<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 June 30, 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
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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 August
9, 2000, is 21,914,022 shares.
Total number of pages 17
------
<PAGE>
LEARNING TREE INTERNATIONAL, INC.
FORM 10-Q
June 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I--Financial Statements Page
----
<S> <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................................................................... 16
Item 6. Exhibits and Reports on Form 8-K.................................................... 16
Signatures....................................................................................... 17
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 117,192,000 $ 33,059,000
Short-term interest-bearing investments.................................. 21,950,000 58,357,000
Trade accounts receivable, net........................................... 24,687,000 17,227,000
Prepaid marketing expenses............................................... 871,000 1,620,000
Prepaid expenses and other............................................... 5,235,000 4,075,000
------------- --------------
Total current assets.................................................. 169,935,000 114,338,000
------------- --------------
Equipment, property and leasehold improvements, net........................ 22,049,000 25,235,000
Long-term interest-bearing investments..................................... 9,091,000 9,959,000
Other assets............................................................... 2,206,000 1,249,000
------------- --------------
Total assets.......................................................... $203,281,000 $ 150,781,000
============= ==============
LIABILITIES
Current liabilities:
Trade accounts payable................................................... $ 12,782,000 $ 13,383,000
Deferred revenue......................................................... 50,111,000 37,618,000
Accrued liabilities...................................................... 10,660,000 7,319,000
Income taxes payable..................................................... 7,994,000 3,927,000
------------- --------------
Total current liabilities............................................. 81,547,000 62,247,000
------------- --------------
Deferred income taxes...................................................... 141,000 154,000
Deferred facilities rent................................................... 2,353,000 2,740,000
------------- --------------
Total liabilities..................................................... 84,041,000 65,141,000
------------- --------------
Commitments
STOCKHOLDERS' EQUITY
Common Stock, $.0001 par value, 75,000,000 shares authorized,
21,911,000 and 21,636,000 shares issued and outstanding, respectively... 2,000 2,000
Additional paid-in capital................................................. 46,986,000 39,888,000
Notes receivable from stockholders......................................... - (6,000)
Cumulative foreign currency translation.................................... (2,849,000) (1,300,000)
Retained earnings.......................................................... 75,101,000 47,056,000
------------- --------------
Total stockholders' equity............................................... 119,240,000 85,640,000
------------- --------------
Total liabilities and stockholders' equity............................... $ 203,281,000 $ 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 Nine Months Ended
June 30, June 30,
--------------------------------- ------------------------------
2000 1999 2000 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues............................................ $ 63,024,000 $ 49,129,000 $165,420,000 $140,801,000
Cost of revenues.................................... 22,261,000 19,418,000 59,330,000 58,718,000
------------- ------------ ------------ ------------
Gross profit..................................... 40,763,000 29,711,000 106,090,000 82,083,000
------------- ------------ ------------ ------------
Operating expenses:
Course development............................... 2,699,000 9,139,000 7,598,000 16,237,000
Sales and marketing.............................. 14,036,000 13,503,000 41,172,000 40,817,000
General and administrative....................... 6,520,000 5,902,000 18,519,000 17,595,000
------------- ------------ ------------ ------------
23,255,000 28,544,000 67,289,000 74,649,000
------------- ------------ ------------ ------------
Income from operations.............................. 17,508,000 1,167,000 38,801,000 7,434,000
------------- ------------ ------------ ------------
Other income (expense):
Interest expense................................. (7,000) (2,000) (12,000) (6,000)
Interest income.................................. 1,896,000 1,005,000 4,797,000 3,011,000
Foreign exchange................................. (149,000) 20,000 (292,000) 107,000
Other............................................ (307,000) (193,000) (149,000) (343,000)
------------- ------------ ------------ ------------
1,433,000 830,000 4,344,000 2,769,000
------------- ------------ ------------ ------------
Income before provision for income taxes............ 18,941,000 1,997,000 43,145,000 10,203,000
Provision for income taxes.......................... 6,629,000 679,000 15,100,000 3,469,000
------------- ------------ ------------ ------------
Net income.......................................... $ 12,312,000 $ 1,318,000 $ 28,045,000 $ 6,734,000
============= ============ ============ ============
Earnings per common share........................... $ 0.56 $ 0.06 $ 1.29 $ 0.31
============= ============ ============ ============
Earnings per common share assuming dilution......... $ 0.54 $ 0.06 $ 1.25 $ 0.31
============= ============ ============ ============
Weighted average number of shares outstanding....... 21,793,000 21,723,000 21,699,000 21,896,000
============= ============ ============ ============
Diluted shares outstanding.......................... 22,717,000 21,799,000 22,370,000 21,923,000
============= ============ ============ ============
</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
Common Paid-In From Deferred Translation
Stock Capital Stockholders Compensation Adjustment
----------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance,
September 30, 1998................ $ 2,000 $ 42,992,000 $ (9,000) $(47,000) $ (752,000)
Comprehensive income:
Net income........................ -- -- -- -- --
Foreign currency translation...... -- -- -- -- (1,140,000)
Comprehensive income...............
Amortization of deferred
Compensation....................... -- -- -- 47,000 --
Repurchase of common stock......... -- (2,968,000) -- -- --
Collection of notes receivable..... -- -- 2,000 -- --
----------- -------------- --------------- -------------- ----------------
Balance at June 30, 1999........... $ 2,000 $ 40,024,000 $ (7,000) $ -- $ (1,892,000)
=========== ============== ================ ============== ================
Balance, September 30, 1999........ $ 2,000 $ 39,888,000 $ (6,000) $ -- $ (1,300,000)
Comprehensive income:
Net income........................ -- -- -- -- --
Foreign currency translation...... -- -- -- -- (1,549,000)
Comprehensive income...............
Exercise of stock options.......... -- 7,098,000 -- -- --
Collection of notes receivable..... -- -- 6,000 -- --
----------- -------------- --------------- --------------- -----------------
Balance at June 30, 2000........... $ 2,000 $ 46,986,000 $ -- $ -- $ (2,849,000)
=========== ============== =============== =============== =================
<CAPTION>
Total
Retained Stockholders'
Earnings Equity
-------------- -------------
<S> <C> <C>
Balance,
September 30, 1998................ $ 34,642,000 $ 76,828,000
Comprehensive income:
Net income........................ 6,734,000 6,734,000
Foreign currency translation...... -- (1,140,000)
-------------
Comprehensive income............... 5,594,000
Amortization of deferred
Compensation....................... -- 47,000
Repurchase of common stock......... -- (2,968,000)
Collection of notes receivable..... -- 2,000
-------------- -------------
Balance at June 30, 1999........... $ 41,376,000 $ 79,503,000
============== =============
Balance, September 30, 1999........ $ 47,056,000 $ 85,640,000
Comprehensive income:
Net income........................ 28,045,000 28,045,000
Foreign currency translation...... -- (1,549,000)
-------------
Comprehensive income............... 26,496,000
Exercise of Stock Options.......... -- 7,098,000
Collection of notes receivable..... -- 6,000
-------------- -------------
Balance at June 30, 2000........... $ 75,101,000 $ 119,240,000
============== =============
</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>
Nine Months Ended
June 30,
---------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows--operating activities:
Net income............................................................ $ 28,045,000 $ 6,734,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................................... 6,491,000 10,500,000
Write-off of deferred CBT development costs........................ - 7,104,000
Deferred facilities rent charges................................... (300,000) 1,663,000
Amortization of deferred compensation.............................. - 47,000
Unrealized foreign exchange (gains) losses......................... 215,000 (155,000)
Losses on disposals of equipment and leasehold improvements........ 144,000 337,000
Change in net assets and liabilities:
Trade accounts receivable........................................ (8,181,000) 803,000
Prepaid marketing expenses....................................... 739,000 (305,000)
Prepaid expenses and other....................................... (1,411,000) (593,000)
Income taxes..................................................... 5,580,000 (995,000)
Trade accounts payable........................................... (54,000) (809,000)
Deferred revenue................................................. 13,891,000 3,234,000
Accrued liabilities.............................................. 3,635,000 (141,000)
------------ ------------
Net cash provided by operating activities.......................... 48,794,000 27,424,000
------------ ------------
Cash flows--investing activities:
Purchases of equipment, property and leasehold improvements........... (4,936,000) (6,960,000)
Retirements of equipment, property and leasehold improvements......... 874,000 (63,000)
Proceeds from short-term interest-bearing investments:
Investments held to maturity....................................... 94,106,000 31,603,000
Investments held for sale.......................................... 37,800,000 4,400,000
Purchases of short-term interest-bearing investments:
Investments held to maturity....................................... (56,899,000) (42,258,000)
Investments held for sale.......................................... (38,600,000) (5,200,000)
Other, net............................................................ (862,000) (1,924,000)
------------ ------------
Net cash provided by (used in) investing activities................ 31,483,000 (20,402,000)
------------ ------------
Cash flows--financing activities:
Repurchases of Common Stock........................................... - (2,968,000)
Exercise of stock options............................................. 7,098,000 -
Tax benefit of employee stock options exercised....................... (1,253,000) -
Collections of stockholder notes receivable........................... 6,000 2,000
------------ ------------
Net cash provided by (used in) financing activities................ 5,851,000 (2,966,000)
------------ ------------
Effects of exchange rates on cash....................................... (1,995,000) (868,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents.................... 84,133,000 3,188,000
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...................... $117,192,000 $ 39,243,000
============ ============
Supplemental disclosures:
Income taxes paid.................................................. $ 8,101,000 $ 3,865,000
============ ============
Interest paid...................................................... $ 6,000 $ 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, 924,000 shares and 671,000 shares were added to
the weighted average number of shares outstanding for the three and nine-month
periods ended June 30, 2000, respectively. Approximately 76,000 shares and
27,000 shares were added to the weighted average number of shares outstanding
for the three and nine-month periods ended June 30, 1999, respectively.
Approximately 1,724,000 stock options were excluded from the calculation of
earnings per common share assuming dilution for the nine-month period ended June
30, 1999, 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 that are 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 remained 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.
In May 2000, plaintiffs and defendants executed a Stipulation of Settlement
("Settlement Stipulation") in the Schlagal Action, which was filed with the
--------
Court. The Settlement Stipulation provides, among other things, for dismissal
of the Schlagal Action against all defendants. Counsel for plaintiffs provided
--------
written notice of the Settlement Stipulation to class members, giving them the
opportunity to object to the Settlement Stipulation or to opt out of
participation in the settlement. Only four class members opted out.
On August 7, 2000, the Court gave its final approval to the Settlement
Stipulation and signed and filed a Judgement which, among other things,
dismissed the Schlagal action against all defendants. If the Judgement becomes
--------
final, the Settlement will have no financial impact upon the Company, its
officers or its directors.
If the Judgement approving the Settlement Stipulation does not become
final, the Company cannot estimate the outcome of further proceedings or any
potential liabilities 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 33 IT job functions. Learning Tree's instructor-led courses are recommended
for college credit by the American Council on Education. Learning Tree also
offers its customers 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 nine months of fiscal 2000,
substantially reduced its CBT sales efforts. The decision has and is expected
to continue to reduce costs and revenues associated with Learning Tree's CD-ROM
based CBT courses. As a result of this decision, Learning Tree wrote-off
approximately $6.0 million of capitalized development costs and equipment in the
third quarter of fiscal 1999.
During the third quarter of fiscal 2000, Learning Tree began limited test
marketing of its first Internet-based e-learning course, "Introduction to
Datacomm and Networks." Learning Tree is currently developing three additional
e-learning courses. The market for e-learning, for IT professionals, is
currently highly fragmented with no established industry model for growth and
profitability. Based on limited test marketing and market research, Learning
Tree presently believes that many customers expect e-learning to be less
effective than instructor-led classroom training and that many customers expect
to pay significantly less for e-learning than for instructor-led classroom
training. A number of e-learning providers offer text-based training or CBT
content over the Internet at low cost or even for free. In contrast, Learning
Tree believes that the value of high-quality, effective training (by whatever
modality) significantly outweighs the higher cost of such training to its
corporate customers. As a result, Learning Tree designs its e-learning courses
based on its continually updated instructor-led course content, and provides e-
learning course participants with extensive exercises and individual access over
the Internet to its experienced instructors as mentors. For such an approach to
be profitable, Learning Tree must find a means of attracting a sufficient number
of customers who believe that the increased educational effectiveness of this
approach justifies a significantly higher price. Until Learning Tree develops a
profitable e-learning model, it expects to limit its ongoing investment in e-
learning. There can be no assurance that Learning Tree will be able to
successfully develop or profitably implement its current or any other distance
learning strategy.
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 Internet-based e-learning course.
9
<PAGE>
Results of Operations
In the third fiscal quarter ended June 30, 2000, revenues increased by
28% to $63.0 million from $49.1 million for the corresponding quarter of the
prior year. Income from operations for the quarter ended June 30, 2000
increased by 1,400% to $17.5 million versus $1.2 million for the same quarter of
fiscal 1999. Net income for the quarter ended June 30, 2000 increased by 834%
to $12.3 million from $1.3 million for the same period last year.
Excluding the effect of the write-off of capitalized CBT development
costs and equipment in the third quarter of fiscal 1999, income from operations
for the quarter ended June 30, 2000 increased 148% and net income increased 133%
compared to the same period last year.
For the nine-month period ended June 30, 2000, revenues increased by
17% to $165.4 million from $140.8 million for the nine months ended June 30,
1999. Income from operations for the nine months ended June 30, 2000, increased
by 422% to $38.8 million versus $7.4 million for the corresponding period of the
prior year. Net income for the nine months ended June 30, 2000 increased by
316% to $28.0 million versus $6.7 million for the corresponding period of the
prior year.
Excluding the effect of the write-off of capitalized CBT development costs
and equipment in the third quarter of fiscal 1999, income from operations for
the nine months ended June 30, 2000 increased 191% and net income increased 162%
compared to the corresponding period of the prior year.
The growth in revenues in the third fiscal quarter was primarily the
result of a 29% increase in the number of multi-day course participants to
39,172 compared to 30,341 in the corresponding three months of the prior year.
The increase in revenues for the nine months ended June 30, 2000 resulted
primarily from a 20% increase in the number of multi-day instructor-led course
participants to 101,450 compared to 84,841 in the corresponding nine months of
the prior year. In addition, the growth in revenues in the three-month and
nine-month periods reflects increases in average revenue per multi-day course
participant of 2% and 1%, respectively. 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 35.3% of revenues in the third quarter of fiscal
2000 compared to 39.5% in the third quarter of fiscal 1999. For the nine months
ended June 30, 2000, the cost of revenues improved to 35.9% of revenues compared
to 41.7% for the same period in fiscal 1999.
For the third quarter of fiscal 2000, the cost of revenues increased by 15%
to $22.3 million from $19.4 million for the same quarter of fiscal 1999. For
the nine months ended June 30, 2000, Learning Tree's cost of revenues increased
by 1% to $59.3 million from $58.7 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 primarily reflect a 28% increase in the number of course
events during the third quarter of fiscal 2000 and an 18% increase for the year-
to-date period. During the third fiscal quarter ended June 30, 2000, the number
of multi-day instructor-led course events was 2,413 compared to 1,892 during the
same period last year. For the nine months ended June 30, 2000, the number of
multi-day instructor-led courses was 6,308 compared to 5,328 for the
corresponding period in fiscal 1999. These increases in cost of revenues were
partially offset by the elimination of the amortization of CBT development costs
and lower costs per multi-day instructor-led course event. Costs per multi-day
course event decreased by approximately 2% during the third fiscal quarter ended
June 30, 2000
10
<PAGE>
compared to the same period in fiscal 1999 and 7% for the year-to-date period.
The changes in the average cost per course event primarily reflect decreases in
costs for classroom facilities, course materials and freight, and the effect of
changes in foreign exchange rates.
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 4.3% of revenue during
the third quarter of fiscal 2000 compared to 18.6% for the same period of fiscal
1999. For the nine months ended June 30, 2000, course development expense was
4.6% of revenue compared to 11.5% of revenue for the corresponding period in the
prior year. Course development expenses decreased by 70% to $2.7 million for
the quarter ended June 30, 2000 versus $9.1 million in the quarter ended June
30, 1999. For the nine months ended June 30, 2000, course development expenses
decreased by 53% to $7.6 million from $16.2 million for the corresponding period
in the prior year. The decline reflects the write-off of deferred CBT course
development costs of $5.9 million and $7.1 million in the three and nine month
periods ending June 30, 1999, respectively. In addition, the declines in course
development expenses also reflect the termination of new CBT course development
activities in July 1999.
Learning Tree offered 145 multi-day course titles as of June 30, 2000,
compared to 138 a year earlier. Learning Tree has recently released additional
multi-day course titles on topics such as Windows 2000, Linux, Solaris, Internet
administration and web development. New courses under development include
additional courses on XML, Windows 2000, Oracle8, SQL Server 2000, wireless web
technology and security. 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 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 continues to
expand its instructor led training course library and 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. Sales and marketing expenses
increased by 4% to $14.0 million for the quarter ended June 30, 2000 versus
$13.5 million for the quarter ended June 30, 1999. For the nine months ended
June 30, 2000, sales and marketing expenses increased by 1% to $41.2 million
from $40.8 million for the corresponding period in the prior fiscal year. The
increases primarily reflect increased selling commissions due to the higher
level of sales, increases in the number of sales and marketing personnel and
increased marketing activities, partially offset by a reduction in CBT sales and
marketing costs. Sales and marketing expenses for the third quarter of fiscal
2000 decreased as a percentage of revenues to 22.3% compared to 27.5% in the
third quarter of fiscal 1999. Sales and marketing expenses for the nine months
ended June 30, 2000 decreased to 24.9% as a percentage of revenues compared to
29.0% for the same period last year. 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.
General and administrative expenses increased by 10% to $6.5 million
for the quarter ended June 30, 2000 compared to $5.9 million in the same quarter
of the prior year. For the nine months ended June 30, 2000,
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general and administrative expenses increased by 5% to $18.5 million from $17.6
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 10.3% in the quarter ended June 30, 2000 from
12.0% in the corresponding period of the prior year. In the nine months ended
June 30, 2000, these costs decreased to 11.2% from 12.5% 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 to $1.4
million for the quarter ended June 30, 2000 versus $830,000 for the
corresponding quarter in the prior year. For the nine months ended June 30,
2000, other income increased to $4.3 million from $2.8 million for the
corresponding nine 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 $149,000 recorded in the third quarter of fiscal
2000, compared to foreign exchange gains of $20,000 in the third quarter of
fiscal 1999 and foreign exchange losses of $292,000 in the nine months ended
June 30, 2000, compared with foreign exchange gains of $107,000 in the
corresponding period of the prior year. These transaction gains and 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 $6.0 million to $6.6 million
for the quarter ended June 30, 2000 compared to $679,000 for the same quarter of
the prior year. For the nine months ended June 30, 2000, the provision for
income taxes increased $11.6 million to $15.1 million from $3.5 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 June 30, 2000, Learning Tree had a backlog of orders for instructor-led
courses of $36.4 million, which represented a 35% increase compared to the
backlog of $26.9 million at June 30, 1999. At July 31, 2000, Learning Tree's
backlog of orders for instructor-led courses had increased to $36.8 million,
which represented a 26% increase compared to the backlog of $29.2 million at
July 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
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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.
Liquidity and Capital Resources
Cash and cash equivalents and short-term interest-bearing investments
increased to $139.1 million at June 30, 2000 from $91.4 million at September 30,
1999, primarily as a result of cash provided by operations. For the nine months
ended June 30, 2000, cash provided by operations was approximately $48.8 million
compared to $27.4 million during the same period in the prior year. The
increase in cash provided by operations primarily reflects the increase in
profitability. As of June 30, 2000, Learning Tree had working capital of $88.4
million.
For the nine months ended June 30, 2000, Learning Tree invested $4.9 million
in equipment and facilities compared to $7.0 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. During fiscal 2000, Learning
tree expanded the size of its Los Angeles education center. Learning Tree will
be expanding several of its existing education centers and in July 2000 signed a
lease for its first education center in Chicago. As of June 30, 2000, Learning
Tree had no other 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.
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,
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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 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.
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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 that
--------
are 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 remained 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.
In May 2000, plaintiffs and defendants executed a Stipulation of Settlement
("Settlement Stipulation") in the Schlagal Action, which was filed with the
--------
Court. The Settlement Stipulation provides, among other things, for dismissal
of the Schlagal Action against all defendants. Counsel for plaintiffs provided
--------
written notice of the Settlement Stipulation to class members, giving them the
opportunity to object to the Settlement Stipulation or to opt out of
participation in the settlement. Only four class members opted out.
On August 7, 2000, the Court gave its final approval to the Settlement
Stipulation and signed and filed a Judgement which, among other things,
dismissed the Schlagal action against all defendants. If the Judgement becomes
--------
final, the Settlement will have no financial impact upon the Company, its
officers or its directors.
If the Judgement approving the Settlement Stipulation does not become
final, Learning Tree cannot estimate the outcome of further proceedings or any
potential liabilities 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 cash flows. Learning Tree has agreements with its officers and directors
under which it is indemnifying them in these proceedings.
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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
None
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 June 30, 2000.
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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: August 10, 2000 By: /s/ Gary R. Wright
---------------------------------
Gary R. Wright
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
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