PLATO Learning, Inc. Reports Fourth Quarter and Fiscal Year 2005 Results; Quarter Includes Restructuring and Asset Impairment Charges of $16.1 Million

Net loss for the fourth quarter of 2005 was $(13.9) million, or$(0.59) per diluted share, as compared to net earnings of $2.2million, or $0.09 per diluted share, for the same period of 2004. Netearnings, excluding restructuring and other charges and assetimpairment charges totaling $16.1 million, were $2.2 million, or $0.09per diluted share (a non-GAAP measure), for the fourth quarter of2005.

Gross margin was 23.1% for the fourth quarter versus 62.6% in thefourth quarter of 2004. Fourth quarter 2005 gross profit includes$13.2 million of asset impairment charges of certain capitalizedproduct development and purchased technology assets. These chargeswere primarily due to changes in the Company's product strategy and tolower expected future revenues for some purchased technology assets.Gross margin, excluding these charges (a non-GAAP measure), grossmargin was 62.3%, similar to last year's fourth quarter. Lowersubscription gross margins, resulting from additional, non-recurringroyalty fees incurred in the quarter and from lower subscriptionrevenue, were offset by higher service gross margins generated byhigher service revenues and service cost reductions.

Operating expenses, excluding restructuring and other charges of$2.9 million, declined 18.3% for the quarter from 2004. The decreaseresulted from cost reduction actions initiated throughout 2005,realignment of service resources from sales support to billableactivities, and reduced variable costs associated with reducedrevenue.

Restructuring and other charges for the quarter primarily includeseverance costs of $2.2 million for workforce reductions, and facilityand other costs of $0.7 million. Charges of $1.1 million were incurredfor actions taken in the Company's U.K. operation and $1.8 millionwere incurred from actions in the United States and Canada.

Revenues for the year ended October 31, 2005, were $121.8 million,a 14% decrease from 2004. Net loss for the year was $(27.7) million,or $(1.18) per diluted share, compared to a net loss of $(1.8)million, or $(0.08) per diluted share in 2004. Net loss, excludingrestructuring and other charges and asset impairment charges totaling$19.2 million, was $(8.5) million, or $(0.36) per diluted share (anon-GAAP measure) for the year ended October 31, 2005. Restructuringand other charges of $6.0 million for the year primarily includeseverance payments, facility closing costs, and amounts paid toterminated executives under employment agreements.

Mike Morache, PLATO Learning President and CEO, said, "This hasbeen a turnaround year for PLATO Learning. Many of the systems andprocesses needed to sustain a growing profitable business had not beenpreviously established. We worked diligently throughout 2005 to putthe essential processes in place and to create plans for futuresuccess. Now that this is accomplished, we look forward to movingaggressively to grow our leadership position in the education market."

"In 2005, we made some difficult decisions. Our work force wasreduced and in some areas is being replaced with employees well suitedfor the new business direction, especially in our sales anddevelopment organizations. A thorough assessment of our products anddevelopment projects was completed and a new roadmap was developed tomake our product offerings the strongest in the industry.Restructuring and asset impairment charges were incurred as a resultof these actions, but we are exiting 2005 as a much healthier and morefocused company," said Morache.

The Company highlighted additional key financial information forthe fourth quarter of 2005:

-- Earnings Before Interest Taxes Depreciation and Amortization (EBITDA), excluding restructuring and other charges and asset impairment charges (a non-GAAP measure), were $7.0 million for the quarter, compared to $8.3 million for the same period in 2004.

-- Cash and cash equivalents and marketable securities were $47.1 million at October 31, 2005, compared to $38.9 million at July 31, 2005, and $45.5 million at October 31, 2004.

-- Deferred revenue was $40.4 million at October 31, 2005, versus $41.9 million at July 31, 2005, and $51.6 million at October 31, 2004.

Fiscal year 2006 financial guidance:

The Company expects increased order growth in 2006 of 15% to 20%over 2005, as a result of increased sales productivity and new productintroduction. Revenue growth, however, is not expected to be greaterthan 4% over 2005, due to several factors. Much of the order growth isexpected to be from sales of new products introduced later in 2006 andfrom sales of subscription products that are recognized as revenueover time rather than up front. International revenues will declinedue to the downsizing of the Company's U.K. operation. In addition,the Company has decided to participate in the Supplemental EducationalServices market by providing its products to other service providers,rather than providing the services directly, which will reduce servicerevenues.

Total gross margin for the year is expected to be between 62% and64%, depending on product mix, as cost reductions and pricing controlsestablished during 2005 will be in place for the entire year in 2006,and due to lower amortization expense as a result of 2005 assetimpairment charges. Operating expenses, excluding restructuring andother charges, should decline; however much of the decline will beoffset by approximately $2.0 million of stock-based compensationexpense, as the Company adopts FASB Statement No. 123(R).Restructuring charges, resulting from actions taken in 2005 that werenot accruable at that time, are expected to be less than $1.0 million.The tax provision is expected to be $600,000 higher than the expectedamount calculated using a 40% tax rate, due to tax deductible goodwillfrom a previous acquisition that creates a deferred tax liability thatcannot be offset against deferred tax assets.

The Company expects to be profitable for the full year 2006. Cashand investments are expected to decline, as investments in productdevelopment will be increased to accelerate release of new products.Spending on capitalized product development projects is expected torange from $19.0 to $23.0 million, depending on the timing of thoseprojects.

Use of Non-GAAP Financial Measures

The non-GAAP financial measures used in this press release excludethe impact of 2005 restructuring and other charges and assetimpairment charges from our operating results, as well as presentEBITDA. These non-GAAP financial measures are not prepared inaccordance with generally accepted accounting principles and may bedifferent from non-GAAP financial measures used by other companies.Non-GAAP financial measures should not be considered as a substitutefor, or superior to, measures of financial performance prepared inaccordance with GAAP. We view these non-GAAP financial measures to behelpful in assessing the Company's ongoing operating results. Inaddition, these non-GAAP financial measures facilitate our internalcomparisons to historical operating results and comparisons tocompetitors' operating results. We include these non-GAAP financialmeasures in our earnings announcement because we believe they areuseful to investors in allowing for greater transparency related tosupplemental information we use in our financial and operationalanalysis. Investors are encouraged to review the reconciliations ofthe non-GAAP financial measures used in this press release to theirmost directly comparable GAAP financial measures as provided with thefinancial statements attached to this press release.

Quarterly Conference Call

A conference call to discuss this announcement is scheduled fortoday at 3:45 p.m. (CT). The dial-in number for this call is1.800.230.1085 in the U.S. and Canada and 1.612.288.0318 forinternational calls. Please call 10 minutes prior to the start of thecall and inform the operator you are participating in PLATO Learning'squarterly earnings call. Should you be unable to attend the liveconference call, a recording will be available to you from 7:15 p.m.(CT) on December 13, 2005, through midnight on December 20, 2005. Toaccess the recording, call 1.800.475.6701 in the U.S. and Canada and1.320.365.3844 internationally. At the prompt, enter pass code number800449.

Additionally, investors have the opportunity to listen to theconference call over the Internet through PLATO Learning's web site athttp://www.plato.com/aboutus/investor_calls.asp.

About PLATO Learning

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

PLATO Learning, Inc. is a publicly held company traded as TUTR onthe NASDAQ. PLATO Learning educational software delivered vianetworks, CD-ROM, the Internet, and private intranets, is primarilymarketed to K-12 schools and colleges. The Company also sells to jobtraining programs, correctional institutions, military educationprograms, corporations, and individuals.

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

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

(R) PLATO is a registered trademark of PLATO Learning, Inc. PLATOLearning is a trademark of PLATO Learning, Inc.

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

Three Months Ended Twelve Months Ended
October 31, October 31,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------

Revenues:
License fees $15,728 $24,385 $57,803 $80,078
Subscriptions 4,547 5,073 17,997 20,718
Services 11,798 9,093 38,342 30,030
Other 1,608 3,869 7,662 10,975
--------- --------- --------- ---------
Total revenues 33,681 42,420 121,804 141,801
--------- --------- --------- ---------
Cost of revenues:
License fees 3,051 5,107 12,353 15,060
Subscriptions 3,341 1,984 9,576 7,506
Services 4,683 4,846 21,809 17,373
Other 1,631 3,916 7,876 10,614
Impairment charges 13,194 - 13,194 -
--------- --------- --------- ---------
Total cost of revenues 25,900 15,853 64,808 50,553
--------- --------- --------- ---------
Gross profit 7,781 26,567 56,996 91,248
--------- --------- --------- ---------
Operating expenses:
Sales and marketing 11,740 15,711 49,996 61,586
General and administrative 4,227 5,022 18,420 19,469
Product development 1,726 1,131 5,646 5,973
Amortization of intangibles 1,075 1,111 4,322 4,308
Restructuring and other
charges 2,904 - 6,025 -
--------- --------- --------- ---------
Total operating expenses 21,672 22,975 84,409 91,336
--------- --------- --------- ---------
Operating income (loss) (13,891) 3,592 (27,413) (88)
Interest income 395 134 1,026 432
Interest expense (1) (22) (90) (122)
Other income (expense), net 12 89 (350) (20)
--------- --------- --------- ---------
Earnings (loss) before income
taxes (13,485) 3,793 (26,827) 202
Income tax expense 410 1,580 860 2,030
--------- --------- --------- ---------
Net earnings (loss) $(13,895) $2,213 $(27,687) $(1,828)
========= ========= ========= =========

Earnings (loss) per share:
Basic $(0.59) $0.10 $(1.18) $(0.08)
========= ========= ========= =========
Diluted $(0.59) $0.09 $(1.18) $(0.08)
========= ========= ========= =========

Weighted average common shares
outstanding:
Basic 23,550 23,050 23,381 22,637
========= ========= ========= =========
Diluted 23,550 23,468 23,381 22,637
========= ========= ========= =========



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

October 31, October 31,
2005 2004
----------- -----------

ASSETS

Current assets:
Cash and cash equivalents $46,901 $29,235
Marketable securities 213 12,615
Accounts receivable, net 22,768 41,852
Inventories, net 4,026 2,683
Other current assets 6,351 6,777
----------- -----------
Total current assets 80,259 93,162
Long-term marketable securities - 3,608
Equipment and leasehold improvements, net 5,711 7,946
Product development costs, net 14,753 17,116
Goodwill 71,865 71,267
Identified intangible assets, net 22,505 39,432
Other assets 2,235 213
----------- -----------
Total assets $197,328 $232,744
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $2,938 $5,196
Accrued employee salaries and benefits 7,772 8,772
Accrued liabilities 8,933 6,383
Deferred revenue 35,218 43,042
----------- -----------
Total current liabilities 54,861 63,393
Long-term deferred revenue 5,213 8,533
Deferred income taxes 1,931 1,322
Other liabilities 496 46
----------- -----------
Total liabilities 62,501 73,294
----------- -----------
Stockholders' equity:
Common stock 236 231
Additional paid in capital 166,295 162,956
Treasury stock at cost (205) (205)
Accumulated deficit (30,537) (2,850)
Accumulated other comprehensive loss (962) (682)
----------- -----------
Total stockholders' equity 134,827 159,450
----------- -----------
Total liabilities and stockholders'
equity $197,328 $232,744
=========== ===========



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

Twelve Months Ended
October 31,
-------------------
2005 2004
---------- --------

Operating activities:
Net loss $(27,687) $(1,828)
---------- --------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Realization of acquired deferred tax assets - 1,422
Deferred income taxes 628 608
Impairment charges 13,194 -
Amortization of capitalized product development
costs 7,272 6,941
Amortization of identified intangible and other
noncurrent assets 8,352 7,648
Depreciation and amortization of equipment and
leasehold improvements 3,393 3,358
Provision for doubtful accounts 1,245 2,305
Stock-based compensation 39 217
Loss on disposal of equipment 289 53
Changes in assets and liabilities, net of effects
of acquisitions:
Accounts receivable 17,839 4,786
Inventories (1,343) (22)
Other current and long-term assets (1,846) (1,986)
Accounts payable (2,258) (164)
Other current and long-term liabilities 1,863 (4,183)
Deferred revenue (11,144) 7,838
---------- --------
Total adjustments 37,523 28,821
---------- --------
Net cash provided by operating activities 9,836 26,993
---------- --------

Investing activities:
Acquisitions, net of cash acquired - 2,460
Capitalized product development costs (9,440) (9,238)
Purchases of equipment and leasehold improvements (1,400) (3,615)
Purchases of marketable securities (9,474) (13,176)
Sales and maturities of marketable securities 25,559 741
---------- --------
Net cash provided by (used in) investing
activities 5,245 (22,828)
---------- --------

Financing activities:
Net proceeds from issuance of common stock 2,764 1,941
Repurchase of common stock - (205)
Repayments of capital lease obligations (225) (239)
---------- --------
Net cash provided by financing activities 2,539 1,497
---------- --------
Effect of currency exchange rate changes on cash
and cash equivalents 46 (261)
---------- --------
Net increase in cash and cash equivalents 17,666 5,401
Cash and cash equivalents at beginning of period 29,235 23,834
---------- --------
Cash and cash equivalents at end of period $46,901 $29,235
========== ========



PLATO Learning, Inc.
Supplemental Financial Information
(Unaudited)

----------------------------------------------------------------------

Revenues Three Months Ended Twelve Months Ended
($000's) October 31, October 31,
------------------- -------------------
% %
2005 2004 Change 2005 2004 Change
--------- --------- ------ --------- --------- ------
License fees $15,728 $24,385 -36% $57,803 $80,078 -28%
Subscriptions 4,547 5,073 -10% 17,997 20,718 -13%
Services 11,798 9,093 30% 38,342 30,030 28%
Other 1,608 3,869 -58% 7,662 10,975 -30%
--------- --------- --------- ---------
$33,681 $42,420 -21% $121,804 $141,801 -14%
========= ========= ========= =========

----------------------------------------------------------------------

Operating Expenses Three Months Ended October 31,
---------------------------------
($000's) 2005 2004
---------------- ----------------
% of % of
Revenue Revenue % Change
------- ------- --------
Total operating expenses $21,672 64% $22,975 54% -6%
Restructuring and other
charges (2,904) -
-------- --------
Operating expenses before
restructuring and other
charges $18,768 56% $22,975 54% -18%
======== ========

Twelve Months Ended October 31,
---------------------------------
2005 2004
---------------- ----------------
% of % of
Revenue Revenue % Change
------- ------- --------
Total operating expenses $84,409 69% $91,336 64% -8%
Restructuring and other
charges (6,025) -
-------- --------
Operating expenses before
restructuring and other
charges $78,384 64% $91,336 64% -14%
======== ========

----------------------------------------------------------------------

Reconciliation of GAAP Earnings
(Loss) Per Share to Non-GAAP
Earnings (Loss) Per Share Before Three Months Twelve Months
Impairment, Restructuring and Ended Ended
Other Charges October 31, October 31,
----------------- ------------------
($000's, except per share
amounts) 2005 2004 2005 2004
--------- ------- --------- --------

Net earnings (loss) $(13,895) $2,213 $(27,687) $(1,828)
Add back impairment charges 13,194 - 13,194 -
Add back restructuring and other
charges 2,904 - 6,025 -
--------- ------- --------- --------
Net earnings (loss) before
impairment, restructuring and
other charges $2,203 $2,213 $(8,468) $(1,828)
========= ======= ========= ========

Earnings (loss) per share before
impairment, restructuring and
other charges -
Basic $0.09 $0.10 $(0.36) $(0.08)
========= ======= ========= ========
Diluted $0.09 $0.09 $(0.36) $(0.08)
========= ======= ========= ========

Weighted average common shares
outstanding -
Basic 23,550 23,050 23,381 22,637
========= ======= ========= ========
Diluted 23,687 23,468 23,381 22,637
========= ======= ========= ========

----------------------------------------------------------------------



PLATO Learning, Inc.
Supplemental Financial Information
(Unaudited)

----------------------------------------------------------------------

Order Size Three Months Ended October 31,
-----------------------------------
($000's) 2005 2004 % Change
----------------- ----------------- ----------------
Number Value Number Value Number Value
-------- -------- -------- -------- -------- -------
$100 to $249 38 $5,598 28 $4,335 36% 29%
$250 or greater 8 3,692 20 15,470 -60% -76%
-------- -------- -------- --------
46 $9,290 48 $19,805 -4% -53%
======== ======== ======== ========

Twelve Months Ended October 31,
-----------------------------------
2005 2004 % Change
----------------- ----------------- ----------------
Number Value Number Value Number Value
-------- -------- -------- -------- -------- -------
$100 to $249 115 $17,518 150 $22,304 -23% -21%
$250 or greater 39 18,385 63 45,013 -38% -59%
-------- -------- -------- --------
154 $35,903 213 $67,317 -28% -47%
======== ======== ======== ========

----------------------------------------------------------------------

Reconciliation of GAAP Net Earnings (Loss) to Non-GAAP
EBITDA (excluding impairment, restructuring and other charges)
($000's)

Twelve Months
Ended
October 31,
Q4-2005 Q3-2005 Q2-2005 Q1-2005 2005
--------- -------- -------- --------- ------------
Net earnings (loss) $(13,895) $(311) $(2,954) $(10,527) $(27,687)
Income taxes 410 150 150 150 860
Interest expense 1 46 28 15 90
Depreciation and
amortization 4,374 5,074 4,585 4,984 19,017
Impairment charges 13,194 - - - 13,194
Restructuring and
other charges 2,904 200 632 2,289 6,025
--------- -------- -------- --------- ------------
$6,988 $5,159 $2,441 $(3,089) $11,499
========= ======== ======== ========= ============

Twelve Months
Ended
October 31,
Q4-2004 Q3-2004 Q2-2004 Q1-2004 2004
--------- -------- -------- --------- ------------
Net earnings (loss) $2,213 $6,724 $(3,230) $(7,535) $(1,828)
Income taxes 1,580 150 150 150 2,030
Interest expense 22 28 37 35 122
Depreciation and
amortization 4,481 4,388 4,623 4,455 17,947
Impairment charges - - - - -
Restructuring and
other charges - - - - -
--------- -------- -------- --------- ------------
$8,296 $11,290 $1,580 $(2,895) $18,271
========= ======== ======== ========= ============
----------------------------------------------------------------------