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, 2003
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/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, 2003 AND 2002
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, 2003 and 2002........................................... 2
Statement of Changes in Assets Available for Benefits
Year Ended December 31, 2003......................................... 3
Notes to Financial Statements
December 31, 2003 and 2002........................................... 4-8
SUPPLEMENTAL SCHEDULE
Schedule H, line 4i - Schedule of Assets (Held at End of Year)
December 31, 2003.................................................... 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, 2003 and
2002, and the changes in assets available for benefits for the year ended
December 31, 2003, 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.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
July 19, 2004
1
PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN
STATEMENTS OF ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2003 AND 2002
2003 2002
ASSETS
Cash $ 4,303 $ -
Investments, at fair value 11,314,615 6,697,508
Participant contribution receivable - 34,501
Employer contribution receivable - 16,319
--------------- ---------------
Assets available for benefits $ 11,318,918 $ 6,748,328
=============== ===============
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, 2003
INVESTMENT INCOME
Net appreciation in fair value of investments $ 2,110,946
Interest and dividend income 136,488
--------------
Total investment income 2,247,434
--------------
CONTRIBUTIONS
Participant 1,988,235
Employer 493,877
--------------
Total contributions 2,482,112
--------------
DEDUCTIONS
Benefits paid to participants (1,240,154)
Administration expenses (25,704)
--------------
Total deductions (1,265,858)
--------------
TRANSFERS TO THE PLAN 1,106,902
--------------
Net increase 4,570,590
ASSETS AVAILABLE FOR BENEFITS
Beginning of year 6,748,328
--------------
End of year $ 11,318,918
==============
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, 2003 AND 2002
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 January 2, 2003, the Company transferred the recordkeeping
functions of the Plan to Administrative Management Group, Inc. ("AMG"),
and the trustee function of the Plan to Wilmington Trust Company. In
connection with the change in trustees, the Plan's investment options were
also changed. Prior to the change, Scudder Trust Company was both the
recordkeeper and trustee of the Plan.
Effective January 2, 2003, the Company terminated their other two existing
401(k) plans (NetSchools Corporation 401(k) Plan and Department of Defense
401(k) Plan) and the account balances of $1,060,794 and $46,108,
respectively, 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 2003, 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 AMG. Each participant's
account is credited with the participant's contribution, Plan investment
earnings or loss, net of administrative expenses, and an allocation of the
Company's contribution. 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.
4
PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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
A participant will also become fully vested upon permanent disability or
attainment of normal or early retirement as defined in the Plan.
There were approximately $31,000 and $2,000 in forfeitures at December 31, 2003
and 2002, respectively. Forfeitures are used to reduce future contributions made
by the Company.
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% to
7% and are due at various dates through December 2008. 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 and
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 eight 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
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.
5
PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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.
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 5% for 2003.
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 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.
6
PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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.
CONCENTRATION OF MARKET RISK
As of December 31, 2003 and 2002, approximately 10% and 8% 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, 2003 and 2002:
2003 2002
---- ----
MUTUAL FUNDS
American Funds American Mutual A, 92,247 and 0 shares
in 2003 and 2002, respectively $ 2,248,976 $ -
Franklin Capital Growth A, 225,816 and 0 shares in 2003
and 2002, respectively 2,341,711 -
American Century Ultra Fund, 0 and 46,299 shares
in 2003 and 2002, respectively - 980,617
Scudder Global Discovery Fund, 0 and 30,716 shares
in 2003 and 2002, respectively - 575,308
Scudder Large Company Value Fund, 0 and 49,076
shares in 2003 and 2002, respectively - 899,068
Scudder Growth and Income Fund, 0 and 64,840 shares
in 2003 and 2002, respectively - 1,036,135
Scudder International Fund, 0 and 16,213 shares in
2003 and 2002, respectively - 492,221
Scudder Pathway Moderate Portfolio, 0 and 44,389
shares in 2003 and 2002, respectively - 405,720
Scudder Income Fund, 0 and 46,174 shares in 2003
and 2002, respectively - 591,030
7
PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
2003 2002
---- ----
COMMON COLLECTIVE TRUST FUND
Wells Fargo Stable Value Fund, 35,055 and 0 shares in
2003 and 2002, respectively 1,218,309 -
Scudder Stable Value Fund, 0 and 534,557 shares
in 2003 and 2002, respectively - 534,557
COMMON STOCK
PLATO Learning, Inc. stock, 104,444 and 90,320 shares
in 2003 and 2002, respectively 1,101,884 536,501
INVESTMENTS INDIVIDUALLY LESS THAN 5% 4,403,735 646,351
----------- ------------
$11,314,615 $ 6,697,508
----------- ------------
During 2003, the Plan's investments (including gains and losses on investments
bought, sold, and held during the year) appreciation in value by $2,110,946 as
follows:
Mutual funds $ 1,498,098
Common/collective trust funds 36,637
Common stock 576,211
------------
$ 2,110,946
------------
4. TAX STATUS
The Plan is a prototype plan and 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.
8
SUPPLEMENTAL SCHEDULE
PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003 SCHEDULE I
(a) (b) (c) (d) (e)
DESCRIPTION OF INVESTMENT,
IDENTITY OF ISSUE, INCLUDING MATURITY DATE, FAIR
BORROWER, LESSOR RATE OF INTEREST, COLLATERAL CONTRACT
OR SIMILAR PARTY PAR OR MATURITY DATE COST ** VALUE
---------------- ---------------------------- --------- -----
MFS High Income A Mutual fund $ 435,957
Oppenheimer U.S. Government A Mutual fund 864,939
American Funds EuroPacific Gr A Mutual fund 1,029,062
American Funds American
Mutual A Mutual fund 2,248,976
Franklin Capital Growth A Mutual fund 2,341,711
Managers Special Equity Mutual fund 901,485
Royce Total Return Mutual fund 1,055,419
Stable Value Fund Common collective trust fund 1,218,309
* PLATO Learning, Inc. Common stock 1,101,884
* Participant loans Interest rate ranging from 5%
to 7%, due at various dates
through December 2008 116,873
-----------
$11,314,615
-----------
* 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 July 23, 2004.
PLATO Learning, Inc. Savings/Retirement Plan
By: /s/ Gregory J. Melsen
---------------------
Trustee