Form 10-K

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QSaDIbfvGPt1aM4kjydVEiWD0HVc1s+T1HcXKmruwdEsmDgfuZVSy8lPAU9u47To FMEJAWnzpCfayJm1i6sdtA== 0001193125-04-212747.txt : 20041214 0001193125-04-212747.hdr.sgml : 20041214 20041214154610 ACCESSION NUMBER: 0001193125-04-212747 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20041001 FILED AS OF DATE: 20041214 DATE AS OF CHANGE: 20041214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEARNING TREE INTERNATIONAL INC CENTRAL INDEX KEY: 0001002037 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 953133814 STATE OF INCORPORATION: DE FISCAL YEAR END: 1001 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27248 FILM NUMBER: 041201524 BUSINESS ADDRESS: STREET 1: 6053 W CENTURY BLVD CITY: LOS ANGELES STATE: CA ZIP: 90045 BUSINESS PHONE: 3104179700 MAIL ADDRESS: STREET 1: 6053 W CENTURY BLVD CITY: LOS ANGELES STATE: CA ZIP: 90045 10-K 1 d10k.htm FORM 10-K Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended October 1, 2004

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From to

Commission File Number: 0-27248

LEARNING TREE

INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		95-3133814
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

6053 West Century Boulevard

Los Angeles, CA 90045-0028

(310) 417-9700

(Address, Including Zip Code and Telephone Number, Including Area Code of Registrant’s Principal Executive Offices)

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act: Common Stock

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨

The aggregate market value of the common stock, $.0001 par value, held by non-affiliates of the registrant, as of April 2, 2004, was $164,667,000. (Excludes 6,713,000 shares held by directors and officers of the registrant since such persons may be deemed to be affiliates.)

The number of shares of common stock, $.0001 par value, outstanding as of December 6, 2004, was 16,988,900 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement of the registrant to be delivered to shareholders in connection with the 2005 Annual Meeting of Shareholders are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Form 10-K.

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS


		Page

	Part I

Item 1.	Business	3
Item 2.	Properties	10
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	11

	Part II

Item 5.	Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6.	Selected Consolidated Financial Data	13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 8.	Financial Statements and Supplementary Data	29
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	45
Item 9A.	Controls and Procedures	45
Item 9B.	Other Information	45

	Part III

Item 10.	Directors and Executive Officers of the Registrant	46
Item 11.	Executive Compensation	48
Item 12.	Security Ownership of Certain Beneficial Owners and Management	48
Item 13.	Certain Relationships and Related Transactions	48
Item 14.	Principal Accountant Fees and Services	48

	Part IV

Item 15.	Exhibits and Financial Statement Schedules	49

Signatures		50

Except for historical statements, the matters addressed in the discussion which follows are forward-looking statements. Please do not put undue reliance on these forward-looking statements, since they are based on key assumptions about future risks and uncertainties. Although Learning Tree International, Inc. (“Learning Tree”) believes that its assumptions are reasonable, inevitably some will prove to be incorrect. As a result, Learning Tree’s actual future results can be expected to differ from those in the discussion that follows, and those differences may be material. Learning Tree is not undertaking any obligation to update forward-looking statements.

In order to help the reader assess the major risks in Learning Tree’s business, Learning Tree has identified many, but not all, of these risks in Exhibit 99.1, “Risk Factors” (“Exhibit 99.1”). Please read that exhibit carefully. Some of the factors discussed in Exhibit 99.1 that could affect Learning Tree include risks associated with:

•

The timely development, introduction, and customer acceptance of Learning Tree’s courses;

•

Competition;

•

International operations, including currency fluctuations;

•

Changing economic and market conditions;

•

Technology development and new technology introduction;

•

Efficient delivery and scheduling of Learning Tree’s courses;

•

Adverse weather conditions, strikes, acts of war or terrorism and other external events; and

•

Attracting and retaining qualified personnel.

PART I

Item 1. BUSINESS

Overview

Learning Tree is a leading worldwide vendor-independent provider of training to managers and information technology (“IT”) professionals working in business and government organizations. Since its founding in 1974, Learning Tree has provided high-quality training to over 1,500,000 IT professionals and managers. In fiscal 2004, Learning Tree provided training to over 87,000 course participants. 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 instructor-led courses from two to five days in length, comprising 146 different course titles representing over 3,600 hours of training at October 1, 2004. Learning Tree courses focus on web development, operating systems, programming languages, databases, computer networks, computer and network security, object-oriented technology, project management, leadership and professional development, and other key business skills. During fiscal 2004, Learning Tree expanded its management course offerings to 29 titles in order to meet demands for these courses from both technical and non-technical managers.

Learning Tree uses a well-defined, systematic approach in developing and updating its course library to provide training that is immediately relevant to course participants working in a broad range of applications and industries. Learning Tree’s proprietary course development process also allows it to customize its courses for delivery at its customers’ sites.

technologies from various vendors in a single course. Learning Tree management courses, while addressing core concepts and theory, focus heavily on providing skills, tools, and techniques that participants can apply immediately upon returning to their jobs.

Learning Tree courses are highly interactive. They are translated into French, Swedish and Japanese. Based on their sophistication and quality, all of Learning Tree’s courses are recommended for one to two semester hours of college credit by the American Council on Education. In addition, Learning Tree is on the National Association of State Boards of Accountancy National Registry of CPE sponsors and is a Registered Education Provider of the Project Management Institute (PMI).

Learning Tree had 655 instructors as of October 1, 2004, each of whom was a practicing professional combining expert knowledge with extensive practical experience. On average, each expert instructor teaches approximately ten Learning Tree course events per year on an “as-needed” basis. During the rest of the year, Learning Tree instructors apply the IT and management skills they teach as either full-time employees for other companies or as independent consultants.

Learning Tree offers its proprietary courses through local operations in the United States, United Kingdom, France, Canada, Sweden and Japan, and generates approximately half of its revenue internationally. Each Learning Tree operating subsidiary is staffed by local nationals responsible for the sale and delivery of Learning Tree courses in that country. Learning Tree’s infrastructure and logistical capabilities allow it to coordinate, plan and deliver its courses at Learning Tree’s education centers, hotel and conference facilities and customer sites worldwide. During fiscal 2004, Learning Tree presented courses in 27 countries.

Learning Tree has only one material operating segment, which is the design and delivery of training courses and related services. See Note 7 of “Notes to Consolidated Financial Statements” for certain financial data regarding operating segments and geographic regions. See also, “Markets and Competition.”

Learning Tree’s Business Strategy

Learning Tree’s long-term objective is to strengthen its position as a leading worldwide vendor-independent provider of training to IT professionals and managers and thus become the training provider of choice for large and medium-sized commercial and government organizations. To achieve its objective, Learning Tree focuses on providing individuals with the knowledge and skills they need to contribute immediately and directly to their employers’ key business objectives, and on developing and maintaining long-term relationships with its corporate customers and course participants.

Commitment to Quality Training. Since its founding in 1974, Learning Tree has considered the quality of its courses to be the most important driver of its long-term success. During fiscal 2004, Learning Tree’s course participants rated the company’s instructors and courses at the highest levels in Learning Tree’s 30-year history. This sustained high performance results both from improvements in the classroom—including the 100% roll-out of Learning Tree’s MagnaLearn^™ instructional enhancement system—and steady, regular improvement of instructor skills and capabilities.

High Quality Instructor Team. At October 1, 2004, Learning Tree had 655 course instructors located around the world, each of whom was a practicing professional combining both expert knowledge and extensive “real world” experience. Learning Tree instructors teach an average of approximately ten Learning Tree course events per year on an “as-needed” basis. During the rest of the year, they apply the skills that they teach, either as full-time employees for other companies or as independent consultants. This “on-demand” structure enables Learning Tree to quickly schedule additional courses anywhere in the world and to respond efficiently to its customers’ needs for IT and management skills training. In addition, because Learning Tree instructors generally spend an average of over 80% of their time working in industry settings, they provide Learning Tree with a unique access to industry experts on IT and management skills trends throughout the world.

Learning Tree’s success depends on its ability to attract and retain highly skilled instructors. Learning Tree uses a highly systemized program in each of its local operating subsidiaries to recruit, train, coach, manage and evaluate its instructor team. See Exhibit 99.1, “Risk Factors.”

Broad Proprietary Course Library. Learning Tree offers a broad, proprietary library of 146 instructor-led course titles comprising over 3,600 hours of classroom instruction covering a wide range of IT and management topics. Learning Tree’s intensive two- to five-day courses are recommended for one to two semester hours of college credit by the American Council on Education. In addition, Learning Tree is on the National Association of State Boards of Accountancy National Registry of CPE sponsors and is a Registered Education Provider of the Project Management Institute (PMI).

The following table breaks down the number of Learning Tree course titles by curriculum at October 1, 2004:


Curriculum	Number of Course Titles	Total Hours of Training
Windows Systems and Exchange	18	528
SQL Server	6	162
Windows Development	17	426
RDBMS, Oracle9i and Oracle8i	10	276
Web Development and XML	12	288
Applied Management	7	138
Key Business Skills	8	150
Project Management	9	198
Security	11	276
Software Engineering	9	222
Java Programming	8	192
UNIX, Linux and Solaris	8	192
C, C++ and Perl Programming	4	96
Networking and PC Support	15	372
Notes/Domino	4	108

Total	146	3,624

As a leading vendor-independent provider of IT training, Learning Tree designs its 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. Drawing from the expertise of Learning Tree’s international team of instructors, each Learning Tree course presents multiple points of view concerning technology applications as used throughout the world. Learning Tree IT courses are designed to be highly interactive; most involve “hands-on” training on networked state-of-the-art workstations so that participants can practice and assimilate the skills being taught. Participants spend a significant portion of each hands-on Learning Tree course working on computer-based exercises, participating in group workshops and class interactions, and receive extensive printed course materials that facilitate learning and serve as a post-course reference tool.

Learning Tree management courses—while including core concepts and theory—focus heavily on providing skills, tools, and techniques that participants can apply immediately upon returning to their jobs. Participants work extensively in group exercises designed to apply key concepts in real-world situations, so that they are fully prepared to apply their new skills in their workplace environments. In the fourth quarter of fiscal 2004, Learning Tree offered 29 titles in its management curriculum representing 20% of Learning Tree’s entire course library, compared to 19 titles, which represented 13% in the fourth quarter of fiscal 2003.

To assist participants in their professional development, Learning Tree offers more than 40 Professional Certification programs, where participants must demonstrate mastery of subject matter by successfully completing four Learning Tree courses in a particular field, and passing a mastery examination for each course. Each Learning Tree Professional Certification Program is designed to teach all of the skills necessary to master a specific job function. Since the inception of the Learning Tree Professional Certification Program in fiscal 1993, over 281,000 participants have completed one or more certification examinations.

Over its 30-year history, Learning Tree has developed and implemented a well-defined, systematic approach to rapidly develop, customize and update its course library and to translate its course content into multiple languages. Courses are structured into curricula that reflect general topics or disciplines. Learning Tree continuously updates and expands its course curriculum structure and course content and adds new course titles to keep pace with the introduction of new technologies and to reflect the evolving training needs of its customers. To identify potential new courses for development, Learning Tree incorporates feedback from Learning Tree’s worldwide instructor team, course participants and corporate customers, and from the development groups of leading IT vendors. In fiscal 2004, Learning Tree developed 17 new titles and retired 23 titles. 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. However, there can be no assurance that Learning Tree will develop courses that keep pace with the introduction of new hardware, software and networking technologies or the need for key business skills training. See Exhibit 99.1, “Risk Factors.”

International Infrastructure and Logistics Capability. Learning Tree meets customers’ demands for scheduling flexibility by delivering course events frequently and at multiple locations throughout the world. Participants can attend any one of Learning Tree’s 146 courses that, on average, are presented almost weekly around the world. Learning Tree’s sophisticated infrastructure and logistics capability allow it to coordinate, plan and deliver its courses at its education centers, hotel and conference facilities and at its customers’ sites worldwide. Learning Tree can also present standard or customized courses on demand at its customers’ facilities whenever and wherever they desire—with quality standards that are identical to those for courses presented in Learning Tree’s own education centers. By using its team of 655 instructors, its course development and customization processes, its team of customer support specialists, its logistics team and its thousands of classroom computer workstations, Learning Tree can rapidly deliver any of its courses to any location in the world.

In fiscal 2004, Learning Tree presented over 6,800 course events at its education centers and at third-party and customer sites in a total of 27 countries. Learning Tree currently operates through wholly-owned subsidiaries in the United States (opened in 1974), France (opened in 1977), the United Kingdom (opened in 1978), Canada (opened in 1985), Sweden (opened in 1986) and Japan (opened in 1989). Each Learning Tree subsidiary is staffed by local nationals responsible for the sale and delivery of courses in that country. Learning Tree’s international operations produced approximately half of Learning Tree’s revenues in fiscal 2004, as they have throughout Learning Tree’s history. Such international operations face certain risks inherent to international businesses, such as currency fluctuations; potential difficulties in translating course subject matter into foreign languages; varying political and economic conditions; changes in government regulation; trade barriers; difficulty in staffing foreign offices, and in training and retaining foreign instructors; adverse tax consequences; and potential costs associated with expansion into new territories. There can be no assurance that such factors will not have a material adverse effect on Learning Tree in the future. See Exhibit 99.1, “Risk Factors.”

Learning Tree evaluates the expansion of its operations both within existing education center cities and in new cities or countries on an ongoing basis. In fiscal 2004, Learning Tree opened one new education center in Arlington, VA, its third education center in the greater Washington, DC area. Learning Tree also began offering courses for the first time in Baltimore, MD; Annapolis, MD; Stamford, CT and Long Island, NY using hotel conference rooms. There can be no assurance that Learning Tree will open additional education centers in the future or that such additional education centers will be successful. See Exhibit 99.1, “Risk Factors.”

Long-Term Relationships with Global Customer Base. Learning Tree has built long-standing relationships with its customer base. Learning Tree focuses on training the employees of Fortune 1000-level companies, their international equivalents and government organizations throughout the world, and seeks to build continuing relationships both with its individual course participants and its corporate customers. Learning Tree’s customers generally operate in the finance, computer, communications, electronics, systems integration, aerospace, government and military, manufacturing and energy sectors, among others. In fiscal 2004, Learning Tree provided training to over 87,000 course participants and had over 180 customers worldwide that each purchased more than $100,000 of Learning Tree training.

In fiscal 2004, Learning Tree began developing broader enterprise-wide relationships with a few large customers. By creating an enterprise-wide relationship, Learning Tree achieves preferred supplier status and can provide training services more readily—with fewer administrative or bureaucratic requirements—to individual employees of the customer. Within these enterprise-wide provider programs, Learning Tree provides training services to customers at Learning Tree’s education centers, hotel and conference facilities, as well as its customers’ sites worldwide. No customer accounted for 10% or more of Learning Tree’s fiscal 2004 revenues.

Multi-Tiered Sales and Marketing Organization. Learning Tree employs a multi-tiered sales and marketing organization that integrates direct mail, telemarketing and field sales to market and sell its course offerings to existing customers and to attract new customers.

Since its inception over 30 years ago, Learning Tree has created and built a strong brand image for providing high-quality training for IT professionals and managers through the frequent and prominent use of its trademarks in direct marketing and course materials. Learning Tree markets its courses primarily through direct mail marketing to its proprietary database of over 2,300,000 IT professionals and managers who have attended, inquired about, or sent a staff member to Learning Tree courses, and also uses direct mail to reach additional IT professionals and managers on rented mailing lists. Learning Tree also utilizes targeted, personalized e-mails through its automated e-mail marketing system to advise prospective course participants of upcoming events. Learning Tree has recently begun using rented e-mail address lists to augment its own database, thus further expanding the reach of direct e-mail marketing. In addition, Learning Tree markets its products and services over the Internet on its website (http://www.learningtree.com). (Information contained on Learning Tree’s website is not part of this Annual Report on Form 10-K.)

Learning Tree has built a telemarketing sales team which was comprised of approximately 110 telemarketers and related support staff at October 1, 2004. Learning Tree’s telemarketers are responsible for calling customer leads generated from direct mailings, website inquiries and other Learning Tree sales and marketing programs. In addition, Learning Tree’s sales team follows up on inquiries from customers and potential clients, and works to identify key personnel at clients with the potential to become major Learning Tree customers. Learning Tree employs a proprietary automated system which provides its telemarketers with online information that facilitates rapid response to inbound callers, provides targeted lists for outbound calling, records the results of calls and automates the sales follow-up process.

At October 1, 2004, Learning Tree employed a field sales team of approximately 39 direct field sales representatives and related support staff. The direct sales force primarily focuses on selling training programs which will be delivered at Learning Tree’s customers’ sites.

To remain successful, Learning Tree must continue to expand its business with both existing and new customers. To encourage repeat purchases from existing customers, Learning Tree offers two different multiple-course discount programs—“Training Passports” and “Training Vouchers”—and also provides Learning Tree Professional Certification Programs, as described earlier. Learning Tree believes that, in addition to generating revenues directly, these programs foster long-term relationships with participants and encourage participants to recommend Learning Tree’s courses to their colleagues. See Exhibit 99.1, “Risk Factors.”

Training Passports permit an individual Passport holder to attend up to a specified number of courses during a 12-month period. The Passports are generally sold as either four-course or eight-course Passports. The list price

for a four-course Passport is approximately equivalent to two individual four-day courses and the list price for an eight-course Passport is approximately equivalent to the list price of three four-day courses. The Training Voucher program allows corporate customers to buy blocks of five or more Vouchers, at a fixed discounted price, for future Learning Tree courses to be taken by any person in the client company over a 12-month period.

Markets and Competition

Instructor-Led Training. The IT and management training markets include outside third-party providers of training, as well as in-house training conducted by organizations. Outside providers of IT training include a group of “vendor-dependent providers,” which deliver courses developed by the vendors of software and hardware technologies and which depend heavily on those vendors to market their courses. The IT training market also includes “vendor-independent providers,” which independently develop, market and deliver proprietary courses. In addition, outside providers of management training include “for-profit providers,” which provide training largely as a professional development service, and “academic providers,” which offer courses that lead to accredited undergraduate or graduate degrees.

In these markets, Learning Tree is a vendor-independent provider of IT training, and a for-profit provider of management training. Some competitors offer course titles and programs similar to those of Learning Tree at lower prices. In addition, some competitors have greater financial and other resources than Learning Tree. See Exhibit 99.1, “Risk Factors.”

Learning Tree’s main IT training competitors are vendor-dependent and include the IT hardware and software vendors themselves. Many hardware and software vendors supply training, sometimes bundled in the prices of their product. Other vendor-dependent providers are Authorized Technical Education Centers (“ATECs”) and Certified Technical Education Centers (“CTECs”) that deliver these vendors’ proprietary courses. Vendor-dependent providers may have, or claim, greater knowledge of upcoming developments in their products, and their certifications are widely recognized. Learning Tree differentiates itself from vendor-dependent providers by maintaining a vendor-independent posture and providing cross-platform training solutions. By being vendor-independent, Learning Tree can address both the strengths and the weaknesses of a product and teach IT professionals how to integrate one product with those of other vendors in a multi-vendor network configuration. Learning Tree leverages the expertise of its instructors and authors, to ensure that Learning Tree offers a level of expertise that matches or exceeds that of vendor-dependent providers while also providing a vendor-independent platform that provides meaningful product comparisons.

Learning Tree’s main management training competitors are typically training companies who focus—as does Learning Tree—on providing continuing professional development training programs to Government and commercial organizations, and the employees of those organizations. Learning Tree differentiates itself from these competitors by adopting a more practical, results-oriented approach to management training than is typical in this market, as well as through Learning Tree’s advanced instructional techniques and proprietary instructional enhancement technology.

Learning Tree believes that the majority of independent training providers—whether in IT training or management training—are smaller organizations which often provide training as one of several services or product lines. Learning Tree differentiates itself from these providers based on the breadth and quality of its proprietary course library, its worldwide delivery capability, and the size, quality and experience of Learning Tree’s instructor force.

Internal training departments generally provide companies with the most control over the method and content of training, enabling them to tailor the training to their specific needs. However, Learning Tree believes that since internal trainers find it difficult to keep pace with new technologies, lack the hands-on experience needed to teach the latest technological developments and lack the capacity to meet demand, organizations must supplement their internal training resources with externally supplied training. This is particularly critical when

dealing with new or emerging technologies. Additionally, internal training departments may not operate consistently on a worldwide basis, where Learning Tree offers consistent IT and management training courses, processes, and quality around the globe.

e-learning and Computer-Based Training (“CBT.”) IT training is primarily delivered by classroom instructors; video; technology-based training, including Internet-based e-learning and CD-ROM; and printed means. Learning Tree believes that instructor-led training will continue to be the largest portion of the market because classroom-based instructor-led training provides the greatest foundation for participants to learn, practice and receive feedback on their mastery of new knowledge and skills. Course participants value the personalized interaction and problem solving with their instructor and fellow participants concerning their specific projects and applications. Further, instructor-led classroom training insulates course participants from workplace interruptions and thus accelerates their learning of new technologies. The use of technology-based IT education and training formats, such as Internet-based e-learning, appears to have gained some acceptance in the IT training market.

Employees

Learning Tree’s personnel are critical to its success. The Learning Tree management team has extensive experience in the training and education industry with an average of 15 years of experience with Learning Tree and 23 years of relevant industry experience.

On October 1, 2004, Learning Tree had a total of 446 full-time equivalent employees, of whom 185 were employed outside the United States. Learning Tree also utilized the services of 655 expert instructors to teach its courses on an “as-needed” basis. Learning Tree considers its relations with its employees and its instructors to be good. See Exhibit 99.1, “Risk Factors.”

Intellectual Property Rights

“LEARNING TREE,” “LEARNING TREE INTERNATIONAL,” the Learning Tree logo, “LEARNING TREE INTERNATIONAL” and “LEARNING TREE PROFESSIONAL CERTIFICATION” design, “EDUCATION IS OUR BUSINESS,” “EDUCATION YOU CAN TRUST,” “WE BRING EDUCATION TO LIFE,” “PRODUCTIVITY THROUGH EDUCATION,” “FROM THE LEARNING TREE,” “TRAINING PASSPORT,” “TRAINING ADVANTAGE,” “ALUMNI GOLD,” “TRAINING YOU CAN TRUST,” “WE BRING LEARNING TO LIFE,” “WE BRING IT TRAINING TO YOU,” “WWW.LEARNINGTREE.COM,” “MAGNALEARN,” “VENDOR INDEPENDENT TRAINING YOU CAN TRUST,” “ON-SITE COURSES & Design,” “800-LRN-TREE,” and “800-THE-TREE” are among the trademarks and service marks of Learning Tree. In addition to the trademarks and service marks of Learning Tree, this Annual Report on Form 10-K also contains trademarks and trade names of other companies.

Learning Tree cannot be certain that its means of protecting its proprietary rights will be adequate or that Learning Tree’s competitors will not independently develop similar course titles or delivery methods. If substantial unauthorized use of Learning Tree’s products were to occur, Learning Tree’s business and results of operations could be materially adversely impacted. Learning Tree may also have to defend against claims that its current or future courses infringe on the proprietary rights of others. Defending and prosecuting these claims could have a material adverse effect on Learning Tree’s operating results. See Exhibit 99.1, “Risk Factors.”

Regulatory Environment

Learning Tree is paid directly by the employers of its course participants and does not receive funding from any government aid or loan programs. As a result, Learning Tree does not depend on government appropriations for those programs and is generally exempt from the governmental regulation of public education providers. In contrast, providers of education to the public must comply with many laws and regulations of Federal, state and international governments. However, Learning Tree’s operations could be affected by current or future licensing or regulatory requirements. See Exhibit 99.1, “Risk Factors.”

Website Access to Learning Tree Reports

Learning Tree makes available on its website (http://www.learningtree.com), free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically filed or furnished to the Securities and Exchange Commission. (Information contained on Learning Tree’s website is not part of this Annual Report on Form 10-K.)

Item 2. PROPERTIES

Learning Tree’s headquarters are located at 6053 West Century Boulevard, Los Angeles, California 90045.

Learning Tree owns a 38,500 square foot office facility which is occupied by the sales, administrative and operations groups of its U.S. subsidiary. Learning Tree leases all of its other offices and education center classroom facilities. The leases expire at various dates over the next 14 years. Learning Tree subleases or is seeking to sublease excess space in certain facilities (see below and Part II Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Fiscal 2004 Compared with Fiscal 2003 and Critical Accounting Estimates and Policies” for further discussion.) Learning Tree may lease additional facilities in the foreseeable future. Learning Tree also presents its courses at rented hotel and conference facilities and customer sites. Learning Tree typically provides all of the software, hardware and networking systems required for use in its courses.

Learning Tree presents its classroom courses at Learning Tree Education Centers in Atlanta; Boston; Chicago; Los Angeles; New York City; the Washington, D.C. area; Ottawa; Toronto; London; Paris and Stockholm, as well as in rented hotel or conference centers in those and other cities worldwide.

Learning Tree Education Center classrooms are custom-designed to accommodate the technical demands of its computer-based courses, including local area networks within the classroom and its proprietary MagnaLearn^™ Instructional Enhancement System. The multi-mode communication techniques within the MagnaLearn^™ System provide an enhanced learning experience for Learning Tree’s course participants by making it easier and faster for them to absorb information and grasp complex concepts.

Learning Tree believes that its facilities are adequate and suitable for its needs. In general, at current attendee levels Learning Tree has excess capacity at most of its education centers. In addition, Learning Tree has not been using some of the space in its United Kingdom education center and administrative office facility. In fiscal 1999, Learning Tree executed a 20-year lease for a building in London to house Learning Tree’s United Kingdom education center. This building had sufficient space for Learning Tree’s current classroom needs, plus three floors for potential future classroom expansion that Learning Tree has been subletting to two subtenants. The first of these subleases has expired and the other subtenant recently notified Learning Tree that it will vacate when its sublease expires on March 25, 2005. Learning Tree is seeking subtenants for these floors, as a whole or in parts, but has yet to sublease this space. In addition, Learning Tree recently sublet a portion of its United Kingdom administrative office space for a period co-terminus with Learning Tree’s prime lease on this office (see Part II Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Fiscal 2004 Compared with Fiscal 2003 and Critical Accounting Estimates and Policies” for further discussion.)

The following table contains certain information regarding Learning Tree’s education centers and offices at October 1, 2004:


Location (Metropolitan Area)	Function(s)	No. of Classrooms	Total Area in Square Feet
Atlanta, GA	Education Center	9	16,903
Boston, MA	Education Center	6	13,717
Chicago, IL	Education Center	9	15,779
Los Angeles, CA	Education Center & Office	6	45,687
New York, NY	Education Center	21	44,380	(a)
Washington, DC area	Education Centers (3 sites)	40	80,402
Reston, VA	Offices (2 sites)	—	45,896
Paris, France	Education Centers & Office (2 sites)	27	58,276
London, England	Education Center	41	76,001	(b)(c)
Leatherhead, England	Office	—	23,209	(d)
Ottawa, Canada	Education Center & Office	6	20,006
Toronto, Canada	Education Center	10	17,207
Stockholm, Sweden	Education Center & Office	17	32,130
Tokyo, Japan	Office	—	1,547

Total		192	491,140

(a)	Excludes 11,600 square feet which Learning Tree subleases. Sublease ends co-terminus with Learning Tree’s prime lease.

(b)	Excludes 24,078 square feet which Learning Tree subleases. Learning Tree is seeking subtenant(s) as current subtenant has notified Learning Tree that it intends to vacate the premises March 25, 2005.

(c)	Excludes 12,039 square feet which was vacant as of October 1, 2004 and for which Learning Tree is seeking subtenant(s).

(d)	Excludes 7,000 square feet which Learning Tree subleases. Sublease ends co-terminus with Learning Tree’s prime lease. Subtenant may opt for early termination effective May 2008.

Item 3. LEGAL PROCEEDINGS

Learning Tree is not involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a material adverse effect on the financial condition or results of operations of Learning Tree.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2004 through the solicitation of proxies or otherwise.

PART II

Item 5.

MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock

Learning Tree’s Common Stock trades on the Nasdaq Stock Market under the symbol “LTRE.” The following table sets forth, for the periods indicated, the range of high and low sales prices for the Common Stock on the Nasdaq Stock Market:


	High		Low
Fiscal 2003
First Quarter	$	18.87	$	11.68
Second Quarter		14.72		11.13
Third Quarter		16.98		13.23
Fourth Quarter		18.62		15.30

Fiscal 2004
First Quarter		19.00		16.00
Second Quarter		19.52		14.34
Third Quarter		17.14		13.53
Fourth Quarter		14.58		12.06

As of December 6, 2004, there were over 1,300 holders of record of the Common Stock.

Volatility of Stock Price

Over Learning Tree’s 30-year history, the price of its Common Stock has fluctuated significantly and may continue to do so in the future. Learning Tree believes that some of the reasons for past fluctuations in the price of its stock have included: announcements of developments related to Learning Tree’s business; announcements concerning new products or enhancements by Learning Tree or its competitors; developments in relationships with its customers; market perceptions of new means of delivering training, such as CD-ROMs or the Internet; variations in revenues, gross margins, earnings or other financial results from investors’ expectations; fluctuations in results of operations and general conditions in the economy, the market, and the markets served by Learning Tree’s customers; and delays in introducing new technologies by both Learning Tree’s customers and technology vendors. In addition, prices in the stock market, particularly for technology-related stocks, have been volatile in recent years. In some cases, the fluctuations have been unrelated to the operating performance of affected companies. Sales of the Common Stock by officers, directors and employees, especially Learning Tree’s founders, could also adversely and unpredictably affect the price of the Common Stock. Additionally, the price could be affected even by the potential for sales by these persons. There can be no assurance that the market price of the Common Stock will not continue to experience significant fluctuations in the future, including fluctuations that are unrelated to Learning Tree’s performance. See Exhibit 99.1, “Risk Factors.”

Dividends

To date, Learning Tree has not paid any cash dividends on its Common Stock and does not anticipate doing so in the foreseeable future. The declaration and payment of dividends by Learning Tree are subject to the discretion of its Board of Directors and to compliance with applicable laws. Any determination as to the payment of dividends in the future will depend upon, among other things, general business conditions, the effect such payment would have on Learning Tree’s financial condition and other factors Learning Tree’s Board of Directors may in the future consider to be relevant.

Issuer Purchases of Equity Securities

Learning Tree did not repurchase any of its Common Stock in the fourth quarter of fiscal 2004.

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data of Learning Tree is qualified in its entirety by reference to, and should be read in conjunction with, the audited consolidated financial statements and notes thereto and other financial data included elsewhere in this Annual Report on Form 10-K. The statement of operations data set forth below for each of the three years in the period ended October 1, 2004, and the balance sheet data as of September 30, 2003 and October 1, 2004, are derived from Learning Tree’s consolidated financial statements which are included elsewhere herein. The statement of operations data for each of the two years in the period ended September 30, 2001, and the balance sheet data at September 30, 2000, 2001 and 2002, are derived from audited financial statements of Learning Tree not included herein. These historical results are not necessarily indicative of the results to be expected in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


	Fiscal Year Ended
	Sept. 30, 2000		Sept. 30, 2001		Sept. 30, 2002		Sept. 30, 2003		Oct. 1, 2004*
	(in Thousands, Except Per Share Data)
STATEMENT OF OPERATIONS DATA:
Revenues	$	224,008	$	227,220	$	174,161	$	151,897	$	152,058
Cost of revenues		80,839		92,805		79,392		72,389		73,612

Gross profit		143,169		134,415		94,769		79,508		78,446

Operating expenses:
Course development		10,294		11,323		9,319		7,897		7,960
Sales and marketing		56,603		63,957		50,251		43,781		47,206
General and administrative		25,913		26,676		25,426		23,014		24,476

Total operating expenses		92,810		101,956		84,996		74,692		79,642

Income (loss) from operations		50,359		32,459		9,773		4,816		(1,196	)
Other income (expense), net		6,709		6,287		2,467		2,315		2,049

Income before provision for income taxes		57,068		38,746		12,240		7,131		853
Provision for income taxes		19,973		13,755		4,345		1,970		284

Net income	$	37,095	$	24,991	$	7,895	$	5,161	$	569

Earnings per common share	$	1.70	$	1.21	$	0.42	$	0.30	$	0.03

Earnings per common share assuming dilution	$	1.65	$	1.18	$	0.42	$	0.30	$	0.03

Weighted average number of shares outstanding		21,771		20,593		18,763		17,394		17,039

Diluted shares outstanding		22,504		21,156		18,992		17,449		17,065


	Year Ended At
	Sept. 30, 2000		Sept. 30, 2001		Sept. 30, 2002		Sept. 30, 2003		Oct. 1, 2004*
	(in Thousands)
BALANCE SHEET DATA:
Cash and cash equivalents	$	116,231	$	108,544	$	96,897	$	86,711	$	83,913
Short-term interest-bearing investments		37,882		—		—		—		—
Total current assets		186,652		137,716		120,411		109,322		105,757
Total assets		220,353		174,975		154,018		140,909		137,434
Deferred revenue		53,327		61,662		55,868		50,082		46,847
Total current liabilities		85,159		88,744		74,556		69,086		65,454
Total stockholders’ equity		132,795		84,060		76,730		68,980		68,543

*	In the second quarter of fiscal 2004, the Company adopted a 52- or 53-week fiscal year, by changing its year-end date from September 30 to the Friday nearest the end of September.

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for historical statements, the matters addressed in the discussion which follows are forward-looking statements. Please do not put undue reliance on these forward-looking statements, since they are based on key assumptions about future risks and uncertainties. Although Learning Tree believes that its assumptions are reasonable, inevitably some will prove to be incorrect. As a result, Learning Tree’s actual future results can be expected to differ from those in the discussion that follows, and those differences may be material. Learning Tree is not undertaking any obligation to update forward-looking statements.

•

The timely development, introduction, and customer acceptance of Learning Tree’s courses;

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Competition;

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International operations, including currency fluctuations;

•

Changing economic and market conditions;

•

Technology development and new technology introduction;

•

Efficient delivery and scheduling of Learning Tree’s courses;

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Adverse weather conditions, strikes, acts of war or terrorism and other external events; and

•

Attracting and retaining qualified personnel.

OVERVIEW

Nature of the Business. Learning Tree is a leading worldwide vendor-independent provider of training to managers and information technology (“IT”) professionals working in business and government organizations. Since its founding in 1974, Learning Tree has provided high-quality training to over 1,500,000 IT professionals and managers. In fiscal 2004, Learning Tree provided training to over 87,000 course participants. 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 designs its own vendor-independent IT 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 management courses, while addressing core concepts and theory, focus heavily on providing skills, tools, and techniques that participants can apply immediately upon returning to their jobs.

The actual number of course titles that Learning Tree will execute, and their delivery dates, are subject to the rate of new technological developments and perceived customer demand. In general, titles are retired when the profits they generate are not sufficient to justify the ongoing cost of marketing them and maintaining their content. 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.

Learning Tree has structured its business so that the majority of its course costs are 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 or as consultants in business and industry, or in the case of management instructors as industry consultants and facilitators, and teach Learning Tree course events as needed, Learning Tree’s instructor-related costs are largely variable. However, Learning Tree’s expenses associated with its own education centers and course equipment are largely fixed.

Learning Tree adjusts its expenditures for sales and marketing depending on its strategic objectives, which generally include an assessment of Learning Tree’s expectations for influencing future customer demand, market conditions and other factors. However, if Learning Tree’s expectations regarding the results of its marketing efforts prove to be wrong, any significant revenue shortfall would have a material adverse effect on Learning Tree’s results of operations.

Recent Trends. As it has for 30 years, Learning Tree continues to focus on enhancing quality levels in its core strengths: its expert instructors, proprietary content library, state-of-the-art classrooms and worldwide course delivery systems. Learning Tree believes that quality and customer satisfaction remain the underlying driving force for its long-term success. During fiscal 2004, Learning Tree’s course participants rated the Company’s instructors and courses at the highest level in Learning Tree’s 30-year history.

Learning Tree’s customers have continued to respond positively to the Company’s recent increase in the breadth and depth of Learning Tree’s management course offerings. In the fourth quarter of fiscal 2004, Learning Tree offered 29 titles in its management curriculum representing 20% of Learning Tree’s entire course library, compared to 19 titles, which represented 13% in the fourth quarter of fiscal 2003. Learning Tree intends to meet the demand for these courses by continuing to develop additional management course titles, and by increasing the marketing for Learning Tree’s management course program.

Learning Tree’s business continues to be influenced by world events, by the economy, and by corporate spending trends for IT, among other factors. Learning Tree believes that the best way to counteract adverse

market trends is to use a strong, focused, integrated marketing and sales strategy that clearly and visibly helps Learning Tree’s customers identify specific applications of training services to improve their business performance. Accordingly, Learning Tree continues to assess alternative approaches to sales and marketing with the objective of improving its performance under current market conditions. However, there is no guarantee that these approaches will be successful. See Exhibit 99.1, “Risk Factors.”

Beginning with the second quarter of fiscal 2004, Learning Tree adopted a 52- or 53-week fiscal year, changing its year-end and quarter-end dates to the Friday nearest the end of the calendar quarter. Accordingly, Learning Tree’s fiscal 2004 year ended on October 1, 2004. Learning Tree made this change in order to better align its external financial reporting with the way Learning Tree operates its business.

Learning Tree’s financial results in the fourth quarter of fiscal 2004 were significantly impacted by charges to general and administrative expenses totaling approximately $1.6 million for actual and potential costs through March 2005 related to the subleasing of Learning Tree facilities in the United Kingdom. See “Results of Operations—General and Administrative Expenses” for further discussion.

RESULTS OF OPERATIONS

The following table summarizes Learning Tree’s consolidated statements of operations for the periods indicated expressed as percentages of revenues:


	Fiscal Year Ended
	September 30, 2002		September 30, 2003		October 1, 2004
Revenues	100	%	100	%	100	%
Cost of revenues	46		48		48

Gross profit	54		52		52
Operating Expenses:
Course development	5		5		5
Sales and marketing	29		29		31
General and administrative	14		15		16

Total operating expenses	48		49		52

Income (loss) from operations	6		3		(1	)
Other income (expense), net	1		1		1

Income before provision for income taxes	7		4		—
Provision for income taxes	2		1		—

Net income	5	%	3	%	—	%

FISCAL 2004 COMPARED WITH FISCAL 2003

In fiscal 2004, Learning Tree’s revenues were $152.1 million compared to $151.9 million in fiscal 2003. Learning Tree reported a loss from operations of $1.2 million in fiscal 2004 compared to income from operations of $4.8 million in the prior year. Net income for fiscal 2004 was $569,000 compared to $5.2 million in fiscal 2003. Learning Tree’s fiscal 2004 financial results include a charge of approximately $1.6 million in the fourth quarter related to subleasing its United Kingdom facilities (see “General and Administrative Expenses” for further discussion.) Excluding this charge, during fiscal 2004, Learning Tree’s income from operations was approximately $405,000 and net income was approximately $1.6 million (calculated as: Net income as reported of $0.6 million plus $1.6 million charge less related tax benefits of $0.6 million.)

Revenues. Learning Tree’s fiscal 2004 revenues primarily reflect the net effect of increased average revenue per attendee due to the effect of changes in exchange rates, offset by a decline in the number of course

participants compared to fiscal 2003. During fiscal 2004, Learning Tree trained a total of 87,156 effective course participants, a decrease of 4% from the prior year’s 91,133 effective course participants.

For fiscal 2004, average revenue per attendee was 4% higher compared to fiscal 2003. However, excluding a 6% effect from changes in foreign exchange rates, Learning Tree’s average revenue per attendee declined 2% in fiscal 2004 compared to the prior year. Approximately half of Learning Tree’s business is conducted in currencies other than U.S. dollars. Accordingly, exchange rate fluctuations impact both Learning Tree’s reported revenues and expenses when translated into dollars. (See Exhibit 99.1, “Risk Factors.”) Excluding the effect of exchange rates, the decrease in average revenue per attendee primarily reflects the effect of a change in course mix to a greater proportion of courses conducted at customer sites and a lower proportion conducted at Learning Tree education centers. Courses held at customer sites generally have lower revenues per attendee compared to those conducted at Learning Tree education centers.

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’s cost of revenues for fiscal 2004 was $73.6 million compared to $72.4 million in fiscal 2003. This increase primarily reflects the net effect of changes in foreign exchange rates, partially offset by the effect of a 3% decrease in the number of course events and the effects of Learning Tree’s cost reduction and control measures. During fiscal 2004, Learning Tree presented 6,832 effective course events compared to 7,026 effective course events in fiscal 2003.

In fiscal 2004, Learning Tree’s cost of revenues increased to 48.4% of revenues compared to 47.7% in fiscal 2003. Changes in foreign exchange rates did not materially affect Learning Tree’s gross profit percentage since exchange rate changes increased Learning Tree’s cost of revenues by approximately the same percentage as they increased Learning Tree’s revenues.

In fiscal 2004, excluding the effect of exchange rates, the increase in cost of revenues as a percentage of revenues reflects a 3% decrease in average revenue per event, partially offset by the effect of a 1% decrease in average cost per event compared to fiscal 2003. The decrease in average revenue per event, excluding the effect of exchange rates, primarily reflects the change in mix to a greater proportion of courses conducted at customer sites. Courses held at customer sites generally have lower revenues per event compared to those conducted at Learning Tree education centers. The improvement in average cost per event, excluding the effect of exchange rates, primarily reflects the results of Learning Tree’s cost reduction and control measures, including reductions in instructor-related costs and decreased staffing levels. These decreases in cost per event were partially offset by the effect of increased allocated fixed costs per event, stemming from reduced utilization of Learning Tree’s education centers and course equipment, as well as other fixed costs which were spread over fewer events.

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. In fiscal 2003, course development expenses also included all costs of Learning Tree’s e-learning research and development activities, which were terminated in the second quarter of that year because Learning Tree was unable to find what it believed could be a profitable and sustainable e-learning business model.

In fiscal 2004 and fiscal 2003, course development expenses were 5.2% of revenues. Expenditures on course development increased slightly to $8.0 million in fiscal 2004 from $7.9 million the year before. This increase primarily reflects increased course development activities and the effect of changes in foreign exchange rates, partially offset by the termination of all e-learning research and development activities in the second quarter of fiscal 2003.

During fiscal 2004, Learning Tree released additional course titles on technical topics that included Wi-Fi Networking, Windows Server 2003, Integrating Microsoft Access with SQL Server, Oracle Database 10g, and

Systems Management Server 2003, as well as additional course titles on management topics that included Leading Virtual and Remote Teams, Preparing for the Project Management Professional (PMP) Exam, Performance Management, Time Management, Presentation Skills, Negotiation Skills, Project Leadership, Project Quality Management, Microsoft Project Server 2003 for the Enterprise, and A Guide to Information Technology.

At the end of fiscal 2004, Learning Tree offered 146 different course titles, comprising over 3,600 hours of training, compared to 152 titles a year earlier. The decrease in the number of titles in fiscal 2004 reflects the net effect of introducing 17 new titles and retiring 23 titles.

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 fiscal 2004, sales and marketing expenses were 31.0% of revenues compared to 28.8% in fiscal 2003. The increase in sales and marketing expenses as a percentage of revenues primarily reflects an increase in sales and marketing expenditures. The increase in expenditures is primarily due to an increase in the number of regular catalogs mailed compared to the prior year, as well as Learning Tree’s new Management Curriculum catalog which was introduced during the second quarter of fiscal 2004. In addition, the increase in sales and marketing expenses reflects the effect of changes in foreign exchange rates. These increases were partially offset by the effect of lower expenditures for marketing activities other than major mailings, lower sales and marketing staffing levels and lower sales commissions.

General and Administrative Expenses. As a percentage of revenue, general and administrative expenses were 16.1% in fiscal 2004 compared to 15.2% in fiscal 2003. General and administrative expenses increased to $24.5 million in fiscal 2004 from $23.0 million in fiscal 2003. This increase primarily reflects the charge of approximately $1.6 million (described below) related to subleasing portions of Learning Tree’s United Kingdom education center and administrative office facilities and the effect of changes in foreign exchange rates. These increases were partially offset by the effects of various cost savings including reduced staffing levels and lower depreciation expense.

The $1.6 million charge related to subleasing portions of Learning Tree facilities in the United Kingdom was comprised of three components. Two of the components relate to a 20-year lease that was executed in fiscal 1999 for a building in London to house Learning Tree’s United Kingdom education center. This building had sufficient space for Learning Tree’s immediate classroom needs, plus three floors for potential future classroom expansion that Learning Tree has been subletting to two subtenants. The first of these subleases has expired and the other subtenant recently notified Learning Tree that it will vacate when its sublease expires on March 25, 2005. Learning Tree is actively seeking subtenants for these floors, as a whole or in parts, but has yet to sublease this space.

The first component of the charge arises from Learning Tree’s estimate that a sublease with a new tenant for the currently vacant floor in its United Kingdom education center is unlikely to be concluded much before March 25, 2005. Accordingly, in the fourth quarter of fiscal 2004, Learning Tree recorded a charge of $541,000 which reflects its rent expense for the vacant floor from July 2, 2004 through March 25, 2005. However, there can be no assurance of when Learning Tree will complete a sublease of the currently vacant floor, or when it will find tenants for the other two floors that will become vacant on March 25, 2005. To the extent that any of these floors are vacant after March 25, 2005, Learning Tree’s general and administrative expenses will include a further charge of approximately $186,000 per quarter for each vacant floor. Accordingly, Learning Tree will make further provisions each quarter, as appropriate.

The second component of the charge arises because Learning Tree anticipates that in order to rent these floors in its United Kingdom education center, it may need to make certain concessions, such as a period of free rent. Such concessions could result in a net sublease rental rate that is somewhat less than the rental rate that

Learning Tree pays on its lease. Therefore, Learning Tree’s charges in the fourth quarter include an additional $566,000 for the net present value of the estimated difference between the net sublease rental rates that Learning Tree anticipates for these three floors and its costs over an expected 5-year sublease period. However, the actual vacancy period(s), the actual sublease rental rate(s), and the actual duration of the sublease(s) will be different from the estimates that Learning Tree has used in computing its estimate for this charge. If Learning Tree’s estimates are wrong, and such space is sublet sooner/later, or at more/less favorable rates, Learning Tree will have to record either additional charges or a reversal of previously recorded charges.

The third component of this charge is related to a portion of Learning Tree’s United Kingdom administrative office space that it subleased for the first time, and which will result in a reduction of Learning Tree’s ongoing general and administrative expenses by an average over the sublease period of approximately $44,000 per quarter, beginning with Learning Tree’s first quarter of fiscal 2005. However, Learning Tree subleased this space at a total rental rate that is below its costs. Therefore, Learning Tree recorded a charge of approximately $494,000 to reflect the net present value of this shortfall over the six-and-a-half-year period of the sublease, which ends co-terminus with Learning Tree’s prime lease on this office.

Other Income (Expense). Other income (expense) is primarily comprised of interest income and foreign currency transaction gains and losses. In fiscal 2004, other income (expense) decreased to income of $2.0 million from $2.3 million in fiscal 2003 primarily because of lower interest income. Interest income decreased $490,000 compared to fiscal 2003 due to the effect of lower interest rates together with a decline in the amount of Learning Tree’s interest-bearing investments because of expenditures for repurchases of its Common Stock. The decrease in interest income was partially offset by a $203,000 gain from the liquidation of a $1.0 million minority interest equity investment in Collegis, Inc. (formerly eduprise.com) that Learning Tree had purchased in January 2000.

Learning Tree recorded foreign exchange gains of $335,000 in fiscal 2004 compared to foreign exchange gains of $346,000 in fiscal 2003. These gains arose from cash balances, receivables and payables denominated in currencies other than the functional currencies of Learning Tree’s foreign subsidiaries.

Income Taxes. In fiscal 2004, Learning Tree’s income tax provision decreased to $284,000 from $2.0 million in fiscal 2003. This decrease reflects the lower taxable income and a lower effective tax rate consistent with Learning Tree’s lower profit. In addition, the change in Learning Tree’s tax provision reflects changes in deferred taxes in fiscal 2003.

Learning Tree operates as a holding company with operating subsidiaries in several countries. Each subsidiary is taxed based on the laws of the jurisdiction in which it operates. Since taxes are incurred at the subsidiary level, and tax rates vary from country to country and one subsidiary’s tax losses cannot offset the taxable income of subsidiaries in other tax jurisdictions, Learning Tree’s consolidated effective tax rate may vary. See Note 2 of “Notes to Consolidated Financial Statements.”

Geographic Segments. Learning Tree has education centers in six countries around the world, and has historically derived approximately half of its revenues from outside the United States. The change in revenues in fiscal 2004 primarily reflects the net effect of changes in exchange rates, offset by a decline in the number of course participants in all Learning Tree locations compared to fiscal 2003. Learning Tree’s operating subsidiaries in the United Kingdom, France, Sweden, Canada and Asia, reported a decline in revenues on a local currency basis. However, due to changes in exchange rates in fiscal 2004 compared to fiscal 2003, those locations reported an increase in revenues compared to fiscal 2003 when their local currency revenues were translated into U.S. dollars.

The United States recorded revenues of $70.4 million in fiscal 2004 compared to revenues of $74.5 million in fiscal 2003. Revenues from Europe were $69.2 million in fiscal 2004 compared to $65.5 million in fiscal 2003. Canada recorded revenues of $10.6 million in fiscal 2004 compared to revenues of $10.2 million in fiscal 2003 and Asia recorded revenues of $1.8 million in fiscal 2003 compared to $1.7 million in fiscal 2003. See Note 7 of “Notes to Consolidated Financial Statements.”

Although Learning Tree’s consolidated financial statements are stated in U.S. dollars, several of Learning Tree’s subsidiaries have functional currencies other than the U.S. dollar. Gains and losses arising from the translation of the balance sheets of Learning Tree’s subsidiaries from the functional currencies to U.S. dollars are reported as an adjustment to stockholders’ equity. Fluctuations in exchange rates may also have an effect on Learning Tree’s results of operations. Since both revenues and expenses are generally denominated in the subsidiary’s local currency, changes in exchange rates that have an adverse effect on Learning Tree’s foreign revenues are partially offset by a favorable effect on Learning Tree’s foreign expenses. 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. There can be no assurance that any hedging techniques implemented by Learning Tree would be successful in eliminating or reducing the effects of currency fluctuations. See Exhibit 99.1, “Risk Factors.”

FISCAL 2003 COMPARED WITH FISCAL 2002

In fiscal 2003, Learning Tree’s revenues decreased by 13% to $151.9 million from $174.2 million in fiscal 2002. Income from operations for fiscal 2003 was $4.8 million versus $9.8 million in fiscal 2002. Net income for fiscal 2003 was $5.2 million compared to $7.9 million in fiscal 2002.

Revenues. The decrease in revenues in fiscal 2003 compared to fiscal 2002 was due to a decline in the number of course participants. During fiscal 2003, Learning Tree trained a total of 91,133 effective course participants, a decrease of 18% from the prior year’s 111,757 participants. Learning Tree believes that the sluggishness in the IT industry resulted in the continued year-over-year decline in spending on IT training.

For fiscal 2003, revenues reflected a 7% increase in average revenue per attendee. Approximately 6% 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 discounted less from list prices than Training Passports.

Cost of Revenues. The cost of revenues for fiscal 2003 was $72.4 million compared to $79.4 million in fiscal 2002. This decrease primarily reflected a 15% decrease in the number of course events during fiscal 2003. During fiscal 2003, Learning Tree presented 7,026 effective course events compared to 8,218 events in fiscal 2002. The decrease in the cost of revenues also reflected the effect of Learning Tree’s cost reduction and control measures. These savings were partially offset by the impact of foreign exchange rate changes. The gross margin percentage was not significantly affected by the changes in exchange rates since such changes also increased fiscal 2003 revenues by a similar percentage.

In fiscal 2003, the cost of revenues increased to 47.7% of revenues compared to 45.6% in fiscal 2002. In fiscal 2003, excluding the impact of exchange rates, the cost of revenues as a percentage of revenues reflected a 3% decrease in average revenue per event and a 2% increase in the average cost per event compared to fiscal 2002. The decrease in average revenue per event reflected a lower average number of attendees per event, partially offset by the increase in average revenue per attendee discussed above. Learning Tree believes that the decrease in the average number of attendees per event primarily reflected the economic conditions in the IT industry, which lowered Learning Tree’s overall attendance rate. The increase in the average cost per event primarily reflected the impact of the 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, the continued negotiation of supplier costs, the decrease of software costs and less course equipment depreciation.

Course Development Expenses. In fiscal 2003, course development expenses were 5.2% of revenues compared to 5.4% in fiscal 2002. Course development expenses as a percentage of revenues, reflected a reduction in absolute expenditures on course development compared to fiscal 2002, partially offset by the effect

of the decline in revenues. Course development expenses decreased in fiscal 2003 by 15% to $7.9 million from $9.3 million in fiscal 2002. The reduction in course development expenditures primarily reflected cost reductions realized in author-related expenses, personnel costs, and the termination of the e-learning development program in the second quarter of fiscal 2003.

During fiscal 2003, Learning Tree released additional course titles on topics such as risk management, Microsoft Operations Manager, .NET development, Java programming, Crystal reports, Windows Server 2003, network vulnerability assessment and defense, Oracle 9iAS, MySQL, Windows Server 2003 and Exchange Server 2003.

At the end of fiscal 2003, Learning Tree offered 152 different course titles, comprising over 3,800 hours of training, compared to 158 titles a year earlier. The decrease in the number of titles in fiscal 2003 reflected the net effect of introducing 18 new titles and retiring 24 titles.

Sales and Marketing Expenses. For fiscal 2003, sales and marketing expenses were 28.8% of revenues compared to 28.9% in fiscal 2002. The improvement resulted from absolute reductions in sales and marketing expenditures, which more than offset the effect of the decline in revenues. During fiscal 2003, sales and marketing expenses decreased by 13% to $43.8 million from $50.3 million in fiscal 2002. The reduction in sales and marketing expenses primarily reflected the results of initiatives to adjust marketing expenditures and sales staffing, based on current operating levels, as well as lower selling commissions.

General and Administrative Expenses. As a percentage of revenue, general and administrative expenses were 15.2% in fiscal 2003 compared to 14.6% in fiscal 2002. General and administrative expenses decreased in fiscal 2003 by 9% to $23.0 million from $25.4 million in fiscal 2002. The decrease in general and administrative expenses primarily reflected Learning Tree’s cost reduction and control measures, including reduced staffing levels, as well as a reduction in bad debt expense. These improvements were partially offset by the effects of changes in exchange rates.

Other Income (Expense). Other income (expense) is primarily comprised of interest income and foreign currency transaction gains and losses. In fiscal 2003, other income (expense) decreased to $2.3 million of income from $2.5 million in fiscal 2002 primarily because of $899,000 lower interest income which was partially offset by foreign exchange gains. The decrease in interest income reflected lower interest rates together with the decline in the amount of Learning Tree’s interest-bearing investments because of expenditures for repurchases of its Common Stock.

Learning Tree recorded foreign exchange gains of $346,000 in fiscal 2003 compared to foreign exchange losses of $50,000 in fiscal 2002.

Income Taxes. In fiscal 2003, Learning Tree’s income tax provision decreased to $2.0 million from $4.3 million in fiscal 2002, as a result of lower taxable income and changes in deferred taxes.

Geographic Segments. The decrease in revenues in fiscal 2003 reflected decreased revenues in all locations, except France, where the effect of changes in exchange rates more than offset the decrease in revenues in local currency.

The United States recorded revenues of approximately $74.5 million in fiscal 2003 compared to revenues of $87.8 million in fiscal 2002. Revenues from Europe were $65.5 million in fiscal 2003 compared to $73.1 million in fiscal 2002, due to declines in the United Kingdom and Sweden. Canada recorded revenues of $10.2 million in fiscal 2003 compared to revenues of $11.5 million in fiscal 2002, and Asia recorded revenues of $1.7 million in fiscal 2003 compared to $1.8 million in fiscal 2002. See Note 7 of “Notes to Consolidated Financial Statements.”

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth unaudited quarterly financial data for each of the eight consecutive fiscal quarters ended October 1, 2004 and its percentage of Learning Tree’s revenues. Learning Tree believes that this information includes all adjustments necessary for a fair presentation of such quarterly information when read in conjunction with the consolidated financial statements included elsewhere herein. The operating results for any quarter are not necessarily indicative of the results for any future period.


	Three Months Ended
	Dec. 31, 2002			Mar. 31, 2003			June 30, 2003			Sept. 30, 2003			Dec. 31, 2003			April 2, 2004			July 2, 2004			Oct. 1, 2004
	(Dollars in Thousands, Except Per Share Amounts)
Revenues	$	41,759		$	35,062		$	39,099		$	35,977		$	39,867		$	35,729		$	39,139		$	37,323
Cost of revenues		18,888			17,452			18,955			17,094			18,407			18,475			18,518			18,212

Gross profit		22,871			17,610			20,144			18,883			21,460			17,254			20,621			19,111
Operating expenses:
Course development		2,075			2,117			1,856			1,849			1,997			2,078			2,066			1,819
Sales and marketing		10,006			11,069			11,543			11,163			10,478			13,403			12,791			10,534
General and administrative		6,196			6,031			5,667			5,120			5,765			6,046			5,921			6,744	*

Total operating expenses		18,277			19,217			19,066			18,132			18,240			21,527			20,778			19,097

Income (loss) from operations		4,594			(1,607	)		1,078			751			3,220			(4,273	)		(157	)		14
Other income (expense), net		630			683			475			527			488			1,014			260			287

Income (loss) before provision for income taxes		5,224			(924	)		1,553			1,278			3,708			(3,259	)		103			301
Provision (benefit) for income taxes		1,855			(328	)		551			(108	)**		1,317			(1,158	)		37			88

Net income (loss)	$	3,369		$	(596	)	$	1,002		$	1,386		$	2,391		$	(2,101	)	$	66		$	213

Earnings (loss) per common share	$	0.19		$	(0.03	)	$	0.06		$	0.08		$	0.14		$	(0.12	)	$	0.00		$	0.01

Earnings (loss) per common share assuming dilution	$	0.19		$	(0.03	)	$	0.06		$	0.08		$	0.14		$	(0.12	)	$	0.00		$	0.01


AS A PERCENTAGE OF REVENUES:
Revenues		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%
Cost of revenues		45			50			48			48			46			52			47			49

Gross profit		55			50			52			52			54			48			53			51
Operating expenses:
Course development		5			6			5			5			5			6			5			5
Sales and marketing		24			32			30			31			26			37			33			28
General and Administrative		15			17			14			14			15			17			15			18	*

Total operating expenses		44			55			49			50			46			60			53			51

Income (loss) from operations		11			(5	)		3			2			8			(12	)		(—	)		—
Other income (expense), net		2			2			1			2			1			3			—			1

Income (loss) before provision for income taxes		13			(3	)		4			4			9			(9	)		—			1
Provision (benefit) for income taxes		5			(1	)		1			0	**		3			(3	)		—			—

Net income (loss)		8	%		(2	)%		3	%		4	%		6	%		(6	)%		—	%		1	%

*	General and administrative expenses in the fourth quarter of fiscal 2004 include a charge of approximately $1.6 million (4%) for estimated costs through March 2005 related to the subleasing of Learning Tree facilities in the United Kingdom.

**	Income taxes in the fourth quarter of fiscal 2003 reflect the effect of recording a foreign deferred tax asset of approximately $561,000 (2%).

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: (i) the frequency of course events; (ii) the number of weeks during which courses can be conducted in a quarter; (iii) the timing, timely delivery, frequency and size of, and response to Learning Tree’s direct mail marketing and advertising campaigns; (iv) the timing of the introduction of new course titles; (v) the mix between course events held at customer sites and course events held in Learning Tree’s education centers and hotels due to differing gross profit margins; (vi) competitive forces within markets served by Learning Tree; (vii) Learning Tree’s ability to attract customers and meet their expectations; (viii) currency fluctuations and other risks inherent in international operations; (ix) natural disasters, external strikes, acts of war or terrorism and other external factors; and (x) general economic conditions and industry-specific slowdowns. Fluctuations in quarter-to-quarter results also occur as a result of differences in the timing of Learning Tree’s spending on the marketing of its courses. In addition, the timing of Learning Tree’s spending on the development of its courses and other areas may also result, to a lesser extent, in quarter-to-quarter fluctuations. See Exhibit 99.1, “Risk Factors.”

LIQUIDITY AND CAPITAL RESOURCES

Learning Tree’s cash and cash equivalents decreased to $83.9 million at October 1, 2004 from $86.7 million at September 30, 2003. This decrease primarily reflects investments in course equipment and repurchases of Learning Tree’s Common Stock, partially offset by the effect of exchange rates on cash, cash provided by operations and proceeds from the liquidation of a minority interest equity investment in Collegis, Inc. (formerly eduprise.com.)

During fiscal 2004, Learning Tree repurchased approximately 158,000 shares of its Common Stock for approximately $2.6 million. Learning Tree may make additional purchases through open-market transactions, but has no commitments to do so.

Cash provided by operations for fiscal 2004 was $1.9 million compared to $4.5 million for fiscal 2003. This decrease primarily reflects lower profitability. At October 1, 2004, Learning Tree had a net working capital balance of $40.3 million.

During fiscal 2004, Learning Tree invested $5.7 million in equipment and facilities compared to $3.5 million in fiscal 2003. The investments in the current year primarily relate to purchases of course equipment. Although Learning Tree expects to continue to invest in additional equipment in fiscal 2005, as of October 1, 2004, Learning Tree had no material future purchase obligations, capital commitments or debt. In the future, Learning Tree may use cash for acquisitions or other strategic transactions. While Learning Tree has no current agreements in place or negotiations underway with respect to any acquisition or other strategic transaction, Learning Tree may, on occasion, evaluate acquisition opportunities that appear to fit within its overall business strategy. 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. See Exhibit 99.1, “Risk Factors.”

Learning Tree has not paid any cash dividends since its inception and does not anticipate paying cash dividends in the foreseeable future.

The following table summarizes Learning Tree’s contractual cash commitments at October 1, 2004:


	Payments Due by Period
Contractual Obligations	Total		Less than 1 year (Fiscal 2005)		1-3 years (Fiscal 2006 and 2007)		3-5 years (Fiscal 2008 and 2009)		More than 5 years (Fiscal 2010 through 2020)
Operating leases*	$	105,479,000	$	14,030,000	$	26,747,000	$	19,333,000	$	45,369,000
Employment contracts**		2,313,000		2,313,000		—		—		—
Purchase commitments***		4,730,000		4,730,000		—		—		—

Total	$	112,522,000	$	21,073,000	$	26,747,000	$	19,333,000	$	45,369,000

*	Amounts have not been reduced by future minimum sublease rentals of $2,261,000 due in the future under noncancelable subleases. See Note 3 of “Notes to Consolidated Financial Statements” for further details.

**	Employment contracts reflect severance provisions of certain executive management employment contracts and other similar arrangements which may be payable in certain circumstances in the future. Some amounts reflect estimates as the actual cost of the severance is not defined in the contract.

***

Represents estimated commitments at year-end to purchase goods and services in the normal course of business to meet operational requirements. These obligations are expected to be paid in future periods as stated in the table, although the amounts are subject to change based on operating requirements and other factors.

OFF-BALANCE SHEET ARRANGEMENTS

Learning Tree has no off-balance sheet arrangements (as defined in Regulation S-K Item 303 paragraph (a)(4)(ii)) that have or are reasonably likely to have a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Management’s discussion and analysis of Learning Tree’s financial condition and results of operations is based upon Learning Tree’s 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 estimates and 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 Note 1 of “Notes to Consolidated Financial Statements.” The following represents a summary of Learning Tree’s critical accounting estimates and 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.

Critical Accounting Estimates

Revenue Recognition. 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 one of Learning Tree’s courses 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. 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 most 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.

The average actual attendance rate for all expired Training Passports has closely approximated the estimated rate utilized by Learning Tree. 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. If the estimates are wrong, Learning Tree would record the difference between the revenues previously recognized for that Training Passport and the Training Passport selling price upon expiration of that Training Passport. Thus, the timing of revenue recognition may be affected by an error in estimation, but the error would have no effect on the aggregate revenue recognized over the 12-month life of each Training Passport.

Allowance for Doubtful Accounts Receivable. Trade accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The Company uses estimates in determining the allowance for doubtful accounts receivable, based on its analysis of various factors, including the Company’s historical collection experience, current trends, specific identification of invoices which are considered doubtful, and a percentage of the Company’s past due accounts receivable. Although the Company’s estimates for this reserve have in the past been reasonably accurate, these estimates could differ from actual collection experience and are subject to adjustment. The Company’s trade accounts receivable are written-off when they are deemed uncollectible.

Operating Leases. Learning Tree leases education center and administrative office space under various operating lease agreements. Certain of these operating leases include space that has not been used by Learning Tree and which is either currently subleased, or is vacant and for which Learning Tree is seeking a subtenant(s). For such vacated space, Learning Tree estimates and records the estimated fair value of its liability for costs that Learning Tree will incur under the operating lease without economic benefit. The estimated fair value of the liability is determined based upon the remaining lease costs, as per the operating lease agreement, reduced by estimated sublease rental income that could be reasonably obtained for the property based upon prevailing real estate market conditions. The liability recorded reflects Learning Tree’s best estimate based upon the information available at the time. Learning Tree adjusts the liability, as necessary, as new information becomes available or subsequent developments occur.

In 1999, Learning Tree entered into a 20-year lease on a building in London to house its United Kingdom education center. This building had sufficient space for Learning Tree’s immediate classroom needs, plus three floors for potential future classroom expansion that Learning Tree has been subletting to two subtenants. The first of these subleases has expired and the other subtenant notified Learning Tree in September 2004, that it will vacate when its sublease expires on March 25, 2005. Learning Tree is actively seeking subtenants for these floors, as a whole or in parts, but has yet to sublease this space.

In the fourth quarter of fiscal 2004, Learning Tree recorded a $541,000 charge to reflect its estimate that a sublease with a new tenant for the currently vacant floor in its United Kingdom education center is unlikely to be concluded much before March 25, 2005. This charge reflects Learning Tree’s rent expense for the vacant floor from July 2, 2004 through March 25, 2005. However, there can be no assurance of when Learning Tree will complete a sublease of the currently vacant floor, or when it will find tenants for the other two floors. To the extent that any of these floors are vacant after March 25, 2005, Learning Tree’s general and administrative expenses will include a further charge of approximately $186,000 per quarter for each vacant floor. Accordingly, Learning Tree will make further provisions each quarter as necessary.

In addition, Learning Tree anticipates that in order to rent these floors in its United Kingdom education center it may need to make certain concessions, such as a period of free rent. Such concessions could result in a net sublease rental rate that is somewhat less than the rental rate that Learning Tree pays on its lease. Therefore, Learning Tree also recorded a charge of $566,000 in the fourth quarter of fiscal 2004 for the net present value of the estimated difference between the net sublease rental rates that Learning Tree anticipates for these three floors and its costs over an expected 5-year sublease period. However, the actual vacancy period(s), the actual sublease rental rate(s), and the actual duration of the sublease(s) will be different from the estimates that Learning Tree has used in computing its estimate for this charge.

If Learning Tree’s estimates are wrong, and such space is sublet sooner/later, or at more/less favorable rates, Learning Tree may have to record either additional charges or a reversal of previously recorded charges.

Critical Accounting Policies

Revenue Recognition. Learning Tree course events range from two to five days, with an average of approximately four days. As stated above, beginning with the second quarter of fiscal 2004, Learning Tree adopted a 52- or 53-week fiscal year in order to better align its external financial reporting with the way Learning Tree operates its 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- or 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. Prior to the adoption of the 52- or 53- week method, it was 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 were recorded upon commencement of each course event, unless the difference between Learning Tree’s revenue recognition policy and recording revenues and related course costs on a straight-line basis was more than inconsequential.

In addition to its Training Passports, Learning Tree also offers a multiple-course sales discount referred to as Training Vouchers. Under Learning Tree’s Training Vouchers, a 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.

Stock Based Compensation. Learning Tree uses the intrinsic value method under 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 during fiscal 2003 and fiscal 2004 for stock options granted to employees.

Facilities, Intangible and Other Long-Lived Assets. 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.

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 carry-forwards 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 that Learning Tree expects to pay in future periods.

OUTLOOK FOR FISCAL 2005

Throughout this document, there have been various forward-looking statements. However, all of the statements in this section are forward-looking and are subject to various risks and uncertainties, including those detailed from time to time in Learning Tree’s filings with the Securities and Exchange Commission and in

Exhibit 99.1, “Risk Factors.” Since economic and market conditions may change at any time, Learning Tree’s future revenues, plans and expenditures will vary from the observations below, and these differences may be material.

Recent Trends. Learning Tree’s business continues to be influenced by world events, by the economy, and by corporate spending trends for IT, among other factors. Learning Tree believes that the best way to counteract adverse market trends is to use a strong, focused, integrated marketing and sales strategy that clearly and visibly helps Learning Tree’s customers identify specific applications of training services to improve their business performance. Accordingly, Learning Tree continues to assess alternative approaches to sales and marketing with the objective of improving its performance under current market conditions.

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 affect future revenues and expenses when translated into dollars. If the exchange rates of November 15, 2004 remain stable through the remainder of fiscal 2005, Learning Tree’s revenues would be favorably affected by approximately 6% in the first quarter and approximately 3% for the full fiscal year compared to the corresponding periods in fiscal 2004. Conversely, Learning Tree’s expenses would be unfavorably affected by similar percentages in these periods.

First Quarter 2005 Revenues. A number of factors may influence Learning Tree’s revenues in its first fiscal quarter ending December 31, 2004. These include the following:

•

Learning Tree has yet to see any sustained improvement in demand for IT skills training from its customers.

•

At October 1, 2004, Learning Tree’s backlog of $33.6 million was about 2% lower than it had been on September 30, 2003. This October 1, 2004 backlog included a 3% favorable effect from changes in foreign exchange rates. Four weeks later, at October 29, 2004, Learning Tree’s overall backlog of $31.8 million was 3% lower than at October 31, 2003. And, at October 29, 2004, the sum of Learning Tree’s revenues for October courses plus its backlog for November and December courses was 5% lower than it had been at October 31, 2003. These October 29, 2004 backlogs each included a 4% favorable effect from changes in foreign exchange rates.

Based upon the above and other factors, Learning Tree believes that its revenues in the first quarter of fiscal 2005 will be approximately $38.0 million to $39.5 million, or 1% to 5% lower than the prior year period.

First Quarter Gross Profit. Learning Tree expects its gross profit percentage in the first quarter of fiscal 2005 to be between 49.0% and 50.5%.

First Quarter Operating Expenses. Learning Tree expects overall operating expenses for the first quarter of fiscal 2005 to be approximately $18.5 million, an increase of approximately $250,000 compared to the same quarter a year earlier. This increase primarily reflects the effect of changes in exchange rates and annual compensation increases. Learning Tree expects this increase to be partially offset by lower marketing costs due to the net effect of mailing fewer regular catalogs than in the same quarter of fiscal 2004 and the increased costs of mailing Management Curriculum catalogs in fiscal 2005, which Learning Tree first introduced in the second quarter of fiscal 2004.

First Quarter Interest Income. Learning Tree’s interest income reflects changes in interest rates, as well as changes in cash balances. Learning Tree expects first quarter interest income to be approximately the same as it was in the fourth quarter of fiscal 2004.

2005 Tax Rate. Learning Tree estimates that its effective tax rate in fiscal 2005 will be approximately 33.3% as a result of utilizing foreign tax credits during the year.

Future Outlook. Looking forward, Learning Tree remains confident in the long-term outlook for the technology industry and the need for IT and management training. Learning Tree believes that technology

provides mission-critical resources that can be used by organizations to gain a competitive advantage, provided that their technical personnel are adequately trained in the technologies they are using. Learning Tree believes that even more critical is the training of managers at all levels in an organization. Studies show again and again that effective training in basic and applied management skills increases the likelihood of successful project implementation, reduces risk and costs and increases overall organizational performance.

Learning Tree’s strong global brand, operational strengths and financial resources position it to respond both to the current business environment and to future opportunities that may develop. Learning Tree plans to continue to apply Learning Tree’s considerable resources to provide the best possible service to its customers with the expectation of maintaining their continuing loyalty and capturing additional market share.

Item 7A. 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 (approximately 10 basis points) increase or decrease in the rates of interest due primarily to the short-term nature of the portfolio. Learning Tree does not hold or issue derivative financial instruments.

Learning Tree’s consolidated financial statements are prepared in U.S. dollars, while the operations of its foreign subsidiaries are conducted in their respective local currencies. Consequently, changes in exchange rates can result in exchange gains or 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. See Exhibit 99.1, “Risk Factors.”

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


		Page
Report of Independent Registered Public Accounting Firm		30
Consolidated Balance Sheets at September 30, 2003 and October 1, 2004		31
Consolidated Statements of Operations for the fiscal years ended September 30, 2002 and 2003 and October 1, 2004		32
Consolidated Statements of Stockholders’ Equity for the fiscal years ended September 30, 2002 and 2003 and October 1, 2004		33
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2002 and 2003 and October 1, 2004		34
Notes to Consolidated Financial Statements		35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

Learning Tree International, Inc.

We have audited the accompanying consolidated balance sheets of Learning Tree International, Inc. and subsidiaries (the “Company”) as of October 1, 2004 and September 30, 2003, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended October 1, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Learning Tree International, Inc. and subsidiaries at October 1, 2004 and September 30, 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 1, 2004 in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Los Angeles, California

November 5, 2004

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	September 30, 2003			October 1, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	86,711,000		$	83,913,000
Trade accounts receivable, less allowances of $818,000 and $402,000, respectively		11,779,000			12,902,000
Prepaid marketing expenses		915,000			814,000
Prepaid income taxes		3,974,000			3,791,000
Prepaid expenses and other		5,943,000			4,337,000

Total current assets		109,322,000			105,757,000


Equipment, property and leasehold improvements:
Education and office equipment		43,888,000			44,707,000
Transportation equipment		149,000			164,000
Property and leasehold improvements		21,696,000			22,964,000

		65,733,000			67,835,000
Less: accumulated depreciation and amortization		(44,966,000	)		(47,024,000	)

		20,767,000			20,811,000
Long-term interest-bearing investments		8,333,000			8,929,000
Deferred income taxes		585,000			878,000
Other assets		1,902,000			1,059,000

Total assets	$	140,909,000		$	137,434,000


LIABILITIES
Current liabilities:
Trade accounts payable	$	12,275,000		$	12,570,000
Deferred revenue		50,082,000			46,847,000
Accrued payroll, benefits and related taxes		3,577,000			2,794,000
Other accrued liabilities		2,641,000			2,957,000
Income taxes payable		511,000			286,000

Total current liabilities		69,086,000			65,454,000

Deferred income taxes		575,000			550,000
Deferred facilities rent		2,268,000			2,887,000

Total liabilities		71,929,000			68,891,000


Commitments and contingencies

STOCKHOLDERS’ EQUITY
Common Stock, $.0001 par value, 75,000,000 shares authorized, 17,108,000 and 16,989,000 shares issued and outstanding, respectively		2,000			2,000
Preferred Stock, $.0001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding		—			—
Additional paid-in capital		9,000			9,000
Cumulative foreign currency translation		(473,000	)		626,000
Retained earnings		69,442,000			67,906,000

Total stockholders’ equity		68,980,000			68,543,000

Total liabilities and stockholders’ equity	$	140,909,000		$	137,434,000

The accompanying notes are an integral part of these consolidated financial statements.

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


	Fiscal Year Ended
	September 30, 2002			September 30, 2003			October 1, 2004
Revenues	$	174,161,000		$	151,897,000		$	152,058,000
Cost of revenues		79,392,000			72,389,000			73,612,000

Gross profit		94,769,000			79,508,000			78,446,000

Operating expenses:
Course development		9,319,000			7,897,000			7,960,000
Sales and marketing		50,251,000			43,781,000			47,206,000
General and administrative		25,426,000			23,014,000			24,476,000

		84,996,000			74,692,000			79,642,000

Income (loss) from operations		9,773,000			4,816,000			(1,196,000	)

Other income (expense):
Interest expense		(30,000	)		(12,000	)		—
Interest income		2,833,000			1,934,000			1,444,000
Foreign exchange gains (losses)		(50,000	)		346,000			335,000
Other		(286,000	)		47,000			270,000

		2,467,000			2,315,000			2,049,000

Income before provision for income taxes		12,240,000			7,131,000			853,000
Provision for income taxes		4,345,000			1,970,000			284,000

Net income	$	7,895,000		$	5,161,000		$	569,000

Earnings per common share	$	0.42		$	0.30		$	0.03

Earnings per common share assuming dilution	$	0.42		$	0.30		$	0.03

Weighted average number of shares outstanding		18,763,000			17,394,000			17,039,000

Diluted shares outstanding		18,992,000			17,449,000			17,065,000

The accompanying notes are an integral part of these consolidated financial statements.

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Common Stock				Additional Paid-in Capital			Foreign Currency Translation Adjustment			Retained Earnings			Total Stockholders’ Equity
	Shares		Amount		Additional Paid-in Capital			Foreign Currency Translation Adjustment			Retained Earnings			Total Stockholders’ Equity
Balance, September 30, 2001	18,929,000		$	2,000	$	—		$	(4,584,000	)	$	88,642,000		$	84,060,000
Comprehensive income:
Net income	—			—		—			—			7,895,000			7,895,000
Foreign currency translation	—			—		—			1,697,000			—			1,697,000

Comprehensive income															9,592,000
Stock options issued for services	—			—		32,000			—			—			32,000
Stock repurchases	(1,104,000	)		—		(4,212,000	)		—			(16,922,000	)		(21,134,000	)
Stock option exercises	302,000			—		2,950,000			—			—			2,950,000
Tax benefit related to stock option exercises	—			—		1,230,000			—			—			1,230,000

Balance, September 30, 2002	18,127,000			2,000		—			(2,887,000	)		79,615,000			76,730,000
Comprehensive income:
Net income	—			—		—			—			5,161,000			5,161,000
Foreign currency translation	—			—		—			2,414,000			—			2,414,000

Comprehensive income															7,575,000
Stock options issued for services	—			—		23,000			—			—			23,000
Stock repurchases	(1,159,000	)		—		(1,632,000	)		—			(15,334,000	)		(16,966,000	)
Stock option exercises	140,000			—		1,485,000			—			—			1,485,000
Tax benefit related to stock option exercises	—			—		133,000			—			—			133,000

Balance, September 30, 2003	17,108,000			2,000		9,000			(473,000	)		69,442,000			68,980,000
Comprehensive income:
Net income	—			—		—			—			569,000			569,000
Foreign currency translation	—			—		—			1,099,000			—			1,099,000

Comprehensive income															1,668,000
Stock options issued for services	—			—		8,000			—			—			8,000
Stock repurchases	(158,000	)		—		(477,000	)		—			(2,105,000	)		(2,582,000	)
Stock option exercises	39,000			—		445,000			—			—			445,000
Tax benefit related to stock option exercises	—			—		24,000			—			—			24,000

Balance, October 1, 2004	16,989,000		$	2,000	$	9,000		$	626,000		$	67,906,000		$	68,543,000

The accompanying notes are an integral part of these consolidated financial statements.

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Fiscal Year Ended
	September 30, 2002			September 30, 2003			October 1, 2004
Cash flows—operating activities:
Net income	$	7,895,000		$	5,161,000		$	569,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,215,000			7,473,000			6,132,000
Unrealized foreign exchange losses (gains)		(469,000	)		(806,000	)		(521,000	)
Gain on liquidation of investment in Collegis, Inc		—			—			(203,000	)
Loss related to subleasing		—			—			1,601,000
Loss (gain) on disposals of equipment and leasehold improvements		179,000			(17,000	)		30,000
Deferred facilities rent charges		(406,000	)		(239,000	)		(544,000	)
Change in net assets and liabilities:
Trade accounts receivable		4,970,000			565,000			(690,000	)
Prepaid marketing expenses		613,000			787,000			120,000
Prepaid expenses and other		1,125,000			(719,000	)		1,868,000
Income taxes		(916,000	)		1,047,000			(334,000	)
Trade accounts payable		(5,407,000	)		(585,000	)		(219,000	)
Deferred revenue		(7,423,000	)		(8,239,000	)		(4,906,000	)
Accrued payroll, benefits and related taxes		(373,000	)		462,000			(1,121,000	)
Other accrued liabilities		(1,471,000	)		(395,000	)		72,000

Net cash provided by operating activities		6,532,000			4,495,000			1,854,000

Cash flows—investing activities:
Purchases of equipment, property and leasehold improvements		(3,832,000	)		(3,503,000	)		(5,737,000	)
Retirements of equipment and leasehold improvements		110,000			278,000			3,000
Liquidation of investment in Collegis, Inc		—			—			1,203,000
Other, net		836,000			145,000			(101,000	)

Net cash used in investing activities		(2,886,000	)		(3,080,000	)		(4,632,000	)

Cash flows—financing activities:
Proceeds from exercise of stock options		2,950,000			1,485,000			445,000
Repurchases of Common Stock		(21,134,000	)		(16,966,000	)		(2,582,000	)

Net cash used in financing activities		(18,184,000	)		(15,481,000	)		(2,137,000	)

Effects of exchange rates on cash		2,891,000			3,880,000			2,117,000

Net decrease in cash and cash equivalents		(11,647,000	)		(10,186,000	)		(2,798,000	)
Cash and cash equivalents at the beginning of the period		108,544,000			96,897,000			86,711,000

Cash and cash equivalents at the end of the period	$	96,897,000		$	86,711,000		$	83,913,000

Supplemental disclosures:
Income taxes paid	$	7,115,000		$	3,022,000		$	1,774,000

Interest paid	$	6,000		$	2,000		$	—

The accompanying notes are an integral part of these consolidated financial statements.

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a. Nature of the Business:

Learning Tree International, Inc. and subsidiaries (the “Company”) develop, market and deliver a broad proprietary library of courses which are designed to meet the training needs of information technology (“IT”) professionals and managers worldwide. These courses are delivered primarily at the Company’s leased education centers located in the United States, United Kingdom, Canada, France and Sweden. Such course events are also conducted in hotel and conference facilities, and at customer sites throughout the world. The Company provides courses that are regularly presented worldwide and cover such technology topics as web development, operating systems, programming languages, databases, computer networks, computer and network security, object-oriented technology, project management, leadership and professional development, and key business skills.

In the second quarter of fiscal 2004, the Company adopted a 52- or 53-week fiscal year, by changing its year-end date from September 30 to the Friday nearest the end of September. Thus, these consolidated financial statements report the Company’s consolidated financial position as of September 30, 2003 and October 1, 2004, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended October 1, 2004.

b. Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of Learning Tree International, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Minority interests in certain subsidiaries are not significant. Following is a summary of the subsidiaries of the Company:

Learning Tree International USA, Inc. (U.S.)

Learning Tree International, K.K. (Japan)

Learning Tree International Ltd. (United Kingdom)

Learning Tree International S.A. (France)

Learning Tree International AB (Sweden)

Learning Tree Publishing AB (Sweden)

Learning Tree International Inc. (Canada)

Learning Tree International Ltd. (Hong Kong)

Advanced Technology Marketing, Inc. (U.S.)

c. Capital Stock:

The Company has 75,000,000 authorized shares of $.0001 par value Common Stock (“Common Stock”). In addition, the Company’s authorized capital stock includes 10,000,000 shares of $.0001 par value Preferred Stock (“Preferred Stock”). No shares of Preferred Stock have been issued nor have the terms, conditions or preferences for such Preferred Stock been established.

d. Revenue Recognition and Accounts Receivable:

The Company’s revenues are received from business entities and governmental agencies for the training of their employees. Course events range from two to five days, with an average of approximately four days. As stated above, beginning with the second quarter of fiscal 2004, the Company adopted a 52- or 53-week fiscal year. This method was adopted in order to better align the Company’s external financial reporting with the way the Company operates its 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- or 53-week fiscal year method all revenues and related direct costs for

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

each course event are recognized in the week and the fiscal quarter in which the event takes place. Prior to the adoption of the 52- or 53- week method, it was the Company’s policy to recognize revenues and the related direct costs of course events as courses were delivered on a straight-line basis. However, for administrative purposes, the revenues and the related costs of course events were recorded upon commencement of each course event, unless the difference between the Company’s revenue recognition policy and recording revenues and related course costs on a straight-line basis was more than inconsequential.

The Company 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 the Company’s courses over a one-year period for a fixed price. For a Training Passport, the amount of revenue recognized for each attendance in one of the Company’s courses 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, the Company 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 the Company. 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. The Company believes it is appropriate to recognize revenues on this basis in order to most 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. The Company 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 the Company 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.

The Company also offers a multiple-course sales discount referred to as “Training Vouchers.” Under the Company’s Training Vouchers, the customer buys the right to send a specified number of attendees to the Company’s 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, the Company records the selling price of the expired Training Voucher as revenue.

Trade accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. The Company uses estimates in determining the allowance for doubtful accounts receivable, based on its analysis of various factors, including the Company’s historical collection experience, current trends, specific identification of invoices which are considered doubtful, and a percentage of the Company’s past due accounts receivable. These estimates could differ from actual collection experience and are subject to adjustment. The Company’s trade accounts receivable are written-off when they are deemed uncollectible.

e. Deferred Revenues:

Deferred revenues primarily relate to unearned revenues associated with Training Passports, Training Vouchers and advance payments received from customers for course events to be held in the future.

f. Prepaid Marketing Expenses:

Prepaid marketing expenses primarily include the external costs associated with the design, printing, postage and handling of direct mail advertising materials to be mailed in the future. These costs are charged to

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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. Marketing expenses for the fiscal years ended September 30, 2002 and 2003 and October 1, 2004 were $34,418,000, $30,674,000 and $34,075,000, respectively.

g. Course Development Costs:

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

h. Stock Based Compensation:

The Company uses the intrinsic value method under APB Opinion No. 25 “Accounting for Stock Issued to Employees,” in accounting for its stock option plans, which are more fully described in Note 5. The exercise price of all stock options granted under the Company’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, 2003 and 2004. 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,” the Company’s net income and earnings per common share would have been reduced to the pro forma amounts below:


	Fiscal Year Ended
	September 30, 2002			September 30, 2003			October 1, 2004
Net income, as reported	$	7,895,000		$	5,161,000		$	569,000
Less: stock-based employee compensation cost, at estimated fair value, net of tax		(1,951,000	)		(1,934,000	)		(1,063,000	)

Pro forma net income (loss)	$	5,944,000		$	3,227,000		$	(494,000	)

As reported:
Earnings per common share	$	0.42		$	0.30		$	0.03
Earnings per common share assuming dilution	$	0.42		$	0.30		$	0.03
Pro forma:
Earnings (loss) per common share	$	0.32		$	0.19		$	(0.03	)
Earnings (loss) per common share assuming dilution	$	0.31		$	0.18		$	(0.03	)

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 years ended September 30, 2002 and 2003 and October 1, 2004, with the following assumptions: risk-free interest rates of 3.1%, 1.9% and 2.9%; a dividend yield of zero; an expected life of 2.5 years, 2.5 years and 3.1 years; and a volatility of 55%, 41% and 41%. Based upon these assumptions, the pro forma weighted average fair value of the options granted during fiscal 2002 was $8.00, during fiscal 2003 was $4.00 and during fiscal 2004 was $4.90. The Company estimates the total number of options expected to vest and adjusts that estimate based upon an analysis of historical trends, on a prospective basis.

i. Foreign Currency:

The Company translates the financial statements of its foreign subsidiaries from the local (functional) currencies to United States dollars in accordance with SFAS No. 52 “Foreign Currency Translation.” The rates of exchange at each fiscal year end are used for translating the balance sheets and the average monthly rates of exchange for each year are used for the statements of operations. Gains or losses arising from the translation of

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the foreign subsidiaries’ financial statements are included in the accompanying consolidated balance sheets as a separate component of stockholders’ equity. Gains or losses resulting from foreign currency transactions are included in the consolidated statements of operations.

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

j. Equipment, Property and Leasehold Improvements:

Equipment, property and leasehold improvements are recorded at cost and depreciated or amortized using the straight-line method over the following estimated useful lives:


Education and office equipment		3 to 7 years
Transportation equipment		4 years
Leasehold improvements		10 years or the life of the lease, if shorter
Property		30 years

Costs of normal maintenance and repairs and minor replacements are charged to expense as incurred. The costs of assets sold or retired are eliminated from the accounts along with the related accumulated depreciation or amortization and any resulting gain or loss is included in income.

k. Intangible and Long-Lived Assets:

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

l. Facilities Leases:

The Company leases education center and administrative office space under various operating lease agreements. Certain lease agreements include provisions that provide for cash incentives, graduated rent payments and other inducements. The Company recognizes rent expense on a straight-line basis over the related terms of such leases. The value of lease incentives and/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.

Certain of these operating leases include space that has not been used by the Company and which is either currently subleased, or is vacant and for which the Company is seeking a subtenant(s). For such vacated space the Company estimates and records the estimated fair value of its liability for costs that the Company will incur under the operating lease without economic benefit. The estimated fair value of the liability is determined based upon the remaining lease costs, as per the operating lease agreement, reduced by estimated future sublease rental income that could be reasonably obtained for the property based upon prevailing real estate market conditions. The estimated long-term portion of such liabilities is recorded as deferred facilities rent charges in the accompanying consolidated financial statements. The liability recorded by the Company reflects the Company’s best estimate based upon the information available at the time. The Company adjusts the liability, as necessary, as new information becomes available or subsequent developments occur.

m. Computation of Earnings per Common Share and Assuming Dilution:

Earnings per common share and earnings per common share assuming dilution are computed using the weighted average number of shares of Common Stock outstanding during the period. Earnings per common share

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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, 229,000 shares, 55,000 shares and 26,000 shares were added to the weighted average number of shares outstanding for the fiscal years ended September 30, 2002 and 2003 and October 1, 2004, respectively. Approximately 1,302,000 stock options, 1,681,000 stock options and 1,498,000 stock options were excluded from the calculation of earnings per common share assuming dilution for the fiscal years ended September 30, 2002 and 2003 and October 1, 2004 respectively, because they were antidilutive.

n. Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

2. INCOME TAXES:

The Company files a consolidated U.S. Federal income tax return which includes substantially all of its domestic operations. The Company files separate tax returns for each of its foreign subsidiaries in the countries in which they reside.

Income before provision for income taxes consists of the following:


	Fiscal Year Ended
	September 30, 2002		September 30, 2003		October 1, 2004
Domestic	$	8,550,000	$	5,356,000	$	782,000
Foreign		3,690,000		1,775,000		71,000

Total	$	12,240,000	$	7,131,000	$	853,000

The provision for income taxes is comprised of the following:


	Fiscal Year Ended
	September 30, 2002			September 30, 2003			October 1, 2004
Current tax provision:
U.S. Federal	$	2,122,000		$	1,239,000		$	158,000
State		471,000			200,000			80,000
Foreign		1,563,000			907,000			264,000

		4,156,000			2,346,000			502,000

Deferred tax provision:
U.S. Federal		187,000			413,000			348,000
State		14,000			31,000			26,000
Foreign		(12,000	)		(820,000	)		(592,000	)

		189,000			(376,000	)		(218,000	)

Total provision for income taxes	$	4,345,000		$	1,970,000		$	284,000

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following is a reconciliation of the provision for income taxes computed by applying the U.S. Federal statutory rate to the income before taxes, to the reported provision for income taxes:


	Fiscal Year Ended
	September 30, 2002			September 30, 2003			October 1, 2004
Income taxes at the statutory rate	$	4,284,000		$	2,496,000		$	290,000
Permanent differences		21,000			54,000			(2,000	)
Effect of foreign taxes and tax credits		(266,000	)		(710,000	)		(57,000	)
State income taxes		306,000			130,000			53,000

Total provision for income taxes	$	4,345,000		$	1,970,000		$	284,000

Under SFAS No. 109 “Accounting for Income Taxes,” deferred income tax assets and liabilities arise from carryforwards and from temporary differences between the tax basis of assets and liabilities and the book basis of such assets and liabilities as reported in the financial statements. 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 the Company expects to pay in future periods.

Deferred income tax assets and liabilities consist of the following:


	As of September 30, 2003			As of October 1, 2004
Domestic operations:
Deferred tax assets:
Deferred facilities rent charges	$	528,000		$	451,000
Other		393,000			332,000
Deferred tax liabilities:
Depreciation and amortization		(1,471,000	)		(1,724,000	)
Other		(18,000	)		(1,000	)

Net domestic deferred tax liabilities		(568,000	)		(942,000	)

Foreign operations:
Deferred tax assets:
Depreciation and other		585,000			878,000
Deferred tax liabilities:
Depreciation and other		(7,000	)		392,000

Net foreign deferred tax assets (liabilities).		578,000			1,270,000

Net deferred tax assets (liabilities)	$	10,000		$	328,000

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. COMMITMENTS AND CONTINGENCIES:

a. Commitments:

The Company leases its education centers and certain administrative facilities and certain equipment under various operating lease agreements which expire at various dates through 2019. The minimum future rental payments for all operating leases are as follows:


2005	$	14,030,000
2006		13,394,000
2007		13,353,000
2008		12,016,000
2009		7,317,000
Thereafter		45,369,000

	$	105,479,000

The minimum future rental payments have not been reduced by future minimum sublease rentals of $2,261,000 due in the future under noncancelable subleases. For the years ended September 30, 2002 and 2003 and October 1, 2004, rent expense net of sublease income was $11,612,000, $12,244,000 and $13,426,000, respectively. The sublease rental income for the years ended September 30, 2002 and 2003 and October 1, 2004 was $2,174,000, $2,316,000 and $2,244,000, respectively. The agreements generally require the payment of property taxes, insurance and maintenance in addition to the minimum base rent.

b. Contingencies:

In the fourth quarter of fiscal 2004, the Company recorded a charge of approximately $1.6 million related to subleasing portions of Learning Tree’s United Kingdom (“UK”) education center which are either currently vacant or will be vacated by the current subtenant when its sublease expires in March 2005, and a portion of the UK’s administrative office which was recently sublet for the first time. The estimate is based upon the Company’s estimate of the time period that the UK education center space will be vacant and the future sublease rental rate. The Company is actively seeking subtenant(s) for this UK education center space, however has yet to execute any sublease agreement(s). If the Company’s estimates are wrong, and the UK education center space is sublet sooner/later, or at more/less favorable rates, the Company will have to record either additional charges or a reversal of previously recorded charges.

4. STOCKHOLDERS’ EQUITY:

During fiscal 2002, the Company repurchased approximately 1,104,000 shares at a total cost of approximately $21,134,000. During fiscal 2003, the Company repurchased approximately 1,159,000 shares at a total cost of approximately $16,966,000. During fiscal 2004, the Company repurchased approximately 158,000 shares at a total cost of approximately $2,582,000.

5. EMPLOYEE STOCK OPTION PLAN:

In March 1999, the Company and its shareholders adopted the Learning Tree International, Inc. 1999 Stock Option Plan (the “1999 Plan.”) The 1999 Plan permits the grant of options to officers, employees and directors of the Company. It provides for the issuance of incentive stock options within the meaning of Section 422 of the Internal Revenue Code and non-qualified stock options. In March 2002, the 1999 Plan was amended to increase the number of shares of Common Stock that may be purchased under the plan from an aggregate of 1,500,000 shares to 3,964,000 shares.

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In October 1995, the 1995 Stock Option Plan (the “1995 Plan”) had been adopted. The 1995 Plan generally had the same terms and conditions as the 1999 Plan. Effective with the approval of the amendment of the 1999 Plan, the Company no longer grants options under the 1995 Plan which had provided for options covering up to an aggregate of 2,250,000 shares of Common Stock.

The exercise price of incentive stock options granted will be greater than or equal to their fair market value at the date of grant, and the maximum term of all options may not exceed ten years. The vesting schedule and the period required for full exercisability of the stock options is at the discretion of the Board of Directors, but in no event can it be less than six months.

In fiscal 2002, 2003 and 2004, options were granted to certain employees under the 1999 Plan. The exercise price of all options granted was equal to their fair market value at the dates of the grants and the terms of the options are generally five years. The options are generally subject to a four-year vesting schedule at 25% per year on each anniversary date. Following is a summary of the options granted under the plans:


	Shares		Weighted Average Exercise Price
Outstanding at September 30, 2001	2,346,000			21.70
Options Granted	667,000			22.08
Exercised during the year	(302,000	)		9.75
Forfeited during the year	(591,000	)		22.30

Outstanding at September 30, 2002	2,120,000			23.36
Options Granted	313,000			14.71
Exercised during the year	(140,000	)		10.61
Forfeited during the year	(320,000	)		15.59

Outstanding at September 30, 2003	1,973,000			24.15
Options Granted	225,000			15.64
Exercised during the year	(39,000	)		11.24
Forfeited during the year	(476,000	)		20.38

Outstanding at October 1, 2004	1,683,000		$	24.38

As of October 1, 2004, the Company had 2,395,000 shares of Common Stock available for grant under the 1999 Plan.

The following table summarizes stock options outstanding and exercisable at October 1, 2004:


	Options Outstanding				Options Exercisable
Exercise Price Ranges	Shares	Weighted Average Exercise Price		Average Remaining Life (Years)	Shares	Weighted Average Exercise Price
$ 6.63–17.55	517,000	$	15.22	3.7	121,000	$	15.09
20.92–28.00	583,000		23.38	1.9	393,000		23.48
30.25–48.50	583,000		33.51	1.0	576,000		33.39

$ 6.63–48.50	1,683,000	$	24.38	2.1	1,090,000	$	27.79

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. EMPLOYEE BENEFIT PLANS:

The Company has adopted a defined contribution plan for the benefit of its domestic employees who have met the eligibility requirements. The Learning Tree International 401(k) Plan (the “Plan”) is a profit-sharing plan qualifying under Section 401(k) of the Internal Revenue Code.

Qualified employees may elect to contribute up to 15% of their compensation to the Plan on a pre-tax basis, subject to statutory limitations. The Company makes contributions at a rate of 75% of elective contributions up to 4.5% of the compensation of such contributors. The Company contributed $730,000, $695,000 and $614,000 to the Plan for the fiscal years ended September 30, 2002 and 2003 and October 1, 2004, respectively.

The Company has adopted similar plans for the benefit of its employees in certain of its foreign subsidiaries. Contributions to these plans are subject to various age, length of service and compensation level criteria, as well as certain limitations. For the fiscal years ended September 30, 2002 and 2003 and October 1, 2004, the cost to the Company of these plans was approximately $379,000, $360,000 and $347,000, respectively.

7. OPERATING SEGMENT INFORMATION:

The Company has only one material operating segment, the design and delivery of training courses and related services, which is managed on a geographic basis. There were no sales to any individual customers that accounted for 10% or more of revenue in fiscal 2002, 2003 or 2004.

The table below presents information by geographic location:


	Fiscal Year Ended
	September 30, 2002		September 30, 2003		October 1, 2004
Revenues:
United States	$	87,748,000	$	74,499,000	$	70,404,000
Canada		11,462,000		10,212,000		10,642,000
United Kingdom		46,532,000		39,290,000		43,159,000
Europe—other		26,581,000		26,205,000		26,025,000
Asia		1,838,000		1,691,000		1,828,000

Consolidated revenues	$	174,161,000	$	151,897,000	$	152,058,000

Long-lived assets:
United States			$	13,687,000	$	14,102,000
Canada				1,182,000		1,118,000
United Kingdom				2,418,000		2,691,000
Europe—other				4,290,000		3,754,000
Asia				82,000		164,000

Consolidated long-lived assets			$	21,659,000	$	21,829,000

Revenues are attributed to countries based on the location in which the sale originated. Long-lived assets principally consist of net equipment, property and leasehold improvements.

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8. VALUATION AND QUALIFYING ACCOUNTS:

Activity with respect to the Company’s allowance for doubtful accounts receivable is summarized as follows:


	Fiscal Year Ended
	September 30, 2002			September 30, 2003			October 1, 2004
Beginning balance	$	786,000		$	908,000		$	818,000
Charged to expense		411,000			190,000			36,000
Amounts written off		(289,000	)		(280,000	)		(452,000	)

Ending balance	$	908,000		$	818,000		$	402,000

9. CASH, CASH EQUIVALENTS AND INTEREST-BEARING INVESTMENTS:

Cash Equivalents—

The Company considers highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cost approximates market value for the Company’s cash equivalents.

Long-Term Interest-Bearing Investments—

Long-term interest-bearing investments reflect $8,929,000 (5,000,000 British Pounds) which has been pledged to secure the Company’s obligation under a lease for certain education center facilities in the United Kingdom. The terms of the lease require the Company to pledge a cash deposit or provide a letter of credit for the same amount as collateral for its obligations thereunder. The investment is carried at cost, which approximates market value. The Company receives interest earned by the cash deposit. The required level of the cash deposit or letter of credit will decline if certain financial ratios have been met.

10. RELATED PARTY TRANSACTIONS:

In October 1995, the Company entered into an employment agreement with the Chief Executive Officer for an initial period of three years. Since October 1995, the agreement has periodically been amended and extended. In September 2002, the employment agreement with the Chief Executive Officer was extended until September 30, 2004. In September 2004, the employment agreement with the Chief Executive Officer was extended for an additional three years, until September 30, 2007.

In November 2003, the President of Learning Tree became Vice Chairman of Learning Tree’s Board of Directors (“Vice Chairman”) and a new employment agreement was established. The new employment agreement provides for the part-time employment, on an hourly basis, of the Vice Chairman and may be terminated by either party on three months written notice.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

Learning Tree maintains disclosure controls and procedures designed to ensure that information required to be disclosed by Learning Tree in the reports that it files or submits under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Learning Tree’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance of achieving their objectives. As of the end of the period covered by 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 Principal Financial Officer (“PFO”). Based upon that evaluation, and subject to the limitations noted below, Learning Tree’s CEO and PFO concluded that Learning Tree’s disclosure controls and procedures are effective at the “reasonable assurance” level 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 control over financial reporting by Learning Tree’s CEO and PFO, there have been no significant changes in its internal control over financial reporting or in other factors that could materially affect, or is reasonably likely to materially affect, Learning Tree’s internal control over financial reporting.

Learning Tree’s management, including its CEO and PFO, 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 PFO periodically review Learning Tree’s internal and disclosure controls with other members of Learning Tree’s management and update controls and systems as needed.

Item 9B. OTHER INFORMATION

None.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table provides biographical information regarding the directors and executive officers of Learning Tree as of October 1, 2004. All other information regarding directors and executive officers of Learning Tree required by this item is incorporated by reference to the section entitled “Executive Officers of the Registrant” of Learning Tree’s definitive Proxy Statement to be delivered to shareholders in connection with the 2005 Annual Meeting of Shareholders.


Name	Age	Title
David C. Collins	63	Chairman of the Board of Directors and Chief Executive Officer
Eric R. Garen	57	Vice Chairman of the Board of Directors
Nicholas R. Schacht	45	President and Chief Operating Officer
Mary C. Adams	48	Chief Administrative Officer and Secretary
Bill B. Concevitch	46	Executive Vice President
W. Mathew Juechter (1)	71	Director
Howard A. Bain III (2)(3)(4)	58	Director
Curtis A. Hessler (3)(4)(5)	60	Director
Wilford D.Godbold (3)(4)(5)	66	Director

(1)	Chairman of the Compensation and Stock Option Committee and the Nominating and Governance Committee.

(2)	Chairman of the Audit Committee.

(3)	Member of the Compensation and Stock Option Committee.

(4)	Member of the Nominating and Governance Committee.

(5)	Member of the Audit Committee.

Dr. Collins, a co-founder of Learning Tree, has been Chairman of the Board and Chief Executive Officer since Learning Tree began operations in August, 1974. Dr. Collins has a Bachelor of Science degree (with distinction) in Electrical Engineering from Stanford University, and Masters and Ph.D. degrees in Electrical Engineering from the University of Southern California.

Mr. Garen, a co-founder of Learning Tree, has served as Vice Chairman of Learning Tree’s Board of Directors since November 2003. Prior to November 2003, Mr. Garen served as President and as Executive Vice President of Learning Tree since Learning Tree’s business began in 1974. Mr. Garen holds a Bachelor of Science degree in Electrical Engineering from the California Institute of Technology and a Masters degree in Computer Science from the University of Southern California, earning both degrees with honors.

Mr. Schacht has been President and Chief Operating Officer of Learning Tree since November 2003. He was Chief Operating Officer of Learning Tree from 2002 to 2003. He was President of Global Learning Systems from 1999 to 2002, Group President for the Institute for International Research from 1998 to 1999, and held a variety of positions with ESI International from 1989 to 1998, culminating as its President. From 1987 to 1989, Mr. Schacht was a Research Fellow with Logistics Management Institute, and from 1981 to 1987, he was a U.S. Naval officer. Mr. Schacht holds a B.S. degree with honors from the U.S. Naval Academy, a Master’s degree in General Administration from the University of Maryland, and a Master of Science degree from The George Washington University.

Ms. Adams has served as Chief Administrative Officer since October 2003. She was Vice President, Administration and Investor Relations from 1995 to 2003. She began her association with Learning Tree in September 1975 and has held a variety of key positions in Learning Tree. Ms. Adams is also the President of Advanced Technology Marketing, Inc., a wholly owned subsidiary of Learning Tree.

Mr. Concevitch has served as Executive Vice President of Learning Tree since August 2004. He was Senior Director of the Learning Business of Witness Systems from 2003 to 2004. He was Executive Vice President of KnowledgePool in 2002 to 2003 and President of Mentergy North America in 2001 and 2002. Prior to Mentergy, Mr. Concevitch was Senior Vice President of Element K. From 1993 to 2000, he held various positions with ExecuTrain, including Senior Vice President of Sales and Chief Learning Officer. Earlier in his career, Mr. Concevitch held a number of positions within the Dale Carnegie Training organization. Mr. Concevitch understudied with the Grammy Award winning Clair D. Krepps, receiving an Audio Engineering Diploma in Recording Arts and Sciences. Mr. Concevitch instructs public speaking at the collegiate level.

Mr. Juechter has been a director of Learning Tree since June 1987. He is President and Chief Executive Officer of IRA, Inc., a management consulting company that works primarily in the areas of strategy, structure and executive development. From 1991 to 1999, he was Chief Executive Officer of ARC International Ltd., a management consulting and training company. From 1986 to 1991, Mr. Juechter was Managing Director of IRA, Inc. in St. Paul, Minnesota. Mr. Juechter served as President and Chief Executive Officer of Wilson Learning Corp., a multi-national training organization, from 1977 to 1986. From 1989 to 1997, he also was President of the Board of Governors of the American Society for Training and Development (ASTD). Mr. Juechter is a graduate of Boston University and Harvard Business School.

Mr. Bain has served as a director of Learning Tree since June 2001. He was most recently Chief Financial Officer of Portal Software (NASDAQ: PRSF), a developer of customer management and billing software for communications and content service providers, from August 2001 to November 2004. Prior to joining Portal, Mr. Bain held CFO positions at Vicinity Corporation (NASDAQ: VCNT) in 2000, Informix (NASDAQ: IFMX) from 1999 to 2000, and Symantec Corporation (NASDAQ: SYMC) from 1991 to 1999. He has additional experience in various technology companies in the areas of semiconductor manufacturing equipment; semiconductor BiCMOS SRAMs; laser-based large screen projection systems; and disk drives. He has also held senior financial and accounting management positions with Fairchild Camera and Instrument Corporation and as a consultant with Arthur Andersen LLP where he was a certified public accountant. Mr. Bain holds a B.S. in Business from California Polytechnic University.

Mr. Hessler has been a director of Learning Tree since April 2003. He has been Chairman and founding Chief Executive Officer of 101communications LLC, an international publishing and educational conference company serving advanced information technology professionals, since 1998. From 1997 to 1998 he served as President and Chief Executive Officer of Quarterdeck Corporation, a software firm. From 1996 to 1997 he served as Chairman and Chief Executive Officer of I-Net, Inc., a network management services company. From 1991 to 1995 he served as Executive Vice President, Chief Financial Officer of the Times Mirror Company, a media company. From 1984 to 1991 he served as Vice Chairman and Chief Financial Officer of the Unisys Corporation, a computer and computer services company. From 1981 to 1983 he was a partner of Paul Weiss Rifkind Wharton and Garrison, a law firm. From 1977 to 1981 he held various positions with the Federal Government: Assistant Secretary of the U.S. Treasury for Economic Policy, Executive Director of the President’s Economic Policy Group and Associate Director of the Office of Management and Budget. Mr. Hessler is a graduate of Harvard College (BA, summa), Oxford University (Rhodes Scholarship), the Yale Law School (JD), and the University of California, Berkeley (MA Economics).

Mr. Godbold has been a director of Learning Tree since April 2004. He currently is a private investor. From 1984 to 1998, he served as President and Chief Executive Officer of ZERO Corporation (NYSE), an international manufacturer of technical equipment for the telecommunications, instrumentation and data processing markets. From 1982 to 1984 he served as Executive Vice President of that company. Prior to joining ZERO Corporation, he practiced law as a partner of the international law firm of Gibson, Dunn & Crutcher, where his practice, from 1966, was focused primarily on mergers and acquisitions, corporate finance and general corporate law. He represented both public companies and financial institutions. Mr. Godbold is a graduate of Stanford University (BA—Political Science), UCLA School of Law (JD—Order of the Coif) and UCLA Graduate School of Management—Executive Management Program. He currently serves on the Board of Directors of SEMPRA Energy (NYSE), a Fortune 500 energy services holding company, and K2 Inc. (NYSE), a premier brand sports

products company. He formerly served as a director of Pacific Enterprises (NYSE), Santa Fe Pacific Pipeline (NYSE), Winchell’s (NYSE), Ceradyne Inc. (NASD) and Sanwa Bank of California (Private). He was Chairman of the Boards of the California State Chamber of Commerce, The Employer’s Group and Marlborough School.

David C. Collins and Mary C. Adams are married. There are no other family relationships among any of the directors or executive officers of Learning Tree.

Audit Committee Financial Experts. Learning Tree’s Board of Directors has determined that Howard A. Bain III, Chairman of Learning Tree’s Audit Committee, is a financial expert because he has the following attributes: (i) an understanding of generally accepted accounting principles and financial statements; (ii) the ability to assess the general application of such principles in connection with accounting for estimates, accruals and reserves; (iii) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by Learning Tree’s financial statements, or experience actively supervising one or more persons engaged in such activities; (iv) an understanding of internal controls and procedures for financial reporting; and (v) an understanding of audit committee functions. Mr. Bain acquired these attributes by means of having held various positions that provided relevant experience, as described above. Mr. Bain is independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.

Code of Ethics. On December 4, 2002, Learning Tree’s Board of Directors adopted the “Code of Business Conduct and Ethics” for all Learning Tree employees, including its principal executive officer, principal financial officer and principal accounting officer. A copy of the Code of Business Conduct and Ethics is publicly available on Learning Tree’s website at www.learningtree.com. Learning Tree intends to post on its website any amendments to, or waivers from, its Code of Business Conduct and Ethics within two days of any such amendment or waiver.

Item 11. EXECUTIVE COMPENSATION

The information regarding compensation of executive officers of Learning Tree required by this item is incorporated by reference to the section entitled “Executive Compensation” of Learning Tree’s definitive Proxy Statement to be delivered to shareholders in connection with the 2005 Annual Meeting of Shareholders.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information regarding the security ownership of certain beneficial owners and management and the information regarding securities authorized for issuance under equity compensation plans required by this item is incorporated by reference to the section entitled “Security Ownership of Certain Beneficial Owners and Management” and “Stock Option Plans” of Learning Tree’s definitive Proxy Statement to be delivered to shareholders in connection with the 2005 Annual Meeting of Shareholders.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information regarding certain relationships and related transactions required by this item is incorporated by reference to the section entitled “Certain Transactions” of Learning Tree’s definitive Proxy Statement to be delivered to shareholders in connection with the 2005 Annual Meeting of Shareholders.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information regarding certain principal accountant fees and services required by this item is incorporated by reference to the section entitled “Independent Auditor Fees” of Learning Tree’s definitive Proxy Statement to be delivered to shareholders in connection with the 2005 Annual Meeting of Shareholders.

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements and Schedules

The financial statements of Learning Tree International, Inc. as set forth under item 8 are filed as part of this report.

All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are omitted because such schedules are not required under the related instructions, are not applicable or the required information is given in the financial statements.

(b) Exhibit Index


Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation of the Registrant*

3.2		By-Laws of the Registrant*

4.1		Specimen of Common Stock Certificate**

10.1		Amendment to Employment Agreement dated as of October 1, 1995 (previously filed**) between Learning Tree International, Inc. and Dr. David C. Collins

10.2		Employment Agreement dated as of November 16, 2003, between Learning Tree International, Inc. and Eric R. Garen******

10.4		Employment Agreement dated as of February 1978, as amended, between Learning Tree International, Inc. and Mary C. Adams**

10.7		Form of Training Advantage Agreement*

10.8		1995 Stock Option Plan dated as of September 29, 1995**

10.9		Employment Agreement dated as of November 16, 2003, between Learning Tree International, Inc. and Nicholas R. Schacht******

10.10		1999 Stock Option Plan dated as of January 29, 1999***

10.11		Reimbursement and Indemnification Agreement dated as of September 15, 2000, between Learning Tree International, Inc. and David Collins, Eric Garen and related entities****

10.12		Employment Agreement dated as of August 1, 2004, between Learning Tree International, Inc. and Bill Byron Concevitch

10.13		Form of Officers and Directors Indemnification Agreement

14.1		Learning Tree International Code of Business Conduct and Ethics*****

21.1		Subsidiaries of the Registrant

23.1		Consent of Registered Public Accounting Firm

31.1		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.1		Section 1350 Certification of Chief Executive Officer and President (Principal Financial Officer)

99.1		Risk Factors

*	Previously filed on October 6, 1995.

**	Previously filed on November 13, 1995.

***	Previously filed on January 29, 1999.

****	Previously filed on December 15, 2000.

*****

Previously filed on December 16, 2002.

******

Previously filed on February 10, 2004.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant, Learning Tree International, Inc., a corporation organized and existing under the laws of the State of Delaware, has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on the 14th day of December, 2004.


LEARNING TREE INTERNATIONAL, INC.

By:		/s/ DAVID C. COLLINS, PH.D.
		Name: David C. Collins, Ph.D.
		Title: Chairman of the Board of Directors and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ DAVID C. COLLINS, PH.D. David C. Collins, Ph.D.	Chairman of the Board and Chief Executive Officer (principal executive officer)	December 14, 2004

/s/ ERIC R. GAREN Eric R. Garen	Vice Chairman of the Board	December 14, 2004

/s/ NICHOLAS R. SCHACHT Nicholas R. Schacht	President and Chief Operating Officer (principal financial officer)	December 14, 2004

/s/ W. MATHEW JUECHTER W. Mathew Juechter	Director	December 14, 2004

/s/ HOWARD A. BAIN III Howard A. Bain III	Director	December 14, 2004

/s/ CURTIS A. HESSLER Curtis A. Hessler	Director	December 14, 2004

/s/ WILFORD D. GODBOLD Wilford D. Godbold	Director	December 14, 2004

EX-10.1 2 dex101.htm AMENDMENT TO EMPLOYMENT AGREEMENT Amendment to Employment Agreement

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

September 24, 2004

VIA FACSIMILE and MAIL

Dr. David C. Collins

2814 Motor Avenue

Los Angeles, CA 90064

Dear David:

As we discussed, I informed the Compensation Committee that you had told me that you wanted to exercise your option under Section 3 of your employment agreement to extend the term of your employment for three years. Under the circumstances, the Committee has decided to waive any requirement that your notice be in writing, and accordingly the term of your employment agreement is now extended until September 30, 2007.

Very truly yours,

/s/ THEODORE E. GUTH

Theodore E. Guth

TEG:lh

cc: W. Mathew Juechter

EX-10.12 3 dex1012.htm EMPLOYMENT AGREEMENT Employment Agreement

EXHIBIT 10.12

EMPLOYMENT AGREEMENT

WHEREAS, in consideration for Learning Tree International’s employment and continued employment of Bill Byron Concevitch (hereinafter referred to as “Employee”), Learning Tree International (hereinafter referred to as “Company”) and Employee desire to enter into this Agreement to set forth the terms and conditions of such employment effective August 1, 2004.

NOW, THEREFORE, in consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. STATEMENT OF WORK: Employee is engaged as the Executive Vice President of the Company and agrees to perform the duties described in the attached “Job Description” and such duties as are needed for the proper functioning of the Company, as directed from time to time, at the Company’s main office and at other geographical locations serviced by the Company. The Company hereby employs Employee or continues his or her employment and Employee hereby accepts employment upon the terms and conditions stated herein.

Employee shall do his or her utmost to further enhance and develop the best interests and welfare of the Company. Employee shall perform no acts contrary to the best interests of the Company and the Company shall be entitled to all of the benefits, profits or other results arising from or incident to all work, services and advice of Employee.

Employee agrees to fully comply with the rules and procedures as may be promulgated by the Company in the Company’s sole and absolute discretion.

2. PAYMENT: As full consideration for the services rendered by Employee hereunder, the Company agrees to pay Employee the sum of $20,833.33 per month, payable in accordance with the Company’s payroll practices from time to time semi-monthly, subject to withholding and deductions in accordance with all applicable laws. Employee will also be entitled to Incentive Compensation when and as earned under the annual plan provided to him by the Company at the beginning of each fiscal year. For fiscal year 2005, the on-target incentive is set at $50,000.00. See the attached Compensation Summary for further details.

A. Said compensation is paid (i) for Employee’s advice and availability as advisor to the Company; (ii) for substantially full-time services at one of the corporate premises; and (iii) for the covenants described below.

B. The Employee Manual, as amended from time to time by the Company and delivered to Employee, is an integral part of the employment relationship, but does not form a contract or contract-based rights, nor does it serve to alter the at-will nature of Employee’s employment. Employee’s initials affixed below signify Employee’s receipt of the Employee Manual, Employee’s understanding that it is his or her responsibility to read the Employee Manual, and to comply fully with the terms set forth therein.

(Employee’s Initials)

3. COPYRIGHTS: Employee agrees that all writings produced by him or her while employed under this Agreement, whether or not conceived or developed during Employee’s working hours and with respect to which the equipment, supplies, facilities or trade secret information of the Company were used, or that relate to the business of the Company, or that result from any work performed by Employee for the Company, are works done for hire and shall be the sole property of the Company and the Company shall have the exclusive right to copyright such writings in any country or countries. Employee further agrees to assign to the Company all interest in any such writings, whether copyrightable or not, which Employee develops or helps develop during his or her employment with the Company. Employee will supply the Company with a list of previously developed works owned by Employee.

4. PATENTS: Employee shall disclose promptly to the Company all ideas, inventions, discoveries, improvements, whether or not patentable, relative to the field of work set forth in the “Job Description”, or otherwise assigned to Employee, and conceived or first reduced to practice by Employee in connection with work under this Agreement with the Company. Employee agrees that all such ideas, inventions, discoveries and improvements including, but not limited to papers, books and publications, shall become the sole and absolute property of the Company and that Employee will at any time, at the request and expense of the Company, execute any and all documents, including, but not limited to, patent applications and assignments to protect the same against infringement by others, and do whatever is reasonably required to be done to insure that the Company shall obtain title to such ideas, inventions, discoveries and improvements. Such services will be without additional compensation if Employee is then employed by the Company and for reasonable compensation and subjected to his reasonable availability if he is not. If the Company cannot, after reasonable effort, secure Employee’s signature on any document or documents needed to apply for or prosecute any patent, copyright, or other right or protection relating to an Invention, whether because of his physical or mental incapacity or for any other reason whatsoever, Employee hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as his agent and attorney-in-fact, to act for and in his behalf and in his name and stead for the purpose of executing and filing any such application or applications and taking all other lawfully permitted actions to further the prosecution and issuance of patents, copyrights, or similar protections thereon, with the same legal force and effect as if executed by him.

For purposes of this paragraph, an invention is based on the trade secrets of the Company if the invention incorporates any such secrets in principle or design, and if the invention was conceived or first actually reduced to practice during the period of Employee’s employment with the Company.

Employee also agrees that the Company shall have the right to keep any inventions covered by this Agreement as trade secrets and Employee agrees not to disclose any such invention to third parties, except as specifically authorized by the Company.

Employee further agrees to assign to the Company all rights in any other inventions made by Employee if the Company is required to grant those rights to the United States Government or any of its agencies. Moreover, Employee agrees to render assistance, advice and counsel to the Company at its request regarding any matter, dispute or controversy with which the Company may become involved and of which Employee has or may have reason to have knowledge, information or expertise. Such services will be without additional compensation if Employee is then employed by the Company and for reasonable compensation and subject to his reasonable availability otherwise.

5. SECRECY:

SECURITY CLEARANCE: As to any Company information made available to Employee during the course of his or her employment, Employee agrees to cooperate in establishing and maintaining any security clearance and to execute whatever forms and joint agreements are required by law. Employee agrees to provide and maintain a system of security controls in accordance with the requirements of the U.S. Government or as may be required by law.

NON-DISCLOSURE OF CONFIDENTIAL INFORMATION: Confidential and Proprietary Information (hereinafter Confidential Information) is defined to include, but is not limited to, Company books; records; compilations of information; processes; teaching methods and techniques; secret inventions and specifications; information about computer programs or systems; names; usages and requirements of past, present and prospective customers of the Company; processes or methods by which the Company promotes its services and products and obtains customers; customers’ buying habits and special needs; profits; sales; suppliers; personnel; pricing policies; operational methods; technical processes and other business affairs and methods, and plans for future developments and other information which is not readily available to the public. Confidential Information also includes, but is not limited to, any information and material relating to any customer, vendor, licensor, licensee or other party transacting business with the Company. Confidential Information is developed and will be developed by or for the Company at great expense.

Employee agrees, during the term of employment and forever thereafter, to keep confidential all information provided by the Company, excepting only such information as is already known to the public. Employee agrees not to release, use or disclose any Confidential Information or permit any person to examine and/or make copies of any documents which contain or are derived from Confidential Information, except with the prior written permission of the Company. Employee shall not make use of any Confidential Information for his or her own purposes or the benefit of anyone other than the Company.

Employee recognizes and acknowledges that the list of the Company’s customers, as it may exist from time to time, is a valuable, confidential, special, and unique asset of the Company’s business. Employee will not, during or after the term of his or her employment, use or disclose the list of the Company’s customers or any part thereof to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever.

RETURN OF PROPERTY: Employee agrees that upon request by the Company, and in any event upon termination of employment, Employee shall turn over to the Company all documents, papers or other material in Employee’s possession or under his or her control which may contain or be derived from Confidential Information, together with all documents, notes or other work product which is connected with or derived from Employee’s services to the Company whether or not such material is at the date hereof in Employee’s possession.

Employee agrees that he or she shall have no proprietary interest in any work product developed or used by Employee arising out of his or her employment by the Company. Employee shall, from time to time as may be requested by the Company, do all things which may be necessary to establish or document the Company’s ownership interest in any such work product, including, but not limited to execution of appropriate copyright applications or assignments.

6. EXCLUSIVITY: While an employee of the Company, Employee will use best efforts to promote the success of the Company’s business and shall not enter the employ of or serve as a consultant to, or in any way perform any services with or without compensation for, any other person, enterprise, business, company, corporation, partnership, firm, association without the prior written consent of the Company and shall not own any interest (other than up to 1% of the voting securities of a publicly traded corporation) in any entity or individual that competes with the Company or that is a material supplier or vendor to the Company.

7. NON-COMPETITION: During the term of this Agreement and until the expiration of one year after the termination of the employment relationship (regardless of the reason the employment is terminated), Employee shall not, directly or indirectly, (1) enter into the employ of, assume an interest in (in any capacity) or render any services to, any person or entity engaged in any business competitive with the business of the Company within a 50 mile radius of any location where the Company is actively engaged, or proposes to engage in business on or prior to the termination of employment; or (2) engage in any such business on his or her own account.

Employee and Company agree and stipulate that the period of time and geographical area specified in the above paragraph are fair and reasonable in view of the nature of the business of the Company, and the Employee’s access to the Company’s Confidential Information and knowledge of the Company’s business.

However, in the event that a court should decline to enforce these provisions, Employee and the Company agree that the provisions shall be deemed to be modified to restrict Employee’s competition with the Company to the maximum extent, in both time and geography, which the court shall find enforceable. In no event will the covenant be interpreted as more restrictive to Employee.

8. SOLICITING: Employee shall not, either during his or her employment with the Company, or for a period of two (2) years immediately thereafter, either directly or indirectly:

A. Make known to any person, firm or corporation, the names or addresses of any customers of the Company or any other information pertaining to them;

B. Call on, solicit, or attempt to take away or do business with any customers of the Company on whom Employee called or with whom Employee became acquainted during the term of his or her employment with the Company, either for Employee or for any other person, firm or corporation in competition with the Company; or

C. Hire, subcontract, employ, engage, contact or solicit, for the purpose of hiring, any person or entity who is an employee or subcontractor of the Company on the date of Employee’s termination of employment or at any time during the six (6) month period prior to the termination of Employee’s employment.

9. TRADE SECRETS: During the term of this Agreement, Employee will have access to and become acquainted with various trade secrets consisting of items such as books, records, compilations of information, processes, teaching methods and techniques, devices, secret inventions, and specifications, which are owned by the Company and are regularly used in the operation of the business of the Company, which the Company desires to protect and preserve as secrets for its own use. Employee shall not disclose any of the aforesaid secrets, directly or indirectly, or use them in any way, either during the term of this Agreement or at any time thereafter, except as required in the course of his or her employment with the Company. All files, records, documents, drawings, specifications, equipment, products and other items relating to the Company, whether prepared by Employee or otherwise coming into his or her possession, shall remain the exclusive property of the Company and shall not be removed from the premises of the Company under any circumstances whatsoever, without the prior written consent of Employee’s supervisor, specifically setting forth the documents involved, the person receiving the permission, and the location of the items and the period of time for which the permission is granted.

10. VIOLATION OF COVENANTS: Notwithstanding paragraph 13 of this Agreement, if Employee violates or threatens to violate any of the provisions of paragraphs 3 through 9 of this Agreement, the Company shall be entitled (without the need to post any bond) to a restraining order and/or an injunction to be issued by any court of competent jurisdiction, enjoining and restraining Employee, and each and every other person, partnership, corporation, association or other entity concerned therein, from continuing such violations or from rendering any services to any person, firm, corporation, association or other entity to whom such Confidential Information, in whole or in part, has been disclosed or is threatened to be disclosed. Employee recognizes that the violation or threatened violation of the provisions of paragraphs 3 through 9 of the Agreement may give rise to irreparable injury to the Company, which may not be adequately compensated by damages. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including the recovery of damages from Employee. These obligations shall survive the termination of Employee’s employment.

11. AT-WILL EMPLOYMENT: Employee’s employment with the Company is “at-will” and may be terminated at any time, with or without cause, for any or no reason, and with or without notice. In conjunction with this policy of at-will employment, Employee may also be disciplined, demoted or have his or her job responsibilities reassigned by the Company for any reason at the Company’s sole discretion. No individual within the Company can modify this “at-will” status, except in a written agreement signed by the Chief Executive Officer or Chief Administrative Officer of the Company. No oral or written modifications, express or implied, may alter or vary the terms of this Agreement. Any representations to the contrary are hereby disclaimed. Upon Employee’s termination of employment with the Company for any or no reason, and with or without notice, (a) Employee shall be deemed to have resigned from all offices and directorships then held with

the Company or any affiliate and (b) the Company shall pay to Employee all amounts accrued and unpaid as of the date of termination in respect of (i) Employee’s salary for periods through such date, and (ii) PTO (“Paid Time Off”) pay to the extent consistent with the Company’s policies in effect from time to time, (c) if and only if the termination is by the Company and without “Cause,” then in lieu of any other severance, the following severance provisions will apply: (i) during the Employee’s first six months of employment, the Company will continue to pay Employee’s Base Salary for the following three months in accordance with its normal salary payment schedules; and (ii) after the first six months of employment, for each two full additional months of employment, the Company will continue to pay one additional month of Base Salary, up to a maximum of 6 months total. For example, if Employee has worked for the Company for one full year and is then terminated by the Company without “Cause,” then the Company will continue to pay Employee’s Base Salary for the following six months.

“Cause” shall exist if any one or more of the following should occur: Employee’s (a) material failure to perform his duties under, or material breach of, this Agreement which remains uncured for more than thirty (30) days (which shall be reduced to ten (10) days if (a) there is no reasonable expectation that a cure can be completed during such thirty day period or (b) the Company reasonably believes that such delay could be seriously detrimental to it) after a written warning (except in the case of a willful failure to perform his duties. Or a willful breach, which shall require no warning), (b) failure to comply with a reasonable direction of the Company’s Chief Executive Officer, which remains uncured for more than thirty (30) days (which shall be reduced to ten (10) days if (a) there is no reasonable expectation that a cure can be completed during such thirty day period or (b) the Company reasonably believes that such delay could be seriously detrimental to it) after a written warning, (c) breach of his fiduciary duty to the Company, or (d) indictment (or equivalent) for a felony or other serious crime. Employee agrees that the rights and entitlements set forth in this Section 11 are Employee’s exclusive rights and entitlements from the Company and any affiliated entity upon and as a result of the termination of Employee’s employment with the Company.

12. AUTHORSHIP AND OUTSIDE INCOME: Except as otherwise approved in writing by the Company, while employed under this Agreement, any income earned by Employee in any work of the type performed by the Company shall be deemed earned on behalf of the Company and shall be promptly remitted to the Company. Any articles or other works published by Employee shall be first approved by the Chief Executive Officer or Chief Administrative Officer of the Company, in writing, and may be published only if approved by the Company. Any approval given under this paragraph shall be deemed valid for only the specific event and time set forth in the approval.

13. ARBITRATION: Any and all disputes between Employee and the Company that arise out of Employee’s employment, including disputes involving the terms of this Agreement, shall be resolved through final and binding arbitration. This shall include, without limitation, disputes relating to this Agreement, Employee’s employment by the Company or the termination thereof, claims for breach of contract or breach of the covenant of good faith and fair dealing, and any claims of discrimination or other claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans With Disabilities Act, or any other federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of Employee’s employment with the Company or his or her termination. The only claims not covered by this Agreement are claims for benefits under the workers’ compensation or unemployment insurance laws, which will be resolved pursuant to those laws. Notices of requests to arbitrate a covered claim must be made within the applicable statute of limitations. Binding arbitration will be conducted in Fairfax County, Virginia in accordance with the rules and regulations of the American Arbitration Association (“AAA”). Discovery may be carried out under the supervision of the arbitrator appointed pursuant to the rules of the AAA. Employee will be responsible for paying the same fee to initiate the arbitration that he or she would pay to file a civil lawsuit. The Company will pay any remaining cost of the arbitration filing and hearing fees, including the cost of the arbitrator; each side will bear its own attorneys’ fees, that is, the arbitrator will not have authority to award attorneys’ fees unless a statutory section at issue in the dispute authorizes the award of attorneys’ fees to the prevailing party, in which case the arbitrator has authority to make such award as permitted by the statute in question. Employee understands and agrees that the arbitration

shall be instead of any civil litigation and that this means that he is waiving his right to a jury trial as to such claims. The parties further understand and agree that the arbitrator will issue a written decision and that the arbitrator’s decision shall be final and binding to the fullest extent permitted by law and enforceable by any court having jurisdiction.

This arbitration section does not in any way alter Employee’s at-will status.

14. WRITTEN PERMISSION: Any “written permission” required by this Agreement is only valid if signed by a Company officer.

15. WAIVER: The delay or failure of the Company to insist upon Employee’s punctual performance of any of the provisions of this Agreement, or the failure of the Company to exercise any right or remedy available to it under this Agreement, shall not constitute in any manner a waiver by the Company of any subsequent default or breach by Employee.

16. NOTICES: All notices, requests, demands or other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service, if served personally on the party to whom notice is being given, or on the third (3rd) day after mailing, if mailed to the party to whom notice is to be given, by first class mail, postage prepaid, and properly addressed as follows:


LEARNING TREE INTERNATIONAL, INC.		6053 West Century Boulevard
		Los Angeles, CA 90045

With Copy To:		Peter Holbrook, Esq.
		McDermott, Will & Emery
		18191 Von Karman Ave. Suite 500
		Irvine, CA 92612-0187

Notice shall be given to Employee at the most recent address reflected in Employee’s employment records.

Any party may change its address for purposes of this paragraph by giving the other party a written notice of the new address.

17. GOVERNING LAW: This Agreement shall be construed in accordance with, and governed by, the laws of the state of Virginia.

18. ENTIRE AGREEMENT: This Agreement constitutes the entire Agreement between the parties and supersedes all prior or contemporaneous agreement and statements between the parties, whether written or oral, with respect to the subject matter hereof, and may not be contradicted by evidence of any prior or contemporaneous statements or agreements between Employee and the Company concerning the subject matter hereof. The parties herein represent that no other Agreement, oral or otherwise, exists or binds any of the parties hereto. The parties hereto acknowledge that they have not executed this Agreement in reliance upon any other or further representation or promise of any party. No change, modification, waiver, or amendment of this Agreement shall be of any effect unless in writing signed by Employee and by the Chief Executive Officer or Chief Administrative Officer of the Company.

19. SUCCESSORS AND ASSIGNS: This Agreement shall be binding upon and shall inure to the benefit of the successors or assigns of the Company.

20. ASSIGNMENT: This Agreement is not assignable by Employee.

21. SEVERABILITY: The provisions of this Agreement are severable. Should any provision be for any reason unenforceable, the remainder of the provisions shall remain in full force and effect. The provisions of this Agreement shall be interpreted, to the extent possible, to give full effect to the intent of the parties.

By signing below, I acknowledge that I have read this Agreement carefully, understand it, and will comply with the provisions set forth herein. I have had the opportunity to seek independent legal advice before signing this Agreement, and enter into this Agreement freely and voluntarily, based on my own judgment and not on any representations or promises other than those contained in this Agreement.


EMPLOYEE:		EMPLOYER:
Bill Byron Concevitch		Learning Tree International

/s/ BILL BYRON CONCEVITCH		/s/ MARY C. ADAMS
		By: Mary C. Adams
		Title: Chief Administrative Officer
Date

EX-10.13 4 dex1013.htm FORM OF OFFICERS AND DIRECTORS INDEMNIFICATION AGREEMENT Form of Officers and Directors Indemnification Agreement

EXHIBIT 10.13

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (the “Agreement”) is made as of the date indicated below between Learning Tree International, Inc., a Delaware corporation (the “Company”), and the undersigned individual (“you”). In consideration of your continued service at the request of the Company, the Company hereby binds itself as follows (capitalized terms are generally defined in Exhibit A):

1. Grant of Indemnification

1.1. Indemnification. If you become Involved in a Claim, the Company will indemnify you, to the fullest extent permitted by law and as soon as practicable, against any and all Losses actually and reasonably incurred by you as a result of the Claim. Until the Claim is resolved, the Company will advance to you any and all Expenses upon receipt by the Company of a written undertaking by you to repay all amounts so advanced if it is ultimately determined that you were not entitled to be indemnified for such Claim under this Agreements.

1.2. Enforcement. If a written demand by you for indemnity under this Agreement is not paid in full by the Company within sixty (60) days, you may immediately commence arbitration against the Company to recover the unpaid amount of your claim, together with interest thereon. If you are successful in whole or in part, the Company will also pay all of your Expenses in prosecuting that arbitration.

1.3. Action by Company. Except following a Change of Control, the requirements for advancement of Expenses will not apply to a Claim brought by the Company and approved by a majority of its Board of Directors.

2. Change in Control. Following a Change of Control, the Company will advance all Expenses and indemnify you unless it receives a final court determination or a written opinion from Independent Legal Counsel that indemnification of the Claim is not permissible. The Company agrees to pay the reasonable fees of Independent Legal Counsel and to fully indemnify such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or such counsel’s engagement pursuant hereto.

3. Presumptions. In any proceeding to enforce this Agreement, the burden of proof will be on the company to prove that you may not be indemnified for any Claim under Delaware law. The termination of any claim, whether by judgment, order, settlement (with or without court approval) or conviction, or upon a plea of nolo contenders or its equivalent, shall not create a presumption that you did not meet any particular standard of conduct or did have any particular belief or that a court determined that indemnification is not permitted by applicable law. Furthermore, neither an unfavorable decision, nor the lack of any decision, by the Company’s Board of Directors, any Committee of that Board, or any counsel to the Company regarding whether you met any particular standard of conduct or had nay particular belief shall be a defense to your Claim or create a presumption that you have not met any particular standard of conduct or did not have any particular belief.

4. Nonexclusivity. Your rights under this Agreement are in addition to any other rights you may have under the Company’s Certificate of Incorporation, Bylaws or Delaware law or otherwise. To the extent that a change in the Delaware law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company’s Certificate of Incorporation and Bylaws and this Agreement, this Agreement will be deemed to provide you with those greater benefits. To the extent the Company maintains an insurance policy or policies providing directors’ and officers’ liability insurance, you will be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer.

5. No Duplication of Payments; Subrogation. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against you to the extent you have otherwise actually

received payment (under any insurance policy, Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. The Company shall be subrogated to all of your rights of recovery to the extent of any payment made to you. You agree to execute all papers required and do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company to effectively bring suit to enforce such rights.

6. General.

6.1. Binding Effect, Etc. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives. This Agreement shall continue in effect regardless of whether you continue to serve as an officer or director of the Company or of any other enterprise at the Company’s request.

6.2. Complete Agreement; Modifications. This Agreement and any documents referred to herein or executed contemporaneously herewith constitute the parties’ entire agreement with respect to the subject matter hereof and supersede all prior indemnification agreements between the Company and you, and all other written and oral agreements, representations, warranties, statements, promises and understanding, and all contemporaneous oral agreements, representations, warranties, statements, promises and understandings, with respect to the subject matter hereof. This Agreement may not be amended, altered or modified except by a writing signed by both parties.

6.3. Disputes.

6.3.1. Governing Law; Jurisdiction. The rights and liabilities of the parties will be governed by the laws of Delaware, regardless of the choice of law provisions of that state or any other jurisdiction.

6.3.2. Arbitration as Exclusive Remedy. Except for actions seeking injunctive relief, which may be brought before any court having jurisdiction, any claim arising out of or relating to this Agreement, including its validity, interpretation, enforceability or breach, whether based on breach of covenant, breach of an implied covenant or international infliction of emotional distress or other tort or contract theories, which are not settled by agreement between the parties, shall be settled by arbitration in Los Angeles, California before a single arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) then in effect. The parties hereby agree to use their best efforts to keep all matters relating to any arbitration hereunder confidential. Each party agrees that the arbitration provisions of this Agreement are its exclusive remedy and expressly waives any right to seek redress in another forum. Any arbitration shall be commenced within forty-five (45) days, and completed within ninety (90) days, of the appointment of the arbitrators.

6.4. Waivers Strictly Construed. With regard to any power, remedy or right provided herein or otherwise available to any party hereunder (i) no waiver or extension of time shall be effective unless expressly contained in a writing signed by the waiving party; and (ii) no alteration, modification or impairment shall be implied by reason of any previous waiver, extension of time, delay or omission in exercise, or by an other indulgence.

6.5. Severability. The validity, legality or enforceability of the remainder of this Agreement will not be affected even if one or more of the provisions of this Agreement will be held to be invalid, illegal or unenforceable in any respect.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above.


COMPANY:		INDEMNITEE (“YOU”):

Learning Tree International, Inc. A Delaware corporations

By:

Its:	Chief Administrative Officer	Print Name:

		Title:
Dated:	April 15, 2004	Dated:

Exhibit A

Certain Definitions

“Change in Control” is an event which shall be deemed to have occurred if any one or more of the following events occur: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) hereafter becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing twenty percent or more of Voting Securities, excluding, however, a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company or any person meeting such standard as of the date hereof; or (ii) during any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then still in office, cease for any reason to constitute a majority of the Board of Directors; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least eighty percent of the total voting power of the surviving entity outstanding immediately after such merger or consolidation; or (iv) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all the Company’s assets.

“Claim” means (i) any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative which is related to the fact that you are or were a director, officer, employee, agent, trustee or fiduciary of the Company, or are or were serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by you in any such capacity, or (ii) any inquiry or investigation, whether instituted by the Company or any other party, that you in good faith believe might lead to the institution of any such action, suit or proceeding.

“Expenses” means, without limitation, attorneys’ fees and all other costs, expenses and obligations paid or incurred in connection with (i) investigating, defending, being a witness in or participating in (including on appeal), any Claim or (ii) preparing to defend, be a witness in or participate in any Claim.

“Independent Legal Counsel” means an attorney or firm of attorneys selected by you and approved by the Company (which approval shall not be unreasonably withheld) who shall not have otherwise performed services within the last three (3) years for the Company or for you (other than services as provided under Section 2 of this Agreement). If you fail to select an Independent Legal Counsel within 30 days of request by the Company, the Company may select such counsel subject to your reasonable approval.

“Involved” means involuntarily (or at the request of the Company) being or becoming, or being threatened with becoming, a party or witness or other participant.

“Losses” means expenses, judgments, fines, penalties, ERISA excise taxes and any amounts paid in settlement (including all related interest).

“Voting Securities” means any securities of the Company which entitle the holders thereof to vote generally in the election of directors.

EX-21.1 5 dex211.htm SUBSIDIARIES OF THE REGISTRANT Subsidiaries of the Registrant

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT


Learning Tree International USA, Inc.		(U.S.)
Learning Tree International, K.K.		(Japan)
Learning Tree International Ltd.		(United Kingdom)
Learning Tree International S.A.		(France)
Learning Tree International AB		(Sweden)
Learning Tree Publishing AB		(Sweden)
Learning Tree International Inc.		(Canada)
Learning Tree International Ltd.		(Hong Kong)
Advanced Technology Marketing, Inc.		(U.S.)

EX-23.1 6 dex231.htm CONSENT OF ERNST & YOUNG LLP Consent of Ernst & Young LLP

EXHIBIT 23.1

CONSENT OF REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in (a) the Registration Statement (Form S-3 No. 333-47554) pertaining to the Common Stock of Learning Tree International, Inc. and in the related Prospectus, (b) the Registration Statement (Form S-8 No. 333-32062) pertaining to the 1999 Stock Option Plan of Learning Tree International, Inc., (c) the Registration Statement (Form S-8 No. 333-41325) pertaining to the 1995 Stock Option Plan of Learning Tree International, Inc., and (d) the Registration Statement (Form S-8 No. 333-103372) pertaining to the 1999 Stock Option Plan of Learning Tree International, Inc., of our report dated November 5, 2004, with respect to the consolidated financial statements of Learning Tree International, Inc. included in the Annual Report (Form 10-K) for the year ended October 1, 2004.

/s/ Ernst & Young LLP

Los Angeles, California

December 10, 2004

EX-31.1 7 dex311.htm SECTION 302 CERTIFICATION - PRINCIPAL EXECUTIVE OFFICER Section 302 Certification - Principal Executive Officer

EXHIBIT 31.1

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

I, David C. Collins, certify that:

1. I have reviewed this annual report on Form 10-K 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)) 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 quarterly report is being prepared;

(b) 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

(c) 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 functions):

(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.

Date: December 14, 2004

/s/ DAVID C. COLLINS

David C. Collins

Chief Executive Officer

(Principal Executive Officer)

EX-31.2 8 dex312.htm SECTION 302 CERTIFICATION - PRINCIPAL FINANCIAL OFFICER Section 302 Certification - Principal Financial Officer

EXHIBIT 31.2

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

I, Nicholas R. Schacht, certify that:

1. I have reviewed this annual report on Form 10-K of Learning Tree International, Inc.;

(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.

Date: December 14, 2004

/s/ NICHOLAS R. SCHACHT

Nicholas R. Schacht

President

(Principal Financial Officer)

EX-32.1 9 dex321.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND PRESIDENT Certification of Chief Executive Officer and President

EXHIBIT 32.1

Certification of Chief Executive Officer and President (Principal Financial Officer) pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

We, David C. Collins and Nicholas R. Schacht, certify that the periodic report, to which this Statement is attached, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the periodic report to which this Statement is attached, fairly presents, in all material respects, the financial condition and results of operations of the registrant at the dates and for the periods indicated.

IN WITNESS WHEREOF, the undersigned have executed this Statement as of the date first written below.

Dated: December 14, 2004

/s/ DAVID C. COLLINS

David C. Collins

Chief Executive Officer

/s/ NICHOLAS R. SCHACHT

Nicholas R. Schacht

President

(Principal Financial Officer)

EX-99.1 10 dex991.htm RISK FACTORS Risk Factors

EXHIBIT 99.1

RISK FACTORS

You should carefully consider the following discussion of various risks and uncertainties, keeping in mind that they are not the only ones that affect us. Additional risks which we do not presently consider material, or of which we are not currently aware, may also have an adverse impact on us.

Among other things, this exhibit contains forward-looking statements that are based on certain assumptions about future risks and uncertainties. We believe that our assumptions are reasonable. Nonetheless, it is likely that at least some of these assumptions will not come true. Accordingly, our actual results will probably differ from the outcomes contained in any forward-looking statement, and those differences could be material. Factors that could cause or contribute to those differences include the ones discussed below, as well as those discussed elsewhere in this exhibit and in our filings with the Securities and Exchange Commission.

Common Stock Price Fluctuations

Learning Tree’s common stock price has fluctuated significantly since our initial public offering and may continue to do so in the future.

General Factors. We believe some of the reasons for past fluctuations in the price of our stock have included:

•

announcements of developments related to our business;

•

announcements concerning new products or enhancements by Learning Tree or our competitors;

•

developments in our relationships with our customers;

•

market perceptions of new means of delivering training, such as CD-ROMs or the Internet;

•

variations in Learning Tree’s revenues, gross margins, earnings or other financial results from investors’ expectations;

•

fluctuations in results of our operations and general conditions in the economy, our market, and the markets served by our customers; and

•

delays in introducing new technologies both by our customers and technology vendors.

In addition, prices in the stock market, particularly for technology-related stocks, have been volatile in recent years. In some cases, the fluctuations have been unrelated to the operating performance of the affected companies. As a result, the price of our common stock could fluctuate in the future without regard to our operating performance.

Future Sales of Learning Tree Common Stock. Sales of Learning Tree’s common stock by our officers, directors and employees, especially our founders, could adversely and unpredictably affect the price of our shares. Additionally, the price could be affected even by the potential for sales by these persons. In addition to the approximately 16,988,900 shares outstanding as of December 6, 2004, we have registered a total of 4,513,000 shares of common stock for issuance under our Stock Option Plans. We cannot predict the effect which any future sales of our common stock, or the potential for those sales, will have on our share price.

Fluctuations in Operating Results

Historically, Learning Tree’s operating results have fluctuated, and we expect fluctuations to continue in the future.

Fluctuations in our historical operating results have resulted from many factors, some of which are beyond our control. In the future, these or other factors could have a material adverse impact on Learning Tree’s operating results and cause our stock price to decrease. For example:

Timing of Course Development, and Sales and Marketing Expenditures. We try to adjust our expenditures for course development and sales and marketing to maintain our long-term profitability. This may mean

accepting reduced margins in poor economic periods, or depending on our strategic objectives, which generally include an assessment of our expectations for influencing future customer demand, market conditions and other factors. However, we must commit to much of our spending before our attendees enroll in our courses. If revenues fall short of our expectations, we may not be able to adjust our expenditures quickly enough to compensate for lower than anticipated revenues. This could compound the impact of any revenue shortfall and further affect our operating results and the price of our stock.

Course Scheduling and Marketing Activities. The timing and content of our courses and our marketing activities can affect the number of participants who attend our courses. Some of the activities that can contribute to fluctuations in our operating results include:

•

the frequency of our course events;

•

the number of weeks during which our courses can be conducted in a quarter;

•

the timing, timely delivery, frequency and size of, and the response to, our direct mail marketing and advertising campaigns;

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the timing of introduction of new course titles;

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the average length of courses, based on the current mix of course titles, which affects the average revenue per attendee; and

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the mix between course events held at customer-sites and course events held in our education centers and hotels due to differing gross profit margins.

Seasonal Factors. Our quarterly revenues and income may fluctuate due to the seasonal spending patterns of our customers, which are affected by factors such as:

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their budgetary considerations;

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factors specific to their business or industry; and

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weather, holiday and vacation considerations.

Use of Accounting Estimates. The preparation of our financial statements in conformity with “Generally Accepted Accounting Principles” requires us to make estimates and assumptions in calculating our financial results. As one example, we currently offer our 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 we recognize for each attendance in one of our courses is based upon the selling price of the Training Passport, the list price of the course taken and our estimate of the average number of courses a Passport holder will actually attend. Upon expiration of a Training Passport, we record the difference, if any, between the revenue previously recognized and the Training Passport selling price. For example, if a Passport holder attends more courses than we had estimated, we make a negative adjustment to revenues. We base our estimate of the average number of course events that a Training Passport holder will attend on historical trends that may change in the future. If average Training Passport attendance rates were to increase, we would have to make negative adjustments to our revenue, which could be significant. For a summary of some of our key accounting estimates, please see our “Critical Accounting Policies” in our Management’s Discussion and Analysis.

Changing Regulation of Corporate Governance and Public Disclosure. Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and NASDAQ National Market rules, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts

to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our external auditors’ audit of that assessment will require the commitment of significant financial and managerial resources beginning in our fiscal 2005. In addition, it has become more difficult and more expensive for us to obtain director and officer liability insurance, and we have purchased reduced coverage at substantially higher cost than in the past. Further, our board members, chief executive officer and principal financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified board members and executive officers, which could harm our business. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed.

New Accounting Rules or Standards. The Financial Accounting Standards Board, Securities and Exchange Commission or other accounting rulemaking authorities may issue new accounting rules or standards that are different than those that we presently apply. Such new accounting rules or standards could require significant changes from the way we currently report our financial position, operating results or cash flows. Such changes could be applied on a cumulative or prospective basis. For example, the accounting rules with respect to the accounting for employee stock options is currently under review by the Financial Accounting Standards Board, and may result in changes to our current accounting practice if new rules are promulgated.

In addition, compliance with new accounting rules or standards may require changes to our current systems and processes which could be time-consuming and expensive.

Introductions and Adoption of New Technology. Our customers tend to increase their training at times when new technology is being introduced. During periods when no important new technologies are being introduced, demand for our training courses may decrease, and it could have a material adverse effect on our operating results and stock price.

Other Factors. Other factors that may affect our operating results include:

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competitive forces within our current and anticipated future markets;

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our ability to attract customers and meet their expectations;

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currency fluctuations and other risks inherent in international operations;

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general economic conditions;

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differences in the timing of our spending on the marketing of our courses, as well as the timing of our spending on the development of our courses and other areas; and

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excess capacity and/or unused space in our education centers and/or administrative office facilities, and our ability to sublease or find other uses for it.

All or any of these and similar factors could result in our operating results differing substantially from the expectations of public market analysts and investors, which would likely have a material adverse impact on our stock price.

Risks Associated with Technology Changes

If we do not adequately anticipate or respond to changes in technology, it could have a material adverse effect on our operating results and stock price.

Changes in technology can affect our business in at least two principal ways. First, we must anticipate and keep pace with the introduction of new hardware, software and networking technologies and develop courses that

effectively train customers in the technologies which they will be using. Second, we must adapt to changes in the technologies by which we can deliver training to our customers’ employees. As a result of technology developments, we may have to make substantial and unanticipated expenditures to develop new course titles, or buy new equipment or invest in further course development software and processes to deliver them. Further, we may not adequately anticipate or respond successfully to technological changes for many reasons, including misjudging the impact of technological changes, as well as financial, technological or other constraints. If we do not adequately anticipate or respond to changes in computer platforms, customer preferences or software technology, it would likely have a material adverse impact on our operating results and stock price.

Competition

If our customers decide that they prefer training offered by new or existing competitors, it could have a material adverse effect on our operating results and stock price.

The IT and management training markets are highly fragmented, with low barriers to entry. No single competitor holds a dominant market share. We face intensifying competition from both established entities and new entries in the market. Our primary competitors include:

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internal training departments within our current and potential clients;

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computer hardware and software vendors and their Authorized Training and Education Center partners;

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independent education and training companies;

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academic providers; and

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software systems integrators.

Some of our competitors offer similar course titles and programs at lower prices. In addition, some competitors have greater financial and other resources than Learning Tree. In recent years, we have faced increased competition from companies that offer courses using materials prepared by computer hardware and software vendors. Some of these companies, known as Authorized Training and Education Centers, have been growing in size and expanding the scope of their operations. Additionally, hardware and software vendors, as well as software systems integrators, may combine IT education and training with sales of their products or other services, which could allow them to offer training at lower prices than we do. Further, future consolidation of IT vendors or training companies could have a material impact on our future operations.

The risk of outsourcing of corporate IT administration and software development overseas to countries or firms not currently served by Learning Tree could have a material impact on our future operations.

Although instructor-led classroom training continues to dominate the worldwide IT and management training markets, technology-based education and training formats, such as Internet-based distance learning, are gaining some acceptance. Accordingly, our future results may also depend on the extent to which the market will continue to accept instructor-led IT and management training and on our ability to develop and market instructor-led courses that compete effectively against technology-based courses offered by our competitors.

Risks Associated with International Operations

If we do not adequately anticipate and respond to the risks inherent in international operations, it could have a material adverse effect on our operating results and stock price.

Significant portions of our revenues are generated by courses conducted outside the United States.

Foreign Currency Fluctuations. Our consolidated financial statements are prepared in U.S. dollars, while the operations of our foreign subsidiaries are conducted in their respective local currencies. Consequently,

changes in exchange rates can unpredictably and adversely affect our consolidated operating results, and could result in exchange losses. We do not hedge against the risks associated with fluctuations in exchange rates. Although we may use hedging techniques in the future, we may not be able to eliminate or reduce the effects of currency fluctuations. Thus, exchange rate fluctuations could have a material adverse impact on our operating results and stock price.

Other Risks Associated with International Operations. Additionally, our financial results may be adversely affected by other international risks, such as:

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difficulties in translating our courses into foreign languages;

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international political and economic conditions;

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changes in government regulation in various countries;

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trade barriers;

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difficulty in staffing our foreign offices, and in training and retaining foreign instructors;

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adverse tax consequences; and

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costs associated with expansion into new territories.

We expect that international revenues will continue to be a significant portion of our total revenues. If we do not anticipate and respond to the risks associated with international operations, it could have a material adverse effect on our operating results and stock price.

Dependence on Key Personnel

If we are unable to recruit and retain qualified personnel, it could have a material adverse effect on our operating results and stock price.

Our success depends in large part on the continued services of our executive officers, our senior managers and other key personnel. The loss of these people, especially without advance notice, could have a material adverse impact on our results of operations. It is also very important that we attract and retain highly skilled personnel, including course instructors, to accommodate growth, new course titles and to replace personnel who leave. Competition for qualified personnel can be intense, especially in information technology industries, and there are a limited number of people with the requisite knowledge and experience. Under these conditions, we could be unable to recruit, train, and retain instructors and employees. If we cannot attract and retain qualified personnel, it could have a material adverse impact on our operating results and stock price.

Risks Associated with Intellectual Property

If substantial unauthorized use of Learning Tree’s courses occurs or if we must defend against infringement claims, it could have a material adverse effect on our operating results and stock price.

Our success depends in part on our ability to protect our intellectual property and confidential information. Our course development process and course titles are proprietary and we rely primarily on a combination of statutory and common law copyright, trademark and trade secret laws, customer licensing agreements, employee and third-party nondisclosure agreements and other methods to protect those proprietary rights. Our course materials generally do not include any mechanisms to prohibit or prevent unauthorized use. As a result, someone could copy or otherwise obtain and use our course materials without authorization, either for educational use or to develop competing courses. In addition, we operate in countries that do not provide protection of proprietary rights to the same extent as the United States. Finally, our intellectual property rights will not prevent competitors from independently developing similar course titles or delivery methods. If substantial unauthorized use of Learning Tree’s products were to occur, our business and results of operations could be materially adversely impacted.

We may also have to defend against claims that our current or future courses infringe on the proprietary rights of others. If such a claim succeeded, we might have to change or eliminate courses, and could be required to pay damages or royalties. In addition, litigation over intellectual property rights, whether brought by us or by someone else, could be time-consuming and expensive, even if we were ultimately to succeed. Accordingly, defending and prosecuting these claims could have a material adverse effect on our operating results and stock price.

Risks Associated with Our Historical Financial Statements

Arthur Andersen LLP (“Arthur Andersen”) audited certain of Learning Tree’s historical financial statements, and your ability to rely on those statements and recover from Arthur Andersen may be limited.

On April 5, 2002, we dismissed Arthur Andersen who had previously acted as Learning Tree’s independent auditor. Since that time, we have engaged Ernst & Young LLP (“Ernst & Young”) as our independent auditors to audit the financial statements of Learning Tree for the fiscal years ending September 30, 2002 and 2003 and October 1, 2004, as well as to perform timely reviews of Learning Tree’s quarterly results. This decision was approved by our Board of Directors upon the recommendation of its Audit Committee. Ernst & Young has audited Learning Tree’s financial statements for the three fiscal years ended September 30, 2002 and 2003 and October 1, 2004, but not any prior fiscal year. Arthur Andersen audited the financial statements for Learning Tree’s prior fiscal years. We will not be able to obtain the written consent of Arthur Andersen as required by Section 7 of the Securities Act for any registration statement we may file. Accordingly, investors will not be able to sue Arthur Andersen pursuant to Section 11(a)(4) of the Securities Act relating to any such future registration statements and, therefore, their ability to recover monetary damages for a claim based on false or misleading financial results reported for historical periods would be limited. The ability of investors to recover from Arthur Andersen may also be limited as a result of that firm’s financial condition or other matters relating to the various civil and criminal lawsuits relating to that firm.

Risks Associated with Laws and Regulations

Laws and regulations can affect Learning Tree’s operations and may limit our ability to operate in certain states.

Providers of educational programs to the public must comply with many laws and regulations of Federal, state and international governments. Generally, Learning Tree is exempt from that type of regulation because we contract with the employer of the participants in our courses, and we do not participate in any Federal or state student aid or loan programs. However, state laws and regulations targeting educational providers could affect Learning Tree’s operations in the future and could limit our ability to obtain authorization to operate in certain states. If Learning Tree had to comply with, or was found in violation of, a state’s current or future licensing or regulatory requirements, we could be subject to civil or criminal sanctions, including monetary penalties, we could also be barred from providing educational services in that state. In addition, laws and regulatory decisions in many areas other than education could also adversely affect our operations. Complying with current or future legal requirements could have a material adverse effect on our operating results and stock price.

Control by Management

Senior management has significant influence over Learning Tree’s policies and affairs and may be in a position to determine the outcome of corporate actions.

As of December 6, 2004, Learning Tree’s executive officers and directors collectively own approximately 46% of its outstanding shares of common stock. As of that date, Dr. Collins, Learning Tree’s Chairman and Chief Executive Officer, beneficially owned approximately 25% of Learning Tree’s outstanding shares of common stock. Mr. Garen, Learning Tree’s Vice Chairman of the Board of Directors, beneficially owned approximately 22% of Learning Tree’s outstanding shares of common stock as of December 6, 2004.

Consequently, senior management, and Dr. Collins and Mr. Garen in particular, have significant influence over Learning Tree’s policies and affairs and may be in a position to determine the outcome of corporate actions requiring stockholder approval. These may include, for example, the election of directors, the adoption of amendments to our corporate documents and the approval of mergers and sales of our assets.

Risks Associated with Possible Acquisitions and Other Strategic Transactions

If we cannot successfully implement any future acquisitions or other strategic transactions, it could have a material adverse effect on our operating results and stock price.

On occasion, we evaluate business opportunities and other strategic transactions that appear to fit within our overall business strategy. We could decide to pursue one or more of these opportunities by acquisition or internal development. Acquisitions and other strategic transactions involve many risks, including:

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the difficulty of integrating acquired technologies, operations and personnel with our existing operations;

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the difficulty of developing and marketing new products and services;

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the diversion of our management’s attention as a result of evaluating, negotiating and integrating acquisitions or new business ventures;

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our exposure to unforeseen liabilities of acquired companies; and

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the loss of key employees of an acquired operation.

In addition, an acquisition or other strategic transactions could adversely impact cash flows and/or operating results, and dilute shareholder interests, for many reasons, including:

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charges to our income to reflect the amortization of acquired intangible assets;

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write-offs for the impairment of the carrying value of goodwill or other intangible assets;

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interest costs and debt service requirements for any debt incurred in connection with an acquisition or new business venture; and

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any issuance of securities in connection with an acquisition or other strategic transactions which dilutes or lessens the rights of current Learning Tree common stockholders.

We have had no significant experience in executing and implementing acquisitions. Although we have implemented other strategic transactions, those ventures have not always been successful, and we may not succeed in the future. The risks associated with acquisitions and other strategic transactions could have a material adverse impact on our operating results and stock price.

Risks Associated with Changing Economic Conditions

General domestic and international economic conditions could have a material adverse effect on our operating results and stock price.

Domestic and/or International Economic Downturns. A significant part of our revenues comes from Fortune 1000-level companies, and their international equivalents, and government organizations. During weak economic conditions, our growth rate generally slows. If the domestic and/or international economy continues to weaken, the demand for our services could decline further. This could have a material adverse effect on our operating results and stock price.

Industry-Specific Slowdowns. Our customers generally operate in the finance, computer, communications, electronics, systems integration, aerospace, government and military, manufacturing and energy sectors. If one or more of these industries experiences a slowdown, it could have a material adverse effect on our operating results and stock price.

Anti-Takeover Provisions

Certain provisions of Learning Tree’s Restated Certificate of Incorporation, our Bylaws and Delaware law could adversely impact the interests of Learning Tree’s stockholders.

Certain provisions of Learning Tree’s Restated Certificate of Incorporation, our Bylaws and Delaware law could, together or separately, discourage, delay or prevent a third party from acquiring Learning Tree, even if doing so might benefit our stockholders. These provisions may also affect the price investors would receive for their shares of Learning Tree’s common stock. Some examples of these provisions in Learning Tree’s Restated Certificate of Incorporation and Bylaws are:

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the division of our board of directors into three classes;

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the right of our board of directors to issue preferred stock with rights and privileges which are senior to the common stock, without prior stockholder approval;

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certain limitations of the rights of stockholders to call a special meeting of stockholders; and

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the prohibition of stockholder actions by written consent.

Natural Disasters, External Strikes, Acts of War or Terrorism and Other External Events

Since our founding in 1974, various natural disasters, external labor disruptions, acts of war or terrorism and other adverse external factors have impaired our ability to conduct our business, resulted in the loss of revenue or otherwise affected our operating results. When these or other external events occur in the future, they could have a material adverse effect on our operating results and stock price.

Natural Disasters. Natural disasters can affect our business. For example, severe weather has at times prevented our course participants from traveling to our courses. In these situations, we try to transfer the course participants to later courses, but we may still lose some potential revenue. Similarly, both weather and floods have also disrupted the printing and transportation of the catalogs we use in our direct mail campaigns. The resulting delays in our mailings may reduce or delay the revenue we realize from courses listed in those catalogs.

External Strikes. We have had to react to postal, transportation and other strikes in the countries where we operate. Postal strikes delay or reduce the delivery of our direct mail marketing materials, which may result in reduced enrollments in upcoming course events. Transportation strikes can make it difficult for our course participants or our instructors to reach course facilities. Although we try to employ strategies to mitigate the impact of external strikes, these alternative means are rarely completely effective and generally increase our costs.

Acts of War or Terrorism. Threats or acts of war or terrorism can adversely affect our business. The terrorist attacks in the United States on September 11, 2001, the declaration of war by the United States against terrorism, and continuing hostilities in the Middle East have created significant instability and uncertainty in the world. These and future events may have a material adverse effect on world financial markets, including financial markets in the United States. In addition, threats or acts of war or terrorism can cause course participants to be reluctant to, or prevented from, traveling to our course facilities resulting in lower attendance rates. Additionally, our direct mail marketing materials may be delayed or disrupted from reaching our customers; and suppliers and service providers may be unable to provide required services or materials. These impacts could happen after we have committed to all the costs of our course, so that we would be unable to adjust our cost structure to reflect the changes in revenues caused by these events, which could materially and adversely affect our operating results and stock price.

Other External Factors. Other factors outside our control can affect our operations, including those related to our suppliers and service providers. For example, disruptions of telephone networks can prevent customers from enrolling in our courses; disruptions in transportation services can prevent customers from reaching our facilities, and power outages can prevent us from delivering courses. Similarly, if commodities (for example, the paper used in the printing of our catalogs) that we or our customers need become scarce or more expensive, our operations may be adversely affected.

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