LAUREATE EDUCATION, INC. - 10-K - 20060316 - PART_I
Item 1. Business
Note Regarding Forward-Looking
Annual Report on Form 10-K and other materials the Company has filed or may file
with the Securities and Exchange Commission, as well as information included in
statements made, or to be made, by the Companys senior management contain, or
will contain, forward-looking statements. Forward-looking statements include
all statements that do not relate solely to historical or current facts and can
be identified by the use of words such as anticipate, goal, may, will, expect,
hope, believe, intend, plan, estimate, project, should and other
similar terms. Such forward-looking statements are based on the current facts
and circumstances and managements current strategic plan and are subject to a
number of risks and uncertainties that could significantly affect the Companys
current goals and future financial condition.
comprehensive description of the types of risks and uncertainties the Company
faces, see Item 1.A. Risk Factors. of this Annual Report. Please note the
forward-looking statements included in this Annual Report on Form 10-K are
made only as of the date of this report. The Company assumes no obligation to
publicly update any forward-looking statements Investors should not unduly rely
on our forward-looking statements when evaluating the information presented in
the our filings and reports.
Education, Inc. (the Company or Laureate), operates a leading
international network of accredited campus-based and online universities and
higher education institutions (higher education institutions or schools). Through
this network, Laureate offers a broad range of career-oriented undergraduate
and graduate degree programs as well as other services that create a superior
higher education experience for students. Currently, Laureate enrolls over
217,000 students at its higher education institutions located throughout The
Americas, Europe, and Asia.
many countries, demand for university-level education is rising - fueled by
several demographic and economic factors including a growing middle class, a
rising percentage of students who participate in higher education, and the need
for highly-skilled professionals in an increasingly competitive workforce. To
address this growing demand, Laureate is increasing student capacity at current
locations, adding new campus locations, developing new programs and curricula,
and leveraging the Companys education and marketing expertise. To further
strengthen its leadership in the international higher education market,
Laureate will also enter into attractive new geographic markets and market
schools in Laureates network, known as
, are generally characterized by degree
programs in a wide variety of career fields, a curriculum with an international
perspective and strong academic and brand name recognition. Laureates higher
education network creates opportunities for students to access unique and
specialized curricula from other institutions within Laureates network as well
as study abroad programs and other services shared among institutions in the
most of Laureates institutions have many years of successful operating
history, the Company implements programs and strategies to increase the
financial and operational performance of each school. Laureates higher
education institutions share content and degree programs with other schools in the
network and transfer best practices, including successful marketing,
recruiting, and retention programs.
believes in the social and economic importance of expanding access to higher
education, thus its business is focused on addressing this global need. The
Company also believes that execution of its business model, a rigorous approach
to expansion, and product innovation will continue to provide valuable benefits
to students as well as generate increases in revenue and operating margins.
Companys educational services are offered through three separate business
segments: Campus Based - Latin America (Latin America), Campus Based Europe
(Europe) and Laureate Online Education. In Latin America, the Company owns or
maintains controlling interests in eleven separately accredited higher
education institutions located in Mexico, Chile, Peru, Ecuador, Panama, Costa
Rica, Honduras and Brazil. In Europe, the Company owns or maintains controlling
interests in ten separately accredited higher education institutions located in
Spain, Switzerland, France and Cyprus. Laureates operations in China are
managed in the Europe business segment, as those operations are associated with
Les Roches, Switzerland. The Laureate Online Education segment provides
career-oriented degree programs to approximately 27,000
students through one
accredited university - Walden E-Learning, Inc. (Walden) - and two
institutions that partner with accredited universities - Laureate Online
Education B.V. and Canter and Associates (Canter).
On June 30,
2003, the Company sold the principal operations comprising its K-12 educational
services segments (K-12 segments), including certain investments held by
Sylvan Ventures LLC (Ventures), deemed not strategic to the Companys higher
education business, in a transaction more fully described in Note 3 to the
consolidated financial statements. As a result, the Company changed its name
from Sylvan Learning Systems, Inc. to Laureate Education, Inc. on May 17,
2004. The Company began trading under a new NASDAQ ticker symbol, LAUR, on May 18,
As part of
the Companys transformation in 2003 to focus exclusively on post-secondary
education, the Company sold its English Language Instruction business, Wall
Street Institute (WSI), on February 28, 2005 (see Note 3 of the
consolidated financial statements).
The information in this Item 1 focuses only on continuing operations of
The Company owns and operates the leading network of
private, post-secondary educational institutions outside the United States. Their
program offerings address the fast-growing international demand for
career-oriented education. In many international markets, public higher
education institutions are unable to adequately increase capacity to address
the burgeoning demand for university education. Laureate is uniquely positioned
to address higher education demand by expanding campus locations, opening new
campus locations, and developing innovative degree programs for traditional
students and for students in new market segments, such as the working adult and
Laureate campuses in Latin America and Europe
primarily serve 18- to 24-year-old students, but are increasingly attracting
working adults and those seeking vocational and technical training. The
Laureate network of schools offers an education that emphasizes career-oriented
fields of study with undergraduate and graduate degrees in a wide range of
disciplines, including international business, hotel management, health
sciences, information technology and engineering. The Company believes its
network benefits from the strong academic reputation, developed brand awareness
and established operating history of each of its institutions. Each institution
also has flexible, teaching-focused faculty led by an experienced local
management team. In addition to expanding capacity, Laureate is developing new
degree programs and creating study abroad opportunities for both traditional
students and working professionals.
America Higher Education Institution Descriptions
Latin America segment is composed of eleven institutions and operates in
Mexico, Chile, Peru, Ecuador, Panama, Costa Rica, Honduras and Brazil. The
Latin America schools enroll more than 171,000 students and offer more than 100
degree programs through 42 campuses.
following table presents information about Laureate schools in Latin America:
Higher Education Institution
Universidad del Valle de México
Mexico City, Mexico
Secretary of Education
Universidad de Las Américas
Andrés Bello and AIEP
Ministry of Education
San Jose, Costa
Rica and Panama City, Panama
Costa Rican and
Panamanian Ministries of Education
Universidad Peruana de Ciencias Aplicadas
Education & National Assembly of Rectors
Private Universities in Central America; Latin-American Network for
Universidad Latinoamericana de Ciencia y Tecnología
Ministry of Education
enrollment on the last day of the year rounded to the nearest hundred.
on 2005 calendar year data in U.S. dollars rounded to the nearest hundred.
Laureate higher education institutions in Latin
America provide a broad range of degrees and programs, and are well regarded by
students, employers and government authorities in their respective markets:
Universidad del Valle de
(UVM) offers 45 undergraduate (9 specifically for working
adults) and 25 graduate degree programs in a broad range of fields including
accounting, architecture, business administration, education, engineering and
law. The university is the second largest private university in Mexico in
number of students and number of campuses. UVM has 21 campuses located
throughout Mexico including 10 in Mexico City, four in the central region
(Queretaro, San Luis Potosi, Aguascalientes and Guadalajara), four in the
southern region (Tuxtla, Villahermosa, Puebla and Toluca) and three in the
northern region (Hermosillo, Torreon and Saltillo).
Universidad de Las
(UDLA) offers 50 undergraduate degree programs focused on
business administration, education, engineering, law and psychology through two
institutions of higher learning. UDLA operates 7 campuses, four in Santiago,
one in Viña del Mar (central Chile), one in Concepción (southern Chile) and a
satellite campus in Quito, Ecuador.
Universidad Andrés Bello
offers 54 undergraduate and 78 graduate degree programs. With
degree programs in medicine, dentistry, business administration, law,
engineering, psychology, and education, UNAB ranks among the top Chilean
universities for its academic quality and brand recognition among high school
seniors. UNAB operates three campuses (two in Santiago and one in Viña del Mar)
and a marine biology research station in Quintay.
Academia de Idiomas y
professional institute offering 42 technical and vocational programs to
traditional and working-adult students at eleven locations throughout Chile.
AIEP offers one- to four-year certificate and degree programs, which include
technology, management, communications, art, social science, and
health science. AIEPs modular curriculum is geared
toward certification of technical/vocational job skills and competencies and is
designed to help working adults advance in existing careers, enter new career
fields, or prepare for higher levels of university education.
offers more than 50 undergraduate and associate
degrees and 20 graduate degrees focused on architecture, business,
communication, design, engineering, health sciences, hospitality management and
law. Founded in 1970, UAM is a respected institution with programs in
Hospitality Management, Fashion Design and Business that are among the highest
ranked in the country. UAM has four campuses located in Sao Paulo, Brazil.
offers undergraduate and
graduate degree programs in business, hospitality, engineering, communications,
and education through two higher education institutions, one in San Jose, Costa
Rica and the other in Panama City, Panama. UI was a founding member of the
Interamericana Consortium of Higher Education.
Universidad Peruana de
(UPC) offers undergraduate and graduate
programs in business, engineering, law, communications and architecture, and
technical vocational programs in engineering and information technology through
. UPC operates two campuses in
(UNITEC) offers more than 15
undergraduate and 6 graduate degree programs in Business, Engineering,
Hospitality Management, Communications and Information Technology. UNITEC is
accredited by AUPRICA (Association of Private Universities in Central America)
and RLCU (Latin-American Network for University Cooperation). UNITEC has
campuses in Tegucigalpa and San Pedro Sula.
Universidad Latinoamericana de Ciencia y Tecnología
offers undergraduate and graduate programs in business, engineering, law and
psychology through its campus in Panama City, Panama. ULACIT was the first
private university in Panama.
Higher Education Institution Descriptions
The Europe segment is composed of ten institutions,
and operates in Spain, Switzerland, France, and Cyprus. Laureate campuses in
Europe enroll approximately 19,600 students and offer more than 75 degree
programs through 9 campuses.
following table presents information about Laureate schools in Europe:
(license), Swiss Hotel Association/ NEASC (accreditation)
Institut Français de Gestion
Commission Nationale de la Certification Professionelle
École Centrale dElectronique
Commission des Titres dIngenieures
École Supérieure du Commerce Extérieur
for Executive Development
enrollment on the last day of the year rounded to the nearest hundred.
on 2005 calendar year data in U.S. dollars rounded to the nearest hundred.
includes two schools Les Roches and Glion.
approximately 12,000 short-course enrollments in the CNOF and IFG Langues
subsidiaries of IFG.
average tuition for degree programs only.
higher education institutions in Europe provide a broad range of degrees and
programs, and are well regarded by students, employers and government
authorities in their respective markets:
Universidad Europea de
(UEM) offers 43 diploma, bachelors degrees or double
degree programs and 54 graduate and Ph.D. degree programs. The university
includes a well-known school of health sciences and schools of architecture,
economics, engineering, journalism, law and sports sciences. UEM currently
hosts more than 500 students from other universities in the Laureate network
through exchange programs. UEM has campuses located in Villaviciosa and
than 45 undergraduate and graduate degree programs in business, computer
science, education, engineering, hospitality management and social sciences.
Cyprus College is accredited by the Ministry of Education and undergraduate
educational programs were accredited/validated in 1995 by the National Council
for Educational Awards. Cyprus Colleges central campus is located in Nicosia,
the capital of Cyprus.
Hospitality (Swiss Hotel
Association Hotel Management School Les Roches
(Les Roches) and
Glion Institute of Higher Education
offers globally recognized hospitality
and hotel management programs through four institutions. Hospitality
specialized programs require students to complete at least two internships
prior to graduation. Les Roches was the first English-speaking hotel management
school established in Switzerland. Les Roches also participates in a joint
venture with a private university in Shanghai, China. In addition to the
appropriate licenses in Switzerland and Spain (Swiss Hotel Association and
Swiss Hotel Schools Association), Les Roches (Bluche and Marbella) and Glion
are both fully accredited by the New England Association of Schools and
Institut Français de
(IFG) offers working adult programs in business subjects. Several
of its programs have the highest recognition offered by the Commission
Nationale de la Certification Professionelle, the accrediting body for working
adult degree programs in France. IFG offers courses to students in Paris and
nine other cities in France.
École Centrale dElectronique
(ECE) offers undergraduate and graduate programs in engineering to
students through its campus in central Paris. ECE, a Grande École of Engineering, was ranked in
the top 10 (from more than 300 engineering schools) by the magazine
in 2005, and was the second highest ranking private
university in the survey.
École Supérieure du
(ESCE) offers a four-year undergraduate degree
program in international commerce and management that features a combination of
coursework and internships and is located in Paris, France. This university was
the first in France to specialize in international trade. In 2004, ESCE
launched its first graduate degree program (Master in International Management)
with Poitiers, another university in France. In November 2004, ESCE was
out of the top 30 French business schools by
IEDE, Institute for
(IEDE) is a business school offering MBA and
postgraduate graduate programs, in its main location in downtown Madrid and an
International MBA partially delivered in its subsidiary sites in Shanghai,
China and Santiago, Chile.
Programs and Areas of Study
higher education institutions in the Latin America and European segments offer
more than 100 career-oriented undergraduate and graduate degree programs in a
wide range of fields. The time typically required to complete a program varies
by degree, with undergraduate degrees requiring four to five years on average
and graduate degrees requiring an additional two to three years on average. The
Companys International Rector oversees curriculum development and deployment
of programs in the network in cooperation with the deans of the higher
education institutions. The Company also encourages its faculty to develop new
educational programs and curricula. The programs are designed to satisfy three
Company believes that students choose from career-oriented schools based on the
type and quality of the educational offering and career placement opportunities.
The Company focuses on providing students with a solid academic foundation and
the technical and practical skills necessary to pursue and excel in their
relationship of each of the higher education institutions with the business community
plays a significant role in the placement of students and development of
curriculum. Each school works with prominent members of relevant industries to
evaluate and improve existing programs in order to maintain their relevance in
the workplace. These employers provide critical input on the latest
advancements within each field and the implications of these changes on the
Regulating or licensing
The degree programs of each of the higher education
institutions have been approved in accordance with applicable law. For example,
the Secretary of Education in Mexico has reviewed all of UVMs accrediated
programs and given the university degree-granting authority for those programs.
The Ministries of Education in Spain, France, Costa Rica, Panama, Honduras,
Cyprus, and Ecuador perform similar roles. The Company must generally work
with the regulators of these higher education institutions to ensure that any
new programs will be approved. In Chile, UDLA, UNAB, and AIEP have been granted
full autonomy by the Ministry of Education. As a result, the Company is free to
create new degree programs in Chile without additional regulatory approval. In
addition, UNAB received a four-year voluntary accreditation from the Ministry
of Education. In Brazil, UAM has university status which allows the institution
to freely introduce new degrees within its home city, with the requirement that
it inform the Ministry of Education about the new program within two years
after its introduction. Les Roches and Glion (Hospitality) are licensed in
Switzerland and accredited by the NEASC, one of six accrediting associations in
the U.S, and must ensure that their curriculum continues to meet the standards
of that association.
campus-based network in Latin America and Europe allows the Company to share
high quality curricula among its higher education institutions, thereby
broadening students educational opportunities. In recent years, UEM and Les
Roches developed a new joint degree program in hospitality business management
that is now offered to students at UEM. UVM now offers a sports management
degree program developed at UEM, and has launched an enhanced tourism degree,
using Les Roches curriculum. In 2004, UVM and UEM launched a dual-degree
program, in which graduating students receive a degree from both institutions,
recognized in both countries. In 2005, UVM and Walden University launched a
dual-degree program, in which students complete part of their degree
online in English and receive a degree from both institutions, recognized in
both countries. The Company has also launched an international resource
enabling all students in the campus-based network to identify job and
internship opportunities around the world, and allowing the schools corporate
partners to market their open positions to all network students.
varies at each of the higher education institutions depending on the curriculum
and type of program. For the full-service universities in Latin America
(Mexico, Chile, Peru, Brazil, Ecuador, Costa Rica, Panama, and Honduras),
average annual tuition ranges from $1,400 to $4,500 for the 2004-2005 academic
year. In Europe, annual tuition at
Europea de Madrid averages $10,100. For the specialized higher education
institutions in Europe (Hospitality, Cyprus, ESCE, IEDE, ECE and IFG), average
tuition ranges from $3,200 to $20,000 for the 2004-2005 academic year. Tuition
payment options vary by higher education institution and primarily include
monthly installment payment plans and lump sum payments at the beginning of the
academic year. Certain institutions offer long-term financing opportunities
(see further discussion below). Historically, the Company has increased tuition
as educational costs and inflation have risen. In 2005, the Company implemented
average tuition increases of approximately 3.5% and 4.9% in Latin America and
Europe, respectively. The Company intends to continue increasing tuition at
each of the higher education institutions as market conditions warrant.
are generally responsible for room and board fees, transportation expenses
and costs related to textbook and supply purchases required for their
educational programs. At some of the higher education institutions, the Company
offers these services to the student body, which helps generate incremental
typically self-finance their education or seek non-higher education institution
sponsored financing programs. Although none of the countries in which the
higher education institutions currently operate provides student loan programs
similar to those in the U.S., the Company is actively working to develop a
variety of financing alternatives for students. The Company has implemented pilot tuition financing programs at its
Chilean universities. The Company anticipates these programs will establish a
lending and collections history, which will attract third party lenders.
Financing - Chile
2004, the Company expanded its previous student financing activities at its
Chilean universities in order to establish a lending and collections history in
this market to attract third party lenders. The Company believes Chiles
stability, both economic and political, coupled with its sophisticated banking
system, reputable and reliable credit bureau, and the strong credit
consciousness of its people, support the Companys decision to explore
additional growth opportunities through enhanced financing.
offered its students financing on a limited basis prior to Laureates
acquisition in 2003. The program was designed as a retention tool offered to
students completing their second year of studies that might not otherwise be
able to continue due to financial reasons. To be eligible, students must meet
certain academic and financial requirements, and provide a cosigner of the debt
UDLAs financing program also existed prior to
Laureates acquisition in 2000 and, until 2003, was offered on a limited basis
to new students for their first year of studies to provide students time to
obtain government or other forms of financing. In 2004, the program was
redesigned and expanded to require income qualifications and credit scores, as
well as a cosigner in certain cases. More importantly, students are required to
secure part-time employment to the extent the university is able to provide
opportunities through its employment program. UDLA has made arrangements with a
number of Santiago businesses to provide flexible part-time employment to its
students. As of December 31, 2005, there were approximately 4,800 students
participating in the employment program.
the UNAB and the redesigned UDLA financing programs permit eligible students to
pay 50% of their tuition in monthly installments. Provided the students remain
current with their monthly payments, they are allowed to defer the remaining
50% plus interest until after graduation. As of December 31, 2005, the
number of internally financed students represented 19% of total Chilean enrollment.
At December 31,
2005 and 2004, respectively, the Company has long-term tuition receivables of
$44,791 and $15,339, net of allowances of $9,328 and $5,846. There have not
been any significant write-offs in 2005 or 2004. Since this program is not
mature, there is limited repayment history. Nevertheless, third party interest
in the program is increasing as evidenced by recent inquiries from third
parties regarding the acquisition of the portfolio and the sale of prior
receivables to third parties. Creating a third party tuition finance solution
in Latin America could create much broader access to our offerings thereby
supplementing future enrollment growth.
2005, there has been an increased effort on the part of the private
banking sector, as well as, the government to offer more financing solutions to
students. At the end of 2005, the Chilean government announced plans to offer
additional resources, approximately $40.0 million, to finance post-secondary
education. There were approximately 48,000 students eligible for financing of
the 2006 academic year. The tuition funded for each student varies depending
upon the degree studied and the university attended. The government program is
in addition to others previously in place.
Laureate Online Education
Laureate Online Education
offers undergraduate and graduate degree programs to
working professionals through distance learning. Laureate Online Education
institutions collectively offer degree programs in education, psychology,
health and human services, management, engineering, and information technology.
following table presents information about Laureates online higher education
institutions, all of which are 100% owned:
Average Annual Tuition
Walden University (3)
North Central Association of Colleges and Schools (NCA)
Canter & Associates
Laureate Online Education B.V.
enrollment as of the last day of the year rounded to the nearest hundred.
National Technological University (NTU), which was merged into Walden
effective January 1, 2005.
Online Educations strategy is to expand program offerings in specific career
fields and specializations that are experiencing rapid growth, undergoing major
industry changes, and/or experiencing professional shortages. Each unit offers
programs that present the most current academic theory and its practical
application to the workplace, allowing graduates to apply their education to
their occupations and successfully compete against other well-qualified
professionals in the workforce.
As part of
Laureates international network of higher education institutions, Laureate Online
Education is also focused on expanding student access to higher education
outside the United States. The Companys online higher education institutions
are assisting Laureates campus based higher education institutions in
launching distance-learning initiatives, including joint and coordinated degree
is one of the pioneers
of distance education, and has over 35 years of academic and operating history.
Walden offers two undergraduate and 24
graduate degree programs in management, health and human services, psychology,
engineering and technology, and education to working professionals. Bachelors
and graduate degree programs are delivered online. Ph.D. programs are delivered
online with a short-term residency requirement.
Canter & Associates
through its partner universities, offers
a graduate degree in education and thousands of individual courses for teachers.
For over 25 years, Canters mission has been to enhance the quality of teaching
and learning by empowering educators with new teaching strategies. Canters
Distance Learning graduate division works with five private universities that
provide primary and secondary education level educators the opportunity to earn
a graduate degree in education
Laureate Online Education B.V. (formerly KIT
, 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 126
countries. The University of Liverpool through Laureate Online Education B.V.
offers graduate degree programs in business and information technology.
varies at each of the higher education institutions, depending on the
curriculum and type of program.
For Walden, tuition ranges from $230
per credit hour (for bachelors degree programs); to between $310 and $865 per
credit hour (for the graduate degree programs); to $4,050 per quarter (for
certain Ph.D. degree programs). Walden students are currently eligible for the
Department of Educations 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 $9,800 to
$89,000, depending on the degree.
For Canter, tuition for a typical
student enrolled in one of Canters partner universities is approximately
$8,300 paid over the five semesters, or 20-month program.
For Laureate Online Education B.V.,
the average online degree program generally requires two to three years to complete,
with a total tuition of $25,000.
The Company markets its higher education
institutions through professional broadcasts and targeted marketing campaigns. These
campaigns reach prospective students indirectly through media advertising as
well as directly by mail or one-on-one meetings. During annual enrollment
periods, the Company supplements this 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 networks marketing
departments to share best practices.
Laureate Online Education
Company markets its distance learning programs to working professionals
primarily through direct mail and web advertising, as well as by direct selling
to school districts, hospitals, and corporations.
The Company faces competition in each of its business
segments. The competition focuses on price, educational quality, reputation and
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 the 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 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.
The postsecondary education market in the
U.S. is highly fragmented and competitive, with no single institution having
any significant market share. The target demographics are adult working
professionals who are over 25 years old. Laureate Online Education competes
with traditional public and private non-profit institutions and for-profit
schools. Typically, public institutions charge lower tuitions than Laureate
Online Education because they receive state subsidies, government and foundation
grants, tax-deductible contributions and have access to other financial sources
not available to Laureate Online Education. However, tuition at private
non-profit institutions is typically higher than the average tuition rates
charged by Laureate Online Education. Laureate Online Education competes with
other educational institutions principally based upon the quality of its
educational programs and student services.
Campus-Based Regulation and Licensing.
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 the Company operates now allows private investment in 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.
Walden 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
maintains eligibility to participate in the following Title IV programs:
Federal Pell Grant, Federal Work Study, Federal Family Education Loan, and
Federal Parent Loan for Undergraduate Students.
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
is one of only 24 participants qualified 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 under the original Act. Sixteen participants, including Walden,
received waivers of provisions that prohibit Title IV eligibility at distance
is 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
Standards of financial responsibility
Change in ownership or control
Student loan defaults
Changes in federal and state regulations
Compensation of university
Eligibility and certification
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 students to finance their education,
thereby leading to lower student enrollment. In 2005, approximately 39% of
total Laureate Online Education students, which represents 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.
currently owns the registered trademark for the word Laureate. The Company
has registered applications with the U.S. 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 Laureate Online Education. In addition, Laureate
has the rights to tradenames, logos, and other intellectual property specific
to most of its higher education institutions, in the countries in which those
As of December 31,
2005, the Company had approximately 22,800 employees, including approximately
11,000 classified as full-time and approximately 11,800 classified as
part-time. Most of the Companys part-time employees are
academic teaching staff. The Companys
employees at UEM and UVM, as well as a portion of IFG, 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 and is due to be revised in 2006. The IFG agreement governs certain
labor conditions, such as vacation and salary levels. The agreement has no
defined expiration but can be nullified by either party. It is reviewed
annually. Substantially all of the faculty at UVM is represented by a union. The
economic provisions of the labor agreement at UVM were revised in 2005 without
any substantial changes, and will be reviewed again in 2007. 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 Companys Internet Address is www.laureate-inc.com.
The Company 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 Companys earnings conference calls and presentations
to the financial community are web cast live via the Companys website. In
addition to visiting the Companys website, you may read and copy public
reports the Company files with or furnishes to the SEC at the SECs Public
Reference Room at 100 F. Street, NE, Washington, DC 20549. You may obtain
information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet website that contains the
Companys reports, proxy and information statements, and other information that
the Company files electronically with the SEC at www.sec.gov.
Item 1A. Risk
The reader should carefully consider the risks and
uncertainties described below and all other information contained in this
Annual Report on Form 10-K. In order to help the reader assess the major
risks in Laureate Education, Inc.s business, the Company has identified
many, but not all, of these risks. For an enterprise as large and complex as
the Company, a wide range of factors could materially affect future
developments and performance. In addition to the factors affecting specific
business operations identified in connection with the description of these
operations and the financial results of these operations elsewhere in this
report, the most significant factors affecting the Companys operations include
Companys global operations pose complex management, foreign currency, legal,
tax and economic risks, which may be difficult to adequately address.
Most of the Companys operations are outside the U.S. As
a result, the Company faces risks that are inherent in international operations.
These risks include:
currency fluctuations, possible devaluations, inflation and
price controls or restrictions on exchange of foreign currencies;
potential economic and political instability in the countries in which we
expropriation of assets by local governments;
key political elections in Brazil, and Mexico;
multiple and possibly overlapping and conflicting tax laws;
compliance with the regulatory environment; and
acts of terrorism and war, epidemics and natural disasters.
There are other factors that are
important to the Companys success, growth, and profitability that require
competent management, planning, and reporting. Failure to execute them
effectively and efficiently could adversely affect the Companys operations,
profitability, and ability to grow:
enrollment and revenue;
student satisfaction as measured by academic and professional success;
competitive pricing; and
control of costs, including labor and facilities.
Company plans to continue to grow the business globally by acquiring or
establishing private universities in countries where the Company does not
currently operate. The Companys success in growing the business profitably
will depend on the ability to anticipate and effectively manage these and other
risks related to operating in various countries.
Companys reported revenues and earnings may be negatively affected by
currency exchange rates.
The Company reports
revenues, costs and earnings in U.S. dollars. Exchange rates between the U.S.
dollar and the local currency in the countries where the Company operates
universities are likely to fluctuate from period to period. Because
consolidated financial results are reported in U.S. dollars, the Company is
subject to the risk of translation losses for reporting purposes. When the U.S.
dollar appreciates against the applicable local currency in any reporting
period, the actual earnings generated by the Companys business in that country
are diminished in the translation.
each of the past five years, operations outside the U.S. accounted for a
significant portion of the Companys revenues. To the extent that foreign
revenue and expense transactions are not denominated in the local currency
and/or to the extent foreign earnings are reinvested in a currency other than
their functional currency, the Company is also subject to the risk of
transaction loss. The Company occasionally enters into foreign exchange forward
contracts to reduce the earnings impact of non-functional currency dominated
non-trade receivables. The primary business objective of the activity is to
protect the U.S. dollar value of the Companys assets and future cash flows
with respect to exchange rate fluctuations.
Given the volatility of
exchange rates, there is no assurance that the Company will be able to
effectively manage currency transaction and/or translation risks. Therefore,
volatility in currency exchange rates may have a material effect on
financial condition or results of operations.
the valuation of an acquired universitys goodwill and indefinite lived
intangibles may not accurately reflect its value, an impairment would lead
the Company to write off all, or a portion, of goodwill and indefinite lived
intangibles, which may adversely affect the financial condition and
results of operations
acquisition of an university, the Company typically allocates a significant
portion of the purchase price to goodwill and other intangibles. Identified
intangible assets other than goodwill and indefinite-lived intangible assets
are generally amortized over periods of two to seven years following their
purchase. In accordance with Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, the Company is required to test at
least annually for impairment of this goodwill and indefinite lived intangibles.
The Company cannot assure the reader that the valuation of an acquired
universitys goodwill and indefinite lived intangibles will prove to reflect
its true value. If it does not, the Company would be required to write off the
difference between the fair value and the book value of the impaired asset. This
charge could have a material adverse effect on financial condition and results
of operations of the Company.
the Company does not effectively manage growth, the business and results of
operation may be adversely affected.
The Company has rapidly expanded the business over the
past five years through the acquisition of additional universities and intends
to continue to do so. The Company intends to establish new universities in
certain markets. Planned growth will
require the Company to add management personnel and upgrade the financial and
management systems and controls. There is no assurance that the Company will be
able to maintain or accelerate current growth rate, effectively manage
expanding operations, integrate new universities or achieve planned growth on a
timely or profitable basis. If revenue growth is less than projected, the costs
incurred for these additions and upgrades may cause the Companys
profitability to decline from current levels. This could have a material
adverse effect on the business, financial condition and results of operations
of the Company.
Company may not be able to identify, acquire and integrate additional
private universities, which could adversely affect the growth and profitability
of the Company.
The Company expects to continue to rely on
acquisitions as a key element of growth strategy, primarily in markets where
the Company does not currently have a university. There is no assurance that
the Company will be able to identify suitable acquisition candidates or that
the Company will be able to acquire any of the acquisition candidates on
favorable terms. In addition, in many countries, the approval of a regulatory
agency is needed to acquire or operate a university, which the Company may not
be able to obtain. Furthermore, there is no assurance that any acquired
university can be successfully integrated into the Companys operations or be
operated profitably. Acquisitions involve a number of risks, including:
diversion of managements time and resources;
adverse short-term effects on reported operating results;
cultural issues related to acquisition of family-run universities in
countries around the world;
integration of acquired universities operations, including reporting
systems and internal controls; and
loss of key employees of the acquired business.
Company cannot make acquisitions or make fewer acquisitions than planned, or if
the acquisitions are not managed successfully, business growth and results of
operations of the Company will be adversely affected.
Company may not be able to successfully establish new universities, which
could adversely affect growth and profitability
The Company has primarily grown through initial
acquisitions. As part of the growth strategy, the Company intends to
establish new universities in some markets where there are no suitable
acquisition targets. The Company has never successfully established a new
university and there is no assurance that is can be done successfully or
profitably. Establishing new universities poses unique challenges and will
require the Company to make investments in management, capital expenditures,
marketing expenses and other resources that are different, and in many cases
greater, than those made to acquire and then operate an existing university. To
open a new university, the Company will also be required to obtain
appropriate governmental approvals. If the Company is unable to
successfully establish new universities, the Companys growth and profitability
may be adversely affected.
The Company may need to raise additional capital in the future,
which may not be available. The raising of additional capital may dilute
the readers ownership interest.
Company may need to raise additional funds through the public or private
sale of debt or equity securities in order to acquire or establish
universities, develop new campuses, support a larger business or respond to
competitive pressures. Any additional capital raised through the sale of equity
securities is likely to dilute the ownership interest of the reader. There is
no assurance that any additional financing needed will be available on terms
favorable to the Company, or at all.
minority owners of universities may disagree with the way the Company
operates them or plans to expand them, which could adversely affect the Companys
business and results of operations
Company controls all of its universities, the Company shares ownership of a few
universities with minority stockholders. The Company currently does not have
the right to buy out all of these minority interests. Minority stockholders may make
conflict of interest claims in the future. For example, if the Company acquired
another university in a country in which it operates, the Company could face
claims of a conflict of interest from the minority owners of the university
already owned in that country. The minority owners also could assert that the
business decisions of the Company at the other university adversely affected
the value of their investment. Disagreements with the minority owners may distract
management and may adversely affect the Companys business, results of
operations and financial condition.
the Company cannot maintain student enrollments in its universities, the
results of operations may be adversely affected.
The Companys strategy for growth and profitability
depends, in part, upon maintaining and, subsequently, increasing student
enrollments in its universities. Attrition rates are often due to factors
outside the Companys control. Many students face financial, personal or family
constraints that require them to drop out of school. They also are affected by
economic and social factors prevalent in their countries. If the Company is
unable to control the rate of student attrition, the overall enrollment levels
are likely to decline. Also, to attract more students, the Company must develop
and implement marketing and student recruitment programs, which may not
succeed. If the Company cannot maintain and, subsequently, increase student
enrollments, the Companys results of operations and profitability may be
Companys universities are subject to uncertain and varying regulations, and
any changes to these regulations may adversely affect the business and
results of operations.
Post-secondary education is regulated to varying
degrees and in different ways in each of the countries where the Company has a
university. In general, the Companys universities must have licenses from
governmental authorities as well as maintain, or improve current accreditation
status. These licenses and accreditations must be renewed periodically, usually
after an evaluation of the university by governmental authorities. Although
unlikely, these periodic evaluations could result in restrictions, downgrade,
or withdrawal of licenses or accrediation. Once licensed, most of the
universities will need approvals for new campuses or to add new degree programs.
Also, in Mexico and Chile, for-profit universities are not specifically allowed
by applicable law. In order to efficiently transfer funds out of the
universities in these countries, the Company has entered into management
agreements with the university. Under these agreements, the management company
would be paid for providing services to the university. There is no assurance
that the governments would continue to permit this type of arrangement at all
or would not require the Company to revise the amounts charged for the services
All of these regulations are subject to change without
notice. Moreover, regulatory agencies may single the Companys
universities out for special treatment because they are owned and controlled by
a U.S. corporation. The ability to operate universities profitably may be
adversely affected by any changes in generally applicable regulations or how
they are applied to the Company.
The laws of the countries where the Company owns
universities and expects to acquire universities in the future must permit both
private universities and foreign ownership of them. For political, economic or
other reasons, a country could decide to change its laws to prohibit private
universities or foreign ownership of private universities. If this change
occurred, the Company could be forced to sell a university, and the sale price
could be lower than the fair value of the university. Therefore, a forced sale
could adversely impact the Companys business, results of operations and
Company is subject to a number of risks and uncertainties relating to U.S. and
foreign income taxes, any of which could have a material adverse impact on the
The Company has not recorded any deferred tax liabilities
for undistributed foreign earnings because the Company plans to permanently
reinvest these earnings outside the U.S. If circumstances change and some or
all of these undistributed foreign earnings are remitted to the U.S., the
Company will be required to recognize deferred tax liabilities on those amounts.
For more information, see Critical Accounting Policies and Estimates. In addition, in February 2006, the
Company received two notices from the Internal Revenue Service (Service) with
respect to its tax returns for prior periods. One notice related to a break-up
fee received by the Company in its attempted acquisition of NEC. The Company
can provide no assurance as to the outcome of these claims. For more
information, see Note 13 Income Taxes to the Companys Consolidated Financial
Statements. In addition, there are several other income tax audits in progress.
No assurance can be given as to the eventual outcome of these audits.
the Company is unable to attract and retain highly qualified personnel, it will
not be able to compete effectively and will not be able to grow its business.
The Companys success and ability to grow depends on
the ability to hire and retain large numbers of talented people. The Company
depends on its executive officers and other members of its management team, as
well as the management and faculties at each of its universities. There is no
assurance that the Company will be able to retain its existing key personnel or
that it will be able to attract, assimilate and retain the additional personnel
needed to support the business. If the Company cannot, it may not be able
to grow its business as planned, and the Company may not be able to
operate its existing business effectively. This could have a material adverse effect
on the business, financial condition and results of operations of the Company.
post-secondary education market is very competitive, and the Company may not
be able to compete effectively.
The post-secondary education markets outside the
United States are very competitive and dynamic. The Companys universities
compete with traditional public and private two-year and four-year universities
and other proprietary schools, including those that offer distance-learning
programs. In each of the countries where the Company operates a private
university, its primary competitors are other private universities, some of
which are larger, more widely known and have better reputations than the
Companys universities. Some of the Companys competitors in both the public
and private sectors have substantially greater financial and other resources
than the Company has. Other competitors may include large,
well-capitalized companies who may pursue a strategy similar to the
Companys of acquiring or establishing for-profit universities. Also, some of
the smaller private universities in a country may decide to consolidate,
thereby creating a larger or better-capitalized competitor with enhanced
abilities to compete with the Company for students.
Any of these
large, well-capitalized competitors may make it more difficult or
impossible for the Company to acquire universities as part of its growth
strategy. They may also be able to charge lower tuitions or attract more
students, which would adversely affect the Companys growth and the
profitability of its competing university. The Company expects competition to
increase as the markets mature. This may create greater pricing or
operating pressure on the Company, which could have an adverse effect on its
universities enrollments, revenues and profit margins.
Unresolved Staff Comments
The Company leases
66% of the square footage in its facilities worldwide and owns the other 34%.
headquarters consist of three leased facilities in Baltimore, Maryland, used
primarily for office space. The Laureate Online Education segment has offices
with the Companys headquarters location in Baltimore and leases four
additional facilities in Los Angeles, California; Minneapolis, Minnesota;
Tempe, Arizona; and Amsterdam, Netherlands.
campus-based segments lease various sites, primarily in Mexico, Central
America, South America and Europe. The campus-based segments lease 14 UVM
sites, 14 UNAB and AIEP sites, 13 IFG sites, 6 UDLA sites, 4 UAM sites, 3 UEM
sites, 3 ECE sites, 2 UI sites, 2 UNITEC, and one site each at ESCE, Les
Roches, Marbella, Glion, IEDE,
ULACIT, and UPC.
owned facilities consist of academic buildings and dormitories on the campuses
of UVM, UDLA, UPC, Glion, Les Roches, and UEM. Some of the academic buildings
and dormitories at UEM, Les Roches, Glion and UDLA are subject to mortgages.
monitors the capacity of its higher education institutions on a regular basis
and makes decisions to expand capacity based on existing facilities and
Item 3. Legal Proceedings
The Company is not currently a party to any litigation
that management believes to be material as of December 31, 2005.
Item 4. Submission of Matters to
a Vote of Security Holders
No matters were submitted to a vote of security
holders during the fourth quarter of 2005.
Item 5. Market for Registrants
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Companys Common Stock trades on the NASDAQ National Market under the ticker
symbol LAUR. The high and low trade prices for 2005 and 2004 for the Companys
common 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.
No dividends were declared on the Companys common
stock during 2005 and 2004, and the Company does not anticipate paying
dividends in the foreseeable future.
The number of registered shareholders of record as of February 28,
2006 was 673.
No shares of common stock were repurchased
during the fourth quarter of 2005.