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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
[_] 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
LEARNING TREE INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3133814
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
6053 WEST CENTURY BOULEVARD
LOS ANGELES, CA 90045-0028
(310) 417-9700
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [X]
The aggregate market value of the common stock, $.0001 par value, held by
non-affiliates of the registrant, as of November 18, 1996, was $278,201,000.
(Excludes 8,097,793 shares held by directors and officers of the Registrant
since such persons may be deemed to be affiliates.)
The number of shares of common stock, $.0001 par value, outstanding as of
November 18, 1996, was 14,663,012 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement of the registrant to be delivered
to shareholders in connection with the 1997 Annual Meeting of Shareholders are
incorporated by reference into Part III, Items 10, 11, 12 and 13 of this Form
10-K.
================================================================================
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
Part I
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 17
Item 3. Legal Proceedings................................................ 18
Item 4. Submission of Matters to a Vote of Security Holders.............. 18
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters.......................................................... 19
Item 6. Selected Consolidated Financial Data............................. 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 21
Item 8. Financial Statements and Supplementary Data...................... 30
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures............................................ 48
Part III
Item 10. Directors and Executive Officers of the Registrant............... 48
Item 11. Executive Compensation........................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and Management... 49
Item 13. Certain Relationships and Related Transactions................... 50
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 50
Signatures....................................................... 51
Learning Tree(R), the Learning Tree and Professional Certification logos,
EDUCATION IS OUR BUSINESS(R), EDUCATION YOU CAN TRUST(R), WE BRING EDUCATION
TO LIFE(R), PRODUCTIVITY THROUGH EDUCATION(R), LearnTrack(TM), Training
Passport(R), Training Advantage(R), Alumni Gold(TM), 800-THE-TREE(R) and 800-
LRN-TREE(R) are trademarks and service marks of the Company. This Annual Report
on Form 10-K also contains trademarks and trade names of other companies.
2
PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed herein and in the caption "Risk Factors" in the Company's
Registration Statement on Form S-1 filed on September 20, 1996.
OVERVIEW
Learning Tree International, Inc. ("Learning Tree" or the "Company"), is a
leading worldwide provider of education and training to 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,
Internet/intranet 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 20 IT job functions, and its courses are recommended for
college credit by the American Council on Education. In addition to its
instructor-led courses, the Company has recently developed and is expanding
a line of multimedia computer-based training courses ("CBT") incorporating
audio and graphical elements that are designed for both stand-alone CD-ROM
and network-based delivery. The Company is paid directly by the employers of
its course participants and does not receive funding from any government aid
or loan programs. As a result, the Company does not depend on government
appropriations for those programs and is not subject to certain governmental
regulations.
THE INFORMATION TECHNOLOGY EDUCATION AND TRAINING MARKET
The market for IT training is driven by technological change. As the rate
of this change accelerates, organizations find themselves increasingly
hampered in their ability to exploit the latest information technologies
because their IT professionals lack up-to-date knowledge and skills. Most
organizations are addressing this challenge by retraining their existing IT
professionals. An International Data Corporation ("IDC") study estimates
that the 1995 worldwide market for IT education and training was $14.9
billion, of which approximately $10 billion represented the training of IT
professionals. The market for training IT professionals is driven by several
factors including: (I) the proliferation of computers and networks
throughout all levels of organizations; (ii) the shift from legacy mainframe
systems to new client/server technologies; (iii) the continuous introduction
and evolution of new client/server hardware and software technologies; (iv)
the proliferation of Internet and intranet applications; and (v) corporate
downsizing, resulting in increased training requirements for employees who
must perform new job functions or multiple job tasks that require knowledge
of varied software applications and technologies. Furthermore, since many
businesses use hardware and software products provided by a variety of
vendors, their IT professionals require training on an increasing number of
products and technologies which apply across vendors, platforms and
operating systems.
While much of the training for IT professionals continues to be provided
by internal training departments, many organizations are expanding their use
of external training providers due to corporate downsizing, the lack of
internal trainers experienced in the latest technologies and the cost of
developing and maintaining internal training courses in rapidly evolving
technologies. The choice of training delivery formats and providers
generally is made by individual IT professionals or their immediate
managers, even in large organizations. When choosing an IT training
provider, IT professionals and their managers seek a
3
provider who can respond to demanding requirements, including: (I) high
quality training; (ii) course titles that cover a broad range of topics and
skill levels; (iii) the ability to deliver an integrated training program
through multiple delivery formats; (iv) the willingness and ability to
tailor the training to the customer's particular needs; (v) timeliness of
the delivery of course events; (vi) qualified, technically current
instructors; (vii) the willingness to deliver training at convenient
locations, including the customer's business site; (viii) course titles
covering areas undergoing rapid technological change; (ix) an effective
training methodology, which delivers the maximum amount of practical
information in the minimum amount of time; (x) vendor-independent training;
(xi) the ability to provide testing and certification of technical
competency; and (xii) training that covers global implementation of networks
and other IT applications.
IT training is primarily delivered by classroom instructors, video, CBT
and printed means. According to IDC, instructor-led classroom training
continues to dominate the worldwide IT training market, having grown by $4.6
billion from $6.7 billion in 1990 to $11.3 billion in 1995. The Company
believes that instructor-led training will continue to dominate the market
because course participants value the personalized interaction and problem-
solving with their instructor and fellow participants concerning their
specific projects and applications as well as the insulation from workplace
interruptions. However, the use of desktop-based multimedia and CBT is
gaining acceptance in the IT training market. IDC estimates that the United
States market for IT education and training in multimedia and CBT formats
has grown by $484 million from $230 million in 1990 to $714 million in 1995.
THE LEARNING TREE APPROACH
The Company develops, markets and delivers proprietary course titles
covering a broad range of topics that it believes are designed to meet the
continually evolving training needs of IT professionals worldwide. Its
instructor-led course events take place at the Company's Education Centers,
in hotel and conference facilities, and at customer sites. As of September
30, 1996, Learning Tree had 110 instructor-led course titles. These course
titles are regularly presented worldwide and cover IT topics such as
client/server systems, Internet/intranet technologies, computer networks,
operating systems, databases, programming languages, graphical user
interfaces, object-oriented technology, IT management and related topics. In
1996, the Company introduced a line of multimedia CBT course titles to
complement its traditional instructor-led format of training.
The Company's courses provide participants with skills and knowledge that
they can immediately apply in their jobs. The course events include
extensive hands-on, interactive exercises using networked classroom
computers. Learning Tree course events typically deliver the equivalent of
two semester hours of college credit in an intensive four-day format, thus
minimizing participants' time away from the job. As of September 30, 1996,
the Company had 532 course instructors who are IT professionals possessing
expert knowledge and practical experience. These instructors work in a
variety of industries applying the IT skills and knowledge that are the
subjects of the courses they teach. On average, they teach approximately
eight to nine Learning Tree course events each year on an "as needed" basis.
Learning Tree places particular emphasis on the quality of its course
offerings. The Company employs a rigorous course development process
designed to ensure that each course title represents multiple points of view
concerning the application of the technology, provides information on
different uses of the technology throughout the world, and provides training
that is relevant to course participants working in diverse applications in a
broad range of industries. Learning Tree also maintains a centralized and
ongoing program of updating its proprietary course titles to maintain the
courses' quality and relevance. The
4
Company tailors its courses for customer-site presentation as appropriate,
and the Company's instructors further adapt the course material to
participants' needs based on feedback received in the classroom.
Learning Tree meets customer demands for scheduling flexibility by holding
course events frequently at multiple locations around the world and by
delivering customer-site course events as required on short notice. The
Company believes that it has the resources to provide a rapid and flexible
response to its customers' needs by utilizing its large team of instructors,
its course development and customization processes, its team of customer
support specialists, its logistics team and its hundreds of classroom
computer workstations. In fiscal 1996, Learning Tree presented over 4,500
course events worldwide.
The Company tests and certifies IT professionals in 20 IT job functions.
Since this program's inception in 1993, over 46,000 participants have
completed one or more certification examinations. In addition, the American
Council on Education recommends Learning Tree course events for college
credit to more than 1,500 North American universities and colleges. See
"Business--Learning Tree's Products." In the United Kingdom, participation
in some Learning Tree course events may be applied toward post-graduate
level university credit.
In response to the decentralized nature of IT training decision making,
the Company has developed a sophisticated direct mail marketing and
telemarketing capability, which it supplements by direct sales to
corporations and government organizations. The Company's direct mail
marketing utilizes its proprietary list of over 1,000,000 IT professionals
and managers as well as rented lists. This capability enables the Company to
reach individual professionals and managers in larger organizations and
provides a cost-effective channel to reach IT personnel in smaller
organizations as well. The Company also uses its Internet Web site
(http://www.learningtree.com) to market and communicate with prospective
participants. Information contained in the Company's Web site shall not be
deemed to be part of this Annual Report on Form 10-K.
In addition to its instructor-led training business, the Company believes
that opportunities exist in the rapidly growing market for multimedia CBT
training. As a result, the Company has introduced and is expanding its line
of multimedia CBT course titles. The Company's multimedia CBT courses can be
delivered to the workstation either by CD-ROM or over a customer's local
area or wide area networks. The content and instructional design of the
Company's multimedia CBT course titles capitalize on its library of
computer-based classroom course content.
LEARNING TREE'S STRATEGY
The Company's objective is to strengthen its position as one of the
leading providers of IT training worldwide. To achieve this goal, the
Company employs the following key strategies:
Continue Expanding its Library of Proprietary Instructor-led Course
Titles. The Company intends to continue developing additional course titles
and certification programs in order to increase sales to its existing
customer base and to attract new customers. The Company expanded its course
library from 56 titles at September 30, 1993 to 110 titles as of September
30, 1996. The new course titles introduced during fiscal 1996 cover rapidly
developing areas such as Internet/intranet technologies, Java, Windows NT,
programming languages and databases.
Provide Flexible Training Solutions. The Company intends to continue its
strategy of providing training when, where and in the manner desired by the
customer. Participants can attend any of Learning Tree's 110 courses, which
on average are presented once every two weeks around the world. The Company
also presents standard or customized courses on demand at its customers'
facilities,
5
and it has begun to offer its own line of multimedia CBT courses.
Expansion of Multimedia CBT Course Titles. Learning Tree is leveraging its
highly interactive instructor-led educational model through the expansion of
its line of multimedia CBT software. The Company believes that it can
leverage its existing instructor-led course business by (I) developing its
multimedia CBT courses based upon the content of its hands-on classroom
courses, (ii) "piggybacking" the marketing and sales of its multimedia CBT
products on its existing marketing and sales programs, and (iii) providing
its customers with the flexibility to tailor a cost-effective combination of
multimedia CBT and classroom training to meet their needs. The Company also
intends to continue to explore the delivery of its multimedia CBT courses
via on-line computer services and over the Internet.
Leverage its Integrated Marketing and Sales Programs. The Company uses an
integrated strategy of marketing both to individual IT professionals through
its extensive direct mail marketing and Internet capability and to their
employers through its direct sales force. These efforts are supplemented by
its telemarketing sales force. The Company intends to continue increasing
the size of its direct mail marketing campaigns and its sales force to reach
a greater proportion of IT professionals and managers in both large and
small organizations. The Company also intends to leverage its marketing
investment by advertising an increasing number of instructor-led and
multimedia CBT course titles in each direct mail package at a relatively
small incremental cost per title.
Build Continuing Relationships. The Company seeks to build continuing
relationships both with its individual course participants and its corporate
customers. The Company expands demand for its course events by motivating
individual IT professionals to purchase a series of course events through
its Training Passport, Professional Certification and College Credit
Programs. In addition to increasing revenues directly, the long-term
relationships built by these programs encourage participants to recommend
the Company's course events to their colleagues. The Company also seeks to
create ongoing relationships with its largest U.S. and international
customers through its Training Advantage Program. These annually renewable
agreements allow all the employees of Training Advantage customers to
receive training and special services at negotiated prices.
Leverage International Operations. The Company maintains offices and
education centers in five countries outside the United States, and in fiscal
1996 presented course events at its education centers and third-party and
customer sites in a total of 25 countries. In fiscal 1996, international
revenues represented approximately 52% of the Company's revenues. Learning
Tree intends, on an ongoing basis, to seek ways to expand its international
operations and expects that revenues derived from international sources will
continue to account for a significant portion of its revenues. The Company's
centrally-developed course titles currently are translated into French,
Swedish and Japanese and sold through its operations in Great Britain,
France, Canada, Sweden and Japan to customers in those and other countries.
The Company intends to open Education Centers in additional territories as
justified by increases in local demand. Inherent risks represented by the
Company's international operations include currency fluctuations, potential
difficulties in translating course subject matter into foreign languages,
varying political and economic conditions, unanticipated changes in
regulation, trade barriers, staffing problems and adverse tax consequences.
There can be no assurance that such factors will not have a material adverse
effect on the Company in the future.
6
LEARNING TREE'S PRODUCTS
Learning Tree courses are designed to be highly interactive. Most of its
instructor-led, classroom courses involve "hands-on" training on networked
Pentium-based or 486 workstations, which allow participants to practice and
better assimilate the skills being taught. Participants spend a significant
portion of each course working on computer-based exercises and participating
in group workshops. Each participant typically receives extensive course
materials that facilitate learning and serve as a post-course reference. The
Company's new line of multimedia CBT products are also designed to teach
students through interaction, and its multimedia CBT course titles
incorporate interactive "learn-by-doing" activities based on the Company's
existing classroom courses.
Instructor-led Courses. Learning Tree strives to build job-related
curricula by developing a sequence of course titles that create a cohesive
program which imparts the skills and knowledge required to perform
particular job functions. Each job-related curriculum is comprised of course
titles that proceed from introductory to advanced, and cover the breadth and
depth of skills and knowledge required for a particular job. At September
30, 1996, Learning Tree's course library included 110 proprietary course
titles comprising over 2,700 hours of classroom instruction. This course
library is recommended for over 200 semester hours of undergraduate and
graduate level college credit in information systems by the American Council
on Education (the "ACE"). In the Company's experience, the final decision of
each college or university to grant or deny credit for the Company's courses
as recommended by the ACE is made on a case-by-case basis, taking into
account a variety of factors such as the academic standing of the student
making the request, the requirements of the particular degree program and
limits on the number of credits that may be obtained outside of the college
or university. Subject to these rules generally applicable to transfer
credits, the Company believes that its course participants have generally
been granted credit upon application.
The following chart presents the Company's 110 proprietary course titles,
and the 12 additional courses under development as of September 30, 1996:
CURRICULUM COURSES
---------- -------
Client/Server Introduction to Open Systems
Introduction to Client/Server Computing
Distributing Data in Client/Server Systems
Client/Server Application Development--Hands-On
Client/Server Systems: Analysis and Design
Managing and Supporting Client/Server Systems--Hands-On
----------------------------------------------------------------------------
Internet/Intranet
Technologies Internet and System Security
Internet for Business Applications--Hands-On
Developing a Web Site--Hands-On
Java Programming--Hands-On
Advanced Java Programming--Hands-On*
VBScript--Hands-On*
VRML--Hands-On*
Developing an Intranet Site--Hands-On*
Visual J++--Hands-On*
----------------------------------------------------------------------------
Windows Windows Networking--Hands-On
Windows Configuration--Hands-On
Windows 95 Support and Networking--Hands-On
Windows NT Workstation and Server--Hands-On
Windows NT 4.0 Workstation and Server--Hands-On*
Windows NT Optimization and Troubleshooting--Hands-On*
TCP/IP Internetworking on Windows NT--Hands-On
Microsoft System Management Server--Hands-On
Microsoft Exchange--Hands-On
UNIX and Windows NT Integration--Hands-On
Netware to Windows NT Migration--Hands-On
Microsoft SQL Server Introduction--Hands-On
Microsoft SQL Server System Administration--Hands-On
----------------------------------------------------------------------------
7
CURRICULUM COURSES
- ---------- -------
Local Area Networks Local Area Networks
PC Networking--Hands-On
LAN Troubleshooting--Hands-On
High-Performance Cabling Systems
High-Performance Ethernet--Hands-On*
Fast LAN Technologies
- --------------------------------------------------------------------------------
NetWare NetWare 3.x Administration--Hands-On
NetWare 3.x Advanced Administration--Hands-On
NetWare 3.x Installation and Configuration--Hands-On
Updating from NetWare 3.x to NetWare 4.x--Hands-On
NetWare 4.x Administration--Hands-On
NetWare 4.x Advanced Administration--Hands-On
NetWare 4.x Installation & Configuration--Hands-On
NetWare 4.x Design and Implementation--Hands-On
NetWare 4.x Service and Support--Hands-On
Networking Technologies
TCP/IP for NetWare--Hands-On
- --------------------------------------------------------------------------------
Wide Area Networks Introduction to Datacomm and Networks
Network Planning, Support and Management
Computer Network Architectures and Protocols
X.25--Hands-On
Wide Area Networks Troubleshooting--Hands-On
SNMP--Hands-On
- --------------------------------------------------------------------------------
Internetworking Multivendor Networking
Internetworking: Bridges and Routers
Data Network Design and Optimization*
Routers--Hands-On
Introduction to TCP/IP--Hands-On
Internetworking with TCP/IP--Hands-On
- --------------------------------------------------------------------------------
Operating Systems X Window System Programming--Hands-On
TCP/IP Programming--Hands-On
UNIX Programming--Hands-On
UNIX--Hands-On
UNIX Tools and Utilities--Hands-On
UNIX Workstation Administration--Hands-On
UNIX Server Administration--Hands-On
UNIX System and Network Administration--Hands-On
OS/2 Warp--Hands-On
- --------------------------------------------------------------------------------
Telecommunications Telecommunications and Wide Area Networking
ISDN for Data Communications--Hands-On
Introduction to ISDN
Wireless Networks
High-Speed Wide Area Networks
Implementing Fiber-Optic Communications
- --------------------------------------------------------------------------------
Database Systems Relational Databases
Sybase SQL Server--Hands-On
DB2 for Client/Server--Hands-On*
Building a Data Warehouse--Hands-On
Oracle7--Hands-On
Oracle7 for Database Administrators--Hands-On
Oracle7 for Application Developers--Hands-On
Tuning Oracle7 Applications--Hands-On
Complex SQL Queries--Hands-On
Oracle Forms--Hands-On
Oracle Reports--Hands-On
PowerBuilder 5 and Oracle7--Hands-On
Lotus Notes Application Development--Hands-On
Lotus Notes System Administration--Hands-On
- --------------------------------------------------------------------------------
PC Support PC Configuration and Troubleshooting--Hands-On
Advanced PC Configuration--Hands-On
Macintosh Troubleshooting--Hands-On
- --------------------------------------------------------------------------------
Graphical User Inter-
faces and Programming Windows Programming--Hands-On
Visual C++--Hands-On
Client/Server and System Programming for Windows--
Hands-On
Advanced Windows Programming With MFC--Hands-On
Windows Open Services Architecture--Hands-On
Visual Basic--Hands-On
Microsoft Access--Hands-On
Microsoft Access Programming--Hands-On*
8
CURRICULUM COURSES
- ---------- -------
Graphical User Inter-
faces and Programming
(continued) Delphi Application Development--Hands-On*
Integrating MS Office Applications--Hands-On
PowerBuilder--Hands-On
Visual Basic 4 for Enterprise Applications--Hands-On
C Programming--Hands-On
C Advanced Programming--Hands-On
C++ Object-Oriented Programming--Hands-On
Advanced C++ Programming--Hands-On
C++ for Non-C Programmers--Hands-On
Ada 95 Programming--Hands-On
Distributed Programming Using DCE--Hands-On
- --------------------------------------------------------------------------------
Software Development
Methods Object-Oriented Analysis and Design
Software Quality Assurance
Identifying User Requirements
Practical Software Testing Methods
Specifying and Managing Software Requirements
Software Systems Analysis and Design
Software Project Planning and Management
Software Configuration Management
Systems Engineering
- ---------------------------------------------------------------------------
IT Soft Skills Business Process Re-engineering
Effective Skills for Technical Managers
Project Management--Hands-On
Influence Skills
Negotiating Skills
- --------
* Course title under development as of September 30, 1996.
In addition to the foregoing course titles, the Company also develops courses
for presentation at customer sites. These courses typically are customized to
cover particular topics and applications requested by the customer. Learning
Tree typically provides all of the software, hardware and networking systems
required for use in customer-site courses.
The Company presents its classroom courses at Learning Tree Education Centers
in Boston, Los Angeles, Washington D.C., Toronto, Ottawa, London, Paris and
Stockholm, as well as in rented hotel or conference centers in other cities
worldwide. The Company's Education Centers include 55 classrooms that have been
custom-designed to accommodate the technical demands of Learning Tree's
computer-based courses, including electronic projection of computer screens,
local area networks within the classroom and multimedia presentation capability.
Multimedia CBT Courses. During fiscal 1996, Learning Tree introduced a line of
multimedia CBT course titles based on the interactive content of its computer-
based classroom courses. The Company believes that the adaptation of its
classroom courses to the multimedia CBT format can be accelerated by the
incorporation of the proven hands-on exercises from its classroom courses, its
accumulated experience with course participants and by utilizing its large
instructor team as subject matter experts to support the process. The Company
designed its multimedia CBT courses to be interactive using a common interface
across all course titles. In addition, the Company structures its multimedia CBT
courses to complement its classroom-based offerings, thereby providing IT
professionals with the flexibility to learn and reinforce a given set of skills
and knowledge, from introductory to advanced levels, through a combination of
multimedia CBT and hands-on classroom-based training. The Company's multimedia
CBT courses are delivered to the workstation either by CD-ROM or over the
customer's local area network.
The Company has also developed LearnTrack, a CBT management software package
that provides training administrators with the capability to install and
distribute Learning Tree and third-party CBT courses, enroll participants in the
courses, monitor usage and print reports on course utilization, learner progress
and course completion.
9
To obtain greater control over the multimedia CBT development process, course
quality and costs of development, the Company has expanded its in-house
multimedia CBT development team and discontinued the use of outside CBT course
developers. As of September 30, 1996, the Company had released 12 CBT course
titles and had an additional 16 titles under development. The Company began the
initial marketing of its multimedia CBT product line in January 1996, and
intends to continue expanding these sales and marketing activities commensurate
with the growth of titles in its multimedia CBT library. While the Company's
revenues in fiscal 1996 were derived almost exclusively from instructor-led
training, to date the Company has received orders from over 300 corporate and
government customers for its multimedia CBT courses. The actual number of titles
which the Company will produce and their delivery dates are subject to a number
of factors such as the hiring and training of additional staff, continued
refinements in the development and production process and the availability of
subject matter experts who are also responsible for developing and teaching the
Company's instructor-led courses.
The following chart presents the Company's 12 multimedia CBT course titles,
and the 16 additional courses under development as of September 30, 1996:
CURRICULUM COURSES
- ---------- -------
Client/Server Client/Server Concepts and Architecture
Client/Server Connectivity and Implementation
- --------------------------------------------------------------------------------
Internet/Intranet
Technologies Internet/Intranets for Business Applications*
Developing a Web Site*
Introduction to Java Programming*
- --------------------------------------------------------------------------------
Local Area Networks Local Area Networks
LAN Troubleshooting*
- --------------------------------------------------------------------------------
Wide Area Networks Introduction to Datacomm and Networks
- --------------------------------------------------------------------------------
Internetworking Introduction to Internetworking
Internetworking with Routers*
Introduction to TCP/IP
Configuring TCP/IP Networks*
- --------------------------------------------------------------------------------
Microsoft Windows and
Windows NT Introduction to Windows NT
Administering Windows NT*
Installing and Using Windows 95
Networking with Windows 95*
- --------------------------------------------------------------------------------
Graphical User
Interfaces and
Programming Introduction to C++ for Non-C Programmers*
Windows Programming with Visual C++ and MFC
Introduction to Visual Basic
Visual Basic Application Development*
- --------------------------------------------------------------------------------
Software Development
Methods Introduction to Object-Oriented Analysis*
- --------------------------------------------------------------------------------
UNIX UNIX Basic Concepts and Usage
UNIX Utilities and Shell Scripts*
- --------------------------------------------------------------------------------
Database Systems Relational Databases: A Comprehensive Introduction*
Microsoft Access Application Development*
Introduction to Microsoft SQL Server 6*
- --------------------------------------------------------------------------------
PC Support Introduction to PC Configuration and Troubleshooting
Configuring and Troubleshooting PC Video, Memory,
IRQ and DMA*
- --------
* Course title under development as of September 30, 1996.
DEVELOPMENT OF INSTRUCTOR-LED, CLASSROOM COURSES
Learning Tree endeavors to identify and develop course titles that satisfy a
large market demand. Learning Tree seeks to accomplish this by (i) building
close working relationships with the development groups of leading IT vendors in
order
10
to obtain information on upcoming products, (ii) canvassing its expert
instructors to identify general market trends and specific topics within
existing course titles that can be expanded to serve as new courses, (iii)
holding periodic discussions with its Training Advantage customers to
determine their upcoming project plans and training requirements, and (iv)
conducting market surveys of the Company's course participants. Moreover,
the members of executive management of the Company have strong IT
educational and professional backgrounds and stay closely involved with the
course selection and development process. See "Management--Executive
Officers and Directors."
Each Learning Tree course title is developed by a team comprised of a
product manager who manages the project and instructional design process, a
product marketing manager, and three subject matter experts who generally
are selected from the Learning Tree author and instructor team. Learning
Tree endeavors to select a group of experts from different countries and
industries and with complementary applications backgrounds. The Company
believes that its use of a team of experts provides multiple points of view
concerning the application of the subject technology, information on
different uses of that technology throughout the world and training that is
relevant to course participants working in diverse applications in a broad
range of industries worldwide. The result is a set of proprietary course
materials and several hundred pages of presentation graphics for each
course. To ensure its courses meet the needs of the market place and provide
a high quality of instruction, the Company requests that each course
participant complete an evaluation of the course and the instructor.
Learning Tree course titles are updated regularly to incorporate new
technology and to improve their educational effectiveness. Learning Tree
courses currently are translated into French, Japanese and Swedish and are
taught by nationals in the local language in the Company's United States,
Canadian, United Kingdom, French, Swedish and Japanese subsidiaries.
The Company has refined its development process and implemented support
systems in order to reduce its typical course development time from seven
months in fiscal 1993 to less than five months in fiscal 1996. As a result
of these efforts, Learning Tree has substantially increased the number of
its course titles from 56 in fiscal 1993 to 110 at September 30, 1996.
The Company's development of new course titles, or enhancements to
existing course titles, must anticipate and keep pace with the introduction
in the marketplace of new hardware, software and networking technology. The
need to respond to technological changes may require the Company to make
substantial, unanticipated expenditures in order to develop new course
titles and acquire additional equipment in order to deliver such new course
titles. There can be no assurance that the Company will be able to respond
successfully to technological change. If, because of financial,
technological or other constraints, the Company could not adequately
anticipate or respond to changes in computer platforms, customer preferences
and/or software technology, the Company's business and results of operations
would be materially adversely affected.
LEARNING TREE INSTRUCTORS
The Company believes that its instructors are vital to its success.
Learning Tree instructors work either full-time for other companies or as
independent consultants in a variety of industries applying the IT skills
and knowledge that are the subjects of the courses they teach. On average,
the Company's instructors teach eight to nine Learning Tree courses each
year as needed. At September 30, 1996, the Company had 532 instructors.
The Company's future success will also depend on its ability to attract
and retain highly-skilled instructors. Each Learning Tree subsidiary has an
Instructor Resources Department that follows a formal process to recruit,
train, coach and manage its instructor team. The Company identifies new
instructor candidates
11
primarily through referrals from its existing instructors. Instructor
candidates undergo a rigorous technical evaluation prior to participating in
Learning Tree's proprietary instructor training program. The Company
believes that its instructor force is relatively stable, and its recruitment
and training program focuses primarily on expanding the Company's instructor
staff to meet growing market demand. There can be no assurance that the
Company will be successful in these recruitment and training efforts.
CUSTOMERS
Learning Tree has developed a broad customer base focusing on Fortune
1000-level companies and their international equivalents and government
organizations worldwide. In fiscal 1996, the Company trained over 71,000
course participants who were employed by over 7,000 organizations. In fiscal
1996, the Company derived approximately 52% of its revenues internationally
and 48% in the United States.
The Company's customers generally operate in the computer, communications,
electronics, systems integration, finance, aerospace, military,
manufacturing and energy sectors, and a number of the customers are
government organizations. The Company had over 130 customers worldwide,
including the following organizations, that purchased over $100,000 of
Learning Tree training in fiscal 1996. The revenues from these individual
customers ranged from less than 1% to almost 3% of the Company's fiscal 1996
revenues. Generally, each customer purchased this training throughout the
year in individual purchase decisions ranging from $2,000 to $20,000 rather
than through a single contract.
Alcatel France Telecom Nortel
Amadeus GEC Northrop Grumman
Andersen Consulting General Electric Ontario Hydro
Asea Brown Bovari Hewlett-Packard Pacific Telecom
AT&T Hitachi Perot Systems
Automobiles Peugeot Hughes Pitney Bowes
Barclays Bank IBM Prudential
Bell Atlantic Intel Reuters
Boeing Internal Revenue Service Royal Bank of Scotland
British Gas JP Morgan Shell Oil
British Telecom Kodak Siemens
Bull Lockheed Martin Sprint
12
CIBC Lucent Technologies Sybase
Corestates Financial Matra Communications Thomson-CSF
CSC Merck & Co. Transport Canada
Compaq Computer Ministry Of Defence (UK) UNISYS
Digital Mobil United Parcel Service
Dunn & Bradstreet Motorola US Air Force
EDS NASA US Army
Electricite de France National Institutes of US Navy
(EDF) Health
Ericcson Nasdaq VISA International
Federal Aviation Network Systems Corp. Volvo
Administration
Federal Reserve System New York Life The World Bank
Ford Motor Company Nixdorf Computer Xerox
MARKETING AND SALES
Direct Mail Marketing and Advertising. Learning Tree markets its courses
primarily through direct mail marketing to its proprietary mail list of over
1,000,000 individuals (including course participants, their immediate
supervisors, department managers, training managers and other people who
have inquired about the Company's courses) as well as to rented mailing
lists of IT professionals. The Company anticipates that including
promotional materials for its multimedia CBT product line in its mailing
package can be accomplished at a relatively low incremental cost. The
Company also advertises in industry trade magazines and periodicals.
The Company believes that it achieves economies of scale by producing its
marketing materials centrally. Its centralized marketing department develops
the Company's catalogs, brochures and advertisements using color desktop
publishing and electronic pre-press technology to create the files used to
produce direct full-color film for plate-making. This in-house capability
enables the Company to make quick improvements to its marketing materials in
order to feature the latest technological developments and address market
opportunities in a timely manner.
The Company has built a strong brand image through the frequent and
prominent use of its trademarks in its marketing materials and course
materials. These trademarks include the Learning Tree and professional
certification logos, its
13
name, and its trademarks, including EDUCATION IS OUR BUSINESS(R), EDUCATION
YOU CAN TRUST(R), WE BRING EDUCATION TO LIFE(R), PRODUCTIVITY THROUGH
EDUCATION(R), Alumni Gold(TM), LearnTrack(TM), Training Passport(R),
Training Advantage(R), 800-THE-TREE(R) and 800-LRN-TREE(R).
Internet Marketing. The Company maintains a web site for marketing its
products and services over the Internet.(http://www.learningtree.com)
Information contained in the Company's Web site shall not be deemed to be
part of this Annual Report on Form 10-K. The Company believes that the
Internet will become an increasingly significant marketing channel to
prospective IT course participants in the future.
14
Telemarketing Sales Force. At September 30, 1996, Learning Tree's
telemarketing sales force consisted of over 75 people who were responsible
for responding to phone, e-mail, Web site and facsimile orders and inquiries
received by the Company and pursuing sales opportunities. These
telemarketers sell both to individual prospective course participants and to
line managers and training directors in assigned accounts. The Company has
developed a proprietary automated system which is integrated with its
customer and course operations databases and provides its telemarketers with
on-line information that facilitates rapid response to inbound callers,
provides targeted lists for outbound calling, records the results of calls
and automates the sales follow-up process. The Company believes its
telemarketing sales force has been instrumental to the Company's success in
selling its multiple-enrollment Training Passport programs.
Field Sales Force. The Learning Tree field sales force, which consisted of
over 40 sales people at September 30, 1996, generates a significant portion
of the Company's revenues. The field sales force concentrates its attention
on the Company's larger customers to sell multiple course customer-site
training programs and to sign Training Advantage Agreements covering all
formats of Learning Tree training. The Company's Training Advantage
Agreements provide its nationwide and international customers with
negotiated pricing and special services.
The field sales force is assisted by the Company's Customer Support Group
which provides the administration and logistics support necessary to ensure
the successful presentation, at the customer's site, of Learning Tree's
hands-on, computer-based classroom courses. For large contracts requiring
customization, the customer support staff serve as team leaders to
coordinate rapid and effective cooperation between the instructor(s) which
modify and teach the courses, the internal development team who implements
the changes, the Company's technical support group which modifies the course
hardware and software as needed, and the logistics staff which assembles and
ships course equipment and materials for each course event.
Multiple Enrollment Programs. In March 1993, the Company introduced its
Training Passport program to encourage course participants to enroll in
multiple courses, and thereby increase the average attendance in its
Learning Tree-site courses. As the program is presently constituted, the
holder of a Learning Tree Training Passport may attend up to 8 courses (10
in the United Kingdom and France) during a 12-month period. The list price
for the Training Passport is approximately three times the list price for an
individual four-day course.
The Company has also developed the Learning Tree Professional
Certification Programs for certifying IT professionals in 20 job functions
in the areas of the Company's focus. Professional certification is important
to many participants in Learning Tree courses as it provides documentation
of their qualifications. Each professional certification program requires
completion of a series of five Learning Tree courses and an examination
associated with each course. Since this program's inception in fiscal 1993,
over 46,000 participants have completed one or more certification
examinations.
COMPETITION
The IT education and training market is highly fragmented, with low
barriers to entry and no single competitor accounting for a dominant market
share. The Company's competitors are primarily company internal training
departments, independent education and training companies, technology
manufacturers, systems integrators and others. Some of these competitors
offer course titles and programs similar to those of the Company at lower
prices. In addition, some competitors have greater financial and other
resources than the Company.
15
Internal Training Departments. Internal IT training departments generally
provide companies with the most control over the method and content of
training, enabling them to tailor the training to their specific needs.
However, the Company believes that industry trends toward downsizing and
outsourcing continue to reduce the size of IT training departments and
increase the percentage of IT training delivered by external providers.
Because internal trainers find it increasingly difficult to keep pace with
new technologies, lack the hands-on experience needed to teach the latest
technological developments and lack the capacity to meet demand,
organizations increasingly supplement their internal training resources with
externally supplied training in order to meet their requirements.
Other Independent Education and Training Providers. The Company believes
that the majority of independent training providers are smaller
organizations, which often provide training as one of several services or
product lines. Many are "Authorized Training Centers" which present courses
utilizing materials prepared by computer hardware and software vendors such
as Novell and Microsoft. The Company differentiates itself from these
providers based on its size; scope and quality of its proprietary course
offerings; worldwide delivery capability; number, quality and experience of
its instructors; and vendor independence.
Computer Hardware and Software Vendors. Many hardware and software vendors
supply training bundled in the prices of their product. In addition, their
knowledge of upcoming developments in their products is likely to be better
than that of other training providers. Learning Tree differentiates itself
from computer systems manufacturers and software vendors by maintaining a
vendor-independent posture and providing cross-platform training solutions.
CBT Providers. The market for IT education and training historically has
consisted primarily of instructor-led training. Multimedia and computer-
based IT training currently account for a small portion of the overall IT
training market, but according to IDC, CBT is growing at a faster rate than
instructor-led training. To capitalize on this new opportunity, in fiscal
1996 the Company introduced a line of multimedia CBT products. However,
substantially all of the Company's revenue in fiscal 1996 were derived from
its instructor-led, hands-on training courses. Accordingly, the Company's
future success will depend upon, among other factors, the extent to which
the market continues to accept instructor-led training as a method of
delivery for IT training, the Company's ability to develop and market
instructor-led courses that compete effectively against CBT courses offered
by others and the Company's ability to develop its own curriculum of
competitive multimedia CBT course titles.
In the CBT market, many of the Company's current and potential competitors
have substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition in the CBT area than the
Company. In addition, the CBT area is characterized by significant price
competition. As a greater number of CBT providers enter the field, the
Company anticipates that it will face price pressure from competitors. The
Company differentiates itself from other CBT providers based on its field
sales, telemarketing and direct mail sales and marketing channels, its
reputation for providing quality training, the content of its multimedia CBT
courses, the frequent feedback the Company receives about its course content
and teaching methods from its established customer base and its ability to
provide users with the flexibility to acquire a given set of skills and
knowledge through either multimedia CBT or classroom-based training or an
integrated combination of the two. However, there can be no assurance that
the Company's products will be more favorably viewed by the marketplace than
other interactive training software or that competitive pressures will not
require the Company to reduce its prices significantly.
16
INTELLECTUAL PROPERTY AND LICENSES
The Company regards its course development process and its course titles
as proprietary and relies primarily on a combination of statutory and common
law copyright, trademark and trade secret laws, customer licensing
agreements, employee and third-party nondisclosure agreements and other
methods to protect its proprietary rights. Notwithstanding the foregoing, a
third party or parties could copy or otherwise obtain and use the Company's
course materials in an unauthorized manner or use these materials to develop
course titles which are substantially similar to those of the Company. In
addition, the Company operates in countries that do not provide protection
of proprietary rights to the same extent as the United States. The Company's
course materials generally do not include any mechanisms to prohibit or
prevent unauthorized use. If substantial unauthorized use of the Company's
products were to occur, the Company's business and results of operations
could be materially adversely affected. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or
that the Company's competitors will not independently develop similar course
titles or delivery methods. Additionally, there can be no assurance that
third parties will not claim that the Company's current or future courses
infringe on the proprietary rights of others. The Company expects that it
will be increasingly subject to such claims as the number of products and
competitors increases in the future. Any such claim could result in a
material adverse effect on the Company's business.
REGULATORY ENVIRONMENT
Many federal, state and international governmental authorities assert
authority to regulate providers of educational programs. Generally, the
Company is exempt from such regulation because the Company contracts with
the employer of the course participants and does not participate in any
federal or state student aid/loan programs. However, state laws and
regulations affect the Company's operations and may limit the ability of the
Company to obtain authorization to operate in certain states. If, in the
future, the Company were required to comply with, or found to be in
violation of, a state's current or future licensing or regulatory
requirements, it could be subject to civil or criminal sanctions, including
monetary penalties, and could be barred from providing educational services
in that state.
EMPLOYEES
As of September 30, 1996, the Company had a total of 373 full-time
employees, of which 149 were employed outside the United States. The Company
also utilized the services of 532 instructors to teach its courses. The
Company considers its relations with its employees and its instructors to be
good.
Item 2. PROPERTIES
As of September 30, 1996, all of Learning Tree's education center
classroom facilities were leased by the Company. The leases expire at
various dates over the next ten years. The Company has recently purchased a
37,035 square foot facility which is in process of being built out to house
the sales, administrative and operations groups of its U.S. subsidiary. The
space presently occupied by this staff will be converted to additional
classrooms. In addition, Learning Tree has recently leased a new 7,715 net
square foot education center in New York City and has entered into a lease
of an additional 10,305 square feet for its Los Angeles headquarters. The
Company intends to lease additional facilities for a number of its
subsidiaries in the foreseeable future. The Company has and expects to
continue to supplement its education center classroom facilities through the
use of rented hotel and conference facilities as needed.
17
The Company's headquarters is located at 6053 West Century Boulevard, Los
Angeles, California 90045. The table below sets forth certain information
regarding Learning Tree facilities--classroom sites and offices--as of
September 30, 1996:
LOCATION NO. OF AREA IN
(METROPOLITAN AREA) CLASSROOMS SQUARE FEET
------------------- ---------- -----------
Boston, MA....................... 2 5,555
Los Angeles, CA.................. 3 34,145
Los Angeles, CA (planned opening
date early 1997)................ N/A 10,305
New York, NY (planned opening
date early 1997)................ 5 7,715
Santa Clara, CA.................. N/A 150
Washington, DC (3 sites)......... 13 46,422
Washington, DC (planned opening
date December 1996)............. N/A 37,035
Paris, France.................... 12 36,814
London, England (2 sites)........ 13 31,902
Ottawa, Canada................... 4 13,895
Toronto, Canada.................. 4 10,830
Stockholm, Sweden................ 4 9,462
Tokyo, Japan..................... N/A 646
Item 3. LEGAL PROCEEDINGS
The Company is not involved in any pending or threatened legal proceedings
that the Company believes could reasonably be expected to have a material
adverse effect on the Company's financial condition or results of
operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996, through the solicitation of proxies or otherwise.
18
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock began trading publicly on the Nasdaq National
Market under the symbol LTRE effective December 6, 1995. The following table
sets forth, for the periods indicated, the range of high and low sales
prices for the Common Stock on the Nasdaq National Market since December 6,
1995:
HIGH LOW
---- ----
Fiscal 1996
First Quarter (from December 6, 1995).................. $17 1/4 $13 3/4
Second Quarter......................................... 20 1/4 13 1/4
Third Quarter.......................................... 31 5/8 20
Fourth Quarter......................................... 37 1/4 20
As of November 18, 1996 there were approximately 400 holders of record of
the Common Stock.
VOLATILITY OF STOCK PRICE
The Company's initial public offering was completed in December 1995 and a
secondary public offering was completed in September 1996. There can be no
assurance that a viable public market for the Common Stock will be
sustained. The market price of the Common Stock has fluctuated significantly
since the initial public offering. The Company believes that factors such as
announcements of developments related to the Company's business,
announcements of new products or enhancements by the Company or its
competitors, sales of the Common Stock into the public market, developments
in the Company's relationships with its customers, shortfalls or changes in
revenues, gross margins, earnings or losses or other financial results which
differ from public market analysts' expectations, fluctuations in results of
operations and general conditions in the Company's market or the markets
served by the Company's customers or the economy could cause the price of
the Common Stock to fluctuate, perhaps substantially. In addition, in recent
years the stock market in general, and the market for shares of technology-
related stocks in particular, have experienced extreme price fluctuations,
which have often been unrelated to the operating performance of affected
companies. There can be no assurance that the market price of the Common
Stock will not continue to experience significant fluctuations in the
future, including fluctuations that are unrelated to the Company's
performance.
DIVIDENDS
To date, the Company has not paid any cash dividends on its Common Stock
and the Company anticipates that it will not pay dividends on the Common
Stock for the foreseeable future and that it will retain any earnings for
use in the operation of its business. The declaration and payment of
dividends by the Company are subject to the discretion of its Board of
Directors and to compliance with applicable laws. Any determination as to
the payment of dividends in the future will depend upon, among other things,
general business conditions, the effect of such payment on the Company's
financial condition and other factors the Company's Board of Directors may
in the future consider to be relevant.
19
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company is
qualified by reference to and should be read in conjunction with the
consolidated financial statements and notes thereto and other financial data
included elsewhere in this Annual Report on Form 10-K. The statement of
operations data set forth below for each of the three years in the period
ended September 30, 1996 and the balance sheet data as of September 30, 1995
and 1996, are derived from the Company's consolidated financial statements
for those years which have been audited by Arthur Andersen LLP, independent
public accountants, whose report thereon is included elsewhere herein. The
statement of operations data for each of the two years in the period ended
September 30, 1993 and the balance sheet data at September 30, 1992, 1993
and 1994 are derived from audited financial statements of the Company not
included herein. These historical results are not necessarily indicative of
the results to be expected in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $53,366 $49,329 $58,466 $78,818 $103,575
Cost of revenues............................ 19,604 19,754 23,665 30,731 40,879
------- ------- ------- ------- -------
Gross profit............................. 33,762 29,575 34,801 48,087 62,696
------- ------- ------- ------- -------
Operating expenses:
Course development......................... 3,098 3,387 3,978 4,954 6,248
Sales and marketing........................ 17,674 17,923 21,243 22,883 31,245
General and administrative................. 10,487 9,625 9,945 12,176 12,850
------- ------- ------- ------- -------
Total operating expenses................. 31,259 30,935 35,166 40,013 50,343
------- ------- ------- ------- -------
Income (loss) from operations............... 2,503 (1,360) (365) 8,074 12,353
Other income (expense), net................. (83) 406 12 272 1,798
------- ------- ------- ------- -------
Income (loss) before provision
(credit) for income taxes.................. 2,420 (954) (353) 8,346 14,151
Provision (credit) for income taxes......... 446 (77) 90 1,866 4,033
------- ------- ------- ------- -------
Net income (loss)........................... $ 1,974 $ (877) $ (443) $ 6,480 $ 10,118
======= ======= ======= ======= ========
Net income (loss) per common share
and common equivalent share................ $0.17 $(0.08) $(0.04) $0.57 $0.74
======= ======= ======= ======= ========
Weighted average number of common
and common equivalent shares
outstanding................................ 11,520 11,478 11,512 11,364 13,740
======= ======= ======= ======= ========
AT SEPTEMBER 30,
----------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 2,571 $ 1,770 $ 2,774 $10,029 $ 24,541
Total current assets........................ 9,509 9,210 10,772 21,336 77,610
Total assets................................ 13,802 14,135 16,306 28,427 91,529
Total current liabilities................... 11,067 12,871 16,425 22,843 34,247
Long-term debt and capital leases,
net of current portion..................... 213 714 446 272 134
Total stockholders' equity (deficit)........ (415) (2,171) (3,054) 3,305 55,506
20
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed below, elsewhere herein and in the caption "Risk Factors" in
the Company's Registration Statement on Form S-1 filed on September 20,
1996.
OVERVIEW
Learning Tree International, Inc. (the "Company"), is a leading worldwide
provider of education and training for information technology ("IT")
professionals in business and government organizations. The Company's
customers are the companies and government agencies which pay for their
employees to attend the Company's course events. The Company develops,
markets and delivers a broad, proprietary library of instructor-led course
titles which are focused on client/server systems, Internet/intranet
technologies, computer networks, operating systems, databases, programming
languages, graphical user interfaces, object-oriented technology and IT
management. The Company tests and certifies IT professionals in 20 IT job
functions. The Company's courses are recommended for college credit by the
American Council on Education.
In addition to its instructor-led courses, the Company has recently
developed and is expanding 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.
The Company has historically focused on instructor-led IT training in
multi-vendor, multi-platform computer systems ("open systems") emphasizing
computer technologies such as internetworking, operating systems and
advanced programming languages. Until the early 1990's, these technologies
were used almost exclusively by IT professionals involved in research,
development and engineering. Beginning in the early 1990's and accelerating
through the present, management information systems ("MIS") departments
began shifting from legacy mainframe systems to new client/server
technologies, thus expanding the market for training of MIS personnel in
areas covered by the Company's courses. These technologies have contributed
significantly to the increased use of computer systems by businesses and
government organizations.
Beginning in fiscal 1993, in order to increase its market share, the
Company introduced a new marketing initiative by creating multiple
enrollment programs, such as its Training Passport, College Credit and
Professional Certification Programs, which give participants an incentive to
enroll in a series of Learning Tree course events. See "Business--Marketing
and Sales." Additionally, in 1993, the Company noted an increase in the
response rate from its direct mail marketing. Accordingly, at that time and
continuing through 1994, the Company increased both its sales and marketing
expenditures and its course development expenditures. Through its increased
investment in course development, the Company expanded its curriculum of
course titles in client/server technology, networks and databases covering
additional topics relevant to the emerging training market for MIS
professionals. In management's view, these new course titles provided an
expanded role for the Company in the MIS training market by attracting MIS
participants both to its new and existing course titles.
As an initial result of these increased sales and marketing and course
development expenditures, the Company incurred operating and net losses the
first two quarters of fiscal 1994. The Company returned to profitability in
the third quarter of fiscal 1994 and has remained profitable in each
succeeding quarter. In addition, the Company increased its revenues from
$58.5 million in fiscal 1994 to
21
$78.8 million in fiscal 1995 and $103.6 million in fiscal 1996.
The Company's revenues have grown to record levels in fiscal 1996,
increasing by 31% over fiscal 1995. Further, the Company's revenues in the
fourth quarter of fiscal 1996 increased by 45% over the same period in
fiscal 1995 and the backlog as of September 30, 1996 has grown by 37% when
compared to the backlog as of September 30, 1995. In response to the
continued strength in enrollments, the Company has further accelerated its
development of new course titles, expanded its future direct mailing plans
to capture additional market share and has taken steps to expand the number
of classrooms in its education centers. However, there can be no assurance
that the Company will be able to achieve an increase in market share after
making such expenditures or will maintain its growth in revenues,
profitability or market share in the future. The Company's revenues and
profitability are subject to general economic conditions and a significant
portion of the Company's revenues are derived from Fortune 1000-level
companies and their international equivalents. Such companies have
historically adjusted their expenditures for external IT training during
economic downturns. Should the economy weaken in any future period, these
companies may not increase or may reduce their expenditures on external IT
training, which would have an adverse impact on the Company.
The Company's instructor-led course events are taught in classrooms and
include extensive, hands-on exercises under the guidance of expert
instructors. The Company has structured its business so that the majority of
its instructor-led course costs depend upon the number of course events it
conducts. The Company schedules its four-day course events throughout the
year as appropriate to meet demand. Since the Company's instructors
typically work full-time in the IT industry and teach an average of eight to
nine Learning Tree course events each year, as needed, the Company's
instructor-related costs are largely variable. In addition, although the
expenses associated with its own Education Centers are fixed, the Company
can impact its overall facility expenses by varying its use of rented hotel
and conference facilities. Because the cost for each course event does not
increase significantly as additional participants are included, the Company
utilizes a variety of techniques to achieve a high average number of
participants per course event up to limits designed to preserve the quality
of each course event. These techniques include adding additional events for
a popular course title, combining two or more undersubscribed events into
one course event and adding an assistant instructor to increase the maximum
number of students in a course event.
BACKLOG
At September 30, 1996, the Company had a backlog of orders for courses in
the amount of $23.5 million, which represented a 37% increase over the
backlog of $17.2 million at September 30, 1995. Only a portion of the
Company's backlog is funded. There can be no assurance that the growth in
the backlog experienced in fiscal 1996 over fiscal 1995 will continue or
that orders comprising the backlog will be realized as revenue.
22
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
the Company's consolidated statements of operations as a percentage of revenues:
YEAR ENDED
SEPTEMBER 30,
--------------------
1994 1995 1996
---- ---- ----
Revenues............................................ 100% 100% 100%
Cost of revenues.................................... 41 39 39
---- ---- ----
Gross profit...................................... 59 61 61
Operating expenses:
Course development................................ 7 6 6
Sales and marketing............................... 36 29 30
General and administrative........................ 17 16 13
---- ---- ----
Total operating expenses........................ 60 51 49
---- ---- ----
Income (loss) from operations....................... (1) 10 12
Other income (expense), net......................... 0 0 2
---- ---- ----
Income (loss) before provision
(credit) for income taxes.......................... (1) 10 14
Provision (credit) for income taxes................. 0 2 4
---- ---- ----
Net income (loss)................................... (1)% 8% 10%
==== ==== ====
FISCAL 1996 COMPARED WITH FISCAL 1995
For the fiscal year ended September 30, 1996, revenues increased by $24.8
million or 31% to $103.6 million from $78.8 million for the fiscal year ended
September 30, 1995. The growth of revenues is due, in part, to an increase in
the number of course participants to 71,792 compared to 60,461 in the
corresponding prior year. The additional course participants are primarily
attributable to increased direct mail marketing and an increase in the number of
course titles to 110 as of September 30, 1996, compared to 87 a year earlier. In
addition, the growth in the number of course participants is attributable to the
expansion of the number of Learning Tree-site course events which the Company
held at sites other than its education centers in order to broaden its customer
base. Revenues for fiscal 1996 also reflect higher average revenues per course
participant. The increase in the average revenues per course participant is
attributable to the increase in the proportion of higher-paying single course
event participants over those attending under the discounted Passport Program,
increased revenue per Passport attendee and increased prices for customer-site
course events. Some of the Company's revenues are denominated in foreign
currencies which have been translated into dollars, for this discussion, based
upon the exchange rates prevailing when the revenues were earned. Exchange rate
changes during the year reduced revenues by approximately $455,000 in fiscal
1996 compared to the exchange rates prevailing during fiscal 1995.
The Company's cost of revenues primarily includes the costs associated with
the course instructor, course materials and equipment, freight, classroom
facilities and refreshments. For the fiscal year ended September 30, 1996, the
cost of revenues increased $10.2 million or 33% to $40.9 million from $30.7
million for the previous fiscal year. The increase in the cost of revenues is
primarily the result of an increased number of course events. The number of
course events increased 22% in fiscal 1996 to 4,512 from 3,688 course events in
fiscal 1995. Costs per course event increased by approximately 7% in fiscal 1996
compared to fiscal 1995. The change in the average cost per course event
primarily reflects an increase in the number of Learning Tree-site courses
compared to those held at customer sites, the higher costs of conducting more
course events at sites other
23
than education centers due to education center capacity constraints and an
increase in the number of courses held in cities where the Company has not
established an education center. To accommodate the growth in course
enrollments, the Company is seeking additional education center facilities
in certain locations.
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 product development staff and independent consultants
who serve as subject matter experts. For the fiscal year ended September 30,
1996, course development expenses increased by $1.2 million or 26% to $6.2
million from $5.0 million for fiscal 1995. This increase reflects the costs
associated with the Company's strategy of expanding its course library to
meet its customers' growing technology training needs, updating and
maintaining a growing course title library and developing a multimedia CBT
product line. Approximately $1.2 million of multimedia CBT development costs
were capitalized in fiscal 1996, while no material amounts were capitalized
in fiscal 1995. In light of the strength in course enrollments, the Company
plans to capitalize on the opportunity to grow market share by rapidly
growing both its instructor-led course library and its multimedia CBT
library, including additional titles in the areas of the Internet,
intranets, Java, Windows NT, programming languages and databases. As a
result, the amount of course development expenses are expected to continue
to increase in fiscal 1997.
In fiscal 1996, the Company introduced its first multimedia CBT course
titles. To obtain greater control over the multimedia CBT development
process, course quality and costs of development, the Company has expanded
its in-house multimedia CBT development team and discontinued the use of
outside CBT course developers. As of September 30, 1996, the Company had
released 12 CBT course titles and had an additional 16 titles under
development. The Company began the initial marketing of its multimedia CBT
product line in January 1996, and intends to expand these sales and
marketing activities commensurate with the growth of titles in its
multimedia CBT library. While the Company continues to anticipate that a
substantial majority of its revenues in fiscal 1997 will be derived from
instructor-led training, to date the Company has received orders from over
300 corporate and government customers for its multimedia CBT courses. The
actual number of titles which the Company will produce and their delivery
dates are subject to a number of factors such as the hiring and training of
additional staff, continued refinements in the development and production
process and the availability of subject matter experts who are also
responsible for developing and teaching the Company's instructor-led
courses.
Sales and marketing expense consists of salaries, commissions and travel-
related costs for sales and marketing personnel, the costs of designing,
producing and distributing direct mail marketing and media advertisements,
and the costs of information systems to support these activities. Sales and
marketing expenses increased $8.4 million or 37% to $31.2 million in fiscal
1996 from $22.9 million in fiscal 1995. The increase in sales and marketing
expenses is due to an increase in telemarketing and field sales staff and
direct mail marketing intended to reach a broader range of potential
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. Accordingly, sales and marketing expenses
for fiscal 1996 increased as a percentage of revenues to 30% compared to 29%
in fiscal 1995.
In fiscal 1996, general and administrative expenses increased $674,000 or
6% to $12.9 million from $12.2 million for fiscal 1995. As a percentage of
revenue, general and administrative expenses have declined to 13% from 16%
in the prior year as a result of increased leveraging of the Company's
infrastructure to support a higher sales volume.
24
Other income (expense) is primarily comprised of interest income, interest
expense and foreign currency gains and losses. For fiscal 1996, other income
increased $1.5 million to $1.8 million from $272,000 for fiscal 1995. This
increase was primarily attributable to additional interest income arising
from higher cash balances which have been generated by operations and from
the proceeds of the Company's initial and secondary public stock offerings.
The increase in interest income was partially offset by foreign exchange
losses of $186,000 in fiscal 1996, compared to foreign exchange gains of
$30,000 in fiscal 1995. These transaction gains and losses arose from
receivables and payables denominated in currencies other than the functional
currencies of the Company's foreign subsidiaries.
Although the Company's consolidated financial statements are stated in
U.S. dollars, several of the Company's subsidiaries have functional
currencies other than the U.S. dollar. Gains and losses arising from the
translation of the balance sheets of the Company's subsidiaries from the
functional currencies to U.S. dollars are reported as an adjustment to
stockholders' equity. However, fluctuations in exchange rates may have an
effect on the Company's results of operations, particularly its revenues and
operating margins, when translating the income statements to dollars. The
impact of future exchange rates on the Company's results of operations
cannot be accurately predicted. To date, the Company 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, the Company may
undertake such transactions. There can be no assurance that any hedging
techniques implemented by the Company would be successful in eliminating or
reducing the effects of currency fluctuations.
For fiscal 1996, the provision for income taxes increased by $2.2 million
to $4.0 million from $1.9 million for fiscal 1995. This increase reflects an
increase in income before taxes as well as the effect of utilizing the last
of the Company's tax loss carryforwards. Learning Tree International, Inc.
operates as a holding company with operating subsidiaries in several
countries, and each subsidiary is taxed based on the laws of the
jurisdiction in which it operates. Since taxes are incurred at the
subsidiary level, and one subsidiary's tax losses cannot offset the taxable
income of subsidiaries in other tax jurisdictions, the Company's
consolidated effective tax rate may vary. In fiscal 1996, certain of the
Company's subsidiaries utilized tax loss carryforwards to offset a portion
of their taxable income for the year whereas they were able to offset a
greater portion of their taxable income in 1995. Since no significant tax
loss carryforwards remain to offset future taxable income, the Company's
consolidated effective tax rate can be expected to increase in the future.
See Note 3 to the Notes to Consolidated Financial Statements.
The Company's revenues in fiscal 1996 increased in each geographical
segment compared to fiscal 1995. The increases were greatest in the
Company's largest geographic segments, the United States and Europe. All of
the Company's geographic segments were profitable in fiscal 1996. The
European segment recording operating income of $7.6 million in fiscal 1996
compared to operating income of $4.1 million in fiscal 1995 as a result of
revenue increases primarily in the United Kingdom and Sweden. See Note 8 to
Notes to Consolidated Financial Statements.
FISCAL 1995 COMPARED WITH FISCAL 1994
In fiscal 1995, revenues increased $20.3 million or 35% to $78.8 million
from $58.5 million in fiscal 1994. The increase in revenues reflects an
increase in both the number of course events and revenue per event. The
number of course events increased 26% to 3,688 in fiscal 1995 compared to
2,928 in fiscal 1994 due to a corresponding increase in the number of
participants. The increased number of course participants reflects expansion
of the number of course titles and continued growth in sales of the
Company's multi-course programs, with revenues from the Passport Program
increasing to $13.2 million in fiscal 1995 from $8.8
25
million in fiscal 1994. Revenue per course event increased by approximately
8% in fiscal 1995 compared to fiscal 1994 due to (i) a faster rate of growth
in the number of higher-paying single course event participants than in the
number of participants attending under the discounted Passport Program, (ii)
an increase in the average revenue per event for Passport holders and (iii)
a shift in the mix of course events from customer- site course events toward
Learning Tree-site course events, which generate higher average revenues per
course event. The Company's revenues and revenue per course event discussed
above reflect changes in the exchange rates used to translate into dollars
the Company's revenues that are denominated in foreign currencies, which
exchange rate changes added approximately $2.7 million in revenues in fiscal
1995 compared to fiscal 1994.
The Company's cost of revenues increased $7.0 million or 30% to $30.7
million for fiscal 1995 compared to $23.7 million for fiscal 1994. This
change primarily was attributable to the increased number of course events
in fiscal 1995 over fiscal 1994, since the average cost per course event was
substantially unchanged between the two periods. Because revenues per course
event grew while costs per course event remained substantially unchanged,
the gross profit margin grew to 61.0% in fiscal 1995 compared to 59.5% in
fiscal 1994.
Course development expense increased $1.0 million or 25% to $5.0 million
for fiscal 1995 from $4.0 million for fiscal 1994. This increase reflects
the 21% growth in course titles from 72 at September 30, 1994 to 87 at
September 30, 1995 as well as the cost of updating the larger existing
course title library and developing the multimedia CBT product line.
Sales and marketing expense increased $1.7 million or 8% to $22.9 million
for fiscal 1995 from $21.2 million for fiscal 1994. While sales and
marketing expense increased in absolute terms, it declined as a percentage
of revenues to 29% in fiscal 1995 compared to 36% for fiscal 1994. The
Company decided to increase its sales and marketing expenses in fiscal 1996
in order to reach a broader range of potential customers, to expand business
with its current customers, and to communicate the availability of its new
course titles and multimedia CBT product line.
General and administrative expense increased $2.3 million or 22% during
fiscal 1995 to $12.2 million from $9.9 million in fiscal 1994. This increase
in general and administrative expense is primarily the result of increases
in personnel, rent expense and performance-based incentive compensation.
However, these costs decreased as a percentage of revenues to 16% in fiscal
1995 from 17% in fiscal 1994.
Other income (expense), net primarily was comprised of interest expense,
interest income and foreign currency gains and losses. Interest income
increased $244,000 to $331,000 for fiscal 1995 from $87,000 in fiscal 1994,
reflecting the Company's increased cash balances. In fiscal 1995, the
Company recorded $30,000 in foreign exchange gains compared to $101,000 in
fiscal 1994.
In fiscal 1995, certain of the Company's subsidiaries utilized tax loss
carryforwards to offset their taxable income for the year. Accordingly, the
tax provision for fiscal 1995 reflects the benefit from the use of such loss
carryforwards as well as the use of foreign tax credits. Additional tax loss
carryforwards remain available in certain foreign subsidiaries to offset
future taxable income. See Note 3 to the Notes to Consolidated Financial
Statements.
The Company's revenues in fiscal 1995 increased in each geographical
segment compared to fiscal 1994, with the United States operations recording
the greatest percentage increase because of stronger demand for the
Company's client/server based courses. In addition, each of the geographical
segments recorded increased operating income in fiscal 1995 as compared to
fiscal 1994 primarily because of increased revenues in each segment. The
Company's European segment recorded
26
operating income of $4.1 million in fiscal 1995 compared to operating income
of $95,000 in fiscal 1994 as a result of revenue increases primarily in the
United Kingdom and France. Likewise income from the United States operations
equaled $3.4 million in fiscal 1995 compared to operating income of $104,000
in fiscal 1994 because of a 42% increase in revenues. See Note 8 to Notes to
Consolidated Financial Statements.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited quarterly financial data for each
of the eight consecutive fiscal quarters ended September 30, 1996, including
such data expressed as a percentage of the Company's revenues. The Company
believes that this information includes all adjustments (which consisted
solely of normal recurring adjustments) necessary for a fair presentation of
such quarterly information when read in conjunction with the consolidated
financial statements included elsewhere herein. The operating results for
any quarter are not necessarily indicative of the results for any future
period.
THREE MONTHS ENDED
----------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1994 1995 1995 1995 1995 1996 1996 1996
-------- -------- -------- -------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Revenues.............. $18,468 $17,774 $21,849 $20,727 $23,178 $22,712 $27,714 $29,971
Cost of revenues...... 7,132 6,980 8,247 8,372 9,232 8,969 10,297 12,381
------- ------- ------- ------- ------- ------- ------- -------
Gross profit......... 11,336 10,794 13,602 12,355 13,946 13,743 17,417 17,590
Operating expenses
Course development... 1,089 1,139 1,351 1,375 1,242 1,432 1,746 1,828
Sales and marketing.. 4,607 6,041 6,181 6,054 6,208 7,936 7,659 9,442
General and
administrative...... 3,042 2,946 3,007 3,181 3,343 2,810 3,306 3,391
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 8,738 10,126 10,539 10,610 10,793 12,178 12,711 14,661
------- ------- ------- ------- ------- ------ ------- -------
Income from operations 2,598 668 3,063 1,745 3,153 1,565 4,706 2,929
Other income (expense) (20) 313 97 (118) 157 470 541 630
------- ------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes..... 2,578 981 3,160 1,627 3,310 2,035 5,247 3,559
Provision for income
taxes................ 522 143 603 598 943 634 1,547 909
------- ------- ------- ------- ------- ------- ------- -------
Net income............ $ 2,056 $ 838 $ 2,557 $ 1,029 $ 2,367 $ 1,401 $ 3,700 $ 2,650
======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF
REVENUES:
Revenues.............. 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues...... 39 39 38 40 40 40 37 41
------- ------- ------- ------- ------- ------- ------- -------
Gross profit......... 61 61 62 60 60 60 63 59
Operating Expenses
Course development... 6 6 6 7 5 6 6 6
Sales and marketing.. 25 34 28 29 27 35 28 32
General and
administrative...... 16 17 14 15 14 12 12 11
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 47 57 48 51 46 53 46 49
------- ------- ------- ------- ------- ------- ------- -------
Income from operations 14 4 14 9 14 7 17 10
Other income (expense) 0 2 0 (1) 0 2 2 2
------- ------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes..... 14 6 14 8 14 9 19 12
Provision for income
taxes................ 3 1 3 3 4 3 6 3
------- ------- ------- ------- ------- ------- ------- -------
Net income............ 11% 5% 11% 5% 10% 6% 13% 9%
======= ======= ======= ======= ======= ======= ======= =======
27
The Company has in the past experienced fluctuations in its quarterly
operating results and expects such fluctuations to continue in the future.
The Company'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, the Company intends to increase the amount of its expenditures
for course development and sales and marketing in the future. The Company
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 the Company's results of
operations. In addition, the Company's operating results may fluctuate based
on other factors, including the frequency and availability of course events,
the frequency and size of and response to, the Company's direct mail
marketing 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
depending on 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 also varied significantly from
quarter to quarter due to seasonal 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. This
seasonality is due in part to seasonal spending patterns of the Company's
customers, and in part to quarterly differences in the frequency and size of
the Company's direct mail marketing campaigns, as well as weather, holiday
and vacation patterns. There can be no assurance that these seasonal effects
will remain the same in the future.
Furthermore, one of the Company's multiple enrollment programs is the
Training Passport program. Purchasers of Passports pay a set price for the
right to attend up to eight courses (ten in the United Kingdom and France)
within a twelve month period. The amount of revenue recognized for each
attendance in the Company's courses by Passport holders is based upon the
selling price of the Passport and the estimated average number of courses
Passport holders will actually attend. Upon expiration of a Passport, the
Company records the differences, if any, between the revenues previously
recognized and the Passport selling price. The Company reviews the estimated
average number of course events Passport holders will attend on a monthly
basis. The estimated attendance rate is based upon the historical experience
of the average actual number of course events Passport holders have been
attending. If the Passport attendance rate changes, based upon this
historical data, the Company adjusts the revenue recognition rate for all
active Passports and for all Passports sold thereafter. Although the Company
has seen no material changes in the historical attendance rates as the
number of course titles has increased from fiscal 1993 to present, it
monitors such potential effects. In general, determining the estimated
average number of course events that will be attended by a Passport holder
is based on historical trends that may not continue in the future. These
estimates could differ in the near term from amounts used in arriving at the
reported revenue. See Note 1 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $24.5 million at September 30, 1996
from $10.0 million at September 30, 1995. In addition, the Company had $37.0
million of short-term interest-bearing investments at September 30, 1996.
The combined total of cash, cash equivalents and short-term interest-bearing
investments increased in fiscal 1996 primarily as a result of the $30.8
million of net proceeds received from the Company's initial public offering
in December 1995, the $11.0 million received from the Company's secondary
public offering in September 1996 and cash
28
provided by operations. For fiscal 1996, cash provided by operations was
approximately $20.2 million compared to $11.4 million during fiscal 1995.
The increase in cash provided by operations reflects the increase in
profitability and increases in deferred revenues arising from prepaid multi-
enrollment programs. At September 30, 1996, the Company had working capital
of $43.4 million and had unused available lines of credit of approximately
$463,000.
During fiscal 1996, the Company invested $9.2 million in equipment,
property and leasehold improvements compared to $3.6 million in fiscal 1995.
This increase is primarily related to additional course equipment to support
the growth in the number of course events and to upgrade course equipment
capabilities and the purchase of certain office facilities for its United
States subsidiary. Although the Company expects to continue to invest in
additional equipment and facilities in fiscal 1997, as of September 30,
1996, the Company had no material future purchase obligations, capital
commitments or debt. Accordingly, management believes that its cash, cash
equivalents and short-term interest-bearing investments together with the
cash provided by operations will be sufficient to meet the Company's cash
requirements at least until the end of fiscal 1997.
It is contemplated that part of the proceeds of the Company's initial and
secondary public offerings may be used for acquisitions. While the Company
has no current agreements in place or negotiations underway with respect to
any acquisition, the Company plans to regularly evaluate acquisition
opportunities that fit within its business plan. Acquisitions involve
numerous risks, including potential difficulties in the assimilation of
acquired operations, diversion of management's attention away from normal
operating activities, negative financial impacts based on the amortization
of acquired intangible assets, the dilutive effects of the issuance of
Common Stock in connection with an acquisition, and potential loss of key
employees of the acquired operation. The Company has had no experience in
executing and implementing acquisitions and no assurance can be given as to
the success of the Company in executing and implementing acquisitions in the
future.
The Company has not paid any cash dividends since its inception and does
not anticipate paying cash dividends in the foreseeable future.
29
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants........................... 31
Consolidated Balance Sheets at September 30, 1995 and 1996......... 32
Consolidated Statements of Operations for the fiscal years ended
September 30, 1994, 1995 and 1996................................. 33
Consolidated Statements of Stockholders' Equity (Deficit) for the
fiscal years ended September 30, 1994, 1995 and 1996.............. 34
Consolidated Statements of Cash Flows for the fiscal years ended
September 30, 1994, 1995 and 1996................................. 35
Notes to Consolidated Financial Statements......................... 36
30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Learning Tree International, Inc.:
We have audited the accompanying consolidated balance sheets of Learning
Tree International, Inc. (a Delaware corporation) and subsidiaries as of
September 30, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
in the period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Learning
Tree International, Inc. and subsidiaries as of September 30, 1995 and 1996,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 30, 1996, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
November 15, 1996
31
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
----------------------------
1995 1996
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 10,029,000 $ 24,541,000
Short-term interest-bearing investments.............................. -- 37,000,000
Trade accounts receivable, less allowances of
$259,000 and $254,000, respectively................................. 8,623,000 12,652,000
Prepaid marketing expenses........................................... 707,000 1,084,000
Prepaid expenses and other........................................... 1,977,000 2,333,000
------------ ------------
Total current assets............................................. 21,336,000 77,610,000
------------ ------------
Equipment, property and leasehold improvements:
Education and office equipment....................................... 15,352,000 18,721,000
Transportation equipment............................................. 80,000 65,000
Property and leasehold improvements.................................. 1,448,000 4,287,000
------------ ------------
16,880,000 23,073,000
Less: accumulated depreciation and amortization...................... (11,124,000) (11,427,000)
------------ ------------
5,756,000 11,646,000
Deferred income taxes.................................................. 478,000 279,000
Other assets........................................................... 857,000 1,994,000
------------ ------------
Total assets..................................................... $ 28,427,000 $ 91,529,000
============ ============
LIABILITIES
Current liabilities:
Current portion of debt and capital leases........................... $ 191,000 $ 125,000
Trade accounts payable............................................... 6,852,000 10,599,000
Deferred revenue..................................................... 10,346,000 15,611,000
Accrued payroll, benefits and related taxes.......................... 2,606,000 2,149,000
Other accrued liabilities............................................ 1,775,000 3,563,000
Income taxes payable................................................. 1,073,000 2,200,000
------------ ------------
Total current liabilities........................................ 22,843,000 34,247,000
Long-term debt and capital leases, net of current portion.............. 272,000 134,000
Deferred facilities rent............................................... 2,007,000 1,642,000
------------ ------------
Total liabilities................................................ 25,122,000 36,023,000
------------ ------------
Commitments
STOCKHOLDERS' EQUITY
Class A Common Stock, $.0001 par value, 23,000,000
shares authorized, 9,955,000 and 0 shares issued
and outstanding, respectively....................................... 1,000 --
Class B Common Stock, nonvoting, $.0001 par value,
2,000,000 shares authorized, 1,417,000 and 0
shares issued and outstanding, respectively......................... -- --
Common Stock, $.0001 par value, 25,000,000 shares
authorized, 0 and 14,663,000 shares issued and
outstanding, respectively........................................... -- 1,000
Additional paid-in capital........................................... 1,216,000 42,992,000
Notes receivable from stockholders................................... (679,000) (144,000)
Deferred compensation--stockholders.................................. (287,000) (207,000)
Cumulative foreign currency translation.............................. (882,000) (753,000)
Retained earnings.................................................... 3,936,000 13,617,000
------------ ------------
Total stockholders' equity....................................... 3,305,000 55,506,000
------------ ------------
Total liabilities and stockholders' equity....................... $ 28,427,000 $ 91,529,000
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
32
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1995 1996
------------ ------------ -------------
Revenues................................................................ $58,466,000 $78,818,000 $103,575,000
Costs of revenues....................................................... 23,665,000 30,731,000 40,879,000
----------- ----------- ------------
Gross profit............................................................ 34,801,000 48,087,000 62,696,000
----------- ----------- ------------
Operating expenses:
Course development.................................................... 3,978,000 4,954,000 6,248,000
Sales and marketing................................................... 21,243,000 22,883,000 31,245,000
General and administrative............................................ 9,945,000 12,176,000 12,850,000
----------- ----------- ------------
35,166,000 40,013,000 50,343,000
----------- ----------- ------------
Income (loss) from operations........................................... (365,000) 8,074,000 12,353,000
----------- ----------- ------------
Other income (expense):
Interest expense...................................................... (112,000) (84,000) (45,000)
Interest income....................................................... 87,000 331,000 2,058,000
Foreign exchange...................................................... 101,000 30,000 (186,000)
Other................................................................. (64,000) (5,000) (29,000)
----------- ----------- ------------
12,000 272,000 1,798,000
----------- ----------- ------------
Income (loss) before provision for income taxes......................... (353,000) 8,346,000 14,151,000
Provision for income taxes.............................................. 90,000 1,866,000 4,033,000
----------- ----------- ------------
Net income (loss)....................................................... $ (443,000) $ 6,480,000 $ 10,118,000
=========== =========== ============
Net income (loss) per common share and common equivalent share.......... $ (0.04) $ 0.57 $ 0.74
=========== =========== ============
Weighted average number of common and common
equivalent shares outstanding.......................................... 11,512,000 11,364,000 13,740,000
=========== =========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
33
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS CLASS NOTES FOREIGN
A B ADDITIONAL RECEIVABLE CURRENCY TOTAL
COMMON COMMON COMMON PAID-IN FROM DEFERRED TRANSLATION RETAINED STOCKHOLDERS'
STOCK STOCK STOCK* CAPITAL STOCKHOLDERS COMPENSATION ADJUSTMENT EARNINGS EQUITY
------ ------- ------- ----------- ------------ ------------ --------- ----------- --------------
Balance,
September 30, 1993.. $ -- $ 1,000 $ -- $ 443,000 $(234,000) $ -- $(710,000) $(1,671,000) $(2,171,000)
FISCAL YEAR 1994:
Sales of Common
Stock............... -- -- -- 52,000 (48,000) -- -- -- 4,000
Repurchase of Common
Stock............... -- -- -- (173,000) 93,000 -- -- (259,000) (339,000)
Net loss............. -- -- -- -- -- -- -- (443,000) (443,000)
Foreign currency
adjustments......... -- -- -- -- -- -- (139,000) -- (139,000)
Collections on notes
receivable from
stockholders........ -- -- -- -- 34,000 -- -- -- 34,000
------ ------- ----- ----------- --------- --------- --------- ----------- -----------
Balance,
September 30, 1994.. -- 1,000 -- 322,000 (155,000) -- (849,000) (2,373,000) (3,054,000)
FISCAL YEAR 1995:
Sales of Common
Stock............... -- -- -- 942,000 (579,000) (321,000) -- -- 42,000
Repurchase of Common
Stock............... -- -- -- (48,000) 23,000 -- -- (171,000) (196,000)
Net income........... -- -- -- -- -- -- -- 6,480,000 6,480,000
Amortization of
deferred
compensation........ -- -- -- -- -- 34,000 -- -- 34,000
Foreign currency
adjustments......... -- -- -- -- -- -- (33,000) -- (33,000)
Collections on notes
receivable from
stockholders........ -- -- -- -- 32,000 -- -- -- 32,000
------ ------- ----- ----------- --------- --------- --------- ----------- -----------
Balance,
September 30, 1995.. -- 1,000 -- 1,216,000 (679,000) (287,000) (882,000) 3,936,000 3,305,000
FISCAL YEAR 1996:
Conversion of Class
A and B Common
Stock............... 1,000 (1,000) -- -- -- -- -- -- --
Sales of Common
Stock............... -- -- -- 41,816,000 -- -- -- -- 41,816,000
Repurchase of
Common Stock........ -- -- -- (40,000) 446,000 -- -- (437,000) (31,000)
Net income........... -- -- -- -- -- -- -- 10,118,000 10,118,000
Amortization of
deferred
compensation........ -- -- -- -- -- 80,000 -- -- 80,000
Foreign currency
adjustments......... -- -- -- -- -- -- 129,000 -- 129,000
Collections on
notes receivable
from stockholders... -- -- -- -- 89,000 -- -- -- 89,000
------ ------- ----- ----------- --------- --------- --------- ----------- -----------
Balance,
September 30, 1996.. $1,000 $ -- $ -- $42,992,000 $(144,000) $(207,000) $(753,000) $13,617,000 $55,506,000
====== ======= ===== =========== ========= ========= ========= =========== ===========
- -------
* Par value amounts round to less than one thousand dollars.
The accompanying notes are an integral part of these consolidated financial
statements.
34
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1994 1995 1996
---------- ----------- ------------
Cash flows--operating
activities:
Net income (loss)................................ $ (443,000) $ 6,480,000 $ 10,118,000
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization.................. 1,669,000 2,146,000 3,187,000
Deferred facilities rent charges............... (243,000) (481,000) (358,000)
Amortization of deferred compensation.......... -- 34,000 80,000
Unrealized foreign exchange (gains) losses..... (132,000) (77,000) 154,000
Change in net assets and liabilities:
Trade accounts receivable..................... (537,000) (2,195,000) (4,120,000)
Prepaid marketing expenses.................... 174,000 (335,000) (387,000)
Prepaid expenses and other.................... (335,000) (692,000) (408,000)
Income taxes.................................. 130,000 960,000 1,270,000
Trade accounts payable........................ 712,000 1,155,000 3,797,000
Deferred revenue.............................. 2,500,000 3,378,000 5,352,000
Accrued payroll, benefits and related taxes... 71,000 1,025,000 (528,000)
Other accrued liabilities..................... 15,000 (21,000) 2,021,000
---------- ----------- ------------
Net cash provided by operating activities...... 3,581,000 11,377,000 20,178,000
---------- ----------- ------------
Cash flows--investing activities:
Purchases of equipment, property and leasehold
improvements.................................... (2,023,000) (3,629,000) (9,169,000)
Retirements of equipment......................... 86,000 81,000 56,000
Purchases of short-term interest-bearing
investments:
Investments held to maturity................... -- -- (12,500,000)
Investments held for sale...................... -- -- (24,500,000)
Other, net....................................... (45,000) 62,000 (1,159,000)
---------- ----------- ------------
Net cash used in investing activities.............. (1,982,000) (3,486,000) (47,272,000)
---------- ----------- ------------
Cash flows--financing activities:
Principal payments of debt and capital leases.... (697,000) (799,000) (185,000)
Proceeds from additional debt.................... 321,000 255,000 --
Sales of Common Stock............................ 4,000 42,000 41,816,000
Repurchase of Common Stock....................... (339,000) (196,000) (31,000)
Collections of stockholder notes................. 34,000 32,000 71,000
---------- ----------- ------------
Net cash provided by (used in) financing
activities..................................... (677,000) (666,000) 41,671,000
---------- ----------- ------------
Effects of exchange rates on cash.................. 82,000 30,000 (65,000)
---------- ----------- ------------
Net increase in cash and cash equivalents.......... 1,004,000 7,255,000 14,512,000
Cash and cash equivalents at the beginning of the
period............................................ 1,770,000 2,774,000 10,029,000
---------- ----------- ------------
Cash and cash equivalents at the end of the period. $2,774,000 $10,029,000 $ 24,541,000
========== =========== ============
Supplemental disclosures:
Income taxes paid................................ $ -- $ 1,036,000 $ 2,960,000
========== =========== ============
Interest paid.................................... $ 112,000 $ 119,000 $ 44,000
========== =========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
35
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Nature of the Business:
Learning Tree International, Inc. and subsidiaries (the "Company")
develop, publish and deliver advanced technology training courses covering a
broad range of topics which are designed to meet the training needs of
information technology ("IT") professionals worldwide. These courses are
delivered primarily at the Company's leased Education Centers located in the
United States, England, Canada, France and Sweden. Such course events are
also conducted in hotel and conference facilities, and at customer sites
throughout the world. The Company provides courses that are regularly
presented worldwide and cover such IT topics as client/server systems,
Internet/intranet technologies, computer networks, operating systems,
database systems, programming languages, graphical user interfaces, object-
oriented technology, IT management and related topics. In addition to its
instructor-led courses, the Company has recently developed and is expanding
a line of multimedia CBT versions of its courses designed for both stand-
alone CD-ROM and network-based delivery.
b. Reincorporation:
In September 1995, the Company reincorporated in Delaware. Since
reincorporating, the Company's authorized capital stock has consisted of
25,000,000 shares of Common Stock, $.0001 par value and 10,000,000 shares of
preferred stock, $.0001 par value ("Preferred Stock"). No shares of
Preferred Stock have been issued nor have the terms, conditions or
preferences for such Preferred Stock been established.
c. Stock Split:
On October 5, 1995, the Company effected a 3.66 for 1 split of the
Company's Class A and Class B Common Stock. All share and per share amounts
in the accompanying financial statements and footnotes have been
retroactively restated to reflect the stock split.
d. Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of
Learning Tree International, Inc. and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Minority
interests in certain subsidiaries are not significant. Following is a
summary of the subsidiaries of the Company:
Learning Tree International USA, Inc. (U.S.)
Learning Tree International, K.K. (Japan)
Learning Tree International Ltd. (United Kingdom)
Learning Tree International S.A. (France)
Learning Tree International AB (Sweden)
Learning Tree Publishing AB (Sweden)
Learning Tree International Inc. (Canada)
Advanced Technology Marketing, Inc. (U.S.)
Systems for Business and Industry, Inc. (U.S.)
Technology for Business and Industry, Inc. (U.S.)
36
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
e. Revenue Recognition - Instructor-Led Courses:
The Company's revenues are received from corporate and governmental
agencies for the training of their employees. Course events range from two
to five days with an average of approximately four days. For individual
course enrollments, the Company recognizes revenues and the related direct
costs of course events upon commencement of each course event which, for
each period presented, approximates the amount recognized on a straight-line
basis over the duration of the course.
The Company offers a sales discount program referred to as the Passport
Program. The Passport Program allows an individual passport holder to attend
up to a maximum of eight courses (ten in the United Kingdom and France) held
by the Company over a one year period for a fixed price. Under the Passport
Program, the amount of revenue recognized for each attendance in one of the
Company's courses is based upon the selling price of the Passport and the
estimated average number of courses passport holders will actually attend.
Upon expiration of a Passport, the Company records the differences, if any,
between the revenues previously recognized and the Passport selling price.
The estimated attendance rate is based upon the historical experience of the
average actual number of course events Passport holders have been attending.
The average of the actual attendance rate for all expired Passports has
closely approximated the estimated rate utilized by the Company. If the
Passport attendance rate changes, based upon this historical data, the
Company adjusts the revenue recognition rate for all active Passports and
for all Passports sold thereafter. Although the Company has seen no material
changes in the historical rates as its number of course titles has
increased, it monitors such potential effects. In general, determining the
estimated average number of course events that will be attended by a
Passport holder is based on historical trends that may not continue in the
future. These estimates could differ in the near term from amounts used in
arriving at the reported revenue.
f. Revenue Recognition - Multimedia CBT Courses:
The Company derives its revenues from its multimedia computer based
training ("CBT") products under license agreements under which customers
license the usage of products for periods of one, two or three years. On
each anniversary date during the term of multi-year license agreements,
customers are allowed to exchange any or all of the licensed course titles
for an equal number of new course titles. The first year license fee is
generally recognized as revenue at the time of delivery, provided there are
no significant vendor obligations remaining. Subsequent annual license fees
are recognized on each anniversary date, provided there are no significant
vendor obligations remaining. If significant vendor obligations exist at the
time of delivery, revenue is deferred and recognized ratably over the term
of the license agreement. The cost of satisfying any insignificant vendor
obligations is accrued at the time revenue is recognized. Unearned license
revenues are recorded as deferred revenues in the consolidated financial
statements.
g. Deferred Revenues:
Deferred revenues primarily relate to unearned revenues associated with
the Passport Program, refundable advance payments received from customers
for course events to be held in the future and unearned revenues associated
with multi-year license agreements for multimedia CBT courses.
37
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
h. Prepaid Marketing Expenses:
Prepaid marketing expenses primarily include the outside costs associated
with the design, printing, postage and handling of direct mail advertising
materials to be mailed in the future. These costs are expensed in the month
in which the advertising materials are mailed since the benefit period for
such costs is short and the amount of such future benefit is not practically
measurable. Marketing expenses for the years ended September 30, 1994, 1995
and 1996 were $13,935,000, $14,850,000 and $21,612,000, respectively.
i. Course Development Costs:
Instructor-led IT training course development costs are charged to
operations in the period incurred. Multimedia CBT development costs are
accounted for in accordance with Statement of Financial Accounting Standards
No. 86 (SFAS No. 86) "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed". SFAS No. 86 requires capitalization of
certain software development costs upon the establishment of technological
feasibility. Based on the Company's multimedia CBT product development
process, technological feasibility is established upon the completion of a
working model or a detail course design. For the fiscal years ended
September 30, 1995 and 1996, $234,000 and $723,000 of multimedia CBT product
development costs, respectively, were charged to course development expense
in the accompanying consolidated statements of operations. No significant
development costs had been capitalized as of September 30, 1995 and
approximately $1,202,000 had been capitalized as of September 30, 1996.
Capitalized multimedia CBT product development costs are amortized on a
product-by-product basis at the greater of the amount computed using (a) the
ratio of current revenues for a product to the total of current and
anticipated future revenues or (b) the straight-line method over the
estimated economic life of the product which is 24 months.
j. Foreign Currency:
The Company translates the financial statements of its foreign
subsidiaries from the local (functional) currencies to United States dollars
in accordance with SFAS No. 52. The rates of exchange at each fiscal year
end are used for translating the balance sheets and the average monthly
rates of exchange for each year are used for the statements of operations.
Gains or losses arising from the translation of the foreign subsidiaries'
financial statements are included in the accompanying consolidated balance
sheets as a separate component of stockholders' equity. Gains or losses
resulting from foreign currency transactions are included in the
consolidated statements of operations.
To date, the Company has not sought to hedge the risk associated with
fluctuations in currency exchange rates, and therefore continues to be
subject to such risk.
k. Equipment, Property and Leasehold Improvements:
Equipment, property and leasehold improvements are recorded at cost and
depreciated or amortized using the straight-line method over the following
useful lives:
Education and office equipment.............. 3 to 5 years
Transportation equipment.................... 4 years
Leasehold improvements...................... 10 years or the life of the
lease, if shorter
Property.................................... 30 years
38
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Costs of normal maintenance and repairs and minor replacements are charged
to expense as incurred. The costs of assets sold or retired are eliminated
from the accounts along with the related accumulated depreciation or
amortization and any resulting gain or loss is included in income.
Capitalized equipment leases are recorded at the lower of the present value
of the minimum lease payments or the fair market value of the equipment at
the beginning of the lease term.
l. Facilities Leases:
The Company leases its facilities under various operating lease agreements.
Certain provisions of these leases provide for cash incentives, graduated
rent payments and other inducements. The Company recognizes rent expense on
a straight-line basis which more closely reflects the benefits received. The
value of any lease incentives or inducements, along with the excess of rent
expense recognized over rentals paid is recorded as deferred facilities rent
charges in the accompanying consolidated financial statements.
m. Computation of Net Income (Loss) per Common Share and Common Equivalent
Share:
Net income (loss) per common share and common equivalent share is computed
using the weighted average number of shares of Common Stock outstanding
during the period after giving retroactive effect to the 3.66 to 1 stock
split that occurred in October 1995. The weighted average number of common
and common equivalent shares outstanding was computed pursuant to the rules
of the Securities and Exchange Commission. For calculating net income (loss)
per common share and common equivalent share for fiscal 1994 and 1995, such
rules require that common stock and common stock equivalents issued by the
Company during the twelve months preceding the Company's initial public
offering at prices below the initial public offering price (436,000 shares)
be included in the calculation of the shares outstanding for all periods
presented, using the treasury stock method.
n. Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. PREPAID EXPENSES AND OTHER:
Prepaid expenses and other current assets at September 30, 1995 and 1996
consist of the following:
SEPTEMBER 30,
----------------------
1995 1996
---------- ----------
Prepaid rent...................... $ 494,000 $ 363,000
Prepaid stock offering expenses... 369,000 --
GST and VAT on advance billings... 322,000 695,000
Miscellaneous receivables......... 162,000 213,000
Supplier deposits................. 54,000 32,000
Interest receivable............... 9,000 223,000
Other............................. 567,000 807,000
---------- ----------
$1,977,000 $2,333,000
========== ==========
39
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INCOME TAXES:
The Company files a consolidated U.S. Federal income tax return which
includes substantially all of its domestic operations. The Company files
separate tax returns for each of its foreign subsidiaries in the countries
in which they reside.
Income (loss) before provision (credit) for income taxes consists of the
following:
SEPTEMBER 30,
-------------------------------------
1994 1995 1996
--------- ---------- -----------
Domestic... $ 164,000 $3,645,000 $ 4,577,000
Foreign.... (517,000) 4,701,000 9,574,000
--------- ---------- -----------
Total.... $(353,000) $8,346,000 $14,151,000
========= ========== ===========
For the years ended September 30, 1994, 1995 and 1996, the provision
(credit) for income taxes was comprised of the following:
SEPTEMBER 30,
-------------------------------------
1994 1995 1996
--------- ---------- ----------
Current tax provision:
U.S. Federal..................... $ 15,000 $ 732,000 $1,167,000
State............................ 3,000 208,000 247,000
Foreign.......................... 259,000 1,063,000 2,420,000
--------- ---------- ----------
277,000 2,003,000 3,834,000
--------- ---------- ----------
Deferred tax provision:
U.S. Federal..................... (192,000) (181,000) 153,000
State............................ 15,000 20,000 9,000
Foreign.......................... (10,000) 24,000 37,000
--------- ---------- ----------
(187,000) (137,000) 199,000
--------- ---------- ----------
Total provision for income taxes... $ 90,000 $1,866,000 $4,033,000
========= ========== ==========
The following is a reconciliation of the provision (credit) for income
taxes and the credit for income taxes computed by applying the U.S. Federal
statutory rate to the income (loss) before taxes:
SEPTEMBER 30,
-------------------------------------
1994 1995 1996
---------- ---------- ----------
Income taxes at the statutory rate..... $(120,000) $2,837,000 $4,811,000
Permanent differences.................. (142,000) (88,000) (192,000)
Change in valuation allowance.......... 236,000 (923,000) (577,000)
Effect of current and foreign losses... 103,000 (23,000) (131,000)
Use of foreign tax credits............. -- (133,000) (42,000)
State income taxes..................... 3,000 208,000 164,000
Other, net............................. 10,000 (12,000) --
--------- ---------- ----------
Total provision for income taxes....... $ 90,000 $1,866,000 $4,033,000
========= ========== ==========
40
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes," deferred income tax assets and liabilities arise from
carryforwards and from temporary differences between the tax basis of assets and
liabilities and the book basis of such assets and liabilities as reported in the
financial statements. Valuation allowances were provided with respect to certain
deferred tax assets as of September 30, 1995 and 1996, to reduce the deferred
tax asset to a level which, more likely than not, will be realized. The net
deferred tax asset reflects management's estimates of the amount which will be
realized from the future profitability which can be predicted with reasonable
certainty.
The following is a summary of the tax effect of carryforwards and temporary
differences which give rise to deferred tax assets and liabilities:
SEPTEMBER 30,
-------------------------
1995 1996
------------ ----------
Domestic operations:
Deferred tax assets:
Deferred facilities rent charges... $ 524,000 $ 430,000
Foreign tax credit carryforwards... 434,000 353,000
Other.............................. 94,000 147,000
Deferred tax liabilities:
Depreciation and amortization...... (158,000) (246,000)
Other.............................. (16,000) (17,000)
----------- ---------
Net domestic deferred tax assets... 878,000 667,000
----------- ---------
Foreign operations:
Deferred tax assets:
Tax loss carryforwards............. 528,000 --
Depreciation and other............. 78,000 41,000
----------- ---------
Net foreign deferred tax assets.... 606,000 41,000
----------- ---------
Valuation allowances................... (1,006,000) (429,000)
----------- ---------
Net deferred tax assets................ $ 478,000 $ 279,000
=========== =========
At September 30, 1996, the Company had approximately $353,000 of foreign
tax credit carryforwards available to offset taxes in future years. The foreign
tax credit carryforwards expire in 2001.
4. DEBT AND CAPITAL LEASES:
The following is a summary of obligations under debt and capital leases as of
September 30, 1995 and 1996, respectively:
SEPTEMBER 30,
-------------------------
1995 1996
--------- ---------
Notes payable to former employees with
various maturities through 2001 bearing
interest at 5 to 8 percent (See note 6)..... $ 310,000 $ 170,000
Capital lease obligations, due through 1998.. 153,000 89,000
--------- ---------
463,000 259,000
Less--current portion........................ (191,000) (125,000)
--------- ---------
$ 272,000 $ 134,000
========= =========
41
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Certain of the Company's foreign subsidiaries have established lines of
credit with local banks. The aggregate amount available under these
facilities as of September 30, 1996, was $463,000. At September 30, 1996,
there were no borrowings against these lines. Interest on borrowings under
these facilities would be payable monthly at variable rates which were 9.55
percent in France and 8.95 percent in Sweden as of September 30, 1996.
The annual aggregate scheduled maturities of debt obligations for the five
fiscal years subsequent to September 30, 1996 are presented below:
1997.............................................. $ 56,000
1998.............................................. 51,000
1999.............................................. 26,000
2000.............................................. 24,000
2001.............................................. 13,000
--------
$170,000
========
The Company leases certain equipment costing approximately $339,000 under
capital lease agreements. The following summarizes the future minimum lease
payments under capitalized leases together with the present value of the
future minimum lease payments:
1997.............................................. $74,000
1998.............................................. 18,000
-------
92,000
Less--amount representing interest................ (3,000)
-------
$89,000
=======
5. COMMITMENTS:
The Company leases its facilities and certain equipment under various
operating lease agreements. The minimum future rental payments for all
operating leases are as follows:
1997.............................................. $ 3,897,000
1998.............................................. 3,839,000
1999.............................................. 3,678,000
2000.............................................. 3,455,000
2001.............................................. 3,098,000
Thereafter........................................ 6,175,000
-----------
$24,142,000
===========
For the years ended September 30, 1994, 1995 and 1996, rent expense was
$4,547,000, $3,486,000 and $3,985,000, respectively. The agreements
generally require the payment of property taxes, insurance and maintenance
in addition to the minimum base rent.
6. COMMON STOCK:
Stock Sold to Employees--
Prior to December 6, 1995, the Company's Common Stock was divided into two
classes: Class A Voting Common Stock (Class A Stock) and Class B Non-Voting
Common Stock (Class B Stock). During fiscal years 1994 and 1995, the Company
sold approximately 81,000 shares and 736,000 shares of Class B Stock,
respectively, to certain employees. The purchase price of these shares was
determined based on the
42
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
formula as defined in the stock purchase agreements. Proceeds from the sales
of these shares of Class B Stock included cash and full recourse notes.
Effective as of the closing of the initial public offering on December 6,
1995, each outstanding share of Class B Stock was converted into one fully
paid and non-assessable share of Class A Stock. Thereafter, the Common Stock
ceased being divided into series and has since consisted of a single class.
There were 1,417,000 shares of Class B Stock outstanding at September 30,
1995.
As of September 30, 1996, approximately 414,000 shares of the Common Stock
sold in fiscal 1995 are subject to repurchase options. The repurchase option
terms stipulate that the Company, at its sole option, may repurchase these
shares from the stockholder in the event the stockholder leaves the
employment of the Company for any reason. The Company can repurchase the
shares at an amount equal to the initial issue price plus seven percent per
annum. These repurchase options expire over a four-year period at a rate of
25 percent per year.
The Company recorded deferred compensation of $321,000, which represented
the excess of the appraised value of $1.40 per share in January 1995 and
$1.90 per share in June 1995 (as determined by an independent appraisal)
over the initial issue price of $.94 per share of 436,000 shares of the
Class B Stock sold to certain employees during fiscal 1995. In management's
view, the initial public offering price per share was significantly higher
than the appraised value of the stock in January 1995 and June 1995 due to:
(i) the Company's increased earnings subsequent to the valuation dates, (ii)
the higher multiples of comparable companies in the market as compared with
the multiples prevailing at the valuation dates, (iii) the perceived value
of the Company's recent efforts in the CBT market, and (iv) a market
discount included in the appraised value to reflect the lack of
marketability, transferability and voting rights of the Class B Stock. The
deferred compensation is reflected as a reduction of stockholders' equity in
the accompanying financial statements and is being amortized as additional
compensation expense over the four-year term of the repurchase options.
During the fiscal years ended September 30, 1995 and 1996, the Company
recorded $34,000 and $80,000 of additional compensation expense relating the
amortization of the deferred compensation, respectively.
During the fiscal years ended September 30, 1994 and 1995, the Company
repurchased 498,000 shares and 153,000 shares of Class B Stock,
respectively, under the terms of the repurchase agreements. The aggregate
repurchase prices of these shares were $432,000 and $219,000 in fiscal 1994
and 1995, respectively. The settlement of these stock repurchases was
completed through the cancellation of notes receivable from the selling
stockholders, cash payments and the issuance of notes payable by the Company
of $321,000 and $195,000 during fiscal 1994 and 1995, respectively. (See
Note 4.)
In March 1996, the Company repurchased 26,393 shares of Common Stock from
employees for the cancellation of notes receivable from such stockholders in
the amount of $446,000. In addition, during March 1996, notes receivable
from stockholders in the amount of $19,000 were offset against the
equivalent amount of notes payable to such stockholders. In June 1996, the
Company repurchased 32,889 shares from a former employee for $31,000 in cash
under the terms of a repurchase agreement.
43
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Initial Public Offering--
In December 1995, 3,000,000 shares of the Company's Common Stock were sold
in an initial public offering, of which 2,500,000 shares were sold by the
Company and 500,000 shares were sold by certain stockholders of the Company.
The Company did not receive any proceeds from the sale of shares by its
stockholders. In January 1996, an additional 450,000 shares of Common Stock
were sold by the Company pursuant to a purchase option granted to the
underwriters at the time of the initial public offering to cover over
allotments. The Company received proceeds of approximately $30.8 million,
net of expenses of approximately $4.6 million, from its sale of shares in
the initial public offering.
Secondary Public Offering--
In September 1996, the Company completed a secondary public offering
whereby 2,599,000 shares of its Common Stock were sold to the public. The
Company sold 400,000 shares and 2,199,000 shares were sold by certain
stockholders of the Company. The Company did not receive any of the proceeds
from the sale of shares by its stockholders. The Company received
approximately $11.0 million from its sale of shares in the secondary public
offering after deducting underwriters' commissions and its share of other
stock issuance costs which aggregated approximately $1.0 million.
Stock Options--
During the fiscal years ended September 30, 1989 and September 30, 1994,
the Company entered into agreements with certain employees to sell an
aggregate of 300,000 shares of Class B common stock at the contractual
formula value (estimated fair market value) ranging from $0.28 to $0.94 per
share. During fiscal 1995, all of these options were exercised and the
shares were issued.
1995 Stock Option Plan--
In October 1995, the Company and its stockholders adopted the 1995 Stock
Option Plan (the "Stock Option Plan"), which provides for the issuance of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code and non-qualified stock options to purchase an aggregate of up
to 1,500,000 shares of the Common Stock of the Company. The Stock Option
Plan permits the grant of options to officers, employees and directors of
the Company. The exercise price of incentive stock options granted will be
greater than or equal to the fair market value of the Common Stock at the
date of grant and the maximum term of the options may not exceed ten years.
The vesting schedule and the period required for full exercisability of the
stock options are at the discretion of the Board of Directors but in no
event can it be less than six months. As of September 30, 1996, no options
had been granted under the Stock Option Plan.
On October 1, 1996, non-qualified options for approximately 436,000 shares
were granted under the Stock Option Plan to substantially all employees with
at least one year of service with the Company. The exercise price of options
granted was equal to the fair market value of the Common Stock at the date
of grant and the terms of the options are five years. The options are
subject to a four year vesting schedule at 25 percent per year on each
anniversary date.
44
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLAN:
The Company has adopted a defined contribution plan for the benefit of its
domestic employees who have met the eligibility requirements. The Learning
Tree International, Inc. Profit-Sharing and Deferred Savings Plan (the Plan)
is a profit-sharing plan qualifying under Section 401(k) of the Internal
Revenue Code.
Qualified employees may elect to contribute up to 15 percent of their
compensation to the Plan on a pre-tax basis, subject to statutory
limitations. The Company makes matching contributions at a rate of 25
percent of elective contributions up to one and one-half percent of the
compensation of such contributors. Additionally, the Company makes qualified
nonelective contributions to the Plan on an annual basis. The qualified
nonelective contributions are equivalent to one and one-half percent of the
annual compensation of the qualified participants. The Company contributed
$149,000, $129,000 and $225,000 to the Plan for the fiscal years ended
September 30, 1994, 1995 and 1996, respectively.
As of October 1, 1996, the Plan was amended such that the Company will
match contributions at a rate of 75 percent of elective contributions up to
four and one-half percent of the compensation of such contributors. However,
the annual qualified nonelective contributions to the Plan have been
eliminated.
The Company has adopted similar plans for the benefit of its employees in
certain of its foreign subsidiaries. Contributions to these plans are
subject to various age, length of service and compensation level criteria as
well as certain limitations. For the fiscal years ended September 30, 1994,
1995 and 1996, the cost to the Company of these plans was approximately
$81,000, $110,000 and $162,000, respectively.
8. BUSINESS SEGMENT DATA:
The Company's sole business segment is the design and delivery of IT
education courses. There were no sales to any individual customers that
accounted for 10% or more of revenue in fiscal 1994, 1995 or 1996.
45
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information about the Company's operations in different geographic locations
for the years ended September 30, 1994, 1995 and 1996 is as follows:
FISCAL YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1994 1995 1996
----------- ----------- ------------
Revenues:
United States......................................... $24,977,000 $35,390,000 $ 49,790,000
Canada................................................ 5,309,000 6,102,000 7,748,000
Europe................................................ 26,876,000 35,637,000 43,746,000
Asia.................................................. 1,304,000 1,689,000 2,291,000
----------- ----------- ------------
Consolidated revenues.................................. $58,466,000 $78,818,000 $103,575,000
=========== =========== ============
Income (loss) from operations:
United States......................................... $ 104,000 $ 3,375,000 $ 3,173,000
Canada................................................ (853,000) 342,000 958,000
Europe................................................ 95,000 4,056,000 7,636,000
Asia.................................................. 289,000 301,000 586,000
----------- ----------- ------------
Consolidated income (loss) from operations.......... $ (365,000) $ 8,074,000 $ 12,353,000
=========== =========== ============
Identifiable assets:
United States......................................... $ 7,795,000 $14,657,000 $ 69,568,000
Canada................................................ 1,153,000 1,189,000 2,634,000
Europe................................................ 7,190,000 12,428,000 18,916,000
Asia.................................................. 168,000 153,000 411,000
----------- ----------- ------------
Consolidated assets.................................... $16,306,000 $28,427,000 $ 91,529,000
=========== =========== ============
9. VALUATION AND QUALIFYING ACCOUNTS:
For the years ended September 30, 1994, 1995 and 1996, activity with
respect to the Company's allowance for doubtful accounts receivable is
summarized as follows:
SEPTEMBER 30,
---------------------------------
1994 1995 1996
-------- --------- ----------
Beginning balance.................................... $139,000 $197,000 $ 259,000
Charged to expense................................... 58,000 107,000 101,000
Amounts written off.................................. -- (45,000) (106,000)
-------- -------- ---------
Ending balance....................................... $197,000 $259,000 $ 254,000
======== ======== =========
10. CASH, CASH EQUIVALENTS AND SHORT-TERM INTEREST-BEARING INVESTMENTS:
Cash Equivalents--
The Company considers highly liquid investments with original maturities of 90
days or less to be cash equivalents.
Short-Term Interest-Bearing Investments--
Investments held to maturity mature between one and twelve months. Investments
held for sale mature after ten years but are subject to put options, at par
value, every 28 days. Cost approximates market value for all classifications of
cash and short-term interest-bearing investments. There were no material
realized or unrealized gains or losses on such investments.
46
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Following is a summary of short-term interest-bearing investments as of
September 30, 1996:
Investments held to maturity:
Commercial paper................................. $12,620,000
U.S. government agency debt...................... 5,000,000
-----------
17,620,000
Less cash equivalents............................ 5,120,000
-----------
Total held to maturity........................... $12,500,000
Investments held for sale:
State and local government debt................. 24,500,000
-----------
Total interest-bearing investments............... $37,000,000
===========
Cash Flow Information--
The Company purchased Class B Stock from employees for cancellation of notes
receivable of $93,000, $23,000 and $446,000 for the years ended September 30,
1994, 1995 and 1996, respectively. In addition, during March 1996, notes
receivable from stockholders in the amount of $19,000 were offset against the
equivalent amount of notes payable to such stockholders. The Company sold Class
B Stock to employees and received promissory notes of $48,000 and $579,000 as
partial consideration therefor during the fiscal years ended September 30, 1994
and 1995, respectively.
11. RELATED PARTY TRANSACTIONS:
Consulting Agreements--
In January 1995, the Company and M. Kane & Company, Inc. ("MKC") entered into
an agreement pursuant to which MKC agreed to provide financial advice and
assistance. In consideration for such services, MKC received 1.875% of the gross
proceeds of the initial public offering. This agreement terminated upon the
settlement date of the initial public offering. The president of MKC is a
Director of the Company.
In July 1996, the Company and MKC entered into a second agreement pursuant to
which MKC agreed to provide financial advice and assistance. As consideration
for such services, MKC received 1.805% of the gross proceeds of the secondary
public offering. In addition, MKC received approximately $5,000 for
reimbursement of nonaccountable expenses. This agreement terminated at the
completion of the secondary public offering.
Employment Agreements--
In October 1995, the Company entered into employment agreements with the Chief
Executive Officer and President of the Company, each for a minimum period of
three years, which may be extended for additional periods of three years at the
option of the officer involved.
47
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides biographical information regarding the
directors and executive officers of the Company as of September 30, 1996.
All other information regarding directors and executive officers of the
Company required by this item is incorporated by reference to the section
entitled "Executive Officers of the Registrant" of the Company's definitive
Proxy Statement to be delivered to shareholders in connection with the 1996
Annual Meeting of Shareholders.
NAME AGE TITLE
---- --- -----
David C. Collins(1)...... 55 Chairman of the Board of Directors and Chief
Executive Officer
Eric R. Garen............ 49 President and Director
Max S. Shevitz........... 41 Executive Vice President and Director
Gary R. Wright........... 39 Vice President, Finance, Chief Financial
Officer and Secretary
Mary C. Adams............ 40 Vice President, Administration, Investor
Relations and Assistant Secretary
W. Mathew Juechter(1)......63 Director
Michael W. Kane(1)....... 45 Director
Alan B. Salisbury........ 59 Director and President and General Manager,
Learning Tree International USA, Inc.
--------
(1)Member of the Audit Committee and the Compensation Committee.
Dr. Collins, a co-founder of the Company, has been Chairman of the Board
and Chief Executive Officer since the Company's business began in 1974
(under the name Integrated Computer Systems Publishing Co., Inc.). Dr.
Collins has a Bachelor of Science degree (with distinction) in Electrical
Engineering from Stanford University, and Masters and Ph.D. degrees in
Electrical Engineering from the University of Southern California.
Mr. Garen, a co-founder of the Company, has served first as Executive Vice
President and then as President of the Company since the Company's business
began in 1974. Mr. Garen holds a Bachelors degree in Electrical Engineering
from the California Institute of Technology and a Masters degree in Computer
Science from the University of Southern California, both with honors.
Mr. Shevitz has been Executive Vice President of the Company since July
1994, and was General Manager of Learning Tree International U.S.A., Inc., a
subsidiary of the Company, from September 1988 to December 1993. From
January to July 1994, Mr. Shevitz was Executive Vice President at Sigma
International, Inc., a customer service training company. From 1986 to 1988,
Mr. Shevitz was the founder and President of MD Technology, Inc., a medical
diagnostic equipment company.
Mr. Wright has been Vice President, Finance and Chief Financial Officer of
the Company since January 1995, and from January 1990 to that time he was
Corporate Controller of the Company. From April 1983 to January 1990, Mr.
Wright was employed by The Flying Tiger Line Inc. and its parent company,
Tiger International, Inc., a publicly-held transportation company, where he
held a variety of financial executive positions, including Assistant
Controller and Director of Financial Reporting. Prior to April 1983, Mr.
Wright worked at the public accounting firm of Arthur Andersen LLP. Mr.
Wright is a certified public accountant.
48
Ms. Adams has served as Vice President, Administration since September
1995. She began her association with the Company in September 1975 and has
held a variety of positions in the Company. Ms. Adams is also the President
of Advanced Technology Marketing, Inc., a wholly-owned subsidiary of the
Company, and manages the Company's Investor Relations Department.
Mr. Juechter has been a director of the Company since June 1987. Since
1991, he has been the Chief Executive Officer of ARC International Ltd., a
management consulting and training company. From 1986 to 1991, Mr. Juechter
was Managing Director of IRA, Inc. in St. Paul, Minnesota, a management
consulting company. Mr. Juechter was President and Chief Executive Officer
of Wilson Learning Corp., a multi-national training organization, from 1977
to 1986. From 1989 to 1995, Mr. Juechter served as President of the Board of
Governors of the American Society for Training and Development (ASTD).
Dr. Kane has served as a director of the Company since February 1995.
Since 1991, he has been President and Chief Executive Officer of M. Kane &
Company, Inc., an investment banking firm focusing primarily on technology
companies. From 1987 to 1988, he was an investment banker with L.F.
Rothschild & Co., Inc. and from 1988 to 1991 was an investment banker with
Oppenheimer & Co., Inc. From 1984 to 1987, he practiced primarily corporate
and securities law with the law firm of Irell & Manella (corporate counsel
to the Company), and prior to that he was a Project Leader in the Systems
Sciences Department of The Rand Corporation and was an independent
consultant to the satellite telecommunications industry. Dr. Kane has a
Bachelor of Arts degree in Political Science from the University of
Wisconsin--Madison and a Master's degree in International Relations, a Ph.D.
degree in Political Science and a J.D. degree from the University of
California, Los Angeles.
Dr. Salisbury has been President and General Manager of Learning Tree
International (USA), the Company's operating subsidiary in the United
States, since April 1993. From 1991 until he joined the Company in 1993, Dr.
Salisbury was Chief Operating Officer of Microelectronics and Computer
Technology Corporation (MCC), an organization involved in the research and
development of IT products located in Austin, Texas; and from 1987 to 1991,
he was President of the Contel Technology Center, the research and
development group of an independent telephone company located in Chantilly,
Virginia. Dr. Salisbury is a director of Sybase, Inc., a database software
developer and Telepad Corporation, a computer manufacturer. The author of
numerous books and articles related to information technology and training,
Dr. Salisbury served in the United States Army from 1958 to 1987, when he
retired as Commanding General of the U.S. Army Information Systems
Engineering Command. He holds a Bachelor of Science degree (with
distinction) from the U.S. Military Academy, and Masters and Ph.D. degrees
in Electrical Engineering and Computer Science from Stanford University.
David C. Collins and Mary C. Adams are married. There are no other family
relationships among any of the directors or executive officers of the
Company.
Item 11. EXECUTIVE COMPENSATION
The information regarding compensation of executive officers of the
Company required by this item is incorporated by reference to the section
entitled "Executive Compensation" of the Company's definitive Proxy
Statement to be delivered to shareholders in connection with the 1996 Annual
Meeting of Shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding the security ownership of certain beneficial
owners and management required by this item is incorporated by reference to
the section
49
entitled "Security Ownership of Certain Beneficial Owners and Management" of the
Company's definitive Proxy Statement to be delivered to shareholders in
connection with the 1996 Annual Meeting of Shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions
required by this item is incorporated by reference to the section entitled
"Certain Transactions" of the Company's definitive Proxy Statement to be
delivered to shareholders in connection with the 1996 Annual Meeting of
Shareholders.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
The financial statements of Learning Tree International, Inc. as set forth
under item 8 are filed as part of this report.
All Schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are omitted because
such schedules are not required under the related instructions, are not
applicable or the required information is given in the financial
statements.
(b) Reports on Form 8-K
There were no reports on Form 8-K during the three month period ended
September 30, 1996.
(c) Exhibit index
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Registrant*
3.2 By-Laws of the Registrant*
4.1 Specimen of Common Stock Certificate**
10.1 Employment Agreement dated as of October 1, 1995 between Learning
Tree International, Inc. and Dr. David C. Collins**
10.2 Employment Agreement dated as of October 1, 1995 between Learning
Tree International, Inc. and Eric R. Garen**
10.3 Employment Agreement dated as of April 19, 1993 between Learning
Tree International (USA), Inc. and Alan B Salisbury*
10.4 Employment Agreement dated as of February 1978, as amended, between
Learning Tree International, Inc. and Mary C. Adams**
10.5 Employment Agreement dated as of July 18,1994, as amended, between
Learning Tree International, Inc. and Max S. Shevitz*
10.6 Employment Agreement dated as of January 8, 1990, as amended,
between Learning Tree International, Inc. and Gary R. Wright**
10.7 Form of Training Advantage Agreement*
10.8 1995 Stock Option Plan dated as of September 29, 1995**
21.1 Subsidiaries of the Registrant***
27.1 Financial Data Schedule
- --------
* Previously filed on October 6, 1995.
** Previously filed on November 13, 1995.
*** Previously filed on December 1, 1995.
50
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, THE REGISTRANT, LEARNING TREE INTERNATIONAL, INC., A
CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, HAS
DULY CAUSED THIS ANNUAL REPORT ON FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF
CALIFORNIA, ON THE 2ND DAY OF DECEMBER, 1996.
Learning Tree International, Inc.
By: /s/ David C. Collins, Ph.D.
___________________________________
Name: David C. Collins, Ph.D.
Title: Chairman of the Board of
Directors and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS ANNUAL REPORT ON FORM 10-K HAS BEEN SIGNED BY THE FOLLOWING
PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES
INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ David C. Collins, Ph.D. Chairman of the Board December 2,
- ----------------------------------- and Chief Executive 1996
DAVID C. COLLINS, PH.D. Officer (principal
executive officer)
/s/ Eric R. Garen President and Director December 2,
- ----------------------------------- 1996
ERIC R. GAREN
/s/ Max S. Shevitz Executive Vice December 2,
- ----------------------------------- President and Director 1996
MAX S. SHEVITZ
/s/ Gary R. Wright Vice President, December 2,
- ----------------------------------- Finance, Chief 1996
GARY R. WRIGHT Financial Officer and
Secretary (principal
financial officer and
principal accounting
officer)
Director December ,
- ----------------------------------- 1996
W. MATHEW JUECHTER
/s/ Alan B. Salisbury, Ph.D. Director December 2,
- ----------------------------------- 1996
ALAN B. SALISBURY, PH.D.
/s/ Michael W. Kane, Ph.D. Director December 2,
- ----------------------------------- 1996
MICHAEL W. KANE, PH.D.
51