Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
x | Annual Report pursuant to Section 15(d) of the Securities and Exchange Act of 1934 |
For the fiscal year ended December 31, 2005
OR
¨ | Transition report pursuant to Section 15(d) of the Securities Exchange Act of 1934 |
Commission File Number 000-50952
Educate, Inc.
Educate, Inc. 401(k) Retirement Savings Plan
(Exact name of registrant as specified in its charter)
Delaware | 37-1465722 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1001 Fleet Street, Baltimore, Maryland | 21202 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (410) 843-8000
Table of Contents
Educate, Inc. 401(k) Retirement Savings Plan
Audited Financial Statements and Supplemental Schedule
Index to Form 11-K
Year ended December 31, 2005
Page No. | ||
1 | ||
Audited Financial Statements: | ||
2 | ||
3 | ||
4 | ||
Supplemental Schedule | ||
Schedule H, Line 4i – Schedule of Assets (Held At End of Year) | 8 | |
9 | ||
10 |
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Trustees
Educate, Inc. 401(k) Retirement Savings Plan
We have audited the accompanying statements of net assets available for benefits of the Educate, Inc. 401(k) Retirement Savings Plan (the “Plan”) as of December 31, 2005 and 2004, and the related statements of changes in net assets available for benefits and supplemental information for the year ended December 31, 2005. 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 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2005 and 2004, and the changes in net assets available for benefits for the year ended December 31, 2005, in conformity with United States generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2005 is presented for the purpose of additional analysis and is not a required part of the 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 our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole.
/s/ Reznick Group, P.C. |
Baltimore, Maryland
June 23, 2006
1
Table of Contents
Educate, Inc. 401(k) Retirement Savings Plan
Statements of Net Assets Available for Benefits
December 31, 2005 | December 31, 2004 | |||||
Assets | ||||||
Investments | $ | 31,535,568 | $ | 24,559,710 | ||
Participant loans | 359,679 | 365,125 | ||||
Contributions Receivable: | ||||||
Participants | 194,051 | 152,112 | ||||
Net assets available for benefits | $ | 32,089,298 | $ | 25,076,947 | ||
See accompanying Notes to Financial Statements.
2
Table of Contents
Educate, Inc. 401(k) Retirement Savings Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2005 | ||||
Investment income: | ||||
Interest | $ | 89,673 | ||
Dividends | 814,215 | |||
903,888 | ||||
Employee salary deferral contributions | 4,584,063 | |||
Employer contribution | 740,366 | |||
Employee rollover contributions | 742,865 | |||
Total additions | 6,971,182 | |||
Participant withdrawals | (3,100,125 | ) | ||
Participant loans, net of repayments | (86,672 | ) | ||
Net realized and unrealized appreciation in fair value of investments | 1,816,149 | |||
Net increase prior to plan transfer | 5,600,534 | |||
Administrative costs and other fees | 3,080 | |||
Transfers from other plans, net | 1,408,737 | |||
Net increase in assets available for benefits | 7,012,351 | |||
Net assets available for benefits at beginning of year | 25,076,947 | |||
Net assets available for benefits at end of year | $ | 32,089,298 | ||
See accompanying Notes to Financial Statements.
3
Table of Contents
Educate, Inc. 401(k) Retirement Savings Plan
Notes to Financial Statements
Note 1. Plan Description
The following description of the Educate, Inc. 401(k) Retirement Savings Plan (the “Plan”) provides only general information. Participants should refer to the Summary Plan Description for a more complete description of the Plan’s provisions. Copies of this summary are available from Educate, Inc. (the “Company”), or plan sponsor.
General
The Plan is a defined contribution plan covering substantially all employees of the Company which was formed as of July 1, 2003, as a result of a spin-off from Laureate Education, Inc. (Laureate). Participants must complete one year of service with 800 hours of service, and be employed as of the last day of the Plan year in order to be eligible for employer matching and discretionary contributions. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”). All investment programs are fully participant-directed. At December 31, 2005, the Plan offered 13 investment options into which participants could direct their investments. Participants have the opportunity to change their investment options daily.
Plan Transfers
In August 2005, Progressus Therapy, Inc, a division of the Company, transferred the balances of the accounts of the participants in the Progressus Therapy, Inc. Savings and Investment Plan totaling $1,408,737 to the Plan. The net amount of this transfer is shown as transfers from other plans, net on the accompanying statement of changes in net assets available for benefits.
Contributions
Participants may contribute any percentage of their pretax annual compensation, not to exceed net take home pay, as defined and subject to certain annual limitations imposed by the Internal Revenue Code. In addition, employees may rollover distributions received from other plans. The Company makes a discretionary matching equal to a percentage of the amount of the compensation that the participant elected to contribute, up to a maximum of 6% of the participant’s compensation. The matching contribution percentages for 2005 and 2004 were 50% of the first 3% and 25% on the next 3% of the compensation contributed. Additional discretionary contributions may be made at the option of the Company. There were no additional discretionary contributions made by the Company in 2005 and 2004.
Participant Accounts
Each participant account is credited with the participant’s contribution and an allocation of (a) the Company’s contribution, (b) Plan earnings, and (c) additional Company discretionary contributions, if any. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.
Vesting
Participants are immediately vested in their contributions plus earnings thereon. Vesting in the Company’s discretionary matching contributions plus earnings thereon is based on years of continuous service at a rate of 33- 1/3% per year, including the first year of service. A participant is 100% vested after three years of service.
Participant Loans
Participants may borrow from their account balances a minimum of $1,000, up to a maximum of the lesser of $50,000 or 50% of their vested account balance. Principal and interest are repaid ratably through payroll deductions over loan terms, which generally do not exceed five years.
4
Table of Contents
Educate, Inc. 401(k) Retirement Savings Plan
Notes to Financial Statements
Payment of Benefits
Participants may withdraw voluntary after tax contributions, qualified rollovers, and transfers into the plan, and earnings thereon, at any time. Pre-tax deferrals, vested employer-matching contributions, and vested employer discretionary contributions, if any, may be withdrawn upon attaining age 59 1/2 or employment termination. All employee contributions may be withdrawn upon termination of employment. Hardship withdrawals are allowed but are limited to certain types of contributions, as defined.
Parties in Interest
The employer matching contributions are paid in shares of the Company’s common stock.
Certain Plan investments are shares of mutual funds managed by American Funds, the trustee as defined by the Plan. These transactions qualify as exempt party-in-interest transactions.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of plan termination, participants will become 100% vested in their accounts.
Note 2. Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared using the accrual method of accounting.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
Investments are stated at fair value. The Company’s and Laureate’s common stock is valued at the last reported sales price on the last business day of the plan year. The units of the collective trust and shares of the mutual funds are valued at fair value as determined by American Funds Retirement Resources and quoted market prices, respectively. Participant loans are carried at their unpaid principal balance, which approximates fair value.
Realized gains or losses on the sale of investments are computed as the difference between the proceeds received and the average cost of investments held. The change in the difference between cost and fair value, including realized gains and losses, is included as net appreciation or depreciation in the fair value of investments in the statement of changes in net assets available for benefits.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Administration Expenses
All costs and expenses incurred in connection with the administration of the Plan are paid by the Company.
5
Table of Contents
Educate, Inc. 401(k) Retirement Savings Plan
Notes to Financial Statements
3. Investments
During 2005, the Plan’s investments appreciated in fair value by $1,816,149 as follows:
Fair value as determined by quoted market price:
Laureate Education, Inc. common stock | $ | 792,827 | ||
Educate, Inc. common stock | (4,498 | ) | ||
Mutual funds | 1,027,820 | |||
$ | 1,816,149 | |||
Investments that represent 5% or more of fair value of the Plan’s net assets are as follows:
December 31, 2004 | |||
Laureate Education, Inc. common stock | $ | 4,621,014 | |
The Putnam Fund for Growth and Income | $ | 2,883,823 | |
Putnam Vista Fund | $ | 1,437,274 | |
Putnam International Equity Fund | $ | 1,706,921 | |
Putnam Stable Value Fund | $ | 3,077,048 | |
Legg Mason Value Trust | $ | 2,775,798 | |
Janus Mid Cap Value Fund | $ | 1,281,458 | |
Putnam US Government Income Trust | $ | 1,400,567 |
December 31, 2005 | |||
Laureate Education, Inc. common stock | $ | 4,653,110 | |
Legg Mason Value Trust | $ | 3,600,360 | |
INVESCO Stable Value Fund | $ | 3,993,220 | |
Federated Kaufmann A Shares | $ | 3,821,985 | |
Calamos Growth Fund | $ | 2,259,952 | |
American Funds Washington Mutual | $ | 3,254,470 | |
American Funds Cap World Growth & Income | $ | 1,885,624 | |
American Funds Growth Fund of America | $ | 2,054,290 | |
American Funds Europacific Growth Fund | $ | 1,872,684 | |
American Funds Bond Fund | $ | 1,692,424 |
4. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service dated November 19, 2004, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the Code) and, therefore, the related trust is exempt from taxation. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan is qualified and the related trust is tax exempt.
5. Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain 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 net assets available for benefits.
6
Table of Contents
Educate, Inc. 401(k) Retirement Savings Plan
Notes to Financial Statements
6. Differences Between Financial Statements and Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500:
December 31, 2005 | December 31, 2004 | |||||||
Net assets available for benefits per the financial statements | $ | 32,089,298 | $ | 25,076,947 | ||||
Less contributions receivable | (194,051 | ) | (152,112 | ) | ||||
Net assets available for benefits per the Form 5500 | $ | 31,895,247 | $ | 24,924,835 | ||||
The following is a reconciliation of contributions per the financial statements to the Form 5500 for the year ended December 31, 2005:
|
| |||||||
Contributions per the financial statements | $ | 6,067,294 | ||||||
Forfeitures | 22,249 | |||||||
Add contributions receivable at December 31, 2004 | 152,112 | |||||||
Less contributions receivable at December 31, 2005 | (194,051 | ) | ||||||
Contributions per the Form 5500 | $ | 6,047,604 | ||||||
The financial statements are prepared on the accrual basis of accounting whereas the Form 5500 is prepared on the cash basis.
7
Table of Contents
Educate, Inc. 401(k) Retirement Savings Plan
EIN 37-1465722 Plan # 7-52657
Schedule H, Line 4i—Schedule of Assets (Held At End of Year)
December 31, 2005
Party-in- interest | Identity of Issue, Borrower, Lessor or Similar Party | Description of Investment Including Maturity Date, Rate of Interest, Collateral, Par or Maturity Value | Cost** | Current Value | |||||
Common Stock: | |||||||||
(1) | Educate, Inc. | common | $ | 99,441 | |||||
(1) | Laureate Education, Inc. | common | 4,653,110 | ||||||
Collective Trust: | |||||||||
INVESCO Stable Value Fund | 3,993,220 | ||||||||
Mutual Funds: | |||||||||
Federated Kaufmann A Shares | shares | 3,821,985 | |||||||
Legg Mason Value Trust | shares | 3,600,360 | |||||||
(1) | American Funds International Bond Fund | shares | 141,622 | ||||||
(1) | American Funds Bond Fund | shares | 1,692,424 | ||||||
Royce Total Return Fund | shares | 1,352,438 | |||||||
Calamos Growth Fund | shares | 2,259,952 | |||||||
(1) | American Funds American Balanced | shares | 831,992 | ||||||
(1) | American Funds Washington Mutual | shares | 3,254,470 | ||||||
(1) | American Funds Cap World Growth & Income | shares | 1,885,624 | ||||||
(1) | American Funds Growth Fund of America | shares | 2,054,290 | ||||||
(1) | American Funds Europacific Growth Fund | shares | 1,872,684 | ||||||
pending account | 5,742 | ||||||||
Participant loans | 5.00% - 10.50% annual interest rates | 359,679 | |||||||
Forfeitures | — | 16,214 | |||||||
Total investments | $ | 31,895,247 | |||||||
** | Historical cost has been omitted, as all investments are participant-directed |
(1) | Party-in-interest. |
8
Table of Contents
23.01 | Consent of Reznick Group, P.C., independent auditors |
9
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
Educate Inc. 401(k) Retirement Savings Plan | ||||
By: | Educate, Inc., Administrator | |||
Date: June 28, 2006 | By: | /s/ C. Alan Schroeder | ||
C. Alan Schroeder | ||||
General Counsel and Secretary |
10