies,
government and foundation grants, tax-deductible contributions and other
financial sources not available to for-profit schools. Tuition at
independent not-for-profit institutions is, on average, higher than the
tuition at the DeVry Institutes. Other for-profit schools offer programs
that compete, to a limited extent, with those of the DeVry Institutes.
According to Company surveys of prospective students, the most common
alternative to attending a DeVry Institute is attending a four-year
college.
The DeVry Institutes believe their competitive strengths include career-
oriented curricula developed with regular structured employer input which
helps ensure that graduates will be marketable to employers; faculty with
related industry experience; the demonstrated effectiveness of their career
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services activities in obtaining education-related employment; their
national brand name; name recognition and market presence through national
advertising and student recruitment; the accreditations granted to the
DeVry Institutes; authorization by various states to grant degrees; modern
facilities; well-equipped laboratories; evening and weekend class schedules
and a trimester schedule that allows attendance year-round, thereby
permitting earlier graduation. Only a limited number of traditional
colleges offer a bachelor's degree program which can be completed in three
years. This results in a significant financial advantage to DeVry students
who are able to enter the work force one year earlier than if they had
attended a traditional four year institution.
Keller Graduate School competes with numerous other MBA programs offered in
all markets in which it has operations. Competition with Keller's MHRM,
MISM and MAFM programs varies by the market area in which it is offered but
is generally more moderate than competition for the MBA program. Fewer
schools in the country offer a master's degree in project management or
telecommunications management, but increasing interest in these fields is
beginning to attract similar offerings.
Keller differentiates itself in the marketplace by stressing a practitioner
approach to education, excellence in teaching by a faculty of practicing
professionals and a high level of service to the adult student. To help
improve student performance, satisfaction and retention, Keller introduced
an innovative teaching technique called System Supported Teaching and
Learning (SSTL)TM. This instructional process focuses on providing
students and their instructors with more frequent feedback and correctives
using quizzes and retests. The process is outcomes driven and is being
applied to problem-based core courses in which student learning can be most
significantly improved.
Keller offers five 10-week terms each year. Classroom based courses meet
once a week, either in the evening or on Saturday. This schedule allows
students with heavy travel or other demands on their time to fit courses
into their schedules. In addition, in most markets Keller is able to offer
greater flexibility in course scheduling, a greater choice of elective
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courses and a more convenient location than its competitors. Keller also
offers an accelerated format of its MBA program on Saturdays at some
locations for students who wish to complete their degree more quickly and
without disrupting their work week. As the market for adult education
programs has expanded in recent years, other schools have implemented
multi-location evening and weekend programs. However, enrollments at
Keller continue to increase, demonstrating the recognition it has earned as
an innovator in providing quality practical education.
With educational centers in an expanding number of states and multiple
locations within most of these states Keller offers distributed access
points throughout the country to adults who may be transferred from one
part of the country to another by their employer or who capitalize upon
personal career opportunities in other locations. Additionally, with the
expansion of its distance delivery offerings, Keller can now expand its
availability to all qualified students without regard to their location or
daily schedule.
Becker competes with CPA exam preparation through self-study; with firm-
sponsored courses; with courses offered by colleges and universities; and
with other private training companies. According to a recently issued
report by the National Association of State Boards of Accountancy, two-thirds
of first-time CPA candidates participated in a review course in the
six months prior to taking the 1996 exams. Taking a privately offered
course was cited by 89% of these first-time candidates, with college and
firm-sponsored courses representing the remainder in approximately equal
amounts. Courses offered by colleges and private competitors generally
have a lower total course cost to help attract students. Becker
differentiates itself from its competitors by providing more classroom
hours of instruction, extensive and constantly updated review and practice
test materials and experienced, qualified instructors for each area of
specialty included in the exam. Becker CPA courses undergo regular review
and revision to stay current with the latest accounting practice. The high
success rate of students who take the Becker review course and the numbers
of students enrolling after taking other review courses but not passing the
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CPA exam are testimony to the quality and value of the Becker methodology.
CPA candidates can take the Becker review course content and methodology in
conjunction with their Keller Graduate School MBA or MAFM programs in most
states in which Keller offers classes, earning full graduate academic
credit. These credits can also be used to fulfill educational requirements
to sit for the CPA exam. This provides both Becker and Keller with an
important competitive advantage. Efforts are underway to extend the
granting of credit to the remaining states in which Keller operates. To
further extend the marketing and operational benefits of joint operation,
Becker offers classes at more than 15 Keller locations. Becker classes are
also offered on five DeVry Institute campuses.
In June 1998, Becker acquired the assets of Gross-Monette CPA Review
Course, the largest CPA review course company in the Philadelphia area.
The acquisition expands the Becker presence in this important East coast
market. Further acquisitions could occur in selected important local
markets.
Student Recruiting
Students at the DeVry Institutes are recruited by admissions
representatives at on-campus admissions offices and by field student
recruiters. Field student recruiters are an important nationwide element
of the recruiting process because a significant portion of the DeVry
Institutes' students come from outside the immediate area in which the
DeVry Institute campus they attend is located. The percentage of
enrollment coming from these two recruiting sources varies campus by
campus, but is predicated largely on each school's location. Overall,
admissions representatives currently generate over two-thirds of the DeVry
Institutes' total enrollments. The DeVry Institutes employ over 400
admissions representatives and field recruiters throughout the United
States and Canada. In order to recruit students in certain states and
Canadian provinces, representatives and recruiters must be licensed or
authorized by the appropriate regulatory agency. Regulations governing
student participation in U.S. federal financial assistance programs
prohibit an institution from paying a commission, bonus or incentive to the
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Company's representatives and recruiters based upon their success in
securing enrollments. The Company believes that its method of
representative and recruiter compensation complies with the regulations.
The admissions representatives are salaried, full-time Company employees.
They are located at each DeVry campus and work with potential applicants
who respond to the Company's advertising or otherwise learn of the school.
Admissions representatives generally work with older students, many of them
working adults wanting to attend class in the evening or on weekends,
recently unemployed adults seeking to improve their job skills as a way to
re-enter the workforce and students transferring to DeVry from nearby
junior colleges. Each of the DeVry Institutes has entered into
articulation agreements with nearby community colleges to facilitate the
enrollment of their students seeking to transfer course credits into a
DeVry program. Over 20% of new students recently enrolled at the DeVry
Institutes had some prior college experience.
Field student recruiters are salaried, full-time Company employees. Field
recruiters meet individually with prospective students who are contacted
primarily through high school, club and youth group presentations. These
student recruiters visited over 11,000 high schools in North America last
year and made presentations on career choices and the importance of a
college education. Field recruiters also receive student inquiries
generated by direct mail and television advertising in the particular
recruiter's territory. Follow-up interview sessions with prospective
students are generally held in the student's home with the student and his
or her parents. The downsizing of the U.S. military and base closings also
present recruiting opportunities. Veterans with military-specific technical
training are attracted to DeVry's practical career-oriented education, and
DeVry's locations across the U.S. are often near the home area to which the
veteran will relocate. Numerous new students with V.A. benefits have
enrolled at the DeVry Institutes.
In support of its recruiting force, the DeVry Institutes advertise on
television and radio, in magazines and newspapers, and utilize
telemarketing and direct mail to reach prospective students. Prospective
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students are also frequently referred by their employers, alumni or
currently enrolled students. In addition to the more traditional
recruiting methods, DeVry's Internet site provides another avenue for
students to receive information and apply for information about admission.
To be admitted to a DeVry Institute program in the United States, an
applicant must be a high school graduate, have a General Education
Development (GED) certificate or hold a degree from an accredited
postsecondary institution. In Canada, an applicant must either meet the
same criteria as in the U.S. or meet "mature student" criteria. Applicants
must also meet minimum admissions and placement examination scores which
vary depending on the program to which they are applying. In 1996, the
DeVry Institutes implemented the Computerized Placement Tests (CPT) which
were designed in collaboration with The College Board and Educational
Testing Service. These exams help DeVry Institutes serve the needs of its
students by better assessing students' achievement levels and developmental
needs during the admission process. Since its introduction, minimum
admission and placement scores on the CPT have been raised several times in
an effort to better identify those students most likely to successfully
complete their educational program. Submission of ACT or SAT examination
scores deemed appropriate for the desired program or the submission of
acceptable grades in qualifying college-level work completed at an approved
postsecondary institution can also be used to meet DeVry Institute
admission requirements.
Keller Graduate School recruits students through direct mail, radio
advertising, telemarketing, print advertising and referrals from employers,
alumni or current students. Keller employs on-campus admissions
representatives at each teaching center who meet with, counsel and evaluate
admission qualifications of prospective students. To be admitted to a
Keller program, applicants must hold a baccalaureate degree from a U.S.
institution that is accredited by or in candidacy status with a regional
accrediting agency. Foreign applicants must hold a degree recognized to be
equivalent to a U.S. bachelors' degree. Applicants must also achieve
acceptable scores on either the Graduate Management Admission Test (GMAT),
the Graduate Record Examination (GRE) or Keller's alternative admission
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test, designed and validated by Educational Testing Service. All
admissions decisions are based on evaluation of a candidate's academic
credentials, entrance test scores and personal interview.
Becker markets its courses directly to potential students and to some of
their employers, e.g. the large national and regional accounting firms.
Alumni referrals, direct mail, print advertising and a network of on-campus
recruiters at colleges and universities across the country generate the new
students who take the CPA or CMA review courses, which are offered twice
each year. Becker enrolls many students who have previously completed a
competitor's course or a self-study program but were unable to pass the
exam.
According to data published by the National Association of State Boards of
Accountancy, the number of first time CPA examination takers has declined
during each of the past several years. Several states have either adopted
or introduced legislation that requires 150 semester units (the equivalent
of five years of college) before a candidate can sit for the CPA exam. If
the 150 semester unit legislation is broadly implemented, it might have the
effect of further reducing candidates for the CPA exam. Additionally, some
states have passed or may pass laws requiring completion of all educational
requirements before a candidate can take the CPA exam. This has the effect
of delaying, for six months or more, enrollment in Becker's review class by
some students in those states. To overcome these recruiting challenges,
Becker has expanded the number of class locations to make it accessible to
more students, has increased advertising and promotional efforts and, as
previously described, has introduced the course on CD-ROM.
Accreditation and Approvals
Accreditation is a process for recognizing educational institutions and the
programs offered by those institutions for achieving a level of quality
that entitles them to the confidence of the educational community and the
public they serve. In the United States, this recognition is extended
primarily through nongovernmental, voluntary, regional or specialized
accrediting associations. Accredited institutions are subject to periodic
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review by accrediting bodies to ensure that these institutions maintain the
level of performance, evidence institutional and program improvement,
demonstrate integrity and fulfill requirements established by the
accrediting body.
Although regional accreditation in the United States is a voluntary process
designed to promote educational quality and improvement, it is an important
strength of the DeVry Institutes and Keller Graduate School, providing
significant advantages over most other for-profit colleges. College and
university administrators depend on the accredited status of an institution
in evaluating transfers of credit and applications to graduate 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 eligibility for federal financial assistance. Also, most scholarship
commissions restrict their awards to students attending accredited
institutions.
DeVry Institutes and Keller Graduate School are each accredited by the
Commission on Institutions of Higher Education of the North Central
Association of Colleges and Schools, one of the six regional collegiate
accrediting agencies recognized by the U.S. Department of Education. The
North Central Association is the same accrediting agency that accredits
other four-year publicly supported and independent colleges and
universities in the North Central region. The DeVry Institutes and Keller
accreditations were last reaffirmed by the North Central Commission in 1992
for the maximum ten year period. A scheduled interim progress monitoring
visit was conducted at the DeVry Institutes in May, 1997, with a
recommendation for an analysis by the DeVry Institutes, due in April 1999,
on the expansion status of its library collections. The next comprehensive
visit remains at its originally scheduled 2002 date.
18
Accreditations of the DeVry Institutes and Keller in the United States and
of the DeVry Institutes in Canada are as follows:
UNITED STATES CANADA
Commission on Institutions of Ontario Association of Certified
Higher Education of the North Engineering Technicians and
Central Association of Colleges and Technologists (DeVry/Toronto area
Schools. campuses' Electronics Engineering
Technology and Electronics
Engineering Technician programs)
The baccalaureate electronics
engineering technology (EET) Canadian Technology Accrediting
programs at all DeVry U.S. Board (DeVry/Calgary's Electronics
campuses, except Fremont and Engineering Technology and
Alpharetta, and the Electronics Electronics Engineering Technician
Technology program at DeVry/New programs)
York, are separately accredited by
the Technology Accreditation
Commission of the Accreditation
Board of Engineering and Technology
(TAC/ABET). The associate-level
EET program at DeVry's New Jersey
campus is also TAC/ABET accredited.
The Fremont, Alpharetta and New
York DeVry Institutes will apply
for TAC/ABET accreditation once
their first classes have graduated.
In the United States, each DeVry Institute is approved to grant associate
and bachelor's degrees by the respective state where it is located. In New
Jersey, however, authorization is only at the associate degree level for
three programs - electronics engineering technology, computer information
systems and telecommunications management. Students at the DeVry
Institute, North Brunswick, are encouraged, upon completion of their
associate's degree, to transfer to other DeVry Institutes to complete
bachelor's degree requirements.
Under current Canadian law, the Canadian DeVry Institutes are not permitted
to grant degrees. However, students at the Canadian Institutes are allowed
to transfer to DeVry Institutes in the U.S. to complete their degree
requirements. In 1995, the Alberta Department of Advanced Education, the
State of Arizona and the Commission on Institutions of Higher Education of
the North Central Association of Colleges and Schools approved the DeVry
19
Institute in Phoenix to offer its bachelor of science degree-completion
program on the Calgary campus. This allows students attending classes at
the Calgary campus to complete their degree studies without relocating to a
campus in the United States. Students attending one of the Toronto-area
campuses may transfer to Calgary to participate in this program rather than
transferring to a DeVry campus in the United States.
Keller Graduate School is authorized to operate and award degrees under
authority of the Illinois Board of Higher Education and the appropriate
approval boards in the other states in which it has operations.
State and Provincial Approval and Licensing
Authorizations from state or provincial licensing agencies or ministries
are required to recruit students, operate the Company's schools and grant
degrees. Many states and provinces require for-profit postsecondary
education institutions to post surety bonds for licensure. The Company has
posted over $5 million of surety bonds with state and local regulatory
authorities in the U.S. and approximately $1 million (CDN) of surety bonds
with regulatory agencies in Canada and believes it is currently in material
compliance with state and Canadian provincial regulations. Certain states
have set standards of financial responsibility beyond those prescribed by
federal regulation. For example, fiscal tests adopted by the California
legislature (as discussed more fully below) and similar regulations adopted
or proposed by other state regulators may place the Company in future non-
compliance under certain state regulations. If the Company were unable to
meet these tests and could not otherwise demonstrate that it was
financially responsible, it could be required to cease operations in that
state. To date, the Company has successfully demonstrated its financial
responsibility where required.
In January 1991, the state of the California adopted legislation that
requires private, postsecondary education institutions to meet certain
fiscal tests in order to continue operating in the state. These fiscal
tests include three requirements: not having an operating loss in each of
an institution's two most recent fiscal years; having positive net worth in
its latest fiscal year; and maintaining a ratio of current assets to
20
current liabilities of 1.25:1 or greater. The Company has consistently
achieved two of the required fiscal tests but has not maintained the ratio
of current assets to liabilities of 1.25:1 which the Company believes is an
inefficient use of its assets. At June 30, 1998, the Company had a ratio
of current assets to current liabilities of 1.06:1. However, California
law stipulates that when another government agency requires an institution
to file annual financial audits prepared by a certified public accountant,
that agency's current ratio standard may apply in lieu of the California
ratio if the ratio of current assets to current liabilities under that
standard is 1 to 1 or greater. The California legislation also permits
discretion under this statute to allow an educational institution to
continue operating, even if it does not satisfy the financial tests, if the
institution can demonstrate that it has maintained sufficient financial
resources to sustain all of its promised educational services. At June 30,
1998, the Company believes that it has satisfactorily demonstrated its
financial strength and ability to continue to operate.
California law further requires an on-site visit to all postsecondary
institutions having accreditation from a regional accrediting association
other than the Western Association of Colleges and Schools. The California
Council for Private Postsecondary and Vocational Education conducted a
visit of the California campuses in August, 1996, and issued its report
granting approval for continued degree-granting operation for the maximum
five-year period. The California Council was discontinued last year, and a
new Bureau for Private Postsecondary and Vocational Education established
under the Department of Consumer Affairs was designated as the appropriate
regulatory agency.
Tuition and Fees
Effective with the spring 1998 term, the DeVry Institutes' tuition in the
United States for two semesters (one academic year) ranged from $7,280 to
$7,355. Variations in tuition depend on term of enrollment. The Fremont,
California and Long Island City, New York, Institutes, both of which begin
operation in fiscal 1999, charge tuition ranging from $8,280 to $8,355.
Students enrolled on less than a full time basis are charged somewhat lower
21
tuition. DeVry's tuition rates are substantially below the average tuition
at four-year independent institutions but substantially higher than the
average at four-year publicly supported institutions. DeVry's increase in
tuition from spring 1997 was approximately 4.9%. This increase
approximates the rate of increase at many other postsecondary education
institutions. Based upon current tuition rates, for a student enrolled in
the DeVry Institute's 5 term electronics technician program, total tuition
cost would be $18,300. For a student enrolled in the 9 term computer
information systems program, total tuition cost based upon current rates
would be $32,860.
Effective with the spring 1998 term, tuition in Canada ranged from $6,690
to $6,765 (CDN) for the two semester period, an increase of approximately
4.9% from spring 1997.
Effective with the September, 1998, term, Keller Graduate School tuition
per course (four quarter credit hours) ranges from $1,010 to $1,235,
depending on the state in which the student is enrolled. This compares to
tuition rates from $955 to $1,170 implemented in September, 1997. The
price for courses taken by distance education is $1,350.
The price of the complete live Becker CPA review course is $1,495, which
includes an enrollment fee. The price of the complete Becker CMA review
course in $1,160, which also includes an enrollment fee. The complete CPA
review course on CD-ROM is priced at $1,195.
In addition to the tuition amounts described above, students at the DeVry
Institutes and Keller must purchase textbooks and supplies as part of their
educational program.
If a student leaves school prior to completing a term, federal, state and
Canadian provincial regulations and accreditation criteria permit the
Company to retain only a set percentage of the total tuition received from
such student, which varies with, but generally equals or exceeds, the
22
percentage of the term completed by such student. Amounts received by the
Company in excess of such set percentages of tuition are refunded to the
student or the appropriate funding source.
Financial Aid and Financing Student Education
Students attending the DeVry Institutes finance their education through a
combination of family contributions, individual resources (including
earnings from full- or part-time employment), financial aid (including
Company-provided financial aid) and tuition reimbursement from their
employers.
The Company believes that approximately 75% of the U.S. DeVry Institutes'
students receive some government-sponsored financial aid and that a similar
percentage of the students attending the Canadian DeVry Institutes receive
some government-sponsored financial assistance. A 1996 National
Postsecondary Student Aid Study found that approximately 80% of full-time
students attending private four-year institutions received some form of
financial aid.
The Company believes that between 10% and 20% of Keller Graduate School
students have received government-sponsored financial aid. In addition,
approximately 80% of Keller students receive some tuition reimbursement
from their employers. Students attending the Becker CPA or CMA review
courses are not eligible for financial aid, but many of them receive part
or full tuition reimbursement from their employers.
The DeVry Institutes assist their undergraduate students in locating part-
time employment. Data from the National Center for Education Statistics
indicates that almost half of all full-time college students between the
ages of 16 and 24 are employed. The Company believes that a substantially
greater percentage of its full-time students are employed to help finance
their costs of education. On the basis of a financial aid application
completed by the student and the student's family, the DeVry Institutes
develop an assistance package for students who require financial aid.
Government-sponsored financial aid is of great importance to the Company
23
because historically, slightly less than 70% of the DeVry Institutes' U.S.
tuition, book and fee revenues have been financed by government-provided
financial aid received by its students.
The government-provided financial aid and assistance programs in which many
of the Company's students participate are subject to political and
governmental budgetary considerations. In 1992, Congress reauthorized
funding for financial assistance programs through September, 1997, with
provision for extensions, if needed. Congress has begun the process of
reauthorization but there is no assurance that federal funding will be
continued at its present level or in its present form. A reduction in
funding levels to financial aid programs could result in lower enrollments
or an increased amount of Company-provided financial aid to its students.
The 1997 Tax Relief Act provides several education incentives. First,
employer-provided undergraduate educational assistance of up to $5,250 per
year will remain excluded from taxable income for several additional years.
Second, a HOPE tax credit of up to $1,500 for each student has been
provided for expenses paid after 1997 during each of the first two years of
college. For college juniors, seniors, graduate students and employees
upgrading skills, a Lifetime Learning credit of up to $1,000 per year has
been provided for expenses paid after June 30, 1998. Also, student loan
interest expense during the first 60 months of payments, in amounts ranging
from $1,000 in 1998 to $2,500 in 2001, will be allowed as a deduction from
taxable income.
Extensive and complex regulations in the United States and Canada govern
all of the government grant, loan and work programs in which the Company
and its students participate. Regulations and standards that an
institution must satisfy in order for its students to participate in
federal financial assistance programs include, among others, maximum
student loan default rates; limits on the proportion of an institution's
revenue that can be derived from federal aid programs; prohibition of
certain types of incentive payments to student recruiters; and financial
responsibility and administrative capability requirements.
24
At June 30, 1997, the Company achieved an operating profit, positive net
worth, a "quick ratio" (cash plus accounts receivable to all current
liabilities) of more than 1:1 and maintained the required cash reserve for
the payment of refunds. This fully satisfied the standards of financial
responsibility established by the U.S. Department of Education for
participation in federal financial assistance programs for that year. For
1998, the Department of Education introduced a new standard of financial
responsibility test. The standard is based upon a composite score of three
ratios which are designed to measure various aspects of an educational
institutions financial stability. The Company believes that, based upon
its computations, for fiscal year 1998 it has demonstrated the highest
level of financial stability. Failure to achieve these financial
responsibility standards or otherwise demonstrate, within the regulations,
its ability to continue to provide the educational services it offers could
result in the Company being required to post a surety bond to permit its
students to continue to participate in federal financial assistance
programs. In addition to the regulations and standards which must be met
by the institution, student recipients of financial aid must maintain
satisfactory progress toward completion of their program of study and an
appropriate grade point average.
Institutions that participate in Title IV financial aid programs must
disclose information upon request about 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, as defined by the
Act, at each of the U.S. DeVry Institutes generally fall within the range
of completion rates, as published by U.S. News and World Report, 1998
America's Best Colleges, for selected urban public colleges in the areas in
which the DeVry Institute operates. DeVry also admits many students who
previously attended another college and whose completion rates are not
included in these statistics. Completion rates for the 20% or more of
students entering DeVry with previous college experience are generally
higher than for first-time students.
25
The Company maintains a staff at its Oakbrook Terrace headquarters to
review, interpret and establish procedures for compliance with regulations
governing financial assistance programs. 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 against the Company. Changes in or
new interpretations of applicable laws, rules or regulations could have an
adverse effect on the Company in the future.
In the United States, the Company has completed and submitted all required
audits of compliance with federal financial assistance programs and its
independent accountants are currently conducting the required audits of the
one year period ending June 30, 1998. The Department of Education
conducted a site visit, in August, 1996, at the DeVry Institutes' North
Brunswick, New Jersey, campus as a part of its program of periodic review
of the administration of student financial assistance programs. The visit
was satisfactorily concluded without further follow-up or action. Although
the Company has no reason to believe that any proceeding against the
Company is presently contemplated, if such a proceeding were initiated
against the Company and resulted in a substantial curtailment of the
Company's participation in government grant or loan programs, the Company
could be adversely affected.
In Canada, the DeVry Institutes' Toronto-area campuses were notified at the
end of August, 1995, that the Ontario Ministry of Education and Training
had temporarily suspended the processing of new financial aid applications
from DeVry students pending review of inaccuracies found in applications
filed by some students. The Ministry believed that some of DeVry's
Toronto-area students applied for and collected what might be excessive
government-sponsored financial aid by inappropriately reporting that they
had "zero income." A Ministry audit of these applications, with DeVry's
full cooperation, began in September, 1995, and was subsequently completed,
although no final report has been issued to-date. In order to restore
financial aid eligibility, the Company refunded to the Ministry
26
approximately CDN $1.6 million for the 1995/96 academic year which the
Company believes is substantially all of the financial aid previously
inappropriately disbursed to such "zero income" students for this time
period. In addition, the Company posted a letter of credit at the
Ministry's request against possible additional amounts that may have been
inappropriately disbursed as determined by the Ministry audit. Effective
with the spring 1996 term, which began in March, 1996, the Ministry
conditionally reinstated approval for the processing of financial aid
applications. As a result of these actions, the results of operations of
the Company's Canadian operations were adversely affected. Full
unconditional reinstatement is pending, subject to the Ministry's
completion of its review and issuance of a final report.
The following is a description of the U.S. and Canadian financial aid
programs in which the Company's students participate:
United States Government Financial Aid Programs The following U.S.
Department of Education financial aid programs under Title IV of the Higher
Education Act are utilized by the Company's students in the United States:
(1) Federal Pell Grant ("Pell"), (2) Federal Supplemental Educational
Opportunity Grant ("SEOG"), (3) Federal Family Education Loan Program
("FFELP"), (4) Federal Perkins Direct Student Loan program ("Perkins"), (5)
Federal Work Study ("FWS") and (6) William D. Ford Federal Direct Student
Loan Program ("FDSL").
Grants These funds, made available by the government to eligible
students who demonstrate financial need, do not have to be repaid. The
Company's students are eligible to participate in the Pell and SEOG Grant
programs, which are programs for undergraduate students. Eligible
students receive a Pell grant ranging in amount from $400 to $3,000 per
year. SEOG is a supplement to the Pell grant, available to only the
neediest students because SEOG funds are limited in amount at each
institution based upon a federally determined formula. In addition to
these federal assistance funds, DeVry is required to make a 25%
institutional matching contribution of all federal SEOG funds. The
27
institutional matching contribution may be satisfied, in whole or in
part, by the DeVry Institutes' scholarship funds, discussed separately in
this section, or by externally provided scholarship grants.
Loans Students at the DeVry Institutes participate in the Stafford and
PLUS programs within the FFELP and in the Perkins loan program. Stafford
loans may include an interest subsidy depending upon the financial need
of the student, and loan repayment is scheduled to begin six months after
a student no longer attends school on at least a half-time basis.
Historically, over 80% of the financial aid received by students
attending the Company's U.S. DeVry Institutes has been provided by
federal student loans. Students at Keller Graduate School currently
participate in the FDSL and FFELP, which represent 100% of the federal
financial aid received by these students.
In 1993, Congress passed legislation creating the Direct Student Loan
Program. Under this program, students may complete all loan application
and processing steps at their educational institution. Besides the
benefit of one-stop processing, which can be done at the institution in
conjunction with the application for aid under other programs, this loan
program offers other benefits to student borrowers such as income-based
repayments, lower loan fees and lower loan interest rates. For the
1994-95 school year, the DeVry DuPage Institute was one of only 104
institutions in the nation chosen by the Department of Education to pilot
the implementation. Subsequently, several additional DeVry Institutes
and Keller Graduate School were chosen to begin participation in the
program. The U.S. Congress has considered various proposals to eliminate
this program or to cap loans made under this program at some percentage
of all federal student loans until there is more experience with its
success and realized cost savings. Federal student loans remain
available to the Company's eligible students under the Stafford program
should direct student loan availability be curtailed.
28
Work Study Work Study wages are 75% paid from federal funds and 25% from
qualified employer funds. Work opportunities, both on or off-campus,
under FWS are offered on a part-time basis by the U.S. DeVry Institutes
to undergraduate students who demonstrate financial need.
State Financial Aid Programs In addition to the various federal loan and
grant programs, state grant assistance may be received by eligible students
attending DeVry Institutes in Arizona, California, Georgia, Illinois, Ohio
and New Jersey.
Canadian Government Financial Aid Programs Canadian students, 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. Canadian Student Loans are available to students who are
Canadian citizens or a permanent resident of Canada enrolled at approved
postsecondary institutions. Students from Quebec are eligible for loans
under the Quebec Student Loan Plan. The loans are interest-free while the
student is in school, and repayment begins six months after the student
leaves school. All other forms of government financial aid in Canada, both
loans and grants, are financed and administered by the provinces.
Postsecondary institutions whose students participate in the Ontario
Student Loan program are now required to make available to prospective
students information about graduation rates and student loan default rates.
In addition, postsecondary institutions whose student default rates exceed
certain thresholds will be required to provide the Ontario Ministry of
Education and Training with a security deposit for loan default losses that
might exceed the regulatory threshold. The Company's Toronto-area campuses
have posted the required surety bond and promissory note and believe that
full compliance with these regulations will not have a material effect on
their operations.
"85/15 Rule" This U.S. Department of Education regulation affects only
for-profit postsecondary institutions, such as the Company. Under this
regulation, students attending a for-profit institution that derives more
than 85% of its revenues from federal financial assistance programs in any
29
year will not be able to participate in these programs for the following
year. This regulation is commonly referred to as the "85/15 rule." Final
data for fiscal 1998 is not yet complete but, in 1997 the U.S. Institutes
derived approximately 68% of their revenues from these programs and no
institute within the DeVry system derived more than 80% of its revenues
from these programs. Similarly, in 1996, the U.S. Institutes derived
approximately 68% of their revenues from these defined federal assistance
programs. Keller Graduate School derived approximately 20% of its 1997
revenues from these defined aid programs. Each of the DeVry Institutes
(except for the Long Beach, California, Institute, which currently operates
as an additional location of the Pomona, California, Institute and the
Fremont, California, Institute which currently operates as an additional
location of the Phoenix, Arizona, Institute) and Keller is established as a
separate institution under the Higher Education Act ("HEA") provisions and
must separately meet the criteria for the "85/15 rule" and for loan default
rates.
Company-Provided Financial Assistance The Company's EDUCARD Plan is
available to students attending the U.S. DeVry Institutes. The EDUCARD
Plan is an installment loan program designed to assist students unable to
completely cover educational costs with student and family contributions,
federal and state grants and loans. The installment loan feature of the
EDUCARD Plan is available to a student only after other student financial
assistance has been applied toward the payment of tuition, books and fees
and is available only for those purposes. Repayment of EDUCARD Plan
balances is worked out in accordance with the financial circumstances of
the particular student, but is typically on a monthly basis with all
balances required to be paid within 12 months following a student's
graduation or termination of study. The receivable balance related to
Company-provided financial aid at the U.S. DeVry Institutes at June 30,
1998, was approximately $10.9 million. Continued timeliness in financial
aid processing and in the collection of student-owed balances has reduced
the level of these receivables from last year even as enrollment and
tuition revenue increased. Amounts owed by students under the EDUCARD Plan
are subject to a monthly interest charge of 1% of the average outstanding
30
balance. In Canada, to assist students who are unable to pay their tuition
in full at the start of each term, students are allowed to participate in a
multi-payment plan over the length of each semester.
In addition to the student financial assistance provided by the EDUCARD
Plan, the U.S. and Canadian DeVry Institutes offered a Dean's Scholarship
national competition and a Presidential Scholarship campus competition to
1997/98 high school graduates. The Dean's scholarships are renewable
partial scholarship awards to high school seniors who apply to DeVry and
submit qualifying ACT/SAT scores. Presidential Scholarships, which cover
full tuition for any of DeVry's full-time degree programs, are limited to
two per campus. Similar scholarship offers have been made to high school
graduates in previous years and are expected to be offered in the future.
To attract students who attend community or junior colleges, the U.S. DeVry
Institutes offer half-tuition scholarships, valued in total at more than
$500,000, to recent graduates from an accredited community/junior college.
The DeVry Institutes have also provided funds in the form of institutional
grants which help students most in need of financial assistance.
Student Loan Defaults
The Company believes that historically, federal student loans represented
more than 80% of the federal aid received by students at the U.S. DeVry
Institutes and 100% of the federal aid received by students at Keller
Graduate School. For a variety of reasons, high student loan default rates
on federal student loans are most often found in proprietary institutions,
institutions having large minority populations 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. In 1989, the U.S. Department of Education instituted strict
regulations that penalize educational institutions whose students have high
loan default rates. These regulations were further tightened by the 1992
Higher Education Reauthorization Act. Any individual institution with a
FFELP or FDSL cohort default rate exceeding 20% for the year is required to
develop a default management plan in order to reduce defaults, although the
institution's operations and its students' ability to utilize student loans
are not restricted. Any individual institution with a FFELP or FDSL cohort
31
default rate of 25% or more for three consecutive years is ineligible for
participation 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 two succeeding
fiscal years. In addition, students attending an institution whose cohort
default rate has exceeded 25% for three consecutive years will be
ineligible for Pell grants. Any institution with a FFELP or FDSL cohort
default rate of 40% or more in any year is subject to immediate limitation,
suspension or termination proceedings from all federal aid programs. No
DeVry Institute has ever had a FFELP cohort default rate of 25% or more for
three consecutive years nor a cohort default rate of 40% or more in any one
year. Due to the recent introduction of the FDSL program, no default rates
for this program have yet been reported.
The Company carefully monitors its students' loan default rate. To help
reduce student loan default rates, the Department of Education requires
that all educational institutions wait 30 days before disbursing funds to
first-time, first-year undergraduates to prevent potential early-term
dropouts from defaulting on their loans. Students who leave school in the
early part of their educational program typically default on their loans at
a higher rate than those students who remain and complete the course.
Another significant factor in controlling student loan default rates is the
servicing and collection efforts by lenders and guaranty agencies. The
Company assists the efforts of these lenders and agencies by contacting its
students who are delinquent in their loan repayments and advising them of
their responsibilities and rights to deferments or collection forbearance
if they are eligible.
According to preliminary, pre-published reports by the U.S. Department of
Education, the Company's schools had FFELP student loan cohort default
rates for 1996 (the latest year for which statistics are available) ranging
from 3.5% to 23.1%. The Company's weighted average FFELP cohort default
rate is preliminarily reported at approximately 17.0%. The reported rates
for 1996 reflect the proportion of former students who were due to begin
repaying their loans during that year but who were in default by the end of
1997. Cohort default rates are subject to revision by the Department of
32
Education as new data becomes available and are subject to appeal by
schools contesting the accuracy of the data. Upon review of the
calculations of these rates for each Institute, the Company has discovered
some errors and exceptions and has submitted appeals for revision where
appropriate. For 1995 (the latest year for which "final" statistics are
available), the Company's weighted average FFELP cohort default rate was
16.1%. This compares to a 1995 average 19.9% default rate for all
proprietary schools.
No DeVry Institute has had a FFELP cohort loan default rate greater than
25% in 1994, 1995 or 1996. Default rate reduction initiatives are underway
at each Institute. No DeVry Institute is subject to any restrictions or
termination under the student loan program.
Students who attend the U.S. DeVry Institutes also participate in the
Federal Perkins loan program. This program provides low interest
educational loans to students who demonstrate exceptional need. Funding
for this program is provided, in part, by the Department of Education and,
in part, by the participating institution. As loans are repaid, the
principal and interest from these repayments is returned to the pool of
funds available for future loans to students at that institution. The
program, including the responsibility for collection of outstanding loans,
is administered by the institution. Any institution with a Perkins loan
cohort default rate exceeding 15% must establish a default reduction plan.
Any institution with a Perkins loan cohort default rate between 20% and 30%
will receive a reduced annual federal contribution to the program. If the
Perkins loan cohort default rate exceeds 30%, the institution will not
receive any new federal contribution to the program. However, new loans to
eligible students may continue to be made from the pool of funds created by
monthly repayments on previous loans. The DeVry Institutes Perkins loan
cohort default rates for 1997 (the latest year for which statistics are
available) range from 14.7% to 36.8%. The U.S. DeVry Institutes weighted
average Perkins loan cohort default rate was 25.0%. For 1996, the Perkins
loan default rates ranged from 16.0% to 32.0%, and the U.S. DeVry
Institutes weighted average Perkins loan cohort default rate was
33
approximately 23.2%. Student counseling and additional collection efforts
were previously implemented and have, in part, contributed to maintaining
default rates at their current levels.
Career Services
The Company believes that the employment of its graduating students is
essential to its ability to attract new students. At the U.S. DeVry
Institutes, there were nearly 45,000 graduates over the ten-year period
ending October, 1997, who were eligible for career services assistance
(i.e. excluding graduates who continued their education, students from
foreign countries not legally eligible to work in the U.S., etc.). Of the
more than 43,000 graduates who actively pursued employment or were already
employed, 93% held positions in their chosen fields within six months of
graduation. Each Institute has career services staff working with students
in the areas of career choice activity, resume preparation and job
interviewing. The staff also maintains contact with local and national
employers to determine job opportunities and arrange interviews.
The shortage of skilled employees has placed an increased premium on
educated workers as evidenced by the widening gap in median wages of male
college vs. high-school graduates to approximately 89% today from 42% in
1979. By the year 2000, it is estimated that 85% of the jobs in the United
States will require education or training beyond high school from only 65%
as recently as 1991.
The DeVry Institutes attempt to gather accurate data on the number of its
graduates employed in education-related positions within six months
following graduation. To a large extent, the reliability of such data is
dependent on the information that graduates report to the DeVry Institutes.
Full and part-time U.S. degree and diploma program graduates for the three
classes which ended in calendar year 1997, and for the three classes which
ended in calendar year 1996, were employed in their chosen field within six
months of graduation, based on data reported to the DeVry Institutes, as
follows:
34
THE U.S. DEVRY INSTITUTES' GRADUATE EMPLOYMENT STATISTICS
Percent of
Graduates
Who
Number of Actively
Graduates Pursued
Who Number of and
Actively Graduates Obtained
Pursued Employed Employment
Employment in and Those Percent
Number or Were Education Who were Of Net
of Net Already Related Already Graduates
Graduates Employed Positions Employed Employed
Calendar Year
1997 Graduating
Classes (2/97,
6/97, 10/97) 4,503 4,419 4,290 97.1% 95.3%
Calendar Year
1996 Graduating
Classes (2/96,
6/96, 10/96) 4,170 4,082 3,931 96.3% 94.3%
(1)Net graduates exclude students continuing their education, students
from foreign countries who are legally ineligible to work in the United
States and students ineligible for employment because of extreme
circumstances.
(2)Does not include students who actively pursued employment for less
than 6 months and did not obtain employment.
In Canada, for the three classes which ended in calendar year 1997, 93.3%
of those graduates who actively pursued employment had obtained employment
or were already employed in their chosen field within six months of
graduation. This includes those students who received diplomas and who
received bachelor's degrees through the DeVry Phoenix Institute's degree
completion program in Calgary and those students who completed their degree
requirements at a U.S. DeVry Institute.
35
The majority of employers of the DeVry Institutes' graduates are in the
electronics or information processing industries. The Company believes
that no single employer has hired more than 5% of the DeVry Institutes'
graduates in recent years. Major employers of the DeVry Institutes'
graduates include the following companies: Andersen Consulting Group,
Applied Materials, AT&T, Cellular One, Eastman Kodak, EDS, General Electric
Company, Hewlett-Packard, IBM, Intel Corp, MCI, Motorola and Silicon
Graphics.
Keller Graduate School maintains a career services office to assist current
and past graduates. This office offers a full range of services designed
to enhance each individual's career development skills and is available to
graduates, at no charge, on a lifetime basis.
Seasonality
The Company's business is somewhat seasonal. Highest enrollment and
revenues at the DeVry Institutes and Keller typically occur during the fall
back-to-school period which corresponds to the second and third quarters of
the Company's fiscal year. Slightly lower enrollment is experienced in the
spring, and the lowest enrollment occurs during the summer months. Becker
experiences higher enrollments for its courses beginning in June and July
leading to the fall CPA exam than for its classes beginning in December and
January leading to the spring CPA exam.
Results of operations reflect this seasonal enrollment pattern and the
pattern of student recruiting activity costs that precede the start of
every term. Revenues, income before interest and taxes and net income by
quarter for each of the past two fiscal years are included in Note 10 to
the Company's Consolidated Financial Statements, Quarterly Financial Data.
Administration and Employees
Each DeVry Institute's campus is managed by a president and has a staff of
academic deans, career service and student service personnel and other
professionals. Each campus also has an admissions director who reports to
36
the Company's vice president of admissions. Each Keller Graduate School
center is managed by a center director and has a director of admissions and
appropriate center support staff.
The Company has approximately 2,850 regular full- and part-time employees.
Approximately 300 of these employees, or slightly more than 10% of the
total work force, work at its corporate headquarters in Oakbrook Terrace,
Illinois, including Keller Graduate School management and staff. In
addition, the Company employs approximately 1,400 students as faculty
assistants and in other part-time positions. Becker is managed by an
administrative staff headquartered in Los Angeles and by regional
administrative staffs which support instructors and coordinate local
recruiting efforts. None of the Company's employees is represented by a
union. The Company believes that its relationships with its employees are
satisfactory.
Faculty
Each DeVry Institutes' campus president hires faculty members in accordance
with criteria established by the Company and applicable state law. Most
faculty members teaching in technical areas have related industry
experience. The DeVry Institutes have initiated sabbatical and other
programs to allow faculty to engage in developmental projects or consulting
opportunities to maintain and enhance their currency and teaching skills.
Faculty members are evaluated each semester based on student comments and
observations by an academic dean. There are approximately 700 full-time
faculty members among all of the DeVry Institutes' campuses. Approximately
80% of the DeVry Institutes' faculty members hold advanced academic
degrees. In addition, DeVry Institutes engaged over 700 part-time, adjunct
and visiting faculty, mostly in the evening programs. Recruiting qualified
new faculty members for some upper term technical courses has become more
difficult as the economic expansion cycle continues. In some classes,
regular full-time faculty have been supplemented with adjunct faculty
teaching on a part-time basis while maintaining employment in their
technical field of specialty.
37
Keller Graduate School faculty members are practicing business
professionals who are engaged to teach on a course-by course basis. A
multi-session training course is used to train and develop new faculty
throughout Keller's national system. Over the past several years, Keller
has begun selectively utilizing full-time faculty to respond to student
demand in rapidly developing areas and to meet approval requirements in
certain states. Less than 10% of Keller's instructors, excluding staff
members who regularly teach, are full-time employees. More than 90% of
Keller's faculty have advanced degrees. Keller draws upon more than 600
active faculty who teach courses as needed throughout the year. Becker's
faculty, numbering approximately 500 each term, are primarily practicing
professionals who teach part-time on a course-by-course basis.
Trademarks and Service Marks
The Company uses a number of trademarks including "DeVry Institute of
Technology", "Becker CPA Review" and variants thereof. All trademarks,
service marks and copyright registrations associated with the business are
registered in the name of the Company or one of its subsidiaries and expire
over various periods of time. The Company vigorously defends against
infringements of its trademarks, service marks and copyrights.
38
ITEM 2 - PROPERTIES
DeVry Institutes
The DeVry Institute campuses are located in both suburban communities and
urban neighborhoods. They are easily accessible to major thoroughfares.
Each Institute campus includes teaching facilities, admissions and
administrative offices. Teaching facilities are housed in modern buildings
that include classrooms, laboratories, libraries, bookstores and student
lounges. Electronics laboratories include PC-based instrumentation and
microprocessor development/circuit simulation systems along with analog and
digital oscilloscopes, digital multimeters, power supplies, signal
generators and other equipment. Computer laboratories include both stand-
alone and networked PC-compatible workstations that support all curricula
areas. Resources available to students include access to a central
mainframe owned and operated by a third party, UNIX and numerous software
packages supporting a variety of business, engineering and scientific
applications. Connections to the Internet and World Wide Web are included
through the computer laboratories as a part of the program curriculum.
Telecommunications laboratories provide central office simulation, PBX
administration, inter-networking and teaching LAN environments.
None of the seven DeVry Institute campuses owned by the Company is subject
to a mortgage or other indebtedness.
In June 1996, the DeVry Technical Institute in Woodbridge, N.J., moved to a
new, 99,000 square foot Company-owned facility in North Brunswick, N.J., in
advance of the fiscal year 1997 summer term class start.
In July 1996, the Company began operation of a satellite campus in
Mississauga (Toronto), Ontario, Canada. Opened in 42,000 square feet of
space, this was the second satellite to the then main campus operation in
North York (Toronto) and the fourth DeVry Institute in Canada.
A new DeVry Institute began operation in July 1997 in Alpharetta (Atlanta),
Georgia, in a build-to-suit, leased campus. The facility, of approximately
65,000 square feet, is being operated as a branch location of the DeVry
Institute in Decatur, Georgia.
39
The table below sets forth certain information regarding each of the
properties at which the DeVry Institutes conducted educational operations
at June 30, 1998:
DeVRY INSTITUTE CAMPUSES
Full and
June 1998 Part-Time
Area Students
(Approximate Attending
Square Feet) Spring 1998 Ownership
------------ ----------- ---------
Alpharetta (Atlanta), Georgia 65,000 588 Leased
Decatur (Atlanta), Georgia 107,500 2,774 Owned
Chicago, Illinois 104,850 3,526 Owned
Addison (Chicago), Illinois 91,600 3,635 Leased
Columbus, Ohio 106,480 2,803 Owned
North Irving (Dallas), Texas 95,250 2,561 Leased
Kansas City, Missouri 74,500 2,306 Owned
Phoenix, Arizona 120,200 3,207 Owned
Pomona (Los Angeles), California 100,500 3,354 Leased
Long Beach (Los Angeles),
California 98,240 1,933 Leased
North Brunswick, New Jersey 99,000 3,113 Owned
Calgary, Alberta, Canada 42,900 1,244 Leased
North York (Toronto), Ontario,
Canada 51,690 579 Leased
Scarborough (Toronto), Ontario,
Canada 44,800 654 Leased
Mississauga (Toronto), Ontario,
Canada 60,600 714 Leased
------
32,991
======
(1) Includes 14,400 square feet of modular buildings.
In the fourth quarter of fiscal 1997, the Company completed the purchase of
land in Fremont (San Francisco), California, for construction of a campus
to serve the Northern California area. This campus opened for classes in
July 1998 in a 99,000 square foot Company-owned facility.
Also purchased in the fourth quarter of fiscal 1997 was a parcel of land in
the San Fernando Valley, California, for construction of a third campus in
the Los Angeles area. Purchase of an adjoining parcel of land, necessary
40
to complete the site, was completed in August, 1997. Construction has
started on a 105,000 square foot Company-owned facility. Classes are
expected to be offered beginning in November 1999.
In New York, the Company is completing renovation on a leased site in Long
Island City. Classes are expected to be offered for the first time in
November 1998. Initially occupying approximately 96,000 square feet, the
campus can be expanded in two years, at the Company's option, by 59,000
square feet.
In Calgary (Alberta), Canada, the Company leased a new build-to-suit campus
of approximately 70,000 square feet to replace its former location.
Classes were offered in this new and larger facility with the start of the
summer 1998 term.
In the Toronto-area, the Company consolidated its operations into its two
newer campuses in Scarborough and Mississauga, Ontario. Effective with the
summer 1998 term, classes were no longer offered in the original North York
location. Additional space was leased in both Scarborough and Mississauga
to accommodate this consolidation and administrative staff will be
relocated when final renovation of the additional space is completed.
In Pomona, California, the Company has leased additional space in an
adjacent building in order to relocate certain administrative functions,
permitting that space to be used for classroom and laboratories. This
expansion is necessary to accommodate increasing enrollments.
In Chicago, construction should begin shortly on a 53,000 square foot
expansion to the urban DeVry Institute campus. Located on the same Company
owned property, this expansion will permit further enrollment growth and an
enhanced environment for the students, faculty and staff.
41
Additional DeVry Institute facility renovations and expansions are under
consideration to improve and expand operations at these locations.
Keller Graduate School
Keller centers are housed in modern buildings whose locations were chosen
for their convenience to students. Keller centers, which mostly range in
size from approximately 4,000 to 10,000 square feet, include teaching
facilities, admissions and administrative offices. Each Keller facility
has an information center designed to enhance students' success and to
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; sample business plans; popular business periodicals; videos of
selected courses; a career services video and texts, and access to more
than three hundred electronic data-bases.
During fiscal 1998, Keller relocated its Downers Grove, Illinois, center to
Lisle, Illinois to take advantage of state-of-the-art telecommunications
laboratory equipment at this site. Also during the year, new centers were
opened in Fremont and San Diego, California; Merrillville, Indiana;
Alpharetta and Buckhead, Georgia; and St. Louis, Missouri.
The table below sets forth certain information regarding each of the
properties at which Keller conducted educational operations in the April,
1998, term:
42
KELLER GRADUATE SCHOOL CENTERS
Part-Time
Students
April 1998 Ownership
---------- ---------
Chicago, Illinois 452 Leased
Schaumburg, Illinois 437 Leased
Lincolnshire, Illinois 422 Leased
Oakbrook Terrace, Illinois 309
Lisle/Downers Grove, Illinois 218 Leased
Orland Park, Illinois 168 Leased
Elgin, Illinois 155 Leased
Merrillville, Indiana 70 Leased
Milwaukee, Wisconsin 205 Leased
Waukesha, Wisconsin 174 Leased
Tysons Corner, Virginia 210 Leased
St. Louis, Missouri 122 Leased
St. Louis, Missouri (downtown) 24 Leased
Kansas City, Missouri 205
Kansas City, Missouri (downtown) 119 Leased
Phoenix, Arizona 134
Mesa, Arizona 210 Leased
Decatur, Georgia 262
Atlanta, Georgia 218 Leased
Alpharetta, Georgia 119
Buckhead, Georgia 73 Leased
Pomona, California 205
Long Beach, California 124
Irvine, California 73 Leased
San Diego, California 22 Leased
Fremont, California -
Distance Learning 100 -
-----
4,830
=====
(1)Operates at the Company's corporate headquarters location
(2)Operates on a DeVry Institute campus
(3)Opened June, 1998
In September, 1998, Keller is opening a new center in Tampa, Florida, its
first in that state. Several additional new center openings are planned
for the remainder of fiscal 1999.
Becker
Becker CPA is headquartered in leased offices in Encino, California.
Classes are conducted in leased facilities, less than twenty of which are
leased on a full-time basis. The remainder of the classes are conducted in
43
facilities which are leased on an as-used basis, allowing classes to be
expanded or relocated as enrollments require. Becker classes are also
currently offered on several DeVry Institute campuses and at Keller
Graduate School centers where the location and facility availability are
appropriate.
Corporate
The Company's administrative offices are located in approximately 73,600
square feet of leased space in an office tower in Oakbrook Terrace,
Illinois. In addition, the Company leases approximately 17,900 square feet
of storage and other miscellaneous use space at this facility.
The Company's leased facilities are occupied under leases whose remaining
terms range from one to 15 years. A majority of these leases can be
renewed for additional periods.
ITEM 3 - LEGAL PROCEEDINGS
The Company is subject to occasional lawsuits, investigations and claims
arising out of the normal conduct of its business. Neither the Company nor
any of its subsidiaries is currently a party to any legal proceeding which
the Company believes is material except those described below.
In fiscal 1996, the Ontario Ministry of Education and Training temporarily
suspended and later conditionally reinstated the processing of financial
aid applications for students attending the Company's Toronto-area schools.
Full unconditional reinstatement is pending, subject to the Ministry's
completion of its review and issuance of a final report.
In July, 1996, the Company and DeVry Canada were served with a purported
class action lawsuit in Canada by a former student alleging breach of
contract and misrepresentation about the quality of the DeVry Institutes'
educational programs, seeking up to CDN $400 million in compensatory and
punitive damages. In July 1998, the Canadian court rejected the
plaintiffs' motion to certify the lawsuit as a class action in the province
of Ontario.
44
Although the outcomes cannot be predicted with certainty, the Company
believes the resolution of these matters will not have a material effect on
the Company's financial position, results of operations or liquidity.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year.
45
EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age and current position
of each executive officer of the
Company are:
Name, Age and Office Business Experience
- -------------------- -------------------
Dennis J. Keller. . .57
Chairman of the Board and Chief Mr. Keller co-founded KGSM in 1973.
Executive Officer From the inception of the Company,
Mr. Keller has been Chairman of the
Board and Chief Executive Officer.
Mr. Keller is a graduate of
Princeton University and holds a
Master of Business Administration
degree from the University of
Chicago Graduate School of
Business.
Ronald L. Taylor. . .54
Director, President and Chief Mr. Taylor co-founded KGSM in 1973
Operating Officer and has been a director since its
inception. Mr. Taylor was Dean of
Keller Graduate School from its
inception until 1981, when he
became President and Chief
Operating Officer of KGSM. Mr.
Taylor is a graduate of Harvard
University and holds a Master of
Business Administration degree from
Stanford University.
Marilynn J. Cason . . 55
Senior Vice President, General Ms. Cason joined the Company in
Counsel and Corporate Secretary 1989 with responsibility for the
Company's legal affairs and human
resources. In her current position
as a Senior Vice President, Ms.
Cason has responsibility for
facilities planning, purchasing and
management information systems in
addition to her responsibilities
for legal affairs and human
resources.
Norman C. Metz. . .50
Senior Vice President Mr. Metz joined the Company in 1983
as a Vice President. In 1986, Mr.
Metz assumed responsibility for
operations of the DeVry Institutes.
In addition, Mr. Metz is currently
responsible for both regional
student recruiting and recruiting
in the admission offices at the
Institute locations.
46
Name, Age and Office Business Experience
- -------------------- -------------------
O. John Skubiak . . 48
Senior Vice President Mr. Skubiak has been with KGSM for
more than 19 years, progressing
from admissions representative to
Dean of Keller Graduate School. In
his current position as a Senior
Vice President of the Company, Mr.
Skubiak has responsibility for the
Company's marketing, other than
sales, and the operations of Keller
and Becker CPA Review.
Norman M. Levine. . .55
Vice President, Controller and Mr. Levine has been Controller of
Chief Financial Officer the Company since 1987 and has been
the Chief Financial Officer since
1989. From 1982 to 1987, Mr.
Levine was Controller of the DeVry
Institutes.
George W. Fisher. . .46
Vice President, Regional Mr. Fisher joined the Company as
Operations Vice President, Canadian Operations
in 1985. His responsibilities
currently include operations of
several of the DeVry Institutes in
the U.S. and Canada.
Bruno LaCaria . . 56
Vice President, Chief Mr. LaCaria joined the Company in
Information Officer August 1998 as Vice President and
chief information officer. Prior
to joining the Company, Mr. LaCaria
was the Director of Information
Systems at the University of
Pittsburgh.
Patrick L. Mayers . . 58
Vice President, Academic Affairs Dr. Mayers joined Keller Graduate
School in 1978 as Dean of Academic
Affairs. Dr. Mayers, who obtained
his B.A., M.A., M.B.A. and Ph.D.
Degrees from the University of
Chicago, was elected an officer of
the Company in 1987. Dr. Mayers
served as Vice President of
Academic Affairs for Keller until
1997 at which time he became the
Vice President of Academic Affairs
for the DeVry Institutes.
47
Name, Age and Office Business Experience
- -------------------- -------------------
Gerald Murphy . . 51
Vice President, Regional Mr. Murphy joined the Company in
Operations late 1995 as a Vice President with
responsibility for the operation of
several of the DeVry Institutes in
the U.S. and Canada. Prior to
joining the Company, Mr. Murphy
served as a Vice President of
Educational Management Corp. and of
the Universal Technical Institute.
James Otten . . 49
Vice President, Regional Dr. Otten joined the Company in
Operations late 1995 as a Vice President with
responsibility for the operation of
several of the U.S. DeVry
Institutes. Prior to joining the
Company, Dr. Otten served as
President of the Katherine Gibbs
School in Boston and of the Brown
Institute in Minneapolis.
Sharon Thomas-Parrott . . 47
Vice President, Government Ms. Thomas-Parrott joined the
Relations Company in 1982 after several years
as an officer in the U.S.
Department of Education's Office of
Student Financial Assistance. She
served the Company in several
student finance positions before
being elected to her current
position which includes
responsibility for both student
finance and government relations.
Jane Perlmutter . . 50
Vice President, Regional Dr. Perlmutter joined the Company
Operations in 1997 as a Vice President with
responsibility for the operation of
several U.S. DeVry Institutes.
Prior to joining the Company, Dr.
Perlmutter managed the Bellcore
Training & Education Center in
Lisle, Illinois.
Kenneth Rutkowski . . 51
Vice President, Operations Mr. Rutkowski joined the Company in
Services and Administration 1985 as Director of Operations and
Administrative Services and was
promoted to his current position in
1991. His current responsibilities
include managing the Company's real
estate and various administrative
functions.
48
Name, Age and Office Business Experience
- -------------------- -------------------
Vijay Shah. . .47
Vice President, Admissions Mr. Shah joined the Company in 1977
progressing from representative in
a DeVry Institute admissions office
to director of admissions. He has
been DeVry's National Director of
Admissions since 1989 and was
promoted to his current position in
August, 1994.
Edward J. Steffes . . 48
Vice President, Marketing Mr. Steffes joined the Company in
1984 as director of marketing and
was promoted to his current
position in 1986. Mr. Steffes is
responsible for the Company's
advertising, sales promotion and
public relations.
49
PART II
-------
ITEM 5 - MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock is traded on the New York Stock Exchange and the
Chicago Stock Exchange under the symbol "DV."
The following table sets forth the high and low sales price information by
quarter for the past two years. All sales price information has been
restated to reflect the Company's two-for-one stock splits, in the form of
a 100% stock dividend, effective June 19, 1998, and December 18, 1996.
FISCAL 1998 FISCAL 1997
-------------------- ------------------------
HIGH LOW HIGH LOW
--------- ------- --------- --------
First Quarter $15 3/16 $12 7/8 $11 23/32 $ 9 1/2
Second Quarter 16 1/2 12 1/2 12 11/16 9 3/16
Third Quarter 17 13/16 14 14 9 1/2
Fourth Quarter 22 3/8 16 3/8 14 15/16 10 13/16
(b) Approximate Number of Security Holders
There were 571 holders of record of the Company's common stock as of
September 1, 1998. The number of holders of record does not include
beneficial owners of its securities whose shares are held by various
brokerage firms and other financial institutions. The Company believes
that there are over 10,000 beneficial holders of its common stock.
Dividends
The Company is a holding company and, as such, is dependent on the earnings
of its subsidiaries for funds to pay cash dividends. Cash flow from the
Company's subsidiaries may be restricted by law and is subject to some
restrictions by covenants in the subsidiaries' debt agreements. The
Company has not paid any dividends on its common stock and expects for the
49
foreseeable future to retain all of its earnings from operations for use in
the Company's business. From time to time, the board of directors will
review the Company's dividend policy. Any payment of dividends will be at
the discretion of the board of directors and will be dependent on the
earnings and financial requirements of the Company and other factors as the
board of directors deems relevant.
ITEM 6 - SELECTED FINANCIAL DATA
Selected financial data for the Company for the last five years is included
in the exhibit, Five-Year Summary - Operating, Financial and Other Data,
on page 88 of this report.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto appearing
elsewhere in this report.
All references in the financial statements to the number of shares
outstanding and per share amounts have been restated to reflect the
Company's two-for-one stock splits effective June 21, 1995, December 18,
1996, and June 19, 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
This new Statement establishes standards for reporting and displaying
comprehensive income and its components in a company's financial
statements. Comprehensive income includes foreign currency translation
adjustments and certain other categories of gain or loss. At the present
time, the only category of comprehensive income which must be included in
the Company's financial statements is foreign currency translation
adjustments, arising primarily form the Company's Canadian operations. The
magnitude of foreign currency translation adjustments has historically been
small and is not expected to result in a material change to the level of
future reported income.
51
RESULTS OF OPERATIONS
Fiscal Year Ended June 30, 1998, vs. Fiscal Year Ended June 30, 1997
- --------------------------------------------------------------------
Tuition revenues in fiscal 1998 increased by $40.3 million, or 14.3%, from
fiscal 1997. The increase in tuition revenue was produced by enrollment
increases at DeVry Institutes and Keller Graduate School of Management.
Fiscal 1998 marks the eighth consecutive year at DeVry Institutes in which
cumulative total student enrollment for the three semesters during the year
has increased, up 9.4% from the previous year. Enrollment increases at
DeVry Institutes reflect the opening of a new institute in Alpharetta,
Georgia, and increases in enrollments at existing Institutes. At Keller
Graduate School, cumulative total student enrollment for the five terms of
fiscal 1998 grew by 17.5% compared to fiscal 1997, reflecting the opening
of new centers in California, Georgia, Indiana and Missouri. Tuition
revenues also increased because of tuition rate increases of approximately
5.0% at DeVry Institutes in March 1998 and at Keller Graduate School in
September 1997.
Other educational revenues, composed primarily of sales of books and
supplies, increased by $4.3 million, or 16.3%, because of sales to the
increased number of students attending the Company's educational programs
and the introduction of the Becker CPA Review (Becker) course sold on CD-ROM.
Interest income on the Company's short-term investments of cash
balances increased to $1.6 million because of increased average cash
balances in excess of those needed for daily operations.
Cost of educational services increased by $20.1 million, or 11.3%, in
fiscal 1998 from the previous year. Cost of educational services includes
the cost of faculty and related staff, which represents approximately 60%
of this expense category. Also included in this expense category are the
costs of facilities, supplies, bookstore sales, other student education-
related support activities and the cost of tuition refunds and
uncollectible accounts. Higher wage, benefit, supply, service and facility
expenses associated with the growing number of operating locations and
increased student enrollments contributed to the increase in cost.
Depreciation expense increased by $2.7 million, or 28.1%, from fiscal 1997
as a result of another year of extensive capital improvements and additions
52
throughout the system. Also included in educational services this year is
the cost of consolidating teaching operations from three locations to the
two newer and more modern sites in the Toronto area. Tuition refunds and
bad debt expense declined by approximately $800,000 from last year, even as
total student enrollment and revenues increased. This is believed to
result from higher admission standards, and education programs and student
service quality initiatives that favorably affect student retention.
Student services and administrative expense increased by $16.3 million, or
18.7%, from fiscal 1997. Student services and administrative expense
includes the costs of new student recruiting, general and administrative
costs and curriculum development. The increased spending reflects the
marketing costs associated with generating the higher student enrollments
at DeVry Institutes and at Keller Graduate School for the terms that began
in fiscal 1998 and for the summer term, for which whose revenue is included
in fiscal 1999. Marketing costs for the July opening of the new DeVry
Institute in Fremont, California, and the November opening of the new
campus in New York also contributed to the increase.
Administrative expenses have also increased from the prior year to support
the Company's expanding operations. In addition, spending on
implementation efforts for the Company's new financial system contributed
to the increased expense. The new financial system, which will be used for
reporting beginning in July 1998, will enhance financial controls,
reporting and analysis and overcome year 2000 processing deficiencies in
the previous system. In addition, the Company has appointed a coordinator
with responsibility for all other aspects of the year 2000 project.
Efforts were initiated to address the year 2000 processing requirements,
focusing initially on mission critical systems and extending to all the
Company's hardware and software, whether internally developed or purchased,
and to ensure compliance by the many providers of products and services to
the Company. The Company believes that it is on schedule for completion of
the project during 1999. Costs associated with this effort are not
expected to have a material effect on the Company's results of operations
and are being charged to expense as incurred.
53
The Company's fiscal 1998 earnings from operations, before interest and
taxes, were a record $51.4 million. Operating margins, which have been
increasing steadily each year, increased again to 14.5%, up from 13.9% and
13.0% in fiscal 1997 and 1996, respectively. Operating margin increases
were generated by improved facility utilization from increased enrollments
and by continued operations improvements.
Interest expense decreased by $1.9 million from last year as debt incurred
for the acquisition of Becker in June 1996 was repaid from cash generated
by operations.
Net income of $30.7 million, or $0.44 per share, was a record for any year,
increasing by 27.0% from fiscal 1997.
Fiscal Year Ended June 30, 1997, vs. Fiscal Year Ended June 30, 1996
- --------------------------------------------------------------------
Tuition revenues in fiscal 1997 increased by $44.2 million, or 18.7% from
fiscal 1996. This was the largest tuition revenue increase in the history
of the Company. The increase in tuition revenues was produced by several
positive factors, including the June 1996 acquisition of Becker CPA Review.
Enrollment increases at DeVry Institutes and Keller Graduate School also
contributed to the tuition revenue increase. Fiscal 1997 marks the seventh
consecutive year at DeVry Institutes in which cumulative total student
enrollment for the three semesters during the year has increased from the
previous year. At Keller Graduate School, cumulative total student
enrollment for the five terms of fiscal 1997 grew by 19.5% compared to
fiscal 1996. Enrollment increases at the DeVry Institutes reflect the
opening of a new institute in Mississauga, Ontario, Canada, and at Keller
Graduate School, the opening of new centers in Oakbook Terrace, Illinois;
and Irvine, California. Tuition revenues also increased because of tuition
rate increases of approximately 5%, which became effective at DeVry
Institutes in March 1997 and at Keller Graduate School in September 1996.
Other educational revenues, composed primarily of sales of books and
supplies, increased by $4.2 million, or 18.9%, because of sales to the
increased number of students attending the Company's educational programs.
Interest income on the Company's short-term investments of cash balances
54
decreased by $72,000, or 6.8%, from the prior year because increased
capital spending and aggressive debt reduction payments reduced average
cash balances in excess of those needed for daily operations.
Cost of educational services increased by $22.9 million, or 14.7%, in
fiscal 1997 from the previous year. Cost of educational services incudes
the cost of faculty and related staff, which consistently comprises
approximately 60% of this expense category. Also included in this expense
category are the cost of facilities, supplies, bookstore sales, other
student education-related support activities and the cost of tuition
refunds and uncollectible accounts. The increase in cost of educational
services reflects the additional faculty, staff and facility costs of the
Becker operations that were not a part of the Company's results for fiscal
1996. Also, there were higher wage, benefit, supply and service expenses
associated with the growing number of operating locations and increased
student enrollments at DeVry Institutes and at Keller Graduate School.
Depreciation expense increased by $2.2 million, or 28.7%, from fisc