Walden University•

As one of the pioneers of distance education, Walden University has over 30 years of academic and operating history.  Walden offers two undergraduate and 18 graduate degree programs in management, health and human services, psychology, and education to working professionals.  Bachelor’s and master’s degree programs are delivered online.  Ph.D. programs are delivered online with a short-term residency requirement.  As part of its long-term strategy to expand program offerings, Walden plans to introduce four new degrees in 2004.

National Technological University

Asis the first regionally accredited virtual“virtual” university in the United States, NTUand offers 11 master’s degree programs in engineering, information technology, and management delivered via videotape, CD-ROM, and online learning.  NTU’s courses are developed internally by subject matter experts, or are licensed from some of the country’s premier universities.  In January 2005, NTU aggregates courses from partner universities into proprietarywas merged with Walden to create the NTU degrees.  NTU has developed a prestigious networkSchool of university partnerships with over 20 major U.S. engineering schools and key Fortune 100 Corporations.Engineering & Applied Sciences at Walden University.

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Laureate Online Education B.V. (formerly KIT eLearning BV), based in Amsterdam, is the exclusive worldwide distance-learning partner of the University of Liverpool, and specializes in delivery of online graduate programs to working-adult students in over 80 countries.  The following table presentsUniversity of Liverpool and Laureate Online Education B.V. offer master’s degree programs in business and information about Canter, Walden, and NTU:

(1)                                  Represents enrollment as of December 31, 2003 rounded to the nearest hundred.

(2)                                  Represents Distance Learning master’s enrollment, excludes over 40,000 non-degree students and excludes 4,900 students enrolled through Canter-Walden partnership.

(3)                                  Includes 4,900 students enrolled through the Canter-Walden partnership.technology.

Tuition and Fees

Tuition varies at each of the higher education institutions, depending on the curriculum and type of program.

•                                          For Canter, tuition for a typical student enrolled in one of Canter’s partner universities is approximately $9,000,$8,900 paid over the five semesters, or 20-month program.

•                                          For Walden, tuition ranges from $220$230 per credit hour for bachelor’s degree programs; to between $265$300 and $380$395 per credit hour for the master’s degree programs; to $3,665$3,850 per quarter for certain Ph.D. degree programs.  Walden students are currently eligible for the Department of Education’s Title IV federal financial aid under the Higher Education Act of 1965. Degree programs take between two to six years to complete, with a total cost ranging from $9,000$9,300 to $65,000,$68,000, depending on the degree.

•                                          For NTU, tuition ranges from $865$775 to $1,316 per credit hour.  Degree programs typically take a student two to three years to complete at a total tuition of $25,000$28,000 to $35,000 depending on the university and program.  NTU students are currently eligible for the Department of Education’s Title IV federal financial aid under the Higher Education Act of 1965.

•                                          For Laureate Online Education B.V., the average online degree program generally requires two to three years to complete, with a total tuition of  $22,000.

Marketing

Campus Based.Latin America and Europe. The Company markets its higher education institutions through professional broadcasts and targeted marketing campaigns.  These campaigns reach prospective students indirectly through media advertising campaigns as well as directly by mail or one-on-one meetings.  During annual enrollment periods, the Company supplements itsthis advertising with local, regional and sometimes national campaigns on television, radio, print and the Internet.  Each higher education institution is responsible for implementing its own marketing campaign, although the Company provides a forum for the network’s marketing departments of each of the higher education institutions to share best practices.

Laureate Online Higher Education. The Company markets its Canter divisiondistance learning programs to working professionals primarily through cooperative programs with participating institutionsdirect mail and web advertising, aimed towards teachers. Walden University incorporates a diverse marketing mix of activities including onlineas well as by direct selling to school districts and mail.  Programs are directed towards professionals in the areas of management, psychology, education and health and human services.  NTU markets to engineering and IT professionals through partner cooperation and direct selling.corporations.

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Competition

The Company faces competition in each of its business segments.  The competition focuses on price, educational quality, reputation and location.

Campus BasedLatin America . and Europe. The market for post-secondary education outside the U.S. is highly fragmented and marked by large numbers of local competitors.  The target demographics are primarily 18- to 24-year-olds in each countrythe individual countries in which the Company competes, except for its Hospitality schools, which markets to students worldwide.  The Company generally competes with both public and private higher education institutions on the basis of price, educational quality, reputation and location.  Public higher education institutions tend to be less expensive, if not free, but more selective and less focused on career-oriented degree programs. The Company believes that it compares favorably with competitors because of its focus on quality, career-oriented curriculum and the efficiencies of its network.  At present, the Company

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believes that no other company has a similar network of international higher education institutions.  There are a number of other private and public higher education institutions in each of the countries where the Company owns a higher education institution.  Because the concept of private, for-profit higher education institutions is fairly new in many countries, it is difficult to predict how the markets will evolve and how many competitors there will be in the future.  The Company expects competition to increase as the markets mature.

Laureate Online Higher Education. Canter competes with both public and private higher education institutions in the U.S. that provide graduate courses and master’s degree programs for teachers.  The Company understands the needs of its customers based on Canter’s 25 years of experience in the marketplace.  Additionally, the Company believes it compares favorably to its competitors for customers due to the convenience of its online and video delivery systems.

The postsecondary education market in the U.S. is highly fragmented and competitive, with no single institution having aany significant market share.  The target demographics are adult working professionals who are over 25 years old. Walden and NTU compete with traditional public and private non-profit institutions and for-profit schools.  Typically, public institutions charge lower tuitiontuitions than Walden and NTU because they receive state subsidies, government and foundation grants, tax-deductible contributions and have access to other financial sources not available to Walden and NTU.  However, tuition at private non-profit institutions is typically higher than the average tuition rates charged by Walden and NTU.  Walden and NTU compete with other educational institutions principally based upon the quality of its educational programs and student services.

Canter competes with both public and private higher education institutions in the U.S. that provide graduate courses and master’s degree programs for teachers.  Canter believes it understands the needs of its students based on its 25 years of experience in the marketplace.  The Company also believes it compares favorably to its competitors for among prospective students due to the convenience of its online and video delivery systems.

Government Regulation

Campus BasedCampus-Based Regulation and Licensing. In response to the growing demand for post-secondary education, governments in many countries have revised their regulations to permit the establishment of private post-secondary, for-profit higher education institutions.  Each country in which Campus Based higher education institutions currently operate has made this shiftthe Company operates now allows private investment in regulatory policy.post-secondary education. Typically, each applicable regulatory agency oversees higher education institutions, establishes requirements for creation of higher education institutions and sets the official qualifications and standards governing higher education institution departments and degree programs.  Additionally, these regulatory agencies establish prerequisites that students must satisfy in order to apply.  These policies are designed to ensure that the higher education institutions have the resources and capability to provide the student body with a quality education.

Title IV.  Walden and NTU students, mostly working professionals, finance their education through a variety of methods including self-financing, tuition reimbursement from employers, and through federal financial aid programs known as Title IV.  The Higher Education Act of 1965 and related regulations govern all U.S. higher education institutions participating in Title IV programs.  Walden and NTU maintain eligibility to participate in the following Title IV programs;programs: Federal Pell Grant, Federal Family Education Loan, and Federal Parent Loan for Undergraduate Students.

For Title IV program eligibility, universities must comply with the standards and procedures set forth in the Higher Education Act of 1965 and related regulations.  The U.S. Department of Education reviews all participating institutions for compliance with all applicable standards and regulations under the Higher Education Act. The institution must be certified by the Department of Education to participate in Title IV programs, based on meeting certain standards of administrative capability and financial responsibility. In addition, an institution must be authorized by each state within which it is physically located to offer its educational programs and maintain institutional accreditations.

Walden and NTU are two of only of 26 distance learning institutions24 participants qualified to participate in the Distance Education Demonstration Program.  This program, authorized by Congress in the 1998 reauthorization of the Higher Education Act of 1965, is designed to test the quality and Title IV eligibility of expanded distance education programs currently restricted

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under the original Act.   Sixteen participants, including Walden and NTU, received waivers of provisions that prohibit Title IV eligibility at distance learning institutions.  The Distance Education Demonstration Program requires reauthorization by the U.S. Congress in June 2005 to assure continued Title IV eligibility.

Walden and NTU are subject to announced and unannounced compliance reviews as well as annual and periodic audits by various state and federal government agencies and accrediting agencies.  Material provisions of Title IV regulations that may impact eligibility include but are not limited to:include:

•                  Standards of financial responsibility

•                  Change in ownership or control

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•                  Student loan defaults

•                  Changes in federal and state regulations and laws

•                  Compensation of university representatives

•                  Administrative capacity

•                  Eligibility and certification

•                  Accreditation

Changes in Title IV participation requirements, elimination or reduction in federal funding of Title IV programs, or loss of Title IV program eligibility, could reduce the ability of certain Walden and NTU students to finance their education, thereby leading to lower student enrollment.  In 2003,2004, approximately 26%35% of total Laureate Online Higher Education revenues were derived from tuition financed directlystudents, or 5% of students at all Laureate schools, obtain financing under Title IV programs.  The elimination or reduction of Title IV programs could have an adverse impact on the Company.

Intellectual Property

The Company received a license to usecurrently owns the federalregistered trademark registration offor the word “Sylvan”“Laureate”.  The Company has pending applications with the US Patent and Trademark Office, as well as with the applicable Trademark agencies within the specific countries where the Company operates, for the marks “Laureate International Universities”, “Laureate Online International” and distinctive logos, along with various other domestic and foreign trademarks and service marks from Educate until June 30, 2004.“Laureate Online Education”.  In addition, SylvanLaureate has the rights to tradenames, logos, and other intellectual property at thespecific to its higher education institutions, that it owns and operates.in the countries in which those institutions operate.

Employees

As of December 31, 2003,2004, the Company had 13,37417,534 employees, 6,426 of whom wereincluding 8,427 classified as full-time and 6,948 of whom were9,107 classified as part-time. Most of the Company’s part-time employees are higher education institution employees.academic teaching staff. The Company’s employees at UEM and UVM are covered by labor agreements.  The UEM agreement has been negotiated by a national union with a committee representing all of the private, for-profit universities in the country.country and is due to be revised in 2005.  Substantially all of the faculty at UVM is represented by a union.  The economic provisions of the labor agreement at UVM are scheduled towere revised in 2004, without any substantial changes, and will be revised again in 2004.late 2005.  The agreements govern salaries, benefits and working conditions for all union members at the higher education institutions. The Company considers itself to be in good standing with these unions and with all of its employees.

Effect of Environmental Laws

The Company believes it is in compliance with all applicable environmental laws, in all material respects. The Company does not expect future compliance with environmental laws to have a material effect on the business.

Available Information

The Registrant’sCompany’s Internet Address is www.sylvan.net.www.laureate-inc.com.  The RegistrantCompany makes available, free of charge through its website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act soon after they are electronically filed with the SEC.  In addition, the Registrant’sCompany’s earnings conference calls and presentations to the financial community are web cast live via the Registrant’sCompany’s website.

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PART II.

Item 5.  Market for Registrants’Registrant’s Common Equity and Related Stockholder Matters

a)The Company’s Common Stock trades on the NASDAQ National Market under the ticker symbol “SLVN”“LAUR”.  The high and low trade prices for 20032004 and 20022003 for the Company’s Common Stockcommon stock are set out in the following table.  These prices are as reported by NASDAQ, and reflect inter-day price quotations, without retail mark-up, mark down or commission, and may not necessarily represent actual transactions.  The table below sets forth the 2002 and 2003 high and low trade prices for the Company’s common stock as reported by the NASDAQ National Market:

No dividends were declared on the Company’s common stock during 20032004 and 2002,2003, and the Company does not anticipate paying dividends in the foreseeable future.

The number of registered shareholders of record as of February 27,28, 2005 was 537.

b)                                     On September 16, 2004, the Company issued 2,500,000 shares of its common stock, par value $0.01, to certain former stockholders of Walden pursuant to an Agreement and Plan of Merger dated September 16, 2004 by and among the Company, Laureate Acquisition Corporation, a newly-formed and wholly-owned subsidiary of the Company, and Walden.  The shares were issued in partial consideration for the acquisition of all of the remaining issued and outstanding capital stock of Walden.  The aggregate value of the shares issued was 560.$88.8 million, based on the closing price of the Company’s common stock of $35.53 on September 15, 2004.  There were no underwriting discounts or commissions.  The issuance of the shares was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, as a transaction made solely to accredited investors and not involving a public offering.

During the year ended December 31, 2003, the Company issued 581,000 shares of Sylvan common stock which isvalued at $5.2 million and restricted from sale for three years, as consideration for the acquisition of membership interests in Sylvanthe Ventures business that were not owned by Sylvanthe Company or Apollo Management L.P. (“Apollo”) valued at $5.2 million..  These shares were not registered under the Securities Act of 1933, in reliance upon the exemption contained in Section 4(2) of the Act.

c)                                      No shares of common stock were repurchased during the fourth quarter of 2004.

Item 6.  Selected Consolidated Financial Data

The selected consolidated financial data for the years ended December 31, 2004, 2003, 2002, 2001, 2000, and 19992000 have been derived from Sylvan’sthe Company’s consolidated financial statements.  The financial data should be read in conjunction with the consolidated financial statements and notes thereto.

The Company consummated several significant purchase business combinations in the five-year period ended December 31, 2003.2004. These business combinations affect the comparability of the amounts presented.   Additionally, the accompanying financial data presents the continuing operations of the Company, and excludes the results of operations of several businesses that were sold during the periods presented.  Note 3 to the consolidated financial statements describes the operations that were discontinued in 2003.2003 and 2004.

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(1)                                                     During 2004, 2003, 2002, and 2001,2002, the Company completed significant acquisitions as discussed further in noteNote 4 to the consolidated financial statements.

(2)                                                     During 2004 and 2003, the Company recorded non-cash stock compensation expense related to a replenishment plan implementation change and the modification of stock options, asrespectively.  These events are discussed further in noteNote 13 to the consolidated financial statements.

(3)                                                     During 2003 2002, and 2001,2002, the Company recorded losses on investments as discussed further in note 7Note 8 to the consolidated financial statements.

(4)                                                     During 2002, the Company wrote-offwrote off  $3.5 million of previously deferred costs ofrelating to a terminated initial public offering of the Campus Basedcampus-based operating segmentsegments and one terminated Campus BasedLatin America acquisition.  These charges are included in core operating direct costs.

(5)                                                     Prior to the adoption of Statement of Financial Accounting Standards No. 142, the Company was required to amortize goodwill and all intangible assets.  During 2001 2000, and 1999,2000, the Company recorded $15.6 million $3.9 million, and $2.6$3.9 million, respectively, of goodwill amortization.  For the year ended December 31, 2001, equity in net losses of affiliates included amortization of $8.9 million related to Sylvan Ventures.the Ventures business.

(6)                                                     The following acquisitions were completed during 2001.  The Company’s 2001 results of continuing operations include the results of the acquired companies from the effective date of the acquisition through December 31, 2001.

•                  During July 2001, the Company acquired an additional 23.75% ownership interest in Prouniversidad S.A., which owns and operates UEM, for cash of $18.5 million, increasing its total ownership in Prouniversidad S.A. to 77.75%.  The Company previously acquired a 54% ownership interest in UEM in 1999.  The purchase of the additional interest was accounted for as a step acquisition.

•                  In October 2001, the Company acquired 98.8% of the common stock of École Supérieur du Commerce Extériuer (“ESCE”), a private, for-profit university in Paris, for $8.2 million in cash.   In December 2002, the Company sold 10% of its ownership in ESCE to an unrelated third party.

 (7)                                                  The Company realized investment gains of $7.9 million in 2001.  The most significant transactions giving rise to these gains are described below.

•                  On September 11, 2001, Ventures recognized an investment gain of $24.7 million upon the sale of its 42% stake in Classwell Learning Group, Inc. for total cash proceeds of $31.8 million.

•                  On June 15, 2001, Caliber Learning Network, Inc. (“Caliber”) filed for Chapter 11 bankruptcy protection.  The Ventures investment in Caliber of $2.9 million was reduced to $0 upon recording its allocable share of losses related to Caliber prior to the bankruptcy proceedings, which was included in equity in net loss of affiliates.  Additionally, the Company recorded a loss on investment of $14.2 million.  This loss consists of bad debt expense for notes receivable from and advances to Caliber of $7.5 million, and $6.7 million for estimated Caliber liabilities incurred by the Company. On December 31, 2002, the loss was increased by $0.7 million due to revised estimates of remaining liabilities resulting from guarantees.

(8)                                                     The following material acquisitions were completed during the year ended December 31, 2000.  The Company’s 2000 results of continuing operations include the results of the acquired companies from the effective date of the acquisitions through December 31, 2000.

•                  Effective June 30, 2000, the Company acquired for cash the controlling interests in Gesthotel, S.A. which owns and operates Les Roches.   The purchase price totaled $12.3 million and was allocated to acquired assets totaling $32.4 million and assumed liabilities totaling $20.1 million.  In connection with this acquisition, variable amounts of contingent consideration were payable to the sellers based on 2002 earnings.  In 2003 the Company reached an agreement with the sellers of Gesthotel, S.A. to pay them additional consideration of $3.6 million, which was allocated to assets of $4.6 million and liabilities of $1.0 million.

•                  Effective November 24, 2000, the Company acquired for cash the controlling interests in Planeacion de Sistemas, S.A. which controls and operates Universidad del Valle de Mexico (“UVM”).   The purchase price totaled $49.9 million and was allocated to acquired assets totaling $67.7 million and assumed liabilities totaling $17.8 million. Contingent consideration iswas also payable to the sellers if specified levels of earnings before interest and taxes arewere achieved in 2002.  Consideration of $0.5 million based on the attainment of these earnings levels was paid to the sellers and recorded as additional goodwill in 2002.

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•                  Effective December 12, 2000, the Company acquired for cash the controlling interests in Desarollo del Conocimiento S.A., a holding company that controls and operates Universidad de Las Americas (“UDLA”) in Chile.   The purchase price totaled $26.0 million, including acquisition costs of $1.7 million, $13.0 million of which was paid in 2001 after finalization of UDLA’s 2000 operating results.  The purchase price was allocated to acquired assets totaling $34.8 million and assumed liabilities totaling $8.8 million.

(7) (9)                                                     The Company recognized realized investment losses of $11.4 million in 2000.  The most significant transactions giving rise to these losses are described below.

•                  In 2000, Sylvan Ventures incurred a $3.0 million realized loss upon the disposal of its $4.9 million investment in the common stock of ZapMe! Corporation for cash proceeds of $1.9 million.

•                  Sylvan                  Ventures also recorded realized investment losses of $8.4 million in 2000 based on an assessment that two investments were permanently impaired due to a significant deterioration in operating results and concerns regarding the ability of these companies to successfully implement their business plan.

(8)                                  On April 1, 1999, the Company acquired a controlling interest in Universidad Europea de Madrid (“UEM”) for cash of $29.2 million and was allocated to acquired assets totaling $95.7 million and assumed liabilities totaling $69.7 million.  The Company’s 1999 results of operations include the results of UEM from April 1, 1999 through December 31, 1999.

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(9)                                  During 1999, the Company recognized restructuring costs of $0.9 million related to continuing operations. Additionally, the Company recognized significant non-recurring operating charges related to continuing operations during the fourth quarter of 1999, which totaled $2.5 million and is included in core operating general and administrative expenses above.  These charges were principally related to asset impairment charges, which resulted from management’s focus on simplification of the business model and a return to the core business strengths.

Item 7.  Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

The statements contained herein include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include information about possible or assumed results of operations, business strategies, financing plans, competitive position and potential growth opportunities.  Forward-looking statements include all statements that are not historical facts and are generally accompanied by words such as “may,” “will,” “intend,” “anticipate,” “believe,” “estimate,” “expect,” “should” or similar expressions.  These statements also relate to the Company’s contingent payment obligations relating to acquisitions, future capital requirements, potential acquisitions and the Company’s future development plans and are based on current expectations.  Forward-looking statements involve various risks, uncertainties and assumptions.  The Company’s actual results may differ materially from those expressed in these forward-looking statements.

Future events and actual results could differ materially from those set forth in the forward-looking statements as a result of many factors.  These factors may include, without limitation: the Company’s ability to continue to make acquisitions and to successfully integrate and operate acquired businesses; changes in student enrollment; tuition pricing; the effect of new technology applications in the educational services industry; failure to maintain or renew required regulatory approvals, accreditations or authorizations; the Company’s ability to effectively manage business growth; possible increased competition from other educational service providers; the effect on the business and results of operations of fluctuations in the value of foreign currencies; and the many risks associated with the operation of an increasingly global business, including complexcomplicated legal structures, foreign currency, legal, tax and economic risks and the risk of changes in the business climatesclimate in the markets where the Company operates.  These forward-looking statements are based on estimates, projections, beliefs and assumptions of management and speak only as of the date made and are not guarantees of future performance.

Overview

The CompanyLaureate is focused exclusively on providing a superior higher education experience to over 117,000159,000 students through the leading global network of accredited Campus Basedcampus-based and online higher education institutions.  On June 30, 2003, the Company sold the principal operations comprising its K-12 segments (“K-12 segment”) and sold certain investments in Sylvan Ventures that are not strategic to its post-secondary education business in a transaction more fully described in Note 3 of the consolidated financial statements.  In connection with these transactions, the Company realigned its business segments.  The Company’s educational services are offered through twothree separate businessreportable segments: Campus BasedLatin America, Europe and Laureate Online Higher Education segments.  The Campus Based segment ownsEducation.  Latin America and Europe own or maintainsmaintain controlling interests in six and nine separately accredited higher education institutions, withrespectively.  The Latin America segment has locations in Mexico, Chile, Spain, Switzerland, France,Peru, Ecuador, Panama, and Costa Rica. The Europe segment has locations in Spain, Switzerland, and France.  The Laureate Online Higher Education segment provides career-oriented degree programs to over 15,000approximately 21,000 students through Walden E-Learning, Inc. (“Walden”), National Technological University (“NTU”), Laureate Education Online BV (formerly KIT eLearning BV) and Canter Walden, and NTU.Associates (“Canter”).

On May 17, 2004, the Company changed its name from Sylvan Learning Systems, Inc. to Laureate Education, Inc.  The Company began trading under a new NASDAQ ticker symbol, LAUR, on May 18, 2004.

Sale of Business Units

On December 31, 2004, the Company and WSI Education S.a.r.l. executed an Agreement for Purchase of Shares that provides for the acquisition of substantially all of the Company’s WSI business units and investments.  On June 30, 2003, the Company completed the sale to Educate, Inc. (“Educate”), a company newly-formed company by Apollo Management L.P.

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(“Apollo”), of substantially all of itsthe Company’s K-12 segment (“Principal K-12 Disposal Group”).  In addition, during the second quarter of 2003, management committed to a plan to dispose of its WSI business.segments.  See noteNote 3 to the consolidated financial statements for more information regarding these transactions.

Critical Accounting Policies and Estimates

The Company’s accounting policies are more fully described in Note 2 of Notesnotes to Consolidated Financial Statements.consolidated financial statements.  As disclosed in Note 1 of Notes to Consolidated Financial Statements, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.  Future events and their effects cannot be determined with absolute certainty.  Therefore, the determination of estimates requires the exercise of judgment.  Actual results inevitably will differ from those estimates, and these differences may be

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material to the financial statements.  The Company believes the following key accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements and are critical to its business operations and the understanding of its results of operations.

Revenue Recognition. Revenues from educational services, tuition and fees, are recorded on a straight-line basis over the length of period in which services are provided.  Textbook sales and the related cost of the textbooks are recognized at the beginning of each academic quarter with respect to students who are attending courses in which textbooks are charged separately from tuition.  Approximately 90% of the Company’s revenues represent tuition charges and approximately 10%4% of revenues represent bookstore sales and student fees.  For each student, billings issued or payments received in excess of tuition earned are recorded as deferred revenue. Refunds to students have been immaterial and generally limited to amounts paid for which educational services have not been rendered.  Since the companyCompany does not recognize revenues until the services have been rendered, these refunds are typically charged to the deferred revenue account. The amount of tuition earned depends on the fee per semester or per credit hour of the courses, how manythe number of program courses a student takes during each period of enrollment, and the total number of students enrolled in each program.  Each of these factors is known at the time  our tuition revenues are calculated and is not subject to estimation.  If the Company were to addadds additional fees related to educational services, the fees would need to beare assessed separately for proper revenue recognition treatment.

Revenue from the sale of educational products, approximately 6% of the Company’s revenues, is generally recognized when shipped and collectibility is reasonably assured.

Accounts and Notes Receivable. The Company routinely makes estimates of the collectibility of its accounts and notes receivable. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customersstudents to make required payments.  The Company estimates the amount of the required allowance by reviewing the status of past-due receivables and analyzing historical bad debt trends.  Actual collection experience has not varied significantly from estimates, due primarily to credit policies, and a lack of concentration of accounts receivable.  If the financial condition of students were to deteriorate, resulting in an impairment of their ability to make required payments for tuition, additional allowances may be required.

Goodwill and Other Intangible Assets.  During each of the years presented, the Company acquired various businesses accounted for using the purchase method of accounting.  A portion of the purchase pricesprice for these businesses was allocated to identifiable tangible and intangible assets and assumed liabilities based on estimated fair values at the datesdate of acquisitions.acquisition. Any excess purchase price was allocated to goodwill.  This goodwill and other indefinite-lived intangibles are evaluated at least annually for impairment.

Goodwill is consideredpotentially impaired when the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, as determined under a two-step approach.  The first step is to determine the estimated fair value of each reporting unit with goodwill.  The reporting units of the Company for purposes of the impairment test are those components of operating segmentscomponents for which discrete financial information is available and segment management regularly reviews thefor which operating results of that component.are regularly reviewed by segment management. Components are combined when determining reporting units if they have similar economic characteristics.  Because the Company manages its Campus Based segment geographically, the reporting units for this segment are also geographic components of this operating segment.  The Online Higher Education segmentIn general, each higher education institution is onea reporting unit for purposes of the impairment tests.

The Company estimates the fair value of each reporting unit by estimating the present value of the reporting unit’s future cash flows.   If the recorded net assets of the reporting unit are less than the reporting unit’s estimated fair value, then no impairment is indicated.  Alternatively, if the recorded net assets of the reporting unit exceed its estimated fair value, then goodwill is assumed to bepotentially impaired and a second step is performed.  In the second step, the implied fair value of the goodwill is determined by deducting the estimated fair value of all tangible and identifiable intangible net assets of the reporting unit

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from the estimated fair value of the reporting unit.  If the recorded amount of goodwill exceeds this implied fair value, an impairment charge is recorded for the excess.

Other intangible assets include acquired student rosters, accreditation, tradenames, non-competition agreements and curriculum. The assumptions used to calculate the initial fair value of these identified intangible assets included estimates of future operating results and cash flows, as well as discount rates and weighted average costcosts of capital for each acquisition.  The assigned usefulAccreditations and tradenames have indefinite lives.  Useful lives which range from 21 to 7 years are assigned to all other intangible assets based upon estimated matriculation rates and other factors.

If the Company used different assumptions and estimates in the calculation of the initial fair value of identified

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intangible assets and the estimation of the related useful lives, the amounts allocated to these assets, as well as the related amortization expense, could have been significantly different than the amounts recorded.

In assessing the recoverability of the Company’s goodwill and other intangible assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets.  If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets not previously recorded.

Income Taxes.  The Company earns a significant portion of its income from subsidiaries located in countries outside of the United States.  At December 31, 2003,2004, undistributed earnings of foreign subsidiaries totaled approximately $174.7$611.8 million.  Deferred tax liabilities have not been recognized for these undistributed earnings because it is management’s intention to reinvest such undistributed earnings outside of the United States.  APB Opinion No. 23, Accounting for Income Taxes —– Special Areas, requires that a company evaluate its circumstances to determine whether or not there is sufficient evidence to support the assertion that it has or will reinvest undistributed foreign earnings indefinitely.

The Company’s assertion that earnings from its foreign operations will be permanently reinvested is supported by projected working capital and long-term capital needs in each subsidiary location in which the earnings are generated.  Additionally, the Company believes that it has the ability to permanently reinvest foreign earnings based on a review of projected cash flows from domestic operations, projected working capital and liquidity for both short-term and long-term domestic needs, and the expected availability of debt or equity markets to provide funds for those domestic needs.

If circumstances change and it becomes apparent that some or all of the undistributed earnings of the Company’s foreign subsidiaries will be remitted to the United States in the foreseeable future, the Company will be required to recognize deferred tax liabilities on those amounts.  As of December 31, 2003,2004, if all undistributed earnings had been remitted to the United States, the amount of incremental U.S. federal income tax liabilities, net of foreign tax credits, would have been approximately $116.2$171.2 million, of which $83.4 million is related to discontinued operations.

The Company has generated significant deferred tax assets, primarily as a result of its equity in the net losses of affiliated companies.  The Company records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized.  The primary factor used by the Company to determine the amount of valuation allowance needed to offset deferred tax assets related to these losses is that when realized, these capital losses may be carried back to offset the Company’s substantial prior year capital gains, subject to certain limitations.  The Company also has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of valuation allowance needed.  If the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made.  Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the valuation allowance would increase income in the period such determination was made.

Impact of Recently Issued Accounting Standards.  In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004) (“FASB 123R”), Share-Based Payment. FASB 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.  As permitted by Statement 123, the Company currently accounts for share-based payments to employees using Opinion 25, which generally recognizes no compensation expense for employee stock options.  The adoption of the fair value method under FASB 123R could have a significant impact on the results of operations, however it will have no impact on the balance sheet.  FASB 123R also requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a cash flow from financing activities rather than a cash flow from operating activities.  This requirement will reduce net cash flow from operations and increase net cash flow from financing activities in the periods after adoption.  The effective date is the first interim reporting period beginning after June 15, 2005. The Company is currently evaluating pricing models and the transition provisions of this standard and will begin expensing stock options in the third quarter of 2005.

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Results of Operations

Sylvan’s twoThe Company’s three continuing businessreportable segments generate revenues as follows:

•                                          Campus BasedLatin America and Europe earnsearn tuition and related fees paid by the students of the Company’s campus basedcampus-based higher education institutions.

•                                          Laureate Online Higher Educationearns revenues from instructional services that are provided through an online format, as well as other forms of distance learning.

The Campus BasedLatin America, Europe and Laureate Online Higher Education Segmentssegments, when presenting aggregated statements of operations data, are referred to as “Core Operating Segments.”

Enrollments

Management closely follows trends in new and total enrollment because total enrollment growth is highly correlated with revenue growth.  New enrollments are particularly important as they impact future results.

Enrollment Reporting

Each of theLaureate’s higher education institutions has a different enrollment cycle depending on geography and academic

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program.  Each higher education institutionschool has a “Primary Enrollment Cycle” at the start of each academic year, during which most of the enrollment occurs.  The first quarter coincides with the Primary Enrollment Cycle for the Company’s higher education institutions in the Chile region.South American region (Chile, Peru and Ecuador).  The third quarter coincides with the Primary Enrollment Cycle for the Company’s higher education institutions in the Mexico region (Mexico, Costa Rica and Panama), as well as higher education institutionsfor schools in Spain, Switzerland, U.S. and France.  The timing of the higher education institutions’ Primary Enrollment Cycles impactscauses the seasonality of the business.business to be seasonal.

Seasonality

Most of the higher education institutionsschools in the Company’s network have a summer break when classes are generally not in session and during which minimal revenues are recognized.  Operating expenses, however, do not fully correlate to ourthe enrollment and revenue cycles, as the higher education institutionsschools continue to incur fixed expenses during summer breaks.  As a result, the fourth quarter is the Company’s strongest quarter because all of theits higher education institutions are in session.  The second quarter is also seasonally strong as all higher education institutionsmost schools have classes in session; however,session, although the Company’s largest university,school, located in Mexico, is in session for only part of thethat quarter.  The first and third quarters are weaker quarters because the four largest higher education institutionsmajority of the Company’s schools have summer breaks for some portion of thoseone of these two quarters. Due to thethis seasonality, revenues and profits in any periodquarter are not necessarily indicative of results in subsequent periods.quarters.

The following chart shows the enrollment cycles for each higher education institution.  In the chart, shaded areas represent periods when classes are generally in session and revenues are recognized.  Areas that are not shaded represent summer breaks during which revenues are not typically recognized.  The large circles indicate the Primary Enrollment start dates of the Company’s higher education institutions,schools, and the small circles represent Secondary Enrollment start dates (smaller intake cycles).

Notes:

(1) Mexico Region includes Mexico, Costa Rica and Panama

(2) South American Region includes Chile, Ecuador and Peru

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Reportable Segments

The following table is derived from the Company’s consolidated financial statements and represents financial information of the Company’s reportable segments for the years ended December 31,2004, 2003, 2002 and 2001, respectively (in thousands).2002:

Reportable Segment Chart