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DV > SEC Filings for DV > Form 10-K on 27-Aug-2014All Recent SEC Filings

Show all filings for DEVRY EDUCATION GROUP INC.

Form 10-K for DEVRY EDUCATION GROUP INC.


27-Aug-2014

Annual Report


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of DeVry Group's results of operations and financial condition should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this report.

The seasonal pattern of DeVry Group's enrollments and its educational program starting dates affect the results of operations and the timing of cash flows. Therefore, management believes that comparisons of its results of operations should primarily be made to the corresponding period in the preceding year. Comparisons of financial position should be made to both the end of the previous fiscal year and to the end of the corresponding quarterly period in the preceding year.

OVERVIEW

DeVry Group's financial results for the fiscal year 2014 reflect continued revenue decline within DeVry University, which resulted in decreased earnings as compared to the prior year. This decline was partially offset by continued growth from DeVry Group's healthcare, international and professional education program offerings. Management believes that it is making progress on DeVry University's turnaround and transformation plan, including reducing its cost structure while maintaining and enhancing service to students. Operational and financial highlights for the fiscal year include:

DeVry Group made progress in reducing its cost structure. DeVry University realized $100 million in total expense savings in fiscal year 2014, where reduced enrollment levels necessitated such realignment of expenses.

During the fourth quarter of fiscal year 2014, DeVry Group's revenues and net income increased as compared to the year-ago quarter.

For the May 2014 session, total student enrollments at Chamberlain College of Nursing ("Chamberlain") increased 35.7% to a record 18,929 students as compared to the same term last year. For the fiscal 2014, total new student enrollments increased 33.8% as compared to fiscal year 2013. Chamberlain continues to invest in its programs, student services and campus locations.

During fiscal year 2014, management made progress on the Carrington College ("Carrington") turnaround plan. As of June 30, 2014, total student enrollment increased 3.4 percent to 7,353 as compared to 7,111 total students in the prior year. The improving enrollments resulted in a 2.8 percent increase in total Carrington revenue in fiscal 2014 as compared to the prior year.

During the fourth quarter of fiscal year 2014, DeVry Group recorded pre-tax restructuring charges of approximately $16.4 million. This is in addition to the $16.3 million of pre-tax restructuring charges recorded in the first three quarters of fiscal 2014. Of these charges, $14.0 million relates to severance for workforce reductions and $18.7 million relates to real estate consolidations. These restructuring actions were made to align our cost structure with enrollments primarily at DeVry University, Carrington and the DeVry Group home office. During fiscal year 2015, DeVry Group expects to continue restructuring efforts including further workforce reductions and real estate consolidations. Expense reductions of approximately $70 million are expected related to restructuring and other cost saving initiatives, primarily within DeVry University.

The assets of Advanced Academics Inc. ("AAI") were divested in December 2013 and the operating results for AAI are disclosed as "discontinued operations" in the Consolidated Statements of Income. The fiscal year 2014 pre-tax loss on discontinued operations includes asset impairment charges of $13.5 million related to the write down of AAI net assets to their fair market value.

During the third quarter of fiscal year 2014, Unifavip, a DeVry Brasil institution, received official notice that Brazil's Ministry of Education (the "Ministry") had granted the institution Centro Universitario status. As a result, the institution's name has been changed from Favip to Unifavip. This new status is a marker of quality and enables DeVry Brasil to meet student demand for career-oriented education. Also during fiscal 2014, DeVry Brasil received approval to offer nine new degree programs from the Ministry across our DeVry Brasil institutions. These programs cover many high demand career fields such as industrial, electrical and environmental engineering as well as building construction and business administration.

On July 1, 2013, DeVry Brasil completed the acquisition of Faculdade Differential Integral ("Facid") which serves about 2,500 students primarily in healthcare, including a Doctor of Medicine program at two campuses located in Teresina. This acquisition continues the process of expanding DeVry Brasil's presence in the northeast area of the country. Including this most recent acquisition, DeVry Brasil now serves 33,000 students in thirteen campuses across Northeastern Brazil.

On July 3, 2014, Carrington College Group obtained final approval from the Accrediting Commission for Community and Junior Colleges, Western Association of Schools and Colleges ("ACCJC/WASC") to consolidate 10 locations operating as Carrington College into Carrington College California's accreditation and network of campuses. Before joining ACCJC/WASC, those locations operated under the Accrediting Council for Independent Colleges and Schools (ACICS). Bringing the two colleges together allows more efficient operations and it provides more resources to support academic quality.

The American Institute of Certified Public Accountants released its 2013 Elijah Watt Sells Award winners, honoring the candidates with the highest scores on the CPA exam. More than 90 percent of the recipients prepared for the exam using Becker Professional Education's industry-leading CPA review materials.

DeVry Group's financial position remained strong, generating $266.1 million of operating cash flow during fiscal year 2014. As of June 30, 2014, cash and cash equivalents totaled $358.2 million and there were no outstanding borrowings.

USE OF NON-GAAP FINANCIAL INFORMATION AND SUPPLEMENTAL RECONCILIATION SCHEDULE

DeVry Group recorded restructuring expenses related to workforce reductions and real estate consolidations to align its cost structure with enrollments at DeVry University, Carrington College, Chamberlain College of Nursing and the DeVry Group home office in fiscal years 2014, 2013 and 2012. Additionally, in fiscal years 2014, 2013 and 2012, DeVry Group recorded the operating results of its Advanced Academics Inc. reporting unit as discontinued operations. In fiscal year 2014, DeVry Group also recorded a gain from the sale of a former DeVry University campus in Decatur, Georgia. During fiscal year 2013, DeVry Group reversed an earn-out accrual recorded in relation to an acquisition which management determined will not likely be payable. During fiscal years 2013 and 2012, DeVry Group recorded impairment charges related to its Carrington College reporting unit. In addition, in fiscal year 2012, DeVry Group recorded a gain from the sale of Becker's Stalla CFA review operations. The following table illustrates the effects of the restructuring expense, discontinued operations, impairment charges, gains on the sales of assets and earn-out reversal on DeVry Group's earnings. Management believes that the non-GAAP disclosure of net income and earnings per share excluding these discrete items and discontinued operations provides investors with useful supplemental information regarding the underlying business trends and performance of DeVry Group's ongoing operations and is useful for period-over-period comparisons of such operations given the discrete nature of the restructuring charges and gain on the sale of assets. DeVry Group uses these supplemental financial measures internally in its management and budgeting process. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, DeVry Group's reported results prepared in accordance with GAAP. The following table reconciles these non-GAAP measures to the most directly comparable GAAP information (in thousands, except per share data):

                                                                Fiscal Year
                                                        2014          2013          2012
Net Income                                         $ 134,032     $ 106,786     $ 141,565
Earnings per Share (diluted)                       $    2.07     $    1.65     $    2.09
Discontinued Operations (net of tax)               $  16,957     $  16,902     $  27,541
Earnings per Share (diluted)                       $    0.26     $    0.26     $    0.41
Restructuring Charges (net of tax)                 $  20,160     $  16,240     $   4,334
Effect on Earnings per Share (diluted)             $    0.31     $    0.25     $    0.06
Earn-out Accrual Adjustment (net of tax)           $       -     $  (4,381 )   $       -
Effect on Earnings per Share (diluted)             $       -     $   (0.07 )   $       -
Impairment Charges (net of tax)                    $       -     $  49,448     $  55,751
Effect on Earnings per Share (diluted)             $       -     $    0.77     $    0.82
Gain on Sale of Assets (net of tax)                $  (1,167 )   $       -     $  (2,216 )
Effect on Earnings per Share (diluted)             $   (0.02 )   $       -     $   (0.03 )
Net Income from Continuing Operations Excluding
the Restructuring
Expenses and Gain on Sale of Assets (net of tax)   $ 169,982     $ 184,995     $ 226,975
Earnings per Share from Continuing Operations
Excluding the Restructuring Expenses and Gain on
Sale of Assets (net of tax)                        $    2.62     $    2.86     $    3.35
Shares used in diluted EPS calculation                64,853        64,611        67,705

RESULTS OF OPERATIONS

The following table presents information with respect to the relative size to revenue of each item in the Consolidated Statements of Income for the current and prior two fiscal years. Percentages may not add because of rounding.

                                                                 Fiscal Year
                                                        2014           2013           2012
Revenues                                               100.0 %        100.0 %        100.0 %
Cost of Educational Services                            51.1 %         49.0 %         46.4 %
Student Services and Administrative Expense             37.8 %         38.5 %         38.1 %
Gain on Sale of Assets                                  (0.1 )%         0.0 %          0.0 %
Restructuring Expenses                                   1.7 %          1.3 %          0.3 %
Earn-out Accrual Adjustment                              0.0 %         (0.2 )%         0.0 %
Asset Impairment Charge                                  0.0 %          2.9 %          3.6 %
Total Operating Costs and Expense                       90.6 %         91.5 %         88.5 %
Operating Income from Continuing Operations              9.4 %          8.5 %         11.5 %
Net Interest (Expense) Income                           (0.1 )%        (0.1 )%         0.1 %
Income From Continuing Operations Before
Non-controlling Interest and Income Taxes                9.3 %          8.4 %         11.6 %
Income Tax Provision                                    (1.4 )%        (2.0 )%        (3.4 )%
Income From Continuing Operations Before
Non-controlling Interest                                 7.9 %          6.4 %          8.2 %
Loss on Discontinued Operations, Net of Tax             (0.9 )%        (0.9 )%        (1.3 )%
Net Income                                               7.0 %          5.5 %          6.9 %
Net Income Attributable to Non-controlling
Interest                                                (0.0 )%        (0.1 )%        (0.0 )%
Net Income Attributable to DeVry Education Group         7.0 %          5.4 %          6.8 %

FISCAL YEAR ENDED JUNE 30, 2014 VS. FISCAL YEAR ENDED JUNE 30, 2013

All discussions of the results of operations exclude the results of Advanced Academics, Inc. ("AAI") which are now included in the discontinued operations section of the Consolidated Statements of Income for all periods presented.

REVENUES

Total consolidated revenues for fiscal year 2014 of $1,923.4 million decreased $41.0 million, or 2.1%, as compared to last fiscal year. Revenues decreased 15.2% within the Business, Technology and Management segment as a result of a decline in student enrollments and an increase in scholarships. This decrease was partially offset by revenue increases of 14.4% within the Medical and Healthcare segment and 16.0% in the International Professional Education segment as a result of growth in total student enrollments and tuition price increases. In addition, the two most recent additions to DeVry Brasil, Unifavip which was acquired on September 3, 2012, and Facid which was acquired on July 1, 2013 (combined effect of $23.9 million increase in revenue), along with revenue growth at the existing DeVry Brasil institutions, contributed to offsetting the revenue decline during fiscal year 2014.

Management expects that total revenues will increase slightly in the first quarter of fiscal year 2015 as compared to first quarter of fiscal year 2014, driven by anticipated revenue growth within all of DeVry Group's educational institutions except DeVry University. These increased revenues are expected to be partially offset by DeVry University's continuing revenue declines resulting from the impact of the declines in new and total student enrollments experienced in previous fiscal years and which have continued into fiscal year 2015.

Medical and Healthcare

Medical and Healthcare segment revenues increased 14.4% to $769.1 million in fiscal year 2014 as compared to the prior year. Higher total student enrollments at the institutions that comprise this segment (DeVry Medical International (which is composed of American University of the Caribbean School of Medicine ("AUC"), Ross University School of Medicine ("RUSM") and Ross University School of Veterinary Medicine ("RUSVM"), Chamberlain and Carrington) were the key drivers of the segment revenue growth. Key trends for DeVry Medical International, Chamberlain and Carrington are set forth below. See discussion following the enrollment information for explanation of the trends.

DeVry Medical International



                                 DeVry Medical International Student                 DeVry Medical International Student
                                     Enrollment Fiscal Year 2014                         Enrollment Fiscal Year 2013
Term                        Sept. 2013         Jan. 2014          May 2014      Sept. 2012         Jan. 2013          May 2013
New Students                       978               582               555             925               603               518
% Change from Prior Year           5.7 %            (3.5 )%            7.1 %           8.4 %             0.3 %           (19.4 )%
Total Students                   6,458             6,673             5,925           6,209             6,318             5,800
% Change from Prior Year           4.0 %             5.6 %             2.2 %           2.1 %             4.9 %            (2.4 )%

Tuition Rates:

Effective for semesters beginning in September 2013, tuition and fees for the basic sciences and clinical rotation portions of AUC's medical program were $18,975 and $21,250, respectively, per semester. These tuition rates represent an increase from the September 2012 rates of approximately 5.9%.

Effective for semesters beginning in September 2013, tuition and fees for the basic sciences portion of the programs at the Ross University School of Medicine were $18,825 per semester. Tuition and fees for the clinical portion of the program were $20,775 per semester. These tuition rates represent an increase from the September 2012 rates of 6.5%. These amounts do not include the cost of books, supplies, transportation, and living expenses.

Effective for semesters beginning in September 2013, tuition and fees for the basic sciences portion of the programs at Ross University School of Veterinary Medicine were $17,725 per semester. Tuition and fees for the clinical portion of the program were $22,250 per semester. These tuition rates represent an increase from the September 2012 rates of 5.5%. These amounts do not include the cost of books, supplies, transportation, and living expenses.

Continued demand for medical doctors and veterinarians positively influenced career decisions of new students towards these respective fields of study. Also, there currently exists a supply and demand imbalance in medical education. Management believes that the historical enrollment increases at DeVry Medical International were a result of the reputation of its academic programs and student outcomes, enhancements made to its marketing and recruiting functions, and steps taken to meet student demand such as adding faculty and classrooms, which reduced capacity constraints that existed in the prior fiscal year. Management expects that future enrollment trends will produce growth in the low single digits; however, heightened competition may adversely affect DeVry Medical International's ability to continue to attract qualified students to its programs.

Chamberlain College of Nursing



                                                    Chamberlain College of Nursing Undergraduate and Graduate Student Enrollment Fiscal Year 2014
Term                                        July 2013          September 2013        November 2013           January 2014           March 2014        May 2014
New Students                                    1,285                   3,380                1,952                  3,501                2,092           3,142
% Change from Prior Year                        (34.9 )%                108.0 %               (8.0 )%                65.1 %               55.0 %          37.6 %
Total Students                                 12,648                  15,690               15,732                 18,136               18,185          18,929
% Change from Prior Year                         16.5 %                  30.2 %               28.5 %                 32.2 %               37.4 %          35.7 %




                                                  Chamberlain College of Nursing Undergraduate and Graduate Student Enrollment Fiscal Year 2013
Term                                       July 2012        September 2012        November 2012         January 2013           March 2013           May 2013
New Students                                   1,974                 1,625                2,121                2,120                1,350              2,283
% Change from Prior Year                        14.7 %                52.6 %               13.5 %               87.8 %              (25.0 )%           110.8 %
Total Students                                10,852                12,050               12,245               13,714               13,235             13,953
% Change from Prior Year                        15.8 %                20.2 %               15.3 %               26.0 %               16.9 %             24.4 %

Tuition Rates:

Effective for sessions beginning in July 2013, tuition was $665 per credit hour for students enrolling one to six credit hours per session in the Chamberlain Bachelor of Science in Nursing ("BSN") (onsite), Associate Degree in Nursing
("ADN") and Licensed Practical Nurse to Registered Nurse ("LPN-to-RN") programs. This rate is unchanged as compared to the prior year. Tuition was $200 per credit hour per session for each credit hour in excess of six credit hours. This excess credit hour rate represents a $100 increase as compared to the prior year. These amounts do not include the cost of books, supplies, transportation and living expenses.

Effective for sessions beginning in July 2013, tuition was $590 per credit hour for students enrolled in the Chamberlain Registered Nurse to Bachelor of Science in Nursing ("RN-to-BSN") online degree program. This tuition rate is unchanged from the July 2012 tuition rate. Tuition for students enrolled in the online Master of Science in Nursing ("MSN") program was $650 per credit hour, which is unchanged from the prior year. The online Doctor of Nursing Practice ("DNP") program was offered at $750 per credit hour.

Continued demand for nurses positively influenced career decisions of new students towards this field of study. The historical trend of increases in new student enrollments is attributable to increased demand for its RN-to-BSN online completion program, the addition of several new campus locations, capacity expansion and organic growth at existing locations and the introduction of new graduate and doctoral degree programs. New student enrollment at Chamberlain for the July 2013 and November 2013 terms as compared to the July 2012 and November 2012 terms were impacted by the realignment of the academic calendar, with September, January and May intakes. As a result there were no onsite enrollments for the July 2013 and November 2013 terms. These enrollments were shifted to the September 2013 and the January 2014 terms which partially accounts for the unusually large percentage increase in new student enrollments during these terms from the previous year. In the March 2014 and May 2014 terms, the new and total student enrollment growth continues to reflect the strong demand for its Family Nurse Practitioner, RN-to-BSN and DNP degree programs along with the increase in the number of campuses.

Carrington College



                                       Carrington College Student Enrollment Fiscal Year 2014
                             September 2013           December 2013           March 2014        June 2014
New Students                          2,733                   1,706                2,247            1,766
% Change from Prior Year              (19.5 )%                 (3.2 )%              (6.0 )%           9.9 %
Total Students                        7,706                   7,358                7,758            7,353
% Change from Prior Year                1.0 %                  (0.6 )%              (2.4 )%           3.4 %




                                      Carrington College Student Enrollment Fiscal Year 2013
                             September 2012           December 2012         March 2013         June 2013
New Students                          3,396                   1,763              2,391             1,607
% Change from Prior Year               33.3 %                  12.7 %             17.5 %            (1.5 )%
Total Students                        7,628                   7,405              7,951             7,111
% Change from Prior Year               (8.3 )%                  0.4 %              8.8 %             9.6 %

Tuition rates:

On a per credit hour basis, tuition for Carrington College programs ranges from $304 per credit hour to $1,684 per credit hour, with the wide range due to the nature of the programs. General education courses are charged at $335 to $371 per credit hour. Students are charged a non-refundable registration fee of $100, and they are also charged separately for books and program-specific supplies and/or testing. A student services fee ranging from $75 to $150 is charged as well, depending on the program. Total program tuition ranges from approximately $12,000 to $15,000 for most certificate programs up to approximately $60,000 for a few advanced programs.

Management believes the previous declines in total student enrollments experienced at Carrington were the result of heightened competition, the prolonged economic downturn and persistent unemployment, which has resulted in reductions in the volume of inquiries from potential students. To address these issues, Carrington initiated and continues to execute a turnaround plan, which includes increasing its focus on building awareness of Carrington's brand, optimizing its marketing approach to emphasize the development of internally-generated inquiries, improving its recruiting process through its new student contact center and narrowing its focus geographically and programmatically around Carrington's core strengths in healthcare. Carrington continues to make targeted investments in enhancing its students' academic experience. These initiatives contributed to growth in new student enrollments for several successive three month periods in fiscal year 2013, which resulted in an increase in total student enrollment for four consecutive three month periods through September 2013. In the June 2013 term, new student enrollments declined as a result of the decision to focus Carrington's program offerings and suspend recruiting for certain non-core programs. In the September 2013 term, new student enrollments also decreased as a result of the number of session starts in the current year period as compared to the year-ago period. During the first quarter of fiscal year 2014, Carrington had four session starts as compared to five in the year-ago period. The decrease in new student enrollments for the three month periods ended December 31, 2013 and March 31, 2014 compared to the respective year-ago periods were a result of the narrowed program focus, market consolidations and program teach outs. Total student enrollments for the three month periods ended December 31, 2013 and March 31, 2014 decreased from the respective year-ago periods due to the trend of declines in new student enrollments for the past year caused by the decision to focus on Carrington's core strengths. For the three months ended June 30, 2014, new and total student enrollment increased 9.9 percent and 3.4 percent, respectively, from the year ago period as the results of the narrowed program focus began to show results.

International and Professional Education

International and Professional Education segment revenues rose 16.0% to $228.1 million in fiscal year 2014 as compared to the prior year. DeVry Brasil was the primary driver of revenue growth in this segment. In addition to revenue growth within existing institutions, the recent acquisitions of Unifavip, which was acquired on September 3, 2012 and Facid, which was acquired on July 1, 2013, contributed to this revenue growth (combined effect of $23.9 million increase in revenue or approximately 76 percent of the total increase in this segment). Becker Professional Education revenues grew, driven primarily by increases in Becker CPA self-study and the United States Medical Licensing Exam ("USMLE") review course revenues. Key enrollment trends for DeVry Brasil are set forth below.

                                                  DeVry Brasil Student Enrollment
                                       Fiscal Year 2014                      Fiscal Year 2013
Term                            September 2013        March 2014      September 2012       March 2013
New Students                             3,785             8,845               3,975            7,390
% Change over Prior Year                  (4.8 )%           19.7 %              31.1 %           32.0 %
Total Students                          29,340            33,013              21,031           29,083
% Change over Prior Year                  39.5 %            13.5 %              49.2 %           36.6 %

A large percentage of DeVry Brasil's program offerings are subject to limitations by Brazil's Ministry of Education ("MEC") as to the number of students who can be enrolled in the programs. The new student enrollment decline experienced in the September 2013 term was primarily the result of a temporary admissions restriction imposed by the MEC on three programs at one of its institutions, Area 1. As of December 31, 2013, the restriction to admit new students to the three programs was removed; however, other restrictions on the number of overall students and the ability to launch new programs are still in place. Management has applied for approval to have these limitations removed and expects this to occur within the first half of fiscal year 2015.The increase in . . .

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