<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 December 31, 1999
-----------------
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
February 2, 2000, is 21,645,532 shares.
Total number of pages 17
----
<PAGE>
LEARNING TREE INTERNATIONAL, INC.
FORM 10-Q
December 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I--Financial Statements Page
Item 1. Financial Statements:
<C> <S> <C>
Consolidated Balance Sheets............................................ 3
Consolidated Statements of Operations.................................. 4
Consolidated Statements of Stockholders' Equity........................ 5
Consolidated Statements of Cash Flows.................................. 6
Notes to Consolidated Financial Statements............................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations...................................................... 9
<CAPTION>
Part II--Other Information
<C> <S> <C>
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>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------- --------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................ $ 45,007,000 $ 33,059,000
Short-term interest-bearing investments.................................. 58,632,000 58,357,000
Trade accounts receivable, net........................................... 15,841,000 17,227,000
Prepaid marketing expenses............................................... 1,017,000 1,620,000
Prepaid expenses and other............................................... 4,281,000 4,075,000
------------ ------------
Total current assets................................................ 124,778,000 114,338,000
Equipment, property and leasehold improvements, net....................... 23,550,000 25,235,000
Long-term interest-bearing investments.................................... 9,677,000 9,959,000
Other assets.............................................................. 1,294,000 1,249,000
------------ ------------
Total assets........................................................ $159,299,000 $150,781,000
============ ============
LIABILITIES
Current liabilities:
Trade accounts payable................................................... $ 10,365,000 $ 13,383,000
Deferred revenue......................................................... 39,302,000 37,618,000
Accrued liabilities...................................................... 7,939,000 7,319,000
Income taxes payable..................................................... 5,942,000 3,927,000
------------ ------------
Total current liabilities........................................... 63,548,000 62,247,000
Deferred income taxes..................................................... 154,000 154,000
Deferred facilities rent.................................................. 2,696,000 2,740,000
------------ ------------
Total liabilities................................................... 66,398,000 65,141,000
------------ ------------
Commitments
STOCKHOLDERS' EQUITY
Common Stock, $.0001 par value, 75,000,000 shares authorized,
21,641,000 and 21,636,000 shares issued and outstanding, respectively... 2,000 2,000
Additional paid-in capital............................................... 39,948,000 39,888,000
Notes receivable from stockholders....................................... -- (6,000)
Cumulative foreign currency translation.................................. (1,791,000) (1,300,000)
Retained earnings........................................................ 54,742,000 47,056,000
------------ ------------
Total stockholders' equity.......................................... 92,901,000 85,640,000
------------ ------------
Total liabilities and stockholders' equity.......................... $159,299,000 $150,781,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended December 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues................................... $49,399,000 $45,152,000
Cost of revenues........................... 18,207,000 19,840,000
----------- -----------
Gross profit............................. 31,192,000 25,312,000
----------- -----------
Operating expenses:
Course development....................... 2,395,000 3,377,000
Sales and marketing...................... 12,349,000 13,298,000
General and administrative............... 5,901,000 5,796,000
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20,645,000 22,471,000
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Income from operations..................... 10,547,000 2,841,000
----------- -----------
Other income (expense):
Interest expense......................... (1,000) (2,000)
Interest income.......................... 1,324,000 1,080,000
Foreign exchange......................... (67,000) 144,000
Other.................................... 21,000 (118,000)
----------- -----------
1,277,000 1,104,000
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Income before provision for income taxes... 11,824,000 3,945,000
Provision for income taxes................. 4,138,000 1,341,000
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Net income................................. $ 7,686,000 $ 2,604,000
=========== ===========
Earnings per common share.................. $ 0.36 $ 0.12
=========== ===========
Earnings per common share assuming
dilution................................. $ 0.35 $ 0.12
=========== ===========
Weighted average number shares
outstanding............................... 21,638,000 21,995,000
=========== ===========
Diluted shares outstanding................. 22,091,000 21,995,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
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............... -- -- -- -- -- 2,604,000 2,604,000
Foreign currency
translation............. -- -- -- -- (306,000) -- (306,000)
-----------
Comprehensive Income....... 2,298,000
Amortization of deferred
compensation.............. -- -- -- 20,000 -- -- 20,000
Collection of notes
receivable................ -- -- 1,000 -- -- -- 1,000
---------- ----------- ------- -------- ----------- ----------- -----------
Balance at
December 31,1998........... $ 2,000 $42,992,000 $(8,000) $(27,000) $(1,058,000) $37,246,000 $79,147,000
========== =========== ======= ======== =========== =========== ===========
Balance,
September 30, 1999......... $ 2,000 $39,888,000 $(6,000) $ -- $(1,300,000) $47,056,000 $85,640,000
Comprehensive income:
Net income............... -- -- -- -- -- 7,686,000 7,686,000
Foreign currency
translation............. -- -- -- -- (491,000) -- (491,000)
-----------
Comprehensive Income....... 7,195,000
Exercise of stock
options................... -- 60,000 -- -- -- -- 60,000
Collection of notes
receivable................. -- -- 6,000 -- -- -- 6,000
---------- ----------- ------- ------- ----------- ----------- -----------
Balance at
December 31,1999........... $ 2,000 $39,948,000 $ -- $ -- $(1,791,000) $54,742,000 $92,901,000
========== =========== ======= ======= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows--operating activities:
Net income...................................................... $ 7,686,000 $ 2,604,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................. 2,281,000 3,482,000
Write-off of deferred CBT development costs................... -- 159,000
Deferred facilities rent charges.............................. (25,000) 453,000
Amortization of deferred compensation......................... -- 20,000
Unrealized foreign exchange (gains) losses.................... 12,000 (226,000)
(Gains) losses on retirements of equipment and leasehold
improvements................................................. (7,000) 133,000
Change in net assets and liabilities:
Trade accounts receivable................................. 1,135,000 1,708,000
Prepaid marketing expenses................................ 602,000 (185,000)
Prepaid expenses and other................................ (259,000) 1,476,000
Income taxes.............................................. 2,103,000 (909,000)
Trade accounts payable.................................... (2,896,000) (3,547,000)
Deferred revenue.......................................... 2,045,000 2,918,000
Accrued liabilities....................................... 725,000 59,000
----------- -----------
Net cash provided by operating activities..................... 13,402,000 8,145,000
----------- -----------
Cash flows--investing activities:
Purchases of equipment, property and leasehold improvements..... (1,604,000) (4,004,000)
Retirements of equipment, property and leasehold improvements... 837,000 (10,000)
Sales of short-term interest-bearing investments:
Investments held to maturity................................... 7,029,000 11,136,000
Investments held for sale...................................... 7,700,000 400,000
Purchases of short-term interest-bearing investments:
Investments held to maturity................................... (7,263,000) (7,371,000)
Investments held for sale...................................... (7,741,000) (700,000)
Other, net...................................................... 81,000 (775,000)
----------- -----------
Net cash used in investing activities......................... (961,000) (1,324,000)
----------- -----------
Cash flows--financing activities:
Exercise of stock options....................................... 60,000 --
Collections of stockholder notes receivable..................... 6,000 1,000
----------- -----------
Net cash provided by financing activities..................... 66,000 1,000
----------- -----------
Effects of exchange rates on cash................................ (559,000) (188,000)
----------- -----------
Net increase in cash and cash equivalents........................ 11,948,000 6,634,000
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............... $45,007,000 $42,689,000
=========== ===========
Supplemental disclosures:
Income taxes paid............................................. $ 2,005,000 $ 1,055,000
=========== ===========
Interest paid................................................. $ -- $ 2,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
LEARNING TREE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Operations and Significant Accounting Policies:
----------------------------------------------
The accompanying condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
regulations. Certain prior period balances have been reclassified to conform
with the current period presentation. The condensed consolidated financial
statements reflect all adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. All such adjustments are of a
normal recurring nature. The condensed consolidated financial statements in this
Quarterly Report on Form 10-Q should be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year ended
September 30, 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, zero shares and 453,000 shares were added to the
weighted average number of shares outstanding as of December 31, 1998 and 1999,
respectively. For the first quarter of fiscal 1999 and 2000, 2,087,000 and
887,000 stock options, respectively, were excluded from the calculation of
earnings per common share assuming dilution, 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. 95-6384ABC), purportedly on behalf of persons who purchased the
- ---
Company's Common Stock between May 8, 1997 and May 13, 1998. On August 10, 1998,
the Superior Court dismissed the Sarah case. On April 15, 1999, the Court of
----
Appeals reversed the dismissal of Sarah.
-----
7
<PAGE>
LEARNING TREE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On August 27, 1998, plaintiffs amended the Guthrie action to add the
-------
Company and two additional officers as defendants and to expand the proposed
class period to include persons who purchased the Company's Common Stock between
May 8, 1997 and May 13, 1998.
Each of the complaints makes similar allegations of misrepresentations in
certain public disclosures made by the Company at various times during the class
period. Each complaint alleges 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 seeks an unspecified amount of compensatory damages
and, additionally, seeks attorneys' fees and other costs, interest, and other
relief.
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 and dismissed Sarah and Guthrie.
----- -------
Thus, only the amended Schlagal class action remains pending against the
--------
Company, its officers and directors.
The Company has agreements with officers and directors under which it is
indemnifying them in each of these proceedings. The Company is unable to
estimate the outcome of these matters or any potential liabilities it may incur.
The Company may incur legal and other defense costs as a result of such
proceedings in an amount which it can not 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.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 substantially reduced its CBT sales efforts
during the first quarter of fiscal 2000. The decision is expected to reduce
future 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. In view of the rapid changes in available technologies, Learning Tree
is exploring various Internet distance learning approaches and technologies and
may implement them based on its assessment of customer reaction and market
viability.
In November 1999, Learning Tree conducted a one and one-half day focus
group for part of its first Distance Learning Course being developed. Based on
the feedback from the focus group, Learning Tree completed the development of
the full course and is currently delivering the beta version of the course over
the Internet to students in the United States, Canada, the United Kingdom,
Sweden and France. 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 first fiscal quarter ended December 31, 1999, revenues increased by
$4.2 million or 9% to $49.4 million from $45.2 million for the corresponding
quarter of the prior year. Income from operations for the quarter ended December
31, 1999 increased $7.7 million or 271% to $10.5 million versus $2.8 million for
the same quarter of fiscal 1999. Net income for the quarter ended December 31,
1999 increased by $5.1 million or 195% to $7.7 million versus $2.6 million for
the quarter ended December 31, 1998.
9
<PAGE>
Revenues for the three months ended December 31, 1999 reflect a 12%
increase in the number of multi-day course participants to 29,891 compared to
26,786 in the corresponding three months of the prior year and 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
Learning Tree's instructor-led course revenues was partially offset by a
reduction in CBT revenues. The reduction in CBT revenues reflects Learning
Tree's decision in July 1999 to terminate development of new titles and to
reduce its sales and marketing of these products.
Learning Tree's cost of revenues for its instructor-led courses primarily
includes the costs associated with the course instructors, course materials and
equipment, freight, classroom facilities and refreshments. The cost of revenues
was 36.9% of revenues in the first quarter of fiscal 2000 compared to 43.9% in
the first quarter of fiscal 1999. This reflects an improvement in margins in
instructor-led courses and the elimination of the amortization of CBT
development costs.
For the first quarter of fiscal year 2000, the cost of revenues decreased
$1.6 million or 8% to $18.2 million from $19.8 million for the previous fiscal
year. The decrease in the cost of revenues is primarily the result of lower
costs per multi-day instructor-led course event and the reduced CBT costs. These
savings were partially offset by an 11% increase in the number of course events.
The number of multi-day instructor-led course events was 1,879 in the first
quarter of fiscal 2000 compared to 1,695 course events in the first quarter of
fiscal 1999. Costs per multi-day course event decreased by approximately 10% in
the first quarter of fiscal 2000 compared to the same period in fiscal 1999. The
change in the average cost per course event primarily reflects decreases in
costs for classroom facilities, course materials and freight.
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. For the first quarter of fiscal 2000, course
development expense was 4.8% of revenue compared to 7.5% in the same period of
fiscal 1999. For the three months ended December 31, 1999, course development
expenses decreased by $982,000 or 29% to $2.4 million from $3.4 million for the
three months ended December 31, 1998. Course development costs declined since
there were no CBT course development costs in the first quarter of fiscal 2000.
The number of multi-day course titles offered by Learning Tree was 144 as
of December 31, 1999, compared to 150 a year earlier. New courses currently
under development include additional courses on Windows 2000 and Linux. 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 explores the development of Internet distance
learning approaches and technologies.
10
<PAGE>
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 decreased $949,000 or 7% to $12.3 million in the first
quarter of fiscal 2000 from $13.3 million in the same period of fiscal 1999. The
decrease in sales and marketing expenses, for the 2000 fiscal year, occurred
primarily as a result of a decrease in direct mail marketing costs per piece and
reductions in CBT sales and marketing costs. 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.
Sales and marketing expenses for the first quarter of fiscal 2000 decreased as a
percentage of revenues to 25.0% compared to 29.5% in the first quarter of fiscal
1999.
In the first quarter of fiscal 2000, general and administrative expenses
increased $105,000 or 2% to $5.9 million from $5.8 million for the same period
in fiscal 1999. The increase in general and administrative expenses reflects
increases in administrative staff and related costs. As a percentage of revenue,
general and administrative expenses were 11.9% for the first quarter of fiscal
2000 compared to 12.8% in the first quarter of fiscal 1999.
Other income (expense) is primarily comprised of interest income and
foreign currency transaction gains and losses. For the first quarter of fiscal
2000, other income increased $173,000 to $ 1.3 million from $1.1 million for the
first quarter of fiscal 1999. This increase reflects a $244,000 increase in
interest income in the first quarter of fiscal 2000 compared to the same period
of the prior year. The increase was partially offset by foreign exchange losses
of $67,000 recorded in the first quarter of fiscal 2000, compared to foreign
exchange gains of $144,000 in the first quarter of fiscal 1999. 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 $2.8 million to $4.1 million for
the quarter ended December 31, 1999 from $1.3 million for the quarter ended
December 31, 1998. The increase in the income tax provision reflects the
increase in taxable income and a slight increase in the effective tax rate.
Backlog
At December 31, 1999, Learning Tree had a backlog of orders for instructor-
led courses of $24.0 million, which represented a 1% decrease compared to the
backlog of $24.2 million at December 31, 1998. However, the rate of enrollments
increased significantly during January 2000 and at January 31, 2000, the backlog
of orders for instructor-led courses had grown to $30.0 million, which
represented a 10% increase compared to the backlog of $27.3 million at January
31, 1999. There can be no assurance that the rate of growth in enrollments
experienced in January 2000 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.
11
<PAGE>
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.
Liquidity and Capital Resources
Cash and cash equivalents and short-term interest-bearing investments
increased to $103.6 million at December 31, 1999 from $91.4 million at September
30, 1999, primarily as a result of the cash provided by operations. In the
quarter ended December 31, 1999, cash provided by operations was approximately
$13.4 million compared to $8.1 million during the same period in the prior year.
The increase in cash provided by operations primarily reflects the increase in
profitability. At December 31, 1999, Learning Tree had working capital of $61.2
million.
During the quarter ended December 31, 1999, Learning Tree invested $1.6
million in equipment and facilities compared to $4.0 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. 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 December 31, 1999, 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.
12
<PAGE>
Year 2000 Compliance
The Year 2000 Problem. The Y2K problem arose because many existing
computer programs use only the last two digits to recognize a year. Therefore,
when the year 2000 arrived, these programs might not have properly recognized a
year beginning with "20." The Y2K problem could have resulted in the improper
processing of dates and date-sensitive calculations by computers and other
microprocessor-controlled equipment.
Learning Tree's Response to the Y2K Problem. Learning Tree focused most of
its efforts on its internal systems because it believed this area could be its
primary source of Y2K problems. In addition, Learning Tree reviewed its products
and concluded that they were Y2K compliant. Learning Tree also completed a
review to identify any potential Y2K problems from outside vendors whose systems
interface with Learning Tree's internal systems. Learning Tree completed the
installation and testing of the upgrades it believed were necessary to make its
internal systems Y2K compliant before December 31, 1999.
Y2K Impact and Future Risks. 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 nor does it anticipate any Y2K problems in the future. However,
there can be no assurance that Y2K problems do not still exist that may have an
adverse effect on Learning Tree's ability to conduct its operations.
Possible Impact on Revenues. Certain independent as well as internal
market surveys indicate that companies reduced their spending on IT training and
on new software and hardware investments while working to overcome their Y2K
problems. The impact of Y2K on Learning Tree's revenues appears to have
diminished in the first quarter of fiscal 2000 as compared with the prior year,
as companies completed their Y2K Compliance programs. While enrollments were
strong in January 2000, Learning Tree cannot predict to what extent, if any, Y2K
will affect enrollments during the remainder of the second fiscal quarter or
beyond. There can be no assurance that Learning Tree's revenues will increase
after its clients complete their Y2K Compliance programs.
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.
13
<PAGE>
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 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. 95-6384ABC), purportedly on behalf of persons who purchased
- ---
Learning Tree's Common Stock between May 8, 1997 and May 13, 1998. On August 10,
1998, the Superior Court dismissed the Sarah case. On April 15, 1999, the Court
-----
of Appeals reversed the dismissal of Sarah.
-----
On August 27, 1998, plaintiffs amended the Guthrie action to add Learning
-------
Tree and two additional officers as defendants and to expand the proposed class
period to include persons who purchased Learning Tree's Common Stock between May
8, 1997 and May 13, 1998.
Each of the complaints makes similar allegations of misrepresentations in
certain public disclosures made by Learning Tree at various times during the
class period. Each complaint alleges 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 Company Stock while in possession of the allegedly concealed
material adverse information. Each complaint seeks an unspecified amount of
compensatory damages and, additionally, seeks attorneys' fees and other costs,
interest, and other relief.
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 and dismissed Sarah and Guthrie.
----- -------
Thus, only the amended Schlagal class action remains pending against Learning
--------
Tree, its officers and directors.
Learning Tree has agreements with officers and directors under which it is
indemnifying them in each of these proceedings. Learning Tree is unable to
estimate the outcome of these matters or any potential liabilities it may incur.
Learning Tree may incur legal and other defense costs as a result of such
proceedings in an amount which it can not 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.
15
<PAGE>
Item 2: CHANGES IN SECURITIES
Not Applicable
Item 3: DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the first
quarter of fiscal 2000, through the solicitation of proxies or otherwise.
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
December 31, 1999.
16
<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: February 10, 2000 By: /s/ Gary R. Wright
----------------------------
Gary R. Wright
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
17
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