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, 2001
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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
- ------------------------------- ----------------------
(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 principle 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 7, 2002, is 18,985,028 shares.
Total number of pages 17
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1
LEARNING TREE INTERNATIONAL, INC.
FORM 10-Q
December 31, 2001
TABLE OF CONTENTS
Part I--Financial Statements
Page
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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......................................................................... 8
Part II--Other Information
Item 1. Legal Proceedings.................................................................... 16
Item 2. Changes in Securities................................................................ 16
Item 3. Defaults Upon Senior Securities...................................................... 16
Item 4. Submission of Matters to a Vote of Secruity Holders.................................. 16
Item 5. Other Information.................................................................... 16
Item 6. Exhibits and Reports on Form 8-K..................................................... 16
Signatures......................................................................................... 17
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2001 2001
------------------- ------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents.............................. $ 106,478,000 $ 108,544,000
Trade accounts receivable, net......................... 15,457,000 15,990,000
Prepaid marketing expenses............................. 1,698,000 2,212,000
Prepaid income taxes................................... 4,730,000 5,155,000
Prepaid expenses and other............................. 6,212,000 5,815,000
------------------- ------------------
Total current assets 134,575,000 137,716,000
------------------- ------------------
Equipment, property and leasehold improvements, net...... 26,685,000 27,856,000
Long-term interest-bearing investments................... 7,246,000 7,353,000
Other assets............................................. 2,022,000 2,050,000
------------------- ------------------
Total assets......................................... $ 170,528,000 $ 174,975,000
=================== ==================
LIABILITIES
Current liabilities:
Trade accounts payable................................. $ 11,889,000 $ 17,041,000
Deferred revenue....................................... 59,200,000 61,662,000
Accrued liabilities.................................... 7,995,000 7,316,000
Income taxes payable................................... 2,280,000 2,725,000
------------------- ------------------
Total current liabilities............................ 81,364,000 88,744,000
------------------- ------------------
Deferred income taxes.................................... 177,000 178,000
Deferred facilities rent................................. 1,921,000 1,993,000
------------------- ------------------
Total liabilities.................................... 83,462,000 90,915,000
------------------- ------------------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock, $.0001 par value, 75,000,000 shares
authorized, 18,971,000 and 18,929,000 shares issued
and outstanding, respectively......................... 2,000 2,000
Preferred Stock, $.0001 par value, 10,000,000 shares
authorized, 0 shares issued and outstanding........... -- --
Additional paid-in capital............................. 1,890,000 --
Cumulative foreign currency translation................ (4,829,000) (4,584,000)
Retained earnings...................................... 90,003,000 88,642,000
------------------- ------------------
Total stockholders' equity........................... 87,066,000 84,060,000
------------------- ------------------
Total liabilities and stockholders' equity........... $ 170,528,000 $ 174,975,000
=================== ==================
See accompanying notes to condensed consolidated financial statements.
3
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
December 31,
--------------------------------
2001 2000
-------------- --------------
Revenues................................................................... $ 47,171,000 $ 62,104,000
Cost of revenues........................................................... 20,992,000 23,613,000
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Gross Profit............................................................... 26,179,000 38,491,000
-------------- --------------
Operating expenses:
Course development....................................................... 2,490,000 2,820,000
Sales and marketing...................................................... 13,025,000 14,517,000
General and administrative............................................... 6,775,000 6,537,000
-------------- --------------
22,290,000 23,874,000
-------------- --------------
Income from operations..................................................... 3,889,000 14,617,000
-------------- --------------
Other income (expense):
Interest expense......................................................... (4,000) (1,000)
Interest income.......................................................... 827,000 2,486,000
Foreign exchange......................................................... (251,000) (175,000)
Other.................................................................... (20,000) (86,000)
-------------- --------------
552,000 2,224,000
-------------- --------------
Income before provision for income taxes................................... 4,441,000 16,841,000
Provision for income taxes................................................. 1,576,000 5,979,000
-------------- --------------
Net Income................................................................. $ 2,865,000 $ 10,862,000
============== ==============
Earnings per common share.................................................. $ 0.15 $ 0.49
============== ==============
Earnings per common share assuming dilution................................ $ 0.15 $ 0.48
============== ==============
Weighted average number of shares outstanding.............................. 18,916,000 21,986,000
============== ==============
Diluted shares outstanding................................................. 19,245,000 22,806,000
============== ==============
See accompanying notes to condensed consolidated financial statements.
4
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
FOREIGN
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN TRANSLATION RETAINED STOCKHOLDERS'
STOCK CAPITAL ADJUSTMENT EARNINGS EQUITY
Balance,
September 30, 2000............................ $ 2,000 $ 52,649,000 $ (4,007,000) $ 84,151,000 $ 132,795,000
Comprehensive income:
Net income.................................... -- -- -- 10,862,000 10,862,000
Foreign currency
translation.................................. -- -- 806,000 -- 806,000
-------------
Comprehensive income....................... 11,668,000
Stock repurchases.............................. -- (15,432,000) -- -- (15,432,000)
Stock option exercises......................... -- 481,000 -- -- 481,000
Tax benefit related to stock option exercises.. -- 174,000 -- -- 174,000
---------- ------------- ------------- ---------------- --------------
Balance,
December 30, 2000............................. $ 2,000 $ 37,872,000 $ (3,201,000) $ 95,013,000 $ 129,686,000
========== ============= ============= ================ ==============
Balance,
September 30, 2001............................ $ 2,000 $ -- $ (4,584,000) $ 88,642,000 $ 84,060,000
Comprehensive income:
Net income.................................... -- -- -- 2,865,000 2,865,000
Foreign currency
translation.................................. -- -- (245,000) -- (245,000)
--------------
Comprehensive income....................... 2,620,000
Stock repurchases.............................. -- (8,000) -- (1,504,000) (1,512,000)
Stock option exercises......................... -- 1,572,000 -- -- 1,572,000
Tax benefit related to stock option exercises.. -- 326,000 -- -- 326,000
---------- ------------- ------------- ---------------- --------------
Balance,
December 30, 2001............................. $ 2,000 $ 1,890,000 $ (4,829,000) $ 90,003,000 $ 87,066,000
========== ============= ============= ================ ==============
See accompanying notes to condensed consolidated financial statements.
5
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended December 31,
---------------------------------------
2001 2000
----------------- --------------
Cash flows--operating activities:
Net income.............................................. $ 2,865,000 $ 10,862,000
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization......................... 2,165,000 1,835,000
Unrealized foreign exchange losses.................... 209,000 146,000
Losses on disposals of equipment and leasehold
improvements........................................ 3,000 57,000
Deferred facilities rent charges...................... (62,000) (75,000)
Change in net assets and liabilities:
Trade accounts receivable............................ 438,000 215,000
Prepaid marketing expenses........................... 510,000 445,000
Prepaid expenses and other........................... (446,000) (171,000)
Income taxes......................................... 314,000 (1,383,000)
Trade accounts payable............................... (5,049,000) (3,236,000)
Deferred revenue..................................... (2,221,000) 1,114,000
Other accrued liabilities............................ 579,000 (2,182,000)
----------------- --------------
Net cash provided by (used in) operating activities...... (695,000) 7,627,000
----------------- --------------
Cash flows--investing activities:
Purchases of equipment, property and leasehold
improvements.......................................... (1,079,000) (3,475,000)
Retirements of equipment and leasehold improvements..... 18,000 89,000
Proceeds from short-term interest-bearing investments
held to maturity...................................... -- 23,191,000
Purchases of short-term interest-bearing investments
held to maturity...................................... -- (30,733,000)
Other, net.............................................. 17,000 9,000
----------------- --------------
Net cash used in investing activities................... (1,044,000) (10,919,000)
----------------- --------------
Cash flows--financing activities:
Proceeds from exercise of stock options................. 1,572,000 481,000
Repurchases of Common Stock............................. (1,512,000) (15,432,000)
----------------- --------------
Net cash provided by (used in) financing activities..... 60,000 (14,951,000)
----------------- --------------
Effects of exchange rates on cash......................... (387,000) 646,000
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Net decrease in cash and cash equivalents................. (2,066,000) (17,597,000)
Cash and cash equivalents at the beginning of the period.. 108,544,000 116,231,000
----------------- --------------
Cash and cash equivalents at the end of the period........ $ 106,478,000 $ 98,634,000
================= ==============
Supplemental disclosures:
Income taxes paid....................................... $ 1,341,000 $ 7,564,000
================= ==============
Interest paid........................................... $ -- $ --
================= ==============
See accompanying notes to condensed consolidated financial statements.
6
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 Learning Tree International, Inc. ("Learning Tree") 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. 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, 2001 that are contained in Learning Tree's 2001 Annual
Report on Form 10-K. Learning Tree's business is subject to substantial risk and
fluctuations in earnings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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, 820,000 shares and 329,000 shares were added to
the weighted average number of shares outstanding as of December 31, 2000 and
2001, respectively. Approximately 101,000 and 1,309,000 antidilutive stock
options were excluded from the calculation of earnings per common share assuming
dilution for the first quarters of fiscal 2001 and 2002, respectively.
Note 3 Repurchase of Company Stock:
---------------------------
During the first quarter of fiscal 2002, Learning Tree repurchased
approximately 74,000 shares of its Common Stock on the open market at a total
cost of $1,512,000. Learning Tree may make additional purchases through open-
market transactions, but has no commitments to do so.
7
Item. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for historical statements and discussions, this discussion consists
of "forward-looking statements." All plans, projections, and future estimates
are forward-looking statements, which in some, but not all, cases, are
identified by words such as "anticipate," "estimate," "project," "believe,"
"expect" and similar expressions. Please do not put undue reliance on forward-
looking statements. Forward-looking statements are based on certain factors and
assumptions about future risks and uncertainties. Many, but not all, of these
factors and assumptions are identified in Exhibit 99, "Risk Factors" to Learning
Tree International, Inc.'s ("Learning Tree's") 2001 Annual Report on Form 10-K
("Exhibit 99"). Although Learning Tree believes that the assumptions are
reasonable, it is likely that at least some of the forward-looking statements
will not come true. Accordingly, Learning Tree's actual results will differ from
those suggested by any forward-looking statement, and those differences could be
material. Factors that could cause or contribute to such differences include,
among others, those factors included in Exhibit 99, as well as, those discussed
in other places in Learning Tree's filings with the Securities and Exchange
Commission. For example, actual results could differ materially from those
projected as a result of Learning Tree's dependence on the timely development,
introduction and customer acceptance of courses and products; risks in
technology development and introduction; risks associated with the introduction
of e-learning either by Learning Tree or its competitors; the impact of
competition and pricing pressures; Learning Tree's ability to attract and retain
key management and other personnel; risks associated with international
operations, including currency fluctuations; the effect of changing economic
conditions; Learning Tree's ability to maintain its current operating margins;
the effect of adverse weather conditions, strikes, acts of war or terrorism, and
other external events. Should one or more of these risks, or any other risk,
materialize, or should one or more of the underlying assumptions prove to be
incorrect, Learning Tree's actual results may vary materially from those
anticipated, estimated, expected or projected. In light of the risks and
uncertainties, there can be no assurance that any forward-looking information
will in fact prove to be correct. Learning Tree does not undertake any
obligation to update forward-looking statements.
Overview
Learning Tree is a leading worldwide provider of education and training to
information technology ("IT") professionals in business and government
organizations. Approximately two-thirds of Learning Tree's participants come
from Fortune 1000-level companies, their international equivalents and
government organizations, and approximately one-third come from small and
medium-tier companies.
Learning Tree offers a broad, proprietary library of intensive four-and
five-day instructor-led courses, representing over 4,100 hours of training.
Learning Tree courses focus on client/server technology, operating systems,
programming languages, intranet/Internet/Web applications, computer networks,
databases, object-oriented technology and IT management.
As a vendor-independent provider of IT training, Learning Tree designs its
own courses to provide participants an unbiased perspective of software and
hardware products and the ability to compare and integrate multiple platforms
and technologies from various vendors in a single course. Learning Tree uses a
well-defined, systematic approach in developing and updating its course library
to provide training that is immediately relevant to course participants working
in a broad range of applications and industries. Learning Tree's courses are
recommended for college credit by the American Council on Education, and
8
are accepted for college credit at the University of Phoenix. Learning Tree's
proprietary course development process also allows it to customize its courses
for on-site delivery to its customers.
Learning Tree has engaged in limited development and testing of the
content, packaging and delivery methodology for Internet-based "e-learning"
courses. In testing a number of "asynchronous-format" e-learning programs,
Learning Tree achieved completion rates for its individual three-hour
"e-courses" that were more than double recently published figures of e-learning
industry average completion rates. However, only a small fraction of the
participants completed enough e-courses to cover material equivalent to just one
Learning Tree instructor-led course. This "completion rate problem" has been
reported in general publications within the e-learning sector. As a result,
Learning Tree expects to continue to limit its investment in e-learning, and has
been focusing its attention on finding ways to use Learning Tree's e-learning
assets effectively to support its instructor-led training services. Learning
Tree intends to continue testing this delivery format for e-learning as it may
prove to be a useful support mechanism for its instructor-led training
activities. However, Learning Tree may or may not be successful with this
approach.
Results of Operations
In the first quarter of fiscal 2002, Learning Tree's revenues decreased by
24% to $47.2 million from $62.1 million for the corresponding quarter of fiscal
2001. Income from operations for the first quarter of fiscal 2002 was $3.9
million versus $14.6 million for the same quarter of fiscal 2001. Net income for
the first quarter of fiscal 2002 was $2.9 million compared to $10.9 million in
the first quarter of fiscal 2001.
Revenue. During the first quarter of fiscal 2002, Learning Tree trained a
total of 30,843 multi-day instructor-led course participants compared to 39,171
participants for the first quarter of fiscal 2001. Learning Tree believes that
the decrease in course participants primarily reflects the slowdown in the IT
industry and the overall economy, which Learning Tree believes has resulted in
more cautious spending by its customers on IT training. This economic trend was
exacerbated after the attacks of September 11, the onset of hostilities in
Afghanistan and the anthrax-caused disturbances to the U.S. postal system.
Additionally, the average revenue per multi-day course participant decreased by
3% because a larger percentage of course participants attended under multiple-
course discount programs compared to the first quarter of fiscal 2001. Since the
currency exchange rates that prevailed during the first quarter of fiscal 2002
were very similar to the average rates that prevailed during the first quarter
of fiscal 2001, exchange rates did not materially affect average revenue per
multi-day course participant during the quarter.
Cost of Revenues. Learning Tree's cost of revenues primarily includes the
costs associated with course instructors, course materials and equipment,
freight, classroom facilities and refreshments. Learning Tree has structured its
business so that the majority of its instructor-led course costs are variable
and depend primarily upon the number of course events conducted. Learning Tree
schedules its multi-day course events throughout the year based on its
assessment of demand. Since Learning Tree's instructors typically work full-time
in the IT industry and teach Learning Tree course events as needed, Learning
Tree's instructor related costs are largely variable. In addition, although the
expenses associated with its own Education Centers are fixed, in some cases
Learning Tree can moderate its overall facility expenses by varying its use of
rented hotel and conference facilities.
During the first quarter of fiscal 2002, the cost of revenues increased to
44.5% of revenues compared to 38.0% in the first quarter of fiscal 2001. The
change in the gross profitability of Learning Tree's instructor-led courses
primarily reflects a 12% decrease in revenue per multi-day course event. This
decrease reflects a decrease in the average number of attendees per event and
the decrease in average
9
revenue per attendee. Learning Tree believes that the decrease in attendees per
event primarily reflects the impact of current economic conditions, which
lowered Learning Tree's overall attendance rates. In addition, to a lesser
extent, the average number of attendees per event in the first quarter of fiscal
2002 was impacted by Learning Tree's decision after September 11 to run courses
with lower numbers of attendees to maintain its market presence and to serve
customers' training needs.
Learning Tree's average cost per event increased by 3% primarily due to
lower utilization of Learning Tree's education centers arising from the decrease
in the number of course events conducted in the first quarter of fiscal 2002
compared to 2001.
The cost of revenues for the first quarter of fiscal 2002 was $21.0 million
compared to $23.6 million for the same quarter of fiscal 2001. This decrease
primarily reflects a 13% decrease in the number of course events conducted
during the first quarter of fiscal 2002. During the first quarter of fiscal
2002, Learning Tree presented 2,190 multi-day instructor-led course events
compared to 2,531 events during the same period in fiscal 2001.
Course Development Expenses. Learning Tree maintains a disciplined process
to develop new courses and update its existing courses. The costs incurred in
that process, principally for internal product development staff and for subject
matter experts, are included in course development expenses. Course development
costs also include the costs of Learning Tree's e-learning development
activities.
In the first quarter of fiscal 2002, course development expenses were 5.3%
of revenue compared to 4.5% for the same period of fiscal 2001. This increase
was a result of lower revenues, partly offset by lower course development
expenses. Course development expenses decreased 12% to $2.5 million for the
first quarter of fiscal 2002 from $2.8 million in the first quarter of fiscal
2001. This decrease primarily reflects a decrease in the number of new course
titles developed during the first quarter of 2002, as well as a decrease in
spending on e-learning development.
Learning Tree has recently released additional multi-day course titles on
topics such as Windows XP, SQL Server, ASP.NET, Object-Oriented technology,
Mobile Networking and XSL. At the end of December 31, 2001, Learning Tree
offered 166 multi-day course titles compared to 143 a year ago. During the first
quarter of 2002, Learning Tree introduced nine new titles and retired six old
titles. In general, titles are retired when the profits they generate are not
sufficient to justify the ongoing cost of marketing them and maintaining their
technological content.
Learning Tree expects to have approximately 160 course titles in the second
quarter of fiscal 2002. The actual number of course titles which Learning Tree
will execute, 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 who are also responsible for teaching
Learning Tree's instructor-led courses. 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 if Learning Tree expands its instructor-led
training course library and as it explores the development of Internet e-
learning approaches and technologies.
Sales and Marketing Expenses. 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.
10
For the first quarter of fiscal 2002, sales and marketing expenses were
27.6% of revenue compared to 23.4% in the first quarter of fiscal 2001. This
increase was a result of lower revenues, partly offset by lower sales and
marketing expenses. During the first quarter of fiscal 2002, sales and marketing
expenses decreased by 10% to $13.0 million from $14.5 million for the first
quarter of fiscal 2001. This decrease primarily reflects a decrease in marketing
expenditures, lower selling commissions due to the lower level of sales, and a
reduction in sales personnel. In order to reduce the risk that any new
anthrax-related disturbances to the postal system could affect a large portion
of Learning Tree's direct mail, Learning Tree leveled out the weekly quantities
of it's mailings during the last week of December 2001 through February 2002,
rather than mailing larger quantities during the early weeks of this period.
This mitigation measure caused approximately $0.5 million of marketing cost to
move from Learning Tree's first quarter of fiscal 2002 to its second quarter of
fiscal 2002 as compared to the prior year periods.
General and Administrative Expenses. As a percentage of revenue, general
and administrative costs increased to 14.4% in the first quarter of fiscal 2002
from 10.5% in the corresponding period of fiscal 2001. General and
administrative expenses increased in the first quarter of fiscal 2002 by 4% to
$6.8 million compared to $6.5 million in the same quarter of fiscal 2001. The
increase in general and administrative expenses primarily reflects IT staff and
related expenses that increased over the course of the prior year, and staff
salary adjustments and other staffing costs.
Other Income (Expense). Other income (expense) is primarily comprised of
interest income and foreign currency transaction gains and losses. In the first
quarter of fiscal 2002, other income (expense) decreased to income of $552,000
from $2.2 million for the corresponding quarter in fiscal 2001.
Lower interest rates in the marketplace together with the decline in
Learning Tree's interest-bearing investments, as a result of repurchases of its
Common Stock, caused interest income to decline by $1.6 million in first quarter
of fiscal 2002 compared with the first quarter of fiscal 2001.
Learning Tree recorded foreign exchange losses of $251,000 in the first
quarter of fiscal 2002 compared to foreign exchange losses of $175,000 in the
first quarter of fiscal 2001. These transaction losses arose from receivables
and payables denominated in currencies other than the functional currencies of
Learning Tree's foreign subsidiaries.
Income Taxes. In the first quarter of fiscal 2002, the provision for
income taxes decreased $4.4 million to $1.6 million compared to $6.0 million for
the same quarter of fiscal 2001. The decrease in the income tax provision
reflects the decrease in taxable income.
Fluctuations in Quarterly Results
Historically, Learning Tree's quarterly operating results have fluctuated,
and that is expected to continue in the future. The fluctuations may be caused
by many factors such as the frequency and availability of course events; the
number of weeks in a quarter during which courses can be conducted; the timing,
timely delivery, frequency and size of, and response to Learning Tree's direct
mail marketing and advertising campaigns; the timing of the introduction of new
course titles; the mix between course events held at customer-sites and course
events held in Learning Tree's education centers and hotels; competitive forces
within current and anticipated future markets served by Learning Tree; Learning
Tree's ability to attract customers and meet their expectations; currency
fluctuations and other risks of international operations; natural disasters,
external strikes, acts of war or terrorism, and other external
11
factors; and general economic conditions and industry-specific slowdowns.
Fluctuations in quarter-to-quarter results may also occur as a result of
differences in the timing of Learning Tree's spending on development and
marketing of its courses and receiving revenues from its customers.
Learning Tree's quarterly revenues and income typically reflect seasonal
patterns. Generally, Learning Tree's revenue and operating income are greater in
the second half of its fiscal year (April through September) than in the first
half (October through March). This is due in large part to seasonal spending
patterns of Learning Tree's customers, which are affected by matters such as
their budgetary considerations; factors specific to their business or industry;
and weather, holiday and vacation considerations. 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 decreased to $106.5 million at December 31, 2001
from $108.5 million at September 30, 2001. At September 30, 2001, trade accounts
payable included $2.7 million required to settle Common Stock repurchases made
at the end of fiscal 2001 which were settled during the first few days of fiscal
2002. As a result, during the quarter ended December 31, 2001, Learning Tree
used approximately $4.2 million in cash for stock repurchases which included the
$2.7 million to settle the 2001 year-end stock repurchases and approximately
$1.5 million to repurchase approximately 74,000 shares of its Common Stock in
the first quarter of 2002. Learning Tree may make additional purchases through
open-market transactions, but has no commitments to do so.
Cash used by operations for the first quarter of fiscal 2002 was $695,000.
Excluding the effects of fiscal 2001 stock repurchases which were paid in fiscal
2002, cash provided by operations during the first quarter of 2002 was
approximately $2.0 million, compared to $7.6 million in the first quarter of
fiscal 2001. This primarily reflects the changes in profitability and advance
payments by customers for future courses. At December 31, 2001, Learning Tree
had working capital of $53.2 million.
During the first quarter of fiscal 2002, Learning Tree invested $1.1
million in equipment and facilities compared to $3.5 million in the same period
of fiscal 2001. The investments in the current year primarily relate to
purchases of course equipment and the build-out of a second education center in
Paris, France which is expected to open in the second quarter of fiscal 2002.
The higher level of investment during the prior year was primarily related to
the build-out of education center facilities in New York and Chicago. Although
Learning Tree expects to continue to invest in additional equipment and
facilities in fiscal 2002, as of December 31, 2001, Learning Tree had no other
material future purchase obligations, capital commitments or debt. Accordingly,
Learning Tree believes its cash and cash equivalents and the cash provided by
its operations will be sufficient to meet its cash requirements for the
foreseeable future.
Outlook For Fiscal 2002
Throughout this document, there have been various forward-looking
statements. However, this entire section should be treated as forward-looking
and subject to various risks and uncertainties, including those detailed from
time to time in Learning Tree's filings with the Securities and Exchange
Commission, including Learning Tree's 2001 Annual Report on Form 10-K and in
Exhibit 99, "Risk Factors." As economic and market conditions change during
fiscal 2002, Learning Tree's future revenues, plans and expenditures will vary
from the observations below, and these differences may be material.
12
Backlog. At December 31, 2001, Learning Tree had a backlog of orders for
instructor-led courses of $26.2 million, which represented a 17% decrease
compared to the backlog of $31.4 million at December 31, 2000. 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.
Current Trends. During the remainder of fiscal 2002, Learning Tree's
business will be influenced by world events and by spending trends in the
corporate marketplace for information technology. For much of the last year, the
economy in general, and the technology sector in particular, have been in
recession. Learning Tree believes that this economic trend was exacerbated after
the attacks of September 11, the onset of the war in Afghanistan, and the
anthrax disturbances to the U.S. postal system. Although many analysts have
stated that they expect the economy and technology spending to begin to recover
at some point in the current year, Learning Tree cannot predict the timing or
rapidity of any recovery. To date, despite some mixed signals, there have been
no clear signs that such an expected improvement in the economy or IT industry
has produced an improvement in Learning Tree's business. Learning Tree currently
believes it is prudent to operate its business based on an assumption that its
revenues (adjusted for seasonal fluctuations) will not increase significantly
until the general economy and the IT industry begin to improve. At the same
time, Learning Tree expects to maintain its course development and delivery
infrastructure while spending somewhat more than it did in the prior year on
sales and marketing as a percent of revenue so that Learning Tree will be
prepared to take advantage of any economic improvement when it comes.
Effect of Exchange Rates. Approximately half of Learning Tree's business is
conducted in currencies other than US dollars, and fluctuations in exchange
rates will impact future revenues and expenses when translated into dollars.
Exchange rates at February 7, 2002 were very similar to the average rates that
prevailed during fiscal 2001. If current exchange rates remain stable through
Learning Tree's second quarter and the remainder of fiscal 2002, revenues and
net income for both the second quarter and the fiscal year would not be
materially affected by exchange rates.
Second Quarter 2002 Revenues. With respect to forecasting Learning Tree's
revenues for its second quarter of fiscal 2002, the following three factors were
considered:
. At December 31, 2001, Learning Tree's backlog of $26.2 million was 17%
lower than at December 31, 2000. At January 31, 2002, Learning Tree's
backlog of $29.5 million was 11% lower than at January 31, 2001. At January
31, 2002, Learning Tree's backlog just for courses to be held during the
second quarter was 25% lower than it had been a year earlier.
. In its most recent direct mail catalogs, Learning Tree announced five new
course titles that will have their initial presentations during the second
quarter of fiscal 2002 and expects to retire about eleven course titles
during that quarter. Learning Tree expects to have approximately 160 course
titles in the second quarter of fiscal 2002 compared with 152 course titles
in the second quarter of the prior year. The recent increased levels of
course retirements may continue in coming quarters as Learning Tree seeks
to manage gross profit levels and course development and marketing
expenses.
. There were indications during Learning Tree's first quarter of fiscal 2002,
that delivery of Learning Tree's direct mail marketing packages had been
delayed, both within the U.S. Postal System and at some client sites, as a
result of anthrax concerns. Although the situation appears to have
improved, there are still some indications that delivery of some of
Learning Tree's direct mail marketing packages is being delayed. Learning
Tree has taken measures to attempt to
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mitigate the effects of future anthrax-related postal disturbances,
including leveling out the weekly quantities of its mailings during the
last week of December 2001 through February 2002, rather than mailing
larger quantities during the early weeks of this period. While intended to
reduce the risk from any new anthrax event, this measure may have the
effect of delaying some attendances in Learning Tree's courses from the
second quarter of fiscal 2002 until the third quarter of fiscal 2002.
Based on these factors and Learning Tree's current assessment of general
economic conditions, Learning Tree believes that revenues in the second quarter
of fiscal 2002 will be approximately $43 million, and thus 26% lower than the
revenues of $58 million in the second quarter of fiscal 2001.
Second Quarter 2002 Cost of Revenues. During the second quarter of fiscal
2002, Learning Tree expects the following factors will adversely impact Learning
Tree's gross margins by approximately 4.5% to 5.0% compared with the same
quarter last year:
. Lower attendees per event, primarily the result of the lower attendance
rates that Learning Tree has been experiencing.
. Lower utilization rates of its education centers.
Second Quarter 2002 Overhead Expenses. Learning Tree expects the overall
overhead expenses for the second quarter to be approximately $4 million lower
than those in the same quarter of the prior year. This decrease reflects a
reduction in marketing activities and costs, lower selling commissions due to
lower levels of sales, reductions in sales personnel and a decrease in the
number of new course titles being developed.
Second Quarter 2002 Interest Income. Learning Tree's interest income
reflects changes in interest rates, as well as changes in Learning Tree's cash
balances. Interest rates in the United States have declined significantly over
the last year. At December 31, 2001, Learning Tree's cash and interest bearing
investments were approximately $37.6 million lower than they were a year
earlier, primarily reflecting the use of $65.5 million to repurchase 3,139,000
shares of its Common Stock, partially offset by cash from operations. As a
result, interest income can be expected to decline in the second quarter of
fiscal 2002 as compared to the same quarter last year.
2002 Tax Rate. Learning Tree estimates that its tax rate in fiscal 2002
will be approximately 35.5% which is approximately the same as it was in fiscal
2001.
Fiscal 2002 as a Whole. During the remainder of fiscal 2002, Learning Tree
will continue to monitor business conditions, and may make adjustments to its
operating plans. The uncertainties in the economic and political situation make
it difficult to forecast future revenues. If recent attendance rates continue,
even without an economic recovery, revenues in the second half of fiscal 2002
could be closer to revenues in the second half of fiscal 2001 than Learning Tree
expects them to be in the first half of the year. This is because the second
half of fiscal 2001 already reflected the impact of a general economic slowdown.
Learning Tree believes that this year the economy and its industry are
experiencing the additional impacts of September 11 and subsequent events, and
the duration and degree of any of these effects cannot be predicted. If economic
and political conditions improve substantially, Learning Tree may see a return
to growth and revenue levels above the prior year.
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Learning Tree intends to continue to monitor and adjust as necessary the
balance between investing in market share through solid marketing and sales
programs and adjusting its costs to be in line with ongoing revenue
expectations. In addition, Learning Tree intends to focus on improving the
efficiency and effectiveness of its operations. The balance and approach
Learning Tree uses will depend on its continued evaluation of ongoing
conditions.
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 of high-
quality financial institutions, government and government agencies, and
corporations. The fair value of Learning Tree's portfolio of marketable
securities would not be significantly impacted by either a 10 percent (20 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.
Learning Tree's consolidated financial statements are prepared in U.S.
dollars, while the operations of its foreign subsidiaries are conducted in their
respective local currencies. Consequently, changes in exchange rates can result
in exchange losses. The impact of future exchange rates on Learning Tree's
results of operations cannot be accurately predicted. 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. However, any hedging techniques implemented by
Learning Tree might not be successful in eliminating or reducing the effects of
currency fluctuations.
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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
None
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Not Applicable
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended December 31, 2001.
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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: February 14, 2002 By: /s/ Gary R. Wright
-------------------------------
Gary R. Wright
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
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