11-K 1 c96348e11vk.txt FORM 11-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 2004 Commission File Number 0-20842 A. Full title of the plan and the address of the plan, if different from that of the issuer named below: PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: PLATO Learning, Inc. 10801 Nesbitt Avenue South Bloomington, MN 55437 PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE DECEMBER 31, 2004 AND 2003 PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN INDEX -------------------------------------------------------------------------------- PAGE(S) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM........................1 FINANCIAL STATEMENTS Statements of Assets Available for Benefits December 31, 2004 and 2003.....................................................2 Statement of Changes in Assets Available for Benefits Year Ended December 31, 2004...................................................3 Notes to Financial Statements December 31, 2004 and 2003.................................................4 - 8 SUPPLEMENTAL SCHEDULE Schedule H, line 4i - Schedule of Assets (Held at End of Year) December 31, 2004..............................................................9 Note: Other schedules required by 29 CFR 2520.103-10 of the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Participants and Administrator of the PLATO Learning, Inc. Savings and Retirement Plan In our opinion, the accompanying statements of assets available for benefits and the related statement of changes in assets available for benefits present fairly, in all material respects, the assets available for benefits of PLATO Learning, Inc. Savings and Retirement Plan (the "Plan") at December 31, 2004 and 2003, and the changes in assets available for benefits for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental Schedule of Assets (Held at End of Year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. As further described in Note 1, the Lightspan, Inc. 401(k) Profit Sharing Plan ("Lightspan Plan") was merged into the Plan during 2004, with $9.0 million of Lightspan Plan assets transferred into the Plan. /s/ PricewaterhouseCoopers LLP Minneapolis, Minnesota May 6, 2005 1 PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN STATEMENTS OF ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 2004 AND 2003 --------------------------------------------------------------------------------
2004 2003 ASSETS Cash $ 5,044 $ 4,303 Investments 21,809,720 11,314,615 ----------- ----------- Assets available for benefits $21,814,764 $11,318,918 =========== ===========
The accompanying notes are an integral part of these financial statements. 2 PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN STATEMENT OF CHANGES IN ASSETS AVAILABLE FOR BENEFITS YEAR ENDED DECEMBER 31, 2004 -------------------------------------------------------------------------------- INVESTMENT INCOME Net appreciation in fair value of investments $ 1,044,667 Interest and dividend income 269,795 ------------ Total investment income 1,314,462 ------------ CONTRIBUTIONS Participant 3,223,590 Employer 714,361 ------------ Total contributions 3,937,951 ------------ DEDUCTIONS Benefits paid to participants (3,731,876) Administration expenses (22,305) ------------ Total deductions (3,754,181) ------------ TRANSFERS Transfer from Lightspan Plan (Note 1) 8,997,614 ------------ Increase in assets during the year 10,495,846 ASSETS AVAILABLE FOR BENEFITS Beginning of year 11,318,918 ------------ End of year $ 21,814,764 ============
The accompanying notes are an integral part of these financial statements. 3 PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 -------------------------------------------------------------------------------- 1. DESCRIPTION OF PLAN The following description of the PLATO Learning, Inc. (the "Company") Savings and Retirement Plan (the "Plan") is provided for general informational purposes only. Participants should refer to the Plan document for a more complete description of the Plan's provisions. Effective March 1, 2004, the Lightspan, Inc. 401(k) Profit Sharing Plan ("Lightspan Plan") was merged into the Plan, and Lightspan Plan assets available for benefits of $8,997,614 were transferred to the Plan pursuant to the terms of the Plan. GENERAL The Plan is a contributory defined contribution plan covering all eligible employees of the Company. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ELIGIBILITY REQUIREMENTS All employees of the Company are eligible to participate in the Plan upon the completion of three months of employment provided they are least 21 years of age. CONTRIBUTIONS Participant contributions are recorded in the period the employer makes the payroll deductions. Employer matching contributions are accrued based on participant contributions. Participants may contribute up to 60% of their pre-tax compensation, up to a maximum dollar amount, as defined, subject to certain other Internal Revenue Service ("IRS") limitations. The Company may also make contributions to the Plan at its discretion. Any such amount must be designated by Company resolution. In 2004, the discretionary contribution was 50% for each dollar of participant contributions up to a maximum Company contribution of 2% of participant compensation, with a cap of $4,000 in total Company contributions per participant. PARTICIPANT ACCOUNTS Individual participant accounts are maintained by the Plan's recordkeeper, Administrative Management Group, Inc. Each participant's account is credited with the participant's contribution, Plan investment earnings or loss, net of administrative expenses, and an allocation of employer matching and discretionary contributions. Allocations are based on participant earnings and account balances, as defined. The allocation of the participant's contributions to these investment funds may be changed daily. VESTING AND FORFEITURES Participants are immediately vested in their contributions and actual earnings thereon. Participants vest in their Company contribution account based on the following schedule:
VESTED YEARS OF SERVICE PERCENTAGE Less than 1 year 0 1 year but less than 2 33-1/3 2 years but less than 3 66-2/3 3 years or more 100
4 PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 -------------------------------------------------------------------------------- A participant will also become fully vested upon permanent disability or attainment of normal or early retirement as defined in the Plan. Forfeitures are used to reduce future contributions made by the Company. There were approximately $61,000 and $31,000 in forfeitures at December 31, 2004 and 2003, respectively. BENEFIT PAYMENTS On termination of service due to death, disability or retirement, a participant may elect to receive either a lump-sum amount equal to the value of the participant's vested interest in his or her account, or installments over a specified time. For termination of service for other reasons, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution. LOANS Participants may borrow from their fund accounts a minimum of $1,000 and up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Loan terms are generally five years. The loans are collateralized by the balance in the participant's account and bear interest at a rate commensurate with local prevailing rates as determined by the plan administrator at the date of loan origination. Principal and interest is paid ratably through biweekly payroll deductions. Participant notes receivable have interest rates ranging from 5.0% to 9.5% and are due at various dates through December 2019. Repayments are invested among the various investment funds in the same manner as participant contributions. INVESTMENT OPTIONS The Plan offers nine investment options: seven mutual funds, one common collective trust fund and one Company stock fund. Pursuant to the plan agreement, a maximum of 30% of a participant's account balance can be allocated to Company stock. Plan participants direct the investment of their accounts among these nine options. Company contributions are invested in the fund options in the same manner as participant contributions. VOTING RIGHTS Each participant is entitled to exercise voting rights attributable to the Company shares allocated to his or her account and is notified by the Trustee prior to the time that such rights are to be exercised. The Trustee is not permitted to vote any allocated share for which a participant has not given instructions. PLAN TERMINATION Although it has not expressed any intent to do so, the Company has the right under the Plan to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts, and assets of the Plan will be distributed in accordance with the Plan document. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following significant accounting policies were used to prepare the financial statements in accordance with accounting principles generally accepted in the United States of America. BASIS OF ACCOUNTING The accompanying financial statements have been prepared using the accrual basis of accounting. 5 PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 -------------------------------------------------------------------------------- VALUATION OF INVESTMENTS AND INCOME RECOGNITION The Plan's investments are stated at fair value, except for the stable value fund, which is a benefit-responsive investment contract valued at contract value. Quoted market prices are used to determine fair value of investments. Investments in mutual funds and common collective trust funds are valued at the net asset value as of year end. Participant loans are valued at estimated fair value, consisting of principal outstanding and any related accrued interest. The contract value of the benefit-response investment represents the principal balance of the investment contract, plus accrued interest at the stated contract rate, less withdrawals and administrative expenses. The fair value of the investment contract approximates contract value as of year end. The average yield and crediting interest rates were approximately 4% and 5% for 2004 and 2003, respectively. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date. The Plan presents the net appreciation (depreciation) in the fair value of its investments in the Statement of Changes in Assets Available for Benefits, which consists of the realized gains or losses and the unrealized appreciation (depreciation) on those investments. ADMINISTRATIVE EXPENSES Administrative expenses, primarily transaction fees, are paid by the Plan. Other expenses for professional services and administration costs have been paid by the Company at its discretion. PAYMENT OF BENEFITS Benefits payments are recorded upon distribution. USE OF ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires the Plan's administrator to make extensive use of estimates and assumptions that affect the reported amounts of assets available for benefits at the date of the financial statements and the changes in assets available from plan benefits during the reporting period and, when applicable, disclosures of contingent assets and liabilities. Actual results could differ from those estimates. RISKS AND UNCERTAINTIES The Plan provides for various investment options in various combinations of investment securities. Investment securities are exposed to various risk factors including, but not limited to, interest rates, market conditions and credit risks. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants' account balances and the amounts reported in the Statements of Assets Available for Benefits in future periods. 6 PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 -------------------------------------------------------------------------------- CONCENTRATION OF MARKET RISK As of December 31, 2004 and 2003, approximately 3% and 10% of the Plan's assets were invested in PLATO Learning, Inc. common stock, respectively. The underlying value of this fund is dependent on the performance of PLATO Learning, Inc. and the market's evaluation of such performance. It is at least reasonably possible that changes in the fair value of PLATO Learning, Inc. common stock in the near term could materially affect participants' account balances and the amounts reported in the Statements of Assets Available for Benefits and the Statement of Changes in Assets Available for Benefits. 3. INVESTMENTS The following presents investments that represent 5% or more of the Plan's assets as of December 31, 2004 and 2003:
2004 2003 MUTUAL FUNDS American Funds American Mutual A, 160,259 and 92,247 shares in 2004 and 2003, respectively $ 4,243,671 $ 2,248,976 Franklin Capital Growth A, 410,044 and 225,816 shares in 2004 and 2003, respectively 4,535,090 2,341,711 American Funds EuroPacific Growth Fund A, 60,544 and 34,064 shares in 2004 and 2003, respectively 2,157,205 1,029,062 Managers Special Equity Fund, 17,923 and 11,485 shares in 2004 and 2003, respectively 1,620,435 901,485 Royce Total Return Fund, 195,807 and 98,730 shares in 2004 and 2003, respectively 2,400,595 1,055,419 COMMON COLLECTIVE TRUST FUND Wells Fargo Stable Value Fund, 105,161 and 35,055 shares in 2004 and 2003, respectively 3,780,545 1,218,309 COMMON STOCK PLATO Learning, Inc. stock, 97,835 and 104,444 shares in 2004 and 2003, respectively 728,871 1,101,884 INVESTMENTS INDIVIDUALLY LESS THAN 5% 2,343,308 1,417,769 ----------- ----------- $21,809,720 $11,314,615 =========== ===========
During 2004, the Plan's investments (including gains and losses on investments bought, sold, and held during the year) appreciated in value by $1,044,667 as follows: Mutual funds $ 1,245,903 Common collective trust funds 123,599 Common stock (324,835) ----------- $ 1,044,667 ===========
7 PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 -------------------------------------------------------------------------------- 4. TAX STATUS The Plan is a prototype plan. The IRS has determined and informed the Trustee by letter dated May 9, 1996, that the prototype plan and related trust are designed in accordance with applicable sections of the IRC. Although the Plan has been amended since the date of this letter, the plan administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC. Therefore, no provision for income taxes has been included in the Plan's financial statements. 5. PLAN AMENDMENT Subsequent to December 31, 2002, the Company determined that participants were allowed to contribute certain compensation that did not meet the Plan's definition of Eligible Compensation. The Company is taking remedial actions under the Department of Labor Voluntary Compliance Program to correct the matter through retroactive amendment to the Plan's definition of Eligible Compensation whereby the definition was expanded to include all such compensation contributed by participants. The Company submitted its request to the IRS in June 2004, and as of the date of this report, the Company has not received a response. The plan administrator believes that the remedial actions being taken will be acceptable to the IRS; although, there can be no assurance as such until final approval is received. 8 SUPPLEMENTAL SCHEDULE PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN SCHEDULE H, LINE 4I - SCHEDULE OF ASSETS (HELD AT END OF YEAR) DECEMBER 31, 2004 SCHEDULE I --------------------------------------------------------------------------------
(A) (B) (C) (D) (E) DESCRIPTION OF INVESTMENT, IDENTITY OF ISSUE, INCLUDING MATURITY DATE, FAIR OR BORROWER, LESSOR INTEREST RATE, COLLATERAL, CONTRACT OR SIMILAR PARTY PAR OR MATURITY DATE COST ** VALUE MFS High Income A Mutual fund $ 908,447 Oppenheimer U.S. Government A Mutual fund 1,083,531 American Funds EuroPacific Growth A Mutual fund 2,157,205 American Funds American Mutual A Mutual fund 4,243,671 Franklin Capital Growth A Mutual fund 4,535,090 Managers Special Equity Mutual fund 1,620,435 Royce Total Return Mutual fund 2,400,595 Wells Fargo Stable Value Fund Common collective trust fund 3,780,545 * PLATO Learning, Inc. Common stock, 97,835 shares 728,871 * Participant loans Interest rate ranging from 5.0% to 9.5%, due at various dates through December 2019 351,330 ----------- $21,809,720 ===========
* Denotes party in interest. ** Cost information not required for participant-directed investments. EXHIBIT INDEX 23 Consent of Independent Registered Public Accounting Firm SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized on June 29, 2005. PLATO Learning, Inc. Savings and Retirement Plan By: /s/ Laurence L. Betterley ---------------------------- Trustee