exv99w1

Exhibit 99.1


		For Immediate Release


Contact:		Mike Morache — President and CEO Larry Betterley — Sr. VP and CFO Steve Schuster — VP and Treasurer 952.832.1000

PLATO Learning, Inc. Reports
Third Quarter Fiscal Year 2005 Results

MINNEAPOLIS, MN — September 1, 2005 — PLATO Learning, Inc. (NASDAQ: TUTR), a leading provider of K-adult computer-based and e-learning solutions, today announced revenues for its third quarter ended July 31, 2005, totaling $31.2 million. This represents a $9.4 million or a 23% decrease versus the $40.6 million reported for the comparable period of fiscal 2004.

Net loss for the third quarter of 2005 was $(0.3) million, or $(0.01) per share, as compared to net earnings of $6.7 million, or $0.29 per share, for the same period of 2004. Net loss, excluding restructuring and other charges, was $(0.1) million for the third quarter of 2005.

Gross margin was 60.8% for the third quarter versus 71.7% in the third quarter of 2004. The lower gross margin was primarily driven by a decrease in high gross margin license fee revenue. Operating expenses, excluding restructuring and other charges, declined 15% for the quarter from 2004. The decrease resulted from cost reduction actions initiated throughout 2004 and 2005, realignment of service resources from sales support to billable activities, and reduced variable costs associated with the reduced revenue. Restructuring and other charges for the quarter primarily include severance payments.

Revenues for the nine months ended July 31, 2005, were $88.1 million, an 11% decrease from 2004. Net loss for the period was $(13.8) million, or $(0.59) per share, compared to a net loss of $(4.0) million, or $(0.18) per share in 2004. Net loss, excluding restructuring and other charges of $3.1 million, was $(10.7) million, or $(0.46) per share for the nine months ended July 31, 2005. Restructuring and other charges year to date primarily include severance payments, facility closing costs, and amounts paid to terminated executives under employment agreements.

Mike Morache, PLATO Learning President and CEO, said, “Since we provided updated third quarter financial guidance in early August, we have continued to examine the cause of our revenue decline and take actions for improvements. We have confirmed our initial thoughts that

the decline is primarily due to low sales productivity, caused by changes in sales processes, procedures and organization implemented earlier this year, and by attrition of sales personnel. Also, some orders moved to future periods as a result of funding delays.”

“The learning process related to implemented changes is ongoing and, while improvements are being made, we anticipate that our sales performance for fourth quarter will also be affected. Funding delays in one or more states could continue as well. As a result, we expect our financial performance to be lower in fourth quarter 2005 than in 2004, with revenues expected to be between $33.0 million and $36.0 million. Net earnings for the quarter, excluding restructuring and other charges, are expected to be between $1.5 million and $4.0 million. We continue to evaluate the implications of 2005 results on next year’s outlook and will provide guidance for fiscal year 2006 during our fourth quarter 2005 conference call.” said Morache.

“Due to our lower financial performance this year, additional actions are being taken to reduce costs. Actions have been initiated to shift a significant portion of our development activities from the United States to an offshore location, which will result in dramatically lower development costs per hour, improved quality, and higher productivity. We have also initiated actions to further downsize our U.K. operations to eliminate that entity’s losses going forward. These decisions will allow us to continue to aggressively pursue our strategy for future growth,” added Morache.

The Company expects both cost reduction actions to be substantially completed during its fourth fiscal quarter 2005. Cash and non-cash restructuring and other charges resulting from these actions could range from $4.0 million to $6.0 million; however, this is subject to change as plans are finalized.

The Company highlighted additional key financial information for the third quarter of 2005:

	•		Earnings Before Interest Taxes Depreciation and Amortization (EBITDA), excluding restructuring and other charges, was $5.1 million for the quarter, compared to $11.3 million for the same period in 2004.

	•		Cash, cash equivalents and marketable securities were $38.9 million at July 31, 2005, compared to $31.0 million at July 31, 2004, and $45.5 million at October 31, 2004.

	•		Deferred revenue was $41.9 million at July 31, 2005, versus $42.9 million at July 31, 2004, and $51.6 million at October 31, 2004.

Use of Non-GAAP Financial Measures
The non-GAAP financial measures used in this press release exclude the impact of 2005 restructuring and other charges from our operating results, as well as present EBITDA. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. We view these non-GAAP financial measures to be helpful in assessing the Company’s ongoing operating results. In addition, these non-GAAP financial measures facilitate our internal comparisons to historical operating results and comparisons to competitors’ operating results. We include these non-GAAP financial measures in our earnings announcement, because we believe they are useful to investors

in allowing for greater transparency related to supplemental information we use in our financial and operational analysis. Investors are encouraged to review the reconciliations of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measures as provided with the financial statements attached to this press release.

Quarterly Conference Call
A conference call to discuss this announcement is scheduled for today at 3:45 p.m. (CT). The dial-in number for this call is 1.877.209.0397 in the U.S. and Canada and 1.612.332.0923 for international calls. Please call 10 minutes prior to the start of the call and inform the operator you are participating in PLATO Learning’s quarterly earnings call. Should you be unable to attend the live conference call, a recording will be available to you from 7:15 p.m. (CT) on September 1, 2005, through midnight on September 8, 2005. To access the recording, call 1.800.475.6701 in the U.S. and Canada and 1.320.365.3844 internationally. At the prompt, enter pass code number 790008.

Additionally, investors have the opportunity to listen to the conference call over the Internet through PLATO Learning’s web site at http://www.plato.com/aboutus/investor_calls.asp.

About PLATO Learning
PLATO Learning, Inc. is a leading provider of computer-based and e-learning instruction for kindergarten through adult learners, offering curricula in reading, writing, math, science, social studies, and life and job skills. The Company also offers innovative online assessment and accountability solutions and standards-based professional development services. With over 6,000 hours of objective-based, problem-solving courseware, plus assessment, alignment and curriculum management tools, we create standards-based curricula that facilitate learning and school improvement.

PLATO Learning, Inc. is a publicly held company traded as TUTR on the NASDAQ, with trailing 12-month revenues of approximately $131 million. PLATO Learning educational software delivered via networks, CD-ROM, the Internet, and private intranets, is primarily marketed to K—12 schools and colleges. The Company also sells to job training programs, correctional institutions, military education programs, corporations, and individuals.

PLATO Learning is headquartered at 10801 Nesbitt Avenue South, Bloomington, Minnesota 55437, 952.832.1000 or 800.869.2000. The Company has offices throughout the United States, Canada, and the United Kingdom, as well as international distributors in Puerto Rico, South Africa, and the United Arab Emirates. For more information, please visit http://www.plato.com.

This announcement includes forward-looking statements. PLATO Learning has based these forward-looking statements on its current expectations and projections about future events. Although PLATO Learning believes that its assumptions made in connection with the forward-looking statements are reasonable, no assurances can be given that its assumptions and expectations will prove to have been correct. These forward-looking statements are subject to various risks, uncertainties and assumptions. PLATO Learning undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any forward looking statements made are subject to the risks and uncertainties as those described in the Company’s Annual Report on Form 10-K for the year ended October 31, 2004. Actual results may differ materially from anticipated results.

® PLATO is a registered trademark of PLATO Learning, Inc. PLATO Learning is a trademark of PLATO Learning, Inc.

PLATO Learning, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)


	Three Months Ended						Nine Months Ended
	July 31,						July 31,
	2005			2004			2005			2004
Revenues:
License fees	$	16,747		$	25,421		$	42,075		$	55,693
Subscriptions		4,400			5,812			13,450			15,645
Services		7,440			7,403			26,544			20,937
Other		2,652			1,977			6,054			7,106

Total revenues		31,239			40,613			88,123			99,381

Cost of revenues:
License fees		3,001			3,378			9,302			9,953
Subscriptions		1,780			1,782			6,235			5,522
Services		4,892			4,193			17,126			12,527
Other		2,560			2,157			6,245			6,698

Total cost of revenues		12,233			11,510			38,908			34,700

Gross profit		19,006			29,103			49,215			64,681

Operating expenses:
Sales and marketing		11,520			14,897			38,256			45,875
General and administrative		5,141			4,915			14,193			14,447
Product development		1,227			1,293			3,920			4,842
Amortization of intangibles		1,075			1,112			3,247			3,197
Restructuring and other charges		200			—			3,121			—

Total operating expenses		19,163			22,217			62,737			68,361

Operating income (loss)		(157	)		6,886			(13,522	)		(3,680	)
Interest income		251			41			631			298
Interest expense		(46	)		(28	)		(89	)		(100	)
Other expense, net		(209	)		(25	)		(362	)		(109	)

Earnings (loss) before income taxes		(161	)		6,874			(13,342	)		(3,591	)
Income tax expense		150			150			450			450

Net earnings (loss)	$	(311	)	$	6,724		$	(13,792	)	$	(4,041	)

Earnings (loss) per share:
Basic and diluted	$	(0.01	)	$	0.29		$	(0.59	)	$	(0.18	)

Weighted average common shares outstanding:
Basic		23,490			23,012			23,325			22,497

Diluted		23,490			23,556			23,325			22,497

PLATO Learning, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)


	July 31,			October 31,
	2005			2004
	(Unaudited)			(See Note)
ASSETS
Current assets:
Cash and cash equivalents	$	38,926		$	29,235
Marketable securities		—			12,615
Accounts receivable, net		28,468			41,852
Prepaid expenses and other current assets		11,510			9,460

Total current assets		78,904			93,162
Long-term marketable securities		—			3,608
Equipment and leasehold improvements, net of accumulated depreciation and amortization of $12,665 and $10,361, respectively		6,717			7,946
Product development costs, net of accumulated amortization of $24,166 and $18,835, respectively		18,810			17,116
Goodwill		71,589			71,267
Identified intangible assets, net		33,228			39,432
Other assets		920			213

Total assets	$	210,168		$	232,744

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,294		$	5,196
Accrued employee salaries and benefits		8,918			8,772
Accrued liabilities		5,996			6,383
Deferred revenue		36,122			43,042

Total current liabilities		54,330			63,393
Long-term deferred revenue		5,824			8,533
Deferred income taxes		1,772			1,322
Other liabilities		65			46

Total liabilities		61,991			73,294

Stockholders’ equity:
Common stock, $.01 par value, 50,000 shares authorized; 23,562 shares issued and 23,542 shares outstanding at July 31, 2005; 23,095 shares issued and 23,075 shares outstanding at October 31, 2004		235			231
Additional paid in capital		165,803			162,956
Treasury stock at cost, 20 shares		(205	)		(205	)
Accumulated deficit		(16,642	)		(2,850	)
Accumulated other comprehensive loss		(1,014	)		(682	)

Total stockholders’ equity		148,177			159,450

Total liabilities and stockholders’ equity	$	210,168		$	232,744

Note: The balance sheet at October 31, 2004 has been derived from our audited financial statements at that date.

PLATO Learning, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)


	Nine Months Ended
	July 31,
	2005			2004
Operating activities:
Net loss	$	(13,792	)	$	(4,041	)

Adjustments to reconcile net loss to net cash provided by operating activities:
Deferred income taxes		450			450
Amortization of capitalized product development costs		5,521			5,160
Amortization of identified intangible and other noncurrent assets		6,318			5,706
Depreciation and amortization of equipment and leasehold improvements		2,637			2,600
Provision for doubtful accounts		1,291			1,522
Stock-based compensation		39			217
Loss on disposal of equipment		65			79
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable		12,093			(357	)
Prepaid expenses and other current and noncurrent assets		(2,924	)		(2,184	)
Accounts payable		(1,902	)		(1,566	)
Accrued liabilities, accrued employee salaries and benefits and other liabilities		(150	)		(3,210	)
Deferred revenue		(9,629	)		3,789

Total adjustments		13,809			12,206

Net cash provided by operating activities		17			8,165

Investing activities:
Acquisitions, net of cash acquired		—			2,460
Capitalized product development costs		(7,906	)		(6,830	)
Purchases of equipment and leasehold improvements		(1,450	)		(1,880	)
Purchases of marketable securities		(9,266	)		(387	)
Sales and maturities of marketable securities		25,544			256

Net cash provided by (used in) investing activities		6,922			(6,381	)

Financing activities:
Net proceeds from issuance of common stock		2,271			1,812
Repurchase of common stock		—			(205	)
Repayments of capital lease obligations		(185	)		(54	)

Net cash provided by financing activities		2,086			1,553

Effect of currency exchange rate changes on cash and cash equivalents		666			(160	)

Net increase in cash and cash equivalents		9,691			3,177
Cash and cash equivalents at beginning of period		29,235			23,834

Cash and cash equivalents at end of period	$	38,926		$	27,011

PLATO Learning, Inc.
Supplemental Financial Information
(Unaudited)


Revenues	Quarter Ended							Nine Months Ended
($000's)	July 31,							July 31,
	2005		2004		% Change			2005		2004		% Change
License fees	$	16,747	$	25,421		-34	%	$	42,075	$	55,693		-24	%
Subscriptions		4,400		5,812		-24	%		13,450		15,645		-14	%
Services		7,440		7,403		0	%		26,544		20,937		27	%
Other		2,652		1,977		34	%		6,054		7,106		-15	%

	$	31,239	$	40,613		-23	%	$	88,123	$	99,381		-11	%


Operating Expenses				Quarter Ended July 31,
($000's)	2005						2004
				% of					% of
				Revenue					Revenue			% Change
Total operating expenses	$	19,163			61	%	$	22,217		55	%		-14	%
Restructuring and other charges		(200	)					—

Operating expenses before restructuring and other charges	$	18,963			61	%	$	22,217		55	%		-15	%


	Nine Months Ended July 31,
	2005						2004
				% of					% of
				Revenue					Revenue			% Change
Total operating expenses	$	62,737			71	%	$	68,361		69	%		-8	%
Restructuring and other charges		(3,121	)					—

Operating expenses before restructuring and other charges	$	59,616			68	%	$	68,361		69	%		-13	%


Net Earnings (Loss)	Quarter Ended					Nine Months Ended
($000's, except per share amounts)	July 31,					July 31,
	2005			2004		2005			2004
Net earnings (loss)	$	(311	)	$	6,724	$	(13,792	)	$	(4,041	)
Add back restructuring and other charges		200			—		3,121			—

Net earnings (loss) before restructuring and other charges	$	(111	)	$	6,724	$	(10,671	)	$	(4,041	)

Weighted average common shares outstanding - Basic		23,490			23,012		23,325			22,497

Diluted		23,490			23,556		23,325			22,497

Earnings (loss) per share before restructuring and other charges -
Basic	$	—		$	0.29	$	(0.46	)	$	(0.18	)

Diluted	$	—		$	0.29	$	(0.46	)	$	(0.18	)

PLATO Learning, Inc.
Supplemental Financial Information
(Unaudited)


Order Size	Quarter Ended July 31,
($000's)	2005				2004				% Change
	Number		Value		Number		Value		Number			Value
$100 to $249		40	$	6,370		52	$	7,699		-23	%		-17	%
$250 or greater		10		4,709		18		13,506		-44	%		-65	%

		50	$	11,079		70	$	21,205		-29	%		-48	%


	Nine Months Ended July 31,
	2005				2004				% Change
	Number		Value		Number		Value		Number			Value
$100 to $249		77	$	11,920		122	$	17,969		-37	%		-34	%
$250 or greater		31		14,693		43		29,543		-28	%		-50	%

		108	$	26,613		165	$	47,512		-35	%		-44	%

EBITDA (excluding restructuring and other charges) ($000’s)


												Twelve Months
												Ended
	Q3-2005			Q2-2005			Q1-2005			Q4-2004		July 31, 2005

Net earnings (loss)	$	(311	)	$	(2,954	)	$	(10,527	)	$	2,213	$	(11,579	)
Income taxes		150			150			150			1,580		2,030
Interest expense		46			28			15			22		111
Depreciation and amortization		4,990			4,502			4,984			4,481		18,957
Restructuring and other charges		200			632			2,289			—		3,121

	$	5,075		$	2,358		$	(3,089	)	$	8,296	$	12,640


											Twelve Months
											Ended
	Q3-2004		Q2-2004			Q1-2004			Q4-2003		July 31, 2004

Net earnings (loss)	$	6,724	$	(3,230	)	$	(7,535	)	$	3,276	$	(765	)
Income taxes		150		150			150			1,744		2,194
Interest expense		28		37			35			16		116
Depreciation and am	ortization 4,388			4,623			4,455			2,854		16,320
Restructuring and o	ther
charges		—		—			—			—		—

	$	11,290	$	1,580		$	(2,895	)	$	7,890	$	17,865