UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 28, 2014
Or
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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)
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Delaware |
95-3133814 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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1831 Michael Faraday Drive Reston, VA |
20190 |
(Address of principal executive offices) |
(Zip Code) |
703-709-9119
(Registrant’s telephone number, including area code)
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 ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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(do not check if smaller reporting company) |
Smaller reporting company |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The number of shares of common stock, $.0001 par value, outstanding as of May 1, 2014 was 13,222,539
LEARNING TREE INTERNATIONAL, INC.
FORM 10-Q—March 28, 2014
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
Item 1. |
FINANCIAL STATEMENTS. |
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 28, |
September 27, |
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2014 |
2013 |
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(unaudited) |
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Assets |
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Current Assets: |
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Cash and cash equivalents | $ | 23,325 | $ | 26,583 | ||||
Trade accounts receivable, net | 13,887 | 14,057 | ||||||
Income tax receivable | 655 | 921 | ||||||
Prepaid expenses | 3,787 | 3,383 | ||||||
Other current assets | 1,818 | 1,848 | ||||||
Total current assets | 43,472 | 46,792 | ||||||
Equipment, Property and Leasehold Improvements: |
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Education and office equipment | 39,340 | 38,586 | ||||||
Transportation equipment | 203 | 200 | ||||||
Property and leasehold improvements | 28,105 | 28,002 | ||||||
67,648 | 66,788 | |||||||
Less: accumulated depreciation and amortization | (52,922 | ) | (50,090 | ) | ||||
14,726 | 16,698 | |||||||
Restricted interest-bearing investments |
3,535 | 4,175 | ||||||
Deferred income taxes |
457 | 466 | ||||||
Other assets |
830 | 831 | ||||||
Total assets | $ | 63,020 | $ | 68,962 | ||||
Liabilities |
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Current Liabilities: |
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Trade accounts payable | $ | 7,164 | $ | 7,309 | ||||
Deferred revenues | 28,192 | 29,780 | ||||||
Accrued payroll, benefits and related taxes | 4,322 | 4,167 | ||||||
Other accrued liabilities | 1,817 | 2,178 | ||||||
Income taxes payable | 72 | 0 | ||||||
Current portion of deferred facilities rent and other | 1,502 | 1,663 | ||||||
Total current liabilities | 43,069 | 45,097 | ||||||
Asset retirement obligations |
2,099 | 2,004 | ||||||
Deferred income taxes |
281 | 284 | ||||||
Deferred facilities rent and other |
4,169 | 4,760 | ||||||
Noncurrent tax liabilities |
1,335 | 1,156 | ||||||
Total liabilities | 50,953 | 53,301 | ||||||
COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS' EQUITY |
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Preferred stock, $.0001 par value; 1,000,000 shares authorized; 0 shares issued and outstanding |
0 | 0 | ||||||
Common Stock, $.0001 par value; 75,000,000 shares authorized; 13,222,539 and 13,217,484 issued and outstanding, respectively |
1 | 1 | ||||||
Additional paid-in capital |
5,902 | 5,825 | ||||||
Accumulated comprehensive income (loss) |
66 | (139 | ) | |||||
Retained earnings |
6,098 | 9,974 | ||||||
Total stockholders' equity | 12,067 | 15,661 | ||||||
Total liabilities and stockholders' equity | $ | 63,020 | $ | 68,962 |
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
Unaudited
Three months ended |
Six months ended |
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March 28, |
March 29, |
March 28, |
March 29, |
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2014 |
2013 |
2014 |
2013 |
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Revenues |
$ | 25,004 | $ | 26,933 | $ | 57,026 | $ | 60,223 | ||||||||
Cost of revenues |
15,711 | 14,859 | 33,059 | 31,280 | ||||||||||||
Gross profit | 9,293 | 12,074 | 23,967 | 28,943 | ||||||||||||
Operating expenses: |
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Course development | 1,839 | 1,930 | 3,776 | 4,031 | ||||||||||||
Sales and marketing | 6,195 | 7,312 | 12,351 | 15,117 | ||||||||||||
General and administrative | 5,571 | 6,667 | 11,204 | 14,994 | ||||||||||||
13,605 | 15,909 | 27,331 | 34,142 | |||||||||||||
Loss from operations |
(4,312 | ) | (3,835 | ) | (3,364 | ) | (5,199 | ) | ||||||||
Other income (expense): |
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Interest income, net | 19 | 8 | 28 | 21 | ||||||||||||
Foreign exchange gains (losses) | (75 | ) | 214 | (114 | ) | 160 | ||||||||||
Other, net | 9 | (16 | ) | 3 | 6 | |||||||||||
(47 | ) | 206 | (83 | ) | 187 | |||||||||||
Loss before provision for income taxes |
(4,359 | ) | (3,629 | ) | (3,447 | ) | (5,012 | ) | ||||||||
Provision for income taxes |
244 | 386 | 427 | 419 | ||||||||||||
Net loss |
$ | (4,603 | ) | $ | (4,015 | ) | $ | (3,874 | ) | $ | (5,431 | ) | ||||
Loss per share: |
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Loss per common share - basic | $ | (0.35 | ) | $ | (0.30 | ) | $ | (0.29 | ) | $ | (0.41 | ) | ||||
Loss per common share - diluted | $ | (0.35 | ) | $ | (0.30 | ) | $ | (0.29 | ) | $ | (0.41 | ) | ||||
Weighted average shares outstanding: |
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Weighted average shares - basic | 13,223 | 13,217 | 13,221 | 13,203 | ||||||||||||
Weighted average shares - diluted | 13,223 | 13,217 | 13,221 | 13,203 | ||||||||||||
Comprehensive loss: |
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Net loss |
$ | (4,603 | ) | $ | (4,015 | ) | $ | (3,874 | ) | $ | (5,431 | ) | ||||
Foreign currency translation adjustments |
182 | (726 | ) | 205 | (806 | ) | ||||||||||
Comprehensive loss | $ | (4,421 | ) | $ | (4,741 | ) | $ | (3,669 | ) | $ | (6,237 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
Six months ended |
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March 28, |
March 29, |
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2014 |
2013 |
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Cash flows - operating activities |
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Net loss | $ | (3,874 | ) | $ | (5,431 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 2,816 | 3,206 | ||||||
Share based compensation | 77 | 141 | ||||||
Deferred income taxes | 427 | 299 | ||||||
(Recovery of) provision for doubtful accounts | (8 | ) | 94 | |||||
Accretion on asset retirement obligations | 48 | 55 | ||||||
(Gains) losses on disposal of equipment and leasehold improvements | (12 | ) | 44 | |||||
Unrealized foreign exchange gains | (175 | ) | (212 | ) | ||||
Gain on lease termination | 0 | (132 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Trade accounts receivable | 172 | 3,220 | ||||||
Asset retirement obligations | 0 | (2,962 | ) | |||||
Prepaid expenses and other assets | 417 | 4,789 | ||||||
Income tax receivable / payable | 85 | (255 | ) | |||||
Trade accounts payable | (160 | ) | (2,237 | ) | ||||
Deferred revenues | (1,658 | ) | (2,242 | ) | ||||
Deferred facilities rent and other | (1,064 | ) | (998 | ) | ||||
Other accrued liabilities | 175 | (816 | ) | |||||
Net cash used in operating activities |
(2,734 | ) | (3,437 | ) | ||||
Cash flows - investing activities: |
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Sales of available for sale securities | 0 | 6,118 | ||||||
Purchases of equipment, property and leasehold improvements | (772 | ) | (1,413 | ) | ||||
Proceeds from sale of equipment, property and leasehold improvements | 29 | 13 | ||||||
Net cash (used in) provided by investing activities |
(743 | ) | 4,718 | |||||
Cash flows - financing activities: |
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Dividends paid | 0 | (26 | ) | |||||
Shares surrendered in lieu of tax withholding | (2 | ) | (20 | ) | ||||
Net cash used in financing activities |
(2 | ) | (46 | ) | ||||
Effects of exchange rate changes on cash and cash equivalents |
221 | (702 | ) | |||||
Net (decrease) increase in cash and cash equivalents |
(3,258 | ) | 533 | |||||
Cash and cash equivalents at beginning of period |
26,583 | 25,784 | ||||||
Cash and cash equivalents at end of period |
$ | 23,325 | $ | 26,317 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(tables in thousands, except per share data)
Unaudited
NOTE 1—BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements of Learning Tree International, Inc. and our subsidiaries (collectively, “Learning Tree,” “we,” “our” or “us”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and, therefore, omit or condense certain note disclosures and other information required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should therefore be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended September 27, 2013.
We use the 52/53-week fiscal year method to better align our external financial reporting with the manner in which we operate our business. Under this method, each fiscal quarter ends on the Friday closest to the end of the calendar quarter. Accordingly, our second quarter of the current fiscal year ended on March 28, 2014 and encompassed 12 weeks, while our second quarter of the prior fiscal year ended on March 29, 2013 and encompassed 13 weeks.
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments that are only of a normal recurring nature, considered necessary to present fairly our financial position as of March 28, 2014, and our results of operations for the three and six months ended March 28, 2014 and March 29, 2013, and our cash flows for the six months ended March 28, 2014 and March 29, 2013. Certain items in the condensed consolidated financial statements have been reclassified to conform to the current presentation.
NOTE 2—STOCK-BASED COMPENSATION
Stock-based compensation expense was approximately $0.1 million for the three and six months ended March 28, 2014, related to grants of employee stock options and restricted stock units and was charged in a manner consistent with the related employee salary costs. This compares to stock-based compensation expense of $0.1 million for grants of restricted stock units for the three and six months ended March 29, 2013 .
NOTE 3—ASSET RETIREMENT OBLIGATIONS
The following table presents the activity for the asset retirement obligations (“ARO”) liabilities, which are primarily related to the restoration of classroom facilities in our Learning Tree Education Centers:
Six months ended |
Year ended |
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March 28, 2014 |
September 27, 2013 |
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ARO balance, beginning of period |
$ | 2,004 | $ | 3,907 | ||||
Liabilities incurred | 0 | 1,022 | ||||||
Accretion expense | 48 | 99 | ||||||
Liabilities satisfied | 0 | (29 | ) | |||||
Settlement of ARO liability | 0 | (2,929 | ) | |||||
Foreign currency translation | 47 | (66 | ) | |||||
ARO balance, end of period |
$ | 2,099 | $ | 2,004 |
NOTE 4—EARNINGS (LOSS) PER SHARE
Basic loss per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding (which excludes unvested shares of our common stock granted under our 2007 Equity Incentive Plan) during the reporting period. Diluted earnings (loss) per share is computed similarly to basic earnings (loss) per share except that the weighted average shares outstanding are increased to include common stock equivalents, to the extent their effect is dilutive. Approximately 200,000 stock options and 3,700 restricted stock units were excluded from the computations of diluted loss per share for the three and six months ended March 28, 2014, because their effect would have been anti-dilutive. Approximately 111 ,800 restricted stock units were excluded from the computations of diluted loss per share for the three and six months ended March 29, 2013, because their effect would have been anti-dilutive. The computations for basic and diluted loss per share are as follows:
Three months ended |
Six months ended |
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March 28, 2014 |
March 29, 2013 |
March 28, 2014 |
March 29, 2013 |
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Numerator: |
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Net loss | $ | (4,603 | ) | $ | (4,015 | ) | $ | (3,874 | ) | $ | (5,431 | ) | ||||
Denominator: |
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Weighted average shares outstanding |
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Basic | 13,223 | 13,217 | 13,221 | 13,203 | ||||||||||||
Effect of dilutive securities | 0 | 0 | 0 | 0 | ||||||||||||
Diluted | $ | 13,223 | $ | 13,217 | $ | 13,221 | $ | 13,203 | ||||||||
Loss per common share - basic |
$ | (0.35 | ) | $ | (0.30 | ) | $ | (0.29 | ) | $ | (0.41 | ) | ||||
Loss per common share - diluted |
$ | (0.35 | ) | $ | (0.30 | ) | $ | (0.29 | ) | $ | (0.41 | ) |
NOTE 5—INCOME TAXES
Our income tax provision in our second quarter of fiscal year 2014 was $0.2 million compared to $0.4 million in our second quarter of fiscal year 2013. Our income tax provision for our first six months of fiscal year 2014 was $ 0.4 million , the same amount as for our first six months of fiscal year 2013 . Our second quarter 2014 provision of $0.2 million was primarily composed of income tax expense for our foreign subsidiaries. We established a valuation allowance against deferred tax assets in the U.S. in our third quarter of fiscal year 2012 and have continued to maintain a full valuation allowance in the U.S. through fiscal years 2013 and 2014.
NOTE 6—COMMITMENTS AND CONTINGENCIES
Contingencies
Currently, and from time to time, we are involved in litigation incidental to the conduct of our business. We are not a party to any lawsuit or legal proceeding that, in the opinion of management, is likely to have a material adverse effect on our consolidated financial position or results of operations.
NOTE 7—SEGMENT REPORTING
Our worldwide operations involve the design and delivery of instructor-led classroom training courses and related services to multinational companies and government entities. The training and education we offer is presented in an identical manner in every country in which we operate. Our instructors present our courses in a virtually identical fashion worldwide, regardless of whether presented in leased classroom space or external facilities, the content of the class being taught or the location or method of distribution. No one commercial customer or government agency accounted for 10% or more of our revenues in either our first six months of fiscal year 2014 or our first six months of fiscal year 2013.
We conduct and manage our business globally and have reportable segments that operate in six countries: the United States, Canada, the United Kingdom, France, Sweden and Japan. During fiscal year 2013, we restructured the management of our U.S. and Canadian operations into one North American operation. With this change, we began reviewing operations in the U.S. and Canada on a combined basis.
Summarized financial information by country for our second quarter and for the first six months of fiscal years 2014 and 2013 is as follows:
Three months ended |
Six months ended |
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March 28, |
March 29, |
March 28, |
March 29, |
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2014 |
2013 |
2014 |
2013 |
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Revenues: |
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United States | $ | 11,329 | $ | 12,979 | $ | 25,404 | $ | 27,303 | ||||||||
Canada | 3,365 | 3,935 | 6,777 | 7,789 | ||||||||||||
North America | 14,694 | 16,914 | 32,181 | 35,092 | ||||||||||||
United Kingdom | 6,444 | 6,331 | 14,333 | 14,511 | ||||||||||||
France | 1,820 | 1,870 | 5,732 | 5,891 | ||||||||||||
Sweden | 1,637 | 1,464 | 3,796 | 3,819 | ||||||||||||
Japan | 409 | 354 | 984 | 910 | ||||||||||||
Total | $ | 25,004 | $ | 26,933 | $ | 57,026 | $ | 60,223 | ||||||||
Gross profit: |
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United States | $ | 2,825 | $ | 4,984 | $ | 7,870 | $ | 11,155 | ||||||||
Canada | 2,107 | 2,496 | 4,174 | 4,833 | ||||||||||||
North America | 4,932 | 7,480 | 12,044 | 15,988 | ||||||||||||
United Kingdom | 2,450 | 2,855 | 6,017 | 6,885 | ||||||||||||
France | 597 | 670 | 2,796 | 3,018 | ||||||||||||
Sweden | 1,037 | 866 | 2,440 | 2,469 | ||||||||||||
Japan | 277 | 203 | 670 | 583 | ||||||||||||
Total | $ | 9,293 | $ | 12,074 | $ | 23,967 | $ | 28,943 | ||||||||
Total assets: |
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United States | $ | 30,691 | $ | 33,547 | ||||||||||||
Canada | 4,756 | 4,016 | ||||||||||||||
North America | 35,447 | 37,563 | ||||||||||||||
United Kingdom | 15,732 | 20,316 | ||||||||||||||
France | 5,376 | 6,370 | ||||||||||||||
Sweden | 4,905 | 6,118 | ||||||||||||||
Japan | 1,560 | 1,683 | ||||||||||||||
Total | $ | 63,020 | $ | 72,050 |
NOTE 8—STOCKHOLDERS’ EQUITY
During the three and six months ended March 28, 2014 and March 29, 2013, we did not repurchase any shares of our common stock.
NOTE 9—FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market for the asset or liability. The fair value is measured on assumptions that market participants would use, including assumptions about non-performance risk and credit risk.
ASC 820 establishes a fair value hierarchy for valuation inputs and prioritizes them based on the extent to which the inputs are observable in the marketplace. Categorization is based on the lowest level of input that is available and significant to the measurement. These levels are:
Level 1—Quoted prices in active markets for identical assets and liabilities.
Level 2—Observable inputs other than quoted prices in active markets, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market corroborated inputs.
Level 3—Unobservable inputs that reflect management’s assumptions about the estimates and risks that market participants would use in pricing the asset or liability.
Non-Financial Liabilities Measured at Fair Value on a Nonrecurring Basis
We measure our ARO liabilities at fair value on a nonrecurring basis, when we believe there has been an indication the fair value has changed. We did not adjust the values of those liabilities during the three and six months ended March 28, 2014 and March 29, 2013.
NOTE 10—DEFERRED FACILITIES RENT AND OTHER
Deferred Facilities Rent and Other
The following tables show details of the following line items in our consolidated balance sheets.
Current Portion of Deferred Facilities Rent and Other
March 28, |
September 27, |
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2014 |
2013 |
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Deferred rent |
$ | 1,009 | $ | 965 | ||||
LA lease liability |
484 | 634 | ||||||
Sublease loss accruals |
9 | 64 | ||||||
$ | 1,502 | $ | 1,663 |
Deferred Facilities Rent and Other
March 28, |
September 27, |
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2014 |
2013 |
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Deferred rent |
$ | 3,916 | $ | 4,362 | ||||
LA lease liability |
253 | 398 | ||||||
$ | 4,169 | $ | 4,760 |
NOTE 11—RECENT ACCOUNTING PRONOUNCEMENTS
There were no recent accounting pronouncements issued by the Financial Accounting Standards Board (including the Emerging Issues Task Force), or the American Institute of Certified Public Accountants that would materially impact our condensed consolidated financial statements.
NOTE 12—RESTRUCTURING ACTIVITY
In September 2012, we announced a worldwide reduction in force involving approximately 40 employees and our intention to close the Los Angeles, CA office facility, which closure was completed in our first quarter of fiscal 2013. During the six months ended March 29, 2013 we incurred $1.4 million of expense relating to this reduction in force and closure of the Los Angeles office. During the three and six months ended March 28, 2014, we did not incur any additional expense, however, to date, we have not been able to sublease this office space. We originally estimated that it would take one and a half years to sublet this office space. If we are unable to sublease this office space or sublease it at rates below the estimates used for the original restructuring charge, we will incur an additional restructuring charge prior to the end of fiscal year 2014.
Three Months Ended |
Six Months Ended |
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March 28 |
March 29 |
March 28 |
March 29 |
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2014 |
2013 |
2014 |
2013 |
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Worldwide reduction in force |
$ | 0 | $ | 0 | $ | 0 | $ | 262 | ||||||||
Depreciation of leasehold improvements |
0 | 0 | 0 | 371 | ||||||||||||
Contractual lease payments net of estimated sublease receipts |
0 | 0 | 0 | 740 | ||||||||||||
Total: | $ | 0 | $ | 0 | $ | 0 | $ | 1,373 |
NOTE 13—UNITED KINGDOM LEASE TERMINATION
On November 14, 2012, we, together with our United Kingdom subsidiary, Learning Tree International Limited, and Laxton Properties Limited (the “Landlord”) surrendered our lease dated March 19, 1999 for Learning Tree International Limited’s Education Center facility in London (“Euston House”), which had been due to run through January, 2019. Learning Tree International Limited, our UK subsidiary, had been subleasing certain floors of the Euston House location to third-party subtenants. In conjunction with the surrender, the subleases reverted to the Landlord and Learning Tree International Limited, our UK subsidiary, entered into four new leases with the Landlord for only the space we needed to run our operations in London. We are party to each of the four new leases as guarantor for our subsidiary’s obligations. The four leases each became effective as of November 14, 2012 and cover the total rentable area of Euston House’s (1) ground and basement floors; (2) first floor; (3) second floor; and (4) part of the sixth floor. The first three leases run through November 13, 2022 and our fourth lease for part of the sixth floor runs through August 23, 2014. The aggregate annual minimum rent of the leases is £1.4 million ($2.3 million USD), compared to the original gross minimum rent of £2.8 million ($4.6 million USD) offset by £1.5 million ($2.4 million USD) in sublease rents for a net of £1.3 million ($2.2 million USD) under the prior lease. In connection with the early surrender of the original lease, we paid the landlord a £2.0 million ($3.2 million USD) surrender payment. As a result of the surrender of the original lease, we were released from our ARO, estimated at £1.9 million ($3.0 million USD), to restore the leasehold space to original condition, and the £5.0 million ($8.1 million USD) deposit that was being held in escrow as security against our default on the rental payments was released to Learning Tree International Limited by the Landlord. Under the terms of the new leases, deposits totaling £1.7 million ($2.7 million USD) have been deposited with the Landlord as security against our default on the payments under the leases. The impact to net income (loss) for our first quarter of fiscal year 2013 taking into account the surrender payment, the release of the ARO, and reversal of deferred rents was less than £0.1 million ($0.1 million USD).
NOTE 14—SUBSEQUENT EVENTS
On May 7, 2014, Learning Tree International Inc. a Canadian corporation and a wholly owned subsidiary of Learning Tree International, Inc. a Delaware corporation, entered into a second amendment of an existing lease and storage agreement with 160 Elgin Leaseholds Inc. covering a leased property located in Ottawa, Ontario, Canada. This lease amendment reduces the rentable area and extends the term of the lease for a period of five years commencing July 1, 2014 and expiring June 30, 2019.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, our unaudited condensed consolidated financial statements and notes included in this Quarterly Report on Form 10-Q and our consolidated financial statements and notes included in our Annual Report on Form 10-K, for the fiscal year ended September 27, 2013 (our “2013 10-K”). We use the terms “we,” “our,” “us” and “Learning Tree” to refer to Learning Tree International, Inc. and our subsidiaries unless the context indicates otherwise.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may,” or other similar expressions in this report. Our forward-looking statements relate to future events or our future performance and include, but are not limited to, statements concerning our business strategy, future commercial revenues, future operating expenses, future gross profits, earnings or losses, market growth, capital requirements, new product introductions, expansion plans and the adequacy of our funding. Other statements contained in this report that are not historical facts are also forward-looking statements.
We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995. We caution investors that any forward-looking statements presented in this report, or that we may make orally or in writing from time to time, are based on our beliefs, assumptions made by us, and information currently available to us. Such statements are based on assumptions, and the actual outcome will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control and ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance, and some will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences may be material. We are not undertaking any obligation to update any forward-looking statements. Accordingly, investors should use caution in relying on forward-looking statements, which are based on assumptions and known results and trends at the time they are made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include those related to the following: risks associated with the timely development, introduction, and customer acceptance of our courses; efficient delivery and scheduling of our courses; technology development and new technology introduction; competition; international operations, including currency fluctuations; attracting and retaining qualified personnel; intellectual property, including having to defend potential infringement claims; changing economic and market conditions; changing U.S. government spending as a result of sequestration and related effects; and adverse weather conditions, strikes, acts of war or terrorism and other external events. Please refer to the risk factors under “Item 1A. Risk Factors” beginning on page nine and elsewhere in our 2013 10-K, as well as in our other filings with the Securities and Exchange Commission (“SEC”).
The risks included in our filings are not exhaustive, and additional factors could adversely affect our business and financial performance. We operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We do not undertake and specifically disclaim any obligation to update such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as otherwise required by law.
OVERVIEW
We are a leading worldwide vendor-independent provider to business and government organizations for the training and education of their information technology (“IT”) professionals and managers. Since our founding in 1974, we have provided high-quality training to over 2.3 million IT professionals and managers.
Our objective is to provide our corporate and government customers with job-focused, hands-on learning experiences that best meet the professional development needs of their IT staff and managers. We design our vendor-independent courses to provide participants an unbiased perspective of both the strengths and limitations of software and hardware products and an understanding of how to compare and integrate multiple platforms and technologies from various vendors. Drawing from the expertise of our international team of instructors, each course incorporates multiple points of view concerning IT applications used throughout the world. Our IT courses are designed to be highly interactive and typically involve “hands-on” training on networked state-of-the-art workstations so that participants immediately practice and assimilate the skills being taught. Participants spend a significant portion of each hands-on course working on computer-based exercises and participating in group workshops and class interactions. As a result, they return to their jobs with the confidence to immediately apply the new skills and knowledge they have gained. Participants receive extensive course materials that facilitate learning and serve as a post-course reference tool.
Our management courses, while including core concepts and theory, focus heavily on providing practical skills, tools, and techniques that participants can apply immediately upon returning to their jobs. Participants work extensively in group exercises that provide the opportunity for them to practice applying the key concepts in simulated real-world situations. These real-world scenarios are primarily delivered through our performance-based management training platform. Our courses bring the real world to life in the classroom through the use of computer-based and rich-media simulations, supplemented with substantial amounts of hands-on exercises and group activities, facilitated by experts in their respective fields.
We market and deliver our courses through locally staffed operations in the United States, the United Kingdom, France, Canada, Sweden and Japan and currently generate approximately half of our revenues internationally. Our sophisticated infrastructure and logistics capabilities allow us to coordinate, plan and deliver Learning Tree courses at our education centers and external hotel and conference facilities around the globe. We also present standard or customized courses at customer facilities whenever and wherever desired, with quality standards that are identical to those for courses presented in our Learning Tree Education Centers.
We also offer courses through Learning Tree AnyWare™, our web-based attendance platform that allows individuals located anywhere in the world to participate in live, instructor-led courses over the Internet. All of our North American Education Centers have become AnyWare™ enabled, and we currently have 47 stand-alone AnyWare™ Learning Centers strategically located in the United States (32), Canada (3), France (4) and the United Kingdom (8). Our AnyWare Learning Center™ provides our customers with ready-to-go dual screen computers and high-speed Internet in a professional, optimized learning environment. With the availability of our AnyWare™ Learning Centers, participants can experience their course in a distraction-free setting (compared to if they were attending from their home or office) while eliminating the travel costs participants would have otherwise incurred in order to attend the course at our Education Center where it is physically being taught. Learning Tree’s stand-alone AnyWare™ Learning Centers can support from two to six attendees and are typically located in short-term rental facilities, which give us the flexibility and ease to address any changes in demand. AnyWare™ Learning Centers located within our existing Education Centers are able to accommodate up to 15 attendees.
We use a well-defined systematic approach to develop and update the Learning Tree course library so as to provide training that our course participants can immediately apply when they return to their work in a broad range of applications and industries. After assessing market need, courses may be translated into French, Swedish and Japanese. Our proprietary course development process also allows us to efficiently and effectively customize our courses to specific customer requirements for delivery at their sites. Learning Tree courses are recommended for either one to two semester hours of college credit by the American Council on Education. In the UK, our courses can be used to gain a Master’s degree in Professional Computing at Staffordshire University under a program administered by the Faculty of Computing, Engineering and Technology. We are a trusted continuing professional education (CPE) provider of the International Information Systems Security Certification Consortium. In addition, we are on the National Association of State Boards of Accountancy National Registry of CPE sponsors; we are a Registered Education Provider of the Project Management Institute; we are an APMG International Accredited Training Organization; we are an International Institute of Business Analysis (IIBA) Endorsed Education Provider, and we are a SFIA Foundation Accredited Training Partner.
Our instructors are not full time employees of Learning Tree; rather, they are practicing professionals who apply the same IT and management skills they teach in our classrooms while working on development and management projects as independent consultants or full-time employees elsewhere when they are not teaching. This ensures that our instructors stay at the forefront of their respective disciplines, and also enables us to structure our business so over half of our course delivery costs are variable. On average, each of our expert instructors teaches about 10 courses per year on an “as needed” basis.
We continue our tradition of excellence by always seeking to improve our core strengths: expert instructors, proprietary content library, state-of-the-art classrooms and worldwide course delivery systems. We believe that quality and customer satisfaction remain the underlying driving forces for our long-term success.
KEY METRICS OF OUR SECOND QUARTER AND SIX MONTHS OF FISCAL YEAR 2014
The following is an overview of our results of operations for our second quarter of fiscal year 2014 which ended March 28, 2014, compared to the same quarter of fiscal year 2013:
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Revenues decreased to $25.0 million from $26.9 million. |
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Gross profit declined to 37.2% of revenues from 44.8% of revenues. |
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We reduced operating expenses by $2.3 million. Operating expenses were 54.4% of revenues compared to 59.1% of revenues. |
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We had a loss from operations of $4.3 million compared to a loss from operations of $3.8 million. |
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Net loss totaled $4.6 million compared to net loss of $4.0 million. |
For the six months ended March 28, 2014, compared to the equivalent period of fiscal year 2013:
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Revenues decreased to $57.0 million from $60.2 million. |
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Gross profit declined to 42.0% of revenues from 48.1% of revenues. |
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We reduced operating expenses by $6.8 million. Operating expenses were 47.9% of revenues compared to 56.7% of revenues. |
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We had a loss from operations of $3.4 million compared to a loss from operations of $5.2 million. |
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Net loss totaled $3.9 million compared to net loss of $5.4 million. |
RESULTS OF OPERATIONS
We use the 52/53-week fiscal year method to better align our external financial reporting with the manner in which we operate our business. Under this method, each fiscal quarter ends on the Friday closest to the end of the calendar quarter. Since all courses have a duration of five days or less, and all courses begin and end within the same calendar week, under the 52/53 week fiscal year method all revenues and related direct costs for each course event are recognized in the week and the fiscal quarter in which the event takes place. In most years, including fiscal year 2013, each fiscal quarter has 13 weeks; however fiscal year 2014 has 53 weeks, with 14, 12, 13, and 14 weeks in our first, second, third and fourth quarters respectively. Furthermore, a particularly unusal convergence of this year's Christmas and New Year's holiday dates together with the end date of our first quarter on January 3, 2014 meant that irrespective of the change in the number of weeks in our first and second quarters of fiscal 2014, both of those quarters had the same number of revenue producing weeks as the correponding periods of fiscal 2013. On the other hand, we had one week more of operating expenses in our first quarter and one week less of operating expenses in our second quarter in fiscal 2014 compared to the same periods of the prior year. The six months ended March 28, 2014 encompassed 26 weeks the same as for the six months ended March 29, 2013.
The following table summarizes our consolidated statements of operations for the periods indicated, expressed as a percentage of our revenues for these periods:
Three months ended |
Six months ended |
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March 28, 2014 |
March 29, 2013 |
March 28, 2014 |
March 29, 2013 |
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Revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of revenues |
62.8 | % | 55.2 | % | 58.0 | % | 51.9 | % | ||||||||
Gross profit | 37.2 | % | 44.8 | % | 42.0 | % | 48.1 | % | ||||||||
Operating expenses: |
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Course development | 7.3 | % | 7.2 | % | 6.6 | % | 6.7 | % | ||||||||
Sales and marketing | 24.8 | % | 27.1 | % | 21.7 | % | 25.1 | % | ||||||||
General and administrative | 22.3 | % | 24.8 | % | 19.7 | % | 24.9 | % | ||||||||
Total operating expenses | 54.4 | % | 59.1 | % | 48.0 | % | 56.7 | % | ||||||||
Loss from operations |
-17.2 | % | -14.3 | % | -6.0 | % | -8.6 | % | ||||||||
Other income (expense), net |
-0.2 | % | 0.8 | % | -0.1 | % | 0.3 | % | ||||||||
Loss before taxes |
-17.4 | % | -13.5 | % | -6.1 | % | -8.3 | % | ||||||||
Income tax provision |
1.0 | % | 1.4 | % | 0.7 | % | 0.7 | % | ||||||||
Net loss |
-18.4 | % | -14.9 | % | -6.8 | % | -9.0 | % |
THREE AND SIX MONTHS ENDED MARCH 28, 2014 COMPARED WITH THE THREE AND SIX MONTHS ENDED MARCH 29, 2013
Revenues. Revenues of $25.0 million in our second quarter of fiscal year 2014 were 7.2% lower than revenues of $26.9 million in the same quarter of fiscal year 2013. The decrease in revenues primarily resulted from an 11.9% decrease in the number of our course participants that was partially offset by a 5.3% increase in average revenue per participant. The decrease in the number of participants compared to the same quarter of our prior year was primarily due to the elimination of participants attending in the prior year under a special, more-heavily discounted passport program, which started in our fourth quarter of fiscal 2012 and largely ended June 30, 2013, as well as to unusually harsh winter weather especially in the eastern United States where the majority of our U.S. education centers are located, and a decline in the number of courses delivered onsite at client locations. The increase in average revenue per participant primarily resulted from the elimination of the discounted passport program and the favorable shift in mix to proportionally more higher priced courses at our education centers and proportionally fewer courses delivered onsite at client locations. Revenues from customers who purchased courses under our U.S. Government General Service Administration (“GSA”) contract schedules were $0.3 million higher for our second quarter of fiscal year 2014 compared to our second quarter of fiscal year 2013. Changes in foreign exchange rates did not materially impact revenues quarter over quarter.
During our second quarter of fiscal year 2014, we trained 14,962 course participants, an 11.9% decrease from the 16,978 course participants we trained in our second quarter of fiscal year 2013.
During our second quarter of fiscal year 2014, we provided 52,406 attendee-days of training, 10.4% fewer than the 58,494 attendee-days of training we provided in the same quarter in fiscal year 2013. In our IT courses during our second quarter of fiscal year 2014, we provided 30,704 attendee-days of training, a 16.8% decrease from the 36,900 attendee-days in the corresponding period in fiscal year 2013. In our management courses during our second quarter of fiscal year 2014, we provided 21,702 attendee-days of training, a 0.5% increase from the 21,594 attendee-days in the corresponding period in fiscal year 2013.
Our revenues of $57.0 million during our first six months of fiscal year 2014 were 5.3% lower than revenues of $60.2 million in the same period of fiscal year 2013. The decrease in revenues primarily resulted from a 9.7% decrease in the number of course participants partially offset by a 4.9% increase in average revenue per participant. The decrease in the number of course participants is primarily attributed to the elimination of the special, more-heavily discounted passport program, a decline in the demand for courses delivered onsite at client locations, and unusually harsh winter weather especially in the eastern United States. The 4.9% increase in average revenue per participant largely resulted from the elimination of the more heavily discounted passport promotion that ran through June 30, 2013.
During our first six months of fiscal year 2014, we trained 32,660 course participants, a 9.7% decrease from the 36,167 course participants we trained in our first six months of fiscal year 2013.
During our first six months of fiscal year 2014, we provided 115,115 attendee-days of training, 8.9% fewer than the 126,347 attendee-days in the same period in fiscal year 2013. In our IT courses during our first six months of fiscal year 2014, we provided 68,827 attendee-days of training, an 11.3% decrease from the 77,588 attendee-days in the corresponding period in fiscal year 2013. In our management courses during our first six months of fiscal year 2014, we provided 46,288 attendee-days of training, a 5.1% decrease from the 48,759 attendee-days in the corresponding period in fiscal year 2013.
Cost of Revenues. Our cost of revenues primarily includes the costs of course instructors and their travel expenses, course materials, classroom facilities, equipment, freight and refreshments.
During our second quarter of fiscal year 2014, we presented 1,246 events, a 5.7% decrease from 1,321 events during the same period in fiscal year 2013. Our cost of revenues for our second quarter of fiscal year 2014 was $15.7 million, or 62.8% of revenues, compared to $14.9 million, or 55.2% of revenues, in the same period in fiscal year 2013. Accordingly, our gross profit percentage for our second quarter of fiscal year 2014 was 37.2% compared to 44.8% in the same period of the prior fiscal year. The $0.9 million increase in cost of revenues year over year was caused by increased facility costs related to the expansion of stand-alone AnyWare Learning Centers, increased property taxes, and increased internet infrastructure fees.
The change in cost of revenues as a percentage of revenues in our second quarter of fiscal year 2014 primarily reflects a 20.0% increase in cost per participant that was partially offset by the 5.3% increase in revenue per participant. The increase in cost per participant is primarily the result of the apportionment of higher fixed costs related to our education centers over a lower participant base, the increase in our facility costs, and a 6.6% reduction in the average number of participants per event . Changes in foreign exchange rates do not materially affect our gross profit percentage, since fluctuations in exchange rates affect our cost of revenues by approximately the same percentage as they affect our revenues.
During our first six months of fiscal year 2014, we presented 2,738 events, a 4.4% decrease from 2,864 events during the same period in fiscal year 2013. Our cost of revenues for our first six months of fiscal year 2014 was $33.1 million, or 58.0% of revenues, compared to $31.3 million, or 51.9% of revenues, in the same period in fiscal year 2013. The change in cost of revenues as a percentage of revenues during our first six months of fiscal year 2014 primarily reflects the 17.0% increase in the cost per participant partially offset by the 4.9% increase in revenue per participant. Accordingly, our gross profit percentage for our first six months of fiscal year 2014 was 42.0% compared to 48.1% in the same period of the prior fiscal year.
Course Development Expenses. Costs incurred to develop new courses and update our existing courses are expensed when incurred and are included in course development expenses. These costs are principally for internal product development staff and for subject matter experts.
During our second quarter of fiscal year 2014, course development expenses were 7.3% of revenues, compared to 7.2% in our second quarter of fiscal year 2013. Overall spending on course development in our second quarter of fiscal year 2014 was $1.8 million, a 4.7% decrease from the $1.9 million spent on course development in our second quarter of fiscal year 2013.
Course development expense during our first six months of fiscal year 2014 was $3.8 million, a decrease of $0.2 million compared to $4.0 million in the same period of fiscal year 2013.
In our second quarter of fiscal year 2014, we introduced four new IT course titles and one new management course title and retired eight IT course titles and three management course titles. At the end of our second quarter of fiscal year 2014, our library of instructor-led courses numbered 176 titles compared with 182 titles at the end of the same quarter of fiscal year 2013. At the end of our second quarter of this fiscal year, we had 117 IT titles in our course library, the same number of titles as at the end of our second quarter of fiscal year 2013. Our library of management titles numbered 59 at the end of our second quarter of fiscal year 2014, compared to 65 at the end of the same quarter of fiscal year 2013.
Sales and Marketing Expenses. Sales and marketing expenses include the costs of designing, producing and distributing direct mail and media advertisements; distributing marketing e-mails; maintaining and further developing our website; compensation and travel for sales and marketing personnel; and information systems to support these activities.
Sales and marketing expenses in our second quarter of fiscal year 2014 were 24.8% of revenues, compared to 27.1% in the same quarter of fiscal year 2013. Sales and marketing expenses were $6.2 million in our second quarter of fiscal year 2014, compared to $7.3 million during our second quarter of fiscal year 2013. The net decrease of $1.1 million is driven primarily by a reduction in direct mail marketing costs, and reduced personnel expenses as a result of reduced staffing levels.
Sales and marketing expense during our first six months of fiscal year 2014 was $12.4 million, a decrease of $2.7 million compared to $15.1 million in the same period of fiscal year 2013. The net decrease was due primarily to decreases in personnel expense of $1.2 million and decreases in direct marketing expenditures of $1.4 million.
General and Administrative Expenses. General and administrative expenses in our second quarter of fiscal year 2014 were 22.3% of revenues, compared with 24.8% for the same quarter in fiscal year 2013. General and administrative expenses during our second quarter of fiscal year 2014 were $5.6 million, a decrease of $1.1 million compared to $6.7 million in our second quarter of fiscal year 2013. The decrease was due primarily to $0.6 million of non-recurring expenses incurred in our second quarter of fiscal 2013 for costs incurred by a special committee of our Board of Directors (the “Special Committee”) related to a proposed acquisition of the company, and lower salary and benefit costs for our second quarter of fiscal year 2014 as a result of reduced staffing levels and lower general office costs . The Special Committee was disbanded during our second quarter of fiscal year 2013.
During our second quarter of fiscal 2014, we did not incur any additional expense related to the closure of our Los Angeles, CA office facility; however, to date, we have not been able to sublease this office space. We originally estimated that it would take one and a half years to sublet this office space. If we are unable to sublease this office space or sublease it at rates below the estimates used for the original restructuring charge, we will incur an additional restructuring charge prior to the end of fiscal year 2014.
General and administrative expense during our first six months of fiscal year 2014 was $11.2 million, a decrease of $3.8 million compared to $15.0 million in the same period of fiscal year 2013. The decrease was due primarily to $2.3 million of non-recurring expenses incurred in our first half of fiscal 2013 for a restructuring charge related to the closure of our Los Angeles, CA offices , costs incurred by the Special Committee, and for our first six months of fiscal year 2014 , lower salary and benefit costs as a result of reduced staffing levels and lower general office costs .
Income (Loss) from Operations. Our loss from operations for our second quarter of fiscal year 2014 was $4.3 million compared to a loss from operations of $3.8 million for our second quarter of fiscal year 2013.
Other Income (Expense), Net. Other income (expense), net consists primarily of interest income and foreign currency transaction gains and losses.
During our second quarter of fiscal year 2014, other expense totaled less than $0.1 million as compared to other income of $0.2 million for our second quarter of fiscal year 2013. The change is due to fluctuations in foreign exchange rates period over period.
During our first six months of fiscal year 2014 other expense totaled $0.1 million compared to other income of $0.2 million in our first six months of fiscal year 2013.
Income Taxes. Our income tax provision in our second quarter of fiscal year 2014 was $0.2 million compared to $0.4 million in our second quarter of fiscal year 2013. Our second quarter of fiscal year 2014 provision of $0.2 million is primarily related to the income tax expense of our foreign subsidiaries. Our income tax provision for our first six months of fiscal year 2014 was $0.4 million , the same amount as for our first six months of fiscal year 2013.
Net Loss. Our net loss for our second quarter of fiscal year 2014 was $4.6 million compared to net loss of $4.0 million for our second quarter of fiscal year 2013.
Our net loss for our first six months of fiscal year 2014 was $3.9 million compared to net loss of $5.4 million for our first six months of fiscal year 2013.
Effects of Foreign Exchange Rates. Although our consolidated financial statements are stated in U.S. dollars, all of our subsidiaries outside of the U.S. have functional currencies other than the U.S. dollar. Gains and losses arising from the translation of the balance sheets of our subsidiaries from the functional currencies to U.S. dollars are reported as adjustments to stockholders’ equity. Fluctuations in exchange rates may also have an effect on our results of operations. Since both revenues and expenses are generally denominated in our subsidiaries’ local currency, changes in exchange rates that have an adverse effect on our foreign revenues are partially offset by a favorable effect on our foreign expenses. The impact of future exchange rates on our results of operations cannot be accurately predicted. To date, we have not sought to hedge the risks associated with fluctuations in exchange rates, and therefore we continue to be subject to such risks. Even if we undertake such hedging transactions in the future, there can be no assurance that any hedging techniques we implement would be successful in eliminating or reducing the effects of currency fluctuations. See Item 1A “Risk Factors” in our 2013 10-K.
FLUCTUATIONS IN QUARTERLY RESULTS
Our quarterly results are affected by many factors, including the number of weeks during which courses can be conducted in a quarter, the nature and extent of our marketing, the timing of the introduction of new courses, competitive forces within the markets we serve, the mix of our course events between IT and management and customer site or education center venues, and currency fluctuations.
We use the 52/53-week fiscal year method to better align our external financial reporting with the manner in which we operate our business. Under this method, each fiscal quarter ends on the Friday closest to the end of the calendar quarter. Since all courses have a duration of five days or less, and all courses begin and end within the same calendar week, under the 52/53 week fiscal year method all revenues and related direct costs for each course event are recognized in the week and the fiscal quarter in which the event takes place. In most years, including fiscal year 2013, each fiscal quarter has 13 weeks; however fiscal year 2014 has 53 weeks, with 14, 12, 13, and 14 weeks in our first, second, third and fourth quarters respectively. Furthermore, a particularly unusal convergence of this year's Christmas and New Year's holiday dates together with the end date of our first quarter on January 3, 2014 meant that irrespective of the change in the number of weeks in our first and second quarters of fiscal 2014, both of those quarters had the same number of revenue producing weeks as the correponding periods of fiscal 2013. On the other hand, we had one week more of operating expenses in our first quarter and one week less of operating expenses in our second quarter in fiscal 2014 compared to the same periods of the prior year. The six months ended March 28, 2014 encompassed 26 weeks the same as for the six months ended March 29, 2013.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity at March 28, 2014 included cash and cash equivalents on hand of $23.3 million. During our first six months of fiscal year 2014, our total cash and cash equivalents decreased by $3.3 million, primarily as a result of cash used in operations of $2.7 million and capital expenditures of $0.8 million.
At March 28, 2014, our net working capital (current assets minus current liabilities) was $0.4 million, a $1.3 million decrease from our working capital balance at September 27, 2013. Current assets decreased $3.3 million during the period, due primarily to decreases in cash and trade accounts receivable. Current liabilities decreased $2.0 million during the period, primarily due to decreases in deferred revenues, trade accounts payable, and accrued expenses.
Cash Flows. Our cash and cash equivalents decreased $3.3 million to $23.3 million at March 28, 2014 from $26.6 million at September 27, 2013.
Six months ended |
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(in thousands) |
March 28, 2014 |
March 29, 2013 |
Net Change |
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Cash used in operating activities |
$ | (2,734 | ) | $ | (3,437 | ) | $ | 703 | ||||
Cash (used in) provided by investing activities |
(743 | ) | 4,718 | (5,461 | ) | |||||||
Cash used in financing activities |
(2 | ) | (46 | ) | 44 | |||||||
Effects of exchange rate changes on cash and cash equivalents |
221 | (702 | ) | 923 | ||||||||
Net (decrease) increase in cash and cash equivalents |
$ | (3,258 | ) | $ | 533 | $ | (3,791 | ) |
Cash used in operating activities was $0.7 million lower in our first six months of fiscal year 2014, than it was in our first six months of fiscal year 2013 primarily due to a lower net loss for the current period of $3.9 million compared to a net loss of $5.4 million for our first six months of fiscal year 2013. Cash (used in) provided by investing activities decreased by $5.5 million in our first six months of fiscal year 2014 compared to our first six months of fiscal 2013, due primarily to sales of available for sale securities of $6.1 million during our first six months of fiscal 2013.
Liquidity. We currently have no outstanding debt or line of credit agreements. During our second quarter of fiscal 2014, we repatriated $6.7 million from our foreign subsidiaries. We anticipate we will continue to rely primarily on our balance of cash and cash equivalents on hand, cash flows from operations, and other financing available to us to finance our operating cash needs. We believe that such funds will be sufficient to satisfy our anticipated cash requirements for the foreseeable future.
Capital Requirements. During the six months ended March 28, 2014, we made capital expenditures of $0.8 million for the purchase of classroom furniture and classroom computer equipment worldwide. We plan to purchase an additional $2.8 million in equipment and other capital assets during the remainder of fiscal year 2014. Our contractual obligations as of March 28, 2014 are consistent in material respects with our fiscal year-end disclosure in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Requirements” of our 2013 10-K.
We have a number of operating leases for our administrative offices and education center classroom facilities located worldwide. These leases expire at various dates over the next eight years. In addition to requiring monthly or quarterly payments for rent, some of the leases contain asset retirement provisions whereby we are required to return the leased facility back to a specified condition at the expiration of the lease.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
Management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements. The preparation of these financial statements is based on the selection of accounting policies and the application of significant accounting estimates, some of which require management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and notes. We believe some of the more critical estimates and policies that affect our financial condition and results of operations are in the areas of revenue recognition, operating leases, AROs, stock-based compensation and income taxes. For more information regarding our critical accounting estimates and policies, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates and Policies” of our 2013 10-K. We have discussed the application of these critical accounting policies and estimates with the Audit Committee of our Board of Directors.
FUTURE OUTLOOK
With the introduction of our AnyWare Learning Centers™, we have widened the distribution channel for our courses in order to make attendance more convenient and cost effective for our customers. We have found that this enhancement of our delivery capability has resulted in a slightly shorter buying cycle; our clients are shortening the average time from initial enrollment in a course to their actual attendance. This shorter buying cycle has somewhat reduced our visibility for future enrollments and has made forecasting future financial results somewhat more difficult. We have taken this into consideration in developing our forward-looking outlook for our third quarter of fiscal 2014.
Effect of Exchange Rates. Approximately half of our business annually is conducted in currencies other than U.S. dollars and fluctuations in exchange rates will affect future revenues and expenses when translated into U.S. dollars. If the exchange rates as of May 1, 2014 were to remain constant for the remainder of our third quarter we would expect foreign exchange rates to reduce revenues in our third quarter of fiscal year 2014, by approximately 2% when compared to our same quarter of fiscal year 2013.
Third Quarter Revenues. We currently expect revenues for our third quarter of fiscal year 2014 of between $27.0 million and $28.5 million, compared to revenues of $29.0 million in our third quarter of fiscal year 2013.
Third Quarter Gross Profit. We expect a gross profit percentage in our third quarter of fiscal year 2014 of between 40.4% and 40.8% compared to 44.3% in our third quarter of fiscal year 2013.
Third Quarter Operating Expenses. We expect overall operating expenses for our third quarter of fiscal year 2014 to be between $14.6 million and $15.4 million, compared to $13.8 million in the same quarter a year earlier. Expected operating expenses for our third quarter of fiscal 2014 do not include a potential $0.7 million restructuring charge for the final write-off of the Los Angeles office lease which will occur in our third quarter if we are unsuccessful in finding a sub-tenant for the space.
Third Quarter Loss from Operations. As a result of the above factors, we expect to incur a third quarter operating loss of between $3.0 million and $4.5 million compared with an operating loss of $1.0 million in our third quarter of fiscal year 2013.
Third Quarter Other Income (Expense), Net. We expect third quarter other expense to be less than $0.1 million.
Third Quarter Pre-Tax Loss. Overall, we expect to report a pre-tax loss for our third quarter of fiscal year 2014 of between $2.9 million and $4.6 million, compared with a pre-tax loss of $1.0 million in our third quarter of fiscal year 2013.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Required for a Smaller Reporting Company.
Item 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
As of the end of the period covered by this report, management performed an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that we believe have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. |
LEGAL PROCEEDINGS. |
As of March 28, 2014, other than routine legal proceedings and claims incidental to our business, we are not involved in any legal proceedings that we believe could reasonably be expected to have a material adverse effect on our financial condition or results of operations.
Item 1A. |
RISK FACTORS. |
There were no material changes to the risk factors as previously disclosed under Part I, Item 1A of the 2013 10-K. The risks described in the 2013 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition, or future results.
Item 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
None.
Item 3. |
DEFAULTS UPON SENIOR SECURITIES. |
None.
Item 4. |
MINE SAFETY DISCLOSURES. |
Not Applicable.
Item 5. |
OTHER INFORMATION. |
On May 7, 2014, Learning Tree International Inc. a Canadian corporation and a wholly owned subsidiary of Learning Tree International, Inc. a Delaware corporation, entered into a second amendment of an existing lease and storage agreement with 160 Elgin Leaseholds Inc. covering a leased property located in Ottawa, Ontario, Canada. This lease amendment reduces the rentable area and extends the term of the lease for a period of five years commencing July 1, 2014 and expiring June 30, 2019.
Item 6. |
EXHIBITS. |
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Exhibit No. |
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Document Description |
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Incorporation by Reference |
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10.1 |
2nd Lease and Storage Lease Amending and Extension Agreement, dated as of February 12, 2014, countersigned and effective as of May 7, 2014, by and between 160 Elgin Leaseholds, Inc. and Learning Tree International Inc. |
Filed herewith. |
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31.1 |
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Certification of Chief Executive Officer. Pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended. |
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Filed herewith. |
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31.2 |
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Certification of Chief Financial Officer. Pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended. |
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Filed herewith. |
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32.1 |
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Certification of Chief Executive Officer. Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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Filed herewith. |
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32.2 |
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Certification of Chief Financial Officer. Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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Filed herewith. |
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101 INS |
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XBRL Instance Document. |
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Filed herewith. |
101 SCH |
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XBRL Taxonomy Extension Schema Document. |
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Filed herewith. |
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101 CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document. |
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Filed herewith. |
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101 DEF |
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XBRL Taxonomy Extension Definition. |
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Filed herewith. |
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101 LAB |
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XBRL Taxonomy Extension Label Linkbase Document. |
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Filed herewith. |
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101 PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document. |
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Filed herewith. |
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* |
This exhibit is a management contract, compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
May 8, 2014
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LEARNING TREE INTERNATIONAL, INC. |
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By: /s/ David C. Collins, Ph.D. |
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David C. Collins, Ph.D. |
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Chief Executive Officer |
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(Principal Executive Officer) | ||
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By: /s/ David W. Asai |
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David W. Asai |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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Exhibit No. |
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Document Description |
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Incorporation by Reference |
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10.1 |
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2nd Lease and Storage Lease Amending and Extension Agreement, dated as of February 12, 2014, countersigned and effective as of May 7, 2014, by and between 160 Elgin Leaseholds, Inc. and Learning Tree International Inc. |
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Filed herewith. |
31.1 |
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Certification of Chief Executive Officer. Pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended. |
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Filed herewith. |
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31.2 |
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Certification of Chief Financial Officer. Pursuant to Rule 13a-14(a)/15(d)-14(a) under the Securities Exchange Act of 1934, as amended. |
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Filed herewith. |
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32.1 |
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Certification of Chief Executive Officer. Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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Filed herewith. |
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32.2 |
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Certification of Chief Financial Officer. Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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Filed herewith. |
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101 INS |
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XBRL Instance Document. |
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Filed herewith. |
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101 SCH |
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XBRL Taxonomy Extension Schema Document. |
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Filed herewith. |
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101 CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document. |
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Filed herewith. |
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101 DEF |
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XBRL Taxonomy Extension Definition. |
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Filed herewith. |
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101 LAB |
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XBRL Taxonomy Extension Label Linkbase Document. |
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Filed herewith. |
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101 PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document. |
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Filed herewith. |
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* |
This exhibit is a management contract, compensatory plan or arrangement. |
Exhibit 10.1
Exhibit 31.1
WRITTEN CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, David C. Collins, Ph.D., certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Learning Tree International, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
May 8, 2014
By: |
/s/ David C. Collins, Ph.D. |
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David C. Collins, Ph.D. | |||
Chief Executive Officer |
Exhibit 31.2
WRITTEN CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, David W. Asai, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Learning Tree International, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
May 8, 2014
By: |
/s/ David W. Asai |
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David W. Asai | |||
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, David C. Collins, Ph.D., certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report of Learning Tree International, Inc. on Form 10-Q for the quarter ended March 28, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Learning Tree International, Inc.
May 8, 2014
By: |
/s/ David C. Collins, Ph.D. |
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David C. Collins, Ph.D. | |||
Chief Executive Officer |
A signed original of this written statement required by Section 906 has been provided to Learning Tree International, Inc. and will be retained by Learning Tree International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, David W. Asai, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report of Learning Tree International, Inc. on Form 10-Q for the quarter ended March 28, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Learning Tree International, Inc.
May 8, 2014
By: |
/s/ David W. Asai |
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David W. Asai | |||
Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to Learning Tree International, Inc. and will be retained by Learning Tree International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.