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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2003

or

For the transition period from            to            

Commission file number:  0-27248

Learning Tree International, Inc.

(Exact name of registrant as specified in its charter)

6053 West Century Boulevard, Los Angeles, CA 90045

(Address of principal executive offices)                     (Zip Code)

(310) 417-9700

(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   x    No    ¨        

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    

Yes  x    No    ¨    

The number of shares of common stock, $.0001 par value, outstanding as of May 2, 2003, is 17,355,583 shares.

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LEARNING TREE INTERNATIONAL, INC.

FORM 10-Q

March 31, 2003

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PART I—FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

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LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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LEARNING TREE INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1    Operations and Significant Accounting Policies:

The accompanying condensed consolidated financial statements have been prepared by Learning Tree International, Inc. (“Learning Tree”) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such regulations. The condensed consolidated financial statements reflect all adjustments and disclosures which are, in the opinion of management, necessary for a fair presentation. All such adjustments are of a normal recurring nature. The condensed consolidated financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended September 30, 2002 that are contained in Learning Tree’s 2002 Annual Report on Form 10-K. Learning Tree’s business is subject to substantial risk and fluctuations in earnings. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Note 2    Computation of Earnings (Loss) per Common Share and Earnings (Loss) per Common Share Assuming Dilution:

Earnings (loss) per common share and earnings (loss) per common share assuming dilution are computed using the weighted average number of shares of Common Stock outstanding during the period. Earnings per common share assuming dilution are computed by including the dilutive effect, if any, of all outstanding options to purchase Common Stock using the treasury stock method. To calculate the number of diluted shares outstanding, 56,000 shares were added to the weighted average number of shares outstanding for the six month period ended March 31, 2003. For the quarter ended March 31, 2003, all of the 2,230,000 outstanding stock options were excluded from the calculation of loss per common share assuming dilution because they were antidilutive. Approximately 318,000 shares and 317,000 shares were added to the weighted average number of shares outstanding for the three and six month periods ended March 31, 2002, respectively. Approximately 792,000 stock options were excluded from the calculation of earnings per common share assuming dilution for the second quarter of fiscal 2002 because they were antidilutive.

Note 3    Repurchase of Company Stock:

During the second quarter of fiscal 2003, Learning Tree repurchased approximately 53,700 shares of its Common Stock on the open market at a total cost of $658,000. During the six months ended March 31, 2003, Learning Tree repurchased approximately 800,200 shares of its Common Stock on the open market at a total cost of $11,324,000. Learning Tree may make additional purchases through open-market transactions, but has no commitments to do so.

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Note 4    Employee Stock Options:

Learning Tree applies APB Opinion No. 25 “Accounting for Stock Issued to Employees” in accounting for its stock option plans. Learning Tree adopted the disclosure provisions of SFAS No. 148 “Accounting for Stock-Based Compensation-Transition and Disclosure” in the second quarter of fiscal 2003.

The exercise price of all stock options granted under Learning Tree’s stock option plans was equal to their fair market value at the dates of the grants. Accordingly, no compensation cost was recognized for stock options granted to employees during the first half of fiscal 2002 and 2003. Had compensation cost for the options granted been determined based upon the estimated fair value at the grant dates in accordance with SFAS No. 123 “Accounting for Stock-Based Compensation,” Learning Tree’s net income (loss) and earnings (loss) per common share would have been reduced to the pro forma amounts below:

The preceding pro forma amounts have been calculated using the Black-Scholes option-pricing model to estimate the fair value of the options granted during the first half of fiscal 2002 and 2003, with the following assumptions: risk-free interest rates of 3.1% and 1.9%; a dividend yield of zero; an expected life of two and one-half years; and a volatility of 55%. Based upon these assumptions, the pro forma weighted average fair value of the options granted during the first half of fiscal 2002 was $8.96 and $4.93 during the first half of fiscal 2003.

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Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for historical statements and discussions, this discussion consists of “forward-looking statements.” The words “anticipate,” “estimate,” “project,” “believe,” “expect” and similar expressions are intended to identify forward-looking statements. Please do not put undue reliance on forward-looking statements. Forward-looking statements are based on certain factors and assumptions about future risks and uncertainties. Many, but not all, of these factors and assumptions are identified in Exhibit 99.1, “Risk Factors” to Learning Tree International, Inc.’s (“Learning Tree’s”) 2002 Annual Report on Form 10-K (“Exhibit 99.1”). Although Learning Tree believes that the assumptions are reasonable, it is likely that at least some of the forward-looking statements will not come true. Accordingly, Learning Tree’s actual results will differ from those suggested by any forward-looking statement, and those differences could be material. Factors that could cause or contribute to such differences include, among others, those factors included in Exhibit 99.1, as well as those discussed in other places in Learning Tree’s filings with the Securities and Exchange Commission. For example, actual results could differ materially from those projected as a result of Learning Tree’s dependence on the timely development, introduction and customer acceptance of courses and products; risks in technology development and introduction; risks associated with the introduction of e-learning either by Learning Tree or its competitors; the impact of competition and pricing pressures; Learning Tree’s ability to attract and retain key management and other personnel; risks associated with international operations, including currency fluctuations; the effect of changing economic conditions; Learning Tree’s ability to maintain its current operating margins; the effect of adverse weather conditions, strikes, acts of war or terrorism and other external events. Should one or more of these risks, or any other risk, materialize, or should one or more of the underlying assumptions prove to be incorrect, Learning Tree’s actual results may vary materially from those anticipated, estimated, expected or projected. In light of the risks and uncertainties, there can be no assurance that any forward-looking information will in fact prove to be correct. Learning Tree does not undertake any obligation to update forward-looking statements.

Overview

Learning Tree is a leading worldwide vendor-independent provider of training to information technology (“IT”) professionals working in business and government organizations. Approximately two-thirds of Learning Tree participants come from Fortune 1000-level companies, their international equivalents and government organizations, and approximately one-third come from small and medium-size companies.

Learning Tree offers a broad, proprietary library of intensive four- and five-day courses, comprising 147 different course titles representing over 3,700 hours of training at March 31, 2003. Learning Tree courses focus on client/server technology, operating systems, programming languages, intranet/Internet/Web applications, computer networks, computer and network security, databases, software engineering, object-oriented technology and IT management.

As a vendor-independent provider of IT training, Learning Tree designs its own courses to provide participants an unbiased perspective of software and hardware products and the ability to compare and integrate multiple platforms and technologies from various vendors in a single course. Learning Tree uses a well-defined, systematic approach in developing and updating its course library to provide training that is immediately relevant to course participants working in a broad range of applications and industries. Learning Tree courses are highly interactive and are translated into French, Swedish and Japanese.

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Learning Tree’s courses are recommended for one or two semester hours of college credit by the American Council on Education, and are accepted for college credit at the University of Phoenix. Learning Tree’s proprietary course development process also allows it to customize its courses for delivery at its customers’ sites.

Learning Tree had been engaged in limited development and testing of Internet-based e-learning course formats and packages. However, Learning Tree was unable to find what it believed could be a profitable and sustainable e-learning business model. As a result, during the second quarter of fiscal 2003, Learning Tree suspended its modest e-learning research and development activity.

Results of Operations

In the second quarter of fiscal 2003, Learning Tree’s revenues decreased by 14% to $35.1 million from $40.6 million for the corresponding quarter of fiscal 2002. Income (loss) from operations for the second quarter of fiscal 2003 was a loss of $1.6 million versus income of $694,000 for the same quarter of fiscal 2002. Net income (loss) for the second quarter of fiscal 2003 was a loss of $596,000 compared to income of $747,000 in the second quarter of fiscal 2002.

For the first six months of fiscal 2003, Learning Tree’s revenues decreased by 13% to $76.8 million from $87.8 million for the corresponding period of fiscal 2002. Income from operations for the first six months of fiscal 2003 was $3.0 million versus $4.6 million for the same period of fiscal 2002. Net income for the first six months of fiscal 2003 was $2.8 million compared to $3.6 million in the corresponding period of fiscal 2002.

Revenues.    The decreases in Learning Tree’s revenues in the second quarter and first six months of fiscal 2003 are due to declines in the number of course participants.

During the second quarter of fiscal 2003, Learning Tree trained 20,980 course participants, a 22% decrease from the prior year’s 26,889 course participants. For the first six months of fiscal 2003, Learning Tree trained 46,745 course participants, a 19% decrease from the prior year’s 57,732 course participants. Learning Tree believes that, first the uncertainty leading up to, and then the actual commencement of war with Iraq, exacerbated the continued slowdown in the IT industry and the overall economy, which have resulted in more cautious spending on IT training. In addition, the severe weather conditions during the second quarter of fiscal 2003 in the eastern portion of the United States reduced revenues in the quarter by approximately $400,000.

For the second quarter of fiscal 2003, revenues reflect an 11% increase in average revenue per attendee. Approximately 8% of the improvement was due to changes in foreign exchange rates. The remaining improvement was primarily due to an increase in the proportion of course participants using Training Vouchers compared to those using Training Passports. Training Vouchers are sold at lesser discounts than Training Passports. For the first six months of fiscal 2003, revenues reflect an 8% increase in average revenue per attendee. Approximately 6% of the improvement was due to changes in foreign exchange rates. The remaining increase for the first six months of fiscal 2003 was primarily due to an increase in the proportion of course participants using Training Vouchers and attending single courses compared to those using Training Passports.

Cost of Revenues.    Learning Tree’s cost of revenues primarily includes the costs of course instructors and their travel and living expenses, course materials and equipment, freight, classroom facilities and refreshments. Learning Tree has structured its business so that the majority of its course costs are

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variable and depend primarily upon the number of course events conducted. Learning Tree schedules its course events throughout the year based on its assessment of demand. Since Learning Tree’s instructors typically work full-time in the IT industry and teach Learning Tree course events as needed, Learning Tree’s instructor-related costs are largely variable. Learning Tree’s expenses associated with its own education centers are largely fixed. However, Learning Tree can moderate its overall facility expenses to some extent by varying its use of rented hotel and conference facilities.

During the second quarter of fiscal 2003, the cost of revenues increased to 49.8% of revenues compared to 45.4% in the second quarter of fiscal 2002. For the first six months of fiscal 2003, the cost of revenues increased to 47.3% of revenues compared to 44.9% for the same period of the prior year.

Changes in foreign exchange rates increased cost of revenues by approximately 7% in the second quarter of fiscal 2003 and 5% in the six months ended March 31, 2003. However, these changes did not materially affect the gross margin percentage since changes in exchange rates also increased second quarter and year-to-date revenues by similar percentages.

For the second quarter of fiscal 2003, excluding the impact of exchange rates, as a percentage of revenues, the change in the cost of revenues reflects a 6% decrease in average revenue per event and a 4% increase in the average cost per event. For the first six months of fiscal 2003, also excluding the impact of exchange rates, as a percentage of revenues, the change in cost of revenues reflects a 5% decrease in average revenue per event and a 1% increase in average cost per event. The decreases in average revenue per event reflect a lower average number of attendees per event, partially offset by the aforementioned increases in average revenue per attendee. Learning Tree believes that the decreases in the average number of attendees per event primarily reflect the impact of current economic conditions, which lowered Learning Tree’s overall attendance rate. The increases in average cost per event primarily reflect the impact of reduced utilization of Learning Tree’s education centers, course equipment and other fixed costs which were spread over fewer events, partially offset by Learning Tree’s cost reduction and control measures, including the adjustment of staffing and the ongoing negotiations of supplier costs.

The cost of revenues for the second quarter of fiscal 2003 was $17.5 million compared to $18.5 million for the same quarter of fiscal 2002. For the first six months of fiscal 2003, the cost of revenues was $36.3 million compared to $39.5 million for the corresponding period of fiscal 2002. These decreases primarily reflect a 14% decrease in the number of course events conducted during the second quarter of fiscal 2003 and a 13% decrease in the number of course events conducted for the first six months of fiscal 2003. During the second quarter of fiscal 2003, Learning Tree presented 1,663 events compared to 1,938 events during the same period in fiscal 2002. For the first six months of fiscal 2003, Learning Tree presented 3,584 events compared to 4,128 during the corresponding period of fiscal 2002. The decreases in cost of revenues also reflect the effect of Learning Tree’s cost reduction and control measures. These savings were partially offset by the impact of foreign exchange rate changes.

Course Development Expenses.    Learning Tree maintains a disciplined process to develop new courses and update its existing courses. The costs incurred in that process, principally for internal product development staff and for subject matter experts, are expensed when incurred, and are included in course development expenses. Course development expenses also include all costs of Learning Tree’s e-learning development activities.

In the second quarter of fiscal 2003, course development expenses were 6.0% of revenues compared to 5.6% for the same quarter of fiscal 2003. For the first six months of fiscal 2003, course development

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expenses were 5.5% of revenues compared to 5.4% for the corresponding period in the prior year. The increases in the second quarter and the first six months reflect the effect of the declines in revenues, partially offset by reductions in absolute expenditures on course development compared to the comparable periods in fiscal 2002. The reductions in course development expenditures primarily reflect cost reductions realized in author-related expenses, personnel costs, and e-learning development costs. Course development expenses decreased 7% to $2.1 million for the second quarter of fiscal 2003 from $2.3 million for the same period last year. For the first six months of fiscal 2003, course development expenses decreased 12% to $4.2 million from $4.8 million for the corresponding period in the prior year.

Learning Tree has recently released additional course titles on topics such as risk management, Microsoft Operations Manager, .NET development, Java programming and Crystal reports. At the end of March 31, 2003, Learning Tree offered 147 course titles compared to 159 a year ago. During the second quarter of fiscal 2003, Learning Tree introduced one new title and did not retire any old titles. In general, titles are retired when the profits they generate are not sufficient to justify the ongoing cost of marketing them and maintaining their technological content.

During the third quarter of fiscal 2003, Learning Tree expects to have approximately 152 course titles. The actual number of course titles which Learning Tree will execute, and their delivery dates, are subject to the rate of new technological developments and perceived customer demand. Thus, Learning Tree may or may not develop more titles than it retires in any period. Course development costs may increase in the future if Learning Tree expands its course library.

Sales and Marketing Expenses.    Sales and marketing expenses include salaries, commissions and travel-related costs for sales and marketing personnel, the costs of designing, producing and distributing direct mail marketing and media advertisements, and the costs of information systems to support these activities.

For the second quarter of fiscal 2003, sales and marketing expenses were 31.6% of revenues compared to 32.1% in the second quarter of fiscal 2002. For the first six months of fiscal 2003, sales and marketing expenses were 27.4% of revenues compared to 29.7% in the corresponding period of fiscal 2002. These improvements resulted from absolute reductions in sales and marketing expenditures, which more than offset the effect of the declines in revenues. During the second quarter of fiscal 2003, sales and marketing expenses decreased by 15% to $11.1 million from $13.1 million for the same period last year. For the first six months of fiscal 2003, sales and marketing expenses decreased by 19% to $21.1 million from $26.1 million for the corresponding period of fiscal 2002. The reductions in sales and marketing expenses primarily reflect the results of initiatives to adjust marketing expenditures and sales staffing based on current operating levels, in addition to lower selling commissions. Learning Tree generally has the ability to adjust its expenditures for sales and marketing depending on its expectations of future customer demand, market conditions, strategic objectives and other factors. However, if Learning Tree’s expectations prove to be wrong, any significant revenue shortfall would have a material adverse effect on Learning Tree’s results of operations.

General and Administrative Expenses.    As a percentage of revenue, general and administrative costs increased to 17.2% in the second quarter of fiscal 2003 from 15.1% in the corresponding period of fiscal 2002. For the first six months of fiscal 2003, these costs increased to 15.9% from 14.7% as a percentage of revenues compared to the same period of the 2002 fiscal year. These increases were a result of the effect of lower revenues, partially offset by an absolute reduction in general and administrative expenses. General and administrative expenses decreased in the second quarter of fiscal 2003 by 1% to $6.0 million

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compared to $6.1 million in the same quarter of fiscal 2002. For the first six months of fiscal 2003, general and administrative expenses decreased by 5% to $12.2 million from $12.9 million for the corresponding period in fiscal 2002. The decreases in general and administrative expenses primarily reflect Learning Tree’s cost reduction and control measures, including reduced staffing levels. These improvements were partially offset by the effects of pay rate increases for non-managerial staff and changes in exchange rates.

Other Income (Expense).    Other income (expense) is primarily comprised of interest income and foreign currency transaction gains and losses. In the second quarter of fiscal 2003, other income (expense) increased to $683,000 of income from $465,000 of income for the corresponding quarter in fiscal 2002. For the first six months of fiscal 2003, other income (expense) increased to income of $1.3 million from $1.0 million for the corresponding period of fiscal 2002. These increases primarily reflect the favorable impact of changes in exchange rates, partially offset by a decrease in interest income.

Learning Tree recorded foreign exchange gains of $151,000 in the second quarter of fiscal 2003 compared to foreign exchange losses of $101,000 in the second quarter of fiscal 2002. For the first six months of fiscal 2003, Learning Tree recorded foreign exchange gains of $215,000 compared to losses of $352,000 in the corresponding period of fiscal 2002. These transaction gains and losses arose from receivables and payables denominated in currencies other than the functional currencies of Learning Tree’s foreign subsidiaries.

Interest income declined to $509,000 from $681,000 in the second quarter of fiscal 2003 and to $1.1 million from $1.5 million in the first six months of fiscal 2003 compared to the corresponding periods of fiscal 2002. The decreases in interest income are primarily due to lower interest rates, as well as declines in Learning Tree’s average cash balances. Learning Tree’s average cash balances declined as a result of repurchases of its Common Stock, partially offset by cash from operations and the favorable effect of foreign exchange rates on cash.

Income Taxes.    In the second quarter of fiscal 2003, the provision (benefit) for income taxes decreased $740,000 to a benefit of $328,000 compared to a provision of $412,000 for the same quarter of fiscal 2002. For the first six months of fiscal 2003, the provision for income taxes decreased $461,000 to $1.5 million compared to $2.0 million for the same period in fiscal 2002. The decreases in income tax provision (benefit) reflect the decreases in taxable income.

Fluctuations in Quarterly Results

Historically, Learning Tree’s quarterly operating results have fluctuated, and that is expected to continue in the future. The fluctuations may be caused by many factors such as the frequency and availability of course events; the number of weeks in a quarter during which courses can be conducted; the timing, timely delivery, frequency and size of, and response to Learning Tree’s direct mail marketing and advertising campaigns; the timing of the introduction of new course titles; the mix between course events held at customer sites and course events held in Learning Tree’s education centers and hotels; competitive forces within current and anticipated future markets served by Learning Tree; Learning Tree’s ability to attract customers and meet their expectations; currency fluctuations and other risks inherent in international operations; natural disasters, external strikes, acts of war or terrorism, and other external factors; and general economic conditions and industry-specific slowdowns. Fluctuations in quarter-to-quarter results may also occur as a result of differences in the timing of Learning Tree’s spending on development and marketing of its courses and receiving revenues from its customers.

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Learning Tree’s quarterly revenues and income typically reflect seasonal patterns. Generally, Learning Tree’s revenue and operating income are greater in the second half of its fiscal year (April through September) than in the first half (October through March). This is due in large part to seasonal spending patterns of Learning Tree’s customers, which are affected by, among other things, matters such as their budgetary considerations; factors specific to their business or industry; and weather, holiday and vacation considerations. However, the effects of periods of rapid acceleration or deceleration of revenues can offset these seasonal effects. There can be no assurance that these seasonal factors or their effects will remain in the future.

Liquidity and Capital Resources

Cash and cash equivalents decreased to $90.2 million at March 31, 2003 from $96.9 million at September 30, 2002. The decrease in cash and cash equivalents reflects repurchases of Learning Tree’s Common Stock, partly offset by cash from operations and the favorable effect of exchange rates on cash.

During the second quarter of fiscal 2003, Learning Tree repurchased approximately 53,700 shares of its Common Stock for approximately $658,000. During the first half of fiscal 2003, Learning Tree paid approximately $11.3 million to repurchase approximately 800,200 shares of its Common Stock. Learning Tree may make additional purchases through open-market transactions, but has no commitments to do so.

Cash provided by operations for the first six months of fiscal 2003 was $3.2 million compared to cash used in operations of $283,000 in the first six months of fiscal 2002. However, cash from operations in the first half of the prior fiscal year was reduced by the payment of approximately $2.7 million for stock that had been repurchased at the end of fiscal 2001. After eliminating the effect of these stock repurchases on accounts payable, cash provided by operations in the first six months of fiscal 2002 was approximately $2.4 million compared to the $3.2 million provided in the first six months this fiscal year. The increase in cash from operations in fiscal 2003 primarily reflects lower income tax payments in fiscal 2003, partially offset by reductions in advance payments by customers for future courses. At March 31, 2003, Learning Tree had working capital of $41.2 million.

During the first six months of fiscal 2003, Learning Tree invested $789,000 in equipment and facilities compared to $2.2 million in the same period of fiscal 2002. The investments in the current year primarily relate to purchases of course equipment. The higher level of investments during the prior year was primarily related to purchases of course equipment and the build-out of a second education center in Paris, France which opened in the third quarter of fiscal 2002. Although Learning Tree expects to continue to invest in additional equipment in fiscal 2003, as of March 31, 2003 Learning Tree had no other material future purchase obligations, capital commitments or debt. Accordingly, Learning Tree believes its cash and cash equivalents and the cash provided by its operations will be sufficient to meet its cash requirements for the foreseeable future.

Critical Accounting Policies

Management’s discussion and analysis of Learning Tree’s financial condition and results of operations is based upon Learning Tree’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The following list of critical accounting policies is not intended to be a comprehensive list of all of Learning Tree’s accounting policies. Learning Tree’s significant accounting policies are more fully described in Learning Tree’s 2002 Annual Report on Form 10-K in

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Note 1 of the “Notes to Consolidated Financial Statements.” The following represents a summary of Learning Tree’s critical accounting policies, defined as those policies that Learning Tree believes are the most important to the portrayal of Learning Tree’s financial condition and results of operations, and/or require management’s significant judgments and estimates.

Revenue Recognition.    Course events range from three to five days, with an average of approximately four days. For individual course enrollments, it is Learning Tree’s policy to recognize revenues and the related direct costs of course events as courses are delivered on a straight-line basis. However, for administrative purposes, the revenues and the related costs of course events are recorded upon commencement of each course event. The difference between Learning Tree’s revenue recognition policy and recording revenues and related course costs on a straight-line basis is inconsequential.

Learning Tree offers its customers a multiple-course sales discount referred to as a Training Passport. A Training Passport allows an individual passport holder to attend up to a specified number of Learning Tree courses over a one-year period for a fixed price. For a Training Passport, the amount of revenue recognized for each attendance in a course is based upon the selling price of the Training Passport, the list price of the course taken and the estimated average number of courses passport holders will actually attend. Upon expiration of a Training Passport, Learning Tree records the difference, if any, between the revenues previously recognized and the Training Passport selling price. The estimated attendance rate is based upon the historical experience of the average actual number of course events that Training Passport holders have been attending. The average actual attendance rate for all expired Training Passports has closely approximated the estimated rate utilized by Learning Tree. If the Training Passport attendance rates change, the revenue recognition rate for all active Training Passports and for all Training Passports sold thereafter is adjusted. Learning Tree believes it is appropriate to recognize revenues on this basis in order to more closely match revenue and related costs, as the substantial majority of its Passport holders do not attend the maximum number of course events permitted under their Training Passport. Learning Tree believes that the use of historical data is reasonable and appropriate because of the relative stability of the average actual number of course events attended by the tens of thousands of Passport holders since the inception of the program in fiscal 1993. Although Learning Tree has seen no material changes in the historical rates as the number of course titles has changed, it monitors such potential effects. In general, determining the estimated average number of course events that will be attended by a Training 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.

Learning Tree also offers a multiple-course sales discount referred to as Training Vouchers. Under Learning Tree’s Training Vouchers, the customer buys the right to send a specified number of attendees to Learning Tree courses over a one-year period for a fixed price. Revenue is recognized on a pro rata basis for each attendance. If a Training Voucher expires unused, Learning Tree records the selling price of the expired Training Voucher as revenue.

Prepaid Marketing Expenses.    Prepaid marketing expenses are charged to income 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.

Course Development Costs.    Course development costs are charged to operations in the period incurred.

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Stock Based Compensation.    Learning Tree applies APB Opinion No. 25 “Accounting for Stock Issued to Employees” in accounting for its stock option plans. The exercise price of all stock options granted under Learning Tree’s stock option plans was equal to their fair market value at the dates of the grants. Accordingly, no compensation cost was recognized for stock options granted to employees during fiscal 2002 and 2003.

Foreign Currency.    Learning Tree translates the financial statements of its foreign subsidiaries from the local (functional) currencies to U.S. dollars in accordance with SFAS No. 52 “Foreign Currency Translation.” The rates of exchange at the end of each reporting period are used for translating the balance sheets and the average monthly rates of exchange for each reporting period 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 Learning Tree’s consolidated statements of operations.

To date, Learning Tree has not sought to hedge the risk associated with fluctuations in currency exchange rates, and therefore continues to be subject to such risk.

Facilities, Intangible and Other Long-Lived Assets.    Equipment, property and leasehold improvements are recorded at cost and depreciated or amortized using the straight-line method over the assets’ estimated useful lives.

Learning Tree periodically reviews the carrying value of its facilities, intangible and other long-lived assets to identify and assess any impairment of the carrying value.

Facilities Leases.    Learning Tree leases its facilities under various operating lease agreements. Certain provisions of these leases provide for cash incentives, graduated rent payments and other inducements. Learning Tree 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 the rent expense recognized over the rentals paid is recorded as deferred facilities rent charges in the accompanying consolidated financial statements.

Income Taxes.    Learning Tree applies SFAS No. 109 “Accounting for Income Taxes,” in accounting for income taxes. Under SFAS No. 109, 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. Deferred income tax assets arise from expected reductions in taxes payable in future periods. Deferred tax assets reflect management’s estimate of the amounts that will be realized from future profitability and can be predicted with reasonable certainty. Deferred income tax liabilities represent taxes Learning Tree expects to pay in future periods.

Outlook For Fiscal 2003

Throughout this document, there have been various forward-looking statements. However, all of the statements in this entire section are forward-looking and subject to various risks and uncertainties, including those detailed from time to time in Learning Tree’s filings with the Securities and Exchange Commission, including Learning Tree’s 2002 Annual Report on Form 10-K and in Exhibit 99.1, “Risk Factors.” As economic and market conditions change at any time during fiscal 2003, Learning Tree’s

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future revenues, plans and expenditures will vary from the observations below, and these differences may be material.

Backlog.    At March 31, 2003, Learning Tree had a backlog of orders for its courses of approximately $31.3 million, which represented approximately a 5% decrease compared to the backlog at March 31, 2002. Only a portion of Learning Tree’s backlog is funded. There can be no assurance that orders comprising the backlog will be realized as revenue.

Recent Trends.    Learning Tree believes that its business will continue to be influenced by world events, by the economy and by spending trends in the corporate marketplace for IT. The timing of a recovery in spending on IT remains uncertain and Learning Tree has yet to see any discernable sustained improvement in demand from its customers. Learning Tree believes that, first the uncertainty leading up to, and then the actual commencement of war with Iraq, exacerbated the continued slowdown in the IT industry and the overall economy, which have resulted in more cautious spending on IT training. The impact of the war and its aftermath may continue to affect the economy or cause some companies or government organizations to defer IT training. It is difficult to predict the extent to which this would affect Learning Tree’s future revenues and operating results. Therefore, Learning Tree continues to believe that until the IT industry begins to improve, it is prudent to operate its business based on an assumption that future quarterly revenues could continue at lower levels than in the equivalent periods last year.

Based upon Learning Tree’s assessment of the current market conditions, it expects to continue to manage worldwide staffing levels to reflect current revenue expectations, and to continue to refine its marketing programs with the goal of achieving continued improvements in effectiveness and reduced costs. In addition, Learning Tree is continuing its efforts to improve its procedures for course scheduling with the goal of improving attendees per event, and thus revenue per event, at its courses.

Learning Tree is also continuing its efforts to enhance quality levels even further in its core strengths: its expert instructors, its proprietary content library, its state-of-the-art classrooms and its worldwide course delivery systems. During the first six months of fiscal 2003, the evaluations by Learning Tree’s course participants of the quality of its instructors and courses continued to establish new record levels.

Although Learning Tree reported a net loss in its second quarter of fiscal 2003, based upon current enrollment trends, and Learning Tree’s continuing efforts to improve course scheduling and adjust its infrastructure, Learning Tree expects to return to profitability in its third quarter of fiscal 2003.

Effect of Exchange Rates.    Approximately half of Learning Tree’s business is conducted in currencies other than U.S. dollars, and fluctuations in exchange rates will impact future revenues and expenses when translated into dollars. If current exchange rates remain stable through the remainder of fiscal 2003, revenues would be favorably impacted by approximately 6% in the third quarter and approximately 5% for the full fiscal year compared to the corresponding periods in fiscal 2002. Conversely, foreign currency denominated expenses would be unfavorably impacted by similar percentages in these periods.

Third Quarter 2003 Revenues.    A number of factors may influence Learning Tree’s revenues in the third fiscal quarter ending June 30, 2003. These include the following:

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Based on these factors and Learning Tree’s current assessment of general economic conditions, Learning Tree believes that revenues in the third quarter of fiscal 2003 will be in the range of $5 million to $6 million lower than revenues in the third quarter of fiscal 2002. Thus, Learning Tree believes that third quarter revenues this year will be about 11% to 13% lower than revenues of $45.0 million in the third quarter last year.

Third Quarter Gross Margin.    Learning Tree expects the following factors to cause gross margin for the third quarter of fiscal 2003 to be approximately 2% to 3% better than in the second quarter of fiscal 2003:

Third Quarter Operating Expenses.    Learning Tree expects to increase the level of its selling and marketing activities over the second quarter of fiscal 2003. As a result, operating expenses in the third quarter of fiscal 2003 are expected to be approximately $500,000 to $700,000 more than they were in the second quarter of fiscal 2003. However, this expected level of third quarter operating expenses represents a significant savings compared with the third quarter of the prior year.

Third Quarter Interest Income.    Interest income reflects changes in interest rates, as well as changes in cash balances. Learning Tree expects third quarter interest income to be approximately the same as it was in the second quarter of fiscal 2003.

2003 Tax Rate.    Learning Tree estimates that its tax rate in fiscal 2003 will be approximately 35.5%, or about the same as it was in fiscal 2002.

Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Learning Tree’s cash equivalents are diversified and consist primarily of investment grade securities of high-quality financial institutions and corporations. The fair value of Learning Tree’s portfolio of marketable securities would not be significantly impacted by either a 10 percent (10 basis point) increase

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or decrease in the rates of interest due primarily to the short-term nature of the portfolio. Learning Tree does not hold or issue derivative financial instruments.

Learning Tree’s consolidated financial statements are prepared in U.S. dollars, while the operations of its foreign subsidiaries are conducted in their respective local currencies. Consequently, changes in exchange rates can result in exchange losses. The impact of future exchange rates on Learning Tree’s results of operations cannot be accurately predicted. To date, Learning Tree has not sought to hedge the risks associated with fluctuations in exchange rates and therefore continues to be subject to such risks. In the future, Learning Tree may undertake such transactions. However, any hedging techniques implemented by Learning Tree might not be successful in eliminating or reducing the effects of currency fluctuations.

Item 4.    CONTROLS AND PROCEDURES

Learning Tree maintains disclosure controls and procedures designed to timely collect the information it is required to disclose in the reports it files with the Securities and Exchange Commission. Within 90 days prior to the date of this report, Learning Tree carried out an evaluation of the effectiveness of the design and operation of Learning Tree’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-14 and 15d-14. The evaluation was conducted under the supervision of, and with the participation of, Learning Tree’s management including Learning Tree’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon that evaluation, and subject to the limitations noted below, Learning Tree’s CEO and CFO concluded that Learning Tree’s disclosure controls and procedures are effective in alerting them, on a timely basis, to material information relating to Learning Tree (including its consolidated subsidiaries) that is required to be included in its periodic filings with the Securities and Exchange Commission.

Since the most recent evaluation of Learning Tree’s internal controls by Learning Tree’s CEO and CFO, there have been no significant changes in Learning Tree’s internal controls or in other factors that could significantly affect these controls, nor were any corrective actions required with regard to significant deficiencies and material weaknesses.

Learning Tree’s management, including its CEO and CFO, does not expect that its disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Learning Tree have been detected. These inherent limitations include the reality that judgments and decisions can be wrong, although made in good faith in light of the information available at the time, and that breakdowns can result from inadvertent errors or mistakes or by management override of the controls. Additionally, controls can be disrupted and circumvented by the bad faith acts of one or more persons. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future circumstances. To maintain adequate and efficient controls, over time, Learning Tree’s CEO and CFO periodically review Learning Tree’s internal and disclosure controls with other members of Learning Tree’s management and update controls and systems as needed.

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PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None

Item 2. CHANGES IN SECURITIES

Not Applicable

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Learning Tree held its Annual Meeting on March 11, 2003. During the Annual Meeting of Stockholders the matter that was voted upon was as follows:

The following are the results of the voting:

The current terms of the Class III Directors, David C. Collins and Eric R. Garen will continue until the 2004 Annual Meeting of Stockholders. The current term of the Class I Directors, Howard A. Bain III and Curtis A. Hessler will continue until the 2005 Annual Meeting of Stockholders.

Item 5. OTHER INFORMATION

Not Applicable

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the three months ended March 31, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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STATEMENT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

BY PRINCIPAL EXECUTIVE OFFICER

REGARDING FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS

I, David C. Collins, certify that:

Date: May 8, 2003

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STATEMENT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

BY PRINCIPAL FINANCIAL OFFICER

REGARDING FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS

I, Gary R. Wright, certify that:

Date: May 8, 2003

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