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
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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
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2004 2003
ASSETS
Cash $ 5,044 $ 4,303
Investments 21,809,720 11,314,615
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Assets available for benefits $21,814,764 $11,318,918
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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
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INVESTMENT INCOME
Net appreciation in fair value of investments $ 1,044,667
Interest and dividend income 269,795
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Total investment income 1,314,462
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CONTRIBUTIONS
Participant 3,223,590
Employer 714,361
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Total contributions 3,937,951
------------
DEDUCTIONS
Benefits paid to participants (3,731,876)
Administration expenses (22,305)
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Total deductions (3,754,181)
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TRANSFERS
Transfer from Lightspan Plan (Note 1) 8,997,614
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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
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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
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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
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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
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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
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$21,809,720 $11,314,615
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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)
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$ 1,044,667
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7
PLATO LEARNING, INC. SAVINGS AND RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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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
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(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
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$21,809,720
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* 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