<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{X} Quarterly report pursuant to Section 13 and 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 1998
--------------
or
{_} Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from___________to___________
Commission file number 0-27248
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LEARNING TREE INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-3133814
- ----------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
6053 WEST CENTURY BOULEVARD, LOS ANGELES, CA 90045
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 417-9700
--------------------
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
--- ---
The number of shares of common stock, $.0001 par value, outstanding as of May 5,
1998, is 21,994,507 shares.
Total number of pages 12
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LEARNING TREE INTERNATIONAL, INC.
FORM 10-Q
MARCH 31, 1998
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I FINANCIAL STATEMENTS PAGE
----
Item 1. Financial Statements:
Consolidated Balance Sheets........................ 3
Consolidated Statements of Operations.............. 4
Consolidated Statements of Cash Flows.............. 5
Notes to Consolidated Financial Statements......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 7
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.................................... 10
Item 2. Changes in Securities................................ 11
Item 3. Defaults Upon Senior Securities...................... 11
Item 4. Submission of Matters to a Vote of Security Holders.. 11
Item 5. Other Information.................................... 11
Item 6. Exhibits and Reports on Form 8-K..................... 11
SIGNATURES....................................................... 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 35,098,000 $ 32,441,000
Short-term interest-bearing investments...... 27,865,000 24,330,000
Trade accounts receivable, net............... 18,249,000 23,201,000
Prepaid marketing expenses................... 869,000 1,356,000
Prepaid expenses and other................... 3,630,000 4,818,000
------------ ------------
Total current assets................... 85,711,000 86,146,000
------------ ------------
Equipment and leasehold improvement, net....... 27,902,000 27,429,000
Deferred income taxes.......................... 559,000 710,000
Other assets................................... 9,720,000 8,066,000
------------ ------------
Total assets......................... $123,892,000 $122,351,000
============ ============
LIABILITIES
Current liabilities:
Current portion of debt and capital leases... $ -- $ 19,000
Trade accounts payable....................... 13,201,000 17,993,000
Deferred revenue............................. 31,457,000 27,531,000
Accrued liabilities.......................... 5,373,000 5,764,000
Income taxes payable......................... 3,112,000 3,726,000
------------ ------------
Total current liabilities.............. 53,143,000 55,033,000
Deferred facilities rent....................... 1,486,000 1,423,000
------------ ------------
Total liabilities...................... 54,629,000 56,456,000
------------ ------------
Commitments
STOCKHOLDERS' EQUITY
Common Stock, $.0001 par value; 75,000,000
shares authorized 21,995,000 shares
issued and outstanding..................... 2,000 2,000
Additional paid-in capital................... 42,992,000 42,992,000
Notes receivable from stockholders........... (11,000) (14,000)
Deferred compensation--stockholders.......... (87,000) (127,000)
Cumulative foreign currency translation...... (1,145,000) (1,066,000)
Retained earnings............................ 27,512,000 24,108,000
------------ ------------
Total stockholders' equity............. 69,263,000 65,895,000
------------ ------------
Total liabilities and stockholders'
equity............................... $123,892,000 $122,351,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues............................................ $ 45,005,000 $ 35,759,000 $ 90,184,000 $ 71,769,000
Costs of revenues................................... 18,677,000 15,448,000 39,017,000 29,790,000
--------------- -------------- --------------- --------------
Gross profit....................................... 26,328,000 20,311,000 51,167,000 41,979,000
--------------- -------------- --------------- --------------
Operating expenses:
Course development................................. 2,721,000 2,372,000 5,886,000 4,754,000
Sales and marketing................................ 15,574,000 11,409,000 30,412,000 21,300,000
General and administrative......................... 5,562,000 4,151,000 11,007,000 7,900,000
--------------- -------------- --------------- --------------
23,857,000 17,932,000 47,305,000 33,954,000
--------------- -------------- --------------- --------------
Income from operations.............................. 2,471,000 2,379,000 3,862,000 8,025,000
--------------- -------------- --------------- --------------
Other income (expense):
Interest expense................................... (4,000) (9,000) (9,000) (17,000)
Interest income.................................... 709,000 850,000 1,530,000 1,720,000
Foreign exchange................................... (15,000) 4,000 (47,000) 17,000
Other.............................................. 40,000 (35,000) (177,000) (323,000)
--------------- -------------- --------------- --------------
730,000 810,000 1,297,000 1,397,000
--------------- -------------- --------------- --------------
Income before provision for income taxes............ 3,201,000 3,189,000 5,159,000 9,422,000
Provision for income taxes.......................... 1,088,000 1,085,000 1,754,000 3,204,000
--------------- -------------- --------------- --------------
Net income.......................................... $ 2,113,000 $ 2,104,000 $ 3,405,000 $ 6,218,000
=============== ============== =============== ==============
Earnings per common share........................... $ 0.10 $ 0.10 $ 0.15 $ 0.28
=============== ============== =============== ==============
Earnings per common share assuming dilution......... $ 0.10 $ 0.10 $ 0.15 $ 0.28
=============== ============== =============== ==============
Weighted average number of shares outstanding....... 21,995,000 21,995,000 21,995,000 21,995,000
=============== ============== =============== ==============
Diluted shares outstanding.......................... 22,003,000 22,088,000 22,036,000 22,061,000
=============== ============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows--operating activities:
Net income............................................................... $ 3,405,000 $ 6,218,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................................... 4,553,000 2,326,000
(Gains) losses on disposals of equipment, property and leasehold
improvements....................................................... 197,000 332,000
Deferred facilities rent charges........................................ 60,000 (209,000)
Amortization of deferred compensation................................... 40,000 40,000
Unrealized foreign exchange (gains) losses.............................. 86,000 (55,000)
Change in net assets and liabilities:
Trade accounts receivable........................................... 4,889,000 (1,670,000)
Prepaid marketing expenses.......................................... 484,000 (161,000)
Prepaid expenses and other.......................................... 1,174,000 (385,000)
Income taxes........................................................ (490,000) 1,538,000
Trade accounts payable.............................................. (4,850,000) 1,671,000
Deferred revenue.................................................... 3,920,000 6,408,000
Accrued liabilities................................................. (330,000) (43,000)
------------ ------------
Net cash provided by operating activities............................... 13,138,000 16,010,000
------------ ------------
Cash flows--investing activities:
Purchases of equipment, property and leasehold improvements.............. (5,690,000) (10,001,000)
Retirements of equipment, property and leasehold improvements............ 455,000 5,000
Proceeds from short-term interest-bearing investments held to maturity... 11,482,000 14,544,000
Proceeds from short-term interest-bearing investments held for sale...... 4,800,000 --
Purchases of short-term interest-bearing investments:
Investments held to maturity......................................... (11,117,000) (4,500,000)
Investments held for sale............................................ (8,700,000) (400,000)
Other, net............................................................... (1,680,000) (660,000)
------------ ------------
Net cash used in investing activities................................... (10,450,000) (1,012,000)
------------ ------------
Cash flows--financing activities:
Principal payments of debt and capital leases............................ (19,000) (69,000)
Collections of stockholder notes......................................... 3,000 43,000
------------ ------------
Net cash provided by (used in) financing activities..................... (16,000) (26,000)
------------ ------------
Effects of exchange rates on cash............................................ (15,000) (17,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents......................... 2,657,000 14,955,000
Cash and cash equivalents at the beginning of the period..................... 32,441,000 24,541,000
------------ ------------
Cash and cash equivalents at the end of the period........................... $ 35,098,000 $ 39,496,000
============ ============
Supplemental disclosures:
Income taxes paid....................................................... $ 2,265,000 $ 2,281,000
============ ============
Interest paid........................................................... $ 2,000 $ 16,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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LEARNING TREE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Operations and Significant Accounting Policies
----------------------------------------------
The accompanying condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
regulations. Certain prior period balances have been reclassified to conform
with the current period presentation. The condensed consolidated financial
statements reflect all adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. All such adjustments are of a
normal recurring nature. The condensed consolidated financial statements in this
Quarterly Report on Form 10-Q should be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year ended
September 30, 1997 that are contained in the Company's 1997 Annual Report on
Form 10-K.
Note 2. Computation of Net Income per Common share and Common Equivalent Share:
----------------------------------------------------------------------
The Company has adopted Financial Accounting Standards No. 128 (SFAS
No. 128) "Earnings per Share" as of the start of fiscal 1998. Accordingly, the
net income per common share and common equivalent share for fiscal 1997 has been
restated to reflect the adoption of SFAS No. 128. The difference between the
weighted average number of shares outstanding and the diluted shares outstanding
is due to stock options. To calculate the number of diluted shares outstanding,
the treasury stock method was used. For the three and six month periods ended
March 31, 1998, 8,000 shares and 41,000 shares, respectively, were added to the
weighted average number of shares outstanding. For the three and six month
periods ended March 31, 1997, 93,000 shares and 66,000 shares, respectively,
were added to the weighted average number of shares outstanding.
Note 3. Litigation:
-----------
On April 16, 1998, a class action lawsuit was filed against certain
officers and directors of the Company in the Superior Court of the State of
California, County of Los Angeles, purportedly on behalf of those who purchased
the Company's Common Stock between May 8, 1997 and November 3, 1997. The
Company has not been named in the suit, but has indemnification agreements with
such officers and directors. The Company has obtained a copy of the complaint
which alleges violations of California law. The complaint alleges that the
named officers and directors concealed an alleged deterioration of its business
in early 1997 and realized profits by trading their shares of Company Common
Stock while in possession of the alleged material adverse information. The
complaint seeks an unspecified amount of compensatory damages and, additionally,
seeks attorneys' and other costs, interest, and other relief.
The named officers and directors have not yet filed answers to the
complaint but have indicated that they intend to defend themselves vigorously in
this proceeding. The Company is unable to estimate the outcome of this matter
or any potential liability it may incur. The Company does have directors' and
officers' insurance coverage. Even if the defendants prevail on the merits in
such litigation or the costs are covered by insurance, the Company expects to
incur legal and other defense costs as a result of such proceeding. This
proceeding could involve a substantial diversion of the time of some members of
management, and an adverse determination in, or settlement of, such litigation
could involve the payment of significant amounts or could include terms in
addition to such payments, which could have an adverse impact on the Company's
business, financial condition, results of operations and cash flows.
6
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Learning Tree International, Inc. (the "Company"), is a leading worldwide
provider of education and training for corporate information technology ("IT")
professionals in business and government organizations. The Company develops,
markets and delivers a broad, proprietary library of instructor-led course
titles focused on client/server systems, intranet/Internet technologies,
computer networks, operating systems, databases, programming languages,
graphical user interfaces, object-oriented technology and IT management. The
Company also tests and certifies IT professionals in 29 IT job functions. The
Company's instructor-led courses are recommended for college credit by the
American Council on Education.
During 1997, the Company expanded the breadth of its instructor-led
training activities through the introduction of its Learning Solutions Division.
The Learning Solutions Division provides custom developed training programs for
larger clients who need to train large numbers of their IT professionals and
end-users. The focus of this new division is on training that supports the
roll-out and use of new organization-wide information systems, tools and
applications. Its first program was for General Motors Corporation, and was
largely completed in the first quarter of fiscal 1998. The Company is currently
working on a smaller follow-on program with General Motors, and is seeking
additional contracts with other potential customers. Because this business
depends upon obtaining a small number of large contracts, its revenues are
inherently subject to fluctuation.
In addition to its instructor-led courses, the Company develops, produces
and markets a line of interactive computer-based training courses incorporating
audio and graphical elements ("multimedia CBT") that are designed for both
stand-alone CD-ROM and network-based delivery. The Company has been marketing
its multimedia CBT products through direct mail and telemarketing methods, which
focus on high volumes of comparatively smaller unit sales. The Company also
markets its multimedia CBT products through field sales of higher value
multimedia CBT contracts. To date, the majority of the Company's multimedia CBT
revenues have been obtained through direct mail and telemarketing.
In 1997, the Company also introduced a program of "Power Seminars," which
were multi-day conferences consisting of a number of 1-day, multimedia lecture-
style seminars in key information technologies. In November 1997, the Company
announced that it was eliminating its Power Seminars program. Operations in the
Power Seminars program ceased as of the end of the first quarter of fiscal 1998.
RESULTS OF OPERATIONS
In the second fiscal quarter ended March 31, 1998, revenues increased by
$9.2 million or 26% to $45.0 million from $35.8 million for the corresponding
quarter of the prior year. Income from operations for the quarter ended March
31, 1998 increased $92,000 or 4% to $2.5 million versus $2.4 million for the
same quarter of fiscal 1997. Net income for the quarter ended March 31, 1998
was $2.1 million which was unchanged from the quarter ended March 31, 1997.
For the six month period ended March 31, 1998, revenues increased by $18.4
million or 26% to $90.2 million from $71.8 million for the six months ended
March 31, 1997. Income from operations for the six months ended March 31, 1998,
decreased $4.1 million or 52% to $3.9 million versus $8.0 million for the
corresponding period of the prior year. Net income for the six months ended
March 31, 1998 decreased $2.8 million or 45% to $3.4 million versus $6.2 million
for the corresponding period of the prior year.
The growth of revenues in the second fiscal quarter was due, in large part,
to an increase in the number of course participants in multi-day instructor-led
courses to 27,765 in the quarter ended March 31, 1998 versus 22,998 participants
in the corresponding quarter of the prior year. For the six months ended March
31, 1998, the number of multi-day instructor-led course participants was 54,063
compared to 47,027 in the corresponding six month period of the prior year.
The additional course participants are primarily attributable to increased
marketing and sales expenditures and an increase in the net number of
instructor-led course titles to 146 in the second quarter of fiscal 1998
compared to 124 in the same period a year earlier. Revenues for the three and
six month periods ended March 31, 1998 also reflect a 4% increase in average
revenue per multi-day course participant, which resulted from increases in
average course duration and prices. The increase in revenues also reflects
revenues earned by the Company's Learning Solutions Division under its contract
with General Motors to train General Motors' personnel and dealers on the use
and support of a new proprietary information system, GM ACCESS, as well as the
growth of revenues from the multimedia CBT product line.
7
<PAGE>
The Company's cost of revenues for its instructor-led courses primarily
includes the costs associated with course instructors, course materials, course
equipment, freight, classroom facilities and refreshments. For multimedia CBT
courses, cost of revenues primarily includes the costs of amortized development,
manufacturing, distribution and support. The cost of revenues decreased to
41.5% of revenues in the second quarter of fiscal 1998 compared to 43.2% in the
second quarter of fiscal 1997, primarily because of an increase in revenues per
instructor-led course event. For the six months ended March 31, 1998, the cost
of revenues increased to 43.3% of revenues compared to 41.5% for the same period
in fiscal 1997, largely because of lower gross margins in the Power Seminars and
Learning Solutions product lines compared with the Company's traditional multi-
day instructor-led courses and multimedia CBT courses, and also because of the
increased cost per multi-day instructor-led course event.
For the second quarter of fiscal 1998, cost of revenues increased $3.3
million or 21% to $18.7 million from $15.4 million for the same quarter of
fiscal 1997. For the six months ended March 31, 1998, the Company's cost of
revenues increased by $9.2 million or 31% to $39.0 million from $29.8 million
for the corresponding period in the prior year. The increases in the cost of
revenues compared to the same periods in the prior year, are primarily the
result of a) the increased number of multi-day instructor-led course events and
b) the costs associated with the increased sales in the multimedia CBT product
line. The number of multi-day instructor-led course events increased 21% in the
quarter ended March 31, 1998 to 1,743 course events from 1,446 course events in
the quarter ended March 31, 1997. For the six month period ended March 31,
1998, the number of instructor-led course events increased 15% to 3,369 from
2,931 for the corresponding period in the prior year. Costs per multi-day
instructor-led course event decreased approximately 2% in the second quarter of
fiscal 1998 compared to the second quarter of fiscal 1997. Costs per multi-day
instructor-led course event have increased approximately 5% for the first six
months of fiscal 1998 compared to the corresponding period of the prior year,
reflecting lower costs during the first quarter of fiscal 1997. In January
1998, the Company signed an agreement to lease a new education center in the
United Kingdom which is anticipated to be operational in early fiscal 1999. In
April 1998, the Company opened a new larger education center in Boston.
Course development expense includes the costs of developing new course
titles and updating the Company's existing course library. The principal costs
are for internal product development staff and independent consultants who serve
as subject matter experts. Course development expenses increased by $349,000 or
15% to $2.7 million for the quarter ended March 31, 1998 versus $2.4 million in
the quarter ended March 31, 1997. For the six months ended March 31, 1998,
course development expenses increased $1.1 million or 24% to $5.9 million from
$4.8 million for the corresponding period in the prior year. These increases
reflect the costs associated with the Company's strategy of expanding its multi-
day instructor-led and multimedia CBT course libraries to meet its customers'
technology training needs and updating and maintaining the growing course title
libraries. The Company plans to continue its strategy of expanding both its
instructor-led course library and its multimedia CBT library, including
additional titles in the areas of intranet/Internet technologies, computer
networking, Java, Windows NT, programming languages and databases.
During the first quarter of fiscal 1998, the Company introduced a new web-
based engine for its multimedia CBT product line and is continuing to allocate
resources to develop new features and capabilities for this engine. Since all
new CBT titles are being developed using this evolving engine, and because
resources are being allocated to adapt existing courses based on prior engines
to the new web-based engine, the rates of introduction of new CBT titles in the
first and second quarters were, and the expected release rate of new courses in
the next quarter is expected to be, less than during the fourth quarter of
fiscal 1997 when 24 CBT titles were released. To date, the Company has released
104 multimedia CBT course titles.
Sales and marketing expenses include salaries, commissions and travel-
related costs for sales and marketing personnel, the costs of designing,
producing and distributing direct mail marketing and media advertisements, and
the costs of information systems to support these activities. Sales and
marketing expenses increased $4.2 million or 37% to $15.6 million for the
quarter ended March 31, 1998 versus $11.4 million for the quarter ended March
31, 1997. For the six months ended March 31, 1998, sales and marketing expenses
increased $9.1 million or 43% to $30.4 million from $21.3 million for the
corresponding period in the prior year. The increase in sales and marketing
expenses occurred as a result of an increase in telemarketing and field sales
staff and increased direct mail marketing. The Company expects that there will
be a decrease in the rate of growth in sales and marketing expenses during the
second half of fiscal 1998 compared to the rate of growth in the first half of
fiscal 1998 in order to better match the current slower growth rate of revenues.
The decision to reduce the growth rate of sales and marketing expenditures in
upcoming quarters is subject to reevaluation from time to time based upon market
conditions and other factors.
8
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General and administrative expenses increased $1.4 million or 34% to $5.6
million for the quarter ended March 31, 1998 compared to $4.2 million in the
same quarter of the prior year. For the six months ended March 31, 1998,
general and administrative expenses increased $3.1 million or 39% to $11.0
million from $7.9 million for the corresponding period in the prior year. The
increase in general and administrative expenses reflects increases in
information systems and other administrative staff and increases in facilities
related costs over the prior year. As a percentage of revenue, these costs
increased to 12% in the six months ended March 31, 1998 from 11% in the
corresponding period of the prior year.
Other income (expense) is comprised of interest income, interest expense,
foreign currency gains and losses and other. Other income decreased $80,000 to
$730,000 for the quarter ended March 31, 1998 versus $810,000 for the
corresponding quarter in the prior year. For the six months ended March 31,
1998, other income increased by $100,000 to $1.3 million from $1.4 million for
the corresponding six month period in the prior year. The decreases in net
other income were primarily attributable to less interest income than in the
prior year.
The provision for income taxes was $1.1 million for each of the second
fiscal quarters ended March 31, 1998 and 1997. For the six months ended March
31, 1998, the provision for income taxes decreased $1.4 million to $1.8 million
from $3.2 million for the corresponding period in the prior year. The decrease
in the income tax provision reflects the decrease in taxable income.
BACKLOG
At March 31, 1998, the Company had a backlog of orders for instructor-led
courses in the amount of $29.4 million, which represented an 18% increase over
the backlog of $24.9 million at March 31, 1997. Only a portion of the Company's
backlog is funded. There can be no assurance that the growth in the backlog
will continue or that orders comprising the backlog will be realized as revenue.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may fluctuate based on various factors,
including the frequency of course events, the number of weeks in a quarter
during which courses can be conducted, the timing, frequency and size of, and
response to, the Company's direct mail marketing and advertising campaigns, the
timing of the introduction of new course titles and alternate delivery methods,
the mix between customer-site course events and Learning Tree-site course
events, competitive forces within the current and anticipated future markets
served by the Company, the spending patterns of its customers, currency
fluctuations, inclement weather and general economic conditions. Fluctuations
in quarter-to-quarter results may also occur as a result of differences in the
timing of, and the time period between, the Company's expenditures on the
development and marketing of its courses and the receipt of revenues.
The Company's revenues and income have historically varied significantly
from quarter to quarter due to seasonality and other factors. The Company
generally has greater revenue and operating income in the second half of its
fiscal year (April through September) than in the first half of its fiscal year
(October through March). This seasonality is due in part to seasonal spending
patterns of the Company's customers arising from budgetary and other business
factors as well as weather, holiday and vacation considerations. In addition,
the seasonality of the Company's operating results reflects the quarterly
differences in the frequency and size of the Company's direct mail marketing
campaigns. There can be no assurance that these seasonal factors or their
effects will remain the same in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term interest-bearing investments
increased to $63.0 million at March 31, 1998 from $56.8 million at September 30,
1997, primarily as a result of cash provided by operations. For the six months
ended March 31, 1998, cash provided by operations was approximately $13.1
million compared to $16.0 million during the same period in the prior year. The
decrease in cash provided by operations reflects the decrease in profits and a
smaller increase in deferred revenues arising from prepaid multi-enrollment
programs. These changes were offset in part by increased depreciation. As of
March 31, 1998, the Company had a net working capital balance of $32.6 million.
During the six months ended March 31, 1998, the Company invested $5.7
million in equipment and facilities compared to $10.0 million in the same period
of the prior year. The higher level of investment during the prior year was
primarily related to the acquisition of additional course equipment to support
the higher growth rate of course events at that time, to upgrade course
equipment capabilities and to build-out office facilities.
In January 1998, the Company entered into a lease agreement for a large
education center in the United Kingdom. The Company expects to begin executing
courses in this new facility during the first fiscal quarter of 1999. The terms
of the
9
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lease will require lease payments of approximately $4.3 million per annum and a
cash deposit or letter of credit in the amount of approximately $10.0 million.
Any cash deposit will bear interest to the Company and the required level of the
cash deposit or letter of credit will decline if certain financial ratios have
been met. The Company expects to purchase additional course equipment and to
enter into leases for additional facilities in other existing course cities
during fiscal 1998. However, other than the foregoing transaction, as of March
31, 1998, the Company had no material future purchase obligations, capital
commitments or debt and believes that its cash and cash equivalents, its short-
term interest-bearing investments and the cash provided by its operations will
be sufficient to meet its cash requirements for the foreseeable future.
YEAR 2000 COMPLIANCE
The Year 2000 Compliance issue exists as a result of the use of two digit
date fields, rather than four digit date fields, by many computer systems and
software applications to define the applicable year. As the century changes,
systems which are not Year 2000 Compliant will recognize the year 2000 as 1900,
or not at all. The inability to recognize or properly treat the year 2000 may
cause systems to process financial and operational information incorrectly. The
Company has assessed and continues to assess the impact of the Year 2000
Compliance issue on its operations. The Company believes, based upon its
internal reviews and other factors, that there will be no interruption of its
operations as a result of the Year 2000 issue. It is expected that the future
internal and external costs to be incurred to make the Company's computer
systems and software Year 2000 Compliant will not have a material effect on the
Company's results of operations or financial position. Additionally, the
computer software products sold by the Company are Year 2000 Compliant.
However, there can be no assurance that the Company's customers or vendors will
not be affected by the Year 2000 Compliance issue or that this will not affect
the timing or amount of the Company's products and services customers purchase
or vendors provide.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the matters discussed
in this Form 10-Q are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in such forward-looking statements. Such risks and
uncertainties include, without limitation, the Company's dependence on the
timely development, introduction and customer acceptance of new courses and
products, the impact of competition and downward pricing pressures, the effect
of changing economic conditions, the Company's ability to attract and retain key
management and other personnel, risks in technology development, the risks
involved in currency fluctuations, and the other risks and uncertainties
detailed from time to time in the Company's filings with the Securities and
Exchange Commission, including the Company's 1997 Annual Report on Form 10-K.
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
On April 16, 1998, a class action lawsuit was filed against certain
officers and directors of the Company in the Superior Court of the
State of California, County of Los Angeles, purportedly on behalf of
those who purchased the Company's Common Stock between May 8, 1997 and
November 3, 1997. The Company has not been named in the suit, but has
indemnification agreements with such officers and directors. The
Company has obtained a copy of the complaint which alleges violations
of California law. The complaint alleges that the named officers and
directors concealed an alleged deterioration of its business in early
1997 and realized profits by trading their shares of Company Common
Stock while in possession of the alleged material adverse information.
The complaint seeks an unspecified amount of compensatory damages and,
additionally, seeks attorneys' and other costs, interest, and other
relief.
The named officers and directors have not yet filed answers to the
complaint but have indicated that they intend to defend themselves
vigorously in this proceeding. The Company is unable to estimate the
outcome of this matter or any potential liability it may incur. The
Company does have directors' and officers' insurance coverage. Even if
the defendants prevail on the merits in such litigation or the costs
are covered by insurance, the Company expects to incur legal and other
defense costs as a result of such proceeding. This proceeding could
involve a substantial diversion of the time of some members of
management, and an adverse determination in, or settlement of, such
litigation could involve the payment of significant amounts or could
include terms in addition to such payments, which could have an
adverse impact on the Company's business, financial condition, results
of operations and cash flows.
10
<PAGE>
Item 2: CHANGES IN SECURITIES
Not Applicable
Item 3: DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on March 6, 1998.
During the Annual Meeting of Stockholders, the only matter voted upon
was the election of directors. The following are the results of the
voting:
<TABLE>
<CAPTION>
1. Election of directors: Shares for Shares withheld
---------- ---------------
<S> <C> <C>
Class III Directors for a term expiring in 2001.
David C. Collins 20,010,699 38,170
Eric R. Garen 20,010,912 37,957
</TABLE>
The current terms of the Class I Directors, W. Mathew Juechter and
Alan B. Salisbury, continue until the 1999 Annual Meeting of
Stockholders. The current terms of the Class II Directors, Michael W.
Kane and Max S. Shevitz, continue until the 2000 Annual Meeting of
Stockholders.
Item 5: OTHER INFORMATION
Not Applicable
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 31, 1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEARNING TREE INTERNATIONAL, INC.
Dated: May 12, 1998 By: /s/ Gary R. Wright
--------------------------------
Gary R. Wright
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 35,098,000
<SECURITIES> 27,865,000
<RECEIVABLES> 18,249,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 85,711,000
<PP&E> 27,902,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 123,892,000
<CURRENT-LIABILITIES> 53,143,000
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 123,892,000
<SALES> 90,184,000
<TOTAL-REVENUES> 90,184,000
<CGS> 39,017,000
<TOTAL-COSTS> 39,017,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> 5,159,000
<INCOME-TAX> 1,754,000
<INCOME-CONTINUING> 3,405,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,405,000
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
