<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, 2000
--------------
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
--------------------------------------------------------------
(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,
2000, is 21,742,072 shares.
Total number of pages 18
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<PAGE>
LEARNING TREE INTERNATIONAL, INC.
FORM 10-Q
March 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I--Financial Statements Page
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<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets................................... 3
Condensed Consolidated Statements of Operations......................... 4
Condensed Consolidated Statements of Stockholders' Equity............... 5
Condensed Consolidated Statements of Cash Flows......................... 6
Notes to Condensed Consolidated Financial Statements.................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 9
Part II--Other Information
Item 1. Legal Proceedings............................................................ 15
Item 2. Changes in Securities........................................................ 16
Item 3. Defaults Upon Senior Securities.............................................. 16
Item 4. Submission of Matters to a Vote of Security Holders.......................... 16
Item 5. Other Information............................................................ 17
Item 6. Exhibits and Reports on Form 8-K............................................. 17
Signatures............................................................................... 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 51,057,000 $ 33,059,000
Short-term interest-bearing investments.................... 69,245,000 58,357,000
Trade accounts receivable, net............................. 20,369,000 17,227,000
Prepaid marketing expenses................................. 1,565,000 1,620,000
Prepaid expenses and other................................. 5,327,000 4,075,000
------------ ------------
Total current assets.................................. 147,563,000 114,338,000
------------ ------------
Equipment, property and leasehold improvements, net.......... 22,316,000 25,235,000
Long-term interest-bearing investments....................... 9,524,000 9,959,000
Other assets................................................. 2,258,000 1,249,000
------------ ------------
Total assets.......................................... $181,661,000 $150,781,000
============ ============
LIABILITIES
Current liabilities:
Trade accounts payable....................................... $13,684,000 $13,383,000
Deferred revenue............................................. 47,763,000 37,618,000
Accrued liabilities.......................................... 9,923,000 7,319,000
Income taxes payable......................................... 6,144,000 3,927,000
------------ ------------
Total current liabilities............................... 77,514,000 62,247,000
------------ ------------
Deferred income taxes.......................................... 154,000 154,000
Deferred facilities rent....................................... 2,571,000 2,740,000
------------ ------------
Total liabilities....................................... 80,239,000 65,141,000
------------ ------------
Commitments
STOCKHOLDERS' EQUITY
Common Stock, $.0001 par value, 75,000,000 shares authorized,
21,687,000 and 21,636,000 shares issued and outstanding,
respectively............................................... 2,000 2,000
Additional paid-in capital................................... 40,815,000 39,888,000
Notes receivable from stockholders........................... - (6,000)
Cumulative foreign currency translation...................... (2,184,000) (1,300,000)
Retained earnings............................................ 62,789,000 47,056,000
------------ ------------
Total stockholders' equity.............................. 101,422,000 85,640,000
------------ ------------
Total liabilities and stockholders' equity.............. $181,661,000 $150,781,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues........................................ $ 52,997,000 $ 46,520,000 $102,396,000 $91,672,000
Cost of revenues................................ 18,862,000 19,460,000 37,069,000 39,300,000
------------ ------------ ------------ -----------
Gross profit............................... 34,135,000 27,060,000 65,327,000 52,372,000
------------ ------------ ------------ -----------
Operating expenses:
Course development......................... 2,504,000 3,721,000 4,899,000 7,098,000
Sales and marketing........................ 14,787,000 14,016,000 27,136,000 27,314,000
General and administrative................. 6,098,000 5,897,000 11,999,000 11,693,000
------------ ------------ ------------ -----------
23,389,000 23,634,000 44,034,000 46,105,000
------------ ------------ ------------ -----------
Income from operations........................... 10,746,000 3,426,000 21,293,000 6,267,000
------------ ------------ ------------ -----------
Other income (expense):
Interest expense............................ (4,000) (2,000) (5,000) (4,000)
Interest income............................. 1,577,000 926,000 2,901,000 2,006,000
Foreign exchange............................ (76,000) (57,000) (143,000) 87,000
Other....................................... 137,000 (32,000) 158,000 (150,000)
------------ ------------ ------------ -----------
1,634,000 835,000 2,911,000 1,939,000
------------ ------------ ------------ -----------
Income before provision for income taxes......... 12,380,000 4,261,000 24,204,000 8,206,000
Provision for income taxes....................... 4,333,000 1,449,000 8,471,000 2,790,000
------------ ------------ ------------ -----------
Net income....................................... $ 8,047,000 $ 2,812,000 $ 15,733,000 $ 5,416,000
============ ============ ============ ===========
Earnings per common share....................... $ 0.37 $ 0.13 $ 0.73 $ 0.25
============ ============ ============ ===========
Earnings per common share assuming
dilution................................... $ 0.36 $ 0.13 $ 0.71 $ 0.25
============ ============ ============ ===========
Weighted average number of shares
outstanding................................ 21,665,000 21,970,000 21,651,000 21,982,000
============ ============ ============ ===========
Diluted shares outstanding...................... 22,301,000 21,976,000 22,196,000 21,985,000
============ ============ ============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Notes Foreign
Additional Receivable Currency Total
Common Paid-In From Deferred Translation Retained Stockholders'
Stock Capital Stockholders Compensation Adjustment Earnings Equity
------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1998................ $2,000 $42,992,000 $(9,000) $(47,000) $ (752,000) $34,642,000 $ 76,828,000
Comprehensive income:
Net income........................ -- -- -- -- -- 5,416,000 5,416,000
Foreign currency translation...... -- -- -- -- (816,000) -- (816,000)
------------
Comprehensive income................ 4,600,000
Amortization of deferred
compensation...................... -- -- -- 36,000 -- -- 36,000
Repurchase of common stock.......... -- (1,124,000) -- -- -- -- (1,124,000)
Collection of notes receivable...... -- -- 1,000 -- -- -- 1,000
------ ----------- ------- -------- ----------- ----------- ------------
Balance at March 31, 1999........... $2,000 $41,868,000 $(8,000) $(11,000) $(1,568,000) $40,058,000 $ 80,341,000
====== =========== ======= ======== =========== =========== ============
Balance,
September 30, 1999................ $2,000 $39,888,000 $(6,000) $ -- $(1,300,000) $47,056,000 $ 85,640,000
Comprehensive income:
Net income........................ -- -- -- -- -- 15,733,000 15,733,000
Foreign currency translation...... -- -- -- -- (884,000) -- (884,000)
------------
Comprehensive income................ 14,849,000
Exercise of Stock Options........... -- 927,000 -- -- -- -- 927,000
Collection of notes receivable...... -- -- 6,000 -- -- -- 6,000
------ ----------- ------- -------- ----------- ----------- ------------
Balance at March 31, 2000........... $2,000 $40,815,000 $ -- $ -- $(2,184,000) $62,789,000 $101,422,000
====== =========== ======= ======== =========== =========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows--operating activities:
Net income...................................................................... $ 15,733,000 $ 5,416,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................................... 4,452,000 7,105,000
Write-off of deferred CBT development costs................................. - 1,211,000
Deferred facilities rent charges............................................ (131,000) 1,759,000
Amortization of deferred compensation....................................... - 36,000
Unrealized foreign exchange (gains) losses.................................. 81,000 (183,000)
Losses on disposals of equipment and leasehold improvements................. 73,000 224,000
Change in net assets and liabilities:
Trade accounts receivable............................................... (3,609,000) 2,571,000
Prepaid marketing expenses.............................................. 40,000 (930,000)
Prepaid expenses and other.............................................. (1,366,000) (1,966,000)
Income taxes............................................................ 2,352,000 692,000
Trade accounts payable.................................................. 605,000 (3,211,000)
Deferred revenue........................................................ 10,858,000 3,220,000
Accrued liabilities..................................................... 2,818,000 (88,000)
------------ ------------
Net cash provided by operating activities................................... 31,906,000 15,856,000
------------ ------------
Cash flows--investing activities:
Purchases of equipment, property and leasehold improvements..................... (2,750,000) (5,677,000)
Retirements of equipment, property and leasehold improvements................... 803,000 (28,000)
Proceeds from short-term interest-bearing investments:
Investments held to maturity.................................................. 42,511,000 18,507,000
Investments held for sale..................................................... 27,100,000 4,200,000
Purchases of short-term interest-bearing investments:
Investments held to maturity.................................................. (56,899,000) (37,183,000)
Investments held for sale..................................................... (23,600,000) (4,800,000)
Other, net...................................................................... (900,000) (1,669,000)
------------ ------------
Net cash used in investing activities....................................... (13,735,000) (26,650,000)
------------ ------------
Cash flows--financing activities:
Repurchases of Common Stock..................................................... - (1,124,000)
Exercise of stock options....................................................... 927,000 -
Collections of stockholder notes receivable..................................... 6,000 1,000
------------ ------------
Net cash provided by (used in) financing activities......................... 933,000 (1,123,000)
------------ ------------
Effects of exchange rates on cash................................................. (1,106,000) (608,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents.............................. 17,998,000 (12,525,000)
Cash and cash equivalents at the beginning of the period.......................... 33,059,000 36,055,000
------------ ------------
Cash and cash equivalents at the end of the period................................ $ 51,057,000 $ 23,530,000
============ ============
Supplemental disclosures:
Income taxes paid....................................................... $ 4,700,000 $ 2,007,000
============ ============
Interest paid........................................................... $ 1,000 $ 2,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
LEARNING TREE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED 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, 1999 that are contained in the Company's 1999 Annual Report on
Form 10-K.
Note 2 Computation of Earnings per Common Share and Earnings per Common Share
----------------------------------------------------------------------
Assuming Dilution:
------------------
Earnings per common share and earnings per common share assuming dilution
are computed using the weighted average number of shares of Common Stock
outstanding during the period. Earnings per common share assuming dilution are
computed by including the dilutive effect, if any, of all outstanding options to
purchase Common Stock using the treasury stock method. To calculate the number
of diluted shares outstanding, 636,000 shares and 545,000 shares were added to
the weighted average number of shares outstanding for the three and six month
periods ended March 31, 2000, respectively. Approximately 6,000 shares and 3,000
shares were added to the weighted average number of shares outstanding for the
three and six month periods ended March 31, 1999, respectively. Approximately
26,200 and 2,031,000 stock options were excluded from the calculation of
earnings per common share assuming dilution for the six month periods ended
March 31, 2000 and March 31, 1999, respectively, because they were antidilutive.
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, (Sarah v. Collins et al., Case No. BC189499),
-----------------------
purportedly on behalf of persons who purchased the Company's Common Stock
between May 8, 1997 and November 3, 1997. On June 29, 1998, a second class
action lawsuit was filed by the same law firms against the same officers and
directors of the Company in the Superior Court of the State of California,
County of Los Angeles (Guthrie v. Collins et al., Case No. BO193465), also
-------------------------
purportedly on behalf of persons who purchased the Company's Common Stock
between May 8, 1997 and November 3, 1997. On August 6, 1998, a third class
action lawsuit was filed by the same law firms against the Company and certain
officers and directors of the Company in the United States District Court for
the Central District of California (Schlagal v. Learning Tree International et
------------------------------------------
al., Case No. 98-6384ABC), purportedly on behalf of persons who purchased the
- ---
Company's Common Stock between May 8, 1997 and May 13, 1998. On February 2,
2000, plaintiffs and
7
<PAGE>
LEARNING TREE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
defendants stipulated to the filing of an amended complaint in the Schlagal
--------
action which asserts the same state law claims contained in the Sarah and
-----
Guthrie actions. On February 7, 2000, the state court granted the parties' joint
- -------
request to dismiss Sarah and Guthrie. Thus, only the amended Schlagal class
--------
action remains pending against the Company, its officers and directors.
The complaints in Sarah, Guthrie and Schlagal made similar allegations of
----- ------- --------
misrepresentations in certain public disclosures made by the Company at various
times during the class period. Each complaint alleged that the Company and the
defendant officers and directors concealed an alleged deterioration of business
early in 1997 and that several of the officers and directors realized profits by
trading their shares of Company Stock while in possession of the allegedly
concealed material adverse information. Each complaint sought an unspecified
amount of compensatory damages and, additionally, sought attorneys' fees and
other costs, interest, and other relief.
Plaintiff and defendants have reached agreement on a Stipulation of
Settlement ("Settlement Stipulation") in the Schlagal Action, which is being
--------
circulated for signature. The Settlement Stipulation would provide, among other
things, for dismissal of the Schlagal Action against all defendants. The
--------
effectiveness of the stipulation is subject to a number of conditions, including
final approval by the Court. If the Court grants preliminary approval of the
Settlement Stipulation, counsel for plaintiffs must provide written notice to
class members, giving them the opportunity to object to the Settlement
Stipulation or to opt out of it.
If the Court gives its final approval to the Settlement Stipulation and the
Settlement Stipulation becomes final and effective, the Company and its officers
and directors will not have any financial obligations to the class members who
do not comply with the procedures for opting out of the settlement.
If the Court does not give its final approval to the Settlement
Stipulation, or if the Settlement does not become final and effective, or if
class members opt out of the Settlement Stipulation, the Company cannot estimate
the outcome of further proceedings or any potential liabilities (including
potential liabilities to class members who opt out) it may incur. In such
circumstances, the Company may incur legal and other defense costs in an amount
which it cannot currently estimate. These proceedings could involve a
substantial diversion of the time of some of the 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. The Company has
agreements with its officers and directors under which it is indemnifying them
in these proceedings.
8
<PAGE>
Item. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Overview
Learning Tree International, Inc. ("Learning Tree") is a leading worldwide
provider of education and training to information technology ("IT")
professionals in business and government organizations. Learning Tree 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, object-
oriented technology and IT management. In addition, Learning Tree provides
custom developed training for larger clients who need to train large numbers of
their IT professionals and end-users, and tests and certifies IT professionals
in 31 IT job functions. Learning Tree's instructor-led courses are recommended
for college credit by the American Council on Education. Learning Tree also
provides its customers with a skills assessment service through its SkillsTree
program.
Learning Tree has also delivered certain of its courses by using a
computer-based training method ("CBT"). These CBT courses were designed for both
stand-alone CD-ROM and network-based delivery. On July 13, 1999, Learning Tree
announced that it intended to shift its focus in technology-based training from
CD-ROM based courses to other distance learning methodologies using the
Internet. As a result, Learning Tree immediately discontinued further
development of its CBT courses and, during the first six months of fiscal 2000,
substantially reduced its CBT sales efforts. The decision is expected to
continue to reduce costs and revenues associated with Learning Tree's CD-ROM
based CBT courses.
Learning Tree believes that the content from its instructor-led courses can
be delivered to customers through a variety of other technology-based training
methods. During the second quarter of fiscal 2000, Learning Tree completed the
production and beta testing of its first Internet-based e-learning course with
50 students in the United States, Canada, the United Kingdom, Sweden, France,
Spain, and Venezuela. Learning Tree plans to begin marketing that course during
the third quarter of fiscal 2000 under the name "e-learningtree.com". In
addition, Learning Tree plans to develop additional e-learningtree.com courses
using the content of its instructor-led courses. However, there can be no
assurance that Learning Tree will be able to successfully develop or profitably
implement the current, or any other distance learning strategy.
Additionally, in January 2000, Learning Tree invested $1.0 million for a
small minority interest in eduprise.com, a private company that provides the
distance learning software and hosting services that are being used by Learning
Tree for delivery of its distance learning pilot program.
Results of Operations
In the second fiscal quarter ended March 31, 2000, revenues increased by
$6.5 million or 14% to $53.0 million from $46.5 million for the corresponding
quarter of the prior year. Income from operations for the quarter ended March
31, 2000 increased $7.3 million or 214% to $10.7 million versus $3.4 million for
the same quarter of fiscal 1999. Net income for the quarter ended March 31, 2000
increased $5.2 million or 186% to $8.0 million from $2.8 million for the same
period last year.
For the six month period ended March 31, 2000, revenues increased by $10.7
million or 12% to $102.4 million from $91.7 million for the six months ended
March 31, 1999. Income from operations for the six months ended March 31, 2000,
increased $15.0 million or 240% to $21.3 million versus $6.3 million for the
corresponding period of the prior year. Net income for the six months ended
March 31, 2000 increased $10.3 million or 190% to $15.7 million versus $5.4
million for the corresponding period of the prior year.
9
<PAGE>
The growth in revenues in the second fiscal quarter was primarily the
result of an 18% increase in the number of multi-day course participants to
32,749 compared to 27,714 in the corresponding three months of the prior year.
The increase in revenues for the six months ended March 31, 2000 resulted
primarily from a 15% increase in the number of multi-day instructor-led course
participants to 62,626 compared to 54,500 in the corresponding six months of the
prior year. In addition, the growth in revenues in both the three-month and six-
month periods reflects a 1% increase in average revenue per multi-day course
participant. The increase in average revenue per multi-day course participant
reflects increases in prices, partially offset by the effect of changes in
foreign exchange rates. The increase in instructor-led course revenues was
partially offset by a reduction in CBT revenues.
Learning Tree's cost of revenues for its instructor-led courses primarily
includes the costs associated with course instructors, course materials and
equipment, freight, classroom facilities and refreshments. The cost of revenues
improved to 35.6% of revenues in the second quarter of fiscal 2000 compared to
41.8% in the second quarter of fiscal 1999. For the six months ended March 31,
2000, the cost of revenues improved to 36.2% of revenues compared to 42.9% for
the same period in fiscal 1999.
For the second quarter of fiscal 2000, the cost of revenues decreased
$598,000 or 3% to $18.9 million from $19.5 million for the same quarter of
fiscal 1999. For the six months ended March 31, 2000, Learning Tree's cost of
revenues decreased by $2.2 million or 6% to $37.1 million from $39.3 million for
the corresponding period in the prior year. The decreases in the cost of
revenues compared to the same periods in the prior year primarily reflect lower
costs per multi-day instructor-led course event and the elimination of the
amortization of CBT development costs. Costs per multi-day course event
decreased by approximately 8% during the second fiscal quarter ended March 31,
2000 compared to the same period in fiscal 1999 and 9% for the year-to-date
period. The change in the average cost per course event primarily reflects
decreases in costs for classroom facilities, course materials and freight. These
savings were partially offset by a 17% increase in the number of course events
during the second quarter of fiscal 2000 and a 14% increase for the year-to-date
period. During the second fiscal quarter ended March 31, 2000, the number of
multi-day instructor-led course events was 2,036 compared to 1,741 during the
same period last year. For the six months ended March 31, 2000, the number of
multi-day instructor-led courses was 3,915 compared to 3,436 for the
corresponding period in fiscal 1999.
Course development expense includes the costs of developing new course
titles and updating Learning Tree's existing course library. The principal costs
are for internal product development staff and independent consultants who serve
as subject matter experts. Course development expense was 4.7% of revenue for
the second quarter of fiscal 2000 compared to 8.0% for the same period of fiscal
1999. For the six months ended March 31, 2000, course development expense was
4.8% of revenue compared to 7.7% of revenue for the corresponding period in the
prior year. Course development expenses decreased by $1.2 million or 33% to $2.5
million for the quarter ended March 31, 2000 versus $3.7 million in the quarter
ended March 31, 1999. For the six months ended March 31, 2000, course
development expenses decreased $2.2 million or 31% to $4.9 million from $7.1
million for the corresponding period in the prior year. Course development costs
declined because there were no CBT course development costs in the six months
ended March 31, 2000. In addition, in fiscal 1999, course development costs
included the write-off of deferred CBT course development costs of $1.1 million
and $1.2 million in the three and six month periods ending March 31, 1999,
respectively.
Learning Tree offered 143 multi-day course titles as of March 31, 2000,
compared to 144 a year earlier. Learning Tree has recently released new multi-
day course titles, including additional courses on Java, XML, and Windows 2000.
New courses under development include additional courses on Windows 2000, Linux,
Solaris and the worldwide web. The change in the size of the multi-day course
library reflects the net effect of the introduction of new titles and the
retirement of old titles. Old titles are retired when the profits they generate
are
10
<PAGE>
not sufficient to justify the ongoing cost of marketing them and maintaining
their technological content. The actual number of instructor-led course titles
which Learning Tree will produce, and their delivery dates, are subject to a
number of factors such as the hiring and training of staff, perceived customer
demand, and the availability of subject matter experts. There can be no
assurance that Learning Tree will develop more titles than it retires in any
period. Course development costs may increase in the future as Learning Tree
explores the development of Internet distance learning approaches and
technologies.
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. Learning Tree
adjusts its marketing activities to correspond with its expected growth rate in
course participants. Learning Tree expects to increase its marketing
expenditures during the remainder of fiscal 2000 compared to the same period of
the 1999 fiscal year. However, there can be no assurance that Learning Tree's
revenues will continue to grow in fiscal 2000.
Sales and marketing expenses increased $771,000 or 6% to $14.8 million for
the quarter ended March 31, 2000 versus $14.0 million for the quarter ended
March 31, 1999. The increase primarily reflects increased selling commissions
due to the higher level of sales, partially offset by a decrease in direct mail
marketing costs per piece and reductions in CBT sales and marketing costs.
Sales and marketing expenses for the second quarter of fiscal 2000 decreased as
a percentage of revenues to 27.9% compared to 30.1% in the second quarter of
fiscal 1999.
For the six months ended March 31, 2000, sales and marketing expenses
decreased $178,000 or 1% to $27.1 million from $27.3 million for the
corresponding period in the prior fiscal year. The decrease occurred primarily
as a result of a decrease in direct mail marketing costs per piece and
reductions in CBT sales and marketing costs. This decrease was partially offset
by increased marketing activities as compared to the corresponding period in the
prior fiscal year. Sales and marketing expenses for the six months ended March
31, 2000 decreased to 26.5% as a percentage of revenues compared to 29.8% for
the same period last year.
General and administrative expenses increased $201,000 or 3% to $6.1
million for the quarter ended March 31, 2000 compared to $5.9 million in the
same quarter of the prior year. For the six months ended March 31, 2000,
general and administrative expenses increased $306,000 or 3% to $12.0 million
from $11.7 million for the corresponding period in the prior year. The increase
in general and administrative expenses reflects increases in administrative
staff and related costs and increases in incentive compensation costs. As a
percentage of revenue, these costs decreased to 11.5% in the quarter ended March
31, 2000 from 12.7% in the corresponding period of the prior year. In the six
months ended March 31, 2000, these costs decreased to 11.7% from 12.8% as a
percentage of revenue as compared to the same period of the 1999 fiscal year.
Other income (expense) is primarily comprised of interest income and
foreign currency transaction gains and losses. Other income increased $799,000
to $1,634,000 for the quarter ended March 31, 2000 versus $835,000 for the
corresponding quarter in the prior year. For the six months ended March 31,
2000, other income increased by $972,000 to $2.9 million from $1.9 million for
the corresponding six month period in the prior year. The increases in net
other income (expense) are primarily attributable to additional interest income
as compared with the same periods a year ago. The increases were partially
offset by foreign exchange losses of $76,000 recorded in the second quarter of
fiscal 2000, compared to foreign exchange losses of $57,000 in the second
quarter of fiscal 1999 and foreign exchange losses of $143,000 in the six months
ended March 31, 2000, compared with foreign exchange gains of $87,000 in the
corresponding period of the prior year. These transaction gains and
11
<PAGE>
losses arose from receivables and payables denominated in currencies other than
the functional currencies of Learning Tree's foreign subsidiaries.
The provision for income taxes increased $2.9 million to $4.3 million for
the quarter ended March 31, 2000 compared to $1.4 million for the same quarter
of the prior year. For the six months ended March 31, 2000, the provision for
income taxes increased $5.7 million to $8.5 million from $2.8 million for the
same period a year ago. The increases in the income tax provisions reflect the
increases in taxable income and a slight increase in the effective tax rate.
Backlog
At March 31, 2000, Learning Tree had a backlog of orders for instructor-led
courses of $37.6 million, which represented a 29% increase compared to the
backlog of $29.1 million at March 31, 1999. There can be no assurance that the
rate of growth in enrollments will continue. Only a portion of Learning Tree's
backlog is funded. There can be no assurance that orders comprising the backlog
will be realized as revenue.
Fluctuations in Quarterly Results
Learning Tree has historically experienced fluctuations in its quarterly
operating results and expects such fluctuations to continue in the future.
Learning Tree's course development and sales and marketing expenses are incurred
based on its expectations regarding future market conditions and there can be no
assurance that the attendant revenues will occur. Specifically, Learning Tree
intends to increase the amount of its expenditures for sales and marketing in
the future. Learning Tree may be unable to adjust its expenditures in a timely
manner to compensate for any unexpected revenue shortfall. Any significant
revenue shortfall would therefore have a material adverse effect on Learning
Tree's results of operations. In addition, Learning Tree's operating results may
fluctuate based on other factors including: the frequency and availability of
course events; the number of weeks in a quarter during which courses can be
conducted; the timing, frequency, size of and response to Learning Tree'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 Learning Tree; 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,
Learning Tree's expenditures on the development and marketing of its courses and
the receipt of revenues.
Learning Tree's revenues and income have historically varied significantly
from quarter to quarter due to seasonality and other factors. Learning Tree
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 Learning Tree's customers arising from budgetary and other business
factors, as well as weather, holiday and vacation considerations. In addition,
the seasonality of Learning Tree's operating results reflects the quarterly
differences in the frequency and size of its direct mail marketing campaigns.
There can be no assurance that these seasonal factors or their effects will
remain the same in the future.
12
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Liquidity and Capital Resources
Cash and cash equivalents and short-term interest-bearing investments
increased to $120.3 million at March 31, 2000 from $91.4 million at September
30, 1999, primarily as a result of cash provided by operations. For the six
months ended March 31, 2000, cash provided by operations was approximately $31.9
million compared to $15.9 million during the same period in the prior year. The
increase in cash provided by operations reflects the increase in profitability.
As of March 31, 2000, Learning Tree had working capital of $70.0 million.
For the six months ended March 31, 2000, Learning Tree invested $2.8 million
in equipment and facilities compared to $5.7 million in the same period of the
prior year. The higher level of investment during the prior year was primarily
related to the build-out of education center facilities in New York and London
and the continuing upgrade of course equipment. Learning Tree will be expanding
several of its existing education centers and is seeking a site for its first
education center in Chicago. However, as of March 31, 2000, Learning Tree 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. There can be no assurance
that Learning Tree will open an education center in Chicago.
Year 2000 Impact
Learning Tree took the steps it believed were necessary to address the
potential impact of the Year 2000 (Y2K) problem on its operations. To date
there have been no material adverse effects on Learning Tree's ability to
conduct its operations as a result of the Y2K problem.
Based upon Learning Tree's current enrollment rates and Learning Tree's
backlog as of March 31, 2000, Learning Tree does not expect Y2K to have any
adverse impacts on its future revenues.
Quantitative and Qualitative Disclosures About Market Risk.
Learning Tree's cash equivalents and short-term investment portfolio is
diversified and consists primarily of investment grade securities. Investments
are held with high-quality financial institutions, government and government
agencies, and corporations, thereby reducing credit risk concentrations. The
fair value of Learning Tree's portfolio of marketable securities would not be
significantly impacted by either a 10 percent (55 basis point) increase or
decrease in the rates of interest due primarily to the short-term nature of the
portfolio. Learning Tree does not hold or issue derivative financial
instruments.
Foreign exchange rates affect the translated results of operations of
Learning Tree's foreign subsidiaries. To date, Learning Tree has not sought to
hedge the risks associated with fluctuations in exchange rates and therefore
continues to be subject to such risks. In the future, Learning Tree may
undertake such transactions. There can be no assurance that any hedging
techniques implemented by Learning Tree would be successful in eliminating or
reducing the effects of currency fluctuations.
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, Learning Tree's dependence on the
timely development, introduction and customer acceptance of courses and
products, the impact of competition and downward pricing pressures, the effect
of changing economic conditions, the effect of adverse weather conditions,
Learning Tree's ability to attract and retain key management and other
personnel, risks in technology development and introduction, the risks involved
in
13
<PAGE>
currency fluctuations, Learning Tree's ability to maintain its current operating
margins, and the other risks and uncertainties detailed from time to time in
Learning Tree's filings with the Securities and Exchange Commission, including
Learning Tree's 1999 Annual Report on Form 10-K and Exhibit 99 thereto.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
On April 16, 1998, a class action lawsuit was filed against certain
officers and directors of Learning Tree in the Superior Court of the State of
California, County of Los Angeles, (Sarah v. Collins et al., Case No. BC189499),
-----------------------
purportedly on behalf of persons who purchased Learning Tree's Common Stock
between May 8, 1997 and November 3, 1997. On June 29, 1998, a second class
action lawsuit was filed by the same law firms against the same officers and
directors of Learning Tree in the Superior Court of the State of California,
County of Los Angeles (Guthrie v. Collins et al., Case No. BO193465), also
-------------------------
purportedly on behalf of persons who purchased Learning Tree's Common Stock
between May 8, 1997 and November 3, 1997. On August 6, 1998, a third class
action lawsuit was filed by the same law firms against Learning Tree and certain
officers and directors of Learning Tree in the United States District Court for
the Central District of California (Schlagal v. Learning Tree International et
------------------------------------------
al., Case No. 98-6384ABC), purportedly on behalf of persons who purchased
- ---
Learning Tree's Common Stock between May 8, 1997 and May 13, 1998. On February
2, 2000, plaintiffs and defendants stipulated to the filing of an amended
complaint in the Schlagal action which asserts the same state law claims
--------
contained in the Sarah and Guthrie actions. On February 7, 2000, the state
----- -------
court granted the parties' joint request to dismiss Sarah and Guthrie. Thus,
----- -------
only the amended Schlagal class action remains pending against Learning Tree,
--------
its officers and directors.
The complaints in Sarah, Guthrie and Schlagal made similar allegations of
----- ------- --------
misrepresentations in certain public disclosures made by Learning Tree at
various times during the class period. Each complaint alleged that Learning
Tree and the defendant officers and directors concealed an alleged deterioration
of business early in 1997 and that several of the officers and directors
realized profits by trading their shares of Learning Tree Stock while in
possession of the allegedly concealed material adverse information. Each
complaint sought an unspecified amount of compensatory damages and,
additionally, sought attorneys' fees and other costs, interest, and other
relief.
Plaintiff and defendants have reached agreement on a Stipulation of
Settlement ("Settlement Stipulation") in the Schlagal Action, which is being
--------
circulated for signature. The Settlement Stipulation would provide, among other
things, for dismissal of the Schlagal Action against all defendants. The
--------
effectiveness of the stipulation is subject to a number of conditions, including
final approval by the Court. If the Court grants preliminary approval of the
Settlement Stipulation, counsel for plaintiffs must provide written notice to
class members, giving them the opportunity to object to the Settlement
Stipulation or to opt out of it.
If the Court gives its final approval to the Settlement Stipulation and the
Settlement Stipulation becomes final and effective, Learning Tree and its
officers and directors will not have any financial obligations to the class
members who do not comply with the procedures for opting out of the settlement.
If the Court does not give its final approval to the Settlement
Stipulation, or if the Settlement does not become final and effective, or if
class members opt out of the Settlement Stipulation, Learning Tree cannot
estimate the outcome of further proceedings or any potential liabilities
(including potential liabilities to class members who opt out) it may incur. In
such circumstances, Learning Tree may incur legal and other defense costs in an
amount which it cannot currently estimate. These proceedings could involve a
substantial diversion of the time of some of the 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 Learning Tree's business,
financial condition, results of operations and
15
<PAGE>
cash flows. Learning Tree has agreements with its officers and directors under
which it is indemnifying them in these proceedings.
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
Learning Tree held its Annual Meeting on March 3, 2000. During the
Annual Meeting of Stockholders the matter that was voted upon was as
follows:
1. Election of Directors
The following are the results of the voting:
<TABLE>
<CAPTION>
1. Election of Directors: Shares for Shares withheld
---------- ---------------
Class II Directors for a term expiring in 2003:
<S> <C> <C>
Michael W. Kane 19,930,552 434,450
Mary C. Adams 19,929,351 435,651
James E. Furlan 19,897,651 467,351
</TABLE>
The current terms of the Class I Directors, W. Mathew Juechter, Alan
B. Salisbury and Theodore E. Guth will continue until the 2002 Annual
Meeting of Stockholders. The current terms of the Class III
Directors, David C. Collins, Eric R. Garen, and Gary R. Wright will
continue until the 2001 Annual Meeting of Stockholders.
16
<PAGE>
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, 2000.
17
<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 15, 2000 By: /s/ Gary R. Wright
---------------------------------
Gary R. Wright
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 51,057,000
<SECURITIES> 69,245,000
<RECEIVABLES> 20,369,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 147,563,00
<PP&E> 22,316,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 181,661,000
<CURRENT-LIABILITIES> 77,514,000
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 181,661,000
<SALES> 102,396,000
<TOTAL-REVENUES> 102,396,000
<CGS> 37,069,000
<TOTAL-COSTS> 37,069,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> 24,204,000
<INCOME-TAX> 8,471,000
<INCOME-CONTINUING> 15,733,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,733,000
<EPS-BASIC> 0.73
<EPS-DILUTED> 0.71
</TABLE>
