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, 1997
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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
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(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
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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
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The number of shares of common stock, $.0001 par value, outstanding as of
February 2, 1998, is 21,994,507 shares.
Total number of pages 11
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LEARNING TREE INTERNATIONAL, INC.
FORM 10-Q
DECEMBER 31, 1997
TABLE OF CONTENTS
PAGE
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PART I--FINANCIAL STATEMENTS
Item 1. Financial Statements:
Consolidated Balance Sheets............................... 3
Consolidated Statements of Operations..................... 4
Consolidated Statements of Cash Flows..................... 5
Notes to Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7
PART II--OTHER INFORMATION
Item 1. Legal Proceedings......................................... 10
Item 2. Changes in Securities..................................... 10
Item 3. Defaults Upon Senior Securities........................... 10
Item 4. Submission of Matters to a Vote of Security Holders....... 10
Item 5. Other Information......................................... 10
Item 6. Exhibits and Reports on Form 8-K.......................... 10
SIGNATURES........................................................... 11
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1997 1997
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ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents....................................... $ 37,764,000 $ 32,441,000
Short-term interest-bearing investments......................... 20,024,000 24,330,000
Trade accounts receivable, net.................................. 17,990,000 23,201,000
Prepaid marketing expenses...................................... 1,180,000 1,356,000
Prepaid expenses and other...................................... 4,528,000 4,818,000
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Total current assets.......................................... 81,486,000 86,146,000
Equipment, property and leasehold improvements, net................. 27,384,000 27,429,000
Deferred income taxes............................................... 558,000 710,000
Other assets........................................................ 8,867,000 8,066,000
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Total assets.................................................. $118,295,000 $122,351,000
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LIABILITIES
Current liabilities:
Current portion of debt and capital leases...................... $ -- $ 19,000
Trade accounts payable.......................................... 12,525,000 17,993,000
Deferred revenue................................................ 29,548,000 27,531,000
Accrued liabilities............................................. 6,492,000 5,764,000
Income taxes payable............................................ 1,175,000 3,726,000
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Total current liabilities..................................... 49,740,000 55,033,000
Deferred facilities rent............................................ 1,491,000 1,423,000
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Total liabilities............................................. 51,231,000 56,456,000
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Commitments
STOCKHOLDERS' EQUITY
Common Stock, $.0001 par value, 75,000,000 shares authorized,
21,995,000 shares issued and outstanding.................... 2,000 2,000
Additional paid-in capital...................................... 42,992,000 42,992,000
Notes receivable from stockholders.............................. (12,000) (14,000)
Deferred compensation--stockholders............................. (107,000) (127,000)
Cumulative foreign currency translation......................... (1,211,000) (1,066,000)
Retained earnings............................................... 25,400,000 24,108,000
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Total stockholders' equity.................................... 67,064,000 65,895,000
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Total liabilities and stockholders' equity.................... $118,295,000 $122,351,000
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See accompanying notes to consolidated financial statements.
3
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months
Ended December 31,
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1997 1996
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Revenues................................... $45,179,000 $36,010,000
Costs of revenues.......................... 20,340,000 14,342,000
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Gross profit.............................. 24,839,000 21,668,000
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Operating expenses:
Course development........................ 3,165,000 2,382,000
Sales and marketing....................... 14,838,000 9,891,000
General and administrative................ 5,445,000 3,749,000
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23,448,000 16,022,000
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Income from operations..................... 1,391,000 5,646,000
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Other income (expense):
Interest expense.......................... (5,000) (8,000)
Interest income........................... 821,000 870,000
Foreign exchange.......................... (32,000) 13,000
Other..................................... (217,000) (288,000)
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567,000 587,000
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Income before provision for income taxes... 1,958,000 6,233,000
Provision for income taxes................. 666,000 2,119,000
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Net income................................. $ 1,292,000 $ 4,114,000
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Earnings per common share.................. $ 0.06 $ 0.19
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Earnings per common share assuming
dilution................................... $ 0.06 $ 0.19
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Weighted average number shares
outstanding................................ 21,995,000 21,995,000
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Diluted shares outstanding................. 22,062,000 22,033,000
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See accompanying notes to consolidated financial statements.
4
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months
Ended December 31,
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1997 1996
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Cash flows--operating activities:
Net income............................................................... $ 1,292,000 $ 4,114,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................................... 2,310,000 1,027,000
Deferred facilities rent charges...................................... 67,000 (103,000)
Amortization of deferred compensation................................. 20,000 20,000
Unrealized foreign exchange losses.................................... 75,000 --
Losses on retirements of equipment.................................... 243,000 210,000
Change in net assets and liabilities:
Trade accounts receivable............................................ 5,149,000 (1,008,000)
Prepaid marketing expenses........................................... 171,000 120,000
Prepaid expenses and other........................................... 258,000 246,000
Income taxes......................................................... (2,402,000) (708,000)
Trade accounts payable............................................... (5,483,000) (1,219,000)
Deferred revenue..................................................... 2,110,000 2,726,000
Accrued liabilities.................................................. 759,000 2,446,000
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Net cash provided by operating activities............................. 4,569,000 7,871,000
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Cash flows--investing activities:
Purchases of equipment, property and leasehold improvements.............. (2,558,000) (3,999,000)
Retirements of equipment, property and leasehold improvements............ 28,000 77,000
Proceeds from short-term interest-bearing investments held to maturity... 6,958,000 2,433,000
Purchases of short-term interest-bearing investments:
Investments held to maturity........................................... (2,652,000) (4,500,000)
Investments held for sale.............................................. -- (400,000)
Other, net............................................................... (816,000) (219,000)
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Net cash used in investing activities................................. 960,000 (6,608,000)
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Cash flows--financing activities:
Principal payments of debt and capital leases............................ (19,000) (36,000)
Collections of stockholder notes......................................... 2,000 36,000
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Net cash provided by (used in) financing activities................... (17,000) --
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Effects of exchange rates on cash......................................... (189,000) 709,000
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Net increase in cash and cash equivalents................................. 5,323,000 1,972,000
Cash and cash equivalents at the beginning of the period.................. 32,441,000 24,541,000
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Cash and cash equivalents at the end of the period........................ $37,764,000 $26,513,000
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Supplemental disclosures:
Income taxes paid....................................................... $ 1,662,000 $ 1,248,000
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Interest paid........................................................... $ 2,000 $ 9,000
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See accompanying notes to consolidated financial statements.
5
LEARNING TREE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Operations and Significant Accounting Policies
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The accompanying condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
regulations. Certain prior period balances have been reclassified to conform
with the current period presentation. The condensed consolidated financial
statements reflect all adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. All such adjustments are of a
normal recurring nature. The condensed consolidated financial statements in this
Quarterly Report on Form 10-Q should be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year ended
September 30, 1997 that are contained in the Company's 1997 Annual Report on
Form 10-K.
Note 2. Computation of Net Income per Common share and Common Equivalent Share:
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The Company has adopted Financial Accounting Standards No. 128 (SFAS No.
128) "Earnings per Share" as of the start of fiscal 1998. Accordingly, the net
income per common share and common equivalent share for fiscal 1997 has been
restated to reflect the adoption of SFAS No. 128. The difference between the
weighted average number of shares outstanding and the diluted shares outstanding
is due to stock options. To calculate the number of diluted shares outstanding,
using the treasury stock method, 38,000 shares and 67,000 shares were added to
the weighted average number of shares outstanding as of December 31, 1996 and
1997, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Learning Tree International, Inc. (the "Company"), is a leading worldwide
provider of education and training for corporate information technology ("IT")
professionals in business and government organizations. The Company develops,
markets and delivers a broad, proprietary library of instructor-led course
titles focused on client/server systems, intranet/Internet technologies,
computer networks, operating systems, databases, programming languages,
graphical user interfaces, object-oriented technology and IT management. The
Company also tests and certifies IT professionals in 27 IT job functions. The
Company's instructor-led courses are recommended for college credit by the
American Council on Education.
During 1997, the Company expanded the breadth of its instructor-led
training activities through the introduction of its Learning Solutions Division.
The Learning Solutions Division provides custom developed training programs for
larger clients who need to train large numbers of their IT professionals and
end-users. The focus of this new division is on training that supports the
roll-out and use of new organization-wide information systems, tools and
applications. In 1997, the Company also introduced a program of "Power
Seminars," which were multi-day conferences consisting of a number of 1-day,
multimedia lecture-style seminars in key information technologies. In November
1997, the Company announced that it was eliminating its Power Seminars program.
Operations in the Power Seminars program ceased as of the end of the first
quarter of fiscal 1998.
In addition to its instructor-led courses, the Company develops, produces
and markets a line of interactive computer-based training courses incorporating
audio and graphical elements ("multimedia CBT") that are designed for both
stand-alone CD-ROM and network-based delivery.
RESULTS OF OPERATIONS
For the first quarter of fiscal 1998, which ended December 31, 1997,
revenues increased by $9.2 million or 25% to $45.2 million from $36.0 million
for the same quarter in the prior year. Income from operations for the quarter
ended December 31, 1997 decreased $4.2 million or 75% to $1.4 million from $5.6
million for the first quarter of fiscal 1997. For the quarter ended December
31, 1997, net income decreased by $2.8 million or 69% to $1.3 million from $4.1
million for the quarter ended December 31, 1996.
The growth of revenues is due in part to an increase in the number of
course participants in multi-day instructor-led courses to 26,298 in the quarter
ended December 31, 1997, from 24,029 participants in the corresponding quarter
of the prior year. The additional course participants are primarily
attributable to increased sales and marketing activities and an increase in the
number of course titles to 146 in the first quarter of fiscal 1998, compared to
120 in the same period a year earlier. Revenues for the three month period ended
December 31, 1997 also reflect a 4% increase in average revenue per multi-day
course participant, which resulted from increases in average course duration and
prices. The increase in revenues also reflects the growth of revenues from the
multimedia CBT product line as well as revenues earned by the Company's Learning
Solutions Division under its contract with General Motors ("GM") to train GM
personnel and dealers on the use and support of a new proprietary information
system, GM ACCESS.
The Company's cost of revenues primarily includes the costs associated with
the course instructor, course materials and equipment, freight, classroom
facilities and refreshments. The cost of revenues for the first quarter of
fiscal 1998 increased $6.0 million or 42% to $20.3 million from $14.3 million
for the same quarter in 1997. The increase in the cost of revenues for the
three month period ended December 31, 1997, as compared to the same period in
the prior year, is the result of a) the increased number of multi-day
instructor-led course events b) the costs associated with the increased sales
in the multimedia CBT product line and c) the costs of delivering the lower
gross margin Learning Solutions courses. The number of multi-day instructor-led
course events increased 10% in the quarter ended December 31, 1997 to 1,626
course events from 1,485 course events in the quarter ended December 31, 1996.
Costs per multi-day instructor-led course event increased approximately 11%
compared to the corresponding period in the prior year. The change in the
average cost per course event primarily reflects the higher costs of conducting
more course events at sites other than education centers because of education
center capacity constraints, costs of recruiting and training new instructors to
expand the instructor force and costs of course equipment. To accommodate the
growth in course enrollments, the Company has increased and is seeking
additional education center facilities in certain locations. In January 1998,
the Company signed an agreement to lease a new education center in the United
Kingdom which is anticipated to be operational in early fiscal 1999.
7
The cost of revenues increased to 45 percent of revenues in the first
quarter of fiscal 1998 compared to 40 percent in the first quarter of fiscal
1997, largely because of lower gross margins in the Power Seminars and Learning
Solutions product lines compared with the Company's traditional multi-day
instructor-led courses and multimedia CBT courses, and also because of the
increased cost per multi-day instructor-led course event.
Course development expense includes the costs of developing new course
titles and updating the Company's existing course library. The principal costs
are for internal course development staff and independent consultants who serve
as subject matter experts. Course development expense increased by $783,000 or
33% to $3.2 million for the first quarter ended December 31, 1997 from $2.4
million in the quarter ended December 31, 1996. This increase reflects the
costs associated with the Company's strategy of expanding its multi-day
instructor-led and multimedia CBT course libraries to meet its customers'
technology training needs and updating and maintaining the growing course title
libraries. The Company plans to continue its strategy of expanding both its
instructor-led course library and its multimedia CBT library, including
additional titles in the areas of intranet/Internet technologies, computer
networking, Java, Windows NT, programming languages and databases.
During the first quarter of fiscal 1998, the Company introduced a new web-
based engine for its multimedia CBT product line and is continuing to allocate
resources to develop new features and capabilities for this engine. Since all
new CBT titles are being developed using this evolving engine, and because
resources will be allocated to adapt existing courses based on prior engines to
the new web-based engine, the rate of introduction of new CBT titles in the
first quarter, and the expected release rate of new courses in the next two
quarters, is expected to be somewhat less than during the fourth quarter of
fiscal 1997 when 24 CBT titles were released. To date, the Company has released
82 multimedia CBT course titles with 10 additional titles expected to be
released by February 20, 1998.
Sales and marketing expense consists of salaries, commissions and travel-
related costs of sales and marketing personnel, the costs of designing,
producing and distributing direct mail marketing and media advertisements, and
the costs of information systems to support these activities. Sales and
marketing expenses increased $4.9 million or 50% to $14.8 million for the
quarter ended December 31, 1997 from $9.9 million for the quarter ended December
31, 1996. The increase in sales and marketing expenses occurred as a result of
an increase in telemarketing and field sales staff and increased direct mail
marketing. The increase in direct mail marketing is intended to attract a
broader range of potential multi-day instructor-led customers, to expand
business with current customers, to expand the Company's presence in certain
U.S. cities and to communicate the availability of new course titles. The
increased telemarketing staff is to support the multi-day instructor-led courses
and the increased field sales staff will support multi-day instructor-led
courses and multimedia CBT.
General and administrative expense increased $1.7 million or 45% to $5.4
million for the quarter ended December 31, 1997 from $3.7 million for the
quarter ended December 31, 1996. The increase in general and administrative
expenses reflects increases in information systems and other administrative
staff and facilities over the prior year. As a percentage of revenue, these
costs increased to 12% in the quarter ended December 31, 1997 from 10% in the
corresponding quarter of the prior year. As a percentage of revenues in the
first quarter of fiscal 1997, general and administrative expenses reflected the
rapid growth of revenues occurring at that time.
Other income (expense) is comprised of interest income, interest expense,
foreign currency gains and losses and other. Total other income remained
approximately constant, decreasing by $20,000 to $567,000 for the quarter ended
December 31, 1997 from $587,000 for the same quarter in the prior year.
The provision for income taxes decreased $1.4 million to $666,000 for the
quarter ended December 31, 1997 from $2.1 million for the quarter ended December
31, 1997. The decrease in the income tax provision reflects the decrease in
taxable income.
BACKLOG
At December 31, 1997, the Company had a backlog of orders for instructor-
led courses of $24.9 million, which represented a 14% increase over the backlog
of $21.8 million at December 31, 1996. Only a portion of the Company's backlog
is funded. There can be no assurance that the growth in the backlog will
continue or that orders comprising the backlog will be realized as revenue.
8
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's operating results may fluctuate based on various factors,
including the frequency of course events, the number of weeks in a quarter
during which courses can be conducted, the timing, frequency and size of, and
response to, the Company's direct mail marketing and advertising campaigns, the
timing of the introduction of new course titles and alternate delivery methods,
the mix between customer-site course events and Learning Tree-site course
events, competitive forces within the current and anticipated future markets
served by the Company, the spending patterns of its customers, currency
fluctuations, inclement weather and general economic conditions. Fluctuations
in quarter-to-quarter results may also occur as a result of differences in the
timing of, and the time period between, the Company's expenditures on the
development and marketing of its courses and the receipt of revenues.
The Company's revenues and income have historically varied significantly
from quarter to quarter due to seasonal and other factors. The Company
generally has greater revenue and operating income in the second half of its
fiscal year (April through September) than in the first half of its fiscal year
(October through March). This seasonality is due in part to seasonal spending
patterns of the Company's customers arising from budgetary and other business
factors as well as weather, holiday and vacation considerations. In addition,
the seasonality of the Company's operating results reflects the quarterly
differences in the frequency and size of the Company's direct mail marketing
campaigns. There can be no assurance that these seasonal factors or their
effects will remain the same in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term interest-bearing investments
increased to $57.8 million at December 31, 1997 from $56.8 million at September
30, 1997, primarily as a result of the cash provided by operations. In the
quarter ended December 31, 1997, cash provided by operations was approximately
$4.6 million compared to $7.9 million during the same period in the prior year.
The decrease in cash provided by operations reflects the change in profitability
and increased payments of income taxes. At December 31, 1997, the Company had
working capital of $31.7 million and had unused available lines of credit of
approximately $338,000.
During the quarter ended December 31, 1997, the Company invested $2.6
million in equipment and facilities compared to $4.0 million in the same period
of the prior year. The higher level of investment during last year was
primarily related to the acquisition of additional course equipment to support
the high growth rate of course events at that time, to upgrade course equipment
capabilities and to build-out office facilities. While the Company expects to
purchase additional course equipment and to enter into leases for additional
facilities during fiscal 1998, as of December 31, 1997, the Company had no
material future purchase obligations, capital commitments or debt and believes
that its cash and cash equivalents, its short-term interest-bearing investments
and the cash provided by its operations will be sufficient to meet its cash
requirements for the foreseeable future.
In January 1998, the Company entered into a lease agreement for a large
education center in the United Kingdom. The Company expects to begin executing
courses in this new facility during the first fiscal quarter of 1999. The terms
of the lease will require lease payments of approximately $4.3 million per annum
and a cash deposit or letter of credit in the amount of approximately $9.8
million. Any cash deposit will bear interest to the Company and the required
level of the cash deposit or letter of credit will decline if certain financial
ratios have been met.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, the matters
discussed in this Form 10-Q are forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those set forth in such forward-looking statements. Such risks
and uncertainties include, without limitation, the Company's dependence on the
timely development, introduction and customer acceptance of new courses and
products, the impact of competition and downward pricing pressures, the effect
of changing economic conditions, the Company's ability to attract and retain key
management and other personnel, risks in technology development, the risks
involved in currency fluctuations, and the other risks and uncertainties
detailed from time to time in the Company's filings with the Securities and
Exchange Commission, including the Company's 1997 Annual Report on Form 10-K.
9
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
None
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 1998, 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, 1997.
10
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, 1998 By: /s/ Gary R. Wright
----------------------------
Gary R. Wright
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
11