UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly report pursuant to Section 13 and 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 2000
-----------------

[_] 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 (I.R.S. Employer
incorporation or organization) identification No.)

6053 West Century Boulevard, Los Angeles, CA 90045
------------------------------------------------------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (310) 417-9700
------------------

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_____
-----

The number of shares of common stock, $.0001 par value, outstanding as of
February 2, 2001, is 21,739,500 shares.

Total number of pages 18.
----

LEARNING TREE INTERNATIONAL, INC.

FORM 10-Q

December 31, 2000

TABLE OF CONTENTS

Part I--Financial Statements Page
----

Item 1. Financial Statements:
Condensed Consolidated Balance Sheets............................................ 3
Condensed Consolidated Statements of Operations.................................. 4
Condensed Consolidated Statements of Stockholders' Equity........................ 5
Condensed Consolidated Statements of Cash Flows.................................. 6
Notes to Condensed Consolidated Financial Statements............................. 7

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations..................................................................... 9

Part II--Other Information

Item 1. Legal Proceedings................................................................... 16
Item 2. Changes in Securities............................................................... 17
Item 3. Defaults Upon Senior Securities..................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................................. 17
Item 5. Other Information................................................................... 17
Item 6. Exhibits and Reports on Form 8-K.................................................... 17

Signatures...................................................................................... 18

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, September 30,
2000 2000
-------------- ---------------
ASSETS (Unaudited)

Current assets:
Cash and cash equivalents ................................................. $ 98,634,000 $ 116,231,000
Short-term interest-bearing investments ................................... 45,424,000 37,882,000
Trade accounts receivable, net ............................................ 25,731,000 25,565,000
Prepaid marketing expenses ................................................ 1,282,000 1,723,000
Prepaid expenses and other ................................................ 5,480,000 5,251,000
-------------- -------------
Total current assets 176,551,000 186,652,000

Equipment, property and leasehold improvements, net ......................... 24,422,000 22,752,000
Long-term interest-bearing investments ...................................... 8,955,000 8,824,000
Other assets ................................................................ 2,157,000 2,125,000
-------------- -------------
Total assets ....................................................... $ 212,085,000 $ 220,353,000
============== =============
LIABILITIES
Current liabilities:
Trade accounts payable .................................................... $ 12,153,000 $ 15,283,000
Deferred revenue .......................................................... 54,846,000 53,327,000
Accrued liabilities ....................................................... 9,793,000 11,820,000
Income taxes payable ...................................................... 3,274,000 4,729,000
-------------- -------------
Total current liabilities .............................................. 80,066,000 85,159,000

Deferred income taxes ....................................................... 80,000 82,000
Deferred facilities rent .................................................... 2,253,000 2,317,000
-------------- -------------
Total liabilities .................................................. 82,399,000 87,558,000
-------------- -------------

Commitments and Contingencies

STOCKHOLDERS' EQUITY
Common Stock, $.0001 par value, 75,000,000 shares authorized,
21,739,000 and 22,119,000 shares issued and outstanding, respectively 2,000 2,000
Additional paid-in capital ................................................ 37,872,000 52,649,000
Notes receivable from stockholders......................................... -- --
Cumulative foreign currency translation ................................... (3,201,000) (4,007,000)
Retained earnings ......................................................... 95,013,000 84,151,000
-------------- -------------
Total stockholders' equity .......................................... 129,686,000 132,795,000
-------------- -------------
Total liabilities and stockholders' equity .......................... $ 212,085,000 $ 220,353,000
-------------- -------------

See accompanying notes to condensed consolidated financial statements.

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

For the Three Months
Ended December 31,
---------------------------------
2000 1999
----------- ------------

Revenues ...................................... $ 62,104,000 $ 49,399,000
Cost of revenues .............................. 23,613,000 18,207,000
----------- ------------

Gross profit ................................ 38,491,000 31,192,000
----------- ------------
Operating expenses:
Course development .......................... 2,820,000 2,395,000
Sales and marketing ......................... 14,517,000 12,349,000
General and administrative .................. 6,537,000 5,901,000
----------- ------------
23,874,000 20,645,000
----------- ------------

Income from operations ........................ 14,617,000 10,547,000
----------- ------------
Other income (expense):
Interest expense ............................ (1,000) (1,000)
Interest income ............................. 2,486,000 1,324,000
Foreign exchange ............................ (175,000) (67,000)
Other ....................................... (86,000) 21,000
----------- ------------
2,224,000 1,277,000
----------- ------------

Income before provision for income taxes ...... 16,841,000 11,824,000
Provision for income taxes .................... 5,979,000 4,138,000
----------- ------------

Net income .................................... $ 10,862,000 $ 7,686,000
=========== ============

Earnings per common share ..................... $ 0.49 $ 0.36
=========== ============

Earnings per common share assuming dilution.... $ 0.48 $ 0.35
=========== ============

Weighted average number shares outstanding..... 21,986,000 21,638,000
=========== ============

Diluted shares outstanding .................... 22,806,000 22,091,000
=========== ============

See accompanying notes to condensed consolidated financial statements.

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

Notes Foreign
Additional Receivable Currency Total
Common Paid-In From Translation Retained Stockholders'
Stock Capital Stockholders Adjustment Earnings Equity
----------- ------------- -------------- ------------- ----------- ---------------

Balance,
September 30, 1999..................... $ 2,000 $ 39,888,000 $ (6,000) $ (1,300,000) $47,056,000 $ 85,640,000

Comprehensive income:
Net income........................... -- -- -- -- 7,686,000 7,686,000
Foreign currency
translation........................ -- -- -- (491,000) -- (491,000)
---------------
Comprehensive income................... 7,195,000

Stock option exercises................. -- 60,000 -- -- -- 60,000

Collection of notes
receivable........................... -- -- 6,000 -- -- 6,000
----------- ------------- -------------- ------------- ----------- ---------------

Balance at
December 31, 1999...................... $ 2,000 $ 39,948,000 $ -- $ (1,791,000) $54,742,000 $ 92,901,000
=========== ============= ============== ============= =========== ===============

Balance,
September 30, 2000..................... $ 2,000 $ 52,649,000 $ -- $ (4,007,000) $84,151,000 $ 132,795,000

Comprehensive income:
Net income........................... -- -- -- -- 10,862,000 10,862,000
Foreign currency
translation........................ -- -- -- 806,000 -- 806,000
---------------
Comprehensive income................... 11,668,000

Stock option exercises................. -- 481,000 -- -- -- 481,000

Tax benefit related to
stock option exercises............... -- 174,000 -- -- -- 174,000

Stock repurchases..................... -- (15,432,000) -- -- -- (15,432,000)
----------- ------------- -------------- ------------- ----------- ---------------

Balance at
December 31, 2000...................... $ 2,000 $ 37,872,000 $ -- $ (3,201,000) $95,013,000 $ 129,686,000
=========== ============= ============== ============= =========== ===============

See accompanying notes to condensed consolidated financial statements.

LEARNING TREE INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

For the Three Months
Ended December 31,
--------------------------------
2000 1999
--------------------------------
Cash flows--operating activities:

Net income ...................................................... $ 10,862,000 $ 7,686,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .......................... 1,835,000 2,281,000
Unrealized foreign exchange losses ..................... 146,000 12,000
Losses (gains) on retirements of equipment and leasehold
improvements ...................................... 57,000 (7,000)
Deferred facilities rent charges ........................ (75,000) (25,000)
Change in net assets and liabilities:
Trade accounts receivable ......................... 215,000 1,135,000
Prepaid marketing expenses ........................ 445,000 602,000
Prepaid expenses and other ........................ (171,000) (259,000)
Income taxes ...................................... (1,383,000) 2,103,000
Trade accounts payable ............................ (3,236,000) (2,896,000)
Deferred revenue .................................. 1,114,000 2,045,000
Accrued liabilities ............................... (2,182,000) 725,000
------------- -------------
Net cash provided by operating activities .............. 7,627,000 13,402,000
------------- -------------
Cash flows--investing activities:
Purchases of equipment, property and leasehold improvements ..... (3,475,000) (1,604,000)
Retirements of equipment, property and leasehold improvements ... 89,000 837,000
Sales of short-term interest-bearing investments:
Investments held to maturity ................................ 23,191,000 7,029,000
Investments held for sale ................................... -- 7,700,000
Purchases of short-term interest-bearing investments:
Investments held to maturity ................................ (30,733,000) (7,263,000)
Investments held for sale ................................... -- (7,741,000)
Other, net ...................................................... 9,000 81,000
------------- -------------
Net cash used in investing activities .................. (10,919,000) (961,000)
------------- -------------
Cash flows--financing activities:
Repurchases of Common Stock ..................................... (15,432,000) --
Proceeds from exercise of stock options ......................... 481,000 60,000
Collections of stockholder notes receivable ..................... -- 6,000
------------- -------------
Net cash provided by (used in) financing activities (14,951,000) 66,000
------------- -------------
Effects of exchange rates on cash ................................... 646,000 (559,000)
------------- -------------
Net increase (decrease) in cash and cash equivalents ................ (17,597,000) 11,948,000
Cash and cash equivalents at the beginning of the period ............ 116,231,000 33,059,000
------------- -------------
Cash and cash equivalents at the end of the period .................. $ 98,634,000 $ 45,007,000
============= =============
Supplemental disclosures:
Income taxes paid .......................................... $ 7,564,000 $ 2,005,000
============= =============
Interest paid .............................................. $ -- $ --
============= =============

See accompanying notes to condensed consolidated financial statements.

LEARNING TREE INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 Operations and Significant Accounting Policies:
-----------------------------------------------

The accompanying condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
regulations. Certain prior period balances have been reclassified to conform
with the current period presentation. The condensed consolidated financial
statements reflect all adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. All such adjustments are of a
normal recurring nature. The condensed consolidated financial statements in this
Quarterly Report on Form 10-Q should be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year ended
September 30, 2000 that are contained in the Company's 2000 Annual Report on
Form 10-K.

Note 2 Computation of Earnings per Common Share and Earnings per Common Share
----------------------------------------------------------------------
Assuming Dilution:
-----------------

Earnings per common share and earnings per common share assuming dilution
are computed using the weighted average number of shares of Common Stock
outstanding during the period. Earnings per common share assuming dilution are
computed by including the dilutive effect, if any, of all outstanding options to
purchase Common Stock using the treasury stock method. To calculate the number
of diluted shares outstanding, 453,000 shares and 820,000 shares were added to
the weighted average number of shares outstanding as of December 31, 1999 and
2000, respectively. For the first quarter of fiscal 2000 and 2001, 887,000 and
101,000 stock options, respectively, were excluded from the calculation of
earnings per common share assuming dilution, because they were antidilutive.

Note 3 Litigation:
----------

On April 16, 1998, a class action lawsuit was filed against certain
officers and directors of Learning Tree in the Superior Court of the State of
California, County of Los Angeles, (Sarah v. Collins et al., Case No. BC189499),
----------------------
purportedly on behalf of persons who purchased Learning Tree's Common Stock
between May 8, 1997 and November 3, 1997. On June 29, 1998, a second class
action lawsuit was filed by the same law firms against the same officers and
directors of Learning Tree in the Superior Court of the State of California,
County of Los Angeles (Guthrie v. Collins et al., Case No. BC193465), also
------------------------
purportedly on behalf of persons who purchased Learning Tree's Common Stock
between May 8, 1997 and November 3, 1997. On August 6, 1998, a third class
action lawsuit was filed by the same law firms against Learning Tree and certain
officers and directors of Learning Tree in the United States District Court for
the Central District of California (Schlagal v. Learning Tree International et
------------------------------------------
al., Case No. 98-6384ABC), purportedly on behalf of persons who purchased
- --
Learning Tree's Common Stock between May 8, 1997 and May 13, 1998. On February
2, 2000, plaintiffs and defendants stipulated to the filing of an amended
complaint in the Schlagal action which asserts the same state law claims that
--------
are contained in the Sarah and Guthrie actions. On February 7, 2000, the state
----- -------
court granted the parties' joint request to dismiss Sarah and Guthrie. Thus,
----- -------
only the amended Schlagal class action remained pending against Learning Tree,
--------
its officers and directors.

The complaints in Sarah, Guthrie and Schlagal made similar allegations of
----- ------- --------
misrepresentations in certain public disclosures made by Learning Tree at
various times during the class period. Each complaint alleged that Learning Tree
and the defendant officers and directors concealed an alleged deterioration of
business early in 1997 and that several of the officers and directors realized
profits by trading their shares of Learning Tree Stock while in possession of
the allegedly concealed material adverse information. Each complaint sought an
unspecified amount of compensatory damages and, additionally, sought attorneys'
fees and other costs, interest, and other relief.

In May 2000, plaintiffs and defendants executed a Stipulation of
Settlement ("Settlement Stipulation") in the Schlagal Action, which was filed
--------
with the Court. The Settlement Stipulation provides, among other things, for
dismissal of the Schlagal Action against all defendants. Counsel for plaintiffs
--------
provided written notice of the Settlement Stipulation to class members, giving
them the opportunity to object to the Settlement Stipulation or to opt out of
participation in the settlement. Only four class members opted out.

On August 7, 2000, the Court gave its final approval to the Settlement
Stipulation and signed and filed a Judgment which, among other things, dismissed
the Schlagal action against all defendants. If the Judgment becomes final, the
--------
Settlement will have no financial impact upon the Company, its officers or its
directors.

If the Judgment approving the Settlement Stipulation does not become final,
Learning Tree cannot estimate the outcome of further proceedings or any
potential liabilities it may incur. In such circumstances, Learning Tree may
incur legal and other defense costs in an amount that it cannot currently
estimate. These proceedings could involve a substantial diversion of the time of
some of the members of management, and an adverse determination in, or
settlement of, such litigation could involve the payment of significant amounts,
or could include terms in addition to such payments, which could have an adverse
impact on Learning Tree's business, financial condition, results of operations
and cash flows. Learning Tree has agreements with its officers and directors
under which it is indemnifying them in these proceedings.

Note 4 Repurchase of Company Stock:
----------------------------

On November 27, 2000, the Board of Directors of the Company authorized the
reinstatement of the stock repurchase plan. During the quarter ended December
31, 2000, the Company repurchased approximately 408,500 shares of Common Stock
for approximately $15,432,000. The Company may make additional purchases through
open-market transactions based upon market conditions and pursuant to the
requirements of Rule 10b-18 of the Securities Exchange Act of 1934. There can be
no assurance that the Company will repurchase additional shares of Common Stock.

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

Except for historical information contained herein, the matters discussed
in this Form 10-Q are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in such forward-looking statements. Such risks and
uncertainties include, without limitation, the Company's dependence on the
timely development, introduction and customer acceptance of courses and
products; risks in technology development and introduction; risks associated
with the introduction of distance learning both by the Company and its
competitors; the impact of competition and pricing pressures; the Company's
ability to attract and retain key management and other personnel; risks
associated with international operations, including currency fluctuations; the
effect of changing economic conditions; the Company's ability to maintain its
current operating margins; the effect of adverse weather conditions, strikes and
other external events; and the other risks and uncertainties detailed from time
to time in Learning Tree's filings with the Securities and Exchange Commission,
including Learning Tree's 2000 Annual Report on Form 10-K and in Exhibit 99
"Risk Factors" thereto.

Overview

Learning Tree International, Inc. ("the Company") is a leading worldwide
provider of education and training to information technology ("IT")
professionals in business and government organizations. The Company develops,
markets and delivers a broad, proprietary library of instructor-led course
titles focused on client/server systems, intranet/Internet technologies,
computer networks, operating systems, programming languages, databases,
object-oriented technology and IT management. In addition, the Company provides
custom developed training for larger clients who need to train large numbers of
their IT professionals and end-users, and tests and certifies IT professionals
in 35 IT job functions. The Company's instructor-led courses are recommended for
college credit by the American Council on Education.

In the past, the Company has delivered certain of its courses by using a
computer-based training method ("CBT") on CD-ROMs. On July 13, 1999, the Company
announced that it intended to shift its focus in technology-based training from
these CBT courses to other distance learning methodologies using the Internet.
As a result, the Company discontinued further development of its CBT courses,
and substantially reduced its sales and marketing of these courses. During
fiscal 2000, sales of CBT contributed a small amount of relatively high margin
revenues, and by the end of fiscal 2000 sales of CBT courses were largely
discontinued. The Company expects to realize little or no revenues from selling
its CBT courses in fiscal 2001.

The Company has completed the conversion of seven instructor-led courses
for delivery over the Internet and engaged in limited test marketing of these
courses. The Company is currently working on various packaging and marketing
approaches for these courses. The market for e-learning for IT professionals is
currently highly fragmented with no established industry model for growth and
profitability. Until the Company develops what it believes could be a profitable
e-learning business model, it expects to limit its ongoing investment in
e-learning. There can be no assurance that the Company will be able to
successfully develop or profitably implement its current or any other distance
learning strategy.

Results of Operations

In the first quarter ended December 31, 2000, revenues increased by 26% to
$62.1 million from $49.4 million for the corresponding quarter of the prior
year. Income from operations for the quarter ended December 31, 2000 increased
by 39% to $14.6 million versus $10.5 million for the same quarter of fiscal
2000. Net

income for the quarter ended December 31, 2000 increased by 41% to $10.9 million
from $7.7 million for the same period last year.

The growth in revenues in the first quarter of fiscal 2001 was primarily
the result of a 32% increase in the number of multi-day course participants to
39,171 compared to 29,606 in the corresponding three months of the prior year,
partially offset by a 2% decrease in average revenue per multi-day course
participant. The increase in course participants is partially the result of (i)
increased expenditures for course development, sales and marketing, (ii) an
increase in the number of effective course weeks in the quarter due to the
timing of the Christmas holiday, and (iii) the effect of Y2K on the Company's
clients' IT activities during the quarter ended December 31, 1999. The decrease
in average revenue per multi-day course participant reflects the impact of
changes in foreign exchange rates compared to the exchange rates that prevailed
during the quarter ended December 31, 1999. The effect of changes in foreign
exchange rates was partially offset by the impact of increases in prices.
Excluding the impact of exchange rate changes, the average revenue per multi-day
course participants would have been 4% higher than that in the same quarter of
the prior year. Additionally, the increase in instructor-led course revenue was
partially offset by a reduction in CBT revenues in the first quarter this year
compared to the same quarter of the prior year. Sales of CBT courses were
largely discontinued as of September 30, 2000.

The Company's cost of revenues for its instructor-led courses primarily
includes the costs associated with course instructors, course materials and
equipment, freight, classroom facilities and refreshments. The cost of revenues
increased to 38.0% of revenues in the first quarter of fiscal 2001 compared to
36.9% in the first quarter of fiscal 2000. This increase is primarily the result
of the elimination of the relatively high margin CBT sales in fiscal 2001. In
addition, margins in the Company's instructor-led courses declined slightly
reflecting the combined effect of a 4% decrease in revenue per multi-day course
event, partially offset by a 3% decrease in costs per multi-day course event.
The decrease in average revenue per multi-day course event primarily reflects
the decrease in revenue per attendee and in attendees per event. The change in
the costs per course event primarily reflects the effect of changes in foreign
exchange rates.

For the first quarter of fiscal 2001, the cost of revenues increased by 30%
to $23.6 million from $18.2 million for the same quarter of fiscal 2000. The
increase in the cost of revenues compared to the same period in the prior year
primarily reflects a 36% increase in the number of course events during the
first quarter of fiscal 2001. During the first quarter of fiscal 2001, the
number of multi-day instructor-led course events was 2,531 compared to 1,867
during the same period last year. In November 2000, the Company opened its first
education center in Chicago.

Course development expense includes the costs of developing new course
titles and updating the Company's existing course library. The principal costs
are for internal product development staff and independent consultants who serve
as subject matter experts. Course development expense was 4.5% of revenue during
the first quarter of fiscal 2001 compared to 4.8% for the same period of fiscal
2000. Course development expenses increased by 18% to $2.8 million for the
quarter ended December 31, 2000 from $2.4 million in the quarter ended December
31, 1999.

The Company offered 143 multi-day course titles as of December 31, 2000,
compared to 144 a year earlier. The Company has recently released additional
multi-day course titles on topics such as XML, web development, Windows 2000,
SQL Server 2000 and Oracle8i. The change in the size of the multi-day course
library reflects the net effect of the introduction of new titles and the
retirement of old titles. Old titles are retired when the profits they generate
are not sufficient to justify the ongoing cost of marketing them and maintaining
their technological content. The actual number of instructor-led course titles
which the Company will produce, and

their delivery dates, are subject to a number of factors such as the hiring and
training of staff, perceived customer demand, and the availability of subject
matter experts. There can be no assurance that the Company will develop more
titles than it retires in any period. Course development costs may increase in
the future as the Company continues to expand its instructor led training course
library and explores the development of Internet distance learning approaches
and technologies.

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. Sales and
marketing expenses increased by 18% to $14.5 million for the quarter ended
December 31, 2000 from $12.3 million for the quarter ended December 31, 1999.
The increase primarily reflects increased marketing activities and marketing
costs, selling commissions due to the higher level of sales, and increases in
the number of sales and marketing personnel. Sales and marketing expenses for
the first quarter of fiscal 2001 decreased as a percentage of revenues to 23.4%
compared to 25.0% in the first quarter of fiscal 2000. This improvement
primarily reflects the first quarter fiscal 2001 revenue growth and the measures
taken to increase the Company's return on its marketing investments. The Company
adjusts its marketing activities to correspond with its expected growth rate in
course participants. The Company expects to increase its marketing expenditures
during the remainder of fiscal 2001 compared to the same period of the 2000
fiscal year. However, there can be no assurance that the Company's revenues will
continue to grow in fiscal 2001.

General and administrative expenses increased by 11% to $6.5 million for
the quarter ended December 31, 2000 compared to $5.9 million in the same quarter
of the prior year. The increase in general and administrative expenses reflects
increases in administrative staff and related costs. As a percentage of revenue,
these costs decreased to 10.5% in the quarter ended December 31, 2000 from 11.9%
in the corresponding period of the prior year.

Other income (expense) is primarily comprised of interest income and
foreign currency transaction gains and losses. Other income (expense) increased
to $2.2 million for the quarter ended December 31, 2000 from $1.3 million for
the corresponding quarter in the prior year. The increase in other income
(expense) is primarily attributable to additional interest income as compared
with the same period a year ago, as a result of higher interest rates and
greater cash balances. The increase was partially offset by foreign exchange
losses of $175,000 recorded in the first quarter of fiscal 2001, compared to
foreign exchange losses of $67,000 in the first quarter of fiscal 2000. These
transaction gains and losses arose from receivables and payables denominated in
currencies other than the functional currencies of the Company's foreign
subsidiaries.

The provision for income taxes increased $1.9 million to $6.0 million for
the quarter ended December 31, 2000 compared to $4.1 million for the same
quarter of the prior year. The increase in the income tax provision reflects the
increase in taxable income and a slight increase in the effective tax rate.

Fluctuations in Quarterly Results

Historically, the Company's quarterly operating results have fluctuated,
and fluctuations are expected to continue in the future. The Company tries to
base expenditures for course development and sales and marketing expenses on its
expectations of future customer demand. Specifically, the Company intends to
increase the amount of its expenditures for sales and marketing in the future.
However, if the Company's assumptions regarding future customer demand prove to
be wrong, and revenues fall short of expectations, the Company may not be able
to adjust its expenditures quickly enough to compensate for a lower revenue
base. Any significant revenue shortfall would therefore have a material adverse
effect on the Company's results of operations.

The Company's quarterly operating results may fluctuate based on other
factors including: the frequency and availability of course events; the number
of weeks in a quarter during which courses can be conducted; the timing,
frequency and size of, and response to the Company's direct mail marketing and
advertising campaigns; the timing of the introduction of new course titles; the
mix between course events held at customer-sites and course events held in the
Company's education centers and hotels; competitive forces within current and
anticipated future markets served by the Company; the Company's ability to
attract customers and meet their expectations; currency fluctuations and other
risks of international operations; natural disasters, external strikes, and
other external factors; and general economic conditions and industry-specific
slowdowns. Fluctuations in quarter-to-quarter results may also occur as a result
of differences in the timing of the Company's spending on development and
marketing of its courses and receiving revenues from its customers.

The Company's quarterly revenues and income typically reflect seasonal
patterns. Generally, the Company's revenue and operating income are greater in
the second half of its fiscal year (April through September) than in the first
half (October through March). This is due in large part to seasonal spending
patterns of the Company's customers, which are affected by factors such as:
their budgetary considerations; factors specific to their business or industry;
and weather, holiday and vacation considerations. There can be no assurance that
these seasonal factors or their effects will remain the same in the future.

Liquidity and Capital Resources

Cash and cash equivalents and short-term interest-bearing investments
decreased to $144.1 million at December 31, 2000 from $154.1 million at
September 30, 2000, primarily as a result of cash used for repurchases of Common
Stock, expansion costs related to the Company's education centers in New York
and Chicago, and investments in new and upgraded course equipment. The decrease
was partially offset by cash provided by operations. In the quarter ended
December 31, 2000, cash provided by operations was approximately $7.6 million
compared to $13.4 million during the same period in the prior year. This
decrease in cash provided by operations primarily reflects higher income tax,
incentive compensation and other accrued liability payments. At December 31,
2000, Learning Tree had working capital of $96.5 million.

In November 2000, the Board of Directors of the Company authorized the
reinstatement of the stock repurchase plan. During the first quarter of fiscal
2001, the Company repurchased approximately 408,500 shares of Common Stock for
approximately $15,432,000. The Company may make additional purchases through
open-market transactions based upon market conditions and pursuant to the
requirements of Rule 10b-18 of the Securities Exchange Act of 1934. There can be
no assurance that the Company will repurchase additional shares of Common Stock.

During the quarter ended December 31, 2000, the Company invested $3.5
million in equipment and facilities compared to $1.6 million in the same period
of the prior year. The higher level of investment during the current year was
primarily related to the build-out of education center facilities in New York
and Chicago and the purchase of new and upgraded course equipment. In October
2000, the Company signed a lease for its first education center in Atlanta. As
of December 31, 2000, the Company had no other material future purchase
obligations, capital commitments or debt and believes that its cash and cash
equivalents, its short-term interest-bearing investments and the cash provided
by its operations will be sufficient to meet its cash requirements for the
foreseeable future.

Quantitative and Qualitative Disclosures About Market Risk

The Company's cash equivalents and short-term investment portfolio is
diversified and consists primarily of investment grade securities. Investments
are held with high-quality financial institutions, government and government
agencies, and corporations, thereby reducing credit risk concentrations. The
fair value of the

Company's portfolio of marketable securities would not be significantly impacted
by either a 10 percent (55 basis point) increase or decrease in the rates of
interest due primarily to the short-term nature of the portfolio. The Company
does not hold or issue derivative financial instruments.

The Company's consolidated financial statements are prepared in U.S.
dollars, while the operations of its foreign subsidiaries are conducted in their
respective local currencies. Consequently, changes in exchange rates can result
in exchange losses. The Company does not hedge against the risks associated with
fluctuations in exchange rates and therefore continues to be subject to such
risks. The Company may use hedging techniques in the future. However, there can
be no assurance that any hedging techniques implemented by the Company would be
successful in eliminating or reducing the effects of currency fluctuations.

Outlook For Fiscal 2001

Backlog. At December 31, 2000, the Company had a backlog of orders for
instructor-led courses of $31.4 million, which represented a 31% increase
compared to the backlog of $24.0 million at December 31, 1999. However, the
backlog at December 30, 1999 was unusually low due to the effects of Y2K on the
Company's customers at that time. Conversely, the enrollment rate grew unusually
quickly last year in the quarter following January 1, 2000 as customers
completed their Y2K projects and began new projects requiring new technologies.
There can be no assurance that the rate of growth in enrollments will continue.
Only a portion of the Company's backlog is funded. There can be no assurance
that orders comprising the backlog will be realized as revenue.

Fiscal 2001 Outlook. 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 the Company's filings with the Securities
and Exchange Commission including the Company's 2000 Annual Report on Form 10-K
and "Risk Factors," filed as Exhibit 99. As economic and market conditions
change during fiscal 2001, the Company's future revenues, plans and expenditures
will vary from the observations below, and these differences may be material.

Approximately 40% of the Company's business is conducted in European
currencies. Accordingly, fluctuations in the exchange rates of European
currencies will impact future revenues and expenses. European exchange rates
have recently improved compared to the exchange rates that prevailed during the
first quarter of fiscal 2001. However, these exchange rates have not yet
returned to their average levels during fiscal 2000. If current exchange rates
continue for the remainder of fiscal 2001, the Company believes that its fiscal
2001 revenue will be approximately 3% less than it would have been had the
average exchange rates during fiscal 2000 continued throughout fiscal 2001.

Changes in exchange rates which have an adverse effect on the Company's
foreign revenues have a favorable effect on the Company's foreign expenses. If
current exchange rates continue through the remainder of fiscal 2001, the
Company estimates that net income for the year would be approximately 2% lower
than the Company would otherwise achieve had fiscal 2000 average exchange rates
continued throughout fiscal 2001.

The Company's historical long-term revenue growth rate has been
approximately 22%. In the absence of the changes in exchange rates discussed
above and the factors noted below, the Company believes it could achieve a
similar growth rate in fiscal 2001. In addition to the impact of changes in
European currency exchange rates, some of the other key factors and assumptions
that could affect the Company's revenues in fiscal 2001 include the following:

. While there appears to be a strong fundamental demand for IT training,
the recent uncertainty surrounding economic conditions in the United
States makes it more difficult to forecast the Company's fiscal 2001
growth rate. During periods of strong economic and technology growth,
the Company has been able to grow its instructor-led training business
faster than its long-term growth rate. If strong market conditions for
IT training continue throughout fiscal 2001, the Company may grow its
instructor-led training business faster than its average long-term
growth rate. During weak economic conditions, the Company's growth
rate generally slows.

. The Company expects to realize little or no revenues from selling its
CBT courses in fiscal 2001, as it largely discontinued selling these
courses at the end of September 2000.

. The Company believes that the first quarter of fiscal 2000 (the
December quarter of fiscal 2000) was adversely impacted by the effect
of Y2K on the Company's market, thereby contributing to the strong
revenue growth achieved in the first quarter of fiscal 2001. During
the second through fourth quarters of fiscal 2001, the Company will be
comparing its revenue to stronger prior year periods than in the first
quarter.

Excluding the effect of the adverse changes in European exchange rates,
general economic conditions and the discontinuation of the Company's CBT sales,
the Company believes that in the second quarter of fiscal 2001 the Company's
revenue growth would generally be in line with its historical growth rate of
approximately 22%. Some factors that could affect second quarter revenues
include the following:

. At December 31, 2000, the Company's backlog of $31.4 million was 31%
higher than at December 31, 1999. However, the Company believes that
last year's backlog was adversely impacted by the effect of Y2K on its
market prior to December 31, 1999, thus contributing to the year on
year growth in backlog at December 31, 2000.

. In January 2000, when the Company's customers determined that their
Y2K issues had been resolved, enrollments for its courses increased
sharply. Thus, during the month of January 2001, the growth rate of
enrollments has slowed from the growth rate the Company attained in
the first quarter of fiscal 2001.

. If current exchange rates continue unchanged, it is estimated that
they will have a 3% to 4% adverse effect on revenues in the Company's
second quarter of fiscal 2001 compared fiscal 2000.

. The Company's second quarter revenues have historically been slightly
less than first quarter revenues due to the seasonality effects of
winter.

. In the Company's most recent marketing programs, the Company announced
20 new course titles that will have their initial presentations during
the second and third fiscal quarters and expects to retire about three
course titles. The Company expects to have approximately 153 course
titles in the second quarter, and approximately 160 course titles in
the third quarter.

In addition to the number of course titles and general economic conditions, the
Company believes that the following are some of the factors that could impact
revenues in the third and fourth quarters of fiscal 2001:

. During the third quarter of fiscal 2001, the Company will effectively
have approximately one-half week less of course delivery than in the
comparable quarter of fiscal 2000, primarily because of the timing of
European holidays. If the current exchange rates continue unchanged,
it is estimated that they will have a 1% to 2% adverse effect on
revenues in the third quarter of fiscal 2001 compared to fiscal 2000.

. The fourth quarter of fiscal 2000 already reflected a significant
portion of the changes in European exchange rates at the end of fiscal
2000 and the exchange rates have partially recovered since the
beginning of fiscal 2001. Therefore, if the current exchange rates
continue unchanged, they will have little or no effect on revenues in
the Company's fourth quarter fiscal 2001 compared to fiscal 2000.

Based on current trends, the Company estimates that its fiscal 2001 cost of
revenues for instructor-led training will generally be similar, as a percentage
of revenues, to comparable periods in fiscal 2000. During the second quarter of
fiscal 2001, the Company plans to spend an amount somewhat in excess of
historical levels for instructor training. These increased expenditures are a
result of above average instructor recruitment activities in the first quarter
of fiscal 2001. The Company also expects that during the second quarter of
fiscal 2001, the cost of revenues may increase slightly as a percentage of sales
due to increases in course event scheduling. Additionally, the elimination of
CBT sales in fiscal 2001 will increase the overall cost of revenues as a
percentage of sales by approximately one percentage point over fiscal 2000.

Course development expenses were approximately $2.8 million in the first
quarter of fiscal 2001. During the remainder of fiscal 2001, course development
expenses are expected to remain between $2.8 million and $3.0 million per
quarter.

For fiscal 2001 as a whole, the Company is targeting sales and marketing
expenses to be approximately 26% of revenues as reflected in its long term
operating model. Because the Company must incur these costs before knowing to
what extent they will generate revenues, sales and marketing expenses as a
percentage of revenues could vary materially from the Company's expectations.

If the Company's revenues increase in fiscal 2001 over fiscal 2000, it may
achieve greater leverage on its general and administrative expenses, which could
improve by as much as one percentage point from the 11.6% of revenues achieved
in fiscal 2000. Typically, general and administrative expenditures for the
quarters are relatively level, with slight increases during each succeeding
quarter. However, the Company expects slightly larger than normal increases in
general and administrative expenses during coming quarters due to planned
information systems enhancements, which will be implemented during fiscal 2001.

Interest income reflects changes in the Company's cash balances as well as
changes in interest rates. During the first quarter of fiscal 2001, the
Company's cash and interest-bearing investments decreased by $9.9 million to
$153.0 million from $162.9 million at September 30, 2000. This decrease reflects
the expenditure of $15.4 million on repurchases of the Company's Common Stock
during the first quarter as well as the expansion of its New York and Chicago
education centers, partially offset by $7.6 million in cash from operations.
Additionally, interest rates in the United States have recently fallen 1% and
there have been indications that there may be further rate reductions in the
future. As a result, interest income can be expected to decline in the second
quarter, and thereafter to depend primarily on interest rate changes and cash
from operations.

The Company estimates that its tax rate in fiscal 2001 will increase
slightly to approximately 35.5%.

PART II - OTHER INFORMATION

Item 1: LEGAL PROCEEDINGS

In May 2000, plaintiffs and defendants executed a Stipulation of Settlement
("Settlement Stipulation") in the Schlagal Action, which was filed with the
--------
Court. The Settlement Stipulation provides, among other things, for dismissal of
the Schlagal Action against all defendants. Counsel for plaintiffs provided
--------
written notice of the Settlement Stipulation to class members, giving them the
opportunity to object to the Settlement Stipulation or to opt out of
participation in the settlement. Only four class members opted out.

Item 2. CHANGES IN SECURITIES

Not Applicable

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None

Item 5. OTHER INFORMATION

Not Applicable

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits

27.1 Financial Data Schedule

b) Reports on Form 8-K

No reports on Form 8-K were filed during the three months
ended December 31, 2000.

SIGNATURES

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

LEARNING TREE INTERNATIONAL, INC.

Dated: February 14, 2001 By: /s/ Gary R. Wright
----------------------------
Gary R. Wright
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)